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EDITOR’S COMMENT: The government maintains its complicity in the securitization scam. The mortgage bonds were fake instruments that created non-existent pools containing non-existent assets. The investment banks took the money, pocketed a large portion of it as fees and used the rest to fund mortgages that couldn’t work, but protected themselves by using bankruptcy remote vehicles, and by not following through on the “plan” as outlined in the securitization documents. The loans were never transferred, which legally leaves the originating lender in the closing documents as the “lender of record.” But the instruments recorded refer to a transaction that (a) did not exist and (b) failed to disclose the true terms and parties of the money transaction that DID occur.

The pretender lenders then used fabricated, forged or “lost documents” to step in and claim foreclosure rights even though they never funded the loan and they never bought the receivable with rights to enforce it. Borrowers, largely ignorant of the securitization scheme, walked away from houses or have lost court battles (and their homes) to disinterested parties who had no skin in the game — and Wall Street is laughing all the way to the bank. They stole the money from the investors, they stole the homes and now they are collecting on the bets they made that they could get away with it. to top it off, they got a “bailout” that assured doubling the trillions of dollars they made in creating the illusion of securitized loans.

The administration started a program to modify the mortgages including principal corrections to reflect economic reality (and to correct for the appraisal fraud that induced the homeowners into the transaction) but the incentives were ineffective — because the servicers and other securitizers have a much larger incentive of taking the homes if they DON’T modify the loans. That did not stop them from pretending to enter into trial modifications and creating the appearance that they were trying — and thus collecting MORE MONEY to modify a loan over which they had no ownership or authority.

Right now the government claims to own most of the mortgages through ownership of most of the “mortgage bonds.” If they want to insist that the mortgage bonds were real and that the mortgages are part of pools that really exist, it is the government who is now the lender and could simply order modifications with principal corrections, reverse the tide of foreclosures and end the problem.

This they will not do because of the myth that gives an unfair collateral benefit to those who didn’t play by the rules and failed to make payments on a legitimate debt. The debt was NOT legitimate, it was procured by fraud, and in any other circumstances the DOJ and other law enforcement agencies would be all over this on criminal charges and achieving restitution to victims just like the Madoff scandal.

The spin is that this gives the homeowner a free house. The question is, even if this were true, which it isn’t, a free house at the expense of whom? The investors who put up the money have expressed no interest in collecting from the homeowners. They want their money back from investment banks who sold them bogus mortgage bonds, other derivatives and synthetic collateralize debt obligations.

This spin argues that those who “played by the rules” would be treated unfairly. Not so. If they played by the rules and made their payments it doesn’t mean that they weren’t cheated and are not entitled to the same relief. They are. And if they didn’t get one of the securitized mortgages, then they were not cheated and they are not victims so there is no reason to right a wrong that never occurred.

The answer to the problem of housing and thus the economy is to tell the truth, address the reality and come up with practical solutions that apply the rule of law as it presently exists. Acknowledge the fraud, change the paradigm and let the people who were victims of this gigantic fraud recover at least part of their wealth and dignity — thus providing a stimulus to the economy far in excess of the puny stimulus attempted in 2009. Otherwise we are giving up our prospects for a real recovery in order to protect Wall Street. This leads to the questions: WHOSE COUNTRY IS THIS ANYWAY?

Foreclosure Aid Fell Short, and Is Fading


Last summer, as President Obama’s premier plan to save millions of Americans from foreclosure foundered, the administration tossed a new life preserver to homeowners.

Officials unveiled a $1 billion program to offer loans to help the jobless pay their mortgages until they could find work again. It was supposed to take effect before the end of the year, but as of today, the program has yet to accept any applications.

“We wait and wait, and they keep saying it’s coming,” said James Tyson, 50, a Philadelphia homeowner who lost his job a year ago.

That could be an epitaph for the administration’s broader foreclosure prevention effort, as tens of billions of dollars remain unspent and hundreds of thousands of homeowners have been rejected. Now the existence of the main program, the Home Assistance Modification Program, is in doubt.

Saying it is a waste of money, the Republican-controlled House voted on Tuesday night to kill the foreclosure relief program. The Senate, which the Democrats control, will pursue a rescue. But Democrats, too, consider the program badly flawed.

The effort has failed to stanch a wave of foreclosures and a decline in home prices, which have fallen for six consecutive months and are now just barely above their recession low, according to a key index updated on Tuesday. All of this threatens the fragile economy, which is also being buffeted by foreign crises.

“The banking industry fought us tooth and nail, and we ended up with a program that is failing homeowners,” said Representative Zoe Lofgren, a Democrat from California. “The administration doesn’t give us real enforcement or answers; we just get the old yokey-doke.”

