Livinglies's Weblog

by KK MacKinstry

Investigator Bill Paatalo discovered a disturbing article written by Michael O’Connell, the COO for Nationwide Title Clearing, a company that creates tens of thousands of assignments as a third-party contractor.  O’Connell erroneously claims in his article that, “assignments simply reflect the transfer of servicing rights from one servicer to another.”   O’Connell is incorrect.  Mortgage assignment reflects a change in creditor ownership, while the sale of servicing rights from servicer to servicer are entirely different matters.  This is where the courts and people become confused believing that the servicer is the creditor and that the two are one in the same and the terms can be used interchangeably.

Michael O’Connell is spreading this type of disinformation to his clientele, and is basically encouraging clients of Nationwide Title Clearing to commit fraud by fabricating documents to “fill in the blanks” and “perfect” defective Chain of Titles.  Nationwide Title Clearing is promoting its ‘Assignment Verification Report’ service to compare the records filed in the county with the purported document file the servicer received from a prior servicer- while knowing that most mortgages are defective and can cause real issues in a court of law.

Unfortunately for Nationwide Title Clearing and its clients, a paper assignment cannot ratify an event that never occurred.   The event is the purchase of a loan or many loans. The proof is not the assignment but the payment for the assignment.  Document fabricating companies, servicers and the Courts are wrong when they say the assignment could be theoretically ratified/corrected and then concluding that therefore the (fabricated) assignment is voidable not void. “That is circular logic,” according to Florida attorney Neil Garfield.  He continues, “They believe if someone is looking at an assignment that they should conclude that there must have been a transaction if there was an assignment.”  Nationwide Title Clearing is very aware of the fraud in the documents and the fraud it is attempting to white wash.

Nationwide Title Clearing is selling the concept that if they forge, fabricate and robosign a document at a nominal cost for the servicer that they can make the assignment (or note) valid.  “The proper way to look at it would be for Nationwide Title Clearing to actually investigate that there was a transaction and then proceed knowing the assignment could be valid and could therefore be legally ratified. If there is no transaction, there is nothing to ratify and therefore the assignment is void, not voidable,” says Garfield.

Nationwide Title Clearing is selling an illusion, and likely committing fraud by creating documents in which they are attempting to validate a transaction (the assignment of a loan) that never occurred.  This is akin to Nationwide Clearing deciding to create car titles for debt collection agencies that never purchased the loans for value in the first place, but need the title to create the appearance of ownership/legitimacy.  O’Connell is very aware that there is an issue with the transfer of mortgages and uses fear to sell his service.  He says, “Try convincing an auditor that you didn’t have a great process in place for loans you previously purchased or loans that have any sort of modification activity or default activity involved.”  He also uses the threat of CFPB compliance and investigations and warns, “It is essential that the assignment is accurate”, but fails to inform the reader that Nationwide Title Clearing’s process does little to make any part of the defective or missing assignment “accurate”.

If there are issues with a loan, Nationwide Title Clearing has a product to “correct” the deficiency.

O’ Connell writes:

“When the loans were boarded, was there a quality control process in place to verify the loan data against the documents themselves? How many trailing documents never made it to the collateral file, and did the custodian have an airtight follow-up process to cure exceptions? What is the history of the portfolio – does it have a lot of default activity, or were there a lot of loans modified? How about the taxes – are they paid and up to date?”

O’Connell knows good and well that the majority of loans originated from 1998 to 2012 have major issues from origination to default and admits, “The actual number of issues is staggering.”  As we all know.  The description of O’Connell’s article should be, “A Key Step in the preparation of false assignments is to compare the data of the original documents on file at the county recorder’s office with the actual money trail.  Since there is no valid assignment- we make one.”

