Warren, Cummings and Waters to Banks and Regulators: Not So Fast!!!

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What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, Tennessee, Georgia, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Analysis: As we move into the fifth inning of a nine inning game, it looks like we are going into overtime. Just as the GOP failed to read the census and lost the national elections, the Banks have failed to read the Congressional Census and are finding that the “deals” they made with regulators and law enforcement are not the end of the story. There are people in office now who do actually give a damn and who want to do something about Wall Street grifting.

Elizabeth Warren is leading the charge: They want full disclosure of the failed review process, and full disclosure of the deal that was reached. This could be a problem for banks who are holding worthless mortgage bonds and for entities claiming that they own loans that either never existed at all or were misstated in every meaningful way.

Warren and others want oversight of the deal this time and they are likely to get it, one way or another. It would be nice is the President took some time out of his schedule, albeit precious little free time exists, and decide for himself the direction that should be taken now that Geithner is leaving. Maybe he already has.

The questions that remain in the context of doing what is best for the country remain unresolved:

  1. Knowing that the title chain is corrupted in all 50 states and that the amount of chaos ranges all the way up to 80%, what are the remedial steps required to boost confidence in the title registries around the country? At present it is a leap of faith to even buy a plot of empty land.
  2. Knowing now that the investors put up the money and borrowers put down payments on homes and refinancing, how will the victims of Wall Street chicanery be compensated by a appointment of a receiver? Restitution is a fundamental bedrock for fraudulent deals. What economic, legal or financial reason would there be to allow the Wall Street banks that took and kept the loss mitigating payments from insurance, credit default swaps, and bailouts for the U.S. Treasury and Federal Reserve.
  3. Knowing that the quantitative easing and Federal bailouts, insurance and credit default swaps were supposed to mitigate damages and most importantly re-start lending and commerce, how do we move those trillions (estimates run as high as $17+ trillion) back to the economy which remains gasping for air.
  4. Knowing that the Wall Street frequently diverted documents and money from investors, this leaving borrowers with no authorized party with whom they could negotiate a modification based upon the true balance owed on the loans, how will the government announce its conclusions without starting a run on the big banks that may bleed over to the small banks.
  5. Knowing that some 14 banks have grown to a size with cross border relationships that there is no one regulatory agency to watch and correct them, how will the banks be brought down to a size that can be regulated? And in a related matter, how do we level the playing field such that the mega banks no longer control the size, growth, and business plans of smaller banks.
  6. AND knowing the criminal acts performed by or on behalf of the mega banks by specially created corporations, law offices and other vendors, how will the government bring these people to justice in a way that is meaningful — i.e., that will deter Wall Street titans from doing it again?
  7. How will the government take the reigns of regulation such that settlements for pennies on the dollar avoids civil and criminal prosecution by the government that is supposed to protect those who cannot adequately protect themselves, and avoids administrative complaints against the bank charter.
  8. How will the administration demonstrate to every American that the Government is running the show, not the Banks.
  9. Knowing that the vast majority of foreclosures were completed” by strangers to the transactions, what do we do the displaced homeowners and the homes that were put in distress as a result of a ball of lies?
  10. If the review process was revealing damages to homeowners (and indirectly to investors) that were vastly understated, as alleged by numerous whistle-blowers, then what will be installed as a watchdog over that process and what resources will be applied to get to the truth rather than a PR result?

Warren Demands Transparency On Failed Foreclosures
http://www.huffingtonpost.com/2013/01/31/elizabeth-warren-foreclosure-reviews_n_2592551.html

Elizabeth Warren Demands Mortgage Settlement Documents From Regulators
http://news.firedoglake.com/2013/01/31/elizabeth-warren-demands-mortgage-settlement-documents-from-regulators/

Time Running Out on Foreclosure Renters

CHECK OUT OUR DECEMBER SPECIAL!

What’s the Next Step? Consult with Neil Garfield

For assistance with presenting a case for wrongful foreclosure, please call 520-405-1688, customer service, who will put you in touch with an attorney in the states of Florida, California, Ohio, and Nevada. (NOTE: Chapter 11 may be easier than you think).

Editor’s Comment: It would sound like a joke if it were not so real. First you oversell mortgages, throwing underwriting standards overboard, then comes the inevitable foreclosure and eviction of the homeowner — but not the tenant who WAS protected under Federal law but is no longer going to receive that protection. Millions of people are going to be seeking rental accommodations.

The result? rental prices will go up creating a new tax on those who rent, and housing starts will increase. Think about it, we build a bunch of houses, sell them as exorbitant rates knowing we are going to get thrown back in our lap, we create blighted abandoned neighborhoods and towns and subdivisions, and the solution selected is not to find a way to put people in homes that are unoccupied but to build more houses.

Policy makers like new construction because of the impact on jobs. Investors like renting because they get higher and higher rental income on their properties. But the essential problem of homelessness will remain because the rents will be priced outside the capability of the prospective renters.

Wouldn’t it be a better idea to keep the homes occupied, to prevent blighted neighborhoods where the cities bulldoze the homes away because the banks walked away from their responsibility as “owners?” Wouldn’t it be a better idea to keep getting tax revenue from these homes? Wouldn’t it be better for utilities and local businesses to have the people occupying these homes pay their bills and revive a stagnant economy and unemployment?

Of course we could start with extending the rights of tenants to stay in homes legally rented to them by the homeowners. But amongst the millions soon to be displaced are those homeowners who occupy their homes, who put earnest money into the deal and more money to fix up and furnish the place. Most of them had no idea that the amount demanded in the notice of default, in the foreclosure and in the auction was simply a wild guess without taking into account the money received from insurance, credit default swaps and federal bailouts.

Most had no idea that the party foreclosing on them had not invested one dime into the funding or purchase of their loan. These people were every much a victim of fraud as the investors who bought bogus mortgage bonds. We know the remedy for fraud but in this country it has a twist. If you are big enough and you commit fraud you to keep the money and property obtained through illegal or criminal means. But if you are the little guy then you get prosecuted for numbers on an application form that you never saw, much less filled out until closing along with a 3 inch stack of papers to initial and sign.

PRACTICE HINT: WHETHER YOU ARE REPRESENTING THE HOMEOWNER OR THE RENTER THERE ARE VIABLE, WINNABLE DEFENSES THROUGH DENY AND DISCOVER. WITH RENTERS THE DEFENSE WILL BE RAISED THAT A RENTER CANNOT CHALLENGE TITLE.

But the only reason why the party seeking eviction (forcible detainer) has standing is that title changed. The allegation of a change in title is an essential part of their pleading.

You should argue that if they bring up title then you have the right and obligation to defend it by showing that the title that was recorded was procured through fraudulent means.

The renter still owes the money to the homeowner. The response should be a counterclaim or interpleader in which the homeowner and the “new” owner fight it out over who gets the rent money. Otherwise the renter could be twice liable for the same rent if the unit owner prevails in overturning the foreclosure.

Renters At Risk In Foreclosure Crisis Rely On Short-Term Federal Law

Renters Foreclosure Crisis

A group of homeless people sit around the fire at their homeless encampment near the Mississippi River on Feb. 23, 2012, in St. Louis. (AP Photo/Tom Gannam)

A key law that has prevented millions of low-income tenants from becoming homeless is set to expire at the end of the 113th Congress, kicking off what experts warn could be a new wave of evictions.

Homelessness is up 16 percent among families in major cities since the beginning of the foreclosure crisis, according to a report from the U.S. Conference of Mayors, and the number of renters affected by foreclosure has tripled in the past three years.

While public attention has centered on homeowners, research shows rental properties constitute an estimated 20 percent of all foreclosures, and 40 percent of families facing foreclosure-related evictions are renters. Those numbers translate into millions of Americans at risk of homelessness, many of them children.

What stands between many of those children and the streets is a little-known federal law that, barring congressional intervention, will expire in 2014.

In 2009, the Protecting Tenants at Foreclosure Act (PTFA) granted renters the right to stay in their homes until the end of their lease or, if they have no lease, for a minimum of 90 days. Without that guarantee, renters are dependent on a patchwork system of state and local protections that range from quite good — in California and Connecticut, for instance — to completely inadequate.

“States have not stepped up to ensure protections within their jurisdictions,” said Tristia Bauman, a housing attorney at the National Law Center on Homelessness & Poverty. “And so the PTFA is still the best protection available and we want to make sure that it lasts beyond 2014.”

Bauman is the primary author of the law center’s new report, “Eviction (Without) Notice,” that warns the homelessness problem for renters will only continue to worsen. The total number of renters has increased by 5.1 million nationally since 2000. In 2010, renters made up the majority of households in several of our nation’s most populous cities, and their numbers are expected to grow.

