Ocwen: Investors and Borrowers Move toward Unity of Purpose!

Posted on March 3, 2015 by Neil Garfield

For further information please call 954-495-9867 or 520-405-1688

Please consult an attorney who is licensed in your jurisdiction before acting upon anything you read on this blog.

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Anyone following this blog knows that I have been saying that unity of investors and borrowers is the ultimate solution to the falsely dubbed “Foreclosure crisis” (a term that avoids Wall Street corruption). Many have asked what i have based that on and the answer was my own analysis and interviews with Wall Street insiders who have insisted on remaining anonymous. But it was only a matter of time where the creditors (investors who bought mortgage backed securities) came to realize that nobody acting in the capacity of underwriter, servicer or Master Servicer was acting in the best interests of the investors or the borrowers.

The only thing they have tentatively held back on is an outright allegation that their money was NOT used by the Trustee for the Trust and their money never made it into the Trust and that the loans never made it into the Trust. That too will come because when investors realize that homeowners are not going to walk away, investors as creditors will come to agreements to salvage far more of the debts created during the mortgage meltdown than the money salvaged by pushing cases to foreclosure instead of the centuries’ proven method of resolving troubled loans — workouts. Nearly all homeowners would execute a new clean mortgage and note in a heartbeat to give investors the benefits of a workout that reflects economic reality.

Practice hint: If you are dealing with Ocwen Discovery should include information about Altisource and Home Loan Servicing Solutions, investors, and borrowers as it relates to the subject loan.

Investors announced complaints against Ocwen for mishandling the initial money, the paperwork and the subsequent money and servicing on loans created and a acquired with their money. The investors, who are the actual creditors (albeit unsecured) are getting close to the point where they state outright what everyone already knows: there is no collateral for these loans and every disclosure statement involving nearly all the loans violated disclosure requirements under TILA, RESPA, and Federal and state regulations.
The fact that (1) the loan was not funded by the payee on the note and mortgagee on the mortgage and (2) that the money from creditors were never properly channeled through the REMIC trusts because the trusts never received the proceeds of sale of mortgage backed securities is getting closer and closer to the surface.
What was unthinkable and the subject of ridicule 8 years ago has become the REAL reality. The plain truth is that the Trust never owned the loans even as a pass through because they never had had the money to originate or acquire loans. That leaves an uncalculated unsecured debt that is being diminished every day that servicers continue to push foreclosure for the protection of the broker dealers who created worthless mortgage bonds which have been purchased by the Federal reserve under the guise of propping up the banks’ balance sheets.

“HOUSTON, January 23, 2015 – Today, the Holders of 25% Voting Rights in 119 Residential Mortgage Backed Securities Trusts (RMBS) with an original balance of more than $82 billion issued a Notice of Non-Performance (Notice) to BNY Mellon, Citibank, Deutsche Bank, HSBC, US Bank, and Wells Fargo, as Trustees, Securities Administrators, and/or Master Servicers, regarding the material failures of Ocwen Financial Corporation (Ocwen) as Servicer and/or Master Servicer, to comply with its covenants and agreements under governing Pooling and Servicing Agreements (PSAs).”
  • Use of Trust funds to “pay” Ocwen’s required “borrower relief” obligations under a regulatory settlement, through implementation of modifications on Trust- owned mortgages that have shifted the costs of the settlement to the Trusts and enriched Ocwen unjustly;
  • Employing conflicted servicing practices that enriched Ocwen’s corporate affiliates, including Altisource and Home Loan Servicing Solutions, to the detriment of the Trusts, investors, and borrowers;
  • Engaging in imprudent and wholly improper loan modification, advancing, and advance recovery practices;
  • Failure to maintain adequate records,  communicate effectively with borrowers, or comply with applicable laws, including consumer protection and foreclosure laws; and,

 

  • Failure to account for and remit accurately to the Trusts cash flows from, and amounts realized on, Trust-owned mortgages.

As a result of the imprudent and improper servicing practices alleged in the Notice, the Holders further allege that their experts’ analyses demonstrate that Trusts serviced by Ocwen have performed materially worse than Trusts serviced by other servicers.  The Holders further allege that these claimed defaults and deficiencies in Ocwen’s performance have materially affected the rights of the Holders and constitute an ongoing Event of Default under the applicable PSAs.  The Holders intend to take further action to recover these losses and protect the Trusts’ assets and mortgages.

The Notice was issued on behalf of Holders in the following Ocwen-serviced RMBS: see link The fact that the investors — who by all accounts are the real parties in interest disavow the actions of Ocwen gives rise to an issue of fact as to whether Ocwen was or is operating under the scope of services supposedly to be performed by the servicer or Master Servicer.
I would argue that the fact that the apparent real creditors are stating that Ocwen is misbehaving with respect to adequate records means that they are not entitled to the presumption of a business records exception under the hearsay rule.
The fact that the creditors are saying that servicing practices damaged not only the investors but also borrowers gives rise to a factual issue which denies Ocwen the presumption of validity on any record including the original loan documents that have been shown in many cases to have been mechanically reproduced.
The fact that the creditors are alleging imprudent and wholly improper loan modification practices, servicer advances (which are not properly credited to the account of either the creditor or the borrower), and the recovery of advances means that the creditors are saying that Ocwen was acting on its own behalf instead of the creditors. This puts Ocwen in the position of being either outside the scope of its authority or more likely simply an interloper claiming to be a servicer for trusts that were never actually used to acquire or originate loans, this negating the effect of the Pooling and Servicing Agreement.  Hence the “servicer” for the trust is NOT the servicer for the subject loan because the loan never arrived in the trust portfolio.
The fact that the creditors admit against interest that Ocwen was pursuing practices and goals that violate laws and proper procedure means that no foreclosure can be supported by “clean hands.” The underlying theme here being that contrary to centuries of practice, instead of producing workouts in which the loan is saved and thus the investment of the creditors, Ocwen pursued foreclosure which was in its interest and not the creditors. The creditors are saying they don’t want the foreclosures but Ocwen did them anyway.
The fact that the creditors are saying they didn’t get the money that was supposed to go to them means that the money received from lost sharing with FDIC, guarantees, insurance, credit default swaps that should have paid off the creditors were not paid to them and would have reduced the damage to the creditors. By reducing the amount of damages to the creditors the borrower would have owed less, making the principal amounts claimed in foreclosures all wrong. The parties who paid such amounts either have or do not have separate unsecured actions against the borrower. In most cases they have no such claim because they explicitly waived it.
This is the first time investors have even partially aligned themselves with Borrowers. I hope it will lead to a stampede, because the salvation of investors and borrowers alike requires a pincer like attack on the intermediaries who have been pretending to be the principal parties in interest but who lacked the authority from the start and violated every fiduciary duty and contractual duty in dealing with creditors and borrowers. Peal the onion: the reason that their initial money is at stake is that these servicers are either acting as Master Servicers who are actually the underwriters and sellers of the mortgage backed securities,
I would argue that the fact that the apparent real creditors are stating the Ocwen is misbehaving with respect to adequate records means that they are not entitled to the presumption of a business records exception under the hearsay rule.
The fact that the creditors are saying that servicing practices damaged not only the investors but also borrowers gives rise to a factual issue which denies Ocwen the presumption of validity on any record including the original loan documents that have been shown in many cases to have been mechanically reproduced.
The fact that the creditors are alleging imprudent and wholly improper loan modification practices, servicer advances (which are not properly credited to the account of either the creditor or the borrower), and the recovery of advances means that the creditors are saying that Ocwen was acting on tis own behalf instead of the creditors. This puts Ocwen in the position of being either outside the scope of its authority or more likely simply an interloper claiming to be a servicer for trusts that were never actually used to acquire or originate loans, this negating the effect of the Pooling and Servicing Agreement.
The fact that the creditors admit against interest that Ocwen was pursuing practices and goals that violate laws and proper procedure means that no foreclosure can be supported by “clean hands.” The underlying theme here being that contrary to centuries of practice, instead of producing workouts in which the loan is saved and thus the investment of the creditors, Ocwen pursued foreclosure which was in its interest and not the creditors. The creditors are saying they don’t want the foreclosures but Ocwen did them anyway.
The fact that the creditors are saying they didn’t get the money that was supposed to go to them means that the money received from lost sharing with FDIC, guarantees, insurance, credit default swaps that should have paid off the creditors were not paid to them and would have reduced the damage to the creditors. By reducing the amount of damages to the creditors the borrower would have owed less, making the principals claimed in foreclosures all wrong. The parties who paid such amounts either have or do not have separate unsecured actions against eh borrower. In most cases they have no such claim because they explicitly waived it.
This is the first time investors have even partially aligned themselves with Borrowers. I hope it will lead to a stampede, because the salvation of investors and borrowers alike requires a pincer like attack on the intermediaries who have been pretending to be the principal parties in interest but who lacked the authority from the start and violated every fiduciary duty and contractual duty in dealing with creditors and borrowers.