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http://www.mortgageorb.com/online/issues/SVM1502/FEAT_03_The-Need-For-Collateral-Audits-When-Transferring-Servicing-Rights.html

BY Michael O’Connell, Nationwide Title Clearing

(Comments in RED added by author KK MacKinstry)

Most mortgage professionals, when discussing the current state of the industry, agree that although there have been great advances in regulatory guidelines and monitoring as well as forensics through life of loan, there are still more wrinkles to be ironed out. Some argue that the new regulations, which have been forced upon the industry during the last few years, were put in place without regard for their true downstream or upstream consequences. It sometimes takes years to realize that a well-intentioned rule is, in fact, having dire consequences to another group or demographic. Take, for example, the recent announcement by Fannie Mae that it is now accepting mortgages with a loan-to-value ratio of up to 97%, when, ironically, just a few months earlier, Ben Bernanke, former head of the Federal Reserve, had been denied a mortgage.

Another example is the August guidelines from the Consumer Financial Protection Bureau (CFPB) related to mortgage servicing transfers. The guidelines are well intentioned and should result in an accurate transfer of data and documents from the current servicer to the new servicer. In fact, under the header “12 CFR 1024.38(b)(4)” in the new rules, it is abundantly clear that the transferor is responsible for ensuring the “timely transfer [of] all information and documents in the possession or control of the servicer relating to a transferred mortgage … in a form and manner that ensures the accuracy of the information and documents transferred.”

Does it concern you? Well, that depends. Is it fair to assume from the CFPB guidelines that if a servicer accurately transfers the documents and data in its possession to a new servicer that there is nothing to worry about? If only it were that simple. What about the documents and data that aren’t known to you that should be in the mortgage file? Is that someone else’s problem?

Not in the eyes of the regulators, it isn’t.

Try convincing an auditor that you didn’t have a great process in place for loans you previously purchased or loans that have any sort of modification activity or default activity involved. One can imagine the number of “ums” and “ahs” and seat-shifting maneuvers that it would entail.

What is the CFPB referring to? (Meaning:  If the CFPB requires it- servicers better create the missing document and stick it in the file to be in compliance)

The direct consequences of the CFPB guidelines are that the transferor and the transferee are responsible for the accuracy of information and documents in a servicing transfer (So you should sue both when they conspire to create fraudulent documents to foreclose on your home). What does that mean to a servicer, in simple terms?

Well, as is typical of the world we operate in, there is no simple answer. It depends on the history of the loans in the deal. Were the loans wholesale, retail or correspondent, and what was the trailing document process in place at the time of origination? When the loans were boarded, was there a quality control process in place to verify the loan data against the documents themselves? How many trailing documents never made it to the collateral file, and did the custodian have an airtight follow-up process to cure exceptions? What is the history of the portfolio – does it have a lot of default activity, or were there a lot of loans modified? How about the taxes – are they paid and up to date?

These are just some of the problems with loans that have been earmarked for sale. The actual number of issues is staggering. For the purpose of this article, let’s focus on the issues related to data and documents that are in the servicer’s control – more specifically, the transfer itself and the creation of the assignment.

Assignments

What is an assignment? Dictionary.com describes an assignment as “the transference of a right, interest or title, or the instrument of transfer.” In simple terms, this means that the servicing rights of a loan are assigned from the current servicer to another servicer. (WRONG) This also assigns full fiduciary responsibility to the new servicer. In the past, assignments were branded as the “devil” – they have been the center of court proceedings involving foreclosures across the U.S. for years. The accuracy of the assignments, the rights of the preparer to sign, as well as the very validity of the documents have been called into question in courtrooms across all 50 states.

And yet, despite this, how many companies truly understand what the process entails? How much do they know about preparing and recording the very document that secures the new servicer’s rights and obligations over a borrower’s loan? (The Courts are confused because of this type of disinformation spread). Remember, the final assignment becomes one of the documents the CFPB is referring to in its guidelines, and it is one that becomes part of the transferred collateral file. It is essential that the assignment is accurate (he forgets to mention that it is essential that the assignment is REAL- not just created for the purpose of foreclosing).