Yet the need remains great. There were 225,000 foreclosure filings in February, according to RealtyTrac. About 145,000 homeowners are in trial modifications under the Obama program. An examination of federal documents and lawsuits, and interviews with legislators, state attorneys general, housing counselors, homeowners and regulators, reveal a federal mortgage modification program crippled by weak oversight, conflicts of interest, mind-numbing complexity and poor performance by many participating banks.

For example:

¶Congress set aside $50 billion for foreclosure prevention, amid administration projections that three million to four million homeowners would benefit from modifications. So far, the Treasury Department, which oversees the program, has spent slightly more than $1 billion, and just 607,000 homeowners have received permanent loan modifications (of those, 11 percent have defaulted).

¶The companies that service mortgages, typically large banks, continually lose homeowner paperwork and incorrectly tell homeowners that they must be delinquent to qualify.

¶Treasury officials have not fined any servicers, and the government-controlled company hired by the Treasury to oversee the program has expressed reluctance to crack down on banks.

Interviews with a dozen homeowner applicants in four states reveal a familiar pattern: Banks deny many who, by income and credit scores, appear to qualify. And homeowners end up weighed down by legal fees and facing foreclosure.

“I call constantly, they lose all my paperwork, and the same guy never gets on the phone,” said Ada Caceres, 53, who owns a modest home in Staten Island.

Ms. Caceres has struggled to make mortgage payments since her hours as a bartender were cut. She applied for relief, and her bank, JPMorgan Chase, twice granted temporary modifications. She made every payment.

Last August, Chase promised a permanent modification. Then it rescinded the offer, documents show.

“I love my house,” said Ms. Caceres, who is still negotiating. “It’s a good neighborhood. But oh my God, you want to just give up.”

Homeowners can appeal denials, but the odds are not in their favor, says the program’s inspector general. A first step is a hot line providing counseling, from an agency created by mortgage servicers.

Treasury officials argue that the mortgage program has kept more than half a million American homeowners out of foreclosure and has pressured banks to offer in-house modifications. These private modifications, however, typically offer terms significantly less favorable to homeowners than what the government program offers.

Michael S. Barr, who was a top Treasury official involved with the program, says the Obama administration sought to help homeowners and encourage banks even as it protected taxpayers.

“We tried to bring some order out of the chaos,” said Mr. Barr, now a University of Michigan law professor. “Taxpayer money was only used for successful modifications. I think that was directionally the right thing to do.”

Trouble at the Start

In the winter of 2009, the Obama administration’s urgency to address foreclosures was palpable. Hundreds of thousands of families had lost homes, and in towns from Florida to California to Nevada, foreclosure slums took root, marked by boarded-up homes and uncut grass.

Treasury officials invited Neil M. Barofsky, the special inspector general for the bank bailout, to discuss a rescue plan. They told him details of the plan were still weeks away. “That night, I was driving home and I heard on the radio that the president was going to announce it next Wednesday,” Mr. Barofsky recalled. “It was a ‘ready, fire, aim’ approach.”

Ready or not, President Obama announced the housing assistance program on Feb. 18, 2009. Banks and mortgage brokers could extend mortgages, or cut the amount of the loan or the interest rate. A monthly payment could not exceed 31 percent of gross income.

In return, the administration offered payments to banks and servicers.

“It will give millions of families resigned to financial ruin a chance to rebuild,” Mr. Obama said. “By bringing down the foreclosure rate, it will help shore up housing prices for everyone.”

None of those hopes came to pass.

In fairness, Mr. Obama confronted a daunting challenge: a foreclosure crisis without precedent since the Great Depression. The Bush administration already had tried several weak foreclosure relief programs.

In October 2008, as financial calamity loomed, President Bush signed the $700 billion bank bailout known as the Troubled Asset Relief Program, or TARP. At the insistence of Congressional Democrats, he agreed to plow billions of dollars into foreclosure prevention.

When the newly elected Obama administration drew up program guidelines, officials concluded they could neither force servicers to participate nor fine them for poor performance.

This, critics say, was a mistake.

“The banks were so despised, and TARP was so front and center, you could have actually done something,” said Katherine M. Porter, a visiting law professor at Harvard. “In the midst of real boldness in bailing out the banks, we get this timid, soft, voluntary conditional program.”

Treasury officials say this is an unfair accounting. In those harried days in early 2009, no one knew how much stress near-insolvent banks could withstand. And officials tried to fine-tune the mortgage program, adding elements and redirecting unused billions of dollars into the most distressed regions.

Each new version, however, added layers of complication.

Administration officials also cite unrealistic expectations, saying they underestimated the complexity of modifying millions of troubled loans. “I wish the three to four million had never been uttered,” said Peter Swire, a former special assistant to Mr. Obama for economic policy.

Critics wave off such arguments. The Obama administration, they say, could have flexed its muscles.

