March 15 (Bloomberg Law) -- The $25 billion mortgage settlement between lenders and state attorneys general won't help nearly as many people as its touted to, Neil Barofsky, the former Special US Treasury Department Inspector General for the Troubled Asset Relief Program (TARP), tells Bloomberg Law's Lee Pacchia. He's joined by Matthew Stoller, a fellow at the Roosevelt Insitute, who says the government and banks delayed filing details of the settlement to give investors less time to challenge the deal in court. PLAY VIDEO
By Barry Grey
On Monday, the settlement between five major banks and the federal and state governments of foreclosure-related fraud charges was filed in federal district court in Washington, DC. The agreement must be approved by the court to take effect.
The settlement, reported to be worth $25 billion, was announced February 9 and hailed by President Obama as a serious rebuke to the banks and boon to distressed homeowners. (See: “Obama administration brokers pro-bank mortgage fraud settlement”).
It is nothing of the kind. It quashes investigations by 49 state attorneys general into wholesale fraud and illegality committed by the five biggest mortgage servicers in their rush to foreclose on homeowners and seize their houses. The abuses first surfaced in the fall of 2010, amid reports of “robo-signing” of foreclosure papers and court submissions.
It was revealed that bank employees and contractors routinely vouched for the accuracy of documents affirming the banks’ title to targeted homes without having ascertained the facts or having even read the documents they were signing. The process was rife with forgeries, fraudulent notarizations, inflated job descriptions of the signers and other violations of the law.
The federal complaint against the banks filed Monday as well as audit reports on the five institutions posted Tuesday by the Department of Housing and Urban Development (HUD) inspector general show that the illegal actions covered by the now-suppressed probes went well beyond the fraudulent processing of documents.
The government charged the banks with eight counts of violating federal and state foreclosure and lending laws, including levying improper fees on homeowners who fell behind on their payments, failing to provide proper documentation on foreclosures, losing paperwork after consumers asked for loan assistance, and wrongfully denying consumers who asked for help.
The complaint alleged that the five mortgage servicers’ malfeasance “resulted in the issuance of improper mortgages, premature and unauthorized foreclosures, violation of service members’ and other homeowners’ rights and protections, the use of false and deceptive affidavits and other documents, and the waste and abuse of taxpayer funds.”
The inspector general’s reports documented the fact that the “robo-signing” of foreclosure documents was ordered by top management at the banks. They also accused all five banks of impeding the government investigation into their practices.
Far from a blow to the banks—Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial—the settlement filed Monday is a whitewash designed to shield them from potentially tens of billions in fines and damages arising from the state investigations. The banks largely dictated the terms of the settlement in the course of 16 months of negotiations, during which the Obama administration pressured recalcitrant state governments, particularly California and New York, to sign onto the deal. Under the agreement, the banks do not admit to any wrongdoing.
In return for the ending of the state probes, the banks have merely to pay a combined fine of $5 billion. Of this, $1.5 billion is to be set aside to pay some 750,000 illegally foreclosed homeowners a token sum of $1,500 to $2,000 each. Not one of the families whose homes were effectively stolen by the banks will be made whole.
The remainder of the reported $25 billion in the agreement is in the form of relief to be provided by the banks to “underwater” homeowners—those who owe more on their mortgages than the market value of their homes. Of this, $10 billion will supposedly go to reducing the principal on home loans, $3 billion to lowering monthly interest rates, and the other $7 billion to short sales and other measures to allow delinquent borrowers to avoid foreclosure. The latter procedures are already being carried out by the banks, so they will receive $7 billion in credit for what they are already doing.
The Financial Times reported last month that the bulk of the cost of the settlement will be covered by taxpayer funds. At the insistence of the Obama administration, the banks will be allowed to make use of an existing federal program, the Home Affordable Modification Program (HAMP), which provides public funds to banks that agree to reduce the principal on troubled home loans. Nearly two-thirds of the value of any write-downs the five banks make will be recompensed with funds from this program, the Financial Timesreported.
Even if all of these measures are carried out, less than 5 percent of the nation’s 11.1 million underwater homeowners will be eligible for aid, according to an analysis by Ted Gayer, co-director of economic studies at the Brookings Institution.
The HUD inspector general’s reports show the undisguised contempt of the banks for the government investigation. Bank of America, for example, refused to provide complete files and documents and refused to provide some of its foreclosure policies to HUD investigators. It failed to fully comply with subpoenas. It also limited employee interviews and ordered employees not to answer certain questions.
JPMorgan would not provide certain records, while other records were incomplete. Wells Fargo did not allow the inspector general to interview some employees and failed to provide information in a “timely manner,” the inspector general reported. Ally Financial put up similar roadblocks, according to the inspector general’s report on that bank.