“This report shows how important PTFA’s protections are and the need to make them permanent,” said Maria Foscarinis, executive director of the National Law Center on Homelessness & Poverty in a statement. “But it also shows that, because many people are not aware of the law and oversight is limited, PTFA rights are often violated — leaving families across the country out on the street.”

A survey of 156 renters, many of them unaware of their rights under federal law, found the failure of new owners to determine the occupancy status of residents in foreclosed properties to be among the top PTFA violations cited by respondents.

“We found that new owners may make no effort to determine if the property is occupied,” said Bauman. “The tenant is left in a position where they may not know their properties have changed hands until they come home and their door is locked.”

A survey of 227 legal rights advocates cited lack of communication from new owners (85.9 percent); illegal, misleading or inaccurate written notices (68.1 percent); and harassment from real estate agents, law firms or bank representatives (61.1 percent) as top problems.

Pointing to these violations of the PTFA and the ongoing risk of homelessness as a result of the foreclosure crisis, Bauman said, “All of this speaks to the need for this law to continue to be a protection.”

Sheila Bair Paints Picture of President concerned with borrowers vs Team Concerned with Banks

Editor’s Note: Sheila Bair might have been thrown under the bus but she is still alive. Get her book if you really want to know about Obama and his team — it was a war in the White House. When Obama gets a second term I think we are going to see a large shakeout of old economic advisers who care about banks and new economic advisers who care about the country the people who live in it.

Sheila Bair Bashes Obama’s Economic Team — Here’s What She Has To Say About The President
http://www.businessinsider.com/sheila-bair-on-barack-obama-2012-9

People Have Answers, Will Anyone Listen?

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Editor’s Comment: 

Thanks to Home Preservation Network for alerting us to John Griffith’s Statement before the Congressional Progressive Caucus U.S. House of Representatives.  See his statement below.  

People who know the systemic flaws caused by Wall Street are getting closer to the microphone. The Banks are hoping it is too late — but I don’t think we are even close to the point where the blame shifts solidly to their illegal activities. The testimony is clear, well-balanced, and based on facts. 

On the high costs of foreclosure John Griffith proves the point that there is an “invisible hand” pushing homes into foreclosure when they should be settled modified under HAMP. There can be no doubt nor any need for interpretation — even the smiliest analysis shows that investors would be better off accepting modification proposals to a huge degree. Yet most people, especially those that fail to add tacit procuration language in their proposal and who fail to include an economic analysis, submit proposals that provide proceeds to investors that are at least 50% higher than the projected return from foreclosure. And that is the most liberal estimate. Think about all those tens of thousands of homes being bull-dozed. What return did the investor get on those?

That is why we now include a HAMP analysis in support of proposals as part of our forensic analysis. We were given the idea by Martin Andelman (Mandelman Matters). When we performed the analysis the results were startling and clearly showed, as some judges around the country have pointed out, that the HAMP loan modification proposals were NOT considered. In those cases where the burden if proof was placed on the pretender lender, it was clear that they never had any intention other than foreclosure. Upon findings like that, the cases settled just like every case where the pretender loses the battle on discovery.

Despite clear predictions of increased strategic defaults based upon data that shows that strategic defaults are increasing at an exponential level, the Bank narrative is that if they let homeowners modify mortgages, it will hurt the Market and encourage more deadbeats to do the same. The risk of strategic defaults comes not from people delinquent in their payments but from businesspeople who look at the principal due, see no hope that the value of the home will rise substantially for decades, and see that the home is worth less than half the mortgage claimed. No reasonable business person would maintain the status quo. 

The case for principal reductions (corrections) is made clear by the one simple fact that the homes are not worth and never were worth the value of the used in true loans. The failure of the financial industry to perform simple, long-standing underwriting duties — like verifying the value of the collateral created a risk for the “lenders” (whoever they are) that did not exist and was present without any input from the borrower who was relying on the same appraisals that the Banks intentionally cooked up so they could move the money and earn their fees.

Many people are suggesting paths forward. Those that are serious and not just positioning in an election year, recognize that the station becomes more muddled each day, the false foreclosures on fatally defective documents must stop, but that the buying and selling and refinancing of properties presents still more problems and risks. In the end the solution must hold the perpetrators to account and deliver relief to homeowners who have an opportunity to maintain possession and ownership of their homes and who may have the right to recapture fraudulently foreclosed homes with illegal evictions. The homes have been stolen. It is time to catch the thief, return the purse and seize the property of the thief to recapture ill-gotten gains.

Statement of John Griffith Policy Analyst Center for American Progress Action Fund

Before

The Congressional Progressive Caucus U.S. House of Representatives

Hearing On

Turning the Tide: Preventing More Foreclosures and Holding Wrong-Doers Accountable

Good afternoon Co-Chairman Grijalva, Co-Chairman Ellison, and members of the caucus. I am John Griffith, an Economic Policy Analyst at the Center for American Progress Action Fund, where my work focuses on housing policy.

It is an honor to be here today to discuss ways to soften the blow of the ongoing foreclosure crisis. It’s clear that lenders, investors, and policymakers—particularly the government-controlled mortgage giants Fannie Mae and Freddie Mac—must do all they can to avoid another wave of costly and economy-crushing foreclosures. Today I will discuss why principal reduction—lowering the amount the borrower actually owes on a loan in exchange for a higher likelihood of repayment—is a critical tool in that effort.

Specifically, I will discuss the following:

1      First, the high cost of foreclosure. Foreclosure is typically the worst outcome for every party involved, since it results in extraordinarily high costs to borrowers, lenders, and investors, not to mention the carry-on effects for the surrounding community.

2      Second, the economic case for principal reduction. Research shows that equity is an important predictor of default. Since principal reduction is the only way to permanently improve a struggling borrower’s equity position, it is often the most effective way to help a deeply underwater borrower avoid foreclosure.

3      Third, the business case for Fannie and Freddie to embrace principal reduction. By refusing to offer write-downs on the loans they own or guarantee, Fannie, Freddie, and their regulator, the Federal Housing Finance Agency, or FHFA, are significantly lagging behind the private sector. And FHFA’s own analysis shows that it can be a money-saver: Principal reductions would save the enterprises about $10 billion compared to doing nothing, and $1.7 billion compared to alternative foreclosure mitigation tools, according to data released earlier this month.

4      Fourth, a possible path forward. In a recent report my former colleague Jordan Eizenga and I propose a principal-reduction pilot at Fannie and Freddie that focuses on deeply underwater borrowers facing long-term economic hardships. The pilot would include special rules to maximize returns to Fannie, Freddie, and the taxpayers supporting them without creating skewed incentives for borrowers.

Fifth, a bit of perspective. To adequately meet the challenge before us, any principal-reduction initiative must be part of a multipronged

To read John Griffith’s entire testimony go to: www.americanprogressaction.org/issues/2012/04/pdf/griffith_testimony.pdf


Current Bank Plan Is Same as $10 million Interest Free Loan for Every American

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“I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.” Matt Taibbi

From Rolling Stone’s Matt Taibbi on Sheila Bair’s Sarcastic Piece

I hope everyone saw ex-Federal Deposit Insurance Corporation chief Sheila Bair’s editorial in the Washington Post, entitled, “Fix Income Inequality with $10 million Loans for Everyone!” The piece might have set a world record for public bitter sarcasm by a former top regulatory official.

In it, Bair points out that since we’ve been giving zero-interest loans to all of the big banks, why don’t we do the same thing for actual people, to solve the income inequality program? If the Fed handed out $10 million to every person, and then got each of those people to invest, say, in foreign debt, we could all be back on our feet in no time:

Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)

Every time I watch a Republican debate, and hear these supposedly anti-welfare crowds booing the idea of stiffer regulation of Wall Street, I wonder how many audience members know that Bair’s plan is more or less exactly the revenue model for all of America’s biggest banks. You go to the Fed, get a buttload of free money, lend it out at interest (perversely enough, including loans right back to the U.S. government), then pocket the profit.

Considering that we now know that the Fed gave out something like $16 trillion in secret emergency loans to big banks on top of the bailouts we actually knew about, you might ask yourself: How are these guys in financial trouble? How can they not be making mountains of money, risk-free? But they are in financial trouble:

• We’re about to see yet another big blow to all of the usual suspects – Goldman, Citi, Bank of America, and especially Morgan Stanley, all of whom face potential downgrades by Moody’s in the near future.

We’ve known this was coming for some time, but the news this week is that the giant money-managing firm BlackRock is talking about moving its business elsewhere. Laurence Fink, BlackRock’s CEO, told the New York Times: “If Moody’s does indeed downgrade these institutions, we may have a need to move some business around to higher-rated institutions.”

It’s one thing when Zero Hedge, William Black, myself, or some rogue Fed officers in Dallas decide to point fingers at the big banks. But when big money players stop trading with those firms, that’s when the death spirals begin.

