Synovus Ousts Senior V.P. of Asset Management; Shady Foreclosure Deals to Blame?

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Synovus Ousts Senior V.P. of Asset Management; Shady Foreclosure Deals to Blame?

by Mark Stopa
http://www.stayinmyhome.com/blog/2012/02/synovus-ousts-v-p-shady-foreclosure-deals-to-blame/

Have you ever wondered what happens to houses when the banks foreclose? The Fort Myers News Press recently wondered just that, and its findings may have prompted the termination of a high-ranking bank officer.

To those in the foreclosure industry in the Tampa area, Michael E. Johnson was fairly well-known. He was the Senior Vice President of Asset Management for Synovus Bank. This was no phony title, like the “Assistant Secretary” designations we see given to robo-signers; Mike Johnson was the decision-maker on foreclosure cases for Synovus in the Tampa area. To illustrate, here was the signature on his emails (copied and pasted from an email he sent me):

Michael E. Johnson

Senior Vice President

Asset Management

12450 Roosevelt Boulevard

St. Petersburg, FL 33716

727.568.6521 – Direct

727.568.6532 – Fax

I personally dealt with Mike Johnson on several occasions in recent years, and it was clear to me that if a settlement agreement was going to be reached in a case involving Synovus, he would be the one approving it. This dynamic was both good and bad. It was good because, unlike many foreclosure cases, at least there was a person at the bank with settlement authority with whom communication was possible. It was bad because, frankly, he and I butted heads frequently and, in my view, he was rather stubborn in negotiating. (Of course, I’m confident he thought the same things about me.) That was his reputation, at least as I knew it – difficult to deal with, but Synovus liked him because he got a lot of deals done for the bank.

Anyway, with that backdrop in place, I find this article from the Fort Myers News Press particularly interesting. Essentially, this journalist studied the Public Records in Lee County to investigate what happened to properties after being foreclosed, or after they went to the bank. According to the article, there was a disturbing trend of properties being sold by Synovus to third-party investment companies, then flipped soon thereafter for a significant profit.

In my view, the information contained in the article forces some tough questions:

1. Why would Synovus sell a house for $53,000 to an investment company when said company was able to sell the house two months later for $78,000? Or a duplex in Lehigh Acres for $30,000 that was re-sold 15 days later for $79,000? Seriously, think about those numbers for a minute. More than doubling the sale price? Merely by doing a flip? 15 days later? For a bank that was so stubborn in negotiating with homeowners, why not insist on a higher sale price (to the investor)?

I suppose it’s possible the investment company did significant repairs to improve the value of the property. However, as the article notes, how much work can really be done when no building permits were obtained?

2. Doesn’t this have the feel of a shady, back-room deal? After all, why would a bank sell a house for $30,000 if it was possible to sell it 15 days later for $79,000? We may never know for sure, but it sure is interesting that Synovus had numerous deals like this with the same investor, and Mike Johnson was the one approving most of these deals.

Think about that for a minute. One man approving multiple sales of properties to the same investor, which investor was flipping those properties for a profit.

When you put it like that, it’s not hard to wonder whether this banker had a had a personal stake in these transactions. To be clear, I don’t know this to be the case, and I’m not saying that was the case, but when the same bank is selling multiple properties to the same investor, at prices like this, it’s not hard to wonder whether that banker was getting a kickback on the re-sale. It sure wouldn’t have been difficult – investor simply tells banker “sell this to me for $30,000, and I’ll give you $5,000 on the re-sale.”

You may think I’m reaching or just plain wrong, and maybe so. However, it sure is interesting that Mike Johnson no longer works for Synovus, having been let go (after what had apparently been a distinguished career with the bank) shortly after this article came out. In fact, according to my sources, he now works with investment companies who buy houses from banks!

The point here isn’t to talk about this one banker, of course. My point is that it’s terribly, indescribably sad to know that Florida homeowners are being foreclosed and this is what’s happening with their homes. Even if there was nothing shady going on with Synovus, it’s awful to know that banks are so willing to foreclose on homeowners yet so willing to sell properties for a fraction of their actual value. Anything shady, of course, only increases the level of misery.

3. I’m also troubled at what may be attempts to increase the extent of the homeowner’s liability. Using the example from the article, should the prior homeowner be liable to Synovus for $275,000, i.e. $328,000 (the judgment amount) minus $53,000 (the alleged value of the house)? Apparently, by my read of the article, that’s what the court ruled, as that $53,000 sale price is how the fair market value was determined. The fact that the house sold for $78,000 sale price two months later (and that the deficiency amount probably should have been $23,000 lower? The court may not even have known about that re-sale. Heck, the homeowner may not even have known.

