Monthly Archives: June 2013

Bank of America whistle-blower’s bombshell: “We were told to lie”

Bombshell: Bank of America whistle-blowers detail horrid schemes to fleece borrowers, reward foreclosures

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Bank of America’s mortgage servicing unit systematically lied to homeowners, fraudulently denied loan modifications, and paid their staff bonuses for deliberately pushing people into foreclosure: Yes, these allegations were suspected by any homeowner who ever had to deal with the bank to try to get a loan modification – but now they come from six former employees and one contractor, whose sworn statements were added last week to a civil lawsuit filed in federal court in Massachusetts.

“Bank of America’s practice is to string homeowners along with no apparent intention of providing the permanent loan modifications it promises,” said Erika Brown, one of the former employees. The damning evidence would spur a series of criminal investigations of BofA executives, if we still had a rule of law in this country for Wall Street banks.

The government’s Home Affordable Modification Program (HAMP), which gave banks cash incentives to modify loans under certain standards, was supposed to streamline the process and help up to 4 million struggling homeowners (to date, active permanent modifications number about 870,000). In reality, Bank of America used it as a tool, say these former employees, to squeeze as much money as possible out of struggling borrowers before eventually foreclosing on them. Borrowers were supposed to make three trial payments before the loan modification became permanent; in actuality, many borrowers would make payments for a year or more, only to find themselves rejected for a permanent modification, and then owing the difference between the trial modification and their original payment. Former Treasury Secretary Timothy Geithner famously described HAMP as a means to “foam the runway” for the banks, spreading out foreclosures so banks could more readily absorb them.

These Bank of America employees offer the first glimpse into how they pulled it off. Employees, many of whom allege they were given no basic training on how to even use HAMP, were instructed to tell borrowers that documents were incomplete or missing when they were not, or that the file was “under review” when it hadn’t been accessed in months. Former loan-level representative Simone Gordon says flat-out in her affidavit that “we were told to lie to customers” about the receipt of documents and trial payments. She added that the bank would hold financial documents borrowers submitted for review for at least 30 days. “Once thirty days passed, Bank of America would consider many of these documents to be ‘stale’ and the homeowner would have to re-apply for a modification,” Gordon writes. Theresa Terrelonge, another ex-employee, said that the company would consistently tell homeowners to resubmit information, restarting the clock on the HAMP process.

Worse than this, Bank of America would simply throw out documents on a consistent basis. Former case management supervisor William Wilson alleged that, during bimonthly sessions called the “blitz,” case managers and underwriters would simply deny any file with financial documents that were more than 60 days old. “During a blitz, a single team would decline between 600 and 1,500 modification files at a time,” Wilson wrote. “I personally reviewed hundreds of files in which the computer systems showed that the homeowner had fulfilled a Trial Period Plan and was entitled to a permanent loan modification, but was nevertheless declined for a permanent modification during a blitz.” Employees were then instructed to make up a reason for the denial to submit to the Treasury Department, which monitored the program. Others say that bank employees falsified records in the computer system and removed documents from homeowner files to make it look like the borrower did not qualify for a permanent modification.

Senior managers provided carrots and sticks for employees to lie to customers and push them into foreclosure. Simone Gordon described meetings where managers created quotas for lower-level employees, and a bonus system for reaching those quotas. Employees “who placed ten or more accounts into foreclosure in a given month received a $500 bonus,” Gordon wrote. “Bank of America also gave employees gift cards to retail stores like Target or Bed Bath and Beyond as rewards for placing accounts into foreclosure.” Employees were closely monitored, and those who didn’t meet quotas, or who dared to give borrowers accurate information, were fired, as was anyone who “questioned the ethics … of declining loan modifications for false and fraudulent reasons,” according to William Wilson.

Bank of America characterized the affidavits as “rife with factual inaccuracies.” But they match complaints from borrowers having to resubmit documents multiple times, and getting denied for permanent modifications despite making all trial payments. And these statements come from all over the country from ex-employees without a relationship to one another. It did not result from one “rogue” bank branch.

Simply put, Bank of America didn’t want to hire enough staff to handle the crush of loan modification requests, and used these delaying tactics as a shortcut. They also pushed people into foreclosure to collect additional fees from them. And after rejecting borrowers for HAMP modifications, they would offer an in-house modification with a higher interest rate. This was all about profit maximization. “We were regularly drilled that it was our job to maximize fees for the Bank by fostering and extending delay of the HAMP modification process by any means we could,” wrote Simone Gordon in her affidavit.