So, this is where the rubber meets the road. If the servicing data and collateral file management is at all questionable (and most are), how is it remotely possible that the assignment is accurate? After all, most assignments are prepared from data or documents supplied by the servicer; if either source data is at all in question, then there must be grave concerns that the assignment is literally assigning away the rights of the servicer with wild abandon.  (Not to mention there should be grave concerns when there was never an assignment UNTIL Nationwide Title Clearing CREATED one).

At our firm, we have come across portfolios where 40% to 60% of the loans have errors when auditing data (At LivingLies almost 99% of loans we review are defective). Granted, not all the errors would be considered “fatal” and cause the loss of collateral or prevent a foreclosure, but there are consequences that are considered as bad by some that need only be hinted at here.

Solutions

There is a relatively simple solution (REALLY?) that is guaranteed to catch data discrepancies when transferring servicing rights: Compare the data in the servicing system of record with the data in the collateral file and documents on record at the county recorder’s offices. Obvious, right? Sounds expensive too, though, right? Well, compare that with the time and money wasted on curing exceptions after the loans have transferred. Expense incurred up front pales in comparison when weighed against re-recording assignments that were badly prepared or that assigned the rights of the servicer into the completely wrong entity (or worse, an entity that doesn’t even exist). Mistakes like these can easily be prevented if there was an iron-clad process on the front end, one that included the comparisons mentioned.

It is astonishing that some servicers are so complacent about buying servicing pools that they allow the seller to shortcut by taking the lowest price to have the all-important paperwork prepared (He is admitting that these pools are full of void loans). Would you trust the opinion of a used-car salesman as to the condition of a particular car? (What a great analogy- comparing loan servicers to used-car salesmen). I seriously doubt it. So, why would you, as the buyer of a pool of loans, entrust the preparation of assignments entirely to the seller?

Comparing data at the recorder’s office to the file sounds fairly simple, right? On the face of it, one could say, “yes,” but like everything else in our industry, there is not a one-size-fits-all solution. A lot depends upon the process employed. For example, what is the source of data used to compare to the servicing file? There are hundreds of databases used daily across the U.S. Not all databases are constructed the same; some don’t even index certain document types. Others do, but only go back a short time in history. Other data sources make assumptions. Yes, assumptions! The database assumes that if a mortgage exists, then there must, in fact, be a lien release for the previous mortgage.

There are some very reliable databases that can be used with great certainty. If an assignment is prepared using source data from these databases, a servicer can feel safe, as long as the assignment preparation process is good. However, all too often our firm has had to repair the damage caused when a property report designed to report on the current owner or some other purpose was used as source data to prepare an assignment. Not all property reports are the same. They have different names for a reason. The best way to identify the issues that will cloud title when preparing an assignment is to use an assignment verification report (AVR).

But, be sure to check the quality of the AVR. Don’t accept an AVR that simply pulls documents from a database and stacks them in order by date, then assumes that the most recent assignment on record is correct and uses that data as the assignor data for the new assignment (Instead hire Nationwide Title Clearing who will CREATE a missing document with absolutely no proof the loan was ever assigned). For an AVR to be valuable and a reliable source document for the preparation of a new assignment, it must include a review of the assignor and assignee data on all previous assignments to ensure it has conveyed with accuracy along to the most recent assignment. The majority of errors our firm discovers are related to this issue.

The mortgage world has changed, and the days when the assignment was an afterthought are long gone. People who believed in that fantasy are now enjoying porridge oats as wards of the state.

Assignments have become a pivotal and vital part of the transfer process – a process that must also include a series of collateral review steps, which, depending upon the portfolio, must also include a county records review. Leave out any part of this and a servicer risks expensive remedial work, buybacks or, worse, a loss of credibility in a tough marketplace.

Michael O’Connell is chief operating officer for Nationwide Title Clearing, a research and document processing service provider. He can be reached at michael_oconnell@nwtc.com.

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Investigator Bill Paatalo can be reached through his website at http://www.bpinvestigativeagency.com.

Bill Paatalo does not endorse this post, but brought this information to our attention.

Filed under: foreclosure | Tagged: nationwide title clearing |