Two media outlets tonight, Reuters and a Washington Post blog post, discussed the idea of a relatively quick settlement of the probe by 50 state attorneys general into robo signing and other foreclosure-related abuses.
What is interesting is the timing of these sightings, which came the same day of the release of the Congressional Oversight Panel report on servicing and securitization, the promised American Securitization Forum defense of securitization industry practices, and Senate Banking Committee hearings on foreclosures and securitization.
As we discuss in other posts today, the day went very badly for the industry. The sudden, albeit small, flurry of “settlement talks are on” reports on the attorney general front bears all the hallmarks of a banking industry trial balloon being hyped as something further along to try to create the impression that the mess is on its way to being resolved on terms not terribly painful to banks.
The story seems to have started with a rumor on CNBC, which is being treated with more dignity than it deserves, particularly since the supposed source denied it.
CNBC reported that Iowa attorney general Tom Miller was nearing a settlement of the 50 state probe (we noted yesterday that CNBC ran a credulity-straining report on MERS, so it seems to be the preferred outlet for bank PR these days). But when Reuters contacted Miller’s office, they disputed this account.
Nevertheless, this idea was carried further by the Reuters piece, which quoted Bank of America CEO Brian Moynihan stating that a “quick resolution” of the 50 state investigation would be be the best outcome for all parties involved.
That view strains credulity, unless you are of the “what is best for banks is best for America” school of thinking. The state AGs started their inquiry on October 13, and signaled their intent to go beyond the robo signing scandal. It’s highly unlikely that they have gotten much of anywhere with their probe. And in normal negotiating settings, quick settlements take place only when there is little difference of views between the two sides on the facts or limited resources on both sides, which created a mutual recognition that they have a vested interested in reaching a resolution expeditiously. Neither of those conditions apply here.
So the argument that a quick settlement is best can only be based on the assumption that an investigation will uncover real dirt, and create market uncertainty. And of course we can’t have that, now can we?
That hidden assumption, that there is real risk should investigations continue for a protracted period, is the polar opposite of the position that the banks have taken thus far, that there is nothing to see here, that the robo signing scandal was merely procedural (as if frauds on the court are mere “procedural” miscues) and the underlying foreclosure actions were all correct.
This evening, we see this rumor carried a step further in a post by Washington Post blogger Ariana Eunjung Cha:
The 50 state attorneys general are in negotiations over an agreement over foreclosures that would include a victims’ compensation fund that would provide money for borrowers whose homes have been taken away improperly, according to state and industry officials.
The discussions are still preliminary and the final deal may change significantly as details are hammered out and the settlement is vetted by 50 separate state offices, the official said.
While there’s no universal agreement that would apply industry wide and the AGs are negotiating separately with each bank, many of the stipulations are the same for the agreements being discussed with the three largest mortgage servicers: Bank of America, JP Morgan Chase and Wells Fargo.
Both sides have tentatively agreed that mandatory third-party mediation if a homeowner requests it is something that should be included. They also agree that there should be no more “dual track” loan modification negotiations that end suddenly with foreclosures. Many homeowners have complained that they were in the middle of loan modification discussions when they were foreclosed on or told to default on their loans to get a modification, and then ended up having their home foreclosed on.
The most radical part of the settlement deal has to do with providing monetary compensation for homeowners who have lost their homes but can prove that they have been foreclosed on wrongly.
Yves here. Exactly how many sources are there for this story? As I read it, it could be as little as the CNBC and Moynihan statements (if you believe the Miller rumor, he’s a state official, Moynihan is clearly an industry official), plus a conversation with one unnamed official (presumably industry).
And the account simply does not add up. First, we have Ohio, which is one of the lead actors in this 50 state effort, pushing for a speedy trial in a robo signing case in which it is seeking sizeable damages. I can’t see Ohio agreeing to any settlement as long as Ohio attorney general Richard Corday is in office (admittedly only till the end of January). And he is clearly trying to get enough stakes in the ground so as to limit his successor’s ability to make a radical retreat. In addition, the supposed process for these negotiations, which the Washington Post says is bank by bank, assures a protracted process. And it ALSO indicates that any settlement would have to be approved by 50 “separate” state offices. So even by the account presented in the Post, there is not a cohesive front on either side of this supposed initiative, which begs the question of who exactly is driving this train.
The only way you could get fast resolution in situation like this is to get all the parties in a room and treat it as a a two-sided negotiation.
However, we have indicated that efforts by attorneys general need to be regarded with some skepticism. We’ve pointed to instances in which AG initiatives add up to far less than their headlines would lead you to believe. They do have incentives to collect a scalp quickly and declare victory. But given the high level of public ire and the economic importance of the foreclosure crisis, the AGs are likely to appreciate the dangers of appearing to cave in to bankers. They clearly have them on the run now; why act in haste when keeping the pressure on will lead to a more favorable outcome?
The one area where I could see a relatively quick resolution is if the robo signing abuses were carved out from the other issues and negotiated separately. But overall, it appears likely that this convenient story of advanced settlement talks is just that, a mere story.
As much as I’ve seen a lot of financial services industry misconduct at close range, sometimes even a cynic like me is not prepared for how bad things can be. And mortgage abuse is turning out to be one of those areas.
I’ve been in contact for over the last six months with attorneys involved in foreclosure defense. Unlike the foreclosure mills, which seem to coin money, the attorneys on this front are either laboring pro bono or making considerably less than they could in other lines of work. They also can back up their views with depositions and trial transcripts.
One thing they stress is that a significant number of their clients facing foreclosure has made every single mortgage payment. . Read that again.
