Feds adding insult to injury: Another giveaway to the banks. If the “creditor” is getting paid with servicer advances then the debt should be reduced — and so should the payments.

It is a very real thing. Everyone is getting paid (and now by the government), while the debt of homeowners is never reduced or credited. On top of getting paid, the courts are allowing forced sale of homes that simply add gravy to the Wall Street money train.

Let’s be clear. If investors are presumed to be beneficiaries of payments by borrowers or beneficiaries of liquidation of forced sale of homesteads, the homeowner should get credit for reduction of debt regardless of the source.

If the creditor is getting paid the debt must be reduced.

The recent announcement that FHFA is  going to cover payments to investors simply infuriates me because the homeowners are not getting any notice of benefit of any reduction for their debts. the payments are being made as part of a “bailout” but the homeowners get nothing. the “creditor” side gets everything including extra profit. This is crazy. In a consumer driven economy the bailouts must go to the consumer to boost the recovery. It is simple common sense.

Start with the fact that the courts presume that the proceeds of foreclosure are eventually paid to investors, who paid value for the loans. So for purposes of finding a narrative to support the forced sale of the home, investors are treated as the real party in interest.

Then proceed to the story of how servicers are making payments for “nonperforming loans.” They don’t, actually. Those payments are not touched by the servicers. In fact, investors don’t receive “servicer advances.” Nobody does. Servicer advances are actually just data — computations of what part of the payments received by investors will be labelled “servicer advances” in the future.

Once they are labelled as servicer advances this creates two new opportunities to excuse the theft from investors.

First, the investment bank acting as “Master Servicer” withdraws money from a reserve fund consisting entirely of money advanced by the same investors who purchased certificates promising regular payments from the investment bank. This is not some trust fund. It is merely an accounting entry that covers money stolen from investors. (see 2d tier yield spread premium on search engine of this blog).

The new announcement that the government is going to pay those “servicer advances” is a straight out gift to the investment banks.

It is the investment banks who are getting the money not any servicer. What entries they are making on their own books of account is anyone’s guess. But you can be sure of two things: the receipt of that money is revenue and that revenue will be labelled as something other than revenue so it won’t be taxed.

Second, the investment bank forecloses on property acting through attorneys who pretend to be representing  a trust that doesn’t exist or a trustee with no trustee powers over a debt that no longer exists on the books of any company or any investor. When the property is sold the amount labelled as “servicer advances” is deducted from the proceeds of the sale. So investors get nothing.

With government paying the servicer advances the investment bank still gets to make that claim even though they never paid it.  That is because they were never going to pay it anyway. “servicer advances” are a ruse to take the money from foreclosure sales and keep it. But by labelling it as a  recovery of money, they pay no tax because they don’t report it as revenue.

Meanwhile the homeowner is kept in the dark about all of this. The homeowner does not know that the parties claiming to be creditors are getting paid by the government.

  • The homeowner does not know that even his hypothetical obligation has been reduced on the receiving side.
  • The homeowner does not know that the statement showing the payments and balance due is false.
  • The homeowner does not know that the default letter is based upon a false claim of amounts due.
  • And the homeowner does not know that the proceeds of the forced sale of his house will never be used to pay down his “debt” because there is no debt on the books of any company or person.

Why do I rant about this? Because this is not just morally and legally wrong. It is stupid. Consumers are the only thing we can count on for the economy to recover and yet government and Wall Street are doing everything possible to make short-term money while consumers are deprived of money and credit that they are legally and morally entitled to receive. If they received that money and credit they could spend more. If they spent more, the economy would be healthier. Yes it is that simple. Ask anyone who voted to send money to consumers.

 

4 Responses

  1. Beth — I think you are correct. Sort of like when a business has to pay higher costs – it is passed on to the consumer. These borrowers will have to make up the missed months. The FHFA is only issuing mandates that there shall be no foreclosure for anyone asking for forbearance, and that liquidity will be provided to make sure servicers can advance payments to “investors.” But this is only for direct owned Freddie/Fannie loans. See below link.

    The problem is with non-bank servicers who service PLMBS is that these loans are “default debts” (whether you defaulted or not) and it will be up to the debt collector servicer to decide if you have to pay up front, or possibly add to maturity. Problem is – if they have you listed as “current” (which does not mean NEVER reported in default) – forbearance will reset a default status.

    https://www.fhfa.gov/Media/PublicAffairs/Pages/No-Lump-Sum-Required-at-the-End-of-Forbearance-says-FHFAs-Calabria.aspx

  2. Thank you very much for the information. FHFA requires the “enterprises” to advance the P&I payments after 4 mos, So is there anything that states that they (the enterprise) will not request to be paid back for the advances when the borrower pays back the money for the forbearance? I understand what Neil is stating but isn’t it similar to a subrogation claim? I don’t see where it is free money. It could be, I just don’t see that is how it is written.

  3. Beth — see – https://www.jdsupra.com/legalnews/fhfa-announces-four-month-limit-to-24767/

    But this is only for Freddie/Fannie loans. The non-bank servicers I do not think have been addressed yet. These debts are likely with debt buyers as the investment banks who claimed any interest have long dumped them. So any advances would be for the benefit of debt buyers, including hedge funds, who conceal themselves.

  4. Can you provide the source wherein the FHFA has stated it will pay the advances for servicers? I did see that for federally backed mortgages the servicer only has to pay the investor for the 1st 4 mos but still has to pay 3rd party fees such as taxes and insurance. But I do not see where FHFA has stated it will pay the investors. Please provide that notification. Thank you.

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