Archive for the ‘Foreclosure’ Category

Although downplayed by most media accounts and popular financial analysts, crippling bank losses from foreclosure flaws appear to be imminent and unavoidable. The defects prompting the “RoboSigning Scandal” are not mere technicalities but are inherent to the securitization process. They cannot be cured. This deep-seated fraud is already explicitly outlined in publicly available lawsuits.There is, however, no need to panic, no need for TARP II, and no need for legislation to further conceal the fraud and push the inevitable failure of the too-big-to-fail banks into the future.

Federal regulators now have the tools to take control and set things right. The Wall Street giants escaped the Volcker Rule, which would have limited their size, and the Brown-Kaufman amendment, which would have broken up the largest six banks outright; but the financial reform bill has us covered. The Kanjorski amendment-which slipped past lobbyists largely unnoticed-allows federal regulators to preemptively break up large financial institutions that pose a threat to U.S. financial or economic stability.

Foreclosuregate: Time to Break Up Too-Big-to-Fail Banks Published on Friday, October 15, 2010 by YES! Magazine Foreclosuregate: Time to Break Up the Too-Big-to-Fail Banks? With risky behavior by big finance again threatening economic stability, how can we get things right this time? by Ellen Brown Looming losses from the mortgage scandal dubbed "foreclosuregate" may qualify as the sort of systemic risk that, under the new financial reform bill, warrants the breakup of the too-big-to-fail banks. The Ka … Read More

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ECONOMY   AlterNet / By Zach Carter

Treasury Makes Shocking Admission: Program for Struggling Homeowners Just a Ploy to Enrich Big Banks

The Treasury Dept.’s mortgage relief program isn’t just failing, it’s actively funneling money from homeowners to bankers, and Treasury likes it that way.

August 25, 2010 |

Flickr Creative Commons / Jay Tamboli

The Treasury Department’s plan to help struggling homeowners has been failing miserably for months. The program is poorly designed, has been poorly implemented and only a tiny percentage of borrowers eligible for help have actually received any meaningful assistance. The initiative lowers monthly payments for borrowers, but fails to reduce their overall debt burden, often increasing that burden, funneling money to banks that borrowers could have saved by simply renting a different home. But according to recent startling admissions from top Treasury officials, the mortgage plan was actually not really about helping borrowers at all. Instead, it was simply one element of a broader effort to pump money into big banks and shield them from losses on bad loans. That’s right: Treasury openly admitted that its only serious program purporting to help ordinary citizens was actually a cynical move to help Wall Street megabanks.

Treasury Secretary Timothy Geithner has long made it clear his financial repair plan was based on allowing large banks to “earn” their way back to health. By creating conditions where banks could make easy profits, Getithner and top officials at the Federal Reserve hoped to limit the amount of money taxpayers would have to directly inject into the banks. This was never the best strategy for fixing the financial sector, but it wasn’t outright predation, either. But now the Treasury Department is making explicit that it was—and remains—willing to let those so-called “earnings” come directly at the expense of people hit hardest by the recession: struggling borrowers trying to stay in their homes.

This account comes secondhand from a cadre of bloggers who were invited to speak on “deep background” with a handful of Treasury officials—meaning that bloggers would get to speak frankly with top-level folks, but not quote them directly, or attribute views to specific people. But the accounts are all generally distressing, particularly this one from economics whiz Steve Waldman:

The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system,” “the economy,” and “ordinary Americans.”

Mike Konczal confirms Waldman’s observation, and Felix Salmon also says the program has done little more than delay foreclosures, as does Shahien Nasiripour.

Here’s how Geithner’s Home Affordability Modification Program (HAMP) works, or rather, doesn’t work. Troubled borrowers can apply to their banks for relief on monthly mortgage payments. Banks who agree to participate in HAMP also agree to do a bunch of things to reduce the monthly payments for borrowers, from lowering interest rates to extending the term of the loan. This is good for the bank, because they get to keep accepting payments from borrowers without taking a big loss on the loan.

But the deal is not so good for homeowners. Banks don’t actually have to reduce how much borrowers actually owe them—only how much they have to pay out every month. For borrowers who owe tens of thousands of dollars more than their home is worth, the deal just means that they’ll be pissing away their money to the bank more slowly than they were before. If a homeowner spends $3,000 a month on her mortgage, HAMP might help her get that payment down to $2,500. But if she still owes $50,000 more than her house is worth, the plan hasn’t actually helped her. Even if the borrower gets through HAMP’s three-month trial period, the plan has done nothing but convince her to funnel another $7,500 to a bank that doesn’t deserve it.

Most borrowers go into the program expecting real relief. After the trial period, most realize that it doesn’t actually help them, and end up walking away from the mortgage anyway. These borrowers would have been much better off simply finding a new place to rent without going through the HAMP rigamarole. This example is a good case, one where the bank doesn’t jack up the borrower’s long-term debt burden in exchange for lowering monthly payments

But the benefit to banks goes much deeper. On any given mortgage, it’s almost always in a bank’s best interest to cut a deal with borrowers. Losses from foreclosure are very high, and if a bank agrees to reduce a borrower’s debt burden, it will take an upfront hit, but one much lower than what it would ultimately take from foreclosure.