Now how can that be? How can that square with the banks’ assertion that in every instance, their foreclosures were warranted, that the borrower was hopelessly behind?
It’s actually very simple. It’s called servicing errors and fraud. And whether by mistake or design, when a borrower gets caught in the servicer hall of mirrors of compounding fees and charges, there is no way to appeal and pretty much no way out.
Let’s look at how this begins. A payment is credited as being late. It might actually legitimately be late, the borrower might have neglected to send it in on time. Or the bank might have been slow to process it. That might be simple queuing meets bad controls, or it might be deliberate. Servicers have been found to delay posting checks to incur late fees. Unless the borrower incurs the cost of sending mail via a service that provides proof of time of delivery, the bank can always claim the payment arrived late.
Let’s say the late fee is $75. It will be charged against the next month’s payment. But the borrower doesn’t know that he owes more that month. He gets a mortgage coupon and sends his regular payment in.
Now the servicer starts playing the sort of tricks practiced elsewhere in retail banking. Under the terms of the loan and Federal law, monthy payments are to be applied to principal and interest first, fees second. But the bank applies it to fees first. This makes his second month come up short. He gets charged a fee for insufficiency, and perhaps a late fee too.
Once the borrower has had two late fees, the servicer is often required by the pooling and servicing agreement to get a broker price opinion (BPO). This is a typically $250 exercise in form in which a broker drives by, takes a couple of pictures of the house, and offers a guesstimate of what it might be worth.
Many servicers double dip and also charge the BPO to the borrower as well. So the fees and arrerage charges and interest charges are compounding at a faster rate now.
It takes a remarkably short amount of time for pyramiding fees to add up to a few thousand dollars, unbeknownst to the borrower, until he gets a call from the servicer, or worse, a foreclosure notice.
This is where it gets even better. Even when the borrower hires an attorney, it is remarkably difficult to get the servicer to disgorge its records showing the borrower payment history and its fees and charges. I’ve also been told by attorneys that the reports are difficult to decipher and reconcile with the borrower’s records of payments that have cleared his account. So unless the attorney is tenacious, or has been down this path before, he may not realize that the borrower isn’t nuts when he says he was late only once, maybe twice at most, and doesn’t understand how they bank is now foreclosing.
In the first part of the Senate Banking Committee hearings on mortgage modifications and foreclosure, Diane Thompson of the Consumer Law Center and Professor Adam Levitin forcefully disputed the banks’ claim that all foreclosures were warranted. Each pointed to servicer driven foreclosures as well as consumers being instructed by their serivcer to become delinquent so as to qualify for a mod program, being led to believe they would qualify (and even encouraged to use the money saved to pay down other debt), then either foreclosed upon while the mod was under consideration, or denied the mod and foreclosed upon. And to add insult to injury, homeowners who are denied “permanent” mods are not only charged the difference between their reduced payments and their regular amount due, but they are charged late fees, which per our example above, compound in nasty ways.
Thompson, who defends borrowers herself, estimates that servicer-driven foreclosures represented about 50% of the cases she handled. The attorneys I have been dealing with put the estimate even higher, for the simple reason that servicer errors also led to refis that failed.
Remember how this pattern would have worked pre-bust. Borrower finds out from servicer that he is, for reasons he cannot fathom and cannot get the servicer to explain, $4000 behind on his mortgage. He can’t swing that now, and if he only pays part of the overdue amount down, it will quickly compound back up to a big bad number. So sooner or later, his only way out is a refi.
I had always assumed cash-out refis (where the borrower took out a mortgage on a refi that was bigger than his previous mortgages) were to pay down credit card debt, invest in home upgrades, or fund consumption. But at least a portion of those refis were to pay off the mortgage to prevent a foreclosure due to an inabilty to make up for a major arrearage. And some of those were servicer induced.
This pattern of servicer abuse is far from new. I hope readers will watch the second installment of the Senate Banking Committe hearings on the mortgage mess (the Senators were quite entertaining in their first go on this topic), this Wednesday at 9:30 AM. One of the witnesses, Kurt Eggert, law professor at the Chapman University School of Law, must feel like a Cassandra. He was writing about subpime origination fraud in 2002, and in a 2007 article, “Limiting Abuse and Opportunism by Mortgage Servicers,” goes through a sad and familiar litany of servicer misconduct: attempting to foreclose when borrowers were current (!), not giving borrowers time to get current, charging late fees when payments were made on time, improper force-placed insurance, and chicanery with escrow funds. As Eggert pointed out:
Late fees on timely payments are common when consumers are making payments through a ankruptcy plan. Moreover, some servicers have added false fees and charges not authorized by law or contract to their monthly payment demands, relying on borrower ignorance of the exact amout owed…Some servicers may add a fee by conducting unnecessary property inspections, having an agent drive by even when the borrower is not in default, or conducting multiple inspections during a single period of default to charge the resulting multiple fees….
Moreover, servicers can frustrate any attempts to sort out which fees are genuine. On McCormack v. Federal Home Loan Mortgage Corp., when the borrower challenged Chase Manhattan Corporation’s insistence on collecting disallowed attorneys’ fees and mortgage payments that had been cured in a bankrutpcy, the servicer subjected the borrower to what the court called “a barrage of totally meaningless and in fact misleading printouts” that was “”truly egregious and outrageous conduct”. The servicer repeatedly promised to correct its errors, but did not do so.