Morgan Stanley in particular should be sweating. They’re apparently going to be downgraded three notches, where they’ll be joining Citi and Bank of America at a level just above junk. But no worries: Bank CFO Ruth Porat announced that a three-level downgrade was “manageable” and that only losers rely totally on agencies like Moody’s to judge creditworthiness. “A lot of clients are doing their own credit work,” she said.

• Meanwhile, Bank of America reported its first-quarter results yesterday. Despite that massive ongoing support from the Fed, it earned just $653 million in the first quarter, but astonishingly the results were hailed by most of the financial media as good news. Its home-turf paper, the San Francisco Chronicle, crowed that BOA “Posts Higher Profits As Trading Results Rebound.” Bloomberg, meanwhile, summed up results this way: “Bank of America Beats Analyst Estimates As Trading Jumps.”

But the New York Times noted that BOA’s first-quarter profit of $653 million was down from $2 billion a year ago, and paled compared to results of more successful banks like Chase and Wells Fargo.

Zero Hedge, meanwhile, posted an amusing commentary on BOA’s results, pointing out that the bank quietly reclassified nearly two billion dollars’ worth of real estate loans. This is from BOA’s report:

During 1Q12, the bank regulatory agencies jointly issued interagency supervisory guidance on nonaccrual policies for junior-lien consumer real estate loans. In accordance with this new guidance, beginning in 1Q12, we classify junior-lien home equity loans as nonperforming when the first-lien loan becomes 90 days past due even if the junior-lien loan is performing. As a result of this change, we reclassified $1.85B of performing home equity loans to nonperforming.

In other words, Bank of America described nearly two billion dollars of crap on their books as performing loans, until the government this year forced them to admit it was crap.

ZH and others also noted that BOA wildly underestimated its exposure to litigation, but that’s nothing new. Anyway, despite the inconsistencies in its report, and despite the fact that it’s about to be downgraded – again – Bank of America’s shares are up again, pushing $9 today.

OCCUPY MOVEMENT GETS MORE INVOLVED IN SPECIFICS

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EDITOR’S COMMENT: The Occupy movement is taking on a life of its own, expressing citizen outrage over the behavior of the banks and the complicity of the government in aiding and abetting the stealing of homes. As the movement matures, it is getting increasingly focussed on the weak spots of the Banks and it is having a political effect as well as a judicial effect. Judges are having conferences that differ substantially from the ones they had only 6 months ago.

Judges still want to move their calendar along. And the issue of “finality” still looms large for them — someone has to say “game over.” But they are expressing doubt and dismay as more and more cases show up where it is obvious that the Banks are playing fast and loose with the rules of evidence and more importantly, violating criminal statutes to get a house in which they have no economic interest.

I say we should give the Occupy movement as much support as possible and that we should encourage Occupy leaders to take whatever political action they can to turn the course of the country from becoming a third world nation. The failure of the judicial system and the failure of law enforcement to lead the way on this, as they did when we had the savings loan scandal in the 1980’s is a sure sign that our system is broken and we know who broke it — the Banks.

If we succeed, then we will have reversed control over the government to the people, and reverted to the rule of law required by our Constitution. For those who depend upon the Bill of Rights for their existence, like the NRA (which depends upon the second amendment) they should be aware that acceptance of the status quo means that government can and will take any action it wants ignoring the Constitutional protections that were guaranteed. First, they take your house, then your guns.

Occupy Protests Spread Anti-Foreclosure Message During National ‘Occupy Our Homes’ Action

WASHINGTON — In the late evening on Tuesday, Brigitte Walker welcomed Occupy Atlanta onto her property in an effort to save her Riverdale, Ga., home from foreclosure.

Walker, 44, joined the Army in 1985 and had been among the first U.S. personnel to enter Iraq in February 2003. “I wasn’t happy about it,” she told The Huffington Post early Tuesday afternoon, speaking of her deployment. “But it’s my call of duty so had to do what I was supposed to do. It was a very difficult duty. It was a very emotional duty.”

Walker saw fellow soldiers die, get injured. She saw a civilian with them get killed. “It was very nerve-wracking,” she said. “It makes you wonder if you’re going to survive.”

She was in Iraq until May 2004, when the shock from mortar rounds crushed her spine. Doctors had to put in titanium plates to reinforce her spine, which had nerve damage. Today her range of motion is limited, and she still experiences a lot of pain. She still struggles with post-traumatic stress disorder. Loud noises and big crowds are painful. The Fourth of July is difficult for her

She settled in Riverdale, a town outside of Atlanta, after purchasing a house in 2004 for $139,000. She has a brother who lives in the area and enjoyed it when she would visit him. “It seemed peaceful and quiet,” she said. “That’s what I needed.” Her active duty salary covered the mortgage.

But in 2007, the Army medically retired Walker against her wishes. “I thought I was going to rehab and come back,” she said. “But they told me I couldn’t stay in.” Walker now has to rely on a disability check.

After retiring from the Army, Walker used up her savings, and then got rid of a car to help pay her monthly mortgage payment. “I didn’t have problems until they put me out of the military,” she said. “It was just overwhelming.”

By April of last year, she was starting to fall behind on her mortgage. JPMorgan Chase — which owns Walker’s mortgage, according to an Occupy Atlanta press release — has since begun foreclosure proceedings. She said the bank is set to take her house on January 3.

“Nobody is willing to help me,” Walker said. “Where are the programs to help vets like me? I know I’m one of many.”

Enter Occupy Atlanta.

“I’m very hopeful that it will help me save my home and allow Chase to give me a chance to keep my home,” Walker said, speaking of the Occupiers. She added that she’s willing to celebrate Christmas with the activists.

“I guess,” she said with a laugh. “As long as it takes.”

Hours before Occupy Atlanta joined Walker at her home, the activists organized protests aimed at disrupting home auctions at three area courthouses. At a Fulton County Courthouse, civil rights leader Dr. Joseph Lowery joined 200 demonstrators at the county’s monthly foreclosure auction.

Across the country, activists associated with the Occupy movement and Occupy Our Homes reached out to families threatened by foreclosure and highlighted the crisis with marches, rallies and press conferences.

“Occupy Wall Street started because of a deep need in our country to address the financial and economic crisis that’s been created by the consolidation of wealth and political power in our country,” said Jonathan Smucker, 33, an organizer with Occupy Wall Street in New York. “The foreclosure crisis, at least as much as anything else, illustrates the deep moral crisis that we are facing. It illustrates what you have when you have your whole political system serving the needs of the one percent.”

Mothers spoke out on front lawns. In New York City, Occupy Wall Street marched through the streets of East New York. At the same time, Occupy groups were protesting home auctions in Nevada and New Orleans. In Seattle protesters tried to save a family from eviction. In all, activists took over vacant homes or homes facing foreclosures from being evicted in 20 cities.

During the actions, the activists tried to keep the mood light. In Chicago they planned a house-warming party for a family moving into an abandoned home. To announce their presence in New York, protestes held a block party and, in a play on police tape, wrapped a home in yellow tape bearing the word “Occupy.”

As the protest were taking place, the Government Accountability Office, an investigative arm of Congress, released a new report that found an increasing number of American homes are going unused, a spike attributed to high foreclosure and unemployment rates.

“According to Census Bureau data, nonseasonal vacant properties have increased 51 percent nationally from nearly 7 million in 2000 to 10 million in April 2010, with 10 states seeing increases of 70 percent or more,” the report read. “High foreclosure rates have contributed to the additional vacancies. Population declines in certain cities and high unemployment also may have contributed to increased vacancies.”

Vacant homes can cause a number of problems for the communities their located in, the report noted: “Vacant and unattended residential properties can attract crime, cause blight, and pose a threat to public safety.”

The need for action was obvious to Smucker.

“People need a place to live,” he said. “People need to have homes. Kids need to be able to count on not having to move, having some stability in their lives. That’s something we can all agree on in this country.”

Some of the most powerful stories came from the homeowners Occupiers targeted during the day’s events. One mother from Petaluma, Calif, held a press conference outside her home and discussed her struggle with foreclosure. An Oregon mother talked about her lose of a second job, cancer and bankruptcy at an event at her house.

In Old Fourth Ward neighborhood of downtown Atlanta, Occupiers came to the Pittman family home. Carmen Pittman, 21, said the home has been the backdrop to every family function and holiday dinner as far back as she can remember. The ranch-style home had been in the Pittman name since 1953.

“My every Christmas, my every Thanksgiving, my every birthday, my every dinner was in this house,” Pittman told HuffPost early this afternoon. “This was the base home. We could not stay away form this home. This home is my every memory.”