Despite these attempts at sabotage, the HUD reports document the systematic fraud carried out by the banks, providing damning examples. One notary reported his workload going from 60 to 200 documents per day to more than 20,000. Another employee reported signing 18-inch stacks of documents at a time.
Wells Fargo employees reported signing as many as 600 documents per day. When employees told upper-level management they could not handle the workload, the bank shortened the turnaround time for document signatures.
Citigroup’s mortgage unit “regularly signed foreclosure documents when not in the presence” of a notary public, as required by law, the inspector general said.
The report on Ally Financial said that an employee “routinely” signed 400 foreclosure affidavits per day and 10,000 a month without reviewing the supporting documentation.
JPMorgan Chase supervisors told HUD officials they often signed affidavits as an “assistant secretary” or “vice president,” when those were not their official titles. They had simply been given those titles by Chase to allow them to sign legal documents.
That the government rewarded the banks for breaking the law and then refusing to cooperate with investigators by giving them a sweetheart deal underscores the complete impunity with which the American financial aristocracy carries out its acts of social plunder. Like the French Ancien Regime, they are a law unto themselves and not subject to the rules that apply to the “mob.”
The state Supreme Court heard arguments Thursday in two cases that could determine whether the nation's largest electronic mortgage-tracking system has legal authority to foreclose on delinquent homeowners in Washington.
By Sanjay Bhatt
‘Yields Are Awesome’
$3 Trillion Market
Acquire And Convert
When Tanya Dennis, an Oakland public school teacher and reporter for the Post newspaper, reclaimed her home last year, she eventually received a fair modification from Wells Fargo Bank. However, at that time, Tanya acknowledged that her fight with Wells Fargo was only half over as she turned her attention to saving her 91-year-old mother’s home also.
“My father died in 1995, and the last thing he said to me before he passed on was ‘Take care of my wife,’” says Tanya, explaining why failure for her is not an option.
“Like myself, my mother’s loan was predatory and fraudulent. I fought both of our cases in court but I don’t know of one individual who has tried to prosecute the banks in Northern California courts to succeed, so I had no other alternative than to go rogue.”
Tanya, former vice principal of Oakland’s Castlemont High, made headlines last year, when she hired a locksmith to break back into her own home of 27 years after sheriff’s deputies had evicted her. She became such a thorn in the side of Wells Fargo, the nation’s largest mortgage originator – not only suing them without a lawyer, but also disrupting their shareholders’ meeting and getting arrested, recruiting elected officials’ assistance and protesting with ACCE (Alliance of Californians for Community Empowerment) – that the bank reduced her mortgage principal by over $100,000, substantially reducing her monthly payments.
Last week, as an auction loomed within a week on the home Tanya’s mother, Curlee Dennis, has lived in since 1990, Tanya sent a letter to Wells Fargo CEO John Stumpf asking for additional time to qualify for her mother’s modification. To qualify, the family must show a monthly income of $10,000 a month.
Tanya has gone through all the necessary steps to open “Loving Hands Family Child Care” in her mother’s home to meet Wells’ requirements but has been stymied by the Department of Justice, which must clear all members of the family in background checks through their fingerprints.
Mrs. Dennis has failed the scan three times as a result of paralysis in her left hand. Mrs. Dennis, a 91-year-old totally disabled retired teacher, has Parkinson’s, has suffered three strokes, has heart disease and is a cancer survivor. Because her fingerprints cannot be scanned, her daughter cannot open their child care center to qualify for the modification. Tanya had received a letter from Wells Fargo that March 5 was the very last day and that their house would be put up for auction if they could not substantiate $10,000 in Mrs. Dennis’ account.
In her letter to Wells Fargo, Tanya explained her dilemma to CEO Stumpf and requested more time. She stated that if Wells Fargo didn’t give them the time, then she would once again attempt to sue them in Superior Court and if she failed to prevail, then she and her mother would “occupy” the home and both would take an arrest before they moved.
“The NAACP released a report that says an African-American woman has a 264 percent greater chance of getting a predatory loan than a white male,” says Tanya. And the recent audit report by San Francisco County Assessor Phil Ting’s office that revealed fraud in 84 percent of the foreclosures studied provided Tanya with further validation that she’s doing the right thing in resisting Wells Fargo’s foreclosure upon her family’s property “by any means necessary.”
Tanya, now chairwoman of the Home Defenders League for the ACCE, heard from Wells Fargo the next day and was granted additional time. Assemblyman Sandre Swanson’s office has stepped forward and is attempting to facilitate a name clearance with the Department of Justice for Mrs. Dennis. Congresswoman Barbara Lee’s office also called Wells Fargo to encourage the extension of time.