That logic changes dramatically when millions of loans are defaulting at once. Under those circumstances, bank balance sheets are so fragile they literally cannot afford to absorb lots of losses all at once. But if those foreclosures unravel slowly, over time, the bank can still stay afloat, even if it has to bear greater costs further down the line. As former Deutsche Bank executive Raj Date told me all the way back in July 2009:

If management is only seeking to maximize value for their existing shareholders, it’s possible that maybe they’re doing the right thing. If you’re able to let things bleed out slowly over time but still generate some earnings, if it bleeds slow enough, it doesn’t matter how long it takes, because you never have to issue more stock and dilute your shareholders. You could make an argument from the point of view of any bank management team that not taking a day-one hit is actually a smart idea.

Date, it should be emphasized, does not condone this strategy. He now heads the Cambridge Winter Center for Financial Institutions Policy, and is a staunch advocate of financial reform.

If, say, Wells Fargo had taken a $20 billion hit on its mortgage book in February 2009, it very well could have failed. But losing a few billion dollars here and there over the course of three or four years means that Wells Fargo can stay in business and keep paying out bonuses, even if it ultimately sees losses of $25 or $30 billion on its bad loans.

So HAMP is doing a great job if all you care about is the solvency of Wall Street banks. But if borrowers know from the get-go they’re not going to get a decent deal, they have no incentive to keep paying their mortgage. Instead of tapping out their savings and hitting up relatives for help with monthly payments, borrowers could have saved their money, walked away from the mortgage and found more sensible rental housing. The administration’s plan has effectively helped funnel more money to Wall Street at the expense of homeowners. And now the Treasury Department is going around and telling bloggers this is actually a positive feature of the program, since it meant that big banks didn’t go out of business.

There were always other options for dealing with the banks and preventing foreclosures. Putting big, faltering banks into receivership—also known as “nationalization”—has been a powerful policy tool used by every administration from Franklin Delano Roosevelt to Ronald Reagan. When the government takes over a bank, it forces it to take those big losses upfront, wiping out shareholders in the process. Investors lose a lot of money (and they should, since they made a lousy investment), but the bank is cleaned up quickly and can start lending again. No silly games with borrowers, and no funky accounting gimmicks.

Most of the blame for the refusal to nationalize failing Wall Street titans lies with the Bush administration, although Obama had the opportunity to make a move early in his tenure, and Obama’s Treasury Secretary, Geithner, was a major bailout decision-maker on the Bush team as president of the New York Fed.

But Bush cannot be blamed for the HAMP nightmare, and plenty of other options were available for coping with foreclosure when Obama took office. One of the best solutions was just endorsed by the Cleveland Federal Reserve, in the face of prolonged and fervent opposition from the bank lobby. Unlike every other form of consumer debt, mortgages are immune from renegotiation in bankruptcy. If you file for bankruptcy, a judge literally cannot reduce how much you owe on your mortgage. The only way out of the debt is foreclosure, giving banks tremendous power in negotiations with borrowers.

This exemption is arbitrary and unfair, but the bank lobby contends it keeps mortgage rates lower. It’s just not true, as a new paper by Cleveland Fed economists Thomas J. Fitzpatrick IV and James B. Thomson makes clear. Family farms were exempted from bankruptcy until 1986, and bankers bloviated about the same imminent risk of unaffordable farm loans when Congress considered ending that status to prevent farm foreclosures.

When Congress did repeal the exemption, farm loans didn’t get any more expensive, and bankruptcy filings didn’t even increase very much. Instead, a flood of farmers entered into negotiations with banks to have their debt burden reduced. Banks took losses, but foreclosures were avoided. Society was better off, even if bank investors had to take a hit.

But instead, Treasury is actively encouraging troubled homeowners to subsidize giant banks. What’s worse, as Mike Konczal notes, they’re hoping to expand the program significantly.

There is a flip-side to the current HAMP nightmare, one that borrowers faced with mortgage problems should attend to closely and discuss with financial planners. In many cases, banks don’t actually want to foreclose quickly, because doing so entails taking losses right away, and most of them would rather drag those losses out over time. The accounting rules are so loose that banks can actually book phantom “income” on monthly payments that borrowers do not actually make. Some borrowers have been able to benefit from this situation by simply refusing to pay their mortgages. Since banks often want to delay repossessing the house in order to benefit from tricky accounting, borrowers can live rent-free in their homes for a year or more before the bank finally has to lower the hatchet. Of course, you won’t hear Treasury encouraging people to stop paying their mortgages. If too many people just stop paying, then banks are out a lot of money fast, sparking big, quick losses for banks — the exact situation HAMP is trying to avoid.

Borrowers who choose not to pay their mortgages don’t even have to feel guilty about it. Refusing to pay is actually modestly good for the economy, since instead of wasting their money on bank payments, borrowers have more cash to spend at other businesses, creating demand and encouraging job growth. By contrast, top-level Treasury officials who have enriched bankers on the backs of troubled borrowers should be looking for other lines of work.

Zach Carter is AlterNet’s economics editor. He is a fellow at Campaign for America’s Future, writes a weekly blog on the economy for the Media Consortium and is a frequent contributor to The Nation magazine.