Now she worries that the last memory she will have is the home’s foreclosure. Her grandmother had become too sick to deal with the ballooning mortgage, and never addressed the court papers that arrived in the mail. Shortly before she passed away, the family finally realized the home was being foreclosed on when they got a notice on the front door. They have had to scramble ever since.

But on Tuesday, Pittman was feeling good about her prospects after the Occupy group had come to the house. “Maybe somebody heard my cries,” she said. “I’m full of sadness and joy. It’s like two mixed feelings at the same time.”

Walker, the Iraq War vet, let the Occupy Atlanta activists set up tents on her property this evening. While her eviction date is still set for Jan. 3, she said she remained cautiously optimistic that her situation could change.

“Everything’s fine,” she said. “Everything’s good. They have the tents set up outside. It’s awesome. I was a little nervous. But it’s awesome. I’m really hopeful and happy. I’m feeling really hopeful. I don’t feel like all is lost anymore.”

Additional reporting by Arthur Delaney.

Just some of the odd foreclosure stories of the last year:

CT Family Never Missed A Payment
Shock Baitch and his wife Lisa of Connecticut were threatened with foreclosure by Bank of America after never missing a payment. BofA mistakenly told credit agencies they were seeking a loan modification. “Now I am literally and financially paying for it,” Baitch told CTWatchdog.com.

BAIR: INDUSTRY COULD BE REELING FOR YEARS TO COME

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EDITOR’S NOTE: They report this like $20 billion is a big number. The Banks caused tens of trillions of dollars in damages, stole $13 trillion from investors, stole some $5 trillion worth of property from homeowners who legally still probably own the property but don’t know it, and they are making a big deal out of $20 billion. That number is a rounding error on the real numbers.

 

Foreclosure Fraud Price Tag: $20 Billion

Foreclosure Crisis

First Posted: 06/ 6/11 09:52 PM ET Updated: 06/ 6/11 09:52 PM ET

React

WASHINGTON — The nation’s largest mortgage companies are operating on the assumption that they will have to pay as much as $20 billion to resolve claims of widespread foreclosure abuse, an amount four times what they had originally proposed, the top federal official overseeing the discussions told state officials Monday, according to people who participated in the conversation.

Associate U.S. Attorney General Tom Perrelli told a bipartisan group of state attorneys general during a conference call that he believes the banks have accepted the realization that a wide-ranging settlement to the months-long probes will cost them much more than the $5 billion offer they floated last month, according to officials with direct knowledge of the call. Perrelli said he’s basing his belief on his recent conversations with representatives of the five targeted firms: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

Three unresolved issues remain, these people said. State and federal officials have not agreed on the scope of banks’ release from liability that would accompany such a deal; negotiators continue to hammer out how much of the money pot will be split between restructuring borrowers’ mortgages and bank fines, and officials are not yet near an agreement on how the coalition of state and federal government agencies will monitor and enforce bank behavior in the wake of a settlement agreement.

The settlement talks are the result of state and federal investigations launched last autumn after widespread reports that the five largest mortgage handlers illegally seized the homes of an unknown number of homeowners and improperly accelerated foreclosure proceedings by failing to amass required paperwork, in some cases allegedly lying about it to local judges. Over the past couple months, government officials have been in discussions with the banks to resolve claims of past abuses and set new standards to govern bank dealings with distressed homeowners.

The banks seek a quick resolution, according to sources who have participated in settlement talks, as falling home prices, a continuing high rate of delinquent borrowers, stagnant home sales, rising unemployment and slower economic growth batters bank stocks. Shares of Bank of America, the largest mortgage servicer, hit a two-year low Monday. Citigroup fell more than four percent. The 24-company KBW Bank Index has fallen nearly 11 percent over the past three months.

Top officials in the Obama administration, like Treasury Secretary Timothy Geithner, have said they want a quick settlement, too. Bank regulator Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, told a Senate panel last month that a settlement must be reached due to “significant” damages the banks face from “flawed mortgage banking processes [that] have potentially infected millions of foreclosures.”

The industry could be reeling for years, Bair warned.

Don’t Ask, Just Cram: It’s Time to Put Mortgage Modifications Back into Judges’ Hands

Don’t Ask, Just Cram: It’s Time to Put Mortgage Modifications Back into Judges’ Hands

By Abigail Field Posted 12:00PM 04/06/11 Columns, Real Estate, Credit

Many state attorneys general, federal law enforcers and regulators say they want big banks to pay for their fraudulent foreclosures and abusive mortgage servicing practices by reducing what borrowers owe them by some $20 billion. That’s the amount the banks allegedly saved by doing a lousy job servicing troubled mortgages. (That math is questionable at best, Yves Smith noted when that figure began making the rounds.)

But the solution to this problem is not a settlement with the banks that mandates principal write-downs. Principals on these loans should be reduced, but it should be done in the most efficient, effective way: Congress should give bankruptcy judges back a power they once had — the right to reduce the principal on a mortgage to the home’s current market value. In other words: Bring back the cram down.

Reducing mortgage principals to homes’ current market value is critical step to healing our economy. First, it would stop many foreclosures because borrowers would be able to afford to keep their homes. Reducing foreclosures would preserve property values and cut back on a big source of the oversupply in the housing market. Moreover, after cram downs, people could more easily sell their homes and move to where jobs are. Sales wouldn’t be “short” anymore. Finally, in a post-cram-down America, people would have more disposable income, which would allow discretionary consumer spending to rise.

Why Voluntary, Bank-Run Modification Programs Fail

So why shouldn’t regulators simply include write downs in the settlement between law enforcement and the banks? Because the Home Affordable Modification Program has shown that any system that relies on banks to chose among borrowers and design their modifications will fail. Back in the 1980s, this country experienced a similar failure of voluntary programs to solve a huge problem with underwater mortgages triggered by the popping of an agricultural real estate bubble.

As the Federal Reserve Bank of Cleveland explained in its analysis of what happened then to family farms:

“Many farmers, like many homeowners now, were in danger of losing their primary residences, with little prospect of relief under the bankruptcy options available to farmers at that time….

Moratoriums on foreclosures in a number of farm states slowed the rising tide of farm foreclosures somewhat, but they provided only a temporary reprieve as the fundamental economic factors … left many farmers unable to service their existing debt and with almost no possibility of renegotiating their secured loans with creditors….

…voluntary modification efforts, even when subsidized by the government, did not lead agricultural lenders to negotiate loan modifications.”

That phrase “with little prospect of relief under the bankruptcy options available” is key. Our current bankruptcy laws allow debtors in bankruptcy to force banks to reduce the principal on most loans secured by property to the current market value of that property, but not all.

For example, if a debtor owes $500,000 on a yacht that’s now worth $300,000, the debtor can keep the yacht by paying every penny of the $300,000, and as much of the rest as the bankruptcy process allows. Ditto for a limo. More to the point, bankruptcy judges can “cram down” the principal on mortgages securing vacations homes and investment properties — but for the most common mortgage of all, the one securing the loan on a person’s primary residence, they cannot.

A Solution That Has Worked Before

At least, not anymore. Home mortgages could be crammed down nationwide until 1978, when Congress changed the rules. Even after that, thanks to disagreement among courts on how to interpret the rule change, they could be crammed down in some parts of the country until a 1993 Supreme Court decision ended the practice completely.

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In the 1980s, the Cleveland Fed explained, the bankruptcy code didn’t let allow family farm mortgages to be crammed down either. But when voluntary programs failed, Congress created special bankruptcy law provisions to authorize farm cram downs. Then, as now, reported the Cleveland Fed, the banks warned of financial doomsday, saying cram downs “would flood bankruptcy courts, permit abuse by borrowers who could afford to pay their loans, and reduce the availability of credit, among other things.” None of those things happened.

Instead, the cram down law “worked without working”: It was rarely used actively, but banks sustainably modified mortgages anyway. As soon as borrowers had leverage — negotiating with the threat of a cram down behind them — banks started cutting meaningful deals.

To be fair to then-Speaker Nancy Pelosi’s House of Representatives, it passed a cram down bill in 2009. But the Senate failed to get the job done, as President Obama and some powerful groups like MoveOn.org and labor unions largely sat that fight out.

How Banks Beat Back Cram Downs

What was the argument that the banking lobby used to kill the bill?

Surely it wasn’t the claptrap about “moral hazard.” Unlike the banks and their executives bailed out by the taxpayers, homeowners aren’t “encouraged” by a principal reduction “bailout” to make increasingly risky, self-interested decisions, secure in the knowledge the the government will save their bacon if it falls in the fire again. That’s behavior by bankers is a real and present hazard to our financial system.

The only specific “hazard” the anti-principal mod lobby mention is that borrowers who are current will default to get mortgage modifications. There’s one big problem with that claim: Mortgage servicers have routinely been telling borrowers who are current that they will have default before they can get help. These are borrowers who were blowing through their savings struggling to stay current on their underwater mortgages, and were reaching out before default to work something out with their banks — responsible borrowers.