Servicer bad conduct is a long-standing problem, but in a rising housing market, no one much cared if the banks were effectively stripping borrower equity to pad their profits. And perhaps even worse, many people are still inclined to trust banks when they trot out their party line. Recall the bunk their representatives offered with touching shows of concern in the pre-Thanksgiving Senate and House hearing on the mortgage mess: their policies are pro-consumer, they don’t make money on foreclosures (!), any problems are “mistakes” and they of course correct them as soon as they become aware of them. The over-decade long record of persistent servicer abuses shows this spin to be pure fabrication. The sooner the media and the public learn to assume banks are liars until they offer solid evidence to the contrary, the better off we will all be.
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President Barack Obama on Tuesday staunchly defended his decision to compromise with Republicans and temporarily extend about-to-expire tax cuts for all Americans.
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President Barack Obama on Tuesday staunchly defended his decision to compromise with Republicans and temporarily extend about-to-expire tax cuts for all Americans.
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President Barack Obama on Tuesday staunchly defended his decision to compromise with Republicans and temporarily extend about-to-expire tax cuts for all Americans.
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President Barack Obama on Tuesday staunchly defended his decision to compromise with Republicans and temporarily extend about-to-expire tax cuts for all Americans.
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Two media outlets tonight, Reuters and a Washington Post blog post, discussed the idea of a relatively quick settlement of the probe by 50 state attorneys general into robo signing and other foreclosure-related abuses.
What is interesting is the timing of these sightings, which came the same day of the release of the Congressional Oversight Panel report on servicing and securitization, the promised American Securitization Forum defense of securitization industry practices, and Senate Banking Committee hearings on foreclosures and securitization.
As we discuss in other posts today, the day went very badly for the industry. The sudden, albeit small, flurry of “settlement talks are on” reports on the attorney general front bears all the hallmarks of a banking industry trial balloon being hyped as something further along to try to create the impression that the mess is on its way to being resolved on terms not terribly painful to banks.
The story seems to have started with a rumor on CNBC, which is being treated with more dignity than it deserves, particularly since the supposed source denied it.
CNBC reported that Iowa attorney general Tom Miller was nearing a settlement of the 50 state probe (we noted yesterday that CNBC ran a credulity-straining report on MERS, so it seems to be the preferred outlet for bank PR these days). But when Reuters contacted Miller’s office, they disputed this account.
Nevertheless, this idea was carried further by the Reuters piece, which quoted Bank of America CEO Brian Moynihan stating that a “quick resolution” of the 50 state investigation would be be the best outcome for all parties involved.
That view strains credulity, unless you are of the “what is best for banks is best for America” school of thinking. The state AGs started their inquiry on October 13, and signaled their intent to go beyond the robo signing scandal. It’s highly unlikely that they have gotten much of anywhere with their probe. And in normal negotiating settings, quick settlements take place only when there is little difference of views between the two sides on the facts or limited resources on both sides, which created a mutual recognition that they have a vested interested in reaching a resolution expeditiously. Neither of those conditions apply here.
So the argument that a quick settlement is best can only be based on the assumption that an investigation will uncover real dirt, and create market uncertainty. And of course we can’t have that, now can we?
That hidden assumption, that there is real risk should investigations continue for a protracted period, is the polar opposite of the position that the banks have taken thus far, that there is nothing to see here, that the robo signing scandal was merely procedural (as if frauds on the court are mere “procedural” miscues) and the underlying foreclosure actions were all correct.
This evening, we see this rumor carried a step further in a post by Washington Post blogger Ariana Eunjung Cha:
The 50 state attorneys general are in negotiations over an agreement over foreclosures that would include a victims’ compensation fund that would provide money for borrowers whose homes have been taken away improperly, according to state and industry officials.
The discussions are still preliminary and the final deal may change significantly as details are hammered out and the settlement is vetted by 50 separate state offices, the official said.
While there’s no universal agreement that would apply industry wide and the AGs are negotiating separately with each bank, many of the stipulations are the same for the agreements being discussed with the three largest mortgage servicers: Bank of America, JP Morgan Chase and Wells Fargo.
Both sides have tentatively agreed that mandatory third-party mediation if a homeowner requests it is something that should be included. They also agree that there should be no more “dual track” loan modification negotiations that end suddenly with foreclosures. Many homeowners have complained that they were in the middle of loan modification discussions when they were foreclosed on or told to default on their loans to get a modification, and then ended up having their home foreclosed on.
The most radical part of the settlement deal has to do with providing monetary compensation for homeowners who have lost their homes but can prove that they have been foreclosed on wrongly.
Yves here. Exactly how many sources are there for this story? As I read it, it could be as little as the CNBC and Moynihan statements (if you believe the Miller rumor, he’s a state official, Moynihan is clearly an industry official), plus a conversation with one unnamed official (presumably industry).
And the account simply does not add up. First, we have Ohio, which is one of the lead actors in this 50 state effort, pushing for a speedy trial in a robo signing case in which it is seeking sizeable damages. I can’t see Ohio agreeing to any settlement as long as Ohio attorney general Richard Corday is in office (admittedly only till the end of January). And he is clearly trying to get enough stakes in the ground so as to limit his successor’s ability to make a radical retreat. In addition, the supposed process for these negotiations, which the Washington Post says is bank by bank, assures a protracted process. And it ALSO indicates that any settlement would have to be approved by 50 “separate” state offices. So even by the account presented in the Post, there is not a cohesive front on either side of this supposed initiative, which begs the question of who exactly is driving this train.
The only way you could get fast resolution in situation like this is to get all the parties in a room and treat it as a a two-sided negotiation.
However, we have indicated that efforts by attorneys general need to be regarded with some skepticism. We’ve pointed to instances in which AG initiatives add up to far less than their headlines would lead you to believe. They do have incentives to collect a scalp quickly and declare victory. But given the high level of public ire and the economic importance of the foreclosure crisis, the AGs are likely to appreciate the dangers of appearing to cave in to bankers. They clearly have them on the run now; why act in haste when keeping the pressure on will lead to a more favorable outcome?