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How To Tell The Judge “NO” and MAYBE Not Have Him/Her Get Pissed Off

Posted on June 21, 2012 by Neil Garfield

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Did you take a loan?  Did you sign that note?

Editor’s Comment:  The question from the bench is always the same and either  pro se litigant or the attorney is too skittish to take a stand. The question is something like “Did you take a loan?” And the answer could be “Judge I have taken lots of loans,  but I never took any money from these people or any of the their predecessors. I deny the loan, I deny the debt, I deny the default. I deny the note, I deny the mortgage. I deny their right to collection or enforcement of the note or mortgage because I never did any business with them.” If they want to plead and prove otherwise, let them. [This of course ONLY applies to loans that are subject to claims of securitization, which we all know now were routinely ignored by the investment banker just as the assignments into the non-existent pools were routinely ignored, just as the attempt to get a foreclosure judge to rule that an investor without knowing anything about these proceedings is about to get stuck with a bad loan in which there is no value, improperly originated, and never properly assigned or delivered years after the 90 day cutoff period expired.]

The other questions is “Is that your signature on the note? Is that your signature on the mortgage (or Deed of Trust)?” And your answer could be “I don’t know which documents have my actual signature or which ones have been Photoshopped. Therefore I deny and demand they prove that this was my signature on that document. I do know that if they procured my signature on any document it was by trickery, deceit and fraud.” If they want to plead and prove otherwise, let them. But all you are going to see is paper. You will never see a financial transaction between me and them or any of their affiliates or predecessors because no such transaction ever took place.

If the Judge or anyone else asks you anymore questions, and frankly if you are bold enough, if you are asked any questions, your answer could be, “Judge, this is not an evidentiary hearing. If an allegation is being made against me I have a right to know who is making the allegation and what they are accusing me of doing.  Then you have a right to your answers once I have examined the books of records of all servicers — not just the ones that they want to show you, and all depositories wherein documents were supposedly stored. You will not find any record of any kind in which I entered into a financial transaction, loan or otherwise, with these people or any of their predecessors.

CONTRIBUTION: Many payments were made to the creditor that advanced you money. You must remember that they did not advance you money through the securitization chain but instead advanced you money directly from an escrow account, a Superfund, that commingled the money of all investors without regard to REMICS, trusts or any of those niceties and the people to whom the note was made payable and for which the mortgage secured an interest in your property never consummated any financial transaction with you. If they made a payment to the creditors (investors in parternship with each other at the time of the funding) THEN the money received by the agents of the those investors should have been credited against the money owed to those creditors. And part of that allocation should have been applied against the balance due on your loan, meaning your loan balance, unsecured, would be correspondingly reduced or eliminated. End of mortgage, no matter how you approach it. The obligation that originally gave rise to the supposedly secured debt has been satisfied either in part or more likely entirely. 

That leaves a new debt replacing the old debt, which is undocumented and unsecured — and a creditor with an action for contribution because they were obviously a co-obligor. If they say they are not the co-obligor then they are saying the PSA doesn’t apply. If the PSA doesn’t apply then they are not the authorized the servicer or whoever they are pretending to be because there was not actual securitization process.

I’ve been writing about this for years specifically in relation to payments by the servicer and assignments to the servicer or to the REMIC which would in fact extinguish the old debt and originate a new obligation that was neither memorialized by a promissory note from the borrower (because it had been extinguished) nor of course a mortgage or Deed of Trust that secured the extinguished note.

The new obligation may arise between the original borrower and the Assignee or between the original borrower and the payee (where the servicer continued to make payments) but only if the contributor could establish that portion of the claim to which they were entitled.  In other words, an assignment of the entire obligation to a co-obligor would extinguish the entire obligation.  The partial payment by a co-obligor would extinguish the old obligation only to the extent of the payment.  

The problem with getting traction on this is obvious.  It is a frontal assault on the obligation itself leaving the original creditor (if there ever was one) without a claim or with a partial claim, in the event of a partial payment giving rise to an action for contribution. This is only a problem though to the extent that you are asking the court to extinguish an existing obligation between you and the actual creditor — and the only way you can know that is by getting full and complete discovery from the Master Servicer and the Creditor. It’s only a problem if it looks like you are trying to  get out of the debt altogether instead of just attacking the the fact that the new debt could not possibly be recorded.

Complicating issues include establishment of a party as a co-obligor and perhaps even more so, the fact that the promissory note does not actually describe the financial transaction, as we have discussed.  Since the originator of the note did not actually consummate a financial transaction with the borrower, the note is either void or voidable for lack of consideration.  

Further complications arise when the borrower makes payment on the note thus “ratifying” the terms expressed in the note.  But this only occurs because the borrower was the only one at the closing table who did not know the payee, lender and beneficiary were all naked nominees who neither control nor their finances involved in the financial transaction between the borrower and the actual source of funds. 