The practice of telling these people to default before a modification could even be discussed has become so common that both the state attorneys general’s proposed settlement with mortgage servicers and the banks’ much weaker counteroffer address the issue. This alone makes a mockery of any potential argument about the bad moral consequences of allowing judges to make principal modifications.

And doing the reductions via the bankruptcy code also reduces any incentive to default to get help. Borrowers don’t — and shouldn’t — take bankruptcy lightly.

Fears of Another Financial Industry Meltdown

So what was the argument the bank lobby really used to kill the cram down bill in 2009? I don’t know, but one type of financial doomsday lurks in the background now that didn’t in the 1980s: Bank Bailout II. Mortgage principal write downs in large numbers could push some big banks over the edge — or force them to reveal their present insolvency.

The question is whether enough consumers to bring on that dreaded scenario are willing to face the long, punitive process that is bankruptcy to get mortgage principal write-downs. That begs a second question: If large numbers of write downs led banks to demand another bailout, would they get it? Both are impossible to answer, but the gains are well worth the risks.

If restoring the cram down induces a consumer-bankruptcy-driven financial system failure, that’s an important reality check. The nation would have to face the fact that TARP had failed to get the job done, and that it was time to either fix the big banks’ balance sheets for real, or shut them down. It would prove that we can’t continue to engage in policy theater such as HAMP or leaving mortgage modifications to the discretion of lenders.

Whatever the outcome for banks, Washington needs to suck it up and start instituting good policy.

See full article from DailyFinance: http://srph.it/gagyj1

Alabama Court: Busted Securitization Prevents Foreclosure

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FAILURE TO COMPLETE TRANSFERS BARS FORECLOSURE FOREVER

NOTABLE QUOTE:

“the judge found the securitization of the Horace loan wasn’t done properly, so the trustee — LaSalle National Bank Association, now part of Bank of America (BAC) — couldn’t foreclose. In making that decision, the judge is the first to really address the issue, head-on: If a screwed-up securitization process meant a loan never got securitized, can a bank foreclose under the state versions of the Uniform Commercial Code anyway? This judge says no, finding that since the securitization was busted, the trust didn’t have the right to foreclose, period.”

EDITORIAL COMMENT: The fact that this case came from Alabama makes it all the more important to be watched and noted. Despite the reluctance of many Judges to give a free house to homeowners, this Judge picked up on the fact that the homeowner wasn’t getting a free house and that if he allowed the foreclosure it would have been the pretender lender getting the free house.

When it comes down to it, this really is simple: the trustee never got the loan. The asset-backed pool didn’t have it despite their claim to the contrary. Saying it doesn’t make so.

The Pooling and Service Agreement is very specific as to what can and cannot be done, it has an internal logic (the investors are expecting performing loans and are not authorizing acceptance of non-performing loans), and it specifies the manner in which the loan must be transferred. None of these things were e found in compliance. If you don’t get the deed then you don’t get the property. This is just common sense — a point disputed by securitizers who see an unparalleled opportunity to pick up trillions of dollars in homes that (a) belong to homeowners and (b) even if they were subject to foreclosure should be for the benefit of the people who put up the money — the investors who purchased bogus mortgage-backed securities.

The investors now easily recognize the invalidity of the liabilities, notes and mortgages and deed of trust, and the liability attached to wrongful foreclosure of invalid documents and making credit bids on property on which the creditor is not the bidder and has not been identified. This isn’t conspiracy theory stuff, this is application of Property 101, Contract 101, and Common sense as it has been applied in commercial and real estate transactions for hundreds of years in statutes and common law predating the creation of the United States and fully adopted by the U.S. when it came into existence.

THE CLAIM OF PRETENDER LENDERS (OR “TEMPORARY LENDERS” AS SOME WOULD CALL THEM) IS BOGUS. THE NOTE DOES NOT DESCRIBE THE TRANSACTION, WHICH TOOK PLACE BETWEEN THE BORROWER AND AN UNDISCLOSED LENDER UNDER TERMS NOT REVEALED IN THE LEGALLY REQUIRED DISCLOSURE DOCUMENTS, NOR EVEN IN THE PROMISSORY NOTE, MORTGAGE OR DEED OF TRUST. THERE IS NO CREDIBLE CLAIM TO THE MILLIONS OF FORECLOSED HOMES THAT ARE CURRENTLY HELD BY REO (BANK-OWNED) ENTITIES OR EVEN THIRD PARTIES. THE ORIGINAL HOMEOWNER STILL LEGALLY OWNS THE HOME AND FEW, IF ANY OF THE FORECLOSURES IN PROCESS OR PLANNED ARE OR EVER WILL BE VALID. THIS IS A FATAL DEFECT THAT MAKES PERFECT ECONOMIC SENSE CONSIDERING THE NUMBER OF TIMES THERE WAS PAYMENT IN PART OR IN FULL TO THE SECURITIZERS (WHO PROBABLY HAVE AGENCY RESPONSIBILITIES TO THE INVESTORS WHO ARE SUING THEM).

Court: Busted Securitization Prevents Foreclosure

By Abigail Field Posted 6:25PM 04/01/11 Columns, Bank of America, Real Estate

On March 30, an Alabama judge issued a short, conclusory order that stopped foreclosure on the home of a beleaguered family, and also prevents the same bank in the case from trying to foreclose against that couple, ever again. This may not seem like big news — but upon review of the underlying documents, the extraordinarily important nature of the decision and the case becomes obvious.

No Securitization, No Foreclosure

The couple involved, the Horaces, took out a predatory mortgage with Encore Credit Corp in November, 2005. Apparently Encore sold their loan to EMC Mortgage Corp, who then tried to securitize it in a Bear Stearns deal. If the securitization had been done properly, in February 2006 the trust created to hold the loans would have acquired the Horace loan. Once the Horaces defaulted, as they did in 2007, the trustee would have been able to foreclose on the Horaces.

And that’s why this case is so big: the judge found the securitization of the Horace loan wasn’t done properly, so the trustee — LaSalle National Bank Association, now part of Bank of America (BAC) — couldn’t foreclose. In making that decision, the judge is the first to really address the issue, head-on: If a screwed-up securitization process meant a loan never got securitized, can a bank foreclose under the state versions of the Uniform Commercial Code anyway? This judge says no, finding that since the securitization was busted, the trust didn’t have the right to foreclose, period.

Since the judge’s order doesn’t explain, how should people understand his decision? Luckily, the underlying documents make the judge’s decision obvious.

No Endorsements

The key contract creating the securitization is called a “Pooling and Servicing Agreement” (pooling as in creating a pool of mortgages, and servicing as in servicing those mortgages.) The PSA for the deal involving the Horace mortgage is here and has very specific requirements about how the trust can acquire loans. One of the easiest requirements to check is the way the loan’s promissory note is supposed to be endorsed — just look at the note.

According to Section 2.01 of the PSA, the note should have been endorsed from Encore to EMC to a Bear Stearns entity. At that point, Bear could either endorse the note specifically to the trustee, or endorse it “in blank.” But the note produced was simply endorsed in blank by Encore. As a result, the trust never got the Horace loan, explained securitization expert Tom Adams in his affidavit.

But wait, argued the bank, it doesn’t matter if if the trust owns the loan — it just has to be a “holder” under the Alabama version of the UCC (Uniform Commercial Code), and the trust is a holder. The problem with that argument is securitization trusts aren’t allowed to simply take property willy-nilly. In fact, to preserve their special tax status, they are forbidden from taking property after their cut-off dates, which in this case was February 28, 2006. As a result, if the trust doesn’t own the loan according to the PSA it can’t receive the proceeds of the foreclosure or the title to the home, even if it’s allowed to foreclose as a holder.

Holder Status Can’t Solve Standing Problem

Allowing a trust to foreclose based on holder status when it doesn’t own the loan would seem to create yet another type of clouded title issue. I mean, it’s absurd to say the trust foreclosed and took title as a matter of the UCC, but to also have it be true that the trust can’t take title as a matter of its own formational documents. And what would happen to the proceeds of the foreclosure sale? That’s why people making this type of argument keep pointing out that the UCC allows people to contract around it and PSAs are properly viewed as such a contracting around agreement.

I’m sure the bank’s side will claim the judge was wrong, that he disagreed with another recent Alabama case that’s been heavily covered, US Bank vs. Congress. And there is a superficial if flat disagreement: In this case, the judge said the Horaces were beneficiaries of the PSA and so could raise the issue of the loan’s ownership; in Congress the judge said the homeowners weren’t party to the PSA and so couldn’t raise the issue.