Breaking News & Views for the Progressive Community

Published on Wednesday, August 18, 2010 by YES! Magazine

Homeowners’ Rebellion: Could 62 Million Homes Be Foreclosure-Proof?

A committed movement to tear off the predatory mask called MERS could yet turn the tide for struggling homeowners.

by Ellen Brown

Mortgages bundled into securities were a favorite investment of speculators at the height of the financial bubble leading up to the crash of 2008. The securities changed hands frequently, and the companies profiting from mortgage payments were often not the same parties that negotiated the loans. At the heart of this disconnect was the Mortgage Electronic Registration System, or MERS, a company that serves as the mortgagee of record for lenders, allowing properties to change hands without the necessity of recording each transfer.

[Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles—and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof.]
Over 62 million mortgages are now held in the name of MERS, an electronic recording system devised by and for the convenience of the mortgage industry. A California bankruptcy court, following landmark cases in other jurisdictions, recently held that this electronic shortcut makes it impossible for banks to establish their ownership of property titles—and therefore to foreclose on mortgaged properties. The logical result could be 62 million homes that are foreclosure-proof.

MERS was convenient for the mortgage industry, but courts are now questioning the impact of all of this financial juggling when it comes to mortgage ownership. To foreclose on real property, the plaintiff must be able to establish the chain of title entitling it to relief. But MERS has acknowledged, and recent cases have held, that MERS is a mere “nominee”-an entity appointed by the true owner simply for the purpose of holding property in order to facilitate transactions. Recent court opinions stress that this defect is not just a procedural but is a substantive failure, one that is fatal to the plaintiff’s legal ability to foreclose.That means hordes of victims of predatory lending could end up owning their homes free and clear-while the financial industry could end up skewered on its own sword.

California Precedent

The latest of these court decisions came down in California on May 20, 2010, in a bankruptcy case called In re Walker, Case no. 10-21656-E-11. The court held that MERS could not foreclose because it was a mere nominee; and that as a result, plaintiff Citibank could not collect on its claim. The judge opined:

Since no evidence of MERS’ ownership of the underlying note has been offered, and other courts have concluded that MERS does not own the underlying notes, this court is convinced that MERS had no interest it could transfer to Citibank. Since MERS did not own the underlying note, it could not transfer the beneficial interest of the Deed of Trust to another. Any attempt to transfer the beneficial interest of a trust deed without ownership of the underlying note is void under California law.

In support, the judge cited In Re Vargas (California Bankruptcy Court); Landmark v. Kesler (Kansas Supreme Court); LaSalle Bank v. Lamy (a New York case); and In Re Foreclosure Cases (the “Boyko” decision from Ohio Federal Court). (For more on these earlier cases, see here, here and here.) The court concluded:

Since the claimant, Citibank, has not established that it is the owner of the promissory note secured by the trust deed, Citibank is unable to assert a claim for payment in this case.

The broad impact the case could have on California foreclosures is suggested by attorney Jeff Barnes, who writes:

This opinion . . . serves as a legal basis to challenge any foreclosure in California based on a MERS assignment; to seek to void any MERS assignment of the Deed of Trust or the note to a third party for purposes of foreclosure; and should be sufficient for a borrower to not only obtain a TRO [temporary restraining order] against a Trustee’s Sale, but also a Preliminary Injunction barring any sale pending any litigation filed by the borrower challenging a foreclosure based on a MERS assignment.

While not binding on courts in other jurisdictions, the ruling could serve as persuasive precedent there as well, because the court cited non-bankruptcy cases related to the lack of authority of MERS, and because the opinion is consistent with prior rulings in Idaho and Nevada Bankruptcy courts on the same issue.

What Could This Mean for Homeowners?

Earlier cases focused on the inability of MERS to produce a promissory note or assignment establishing that it was entitled to relief, but most courts have considered this a mere procedural defect and continue to look the other way on MERS’ technical lack of standing to sue. The more recent cases, however, are looking at something more serious. If MERS is not the title holder of properties held in its name, the chain of title has been broken, and no one may have standing to sue. In MERS v. Nebraska Department of Banking and Finance, MERS insisted that it had no actionable interest in title, and the court agreed.

An August 2010 article in Mother Jones titled “Fannie and Freddie’s Foreclosure Barons” exposes a widespread practice of “foreclosure mills” in backdating assignments after foreclosures have been filed. Not only is this perjury, a prosecutable offense, but if MERS was never the title holder, there is nothing to assign. The defaulting homeowners could wind up with free and clear title.

In Jacksonville, Florida, legal aid attorney April Charney has been using the missing-note argument ever since she first identified that weakness in the lenders’ case in 2004. Five years later, she says, some of the homeowners she’s helped are still in their homes. According to a Huffington Post article titled “‘Produce the Note’ Movement Helps Stall Foreclosures”:

Because of the missing ownership documentation, Charney is now starting to file quiet title actions, hoping to get her homeowner clients full title to their homes (a quiet title action ‘quiets’ all other claims). Charney says she’s helped thousands of homeowners delay or prevent foreclosure, and trained thousands of lawyers across the country on how to protect homeowners and battle in court.

Criminal Charges?