BY HUBBLE SMITH
LAS VEGAS REVIEW-JOURNAL
House hunters can't be as picky in Las Vegas today as they were a year ago, especially if they're looking for a bargain on a foreclosure home. There's actually a shortage of those homes, roughly one month's supply at current sales levels, local Realtors say.
Anything in the range of $80,000 to $125,000 is snapped up with multiple offers, said Tim Kelly of Re/Max Extreme in Las Vegas.
Listings for real estate-owned homes, or bank-owned homes, decreased to 1,437 in March, down 40 percent from 2,643 a year ago, data gathered from the Multiple Listing Service show.
Kelly expects them to drop for a few more months as a result of the robo-signing law that took effect in October. The law requires banks to provide affidavits of authority to foreclose, along with documents related to ownership of the mortgage note. It has throttled the inventory of bank-owned homes in Las Vegas.
Lenders filed just 195 notices of default -- the first step in the foreclosure process -- in January, compared with 3,364 notices in the same month a year ago, according to First American Title Insurance Co. Default filings have been around 200 a month since October.
"I don't see an immediate resolution," said Kim Petersen, marketing executive for First American. "There's so many opinions. Unless they call a special Legislature and try to get this law amended ... because the Legislature doesn't meet again until 2013."
About 14,000 homes are pending or contingent sales, a majority of them short sales "stuck in the mud," Kelly said. They're awaiting bank approval for a sale at less than the mortgage balance.
"I think banks are holding onto the inventory so as not to flood the market, but with the (robo-signing law), NODs and actual foreclosures have almost stopped," he said.
Kelley said the law has encouraged homeowners in default to remain in their homes without making mortgage payments.
"Some homeowners realize they can stay longer because banks are not going to move quickly. A lot of people say, 'I've missed three payments. What if I miss another three or 10? Who cares?' A lot of people have told me instead of doing a short sale, they'll stay and not pay," he said.
Joe Brezny, deputy director of government affairs for the Greater Las Vegas Association of Realtors, said trustees must have "personal knowledge" that the property is actually owned by the foreclosing party.
Some ideas include a better legal definition of "personal knowledge," and to specify that multiple parties in the foreclosure can attest to pieces of information if no one person can attest to all of it, Brezny said in the March edition of Southern Nevada Realtors.
Keith Lynam of Windermere Prestige Properties said the REO numbers are down, but there was a definite problem with the foreclosure process.
"Not all of those (foreclosures) were justified," he said. "A lot of times, the banks did tell them they've got to stop paying their mortgage (to qualify for loan modification programs). The bottom line is there were some forgeries and illegal signing. It's important to note that the problem is the affidavit and personal knowledge, but at the end of the day, we didn't create the robo-signing, we didn't create credit swap derivatives. Again, it's not our issue, it's the bank's."
Joe Iuluicci of Keller Williams Realty said real estate agents are becoming more guarded with their listings as inventory has dissipated. Lenders on Federal Housing Administration mortgages aren't interested in doing a short sale because they're insured by Housing and Urban Development, he said.
"Look at HUD homes. They're typically nicer houses now in Southern Highlands and Rhodes Ranch," Iuluicci said. "There are definitely more buyers with less inventory. Will that correct the market? I don't think so, but it's definitely changing things."
Contact reporter Hubble Smith at email@example.com or 702-383-0491.
Corp. (NYSE: BAC) fraudulently sought to limit homeowners' ability to take advantage of a federal mortgage-modification program, to avoid millions of dollars in losses, according to a federal whistleblower complaint that originated with a former bank employee.
The complaint, filed Feb. 9 by federal prosecutors with the U.S. District for the Eastern District of and unsealed Wednesday, contends that deliberately sought to circumvent its obligations under the Home Affordable Modification Program, or HAMP.
Mackler observed fraud being committed by Bank of America from April 2010 until March 17, 2011, when he was terminated over his objections to the practices, the complaint alleges.
A federal judge has yet again issued a ruling that effectively questions the validity of scores of foreclosures in Oregon, a crisis the Legislature could resolve in the mortgage industry's favor this week if bank lobbyists and House Republican leaders have their way.
Simon sided with two other federal judges in Oregon in ruling that lenders have violated state recording law. They've done this, they say, by logging sales within its nationwide Mortgage Electronic Registration Systems Inc. and declaring MERS a “beneficiary” of the loan.
The mortgage industry created MERS to reduce the need for recording loan sales, or assignments. That enabled mortgages to be quickly bundled and sold to investors. MERS does not loan money, collect loan payments or invest in mortgages. It is, however, named in certain loan documents as the mortgagee or beneficiary of record.