It is a testament to the corruption of the federal regulatory and law enforcement apparatus that we’re only hearing evidence from inside Bank of America now, in a civil class-action lawsuit from wronged homeowners, when the behavior was so rampant for years. For example, the Treasury Department, charged with specific oversight for HAMP, didn’t sanction a single bank for failing to follow program guidelines for three years, and certainly did not uncover any of this criminal conduct. Steven Cupples, a former underwriter at Bank of America, explained in his statement how the bank falsified records to Treasury to make it look like they granted more modifications. But Treasury never investigated. Meanwhile, the Justice Department joined with state Attorneys General and other federal regulators to essentially bless this conduct in a series of weak settlements that incorporated other bank crimes as well, like “robo-signing” and submitting false documents to courts.

These affidavits, however, should return law enforcement to the case. William Wilson, the case management supervisor, alleges in his statement that this “ridiculous and immoral” conduct continued through August of 2012, when he was eventually fired for speaking up. That means Bank of America persisted with these activities for at least six months AFTER the main, $25 billion settlement to which they were a party. So state and federal regulators could sue Bank of America over this new criminal conduct, which post-dates the actions for which they released liability under the main settlement. Attorneys general in New York and Florida have accused Bank of America of violating the terms of the settlement, but they could simply open new cases about these new deceptive practices.

They would have no shortage of evidence, in addition to the sworn affidavits. According to Theresa Terrelonge, most loan-level representatives conducted their business through email; in fact, various email communications have already been submitted under seal in the Massachusetts civil case. State Attorneys General or US Attorneys would have subpoena power to gather many more emails.

And they would have very specific targets: the ex-employees listed specific executives by name who authorized and directed the fraudulent process. “The delay and rejection programs were methodically carried out under the overall direction of Patrick Kerry, a Vice President who oversaw the entire eastern region’s loan modification process,” wrote William Wilson. Other executives mentioned by name include John Berens, Patricia Feltch and Rebecca Mairone (now at JPMorgan Chase, and already named in a separate financial fraud case). These are senior executives who, if this alleged conduct is true, should face criminal liability.

Bank accountability activists have already seized on the revelations. “This is not surprising, but absolutely sickening,” said Peggy Mears, organizer for the Home Defenders League. “Maybe finally our courts and elected officials will stand with communities over Wall Street and prosecute, and then lock up, these criminals.”

Sadly, it’s hard to raise hopes of that happening. Past experience shows that our top regulatory and law enforcement officials are primarily interested in covering for Wall Street’s crimes. These well-sourced allegations amount to an accusation of Bank of America stealing thousands of homes, and lying to the government about it. Homeowners who did everything asked of them were nevertheless pushed into foreclosure, all to fortify profits on Wall Street. There’s a clear path to punish Bank of America for this conduct. If it doesn’t result in prosecutions, it will once again confirm the sorry excuse for justice we have in America.

Update: Read the full affidavits from the active court case here.

David Dayen is a freelance writer based in Los Angeles, CA. Follow him on Twitter at @ddayen.MORE DAVID DAYEN.

Pushing for judicial foreclosure

State Rep. Andy Schor introduces legislation that would put some foreclosures in court when banks have behaved badly

by Sam Inglot

Thursday, June 6 — State Rep. Andy Schor, D-Lansing, introduced legislation today that would allow people who are facing mortgage foreclosure to take their case before a judge if their lender has been shady with its practices.

 “This is exactly the direction we need to go in,” said Ingham County Register of Deeds Curtis Hertel Jr., who has been actively fighting mortgage foreclosure fraud over the past two years. “Holding the banks responsible for their illegal actions is a good thing and due process for citizens facing foreclosure is a good thing. I look forward to working with him to get bills passed.”

 Michigan is a foreclosure by advertisement state, which means banks and lenders don’t need to take homeowners to court to evict them if they are behind on their mortgage payments; the bank/lender simply has to post a notice on the homeowner’s door. Because of this, Hertel said there is no due process for people facing foreclosure,unless they decide to sue.

 House Bill 4800 would amend the Revised Judicature Act to allow for judicial foreclosure hearings before a judge if the lender purposely fails to record mortgages or assignments on mortgages, advises borrowers to not make payments on mortgages or places false signatures on mortgage foreclosure documents.

 “If a lender is engaging in these practices, a person can take a judicial action and get the court to intervene in, delay or stop the foreclosure,” Schor said. “And we’ve seen plenty of cases like these before.”

 There are situations where lenders will advise borrowers to go into default so they can qualify for a mortgage modification, Hertel said. But when the borrower goes into default, the lender could then refuse to negotiate, putting the borrower in a precarious position.