Other suits go beyond merely challenging title to alleging criminal activity. On July 26, 2010, a class action was filed in Florida seeking relief against MERS and an associated legal firm for racketeering and mail fraud. It alleges that the defendants used “the artifice of MERS to sabotage the judicial process to the detriment of borrowers;” that “to perpetuate the scheme, MERS was and is used in a way so that the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments;” that the scheme depended on “the MERS artifice and the ability to generate any necessary ‘assignment’ which flowed from it;” and that “by engaging in a pattern of racketeering activity, specifically ‘mail or wire fraud,’ the Defendants . . . participated in a criminal enterprise affecting interstate commerce.”

Local governments deprived of filing fees may also be getting into the act, at least through representatives suing on their behalf. Qui tam actions allow for a private party or “whistle blower” to bring suit on behalf of the government for a past or present fraud on it. In State of California ex rel. Barrett R. Bates, filed May 10, 2010, the plaintiff qui tam sued on behalf of a long list of local governments in California against MERS and a number of lenders, including Bank of America, JPMorgan Chase and Wells Fargo, for “wrongfully bypass[ing] the counties’ recording requirements; divest[ing] the borrowers of the right to know who owned the promissory note . . .; and record[ing] false documents to initiate and pursue non-judicial foreclosures, and to otherwise decrease or avoid payment of fees to the Counties and the Cities where the real estate is located.” The complaint notes that “MERS claims to have ‘saved’ at least $2.4 billion dollars in recording costs,” meaning it has helped avoid billions of dollars in fees otherwise accruing to local governments. The plaintiff sues for treble damages for all recording fees not paid during the past ten years, and for civil penalties of between $5,000 and $10,000 for each unpaid or underpaid recording fee and each false document recorded during that period, potentially a hefty sum. Similar suits have been filed by the same plaintiff qui tam in Nevada and Tennessee.

By Their Own Sword: MERS’ Role in the Financial Crisis

MERS is, according to its website, “an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.” Or as Karl Denninger puts it, “MERS’ own website claims that it exists for the purpose of circumventing assignments and documenting ownership!”

MERS was developed in the early 1990s by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, allegedly to allow consumers to pay less for mortgage loans. That did not actually happen, but what MERS did allow was the securitization and shuffling around of mortgages behind a veil of anonymity. The result was not only to cheat local governments out of their recording fees but to defeat the purpose of the recording laws, which was to guarantee purchasers clean title. Worse, MERS facilitated an explosion of predatory lending in which lenders could not be held to account because they could not be identified, either by the preyed-upon borrowers or by the investors seduced into buying bundles of worthless mortgages. As alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al.:

Before MERS, it would not have been possible for mortgages with no market value . . . to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans. Before MERS, the actual beneficiary of every Deed of Trust on every parcel in the United States and the State of Nevada could be readily ascertained by merely reviewing the public records at the local recorder’s office where documents reflecting any ownership interest in real property are kept….

After MERS, . . . the servicing rights were transferred after the origination of the loan to an entity so large that communication with the servicer became difficult if not impossible …. The servicer was interested in only one thing – making a profit from the foreclosure of the borrower’s residence – so that the entire predatory cycle of fraudulent origination, resale, and securitization of yet another predatory loan could occur again. This is the legacy of MERS, and the entire scheme was predicated upon the fraudulent designation of MERS as the ‘beneficiary’ under millions of deeds of trust in Nevada and other states.

Axing the Bankers’ Money Tree

If courts overwhelmed with foreclosures decide to take up the cause, the result could be millions of struggling homeowners with the banks off their backs, and millions of homes no longer on the books of some too-big-to-fail banks. Without those assets, the banks could again be looking at bankruptcy. As was pointed out in a San Francisco Chronicle article by attorney Sean Olender following the October 2007 Boyko [pdf] decision:

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

. . . The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail . . . .

Nationalization of these giant banks might be the next logical step-a step that some commentators said should have been taken in the first place. When the banking system of Sweden collapsed following a housing bubble in the 1990s, nationalization of the banks worked out very well for that country.

The Swedish banks were largely privatized again when they got back on their feet, but it might be a good idea to keep some banks as publicly-owned entities, on the model of the Commonwealth Bank of Australia. For most of the 20th century it served as a “people’s bank,” making low interest loans to consumers and businesses through branches all over the country.

With the strengthened position of Wall Street following the 2008 bailout and the tepid 2010 banking reform bill, the U.S. is far from nationalizing its mega-banks now. But a committed homeowner movement to tear off the predatory mask called MERS could yet turn the tide. While courts are not likely to let 62 million homeowners off scot free, the defect in title created by MERS could give them significant new leverage at the bargaining table.

Ellen Brown wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Ellen developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she shows how the Federal Reserve and “the money trust” have usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are webofdebt.com, ellenbrown.com, and public-banking.com.