The one area where I could see a relatively quick resolution is if the robo signing abuses were carved out from the other issues and negotiated separately. But overall, it appears likely that this convenient story of advanced settlement talks is just that, a mere story.
As much as I’ve seen a lot of financial services industry misconduct at close range, sometimes even a cynic like me is not prepared for how bad things can be. And mortgage abuse is turning out to be one of those areas.
I’ve been in contact for over the last six months with attorneys involved in foreclosure defense. Unlike the foreclosure mills, which seem to coin money, the attorneys on this front are either laboring pro bono or making considerably less than they could in other lines of work. They also can back up their views with depositions and trial transcripts.
One thing they stress is that a significant number of their clients facing foreclosure has made every single mortgage payment. . Read that again.
Now how can that be? How can that square with the banks’ assertion that in every instance, their foreclosures were warranted, that the borrower was hopelessly behind?
It’s actually very simple. It’s called servicing errors and fraud. And whether by mistake or design, when a borrower gets caught in the servicer hall of mirrors of compounding fees and charges, there is no way to appeal and pretty much no way out.
Let’s look at how this begins. A payment is credited as being late. It might actually legitimately be late, the borrower might have neglected to send it in on time. Or the bank might have been slow to process it. That might be simple queuing meets bad controls, or it might be deliberate. Servicers have been found to delay posting checks to incur late fees. Unless the borrower incurs the cost of sending mail via a service that provides proof of time of delivery, the bank can always claim the payment arrived late.
Let’s say the late fee is $75. It will be charged against the next month’s payment. But the borrower doesn’t know that he owes more that month. He gets a mortgage coupon and sends his regular payment in.
Now the servicer starts playing the sort of tricks practiced elsewhere in retail banking. Under the terms of the loan and Federal law, monthy payments are to be applied to principal and interest first, fees second. But the bank applies it to fees first. This makes his second month come up short. He gets charged a fee for insufficiency, and perhaps a late fee too.
Once the borrower has had two late fees, the servicer is often required by the pooling and servicing agreement to get a broker price opinion (BPO). This is a typically $250 exercise in form in which a broker drives by, takes a couple of pictures of the house, and offers a guesstimate of what it might be worth.
Many servicers double dip and also charge the BPO to the borrower as well. So the fees and arrerage charges and interest charges are compounding at a faster rate now.
It takes a remarkably short amount of time for pyramiding fees to add up to a few thousand dollars, unbeknownst to the borrower, until he gets a call from the servicer, or worse, a foreclosure notice.
This is where it gets even better. Even when the borrower hires an attorney, it is remarkably difficult to get the servicer to disgorge its records showing the borrower payment history and its fees and charges. I’ve also been told by attorneys that the reports are difficult to decipher and reconcile with the borrower’s records of payments that have cleared his account. So unless the attorney is tenacious, or has been down this path before, he may not realize that the borrower isn’t nuts when he says he was late only once, maybe twice at most, and doesn’t understand how they bank is now foreclosing.
In the first part of the Senate Banking Committee hearings on mortgage modifications and foreclosure, Diane Thompson of the Consumer Law Center and Professor Adam Levitin forcefully disputed the banks’ claim that all foreclosures were warranted. Each pointed to servicer driven foreclosures as well as consumers being instructed by their serivcer to become delinquent so as to qualify for a mod program, being led to believe they would qualify (and even encouraged to use the money saved to pay down other debt), then either foreclosed upon while the mod was under consideration, or denied the mod and foreclosed upon. And to add insult to injury, homeowners who are denied “permanent” mods are not only charged the difference between their reduced payments and their regular amount due, but they are charged late fees, which per our example above, compound in nasty ways.
Thompson, who defends borrowers herself, estimates that servicer-driven foreclosures represented about 50% of the cases she handled. The attorneys I have been dealing with put the estimate even higher, for the simple reason that servicer errors also led to refis that failed.
Remember how this pattern would have worked pre-bust. Borrower finds out from servicer that he is, for reasons he cannot fathom and cannot get the servicer to explain, $4000 behind on his mortgage. He can’t swing that now, and if he only pays part of the overdue amount down, it will quickly compound back up to a big bad number. So sooner or later, his only way out is a refi.
I had always assumed cash-out refis (where the borrower took out a mortgage on a refi that was bigger than his previous mortgages) were to pay down credit card debt, invest in home upgrades, or fund consumption. But at least a portion of those refis were to pay off the mortgage to prevent a foreclosure due to an inabilty to make up for a major arrearage. And some of those were servicer induced.
This pattern of servicer abuse is far from new. I hope readers will watch the second installment of the Senate Banking Committe hearings on the mortgage mess (the Senators were quite entertaining in their first go on this topic), this Wednesday at 9:30 AM. One of the witnesses, Kurt Eggert, law professor at the Chapman University School of Law, must feel like a Cassandra. He was writing about subpime origination fraud in 2002, and in a 2007 article, “Limiting Abuse and Opportunism by Mortgage Servicers,” goes through a sad and familiar litany of servicer misconduct: attempting to foreclose when borrowers were current (!), not giving borrowers time to get current, charging late fees when payments were made on time, improper force-placed insurance, and chicanery with escrow funds. As Eggert pointed out:
Late fees on timely payments are common when consumers are making payments through a ankruptcy plan. Moreover, some servicers have added false fees and charges not authorized by law or contract to their monthly payment demands, relying on borrower ignorance of the exact amout owed…Some servicers may add a fee by conducting unnecessary property inspections, having an agent drive by even when the borrower is not in default, or conducting multiple inspections during a single period of default to charge the resulting multiple fees….