 There is legislation awaiting a vote in the Senate that would shorten the foreclosure redemption period — when people can challenge the legality of a foreclosure, negotiate with their bank, or sell their home in a short sale — from six months to 60 days. The legislation comes as federal regulations starting next year will extend the negotiation period between banks and property owners before foreclosure from 90 to 120 days.

 Banks support the legislation, saying that the longer redemption period leads to abandoned properties, which contribute to blight, and that new federal regulations would help people avoid foreclosure. But Hertel, who has proved foreclosure fraud in court, says the shortened redemption period gives citizens less of a chance to keep their home. Schor said he introduced the legislation because of other foreclosure bills floating around the Capitol.

 “For me, as we’re talking about foreclosure and how long the process should be, I wanted to get this into the conversation,” Schor said. “This will take care of bad actors without affecting the good ones.”

Oregon Supreme Court rules on MERS, will affect foreclosure process

Written by Peter Wong Statesman Journal

The Oregon Supreme Court ruled today in a pair of cases that will affect out-of-court foreclosures.

The court decided that a mortgage-industry database cannot stand in for the actual lenders on real estate deeds under Oregon law.

Justice David Brewer, writing for the court, said that Mortgage Electronic Registration Systems Inc. cannot be considered a “beneficiary” under a 1959 law governing real estate deeds in Oregon.

The national database was launched in 1997 to track home mortgage loans – about two-thirds of the nation’s loans are covered by it – but it does not lend or collect money itself. The system was created to track loans when it became common to bundle and sell such loans as big packages to investors, a practice known as “securitizing” mortgages.

“A ‘beneficiary’ for the purposes of the Oregon Trust Deeds Act is the person to whom the obligation that the trust deed secures is owed. At the time of origination, that person is the lender,” Brewer wrote.

Despite deed language that appears to give MERS authority to act, he wrote, “the inclusion of that provision does not alter the trust deed’s designation of the lender as the ‘beneficiary’ or make MERS eligible to serve in that capacity.”

Justice Rives Kistler, joined by Chief Justice Thomas Balmer, wrote a separate opinion that agreed in part but also disagreed on a key point.

“In my view, nothing in state law precludes the parties to a trust deed from designating MERS as a beneficiary as long as MERS is serving as the agent for the lender and its successors,” Kistler wrote.

The court opinions were issued in a pair of cases.

One case actually consolidates four cases pending in U.S. District Court in Oregon by foreclosed homeowners against Recontrust Co., Bank of America, the Bank of New York Mellon, Deutsche Bank National Trust Co., and MERS. The federal court asked the Oregon Supreme Court to provide its interpretation of the 1959 state law.

The other case involved a suit by Rebecca Niday against GMAC Mortgage and MERS. The justices upheld the Oregon Court of Appeals, which ruled last year that individual lenders – not the national system – must file deed assignations with counties before they can begin out-of-court foreclosures. The decision compels lenders to file each change of ownership of a loan.

Coupled with state legislation in 2012, it put a halt to most out-of-court foreclosures, compelling the use of more expensive court proceedings.

The Court of Appeals decision reversed a judgment against Niday in Clacakmas County Circuit Court, where the case will return for further proceedings after today’s Supreme Court ruling.

pwong@StatesmanJournal.com or (503) 399-6745 or twitter.com/capitolwong

Major Oregon Supreme Court ruling undermines MERS, but leaves registry room to challenge

By Kerri Ann Panchuk

• June 6, 2013 • 11:56am

The Oregon Supreme Court affirmed a lower court’s decision challenging the authority of the Mortgage Electronic Registration Systems during the foreclosure process when the registry’s construction butts up against certain aspects of Oregon law.

This is the outcome of the Niday v. GMAC decision — a precedential case the mortgage industry has been waiting months for.

The court issued two decisions Thursday that impact MERS – Niday v. GMAC as well as Brandrup v. Reconstruct Co.

MERS believes the court left the registry room to show its authority to act on behalf of lenders in the state. After analyzing a portion of one case, MERS said the court “held that Oregon’s nonjudicial foreclosure statute ‘does not require recordation of assignments of the trust deed by operation of law that result from the transfer of the secured obligation.”

Based on that line, MERS believes “these rulings will allow lenders to move forward with nonjudicial foreclosure proceedings in the state.”

But before getting to that part of the case, the justices do undermine some of MERS key arguments.

In its final ruling, the Oregon Supreme Court agreed with a lower appellate court, holding that MERS is not a rightful ‘beneficiary of the trust deed’ when analyzing its construction against the Oregon Deed Trust Act.

The Supreme Court also said MERS could have maintained some authority to assign foreclosure rights if it had provided evidence of an agency relationship with some of the financial firms it acted on behalf of.