If the would-be forecloser wants to rely on the PSA then they must accept the WHOLE PSA, which means that a loan in default does not qualify to be assigned, even if in proper form and the trustee or manager of the “pool” has no authority to accept it.  If the Judge in foreclosure court says the trustee or manager MUST accept it then he is adjudicating the rights of investors who explicitly agreed to advance money for performing loans that would be put in a  pool within 90 days to satisfy the requirements of the Internal Revenue Code and the provisions of the PSA which merely recite the REMIC provisions of the IRC.  They can’t have it both ways. They can’t say that those provisions don’t apply to the assignment and say that the OTHER PSA provisions giving them the right to service the loans and manage the portfolio also apply.

The fact that the borrower made a payment to a servicer under directions from a representative within the false securitization scheme should not give rise to an obligation to continue such payments; this is because the obligation arose with the actual financial transaction that was consummated between the borrower and the source of funds.  The source of funds was a stranger to the documentation that the borrower signed.  Since the actual handling of the money involved an escrow Superfund (or at least it appears that this is the case) we do not know if the “lender” is or could be identified from the larger group of investors whose money was intermingled and combined into a single escrow account.

The problem with the relationship of loans in “the pool” is that there doesn’t appear to have been a pool in which such a relationship could exist.  The co-mingling of funds in the accounts held by the investment banker might make all of the investors general partners in a common law general partnership.  We have found NO EVIDENCE OF SEPARATE ACCOUNTS for the individual REMICS. And the investment banker, sub-servicer and  Master servicer are fighting us tooth and nail in discovery requests to get that information. IF they had a legitimate claim, they would have produced it as exhibits to their own pleading. Instead they are trying to hide those facts and including the flow of funds starting from before the actual origination of the loan. Too many cases, we see Ginny or Fannie report ownership of a loan that has not even closed in the false sense , much less in the true sense where the borrower and lender are properly disclosed and the terms of repayment are known by both sides of the transaction.

However, this wouldn’t be the first time that we were correct and the judge did not follow the law.  It is for that reason that I have largely abandoned the argument about contribution and I have now started writing about the fact that if the assignment of the note was in fact an assignment of the obligation, the assignment was merely one element out of three required for a valid contract (offer, acceptance, consideration).   And while many people have now picked up on the fact that the trustee of the pool did not have the right to accept a loan which has been declared in default years after the cut off period expired, I have been going a little further suggesting that the state and federal judges are making decisions adverse to the investors by forcing them to accept a loan that they obviously wanted to avoid, and the acceptance of which would violate the terms under which they loaned the money.  

This is a tricky area to navigate because on the one hand you’re saying that the loan never made it into the pool but on the other you’re saying maybe it did get into the pool but if the only vehicle by which it made entry into the pool was a judicial order declaring in effect that the loan became part of the pool and therefore the entity representing the pool had a right to foreclosure, that order would constitute a judicial determination of the rights of investors who did not receive any notice of the proceeding nor any opportunity to be represented or heard before such an order could be entered.  These are difficult waters to navigate.  

Considerable thought should be given as to which strategy will be used.  There is an old adage that basically says you have approximately 30 seconds to get the judge’s attention (at most) and perhaps 5 minutes to make your point (at most).  Thus if you’re going to proceed along any of the tracks stated or discussed in this email you must be prepared to be limited to a ruling on that track alone.  If you have 20 other tracks that you think have validity, then make sure they are in the record by way of pleadings, affidavits and a memorandum of law before the hearing in which you raise one of the above defenses.  It is a good idea to bring up defenses for which the other side is unprepared and which the judge has not yet heard.  It diminishes the appearance of making a decision that will affect 5 million other mortgages.  Ultimately though the decision is between you and your lawyer.

This article was prompted by a very reasoned argument presented by CA Attorney Dan Hanacek:

Even In the Event the Court Finds the “Assignment” Valid, the Assigning of the Note to a Co-Obligor Makes it Functus Officio

“It has long been established in California that the assignment of a joint and several debt to one of the co-obligors extinguishes that debt.” (Gordon v. Wansey (1862) 21 Cal. 77, 79.) “The assignment amounts to payment and consequently the evidence of that debt, i.e., the note or judgment, becomes functus officio (of no further effect)”-and precludes any further action on the note itself. Any action would not be on the note itself, but rather one for contribution. (Id.; Quality Wash Group V, Ltd. V. Hallak (1996) 50 Cal.App.4th 1687, 1700; Civ. Code §1432.) In the instant case, even if the alleged assignment is seen to be valid, then a co-obligor was assigned the note and the debt has been extinguished.

Note: the trustee of the securitized trust is a co-obligor.

Note: Fannie Mae, Freddie Mac and Ginnie Mae are co-obligors.

Note: the servicer is almost always a co-obligor.

Questions for Neil:

Have they extinguished this debt by endorsing it and/or assigning it to the transaction parties?

Does this only apply in CA?  I cannot believe that this would be the case.

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It’s Down to Banks vs Society

Posted on June 14, 2012 by Neil Garfield

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We are trying to rescue the creditors and restart the world that is dominated by the creditors. We have to rescue the debtors instead before we are going to see the end of this process. — Economist Steve Keen

Bankers Are Willing to Let Society Crash In Order to Make More Money

Editor’s Comment: 

I was reminded last night of a comment from a former bond trader and mortgage bundler that the conference calls are gleeful about the collapse of economies and societies around the world. Wall Street will profit greatly on both the down side and then later when asset prices go so low that housing falls under distressed housing programs and 125% loans become available in bulk. They think this is all just swell. I don’t.

The obvious intent on the part of the mega banks and servicers is to bring everything down with a crash using every means possible. When you look at the offers state and federal government programs have offered for the banks to modify, when you see the amount of money poured into these banks by our federal government in order to prop them up, you cannot conclude otherwise: they want our society to end up closed down not only by foreclosure but in any other way possible. They withhold credit from everyone except the insider’s club.

So now it is up to us. Either we take the banks apart or they will take us apart. I had a recent look at many modification proposals. In the batch I saw, the average offer from the homeowner was to accept a loan 20%-30% higher than fair market value and 50%-75% higher than foreclosure is producing. It seems we are addicted to the belief that this can’t be true because no reasonable person would act like that. But the answer is that the system is rigged so that the intermediaries (the megabanks) control what the investors and homeowners see and hear, they make far more money on foreclosures than they do on modifications, and they make far money on all the “bets” about the failure of the loan by foreclosing and not modifying.

The reason for the unreasonable behavior, as it appears, is that it is perfectly reasonable in a lending environment turned on its head — where the object was to either fund a loan that was sure to fail, or keep a string attached that would declare it as part of a failed “pool” that would trigger insurance and swaps payments.

Steve Keen: Why 2012 Is Shaping Up To Be A Particularly Ugly Year

At the high level, our global economic plight is quite simple to understand says noted Australian deflationist Steve Keen.

Banks began lending money at a faster rate than the global economy grew, and we’re now at the turning point where we simply have run out of new borrowers for the ever-growing debt the system has become addicted to.

Once borrowers start eschewing rather than seeking debt, asset prices begin to fall — which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices:

The reason that we have this trauma for the asset markets is because of this whole relationship that rising debt has to the level of asset market. If you think about the best example is the demand for housing, where does it come from? It comes from new mortgages. Therefore, if you want to sustain he current price level of houses, you have to have a constant flow of new mortgages. If you want the prices to rise, you need the flow of mortgages to also be rising.