But as Adam Levitin explained, the Congress decision was procedurally weird, and as a result the PSA argument wasn’t about standing, as it was in Horace and generally would be in foreclosure cases (as opposed to eviction cases, like Congress). And what did happen to the Congress proceeds? How solid is that securitization trust’s tax status now anyway?

In short, in the only case I can find that has ruled squarely on the issue, a busted securitization prevents foreclosure by the trust that thinks it owns the loan. Yes, it’s just one case, and an Alabama trial level one at that. But it’s still significant.

Homeowners Right to Raise Securitization Issue

As far as right-to-raise-the-ownership issue, I think the Horace judge was just being “belt and suspenders” in finding the homeowners were beneficiaries of the PSA. Why do homeowners have to be beneficiaries of the PSA to raise the issue of the trust’s ownership of their loans? The homeowners aren’t trying to enforce the agreement, they’re simply trying to show the foreclosing trust doesn’t have standing. Standing is a threshold issue to any litigation and the homeowners axiomatically have the right to raise it.

As Nick Wooten, the Horaces’ attorney, said:

“This is just one example of hundreds I have seen where servicers were trying to force through a foreclosure in the name of a trust that clearly had no interest in the underlying loan according to the terms of the pooling and servicing agreement. This conduct is a fraud on the borrower, a fraud on the investors and a fraud on the court. Thankfully Judge Johnson recognized the utter failure of the securitization transaction and would not overlook the fact that the trust had no interest in this loan.”

All that remains for the Horaces, a couple with a special needs child and whose default was triggered not only by the predatory nature of the loan, but also by Mrs. Horace’s temporary illness and Mr. Horace’s loss of overtime, is to ask a jury to compensate them for the mental anguish caused by the wrongful foreclosure.

Perhaps BofA will just want to cut a check now, rather than wait for that verdict. (As of publication BofA had not returned a request for comment.)

No one is suggesting the Horaces get a free house; they still owe their debt, and whomever they owe it to has the right to foreclose on it. Wooten explained to me that the depositor –in this case, the Bear Stearns entity –i s probably that party. Moreover if the Horaces wanted to sell and move, they’d have to quiet title and would be wise to escrow the mortgage pay off amount, if that amount can be figured out. But for now the Horaces get some real peace, even if a larger mess remains.

Much Bigger Than A Single Foreclosure

The Horaces aren’t the only ones affected by the issues in this case.

Homeowners everywhere that are being foreclosed on by securitization trusts — many, many people — can start making these arguments. And if their loan’s PSA is like the Horaces, they should win. At least, Wooten hopes so:

“Judge Johnson stopped a fraud in progress. I am hopeful that other courts will consider more seriously the very serious issues that are easily obscured in the flood of foreclosures that are overwhelming our Courts and reject the systemic and ongoing fraud that is being perpetrated by the mortgage servicers. Until Courts actively push back against the massive documentary fraud being shoveled at them by mortgage servicers this fraudulent conduct will not end.”

The issues stretch past homeowners to investors, too.

Investors in this particular mortgage-backed security, take note: What are the odds that the Horace note is the only one that wasn’t properly endorsed? I’d say nil, and not just because evidence in other cases, such as Kemp from New Jersey, suggests the practice was common. This securitization deal was done by Bear Stearns, which other litigation reveals was far from careful with its securitizations. So the original investors in this deal should speed dial their lawyers.

And investors in bubble-vintage mortgage backed securities, the ones that went from AAA gold to junk overnight, might want to call their attorneys too; this deal was in 2006, and in the securitization frenzy that followed processes can only have gotten worse.

Some investors are already suing, but the cases are at very early stages. Nonetheless, as cases like the Horaces’ come to light, the odds seem to tilt in investors’ favor — meaning they seem increasingly likely to ultimately succeed in forcing banks to buy back securities or pay damages for securities fraud connected with their sale. And that makes the Bank Bailout II scenario detailed by the Congressional Oversight Panel more possible.

The final, very striking feature of this case is what didn’t happen: No piece of paper covered in the proper endorsements –an allonge — magically appeared at the eleventh hour. The magical appearance of endorsements, whether on notes or on allonges, has been a hallmark of foreclosures done in the robosigning era. And investors, as you pursue your suits based on busted securitizations, that’s something to watch out for.

My, but the banks made a mess when they forced the fee-machine of mortgage securitizations into overdrive. The consequences are still unfolding, but one consequence just might be a whole lot of properties that securitization trusts can’t foreclose on.

See full article from DailyFinance: http://srph.it/fN0piz

WHY? BECAUSE THEY WANT A FREE HOUSE — THE BANKS, THAT IS — NOT THE BORROWERS

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EDITOR’S RANT: They turned the financial world upside down, taking our society with it. So it should come as no surprise that they would accuse homeowners of trying to get what the banks have been doing now for over three years — GETTING A FREE HOUSE. They never funded the loan and they never purchased the receivable. Yet somehow the government ignores the basic reality and offered window dressing to homeowners in the form of false modifications with servicers and other securitizers who only had the incentive to steal the house. Modifying the loan removes the only incentive they have to stay in the game.

Just because the real lenders won’t step in and make claims or settle with the homeowners who received some of the money that was advanced by the buyers of bogus mortgage bonds, doesn’t mean that that LEGALLY a disinterested third party can come in and say “OK, then I’ll take it.”


Big Banks Save Billions As Homeowners Suffer, Internal Federal Report By CFPB Finds

Elizabeth Warren

First Posted: 03/28/11 07:41 PM ET Updated: 03/28/11 07:58 PM ET

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NEW YORK — The nation’s five largest mortgage firms have saved more than $20 billion since the housing crisis began in 2007 by taking shortcuts in processing troubled borrowers’ home loans, according to a confidential presentation prepared for state attorneys general by the nascent consumer bureau inside the Treasury Department.

That estimate suggests large banks have reaped tremendous benefits from under-serving distressed homeowners, a complaint frequent enough among borrowers that federal regulators have begun to acknowledge the industry’s fundamental shortcomings.

The dollar figure also provides a basis for regulators’ internal discussions regarding how best to penalize Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial in a settlement of wide-ranging allegations of wrongful and occasionally illegal foreclosures. People involved in the talks say some regulators want to levy a $5 billion penalty on the five firms, while others seek as much as $30 billion, with most of the money going toward reducing troubled homeowners’ mortgage payments and lowering loan balances for underwater borrowers, those who owe more on their home than it’s worth.

Even the highest of those figures, however, pales in comparison to the likely cost of reducing mortgage principal for the three million homeowners some federal agencies hope to reach. Lowering loan balances for that many underwater borrowers who owe less than $1.15 for every dollar their home is worth would cost as much as $135 billion, according to the internal presentation, dated Feb. 14, obtained by The Huffington Post.

But perhaps most important to some lawmakers in Washington, the mere existence of the report suggests a much deeper link between the Bureau of Consumer Financial Protection, led by Harvard professor Elizabeth Warren, and the 50 state attorneys general who are leading the nationwide probe into the five firms’ improper foreclosure practices, a development sure to anger Republicans in Congress and a banking industry intent on diminishing the fledgling CFPB’s legitimacy by questioning its authority to act before it’s officially launched in July.

Earlier this month, Warren told the House Financial Services Committee, under intense questioning, that her agency has provided limited assistance to the various state and federal agencies involved in the industry probes. At one point, she was asked whether she made any recommendations regarding proposed penalties. She replied that her agency has only provided “advice.”

A representative of the consumer agency declined to comment on the presentation, citing the law enforcement nature of the federal investigation into the mortgage industry’s leading firms.

The seven-page presentation begins by stating that a deal to settle claims of improper foreclosures “provides the potential for broad reform.”

In it, the consumer agency outlines possibilities offered by the settlement — a minimum number of mortgage modifications, a boost to the housing market — and how it could reform the industry going forward so that investors in home loans and the borrowers who owe them would be able to resolve situations in which borrowers fall behind on their payments without the complications of a large mortgage company acting in its own interest.

The presentation also details how much certain firms likely saved in lieu of making the necessary loan-processing adjustments as delinquencies and foreclosures rose. Bank of America, for example, has saved more than $6 billion since 2007 by not upgrading its procedures or hiring more workers, according to the report. Wells Fargo saved about as much, with JPMorgan close behind. Citigroup and Ally bring the total saved to nearly $25 billion.

The presentation adds that the under-investment far exceeds the proposed $5 billion penalty that has been on the table. People familiar with the matter say the Office of the Comptroller of the Currency wants to fine the industry less than $5 billion.

The alleged shortchanging of homeowners has prolonged the housing market’s woes, experts say, because distressed homeowners who are prime candidates to have their payments reduced aren’t getting loan modifications and lenders are taking up to two years to seize borrowers’ homes.