However, the court also shot down this argument saying “as far as we can tell, there is nothing in the summary judgment record in this case that identifies the successors to the original lender’s interests or shows MERS is authorized as the agent of the successors to the original lender’s interests.”

Without this agency relationship or status as the trust deed beneficiary, MERS’ ability to assign foreclosing power is virtually shot down, making this a landmark decision in a state where this pending appeal alone made financial firms weary of nonjudicial foreclosures.

The original appellate court decision – which overturned a ruling favorable to MERS — limited the meaning of the term beneficiary of the mortgage contract as the agent or person that is owed repayment on a loan.

The appellate court then evaluated MERS against that definition and decided the registry had no authority to assign foreclosure authority — a theory that disempowered many assumptions made when it comes to MERS’ role in the foreclosure process.

That case alone prompted analysts to project a slowdown in nonjudicial foreclosures in Oregon — and a preference for judicial foreclosures to guarantee some certainty. The case eventually went up to the state supreme court on appeal and resulted in Thursday’s decision.

The failure of MERS to get the entire decision overturned is significant.

But sources say the court essentially left MERS room to prove on remand to a lower court that ‘evidence’ does exist showing the registry acting as an agent for various banks, thereby maintaining its authority to assign various interests in the trust deed.

It’s one of the four questions answered by the court in a summary of the case.

The justices write “insofar as MERS does not have the right to receive repayment of the notes that the trust deeds in these cases secures, it cannot hold legal title to those trust deeds under the OTDA, or transfer legal title to another entity; but (b) if it can be shown that the original lenders and their successors conferred sufficient authority on MERS to act on their behalves in the necessary respects, MERS may have authority, as the true beneficiary’s agent, to hold and transfer interests in the trust deed.”

MERS responded to this line saying, “We are confident that we can establish this authority.”

Read the full Niday decision here.

Read the Brandrup v. Reconstruct Co decision.

kpanchuk@housingwire.com

NY AG sues HSBC over delayed foreclosure settlement hearings

By Kerri Ann Panchuk

• June 4, 2013 • 9:59am

New York Attorney General Eric Schneiderman filed suit againstHSBC Bank USA and its HSBC Mortgage Corp. division over allegations that the global bank is putting distressed borrowers more at risk by delaying state-mandated foreclosure settlement conferences.

The case revolves around what is known as the “shadow docket” in New York.

Lenders and servicers who sue to foreclose in New York are required under state code to file a “request for judicial intervention” form (RJI) with the proof of service at the county clerk’s office. The form is essentially the document that triggers state-mandated foreclosure settlement conferences between borrowers and lenders.

Once it’s filed, a settlement conference has to take place within 60 days of the initial filing to inform borrowers of any foreclosure-relief mechanisms available to them.

Schneiderman claims banks — including HSBC — are delaying the filing of the form to indefinitely stall required foreclosure conferences.

As a result, a type of shadow docket of cases is lingering, with borrowers — already facing a potential default — still waiting to receive word on their state-mandated settlement conferences with financial firms.

During this waiting period, the borrower is often getting hit with additional fees and interest, Schneiderman says.

About 25,000 families are allegedly caught in this so-called shadow docket. Once they get out of it, it may be too late to save their homes with all of the new fees and penalties tacked on, Schneiderman asserts.

“Companies like HSBC are brazenly ignoring state law, leaving homeowners across New York stuck in a legal limbo where they can’t even get the legally required settlement conference that could help them keep their homes,” said Attorney General Schneiderman. “For homeowners facing foreclosure, time is their greatest enemy. Every day spent waiting for a settlement conference is a day that the lender piles on additional interest, fees and penalties and the homeowner falls further behind. I am committed to doing everything I can to stand up for New Yorkers who are trapped in the ‘shadow docket’ and denied their right to fight for their homes.”

Schneiderman says an investigation discovered that HSBC Bank and HSBC Mortgage “repeatedly failed to timely file the RJI in hundreds of foreclosure cases.”

The AG claims a sampling of filings identified at least 300 instances in which the appropriate filing was not submitted with the proof of service. In a few cases, borrowers had to wait more than two years for HSBC to trigger a foreclosure conference with a filing.

In a lawsuit filed with the New York Supreme Court, Schneiderman wants to compel HSBC to submit the appropriate forms alongside the proof of service.

In cases where no filing has been offered, Schneiderman wants an accounting of all interest charges, penalties and fees that accrued beginning 60 days after the filing of the proof of service was documented. He also wants to waive all accrued interest charges, fees and penalties that occurred 60 days after the filing of the proof of service while granting restitution for any funds paid by homeowners who already passed the 60-day period.

Scheiderman also is asking for damages to compensate borrowers hurt by any of the alleged practices.