Therefore, there is a correlation between accelerating and rising asset markets. That correlation applies very directly to housing. You look at the 20-year period of the market relationship from 1990 to now; the correlation of accelerating mortgage debt with changing house prices is 0.8. It is a very high correlation.

Now, that means that when there is a period where private debt is accelerating you are generally going to see rising asset markets, which of course is what we had up to 2000 for the stock market and of course 2006 for the housing market. Now that we have decelerating debt — so debt is slowing down more rapidly at this time rather than accelerating — that is going to mean falling asset markets.

Because we have such a huge overhang of debt, that process of debt decelerating downwards is more likely to rule most of the time. We will therefore find the asset markets traumatizing on the way down — which of course encourages people to get out of debt. Therefore, it is a positive feedback process on the way up and it is a positive feedback process on the way down.

He sees all of the major countries of the world grappling with deflation now, and in many cases, focusing their efforts in exactly the wrong direction to address the root cause:

Europe is imploding under its own volition and I think the Euro is probably going to collapse at some stage or contract to being a Northern Euro rather than the whole of Euro. We will probably see every government of Europe be overthrown and quite possibly have a return to fascist governments. It came very close to that in Greece with fascists getting five percent of the vote up from zero. So political turmoil in Europe and that seems to be Europe’s fate.

I can see England going into a credit crunch year, because if you think America’s debt is scary, you have not seen England’s level of debt. America has a maximum ratio of private debt to GDP adjusted over 300%; England’s is 450%. America’s financial sector debt was 120% of GDP, England’s is 250%. It is the hot money capital of the western world.

And now that we are finally seeing decelerating debt over there plus the government running on an austerity program at the same time, which means there are two factors pulling on demand out of that economy at once. I think there will be a credit crunch in England, so that is going to take place as well.

America is still caught in the deleveraging process. It tried to get out, it seemed to be working for a short while, and the government stimulus seemed to certainly help. Now, that they are going back to reducing that stimulus, they are pulling up the one thing that was keeping the demand up in the American economy and it is heading back down again. We are now seeing the assets market crashing once more. That should cause a return to decelerating debt — for a while you were accelerating very rapidly and that’s what gave you a boost in employment —  so you are falling back down again.

Australia is running out of steam because it got through the financial crisis by literally kicking the can down the road by restarting the housing bubble with a policy I call the first-time vendors boost. Where they gave first time buyers a larger amount of money from the government and they handed over times five or ten to the people they bought the house off from the leverage they got from the banking sector. Therefore, that finally ran out for them.

China got through the crisis with an enormous stimulus package. I think in that case it is increasing the money supply by 28% in one year. That is setting off a huge property bubble, which from what I have heard from colleagues of mine is also ending.

Therefore, it is a particularly ugly year for the global economy and as you say, we are still trying to get business back to usual. We are trying to rescue the creditors and restart the world that is dominated by the creditors. We have to rescue the debtors instead before we are going to see the end of this process.

In order to successfully emerge on the other side of this this painful period with a more sustainable system, he believes the moral hazard of bailing out the banks is going to have end:

[The banks] have to suffer and suffer badly. They will have to suffer in such a way that in a decade they will be scared in order to never behave in this way again. You have to reduce the financial sector to about one third of its current size and we have to also ultimately set up financial institutions and financial instruments in such a way that it is no longer desirable from a public point of view to borrow and gamble in rising assets processes.

The real mistake we made was to let this gambling happen as it has so many times in the past, however, we let it go on for far longer than we have ever let it go on for before. Therefore, we have a far greater financial parasite and a far greater crisis.

And he offers an unconventional proposal for how this can be achieved:

I think the mistake [central banks] are going to make is to continue honoring debts that should never have been created in the first place. We really know that that the subprime lending was totally irresponsible lending. When it comes to saying “who is responsible for bad debt?” you have to really blame the lender rather than the borrower, because lenders have far greater resources to work out whether or not the borrower can actually afford the debt they are putting out there.

They were creating debt just because it was a way of getting fees, short-term profit, and they then sold the debt onto unsuspecting members of the public as well and securitized their way out of trouble. They ended up giving the hot potato to the public. So, you should not be honoring that debt, you should be abolishing it. But of course they have actually packaged a lot of that debt and sold it to the public as well, you cannot just abolish it, because you then would penalize people who actually thought they were being responsible in saving and buying assets.

Therefore, I am talking in favor of what I call a modern debt jubilee or quantitative easing for the public, where the central banks would create ‘central bank money’ (we cannot destroy or abolish the debt, which would also destroy the incomes of the people who own the bonds the banks have sold). We have to create the state money and give it to the public, but on condition that if you have any debt you have to pay your debt down — no choice. Therefore, if you have debt, you can reduce the debt level, but if you do not have debt, you get a cash injection.

Of course, this would then feed into the financial sector would have to reduce the value of the debts that it currently owns, which means income from debt instruments would also fall. So, people who had bought bonds for their retirement and so on would find that their income would go down, but on the other hand, they would be compensated by a cash injection.

The one part of the system that would be reduced in size is the financial sector itself. That is the part we have to reduce and we have to make smaller.  That is the one that I am putting forward and I think there is a very little chance of implementing it in America for the next few years not all my home country [Australia] because we still think we are doing brilliantly and all that. But, I think at some stage in Europe, and possibly in a very short time frame, that idea might be considered.

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Az Statute on Mortgage Fraud Not Enforced (except against homeowners)

Posted on May 17, 2012 by Neil Garfield

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Editor’s Comment:

With a statute like this on the books in Arizona and elsewhere, it is difficult to see why the Chief Law Enforcement of each state, the Attorney General, has not brought claims and prosecutions against all those entities and people up and down the fraudulent securitization chain that brought us the mortgage meltdown, foreclosures of more than 5 million people, suicides, evictions and claims of profits based upon the fact that the free house went to the pretender lender.

Practically every act described in this statute was committed by the investment banks and all their affiliates and partners from the seller of the bogus mortgage bond (sold forward, which means that the loans did not yet exist) all the way down to the people at the closing table with the homeowner borrower.

I’d like to see a script from attorneys who confront the free house concept head on. The San Francisco study and other studies clearly show that many if not most foreclosures resulted in a “sale” of property without any cash offered by the buyer who submitted a credit bid when they had not established themselves as creditors nor had they established the amount due. And we now know that they failed to establish themselves as creditors because they neither loaned the money nor purchased the loan in any transaction in which they parted with money. So the consideration for the sale was not present or if you want to put it in legalese that would effect those states that allow review of the adequacy of consideration at the auction.

I’d like to see a lawyer go to court and say “Judge, you already know it would be wrong for my client to get a free house. I am here to agree with you and state further that whether you rule for the borrower or this pretender lender here, you are going to give a free house to somebody.

“Because this party initiated a foreclosure proceeding without being the creditor, without spending a dime on the loan or purchase of the loan, and without any right to represent the multitude of people and entities that should be paid on this loan. This pretender, this stranger to this transaction stands in the way of a mediated settlement or HAMP modification in which the borrower is more than happy to do a traditional workout based upon the economic realities.