This work is licensed under a Creative Commons License

LEHMAN BROTHERS’ Mortgage Troubles (nationally & locally); Evidence of Foreclosure Fraud, Deception, and Conspiracy with Wells Fargo; Deceptive Judicial Filings

Posted by Barbara Ann Jackson on September 14th 2008 to News

*REVISED again on 11/16/2008 (Freddie Mac, Wells Fargo & Louisiana Judicial Collusion; falsified IRS form 1099-A, etc.)~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

OVERVIEW
LEHMAN BROTHERS’ mortgage troubles provides a yet further occasion to call attention to Louisiana FORECLOSURE FRAUDS being carried out by via deceptive collections and Wells Fargo through use of the judicial system to further real estate FORECLOSURE racketeering and IRS fraud. In conjunction with the big Lehman Brother picture, the following is a small (local) component affecting Lehman’s decline.

Referring to a foreclosure case entitled:  “Lehman Brothers Bank v. Clement Bailey,” case #2007-5610 in Orleans Parish Civil District Court, and New Orleans federal case #08-3881, entitled:  “Wells Fargo v. Clement Bailey, JP Morgan Chase, Bank of America, and Allstate Flood Insurance Program.” The KEY issue about these 2 cases is that Louisiana debt collector attorney Herschel C. Adcock, Jr., filed a Lehman Brothers foreclosure in State Court claiming Lehman holds the note.  But, Wells Fargo filed the latter lawsuit claiming Wells Fargo owns that same note.  If Wells Fargo succeeds in concealing Lehman Brothers’ (true or untrue) claim against Clement Bailey’s property, Wells Fargo and Mr. Adcock will wound up gleaning $$$$ –most likely from JP Morgan Chase, Bank of America, and Allstate Flood Insurance.  [As mentioned, millions, perhaps billions of dollars being unlawfully gleaned by unscrupulous debt collectors through fraudulent foreclosures has too long remained an unheeded atrocity for which distressed property owners have long been subjected to, but now also impacts Investors!]  **MORE DETAILS, COURT PLEADINGS, and Prima Facie evidence of the orchestrated foreclosure fraud being engaged in involving Lehman Brothers, Wells Fargo, and Mr. Adcock –AS WELL AS A COPY OF THE LETTER Mr. Adcock (and others) wrote to JP Morgan Chase, is posted in this article. 

However, throughout this www.lawgrace.org website is Res Ipsa Loquitur proof –with court pleadings / records  unequivocally showing how, for many years, Baton Rouge, LA collection lawyers Herschel C. Adcock, Jr.,  and Brett P. Furr, as well as the Monroe, LA debt collection law firm of Dean Morris have been utilizing the courts of certain New Orleans federal judges to unlawfully obtain and flip (via lack of “real party” interest foreclosures, “Lift Stay” Motions despite lack of standing filed in Bankruptcy Court ) real estate properties.  SEE ALSO especially proof & facts posted August 8, 2008, the letter to the Louisiana Secretary of State’s office concerning the deliberate falsified IRS form 1099-A that was filed by WELLS FARGO BANK, NA. **CLICK this link>> Statement to the Louisiana Secretary of State concerning Wells Fargo 1099’s.

Despite probes into factors of  the mortgage crisis, there has been almost no investigation of the most lethal mortgage mess component: FORECLOSURE ATTORNEYS DEBT COLLECTION ABUSES and JUDICIAL COLLUSION.  Congress needs to seek the whereabouts of perhaps billions of dollars and massive amounts of real estate that winds up in the collector attorneys’ possession -as well as examine the scores of attorney bankruptcy court frauds.

Such attorneys deliberately file foreclosures naming defunct mortgage companies, or companies which no longer hold the notes; or affix collectors’ fees exceeding “Acceleration Clauses.”  If homeowners sue for “Unfair Debt Collection Practices,” collectors make more $$ through protracted litigations. Additionally, some collectors file in Bankruptcy Court falsified motions to “Lift Stay” pleadings for purposes of accomplishing SIMULATED AUCTIONS of real estate properties.

Along these same lines, homeowner rescue and congressional measures for some people facing foreclosure is not even needed due to the fact that -for incalculable numbers of foreclosures- innumerable foreclosures are being filed by mortgage plaintiffs which LACK STANDING, and therefore are NULL foreclosures.  Thus, Congress also should exert equal energy into probing valid of foreclosure proceedings –especially in States such as corrupt Louisiana which has not outlawed “CONFESSED JUDGMENTS.”

Further, aside from sheer acts of torture, judicial misrepresentations, and abusive practices upon consumers (which is a major reason why most states in the USA have banned confessed judgments) –this particular kind of foreclosure fraud really benefits unscrupulous mortgage lenders because it allows those lenders to repeatedly FLIP properties, and it allows such lenders to repeatedly mislead WALL STREET Investors into believing the real estate market is thriving. However, the more realistic picture is that often foreclosure collector attorneys gain the true benefit.  Compare what happened with the INTERNAL REVENUE’s unrealized expectations, of which only $31 million of the IRS’s projected $185 million was obtained –and the legal bill added to the negative. “IRS Tax Advocate Renews Criticism of Private Collectors.” http://money.cnn.com/news/newsfeeds/articles/djf500/200803131508DOWJONESDJONLINE000968_FORTUNE5.htm

_______________________________________________________________________________________________
SPECIFICS CONCERNING LEHMAN, WELLS FARGO, AND LOUISIANA FORECLOSURE FRAUD

This first exhibit here is from the Orleans Parish Civil Sheriff Docket record for the Lehman Bros. v. Clement Bailey foreclosure that was filed by debt collector attorney Herschel C. Adcock, Jr.  Undeniably, this foreclosure case is asserting that Lehman Brothers owns the note for Bailey’s house.  Among other things, as shown by docket entry number 10, on 11/30/2007 an “ADA” code was entered.  A closer look into what that means is that amount due attorney reflects an amount to Adcock of $2,203.00.