Moreover, servicers can frustrate any attempts to sort out which fees are genuine. On McCormack v. Federal Home Loan Mortgage Corp., when the borrower challenged Chase Manhattan Corporation’s insistence on collecting disallowed attorneys’ fees and mortgage payments that had been cured in a bankrutpcy, the servicer subjected the borrower to what the court called “a barrage of totally meaningless and in fact misleading printouts” that was “”truly egregious and outrageous conduct”. The servicer repeatedly promised to correct its errors, but did not do so.
Servicer bad conduct is a long-standing problem, but in a rising housing market, no one much cared if the banks were effectively stripping borrower equity to pad their profits. And perhaps even worse, many people are still inclined to trust banks when they trot out their party line. Recall the bunk their representatives offered with touching shows of concern in the pre-Thanksgiving Senate and House hearing on the mortgage mess: their policies are pro-consumer, they don’t make money on foreclosures (!), any problems are “mistakes” and they of course correct them as soon as they become aware of them. The over-decade long record of persistent servicer abuses shows this spin to be pure fabrication. The sooner the media and the public learn to assume banks are liars until they offer solid evidence to the contrary, the better off we will all be.
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Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Obama Defends Decision To Extend Bush-Era Tax Cuts « CBS Los <b>...</b>
President Barack Obama on Tuesday staunchly defended his decision to compromise with Republicans and temporarily extend about-to-expire tax cuts for all Americans.
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Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Obama Defends Decision To Extend Bush-Era Tax Cuts « CBS Los <b>...</b>
President Barack Obama on Tuesday staunchly defended his decision to compromise with Republicans and temporarily extend about-to-expire tax cuts for all Americans.
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Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Obama Defends Decision To Extend Bush-Era Tax Cuts « CBS Los <b>...</b>
President Barack Obama on Tuesday staunchly defended his decision to compromise with Republicans and temporarily extend about-to-expire tax cuts for all Americans.
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Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Breaking <b>News</b>: Watch A Gigantic Looping Solar Prominence
The Solar Dynamics Observatory never fails to deliver absolutely stunning images from the Sun: as of 18:49 UT today, the above picture is what the Sun looked like in the ultraviolet spectrum. The prominence that you are seeing looping ...
Obama Defends Decision To Extend Bush-Era Tax Cuts « CBS Los <b>...</b>
President Barack Obama on Tuesday staunchly defended his decision to compromise with Republicans and temporarily extend about-to-expire tax cuts for all Americans.
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Sarah Palin Passes On RNC - The Note
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Two media outlets tonight, Reuters and a Washington Post blog post, discussed the idea of a relatively quick settlement of the probe by 50 state attorneys general into robo signing and other foreclosure-related abuses.
What is interesting is the timing of these sightings, which came the same day of the release of the Congressional Oversight Panel report on servicing and securitization, the promised American Securitization Forum defense of securitization industry practices, and Senate Banking Committee hearings on foreclosures and securitization.
As we discuss in other posts today, the day went very badly for the industry. The sudden, albeit small, flurry of “settlement talks are on” reports on the attorney general front bears all the hallmarks of a banking industry trial balloon being hyped as something further along to try to create the impression that the mess is on its way to being resolved on terms not terribly painful to banks.
The story seems to have started with a rumor on CNBC, which is being treated with more dignity than it deserves, particularly since the supposed source denied it.
CNBC reported that Iowa attorney general Tom Miller was nearing a settlement of the 50 state probe (we noted yesterday that CNBC ran a credulity-straining report on MERS, so it seems to be the preferred outlet for bank PR these days). But when Reuters contacted Miller’s office, they disputed this account.
Nevertheless, this idea was carried further by the Reuters piece, which quoted Bank of America CEO Brian Moynihan stating that a “quick resolution” of the 50 state investigation would be be the best outcome for all parties involved.
That view strains credulity, unless you are of the “what is best for banks is best for America” school of thinking. The state AGs started their inquiry on October 13, and signaled their intent to go beyond the robo signing scandal. It’s highly unlikely that they have gotten much of anywhere with their probe. And in normal negotiating settings, quick settlements take place only when there is little difference of views between the two sides on the facts or limited resources on both sides, which created a mutual recognition that they have a vested interested in reaching a resolution expeditiously. Neither of those conditions apply here.
So the argument that a quick settlement is best can only be based on the assumption that an investigation will uncover real dirt, and create market uncertainty. And of course we can’t have that, now can we?
That hidden assumption, that there is real risk should investigations continue for a protracted period, is the polar opposite of the position that the banks have taken thus far, that there is nothing to see here, that the robo signing scandal was merely procedural (as if frauds on the court are mere “procedural” miscues) and the underlying foreclosure actions were all correct.
This evening, we see this rumor carried a step further in a post by Washington Post blogger Ariana Eunjung Cha:
The 50 state attorneys general are in negotiations over an agreement over foreclosures that would include a victims’ compensation fund that would provide money for borrowers whose homes have been taken away improperly, according to state and industry officials.
The discussions are still preliminary and the final deal may change significantly as details are hammered out and the settlement is vetted by 50 separate state offices, the official said.
While there’s no universal agreement that would apply industry wide and the AGs are negotiating separately with each bank, many of the stipulations are the same for the agreements being discussed with the three largest mortgage servicers: Bank of America, JP Morgan Chase and Wells Fargo.