“And they they maintain themselves as obstacles to mediation or modification because they have too much to hide about the origination of this loan.

“All I seek is that you recognize that we deny the loan on which this party is pursuing its claims, we deny the default and we deny the balance. That puts the matter at issue in which there are relevant and material facts that are in dispute.

“I say to you that as a Judge you are here to call balls and strikes and that your ruling can only be that with issues in dispute, the case must proceed.”

“The pretender should be required to state its claim with a complaint, attach the relevant documents and the homeowner should be able to respond to the complaint and confront the witnesses and documents being used. And that means the pretender here must be subject to the requirements of the rules of civil procedure that include discovery.

“Experience shows that there have been no trials on the evidence in all the foreclosures ever brought during this period and that the moment a judge rules on discovery in favor of the borrower, the pretender offers settlement. Why do you think that is?”

“If they had a good reason to foreclose and they had the authority to allege the required the elements of foreclosure and they had the proof to back it up they would and should be more than willing to put a stop to all these motions and petitions from borrowers. But they don’t allow any case to go to trial. They are winning on procedure because of the assumption that the legitimate debt is unpaid and that the borrower owes it to the party making the claim even if there never was transaction with the pretender in which the borrower was a party, directly or indirectly.”

“Neither the non-judicial powers of sale statutes nor the rules of civil procedure based upon constitutional requirements of due process can be used to thwart a claim that has merit or raises issues that have merit. You should not allow the statute and rules to be applied in a manner in which a stranger to the transaction who could not even plead a case in good faith would win a foreclosed house at auction without court review and a hearing on the merits.”

Residential mortgage fraud; classification; definitions in Arizona

Section 1. Title 13, chapter 23, Arizona Revised Statutes, is amended by adding section 13-2320, to read:
13-2320.

A. A PERSON COMMITS RESIDENTIAL MORTGAGE FRAUD IF, WITH THE INTENT TO DEFRAUD, THE PERSON DOES ANY OF THE FOLLOWING:

  1. KNOWINGLY MAKES ANY DELIBERATE MISSTATEMENT, MISREPRESENTATION OR MATERIAL OMISSION DURING THE MORTGAGE LENDING PROCESS THAT IS RELIED ON BY A MORTGAGE LENDER, BORROWER OR OTHER PARTY TO THE MORTGAGE LENDING PROCESS.
  2. KNOWINGLY USES OR FACILITATES THE USE OF ANY DELIBERATE MISSTATEMENT, MISREPRESENTATION OR MATERIAL OMISSION DURING THE MORTGAGE LENDING PROCESS THAT IS RELIED ON BY A MORTGAGE LENDER, BORROWER OR OTHER PARTY TO THE MORTGAGE LENDING PROCESS.
  3. RECEIVES ANY PROCEEDS OR OTHER MONIES IN CONNECTION WITH A RESIDENTIAL MORTGAGE LOAN THAT THE PERSON KNOWS RESULTED FROM A VIOLATION OF PARAGRAPH 1 OR 2 OF THIS SUBSECTION.
  4. FILES OR CAUSES TO BE FILED WITH THE OFFICE OF THE COUNTY RECORDER OF ANY COUNTY OF THIS STATE ANY RESIDENTIAL MORTGAGE LOAN DOCUMENT THAT THE PERSON KNOWS TO CONTAIN A DELIBERATE MISSTATEMENT, MISREPRESENTATION OR MATERIAL OMISSION.

Those convicted of one count of mortgage fraud face punishment in accordance with a Class 4 felony.  Anyone convicted of engaging in a pattern of mortgage fraud could be convicted of a Class 2 felony


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Lehman retrieves $60bn for creditors

Posted on September 24, 2010 by Neil Garfield

SERVICES YOU NEED

EDITOR’S NOTE: We are seeing more and more of these “recoveries.” The question we pose and that should be posed IN COURT is to whom this money is paid and more importantly, how is it going to be credited? Why is that important?

ANSWER: If that recovery means that the investors or investor pools recovered money then the obligations to those investors have been mitigated or reduced. Those obligations derived from liabilities that were represented to be principally from borrowers who had taken loans on their homes. If the obligations are reduced, then there should be a credit. That credit should be reported to the borrower but it isn’t. We continue this charade everyday with past, present and future foreclosures claiming amounts due that are overstated. In fact, many if not most of these foreclosures are relying upon the existence of a default that either never happened or was cured by these “recoveries.”

The simple fact is that a default does NOT occur because the named borrower fails to make a payment. The default actually occurs ONLY if the creditor fails to receive payment from ANY source. Think about it.

In commercial transactions, if the creditor has successfully mitigated the obligation without payment from the borrower, the obligation is still obviously reduced since the creditor is not entitled to recover more than the amount that is due. So why are we allowing the creditors and pretender lenders to recover multiples of the amount due in residential home foreclosures?

Note that this effects all Lehman entities which include notably Aurora Loan Servicing, BNC and dozens of other entities.

Lehman retrieves $60bn for creditors

By Telis Demos in New York

Published: September 22 2010 20:58 | Last updated: September 22 2010 20:58

The bankrupt estate of Lehman Brothers has recovered nearly $60bn in value for creditors since September 2008, but a decision on how to distribute the funds will not be finalised until next year at the earliest.

Bryan Marsal, a partner with restructuring firm Alvarez & Marsal and serving as Lehman’s chief executive, presented the bank’s “state of the estate” report in a Manhattan bankruptcy court on Wednesday.

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New Workshop on Motion Practice and Discovery

Posted on May 6, 2010 by Neil Garfield

why-you-should-attend-the-discovery-and-motion-practice-workshop

VISIT LIVINGLIES STORE FOR FREE VIDEOS AND OTHER RESOURCES

START WINNING CASES!!

May 23-24, 2010 2 days. 9am-5pm. Neil F Garfield. CLE credits pending but not promised. Register Now. Seating limited to 18. INCLUDES LUNCH AND EXTENSIVE MANUAL OF FORMS, NARRATIVE AND CASES. An in-depth look at securitized residential mortgages and deeds of trust. Latest cases on standing, nominees, splitting note from security instrument, bankruptcy strategies, expert declarations, forensic analysis reports.

Lawyers, paralegals, experts, forensic analysts will all benefit from this. This workshop includes monthly follow-up teleconferences and continuing on-going support with advance copies of articles, cases and analysis.