Bailey 1.jpg

The second exhibits are a letter dated October 10, 2007 written by Adcock to J.P.Morgan Chase, wherein Adcock informs that Adcock is representing -not Lehman Brothers’ interest in the Bailey property, but Wells Fargo; and a page from the Orleans Parish Civil Sheriff website pertaining to real estate auctions / seizures. [In Louisiana, the foreclosure attorney is often listed as “plaintiff.” This misleading factor goes a long way toward (intentional or unintentional) enablement of deceptive and simulated auctions and fraudulent conveyances.  Furthermore, because the New Orleans Clerk of Court, Dale Atkins, admittedly (*READ>> Dangerous, Dale N. Atkins, Clerk of Court: Killing Us Softly) STEERS newly-filed lawsuits to the judge of Atkins’ selection, and Atkins facilitates and accommodates groundless removal of state court cases to FORUM-SHOPPED federal judges, it is not easy to tackle the long-standing Louisiana White Collar real estate flippings and foreclosure frauds.]  At any rate, Adcock was clearly seeking $$$ from Chase Bank, Allstate, and Bank of America purportedly on Wells Fargo’s behalf while at the same time Adcock was maintaining a foreclosure case on Lehman’s behalf.
Bailey -Adcock ltr.jpg Lehman Brothers foreclosure3.jpg
This third exhibit is page one of the lawsuit that Wells Fargo filed in state court against Bailey, J.P. Morgan Chase, Bank of America, and Allstate Insurance. (Defendant Allstate removed the Wells Fargo case to federal court.) Lehman Brothers is nowhere mentioned in that lawsuit.  Not only does it appear that Wells Fargo is in conspiracy with Adcock to deceptively gain money from those defendants, those defendants are being forced to defend a sham lawsuit.  In fact, the language of the entire lawsuit omits a whole lot as to why / how Wells Fargo is holder of the note.Bailey lawsuit.jpg


EXTEND AND PRETEND: The Obama Administration’s Failed Foreclosure Program

President Barack Obama’s signature plan to combat the housing crisis has fallen short of its goals — rather than significantly and permanently reducing home foreclosures, it is only delaying them.

The administration unveiled its Making Home Affordable plan in February 2009. Obama vowed in front of an audience gathered at Dobson High School in Mesa, Ariz., that MHA’s signature effort, the Home Affordable Modification Program, would “enable as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.”

The $75 billion initiative — $50 billion from the bank bailout, $25 billion from government-owned mortgage giants Fannie Mae and Freddie Mac — was designed to induce lenders, servicers and investors to modify distressed mortgages through a series of cash incentives.

It’s not working.

In its first year, 1.5 million people were invited to try HAMP. About 40 percent of those who tried it have been kicked out of the program; fewer than that have been given an actual shot at keeping their homes.

When President Obama took office, it took an average of 319 days to complete a foreclosure, according to Jacksonville, Fla.-based data provider Lender Processing Services. Now it takes 461 days.

Extending the process by which homes enter foreclosure allows banks to continue carrying the loans on their books at full value, delaying loss recognition. That allows unhealthy banks to appear healthy, staving off costly bank failures.

As a result, fewer homes hit the market in a distressed state. Home prices stopped their free fall.

“Extending and pretending was the right thing to do last year,” says John Burns, a housing industry consultant based in Irvine, Calif. “It pains me to say that, but that’s the situation they’ve got us into. Throwing these people out on the street and selling their homes would have depressed home prices.”

The strategy has achieved stability for the housing market, but not for the people inside the houses. Families are merely given more time to wonder when sheriff’s deputies will finally pile their belongings on the curb.

A Year Into HAMP, ‘We’re Losing Our Home’

Bea and Terry Garwood applied to JPMorgan Chase for HAMP help in April 2009 and were approved for a “trial” modification that July because they met the core requirements: their house payments took up more than 31 percent of their monthly pre-tax income; they lived in their home; they owed less than $729,000; and they were at risk of default. Garwood says the HAMP trial reduced their monthly payment on their two-story home in Pinckney, Mich., by nearly $500 to about $1,175 — a huge relief, she adds.

A HAMP trial is supposed to become “permanent” after three months, but Garwood’s dragged on for nine. “They kept on saying a bank statement was missing, or one of the documentations wasn’t signed, or they didn’t have the affidavit, or the hardship letter,” Garwood says. “And then on March 19, I received a letter saying, ‘You do not qualify for a permanent modification. You now owe us $12,000.’”