The president could publicly challenge bank officials. Treasury officials could withhold payments. The administration could buy troubled mortgages at a discount and modify loans on its own.

“We needed to go out and fine the five worst offenders,” said a former administration official familiar with internal discussions, who was not allowed to talk publicly given his current position. “In hindsight, I’m almost certain we would have been well served by taking the risk and being challenged in court.”

Dysfunctional System

To listen to a handful of Bank of America employees speak candidly about the mortgage program is to hear deep frustration with their bank’s performance. Their accounts, offered on the condition of anonymity as they are not allowed to talk to the press, dovetail with lawsuits filed by state attorneys general in Nevada and Arizona. (A coalition of state attorneys general is pushing an expanded foreclosure rescue plan that would impose fines on recalcitrant banks.)

Bank of America, these employees say, routinely loses documents. One department does not talk to another. Applications drag on for more than a year. Sometimes the bank forecloses while homeowners are paying modified loans. And homeowners who are denied face an imposing bundle of late fees and back-payments.

A bank employee says she often advises homeowners not to apply, given the slim chances for success.

“Many of these people are losing their homes,” she said. “The paperwork that sets them up is not detailed enough. It does not tell the customer the consequences of going forward with this.”

Dan B. Frahm, a Bank of America spokesman, acknowledged that the bank had made its share of mistakes, including losing too many documents. But it faced a narrow window to carry out a complex and ever-changing program, he said.

“We have completed more modification under HAMP (106,000) than any other participating servicer, and have more active modifications than other participants as well,” Mr. Frahm wrote in an e-mail, using the program’s shorthand name. “We continue to improve performance.”

For years, loan servicing departments acted as money machines for banks. They collected payments and foreclosed on the occasional delinquent homeowner.

But a foreclosure flood rolled in by 2007, and servicers all but drowned. The government’s program added to the problem. At first, Treasury allowed homeowners to apply without proof of income, figuring that quick relief might save homes. It later demanded income verification, loosing another flood, as homeowners sent in piles of documents by fax.

Federal regulators added their own confusion of overlapping authority and conflicts of interest.

Treasury hired Fannie Mae and Freddie Mac, two government-controlled mortgage finance giants, to oversee the program. This decision was problematic. As the Congressional Oversight Panel noted, these agencies “are highly conflicted because they hold the credit risk on most mortgages in the United States and have their own operational concerns.”

As if to underscore that point, Freddie Mac filed documents with the Securities and Exchange Commission noting that imposing penalties on banks could “negatively impact our relationships with these sellers/servicers, some of which are among our largest sources of mortgage loans.”

Treasury has paid the agencies a combined $212 million to administer the program.

The Treasury Department, too, was a reluctant enforcer, declining to impose fines or demand repayments. “This was structured as a voluntary program,” said Timothy Massad, acting assistant secretary. “We do not have the power to impose fines.”

Mr. Barofsky, the special inspector general, waves off protestations of powerlessness. How, he asked, could Treasury sign agreements to pay billions to banks without penalties for failure to comply?

“Treasury wasn’t willing to kick them in the only place that matters: in the pocketbook,” he said.

Mortgage Problems

In private conversations, senior Treasury officials offer an often-heard critique: Homeowners failed the program. That is, Americans were in far worse shape — jobless, underwater on mortgages and with terrible credit — than anyone realized in 2009.

Daily encounters in county courthouses suggest this is overstated. Homeowners bring in foot-high piles of paper documenting income, credit reports and loan payments. Some missed a payment or two, but many are not deadbeats.

Yet they cannot obtain a modification.

In Staten Island, The New York Times examined eight cases where homeowners seemed to possess the income and credit scores to qualify for the program. Yet after months of trying, even with the help of Staten Island Legal Services, not one has obtained a permanent modification.

Any single case speaks as eloquently as another.

Eric and Annette Padilla bought their home in 2003. Then Mr. Padilla fell ill and Ms. Padilla quit her job to care for him, and the couple fell behind on their mortgage in 2009. (Their income dropped to less than $60,000, from $96,000.)

They applied for the program through their bank, HSBC, and received a three-month modification. They made the payments on time. In August 2009, they requested a permanent modification.

The Padillas called the bank every week. One representative said their file was incomplete, another asked for more documents, a third said the documents were there all along.

In September, the bank said their documents had “become stale” and told them to resubmit. Eventually, they were given a new temporary modification. Once again they made every payment on time.

In January 2010, they sought another permanent modification. Then they heard back from HSBC: denied. The reason? The couple had overpaid one month.

Last summer, HSBC filed papers to foreclose against the Padillas. For Mr. Padilla, 41, the house was his step out of the housing projects; he has no intention of surrendering.

“I ask myself sometimes, why is this happening?” he says. “Wasn’t this program set up for hard-working people like us?”