  1. STRATEGIC REVIEW: WHY THESE CASES ARE BEING WON AND LOST IN MOTION PRACTICE.
  2. SECURITIZATION REVIEW
  3. USE OF FORENSIC REPORTS AND EXPERT DECLARATIONS
  4. RAISING QUESTIONS OF FACT IN CREDIBLE MANNER
  5. SETTING UP AN EVIDENTIARY HEARING
  6. FOLLOW THE MONEY
  7. OBLIGATION, NOTE, BOND, MORTGAGE, DEED OF TRUST ANALYSIS
  8. TILA, RESPA, QWR, DVL AND RESCISSION — WHY JUDGES DON’T LIKE TILA RESCISSION AND HOW TO OVERCOME THEIR RESISTANCE.
  9. NOTICE OF DEFAULT, TRUSTEE, STANDING, REAL PARTY IN INTEREST EXAMINED AND REVIEWED
  10. INVESTORS, REMICS, TRUSTS, TRUSTEES, BORROWERS, CREDITORS, DEBTORS, HOMEOWNERS
  11. FACT EVIDENCE ON MOTIONS
  12. FORENSIC EVIDENCE ON MOTION
  13. EXPERT EVIDENCE ON MOTION
  14. ORAL ARGUMENT
  15. WHAT TO FILE
  16. WHEN TO FILE
  17. EMERGENCY MOTIONS — MOTION TO LIFT STAY, MOTION TO DISMISS, TEMPORARY RESTRAINING ORDERS, MOTION TO COMPEL DISCOVERY
  18. DISCOVERY: INTERROGATORIES, WHAT TO ASK FOR, HOW TO ASK FOR IT AND HOW TO ENFORCE IT. REQUESTS TO PRODUCE. REQUESTS FOR ADMISSIONS. DEPOSITIONS UPON WRITTEN QUESTIONS.
  19. FEDERAL PROCEDURE
  20. STATE PROCEDURE
  21. BANKRUPTCY PROCEDURE
  22. ETHICS, BUSINESS PLANS, AND PRACTICAL CONSIDERATIONS

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Investors Settle for $600 million — so which loans get credit for that payment?

Posted on April 27, 2010 by Neil Garfield

Editor’s Note: This is what we are hearing about. What about the settlements that go unreported? The number of settlements that are off-record (unreported) is unknown but suspected to be very high. [One of the reasons why it is SO important to get the true CURRENT status of the SPV and the true FULL accounting of payments to the investors because THEY are the creditors.] You might be sitting on a loan where the principal balance has been paid in whole or in part, which makes those monthly statements wrong, along with notices of delinquency, notices of default, notices of sale and foreclosure suits.

These lawsuits and settlements are DIRECTLY related to the balance due on homeowner loans. The investors were the ONLY source of capital. That capital was pooled and channeled through SPV’s. It was from the pool that loans were funded. Don’t get confused by mistakes in the media. The securities were FIRST sold to investors and THEN they went looking for people to loan the money.

So each time that a payment has been made on behalf of any pool from any source there should be an allocation to the borrower’s principal balance for each of the loans in that pool. Instead, the game is on: credit the investors but don’t tell the borrowers anything. That enables the PRETENDER LENDERS to grab houses for nothing and to collect monthly payments on loans that are already paid in full, unknown to the borrower. It’s the perfect crime: the borrower knows he has missed payments. What he/she doesn’t know is that someone made the payments already.  Worst case scenario for the pretender lenders is that they collect twice (collectively as a group).

By Jef Feeley and Edvard Pettersson

April 23 (Bloomberg) — Countrywide Financial Corp. investors, led by a group of New York retirement funds, have agreed to settle a class-action lawsuit for more than $600 million, a person familiar with the case said.

U.S. District Judge Mariana Pfaelzer in Los Angeles in December certified a class of investors who bought Countrywide shares or certain debt securities from March 12, 2004, to March 7, 2008. The U.S. appeals court in San Francisco on April 19 denied the defendants permission to appeal that ruling. No settlement papers have been filed.

Shirley Norton, a spokeswoman for Bank of America Corp., which acquired Countrywide in 2008, declined to comment. Jennifer Bankston, a spokeswoman for Labaton Sucharow LLP, the firm representing the pension funds, said mediation between the parties took place this month and declined to comment on the settlement.

The New York State Common Retirement Fund and five New York City pension funds claimed former Countrywide Chief Executive Officer Angelo Mozilo and other executives hid from them that the company was fueling its growth by letting underwriting standards deteriorate. Bank of America acquired Calabasas, California-based Countrywide, which was the biggest U.S. home lender, in July of 2008.

The Daily Journal, a Los Angeles legal newspaper, first reported the settlement.

SEC Lawsuit

Mozilo, 71, is also a defendant, together with two other former Countrywide executives, in a U.S. Securities and Exchange Commission lawsuit alleging he publicly reassured investors about the quality of the company’s home loans while he issued “dire” internal warnings and sold about $140 million of his own Countrywide shares.

He wrote in an e-mail in September 2006 that Countrywide was “flying blind” and had “no way” to determine the risks of some adjustable-rate mortgages, according to the SEC complaint filed in June.

David Siegel, a lawyer for Mozilo, didn’t immediately return a call seeking comment.

The class-action lawsuit names 50 defendants, including Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co. and 23 other Countrywide underwriters. It also named the auditing firm KPMG LLP. The underwriters and KPMG are accused of securities-law violations and not fraud.

Dean Kitchens, a lawyer representing the underwriters, and Todd Gordinier, a lawyer representing KPMG, didn’t immediately return calls seeking comment.

The case is In re Countrywide Financial Corp. Securities Litigation, 07-05295, U.S. District Court, Central District of California (Los Angeles).

–Editor: Michael Hytha, Peter Blumberg.

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

Filed under: bubble, CASES, CDO, CORRUPTION, Eviction, expert witness, Fannie MAe, foreclosure, foreclosure mill, Forensic Analysis Workshop, GTC | Honor, HERS, investment banking, Investor, MODIFICATION, Mortgage, Motion Practice and Discovery, securities fraud, Securitization Survey, Servicer, STATUTES, trustee, workshop | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 6 Comments »

800-Numbers Lead to Runaround as Banks Refuse to Modify Mortgages

Posted on March 31, 2010 by Neil Garfield

Rule of Thumb: If they can’t execute a release or satisfaction of the mortgage, then they can’t foreclose. And if they did, it is reversible.

Whistle-Blower: Banks Give Homeowners the Runaround

“In our managers meeting, which can last eight or nine hours, we probably addressed mortgage modifications five minutes or less,” the banker said.

Editor’s Note: The reason is simple. They want the property. They can get the property because of pandemic confusion over securitization. They can’t modify mortgages as easy as they can foreclose. They don’t have the right, title, interest or authorization to modify mortgages because they never advanced a dime for the funding of those mortgages. But because non-judicial states make it real easy for anyone with a bogus piece of paper to foreclose and get title to the property, and because investors who are the real creditors are not asserting their right, title and interest, it’s easy for a pretender lender to pick up a free house.

And due to heavy caseloads and poor understanding of securitized mortgages in judicial states, the same rules seem to apply as non-judicial states — homeowners are generally not heard on the merits of their defenses and claims. The foreclosure proceeds, automatic stays are lifted in bankruptcy court, all because the Judge is not directed to look at the paperwork.

By DAVID MUIR
March 23, 2010
// A vice president for one of the nation’s biggest banks claims customers looking for help in lowering their mortgage payments are often told to call an 800 number — where he says representatives then give homeowners the runaround.

//

//

David Muir gets answers from a vice president of one of the biggest banks.