This prompts a serious question … Are banks selling properties at reduced values to increase the amounts of their deficiency judgments against homeowners?

You might think that makes no sense. After all, why would a bank sell a house for less than its maximum sale price? That said, do we really know what, if any, back-room deals are going on here? For instance, is this deal an arms-length transaction when Synovus is selling many such properties to the same investor? Who’s to say there weren’t other, under-the table monies changing hands?

It’s not hard to envision ways Synovus could artificially increase the liability of homeowners … ”you give me a better deal on this one; I’ll give you a better deal on that one,” or “give me a deal for $30,000 on this one, and I’ll give you half of the profits on the resale.”

I don’t think I’m the type of person who espouses conspiracy theories. However, I just can’t help but wonder, given what I’ve read, seen, and know, if homeowners are getting screwed on a routine and systematic basis by bankers who aren’t looking out for anyone except themselves. And when a high-ranking banker is suddenly ousted after an article like this, it really raises some difficult questions.
Mark Stopa

http://www.stayinmyhome.com

14 Responses

  1. ditto here. I am a victim of this same scam which occurred at origination-I can prove this–sold to investor to flip–held off two foreclosures and then foreign monetary fund (vulture investor on foreign market fueled by foreign lending corporation) acquired from synovus….since they could not foreclose, law firm then sued me for breach of contract on a straw security and sealed the note…this all is.stemming from massive fraud at origination involving straw buying–all leads to Synovus—-MIke Johnson and I need to have a conversation–. Lying attorney has most conveniently two law licenses—I will be going after that attorney as well. –I have almost a 500,000 judgment (that is a half a million dollars) against me…of which is VOID…not voidable.

  2. @anonymous,

    cbrightlife@aol.com

  3. Enraged — are you willing to provide an email address?

  4. The original post about Freddie “betting” against homeowners is no longer available. However, and in the spirit of objectivity, I believe it is crucial that we post rebuttals when they make more sense than the original article Neil posted.

    The idea is NOT to spread irrational anger and paranoia but to educate us well enough, so that we don’t appear ignorant or, worse yet, completely disconnected from reality and stupid enough to repeat anything and everything.

    the enire article with chart is at http://www.nakedcapitalism.com/2012/02/michael-olenick-more-on-propublica%e2%80%99s-off-base-charges-about-freddie-mac%e2%80%99s-mortgage-%e2%80%9cbets%e2%80%9d.html#Blogroll

    Thursday, February 2, 2012
    Michael Olenick: More on ProPublica’s Off Base Charges About Freddie Mac’s Mortgage “Bets”

    By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick

    Fallout continues from the ProPublica/NPR story “Freddie Mac Bets Against American Homeowners,” though probably not the sort ProPublica expected.

    Many in the blogsphere who work on finance and housing finance issues, including myself and Yves Smith, didn’t find the piece to be convincing. In a rebuttal Yves, who like me is anything but a cheerleader for the GSEs, explained Freddie’s practice is, in reality, only slightly more nefarious than clearing snow from the parking lot. That is, of all the awful decisions Freddie Mac makes, this isn’t one of them.

    ProPublica co-author Jesse Eisinger replied to Yves’ critique in the comment section. I e-mailed Yves about Jesse’s remarks and she suggested I flesh my observations out into a post.

    To recap: Freddie Mac purchases and bundles mortgages, bundles those mortgages into pools of mortgages, then sells the expected mortgage payments to investors in the form of bond-like securities.

    Securitization is a vital component of the modern mortgage market, or most other credit markets for that matter, since the process frees up capital that can then be used to make more mortgages.

    In late 2010 Freddie Mac, according to the ProPublica story, started to retain a greater number of “inverse floaters,” an instrument created when mortgage pools are turned into collateralized mortgage obligations. As Yves pointed out, even though this portion is typically hard to sell and is thus often retained by the originator, it often makes more sense to use a CMO to create more conventional-looking bonds that can be sold to investors at better prices and retain inverse floater because it results in lower interest rates than if they sold a simple mortgage pass through. The GSEs have a mandate to provide more affordable loans to homeowners and better results to taxpayers, so lowering the cost of mortgage funding is consistent with those objectives. It is true that inverse floaters benefit when borrowers don’t refi, but as Yves pointed out, the GSEs engage in very complex interest rate hedging strategies. Looking at this position by itself tells you nothing about Freddie’s overall interest rate bets.