Both sides have tentatively agreed that mandatory third-party mediation if a homeowner requests it is something that should be included. They also agree that there should be no more “dual track” loan modification negotiations that end suddenly with foreclosures. Many homeowners have complained that they were in the middle of loan modification discussions when they were foreclosed on or told to default on their loans to get a modification, and then ended up having their home foreclosed on.
The most radical part of the settlement deal has to do with providing monetary compensation for homeowners who have lost their homes but can prove that they have been foreclosed on wrongly.
Yves here. Exactly how many sources are there for this story? As I read it, it could be as little as the CNBC and Moynihan statements (if you believe the Miller rumor, he’s a state official, Moynihan is clearly an industry official), plus a conversation with one unnamed official (presumably industry).
And the account simply does not add up. First, we have Ohio, which is one of the lead actors in this 50 state effort, pushing for a speedy trial in a robo signing case in which it is seeking sizeable damages. I can’t see Ohio agreeing to any settlement as long as Ohio attorney general Richard Corday is in office (admittedly only till the end of January). And he is clearly trying to get enough stakes in the ground so as to limit his successor’s ability to make a radical retreat. In addition, the supposed process for these negotiations, which the Washington Post says is bank by bank, assures a protracted process. And it ALSO indicates that any settlement would have to be approved by 50 “separate” state offices. So even by the account presented in the Post, there is not a cohesive front on either side of this supposed initiative, which begs the question of who exactly is driving this train.
The only way you could get fast resolution in situation like this is to get all the parties in a room and treat it as a a two-sided negotiation.
However, we have indicated that efforts by attorneys general need to be regarded with some skepticism. We’ve pointed to instances in which AG initiatives add up to far less than their headlines would lead you to believe. They do have incentives to collect a scalp quickly and declare victory. But given the high level of public ire and the economic importance of the foreclosure crisis, the AGs are likely to appreciate the dangers of appearing to cave in to bankers. They clearly have them on the run now; why act in haste when keeping the pressure on will lead to a more favorable outcome?
The one area where I could see a relatively quick resolution is if the robo signing abuses were carved out from the other issues and negotiated separately. But overall, it appears likely that this convenient story of advanced settlement talks is just that, a mere story.
As much as I’ve seen a lot of financial services industry misconduct at close range, sometimes even a cynic like me is not prepared for how bad things can be. And mortgage abuse is turning out to be one of those areas.
I’ve been in contact for over the last six months with attorneys involved in foreclosure defense. Unlike the foreclosure mills, which seem to coin money, the attorneys on this front are either laboring pro bono or making considerably less than they could in other lines of work. They also can back up their views with depositions and trial transcripts.
One thing they stress is that a significant number of their clients facing foreclosure has made every single mortgage payment. . Read that again.
Now how can that be? How can that square with the banks’ assertion that in every instance, their foreclosures were warranted, that the borrower was hopelessly behind?
It’s actually very simple. It’s called servicing errors and fraud. And whether by mistake or design, when a borrower gets caught in the servicer hall of mirrors of compounding fees and charges, there is no way to appeal and pretty much no way out.
Let’s look at how this begins. A payment is credited as being late. It might actually legitimately be late, the borrower might have neglected to send it in on time. Or the bank might have been slow to process it. That might be simple queuing meets bad controls, or it might be deliberate. Servicers have been found to delay posting checks to incur late fees. Unless the borrower incurs the cost of sending mail via a service that provides proof of time of delivery, the bank can always claim the payment arrived late.
Let’s say the late fee is $75. It will be charged against the next month’s payment. But the borrower doesn’t know that he owes more that month. He gets a mortgage coupon and sends his regular payment in.
Now the servicer starts playing the sort of tricks practiced elsewhere in retail banking. Under the terms of the loan and Federal law, monthy payments are to be applied to principal and interest first, fees second. But the bank applies it to fees first. This makes his second month come up short. He gets charged a fee for insufficiency, and perhaps a late fee too.
Once the borrower has had two late fees, the servicer is often required by the pooling and servicing agreement to get a broker price opinion (BPO). This is a typically $250 exercise in form in which a broker drives by, takes a couple of pictures of the house, and offers a guesstimate of what it might be worth.
Many servicers double dip and also charge the BPO to the borrower as well. So the fees and arrerage charges and interest charges are compounding at a faster rate now.
It takes a remarkably short amount of time for pyramiding fees to add up to a few thousand dollars, unbeknownst to the borrower, until he gets a call from the servicer, or worse, a foreclosure notice.
This is where it gets even better. Even when the borrower hires an attorney, it is remarkably difficult to get the servicer to disgorge its records showing the borrower payment history and its fees and charges. I’ve also been told by attorneys that the reports are difficult to decipher and reconcile with the borrower’s records of payments that have cleared his account. So unless the attorney is tenacious, or has been down this path before, he may not realize that the borrower isn’t nuts when he says he was late only once, maybe twice at most, and doesn’t understand how they bank is now foreclosing.
In the first part of the Senate Banking Committee hearings on mortgage modifications and foreclosure, Diane Thompson of the Consumer Law Center and Professor Adam Levitin forcefully disputed the banks’ claim that all foreclosures were warranted. Each pointed to servicer driven foreclosures as well as consumers being instructed by their serivcer to become delinquent so as to qualify for a mod program, being led to believe they would qualify (and even encouraged to use the money saved to pay down other debt), then either foreclosed upon while the mod was under consideration, or denied the mod and foreclosed upon. And to add insult to injury, homeowners who are denied “permanent” mods are not only charged the difference between their reduced payments and their regular amount due, but they are charged late fees, which per our example above, compound in nasty ways.
Thompson, who defends borrowers herself, estimates that servicer-driven foreclosures represented about 50% of the cases she handled. The attorneys I have been dealing with put the estimate even higher, for the simple reason that servicer errors also led to refis that failed.