11 Responses

  1. […] View the original article here LikeBe the first to like this post. […]

  2. MSoliman,

    Oops — forgot the dash in the second to last line

    “you may help —be help to help” Please insert — do not want to be accused of typos again — as if that is really important.

  3. neidermeyer,

    Never reclaimed by originator (unless early on by a repurchase — which was rarely executed even though demanded by contracts). . By whatever means, methods, derivatives, accounting, contracts — default debt collection rights are far removed from originator and original creditor. .


    NO offense, NO contradiction, have NO desire to argue you.

    Not Cathy, not Roger, not any other person you allege me to be.

    Not concerned with your business. But, as far as I am concerned — trying to get accounting and ledgers in court is like battling a natural disaster — not an easy task.

    This is not to say that your arguments do not have validity and merit. I welcome every possible avenue you might utilize to confront government agencies and courts with the path you choose. Personally, believe your theories may be much more valuable if you take your concerns directly to government agencies.
    If can accomplish this, you may help be help to help far more homeowners than you anticipate. And, I hope that is your goal.


  5. Didn’t our esteemed leadership do everything they could to prevent cramdown?

  6. Well said ANONYMOUS

    The battle is — rights of homeowner victims against a political system that sacrifices the victims for the economy as a whole. Problem is — the betterment of the economy — is for the elite only. .

    The American homeowers – victims once — and – again, in cover-up

  7. Anonymous *P *L *E *A *S E*

    Once again – you discount the accounting rules as evidentury and say its never going to fly – Judge wont buy it.

    You take shots at your mentor (as I speak)

    Yet here you speak of “charge offs” and “debt swaps” and “write downs” , and “Cathy and Abby” “hedges securities” and banks books” .

    Cathy – you make my teeth itch….(Cite my posts from two years ago —-

    Hey just kidding !
    Snooze ya lose !

  8. Tax payers burdened by the B of A gift in excess of $200 billion , so who’ is really acting in accordance with the distressed borrowers right to remain in home and for home preservation.

  9. Anonymous ,

    Getting back to your favorite part of the proposed AG settlement ,, P7

    “If requested by the borrower at any time, Servicer shall identify the trust or other entity in which the borrower’s loan is held, and provide contact information for such entity.”

    I am seeing things correctly that the proper response from the servicer should be a “null” response in the case of a borrower who is in default? or is a proper “expected” response be to have the “originator” named as they have “reclaimed” ownership (actually just using the docs they never forwarded to the trustee) after default?

    How do you document and fight?


  10. Imagine the audacity — 30 years ago — for a bank to demand payment “PAYMENT IN FULL” — if a homeowner missed a couple of payments — it did not happen.

    Deregulation allowed the sale of collection rights on charged-off debt — which was increasingly being charged-off — sooner and sooner — than earmarked 180 days. And, the agreement to sell collection rights on the charged-off debt — is private — between the bank “servicers” and their clients.
    Those contracts — according to banks — cannot — and will not — be divulged.

    And, the false “securities” must be kept on bank’s books — until every derivative contract — and swap/sale of collection rights is executed.

    And, you think banks are big lobbyists?? Try the distressed debt buying industry. A huge money making industry in the past decade. And, all given approval by former Fed Res Chairman — Alan Greenspan — mentor to successors.

    Not only an unregulated industry but — also — an industry that has escaped criminal prosecution for egregious fraud.

    If anyone thinks that a non-performing loan is still in an MBS pass-through trust — I have the bridge to sell.

    Government protecting the huge distressed debt buying industry — and, we remain victims.

    Famous words — over and over — “YOU OWE THE DEBT” — and government does not care to who — does not care whether it is valid — and does not care to stop the fraud. Government does not even care that the debt is charged-off — gone — and only collection rights remain — for an unidentified party. WHY?? Because has Mr. Alan Greenspan said — “Distressed debt buyers serve a big purpose.”

    Purpose for who?? Purpose for a failing US economy. All at victims expense.

    Hedge funds — biggest buyers of distressed debt — and biggest money makers for their clients.

    Jamie Dimon speaking today – that if derivatives are curtailed — it will be devastation for the US. OH? Mr. Dimon has already devastated millions by his foreclosures — for the benefit of his proprietary clients.

    The battle is — rights of homeowner victims against a political system that sacrifices the victims for the economy as a whole. Problem is — the betterment of the economy — is for the elite only. And, this cannot last for very long.

    The American homeowers – victims once — and – again, in cover-up..

  11. It was always a system that was set up for failure.Also comes to mind what happens to home owners once modif,is denied or over owners must pay back in lump sum difference between original mortgage and modified payment.If more people had been made aware of this most probably would not have applied.Such a mess because the banks and servicers try to cover thier tracks.

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