Simon ruled that under state law, lenders must file a notice in county records each time they sell or transfer a note, or a promise from a borrower to pay.
MERS, he ruled, can file those notices on the lenders' behalf, if a lender has authorized it to do so. MERS cannot, however, simply log those notices within its own database without also recording it publicly, he found. In millions of loans nationwide, it has.
In acting as he did, Simon overruled lower Magistrate Janice Stewart's previous findings and recommendations in the case. His ruling also conflicts with opinions in other cases issued by his equals in Oregon -- Judge Michael Mosman and Judge Marco A. Hernandez.
But it aligns with rulings in other cases by Judge Owen Panner and U.S. Bankruptcy Judge Frank Alley. Panner's ruling, which also came last year as lawmakers debated the MERS issue, is on appeal to the U.S. Ninth District Court of Appeals.
A spokesman for MERS declined to say whether it would appeal the ruling. "We believe that at the end of the day MERS’ role as beneficiary will be validated as it was in two other Oregon Federal District Court cases this week," Jason Lobo said.
The differences of opinion in these courts underscore how crucial an Oregon Supreme Court ruling will be, unless the legislature changes state law entirely this week. A ruling by the state's highest court is still likely months away.
In the case before Simon, Douglas and Eileen James borrowed from Northwest Mortgage Group in 2007 to buy their Clackamas County home. They got behind on their payments in 2010, and Bank of America and MERS foreclosed. The James' sued the bank's foreclosure and servicing arms, MERS and Northwest Mortgage to stop the sale.
In the meantime, Northwest Mortgage sold the note to Countrywide Mortgage, which Bank of America took over, the James say. Bank of America then sold the note to an investment trust but held on to it to collect payments. The bank sent the trust deed to some intermediaries, which eventually sent it to the investment trust. None of these transfers was recorded in Clackamas County records.
By way of background, a note is a promise to pay. A trust deed secures that promise, in this case, with a lien on land and home. With MERS, the mortgage industry separates the note and the trust deed. MERS does not keep the note, but MERS is named as a beneficiary on trust deeds.
Simon, however, ruled that “the beneficiary of the trust deed is the noteholder.” The party the borrower owes money to is the noteholder, not MERS, he said.
Simon said Oregon courts “reaching back more than a century” have found that the note and its security instrument may not be passed on to separate parties. In these cases, the security instrument is the trust deed.
Simon wrote that Bank of America and MERS wanted him to interpret Oregon law in a way that makes Oregon deed of trust law “virtually meaningless.” If he did, lenders could designate anyone to act in their interests, “no matter how remote, disinterested or obscure,” he wrote. “The Oregon Supreme Court would be unlikely to endorse such a broad interpretation.”
Such an interpretation, he said, could open borrowers to unauthorized foreclosure and wrongful sale of their property.
Simon also declined to adopt the reasoning Judge Mossman used in a separate case. Last year, Mosman found that MERS has the authority to accept loan payments and, therefore, could act as a beneficiary under Oregon law.
However, MERS by its own admission it has no right to take loan payments or to own the note, Simon noted. He found Mossman's ruling “inconsistent with what MERS itself concedes.” He questioned the chaos that would ensue if borrowers started sending their payments to MERS instead of to their debtor, or if MERS started accepting them instead of the lender or investor.
Simon's ruling only applies in Oregon. Recording and real estate laws differ in other states. And he rejected the James' claim that they'd been victims of “robosigning.”
He also noted that lenders in Oregon had another way to foreclose on borrowers – by filing a lawsuit in court.
But the current controversy arises because the Oregon Legislature in the 1950s allowed lenders to foreclose more quickly outside of court. As a tradeoff for that expediency, lawmakers also gave borrowers certain protections from wrongful foreclosure. They required lenders to give proper notice of the sale and a clear public record of who's owed the debt, Simon found.
Banks, credit unions and House Republicans are pushing in the final days of the session for such a change. State Rep. Gene Whisnant, R-Sunriver, and Rep. Matt Wand, R-Troutdale, have championed an amendment that, among other things, would retroactively give lenders and MERS the authority to foreclose without recording every loan sale in local public records.
No public hearing on the amendment has been held. House Democrat leaders oppose it, and the dispute is partly holding up other homeowner protections approved by the Senate.
Kelly Harpster, a Lake Oswego attorney who represents homeowners, called Simon's ruling "the most thorough and thoughtful analysis of the MERS issue that has yet been published ... However, the opinion is not binding on any judge in state or federal court. They are free to adopt Judge Simon's reasoning or reject it."
If the stalemate in Salem holds, Oregon's High Court will have to resolve this disagreement. In the meantime, foreclosures in the state will likely take longer, slowing any recovery in the housing market.