The average borrower in foreclosure has been delinquent for 537 days before actually being evicted, up from 319 days in January 2009, according to Lender Processing Services, a data provider.

The prolonged housing pain has manifested itself in various ways.

Purchases of new U.S. homes dropped last month to the slowest pace on record, according to the Commerce Department. Prices declined to the lowest level since 2003, according to the National Association of Realtors. About 6.9 million homeowners were either delinquent or in foreclosure proceedings through February, according to LPS.

A penalty of about $25 billion — based on mortgage servicing costs avoided — would have “little effect” on the five firms’ capital levels, according to the presentation, since the five banks collectively hold about $500 billion in tangible common equity, the highest form of capital. Those numbers notwithstanding, banks and Republicans in Congress have complained that such a large penalty would have a disproportionate impact on bank balance sheets, hurting their ability to lend or pay dividends to investors.

The presentation adds that given the extent of negative equity — underwater homeowners owe $751 billion more than their homes are worth, according to data provider CoreLogic — “we have gravitated towards settlement solutions that enable asset liquidity and cast a wide net.” The solution is an emphasis on reducing mortgage debt and enabling short sales, thus allowing borrowers to refinance into more affordable loans or to sell their homes and move on.

Top Federal Reserve officials and other economists have pointed to the large numbers of underwater homeowners as being one of the reasons behind high unemployment, as underwater homeowners are unable to move to where the jobs are. More than 23 percent of homeowners with a mortgage are underwater, according to CoreLogic.

The proposed settlement, as envisioned by the consumer agency, could reduce loan balances for up to three million homeowners. If mortgage firms targeted their efforts at reducing mortgage debt for three million homeowners who owe as much as their homes are worth or have less than 5 percent equity, the total cost would be $41.8 billion, according to estimates cited in the presentation.

If firms lowered total mortgage debt for three million homeowners who are underwater by as much as 15 percent and brought them to 5 percent equity, that would cost more than $135 billion, according to the presentation. That would include reducing second mortgages and home equity lines of credit.

In its presentation, the consumer agency said the new program, titled “Principal Reduction Mandate,” could be “meaningfully additive to HAMP” — the Home Affordable Modification Program, the Obama administration’s primary mortgage modification effort.

The CFPB estimates that there are about 12 million U.S. homeowners underwater, most of whom are not delinquent, according to its presentation. Of those, nine million would be eligible for this new principal-reduction scheme born from the foreclosure deal. The new initiative would then “mandate” three million permanent modifications.

News of the level of the consumer agency’s involvement in the state investigation would likely be welcomed by consumer and homeowner advocates, who have long complained of the lack of attention paid to distressed borrowers by federal bank regulators like the OCC and the Federal Reserve.

But Republicans will pounce on the news, creating yet another distraction for a fledgling bureau that was the centerpiece of the Obama administration’s efforts to reform the financial industry in the wake of the worst economic crisis since the Great Depression.

Meanwhile, the banking industry will likely celebrate government infighting as attention is diverted away from allegations of bank wrongdoing and towards the level of involvement of Elizabeth Warren, a fierce consumer advocate and the principal original proponent of an agency solely dedicated to protecting borrowers from abusive lenders.

Warren is standing up the agency on an interim basis. It formally launches in July, at which point it will need a Senate-confirmed director in order to carry out its full authority. One of those areas will be how mortgage firms process home loans for distressed borrowers.

A spokeswoman for JPMorgan Chase declined to comment. Spokespeople for the other four banks were not immediately available for comment.

Underwater Homes Officially Reported at 25% of ALL HOMES

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EDITOR’S QUESTION: Just what do they expect these people to do? The actual number of underwater homes  is now approaching 20 million or 40% of all homes — again because of the way they measure it, leaving out things that directly affect the actual price paid and the proceeds of sale. If they think that people are going to sign modifications (i.e., new mortgages waiving all defensive rights against the fraud perpetrated upon them) they better think in terms of reality — who would agree to owe $400,000 on property that is worth $150,000?

I don’t care what you do to the interest rate. The principal MUST be corrected to reflect the reality of the transaction when it first occurred — but that would mean acknowledging appraisal fraud, which would allow people to sue for punitive damages, compensatory damages etc. The only alternative is to use present fair market value which is even lower.

In order for the megabanks to prevail they need your house with you out of it.  In order for the economy to recover, you need to stay in your house, recover any home taken from you so far, and recover at least part of the meager wealth you had before this giant fraud began. No modification plan publicly discussed allows for that to happen. They say that is the goal but it isn’t — not without principal correction to true market value when the loan transaction occurred.

Number Of Underwater Mortgages Rises As More Homeowners Fall Behind

DEREK KRAVITZ 03/ 8/11 01:40 PM AP

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WASHINGTON — The number of Americans who owe more on their mortgages than their homes are worth rose at the end of last year, preventing many people from selling their homes in an already weak housing market.

About 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater in the October-December quarter, according to report released Tuesday by housing data firm CoreLogic. That’s up from 22.5 percent, or 10.8 million households, in the July-September quarter.

The number of underwater mortgages had fallen in the previous three quarters. But that was mostly because more homes had fallen into foreclosure.

Underwater mortgages typically rise when home prices fall. Home prices in December hit their lowest point since the housing bust in 11 of 20 major U.S. metro areas. In a healthy housing market, about 5 percent of homeowners are underwater.

Roughly two-thirds of homeowners in Nevada with a mortgage had negative home equity, the worst in the country. Arizona, Florida, Michigan and California were next, with up to 50 percent of homeowners with mortgages in those states underwater.

Oklahoma had the smallest percentage of underwater homeowners in the October-December quarter, at 5.8 percent. Only nine states recorded percentages less than 10 percent.

In addition to the more than 11 million households that are underwater, another 2.4 million homeowners are nearing that point.

When a mortgage is underwater, the homeowner often can’t qualify for mortgage refinancing and has little recourse but to continue making payments in hopes the property eventually regains its value.

The slide in home prices began stabilizing last year. But prices are expected to continue falling in many markets due to still-high levels of foreclosure and unemployment.

Philadelphia Gives Homeowners a Way to Stay Put

The real story with real solutions or at least partial solutions. Sheriff Green started all this. Bravo. Now start thinking of all the profits, transfers and records that should have been reported, filed and taxed and the state budget problems will be over.

November 18, 2009

Philadelphia Gives Homeowners a Way to Stay Put

PHILADELPHIA — Christopher Hall stepped tentatively through the entranceway of City Hall Courtroom 676 and took his place among dozens of others confronting foreclosure purgatory. His hopes all but extinguished, he fully expected the morning to end with a final indignity: He would sign over the deed to his house — his grandfather’s two-story row house; the only house in which he had ever lived; the house where he had raised three children.

“This is devastating,” he said last month as he sat in the gallery awaiting his hearing. “This is my childhood home. I grew up there. My mother passed away there. My grandfather passed away there. All of my memories are there.”

A union roofer, Mr. Hall, 42, had not worked since August 2008, when the contractor that employed him as a foreman went broke and laid off more than 40 people. He had not made a mortgage payment in more than a year, and his lender, Bank of America, was threatening to auction off his house through the sheriff’s office.

In most American cities, that probably would have been the end of the story: another home turned into distressed bank inventory by the national foreclosure crisis. But in Philadelphia, under a program begun last year to try to keep people in their homes, Mr. Hall entered the courtroom with a reasonable chance of hanging on.

Under the rules adopted by Philadelphia’s primary civil court, no owner-occupied house may be foreclosed on and sold by the sheriff’s office before a “conciliation conference,” a face-to-face meeting between the homeowner and the lender aimed at striking a workable compromise. Every homeowner facing a default filing is furnished with counseling, and sometimes legal representation.

So, as Mr. Hall stepped into the ornate courtroom just after 9 o’clock, he was swiftly provided with a volunteer lawyer, Kristine A. Phillips. She huddled briefly with a lawyer for Bank of America and returned with a useful promise. The bank would leave him alone for six more weeks while his housing counselor pursued further negotiations in an attempt to lower his payments permanently.

“You’ve got more time,” Ms. Phillips told him. “We’ll get this all worked out,” she said.

“Thank you so much,” Mr. Hall said softly, his body shaking with pent-up anxiety now tinged with relief. “It’s a lot of weight off of my shoulders.”

In a nation confronting a still-gathering crisis of foreclosure, Philadelphia’s program has emerged as a model that has enabled hundreds of troubled borrowers to retain their homes. Other cities, from Pittsburgh to Chicago to Louisville, have examined the program and adopted similar efforts.

“It brings the mortgage holder and the lender to the table,” said City Councilor John M. Tobin Jr. of Boston, who is planning to introduce legislation to enact a program in his city modeled on Philadelphia’s. “When people are face to face, it can be pretty disarming.”