Remember how this pattern would have worked pre-bust. Borrower finds out from servicer that he is, for reasons he cannot fathom and cannot get the servicer to explain, $4000 behind on his mortgage. He can’t swing that now, and if he only pays part of the overdue amount down, it will quickly compound back up to a big bad number. So sooner or later, his only way out is a refi.
I had always assumed cash-out refis (where the borrower took out a mortgage on a refi that was bigger than his previous mortgages) were to pay down credit card debt, invest in home upgrades, or fund consumption. But at least a portion of those refis were to pay off the mortgage to prevent a foreclosure due to an inabilty to make up for a major arrearage. And some of those were servicer induced.
This pattern of servicer abuse is far from new. I hope readers will watch the second installment of the Senate Banking Committe hearings on the mortgage mess (the Senators were quite entertaining in their first go on this topic), this Wednesday at 9:30 AM. One of the witnesses, Kurt Eggert, law professor at the Chapman University School of Law, must feel like a Cassandra. He was writing about subpime origination fraud in 2002, and in a 2007 article, “Limiting Abuse and Opportunism by Mortgage Servicers,” goes through a sad and familiar litany of servicer misconduct: attempting to foreclose when borrowers were current (!), not giving borrowers time to get current, charging late fees when payments were made on time, improper force-placed insurance, and chicanery with escrow funds. As Eggert pointed out:
Late fees on timely payments are common when consumers are making payments through a ankruptcy plan. Moreover, some servicers have added false fees and charges not authorized by law or contract to their monthly payment demands, relying on borrower ignorance of the exact amout owed…Some servicers may add a fee by conducting unnecessary property inspections, having an agent drive by even when the borrower is not in default, or conducting multiple inspections during a single period of default to charge the resulting multiple fees….
Moreover, servicers can frustrate any attempts to sort out which fees are genuine. On McCormack v. Federal Home Loan Mortgage Corp., when the borrower challenged Chase Manhattan Corporation’s insistence on collecting disallowed attorneys’ fees and mortgage payments that had been cured in a bankrutpcy, the servicer subjected the borrower to what the court called “a barrage of totally meaningless and in fact misleading printouts” that was “”truly egregious and outrageous conduct”. The servicer repeatedly promised to correct its errors, but did not do so.
Servicer bad conduct is a long-standing problem, but in a rising housing market, no one much cared if the banks were effectively stripping borrower equity to pad their profits. And perhaps even worse, many people are still inclined to trust banks when they trot out their party line. Recall the bunk their representatives offered with touching shows of concern in the pre-Thanksgiving Senate and House hearing on the mortgage mess: their policies are pro-consumer, they don’t make money on foreclosures (!), any problems are “mistakes” and they of course correct them as soon as they become aware of them. The over-decade long record of persistent servicer abuses shows this spin to be pure fabrication. The sooner the media and the public learn to assume banks are liars until they offer solid evidence to the contrary, the better off we will all be.
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Basilisc Says:
November 5th, 2010 at 6:32 am
How about this: if a partner (or associate) at a law firm is found to have represented a plaintiff in a foreclosure case in which a fraudulent affidavit has been filed (about the service, or any other aspect), then EVERY PARTNER in that firm is disbarred from practicing in the state. Regardless of who’s at fault.
I’m not a lawyer, but I think that should end the problem.
Winston Says:
November 5th, 2010 at 6:42 am
Would not this practice render the case null-and-void? Or could the plaintiff re-file for foreclosure?
Petey Wheatstraw Says:
November 5th, 2010 at 7:38 am
In light of all of the evidence of the industrial nature and mind boggling level of criminality in the foreclosure/securitization processes, along with little or no action by those charged with upholding the laws pertaining to such criminality (but apparently having plenty of time and resources to go after less serious crimes committed by individuals outside this industry), it would seem that selective enforcement of our laws is a matter of official policy.
There are many ways to skin this cat, but TPTB do not want the cat skinned. The contract between the people and the government has no requirement for specific performance, and, lacking that, there is no way to compel the authorities to uphold the law.
The People should acknowledge the fact that criminality in high places is systemic, and without a coordinated effort to force the issue, these violations of the law and the processes for bringing those responsible to justice, justice will not be served — regardless of how easy and beneficial doing so would be.
We are just becoming aware that we must fight back. Unfortunately we come to this realization as we pick ourselves up off the ground after having been knocked unconscious and robbed. We are trying to defend ourselves after the fact.
Petey Wheatstraw Says:
November 5th, 2010 at 7:48 am
Basilisc:
Only the Bar Associations (the corporation(s) that has (have) captured the Judiciary branch of our government) can disbar an attorney. If you think that might happen on a scale that would have a measurable effect on attorneys engaging in these violations of law and/or procedural rules of the courts, you might not understand the true level or nature of the corruption in and of our system.
Julia Chestnut Says:
November 5th, 2010 at 9:18 am
Guys, what it does is deprive the court of jurisdiction over the defendant. If they were never properly served, the whole case is thrown out and starts over again. Sometimes, if there was no prejudice to the defendant (I’m having a hard time figuring out how there would be no prejudice here, because lots of timelines are involved that trigger off of every move in a default and foreclosure), sometimes the case can proceed. Often if the defendant has actual knowledge of the suit, even if they weren’t properly served, the court will take that into account.
I am interested to see how Florida law treats the question of the holder in due course: this might be one of the few things that would wrest a house back from a buyer who purchased it at the courthouse steps. If the court never acquired jurisdiction of the defendant, the order permitting sale was improper. The bank in effect stole the house, and sold it. Normally, a holder in due course of collateral has huge rights. This just might be a fly in the ointment of how these things normally work. My bet is that the case law dates from the depression era, back before the rise of the vampires. This could get very interesting.