The bank executive spoke to ABC News on the condition that ABC News not show his face or name him, because he feared coming forward would cost him his job.

Of the 1.1 million homeowners who’ve signed up for the federal program aimed at avoiding foreclosures, only 168,000, or 15 percent, of homeowners have had their mortgages permanently modified.

“In our managers meeting, which can last eight or nine hours, we probably addressed mortgage modifications five minutes or less,” the banker said.

Americans Frustrated by Banks

Jay and LeeAnn Givan are two of those frustrated Americans who reached out to ABC News about their banks. They say they’ve run out of time and money. Both lost their jobs in the recession, and they have been begging their bank since last September to modify or refinance their mortgage. Six months later, all the paperwork and phone calls have amounted to nothing.

“The bank’s not interested in helping us,” LeAnn said. “Just a couple of weeks ago, Jay was on the phone for two hours being transferred from department to another department until finally somebody told him, ‘Look, we can’t help you until you stop paying on your house.'”

//

The couple made its last mortgage payment last week.

“I have heard that,” the banker said. “That will affect their credit card, their insurance, [have] a big effect on their credit history.”

The banker described homeowners pleading to him for help, but he said his bank is not interested in modifying mortgages, even after taxpayers helped bail out the nation’s biggest banks.

“It’s just not happening,” said the banker.

The banker said there is significant pressure on bank employees to get customers to take on more accounts than they need because of the late fees and penalty fees that will then co

I have watched the news story about Banks helping with Foreclosure etc…..THEY WILL NOT HELP if they are WELLS FARGO…..They were terrible with my 82 year old mothers mortgage.After being a loyal customer for years shw was not able to get help from me with her mortgae because I was laid off and at that time for a year already….They ASSURED us that a modification was to be done and to NOT PAY anything until it was completed because those payments would be included in new mortgage….we called for months and tried to make some payments only to have house start into foreclosure with their lawyers, be served embarassing papers and be put into undue stress. Went thru Wells President John Stump and 4 other Board members to only be told BANK OWNING YOUR MORTGAGE WILL NEVER AND WOULD NEVER HAVE DONE A MODIFICATION. Why were we told it was being worked on for over 6 months…why a run around like that to a senior citizen who has worked her whole life. End result was COME UP WITH $4500 IN 2 WEEKS or bye bye home your out of there. Terrible to do to anyone. I had found out we were one of 10’s of thousand that Wells did exactly this to also. Just google that problem and you will see. SHAME ON WELLS FARGO and all these banks taking money from us and the government and putting people in worse trouble.
barkleyandme1 11:16 AM
Americans like to sue over everything. Seems like there is grounds for a class action suit against the banks. They used my money for what seems to be strictly their benefit and bonuses. Where are all the lawyers now. Let’s bring suit against the banks for not fulfiling their obligation to the publc. We bailed them out in good faith and they turned around and screwed us.
tjbmeb 9:33 AM

S.W.Florida..I have applied for a modification with Select Portofolio Service, as of this date I have NOT received any information other that it is under review. After reading all the horror stories on this site. I have deceiced that if the modification doesn’t go thru I will foreclose. I will walk away with no hesitation. Why should I pay good money for a bad investment. My money was solid when I purchased the home. However with all the greed from lenders over inflating homes I have no pity. I worked too hard for the American Dream only to be disappointed by Wall Street greed. Come on Obama put your money where your mouth is!

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , | 13 Comments »

Ambac Clients May Receive 25 Cents on Dollar in Cash

Posted on March 29, 2010 by Neil Garfield

Editor’s Note: The significance of this announcement is that the bondholders, who were insured directly by AMBAC (as opposed to the investment bankers who bought “bets” like credit default swaps) are receiving 25 cents on every dollar they funded as creditors for the funding of loan to homeowners (debtors/ borrowers).

This supports and corroborates two basic premises of this blog:

1. That the bondholders (i.e., the creditors in every securitized residential mortgage) have been paid or are covered, at least in part by insurance. Thus the allegation of a defense of payment or partial payment is confirmed. This supports the contention of the borrower that he is entitled to a FULL accounting of ALL monies relating to his obligation before any claim for default can be verified.

2. That the requirement of principal reduction is neither a gift nor any display of inequity. It is clear that principal reduction is as much a simple consequence of arithmetic as it is damages for appraisal fraud.

By Andrew Frye and Jody Shenn

March 25 (Bloomberg) — Ambac Financial Group Inc. clients will probably get about 25 cents on the dollar in cash for claims on about $35 billion of home-loan bonds backed by the insurer, the firm’s regulator said.

“Currently, my expectation is we’d be at approximately 25 cents cash” on the portfolio, with Ambac meeting the rest of its obligation by handing over surplus notes, Wisconsin Insurance Commissioner Sean Dilweg said today in a telephone interview from New York. The arrangement isn’t final until approved by a court, he said. The notes may be repaid, with regulator permission, if surplus funds remain.

Dilweg is taking over a portion of Ambac’s policies to protect municipal bondholders who count on the company’s guarantees. He halted payments on the $35 billion of mortgage bond policies and other contracts, saving Ambac about $120 million this month. That move will encourage the hedge funds, pension plans and other investors that hold the protection to negotiate with New York-based Ambac, Dilweg said.

“The only way to start negotiating is if regulatory action is taken,” Dilweg said. Investors holding securities backed by Ambac “watched our activities but every month they’ve been getting 100 cents on the dollar, so what incentive is there to come and talk to us?”

The $35 billion of mortgage-bond policies are part of the contracts seized by Dilweg’s office under the plan announced today and are separate from a group of collateralized debt obligations backed by Ambac, he said.

Counterparty Settlement

Ambac’s main unit, domiciled in Wisconsin, has offered to pay $2.6 billion in cash and $2 billion of surplus notes to settle with counterparties including banks on CDOs tied to assets such as subprime loans, the parent company said in a statement today. The notes will collect 5 percent annual interest, also payable with regulatory approval, Ambac said.

The insurer’s existing assets will be used to pay claims, Dilweg’s office said in a court filing yesterday requesting permission to take over the policies. The regulator said clients should continue to pay premiums to maintain coverage.

Ambac “maintains the assets to continue paying claims in full as they arise,” the regulator said in the filing. By offering a mix of cash and notes, the company “will not need to liquidate long-term assets prematurely.”

Ambac, created in 1971 to insure debt sold by states and municipalities, lost its top credit ratings and 99 percent of its stock-market value after expanding from its main business into guaranteeing bonds backed by riskier assets and CDOs. The company guarantees $256 billion of the $1.4 trillion in insured municipal issuance, according to Bloomberg data. The muni market totals $2.8 trillion, according to the Federal Reserve.

Shares Plunge

The company said that while it doesn’t consider the regulator’s move to constitute a default, it may consider a “prepackaged bankruptcy.”

The company fell 14 cents to 66 cents in New York Stock Exchange composite trading as of 4:15 p.m. The shares are down from as high as $96.10 in May 2007.