When homeowners in Philadelphia receive legal default notices from their mortgage companies, the court system schedules a conciliation hearing. Canvassers working for local nonprofit agencies visit foreclosed homeowners, distributing fliers that inform them of their rights to a conference, and urging them to call a hot line that can direct them to free housing counselors.

“You can feel a certain sense of relief from their just being able to speak to someone about the program,” said Anna Hargrove, who works as a canvasser in West Philadelphia.

Every Thursday morning, the courtroom on the sixth floor of the regal City Hall here is given over to the conciliation conferences. It fills up with volunteer lawyers in jogging shoes, who are representing homeowners; gray-suited corporate lawyers working for mortgage companies; and all variety of delinquent borrowers — elderly citizens leaning on canes, construction workers in coveralls, parents with bored children in tow. The lawyers exchange preliminary settlement terms, while the homeowners fill out papers and wait.

In some cases, deals are struck that lower monthly payments for borrowers and allow them to retain their homes. When a homeowner cannot afford the home even at modified terms, the program helps to create a graceful exit, in which the borrower accepts cash for vacating the property or signs over the deed in lieu of further payment.

Those outcomes are similar to the ones produced by the Obama administration’s $75 billion program aimed at stemming foreclosures, which gives cash subsidies to mortgage companies as an inducement to accept lower payments. But in Philadelphia there is one crucial difference: the mortgage companies have no choice but to participate. They have to attend the conferences and negotiate in good faith or they cannot proceed with a sheriff’s sale.

Since the administration’s program was begun in March, it has been plagued by complaints of bureaucratic confusion and the indifference of mortgage companies. Many homeowners who have applied for loan modifications complain that their documents have been lost repeatedly or that they have been rejected without explanation.

Right to Mediation

The Philadelphia program forces an outcome by bringing together all the principals in one room. If the mortgage company proves intractable, the homeowner has the right to request mediation in front of a volunteer lawyer serving as a provisional judge, who relays recommendations to the program’s supervising judge. If the judge finds that the mortgage company is not acting in good faith, she can hold the house in limbo by denying permission for a sheriff’s sale.

While data is scant, a legal aid group, Philadelphia Volunteers for the Indigent Program, has complete information on 61 of the 309 cases it has resolved since October 2008 through the anti-foreclosure program. Only five resulted in sheriff’s sales, while 35 ended with loan modifications that lowered payments, the group says. The remaining 21 cases were divided among bankruptcies, loan forbearance and repayment arrangements, graceful exits and straightforward sales.

Some suggest the city’s program is plagued by the same basic defect as the Obama rescue plan: Nearly all the loans that have been modified have been altered on a trial basis, requiring homeowners to reapply for an extension of the terms after only a few months — a process that appears rife with obstacles, according to participants.

“There’s no teeth to the conciliation program,” said Matthew B. Weisberg, a Philadelphia lawyer who represents homeowners in cases involving alleged mortgage fraud. “It’s a largely ineffective stopgap prolonging what appears to be the inevitable, which is the loss of homes.”

Still, Mr. Weisberg grudgingly praised the plan.

“It’s arbitrary and unpredictable,” he said, “but it’s better than what anybody else is doing.”

Sheriff Delays Auction

 

Philadelphia’s Residential Mortgage Foreclosure Diversion Pilot Program began with a resolution passed by the City Council in March 2008, calling on Sheriff John D. Green to scrap the sheriff’s sale scheduled for April. Low-income neighborhoods were already experiencing a surge of foreclosures involving subprime loans given to people with tainted credit. With unemployment growing, lost paychecks were now pushing people into delinquency, reaching into middle-class and even wealthy neighborhoods. In early 2008, nearly 200 homes a month were being auctioned by the sheriff’s office, about one-third more than in 2006.

In West Philadelphia, Councilman Curtis Jones Jr., one of the sponsors of the resolution, watched his childhood neighborhood consumed by foreclosure, as the homes of working families — their porches once lined with flower pots — were boarded up with plywood.

“It becomes a blight on your entire community,” Mr. Jones said. “It creates an environment that fosters everything bad, from prostitution to drug dealing to wildlife, like raccoons taking over whole houses. One house becomes 10, and 10 becomes the whole block.”

In response to the resolution, Sheriff Green canceled the April sale. Meanwhile, Judge Annette M. Rizzo, who oversaw a local task force on stemming foreclosures, joined with the president judge of Philadelphia’s Court of Common Pleas to develop the program.

For Judge Rizzo, a high-energy woman who has long taken an interest in housing policy, the moratorium presented both a crisis and an opportunity. The sheriff was effectively refusing to fulfill his mandated responsibilities, leaving his office vulnerable to legal challenge. But if the mortgage companies could be persuaded to participate in an alternative way of addressing foreclosures, more people could stay in their homes.

“I realized we’re either going to go down in flames or we’re going to be a national model,” Judge Rizzo said. “We’re going to look at these cases and see what we can work out.”

Mr. Hall knew none of this. What he knew was that his life seemed to be unraveling.

Home to Four Generations

Ever since he was a teenager, he had earned a middle-class living with his hands. He had been raised by his grandfather in his three-bedroom house on Akron Street, in a predominantly Irish Catholic working-class neighborhood in Northeast Philadelphia.

He had attended St. Martin’s, the Catholic school around the corner, married his childhood sweetheart and still remained in his grandfather’s house, sending his own children — two boys (now in their 20s) and a 12-year-old girl — to the same school.

Mr. Hall, a soft-spoken yet intense man with a silver-tinged goatee, had worked seven days a week for much of this decade, bringing home weekly pay of about $1,000 — enough to build a deck in his backyard; enough to obtain a fixed-rate mortgage and buy the house for $44,000 when his grandfather succumbed to Alzheimer’s disease in the mid-1990s; enough for a motorcycle and a boat.

But three years ago, Mr. Hall committed the sort of mistake that has upended millions of households. At the recommendation of a for-profit credit counselor, he took out a new mortgage — a variable-rate loan from Countrywide Financial, which is now owned by Bank of America. He paid off some credit card debt, and he borrowed an extra $15,000 to renovate his home, expanding his mortgage balance to $63,000.

The loan began with manageable payments of about $500 a month. But Mr. Hall’s interest rate soon soared — something he says was never explained to him — lifting his payments to $950 a month.

“When I got the mortgage, I didn’t really understand it,” he said. “They told me this would improve my credit and that was it. It was just, ‘sign here,’ and ‘initial here.’ ”

No More Construction Work

He might still have managed had construction not come to a halt. By 2007, Mr. Hall’s employer was cutting work hours. In August 2008, it shut down, turning his $1,000 weekly paycheck into an $800 monthly unemployment check.

Every day, he set the alarm clock and headed to the union hall at 5 a.m., waiting and hoping for work. Every day, he went home, still jobless and discouraged, now confronting the displeasure of his wife, who worked as a nurse, and who he said never came to terms with their diminished spending power. After months of bickering, she left him last December, taking their daughter.

“She was saying, ‘How are we going to have Christmas? How are we going to go on vacation?’ ” he recalled. “She just seen it getting worse instead of better, and she got depressed.”

In January, his truck was repossessed, leaving him to walk through the winter dawn to the union hall for his daily ritual of defeat.

He watched the For Sale signs proliferating on his block, as mostly elderly neighbors found themselves unable to make their mortgage payments. He saw their belongings piled up on their front lawns as they abandoned their homes to foreclosure.

In September, the envelope finally landed with his default notice. A canvasser knocked on his door, proffering a flier urging him to call the city hot line. When he called, a housing counselor helped him assemble the paperwork for a loan modification and prepare for his conciliation conference.

When he arrived inside courtroom 676 in October, Mr. Hall carried a sheaf of wrinkled papers in a white plastic grocery bag. He occupied a solid wooden chair as an announcer called off cases for hearing. “Number 27, Wachovia Mortgage versus … .” A girl no older than 6, with flower-shaped plastic barrettes in her hair, fidgeted as her mother applied for legal representation.

Mr. Hall was struggling to come to terms with what he assumed was the end.

“I put my whole life into this house,” he said. “After I do all this work, they want to take it from me. You’ve got to regroup and move, but where? If I can’t pay my mortgage, how am I going to pay rent? And I have a whole house full of furniture.”

When he got the news that he had a few weeks’ reprieve, relief quickly gave way to the worry that had dominated his thoughts for months.

“It’s postponing the inevitable,” he said.

“I’m a man,” he kept saying, trying to make sense of how a lifetime of working on other people’s homes had put him here, staring at the potential loss of his own home; still hoping for relief.

“I don’t want no handouts,” he said. “I just want a reasonable loan that I can afford to pay so I can get on with my life.”

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