But there are two things that make courts really, really pissy: one is being openly lied to under oath – perjury – and that is what filing a patently false affidavit is. The second is having their jurisdiction invoked improperly and having things drag on or have to get redone because of it. Well there is a third that is probably not involved here, and that is being reversed. Believe me, if anything will stir an honest, but lazy or indifferent, judge to action, it is having the court played for a fool. This could be very, very interesting to watch.
As to the comments about the physical appearance of the defendant, I can’t believe the servers were too lazy to get up on facebook and find out what the defendant looks like. Sheesh.
beaufou Says:
November 5th, 2010 at 9:31 am
What Petey said.
TakBak04 Says:
November 5th, 2010 at 9:53 am
50-State Foreclosure Probe Loses Several Influential Voices after Midterm Elections/ HT Rob
Iowa Attorney General Thomas Miller, the point man on the 50-state investigation into the foreclosure mess, won reelection this week. But a number of the other 13 attorneys generals on the inquiry’s executive committee will leave in the coming months.
In Ohio, Attorney General Richard Cordray — a Democrat who was the first to sue a major lender over the foreclosure problems — lost to Republican Mike DeWine. “A campaign website for Mr. DeWine lists job creation and opposing the health-care plan as his top priorities and makes no obvious mention of the foreclosure scandal, the multistate investigation or Mr. Cordray’s lawsuit against GMAC,” noted the Wall Street Journal. On Wednesday, DeWine declined to comment on the foreclosure issue, saying that the office will “evaluate each piece of existing litigation.”
Another key official with experience dealing with mortgage companies — Arizona Attorney General Terry Goddard (D) — lost the race for governor. Goddard took the lead in negotiating a settlement, announced in October, with Wells Fargo. The lender, which was facing allegations of deceptive marketing, agreed to spend an estimated $772 million modifying loans for borrowers across the country.
Republican Tom Horne beat Democrat Felecia Rotellini to win Goddard’s former job late Wednesday, ending the Democrats’ 12-year-hold on the office.
Florida’s Bill McCollum, also influential in the investigation, will be leaving at the end of this year, having lost in the GOP’s gubernatorial primary. McCollum has been spearheading a probe into four “foreclosure mill” law firms. Republican Pam Bondi, a former state prosecutor, will take over as the new AG.
http://voices.washingtonpost.com/political-economy/2010...
The loss of Ohio’s AG Cordray is a big hit to stopping fraud by banksters. Florida’s McCollum is devastating also.
Mannwich Says:
November 5th, 2010 at 9:59 am
But this was all just a big mistake, BR. In fact, the whole crisis was. Now it’s over, so let’s move on, but get those deadbeats out of their homes first.
Lugnut Says:
November 5th, 2010 at 10:05 am
“My personal favorite are the people served in Florida whose passports prove they were in Europe at the time. ”
Also amusing from the standpoint that folks being served a foreclosure notice can afford a trip to Europe. Irony abounds.
Petey Wheatstraw Says:
November 5th, 2010 at 10:17 am
Years ago. a friend who had recently been admitted to the Bar would occasionally ask me to act as a process server for him (he would accompany me, but stay in the car, down the street. He didn’t like confrontation, and thought it unlikely that the person being served would get cocky with me). In Virginia, if I remember correctly, here’s what was required for proper service:
1. Knock on the door — repeatedly and loudly (as a cop would) — giving a reasonable amount of time for the knock to be answered.
2. If the knock was answered, I was to ask: Are you James Doe? If the answer was yes, I’d serve the docs. If the answer was no, I was to ask, “do you live here, and are you over 18 years old?” If the answer was yes, I was to hand that person the docs, and ask that they be given to the person being served. if the answer was no, or if no one had answered the door, i was to tape the docs to the door (on all four sides, and with removable tape).
3. I would then sign and date the affidavit of service.
That’s how it’s done in VA.
Petey Wheatstraw Says:
November 5th, 2010 at 10:20 am
Jeez. I should really start proofing my comments before hitting the submit button.
Marc P Says:
November 5th, 2010 at 3:23 pm
@Julia Chestnut:
This is a great point. I clerked for a trial court judge. I tell people the judges are like sleeping bears. Under the weight of their crushing workloads, often they appear to be distracted, board, asleep, or all three. But generally, judges are quite bright and have been put on the bench for good reasons. Once awakened from slumber, watch out.
Judges have to rely on the attorneys to provide accurate information. Judges are well aware that attorneys represent their clients and are not likely to present evidence that is not in their client’s best interest. That is why the system is designed to have both parties represented. Law is the only profession where there is a highly paid professional whose sole job is to point out all your lapses.
In many states the foreclosure process is designed to have minimal court intervention. The lenders are expected to follow a rigid set of rules regarding notice and timelines but often judges never have to get involved. The statutes are set up so that the borrower can object at any time and bring the matter in front of the judge for correction. However, judges are well aware that lenders have money and borrowers do not. Due to this, the judges are more reliant than usual on the veracity and completeness of the information provided by the lender’s attorney. A lender’s attorney who abuses that trust is asking for trouble.
My suggestion is to get some popcorn, crack open a beer, and sit back. This is going to be a good show.
Marc P Says:
November 5th, 2010 at 3:25 pm
Judges are board? Duh. Bored. Sorry.
Florida’s “Too Big for Fraud” Court System | The Big Picture Says:
November 11th, 2010 at 7:21 am
The Foreclosure Zoo (November 5th,