Ambac sold the industry’s first insurance policy on municipal debt 39 years ago, for a $650,000 bond of the Greater Juneau Borough Medical Arts Building in Alaska. The business thrived, with a handful of competitors obtaining the top AAA credit rating needed to guarantee debt of state and local governments and their agencies that seldom defaulted.

Ambac’s main unit was stripped of its top ratings in 2008 and has since seen its grade cut 17 levels to Caa2 by Moody’s Investors Service.

“At this point, it’s not a question of AAA coverage,” Dilweg told Bloomberg Television today. “It’s a question of coverage.”

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Jody Shenn in New York at jshenn@bloomberg.net;

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, HERS, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , , , , , , , , , , , , | 7 Comments »

Home Sales Stall: Millions of Homes in Real Inventory

Posted on January 6, 2010 by Neil Garfield
Editor’s Comment: Any lawyer who does not think that issues relating to foreclosure will not dominate his or her practice of law is in a state of denial and delusion. The 16% drop in new home-sale contracts (see article below) means a similar or worse drop in sales over the next 30-60 days.

As we have said repeatedly along with the major newspapers, there is no relief in sight without principal reduction on mortgages. It’s not a matter of ideology or even law. It is a matter of pure practicality. The choice is between a total loss and a partial loss.

More and more articles and reports are emerging that clearly show that millions of homes are going to be abandoned and suddenly added to the foreclosure lists simply because the owners choose to take the FICO credit score hit and rent a comparable house for a fraction of the payments demanded under their crazy inflated mortgages.  Really, why continue to pay on a $500,000 note for a property that is worth $300,000? Why? hope you will break even in 5-10 years? Just not a good business decision.

In the anti-deficiency states like Arizona the “lenders” (who incidentally don’t qualify as creditors) can only take the house. In the states that permit pursuit of the deficiency judgment, it is a waste of time and money because nearly everyone is basically cleaned out — no cash, no savings and no available credit. So there is no point in continuing this farce any further. The homes are not worth what is owed and never will be worth that amount even after the market “recovers”.

Now add to the equation that the parties being ordered into mediation, modification or attempting short sales or settlements are mismatched: one of these things is not like the other. On the one side you have people who really own a home and on the other you have people who don’t even know who the creditor is much less possess the authority to approve a short sale or settlement or issue a satisfaction of mortgage.

There is no way out except through principal reduction or letting the entire housing market collapse into chaos. The real crisis is coming over the next few months. The “Great Recession” was just the appetizer and although there is time to avoid the full impact of what was done on Wall Street, it seems unlikely that anyone in office is willing to “call it” like the doctor announcing the time of death.
January 6, 2010

Slowing Pace of Home Sales Raises Fears of New Retreat

The number of houses placed under contract fell sharply in November in the first drop in nearly a year, figures released Tuesday show. It was the clearest sign yet that predictions of another downturn in real estate may become a reality.

The National Association of Realtors said that its index of pending home sales plunged to 96 from a revised level of 114.3 in October. Analysts had predicted a drop, but nothing like that.

“We thought it would drop 2 percent,” said Jennifer Lee of BMO Capital Markets. “When you see 16 percent, the first thing you say is, what the heck happened here?”

Since the majority of pending sales become final in six weeks to two months, the index is considered a reliable indicator of where the market is headed. The index is calculated by comparing the number of pending sales with the level of 2001, when the index was formulated.

The data indicates that the weakest parts of the country are the Northeast and Midwest, both of which fell 26 percent in November from the previous month after adjusting for seasonal variations. The South dropped 15 percent, while the West was off 3 percent.

Ms. Lee called the drop from October to November “unnerving” but said that the index remained well above the level of a year ago. In November 2008, when the financial crisis was at its peak and buying a home required a faith in the future that many did not feel, the index was 83.1.

As the overall economy improves and the employment situation grows a little less dire, the question becomes whether real estate can muddle through — or if it will need a new round of government support to ward off another damaging downturn.

There are plenty of reasons for worry. The Obama administration’s effort to compel lenders and servicers to modify loans has not been a success. Many of these owners will eventually lose their homes to foreclosure.

Meanwhile, a quarter of homeowners with mortgages owe more than their houses are worth. If prices start dropping again, some will be induced to walk away, further undermining the market.

“I wouldn’t rule out more stimulus, especially in an election year,” said Ivy Zelman, an analyst.

Last year’s stimulus efforts, however expensive and divisive, calmed a market where prices had plummeted by a third. Even now, the government’s efforts to push down interest rates and entice buyers with a tax credit appear to be having an effect, keeping a weak market from getting weaker.

Walter Martin and Paloma Munoz, artists in Dingmans Ferry, Pa., are a stimulus success story. They are paying $360,000 for a new home 10 miles away without even having an offer for their current home.

“The new home has enough space for us both to have studios,” Ms. Munoz said. “The price is amazing, we are getting a mortgage at a 5.125 rate, and we qualify for a $6,500 credit.”

It is a leap of faith, she acknowledged, but an eminently sensible one. “When houses were expensive, everyone wanted to buy, and now that they’re cheap everyone is scared,” she said.

Buyers like Ms. Munoz and Mr. Martin are outnumbered, however, by people who think the market still has room to fall. While some of these may indeed be scared, others simply see a virtue in patience.

“With two growing boys, we are busting out of our small house,” said Stephen Sencer, deputy general counsel at Emory University in Atlanta. “But I’m still waiting for sellers to capitulate.” His agent is telling Mr. Sencer that may happen in the spring.

Starting from a low of 80.4 last January, pending sales rose for nine consecutive months in 2009. The index proved a harbinger of both completed sales, which began climbing in April, and prices, which started rising over the summer.

As the Nov. 30 expiration of the tax credit drew near, would-be buyers hastened to secure deals. Sales in November roared at a 6.54 million annual pace, the highest since February 2007.

At the last minute, Congress extended and broadened the credit. The urgency immediately dissipated. “We were really, really pushing hard, and I think everyone just wore out,” said Steve Havig, president of Lakes Area Realty of Minneapolis.

Buyers now have until April 30 to qualify for the credit. Many analysts say the effect this time around will be mild.

“It could turn out the second credit has such a small impact it doesn’t show up in the data,” said Patrick Newport of IHS Global Insight.

Nevertheless, he predicts the downturn this time will be gentler. “The economy is improving, and that is what the market needs to get back on a sustainable path,” Mr. Newport said.

Long before the tax credit ends, another stimulus effort is due to disappear. The Federal Reserve has bought more than a trillion dollars of mortgage-backed securities in a successful effort to push down mortgage rates. The Fed is scheduled to wind down the program by March 31.

Rates are already moving higher, exceeding 5 percent in some lender surveys. Perhaps as a result, mortgage applications to buy homes in late December were a third lower than during the corresponding period in 2008, the Mortgage Bankers Association said.

The Fed’s Open Market Committee left itself leeway in its December meeting to start buying again, saying it “will continue to evaluate the timing and overall amounts of its purchases of securities.”

Rising rates could hamper Mr. Martin and Ms. Munoz’s search for a buyer for their old house.

“It’s been on the market for almost three months,” she said. “We have had very few viewings.”

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