    ProPublica tried to argue that an increase starting in 2010-2011 versus 2008-2009 in the number of deals where the inverse floaters were retained was a sign of Freddie positioning itself to bet against homeowners. The authors apparently failed to look at Freddie’s CMO issuance during this period. Its CMO issuance rose, and so it appears that much, perhaps all, of the increase in retention was due to an increase in mortgage funding by Freddie (see the bottom blue bars in the left hand chart):

    Moreover, the inverse floater is the portion of the CMO that is most exposed to prepayment risk. Given the uncertainty about government intervention in the mortgage market, investors in both straight passthroughs and in CMOs would be more leery than usual of taking prepayment risk. To put it in trader-speak, as readers have, this is a “long vol” bet, and if investors were unwilling to buy volatility (as in vol was unusually cheap), it would make even more sense to retain it.

    Yet ProPublica contended that Freddie Mac’s use of inverse floaters represented a conflict of interest because the GSE would lose money from the hedges if borrowers refinanced to lower interest mortgages. They implied Freddie could abuse its influence in the housing market to prevent lower-interest refinancing programs, which are better for borrowers.

    I’ll summarize Jesse’s comments, which I verified did come from him:

    • Freddie’s retention of inverse floaters increased in 2010 then came to an abrupt half in 2011, making it appear that the FHFA, which oversees Freddie, told them to knock off which is a tacit acknowledgment the government-owned organization should not profit by trapping people in higher-interest mortgages.

    • There exists less complicated and less expensive ways to hedge the interest rate risk. Jesse quoted a trader who summarized “.. comparing inverse floaters to hedging tools is not just apples and oranges — it’s more like apples and cars. They just have nothing to do with each other.”

    • Retaining the interest-only streams runs contrary to Freddie’s mandate to decrease their portfolio.

    I have to point out that Jesse misrepresented Yves’ argument. She never said the inverse floaters were a hedge; she said you can’t tell what bets Freddie is making unless you look at all their positions, since the GSEs do a great deal of interest rate hedging. The wager represented by the inverse floater may well have been partially or fully offset by other positions.

    Since the story surfaced, the FHFA released a statement clarifying that the inverse floaters make up about $5 billion of Freddie’s $650 billion portfolio.

    My own analysis is that the argument that Freddie didn’t bet against the American homeowner. There’s just too much direct and indirect evidence supporting they simply made a decision that was, in hindsight, politically bone-headed albeit fiscally benign.

    Consider the following:

    Every quarter the Office of the Comptroller of the Currency (OCC) releases a study detailing loss mitigation options, including modifications, for mortgages. Their latest study was release for Q3, 2011. They break modification options down into several buckets, including capitalization, interest rate reduction, interest rate freeze, term extension, principal reduction, principal deferral, and “not reported” (the servicer cannot contractually explain what modification term they offered).

    Freddie regularly freezes and lowers interest rates in modifications. Since Freddie refuses to engage in principal reduction, it makes no sense they’d neuter one of the favorite tools in their modification arsenal by betting against it.

    Here are some modification stats. Keep in mind, while reviewing the figures, that most modifications involve more than one category of relief, so results add to over 100%.
    Freddie reduced interest rates in 74% of the modifications they offered and froze rates in 7.6% of their mods. In contrast Fannie reduced rates in 70.4% of their mods and froze rates in 3.6%. In contrast government-guaranteed (FHA, VHA, etc..) loans lowered rates in 93.7% of their mods, private investors lowered rate in 71.5% of their mods, and portfolio loans lowered interest in 83.6% of their mods.

    Fannie and Freddie are vigilant, almost to the point or paranoia, about strategic defaults: making bets to trap people in high-interest mortgages makes strategic default more likely. The Mortgage Bankers Association commissioned a study about strategic defaults, comparing them to a disease. That is, strategic defaults, they argued, are contagious across borrowers. Their solution, faster foreclosures to stem strategic defaults, appears nonsensical. But the underlying theory, that if one neighbor sees another move down the street into the same model home for half the rent that the second neighbor will do the same, does not appear far-fetched. Getting back to the issue at hand, it just doesn’t make sense that Freddie Mac, for some short-term trading gains, would risk spreading a “disease” that puts the entire portfolio at risk.

    Freddie doesn’t have enough influence over borrower interest rates to believe they could rig the entire market. There’s nothing except the fiscal/monetary policy firewall stopping the Federal Reserve from offering to buy bundled refinanced performing GSE mortgages. By offering to pay a premium they could reduce interest rates and justify enough cash-flow for some limited principal reduction.

    In normal times that firewall would prove impossible to breach, but these are anything but normal times. Arguing that the Fed is banned from engaging in this type of relief would be akin to a mother of four arguing she needs to preserve her virginity.

    If that happened, and it does not seem far-fetched, Freddie or Fannie would have no say about the matter. People would go to a private lender, who would sell their loans on a private secondary mortgage market, and quickly flip the pooled securities to the Fed. This policy would quickly enable the refi’s, reduce the GSE’s portfolio, and might reignite the private secondary mortgage market.