Chase rejected the Garwoods for two reasons, according to the letter Garwood received: The bank claimed their monthly mortgage payment amounted to less than 31 percent of their income and they failed HAMP’s opaque “Net Present Value” test, a complex Treasury Department formula that servicers use to determine if a modification will make investors more money than a foreclosure. Garwood says that Chase assumed they had an inflated income by looking at deposits to their bank account and ignoring the money paid out to the people who work for her husband, a roofing subcontractor. If Chase went by the Garwoods’ tax forms, she claims, the bank would realize they make thousands of dollars less every month and the couple would qualify for a permanent modification. Chase declined to comment.

Garwood says that the difference between their reduced payments during the trial period and what they would have paid otherwise, plus late fees, is $12,000. She says they can’t possibly afford it all at once but that they would have found a way to make full monthly payments if they hadn’t been lured into HAMP. They stopped making payments in April, shortly after they were turned down for a permanent modification. Sheriff’s sales have been set for June, July, and now August. Garwood says she thinks she may be able to continue to dodge the foreclosure for a little while longer, but she’s not exactly grateful for the extra time.

“They told us we were a great candidate, so we went for it,” she says. “And as a result we’re losing our home.”

Treasury Department officials downplayed HAMP’s role in the administration’s foreclosure prevention efforts in an interview with HuffPost, insisting that the goal of helping three to four million people is broader than just HAMP or even the umbrella program under which it falls, Making Home Affordable.

“Foreclosure prevention was only one piece of the administration’s approach to stabilize the housing market that included… interest rates at historic lows [for] increased affordability and refinancing, support for [Fannie Mae and Freddie Mac] to make sure there was a mortgage market available, and the homebuyer tax credit to stimulate demand,” says Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office. “HAMP is one part of foreclosure prevention.”

‘Anemic’ Number of Permanent Modifications

HAMP gives servicers and investors $1,000 incentive payments for permanent modifications, and additional payments each year that borrowers stay current. Through June, Treasury has disbursed just $247 million for successful modifications, according to a July 21 report by the Office of the Special Inspector General for the Troubled Asset Relief Program.

The TARP auditor called the number of permanent modifications “anemic.”

“HAMP has not put an appreciable dent in foreclosure filings,” SIGTARP’s report to Congress notes. “[F]oreclosure filings have increased dramatically while HAMP has been in place, with permanent modifications constituting just a few drops in an ocean of foreclosure filings.”

“There is some extending and pretending going on,” says Celia Chen, an economist and specialist in housing for Moody’s Economy.com. “Many trial modifications have failed to become permanent modifications. We’re starting to see the number of REOs [bank-owned homes] rising.”

During Obama’s first three months in office, banks repossessed nearly 191,000 homes. In the three-month period ending in June 2010, that number jumped to 270,000 — a 42 percent increase.

More than 529,000 homeowners have been kicked out of HAMP through June, Treasury figures show. About 1.2 million entered the program with a promise and expectation of permanent relief. Roughly 389,000 are benefiting from the “permanent” modifications guaranteed to keep their payments down for five years.

Lenders have repossessed more than three times as many homes during this time.

The Treasury Department rolled out the program quickly, and initially allowed servicers to put borrowers into trial modifications without solid documentation of their income — a mistake that auditors of the program say inflated the number of people in trial mods that would never pan out. Every few months, Treasury released additional directives that, among other things, have expanded the criteria that servicers might use for income verification, from 4506-T tax forms and pay stubs initially to documents that reflect unemployment benefits and alimony payments.

Servicers frequently complain that such constant changes to the program make it difficult to administer, according to government auditors, including SIGTARP and the Elizabeth Warren-led Congressional Oversight Panel.

HAMP homeowners know a thing or two about delays and supplemental directives: Banks’ requests to resend lost paperwork dominate complaints about the program. Of the 364,077 trial plans, 166,000 have dragged on for longer than six months.

Teresa Follmer, an interior designer in Mesa, Ariz., tried over a year to modify her mortgage with Countrywide (now Bank of America) before discovering that she’d met HAMP’s eligibility requirements in May 2009. But when she tried to apply, Countrywide told her it didn’t do HAMP mods, according to a lawsuit filed in federal court in July. After Follmer called the Arizona Department of Financial Institutions to complain, a Bank of America executive got in touch and initiated a long series of back-and-forth discussions.

Many unhappy HAMP recipients have similar stories to the one outlined in Follmer’s lawsuit: In response to the executive’s request, Follmer compiled personal financial information and sent it to the bank, which acknowledged receipt the following day. A week later, Bank of America sent Follmer a notice of its intent to foreclose on her home. The bank then advised Follmer to gather up her financial information again and resubmit her application. In October, she received a package indicating her HAMP trial would begin — and another package days later asking her to send additional paperwork. In January, Bank of America asked her to send a missed payment (which she denies she missed) and yet more documentation. In February, the bank thanked her for making payments and asked her to send her pay stubs and her tax returns (again). In May, Bank of America said it would foreclose because Follmer missed trial payments. When Follmer protested, she was told she could start her trial period all over again. But then in June, the bank told her she owed $23,988 and would lose her home if she didn’t pay.

Follmer’s suit, one of several across the country seeking class-action status, alleges that Bank of America “regularly falsely informs borrowers that it did not receive requested information and demands that documents be re-sent.”