    Freddie surely recognized this risk and wouldn’t be foolish enough to bet against it happening in a major way.

    Freddie acts stupid, not suicidal. Freddie is already a political pariah. In modern American discourse there are few areas of consensus on any subject between the political right, left, and center, or between various economists and businesspeople, except that Freddie Mac and Fannie Mae are awful.

    Debates typically center around how much they suck, but nobody argues they’re welcome additions to the US business climate. Literally nobody except maybe Newt Gingrich likes these organizations.

    Freddie surely would not be so stupid as to overtly bet against American homeowners in this environment. Conversely, once they realized their hedging strategies could be perceived as exactly that they quickly stopped using that strategy, which is why the use of inverse floaters came to an abrupt end.

    ProPublica has an established reputation. But sometimes even the best bomb.

    It’d be legitimate to question why, say, Fannie and Freddie have a higher 12-month re-default rates than private market modifications over recent years, despite having substantially lower-risk borrowers. An investigative series about their central role in the foreclosure fraud crisis — their reckless policies and practices set the stage for our current fraud-fest — would be welcome and bruising. It’s arguably harder to find something that the GSE’s do right than something they do wrong.

    Maybe ProPublica is a victim of its own success. This story about inverse floaters is the inverse of what we’ve come to expect and what the economy requires if we’re ever going to substantively recover: fact-based reporting on serious but solvable real problems.

  5. @Carie,

    Holy smoke!!!

    You really need to contact an attorney right away! Have you sent that to Kamala Harris? Honestly, become the squeakier wheel you can ever be! Do you have a TV channel in your area where you can even send that with a quick note? Try CBS 60 minutes as well. It looks like a major scam going on! And while you’re at it, contact Lynn sz… (you know, that atty in FL) and run it by her. I know she is not in CA but she has good insights.

    And lastly, send an e-mail to Max Gardner with attachments. Ask to refer you to an atty. Remember: if you attack because of hanky panky, you can demand your attorney’s expenses as part of your damages.

  6. There are “investors” and then there are “security investors.” Security investors are not the creditor and do not foreclose. — despite what is presented to courts. “investors” — Bottom Feeders. They remain in hiding.

    I have heard the same story from someone who is a Foreclosure “real estate broker.” Told me the creditor/lender is NEVER the “bank” named in foreclosure actions.

    Nice work — Mark Stopa.

  7. How do avoid capitol gains tax with a 1031.
    1031 Exchange
    http://apiexchange.com/

    An old loophole finding new uses.

  8. @Elizabeth

    Is this what you are talking about:

    http://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031

  9. I have no doubt my property is involved in these shady deals…some “investor” supposedly bought my house at the foreclosure auction, yet the real estate agent (who is supposedly working for said “investor”) has HIS name on the recorded “Trustee’s Deed Upon Sale”, which says “lawyer’s title” on the top…it also says “Aztec Foreclosure Corp grants and conveys to: (the real estate agent)”…but yet I get an email from that SAME specific real estate agent saying : “The investor/owner of your property would like to offer you a cash for keys…” (signed, the real estate agent on title.)!! Oh, and where it says “amount paid”—it’s hand written “not of public record”…

    Does any of that sound like things are on the up and up???

  10. you don’t know about 1031 Exchange Neil WOW look it up it will tell you why they are selling property to investment compaines

  11. […] Follow this link: Synovus Ousts Senior V.P. of Asset Management; Shady Foreclosure Deals to Blame? […]

  12. This is the craziest $hit I have ever heard.

    What have we become? A country of lawlessness? With no regard for the Constitution and the rule of law.

    Very, very scary stuff going on and the hard questions are being asked every day, all day.

    I personally, do not care about the economic driver…this behavior is destroying an entire real estate market. It is immoral and completely unacceptable. The AG’s do not have a right to speak for all of us or take our right to a trial by jury away. PERIOD!

  13. This should be the focus of many here also. The economic driver for property managers tto refuse mods and refis and destroy credit may be linked to this sort of conduct. Now offshore concealed players are entering the game visibly–and overtly. http://www.bloomberg.com/news/2012-01-31/foreclosures-draw-private-equity-as-u-s-selling-200-000-homes-mortgages.html

    This follows refusals by Blackstone’s Schwartzman to make disclosures of potentially conflicting ownership stakes in other operations. These might include offshore buyers of florida property from BankUnited, etc.—http://online.wsj.com/video/schwarzman-to-the-fed-none-of-your-business/9164ABDB-58AE-4CA7-AE5B-4AC8C6DAF41A.html

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