A Bank of America executive acknowledged the paperwork problems in June: “We continue to train and retrain to try to improve our process and we’ve done a lot of things to try to make sure we don’t lose documents anymore,” he said during a conference call with reporters. “We do think the experience is getting better and better, but again, it’s still not the level we would hope it to be because we still have more customer complaints than we believe are acceptable.”

Homeowners in New York City sued JPMorgan Chase for allegedly telling them to quit making payments in order to qualify for the program (similar suits have been launched against Chase in California and Seattle). “I trusted them because they’re a big bank. I did whatever they asked me to,” plaintiff Alex Lam told HuffPost. “Just to get a modification, that’s all I’m asking for… Since day one, that’s all I’m asking for.”

The Government Accountability Office notes in a June 24 report that Treasury had yet to fine a single servicer for noncompliance. In fact, Treasury had yet to even formalize its penalty scheme. The GAO says that Treasury’s lack of clear consequences “risks inconsistent treatment of servicer noncompliance and lacks transparency with respect to the severity of the steps it will take for specific types of noncompliance.”

Treasury’s enforcement of the rules has been limited to prodding servicers to do better, and requiring them to review borrowers’ applications. While Treasury has the contractual right to claw back payments made to servicers, it has yet to do so. The agency declined to offer reasons why it has not done so.

No Complaints From Those In Permanent Mods

For the 389,198 people who are in permanent modifications, HAMP is a godsend. Treasury referred HuffPost to Johnny Webb of Cleveland, Ohio, whose home has been in a permanent modification after he started a three-month trial last year.

“I went from paying close to $1,000 a month with a high interest rate to paying about $600 a month now with a low interest rate and I’m able to keep my house,” says Webb, 40, who says he works for an industrial services cleaning company. He told HuffPost he fell behind on his payments after suffering a back injury last year, and that he foolishly refinanced and fell victim to a debt relief scam before he tried HAMP via CitiMortgage. He says they lost his paperwork a couple times during the trial period, but he has no complaints now. “They have been unbelievably great.”

For the frustrated, one of the most confusing things about HAMP has been that, while servicers have not been allowed to actually foreclose on eligible borrowers, the program has allowed servicers to proceed with the foreclosure process. One day, borrowers are told that they’re all set in their HAMP trial; the next, they’re about to lose their home. Homeowners complain that it seems that their bank’s right hand doesn’t know what the left one is doing.

(A recent supplemental directive prohibiting foreclosure filings on people who provided solid proof of income, and another requiring better documentation, were designed to reduce this problem.)

Getting from a trial modification to a permanent one can be a fickle process. Melissa Stuart, an Indiana homeowner in her late 20s, sought a HAMP modification from GMAC when she lost one of her part-time jobs in the fall of 2009. Her monthly payment shrank to $874 from $1,108. But after a few months of making the reduced payments, she said she received a foreclosure threat in March and that someone from GMAC collections called to say she owed money. When she protested that she was in HAMP, the person told her no, she wasn’t; she’d been kicked out. Unable to set things straight with GMAC, Stuart reached out to her senators, to SIGTARP and to a HuffPost reporter.

Shortly after HuffPost reached out to GMAC’s spokeswoman, Stuart received a voicemail from a GMAC executive: “I had gotten a request through our corporate communications office to take a look at your file,” said the executive. “We have been able to get approval to go ahead and use the trial modification you have already completed as your evidence to commit to repayment of the mortgage. We are going to move this loan now into the permanent modification phase.”

Stuart said in a July email to HuffPost that she’s actually still not sure what’s going on. “I think technically I am still in the permanent modification but I have yet to receive the final paperwork,” she wrote. “My monthly statement reflects the terms of the modification but without the new loan documents, I’m worried that some other snafu will come up. I at least have someone’s direct line at corporate and she swears she is just waiting for the new loan to be approved, which makes me nervous.”

If Stuart ultimately gets booted from the program, Treasury may argue that the eventual loss of her home doesn’t represent a total failure for HAMP because the extra time she spent in her home softened the blow to the housing market and preserved her “dignity.”

“The success of HAMP should be measured by how many eligible homeowners are able to avoid the pain and stigma of foreclosure by reducing their mortgage payments to affordable levels while either remaining in their homes,” wrote Treasury’s Herb Allison in response to a March SIGTARP report, “or transitioning with dignity to more suitable housing.”

In other words, even if you lose your home, in the end HAMP can be considered a success if it gives you some extra time to find another place to live. Industry analysts see it that way, too.

“We have asserted many times in the past that the MHA program has both an explicit goal (help 3-4 million borrowers) and an implicit goal (make liquidations orderly),” Bank of America Merrill Lynch analysts wrote in a July 20 research note. “It can be argued that the program may not have been that successful when measured against the explicit goal. However, the program has been very successful based on the implicit goal, in our view, and has been one of the key reasons for stabilization in home prices.”

Since foreclosures surged in the middle of 2009, they’ve slowly decreased. Last July, there were foreclosure filings on about 360,000 homes, according to data provider RealtyTrac; by last month that number had dropped to 314,000. The number of homes receiving foreclosure filings in the first six months of the year was five percent lower than the previous six-month period.

Spreading Out The Impact Of The “Shadow Inventory”

So with foreclosures slowing, fewer distressed homes have hit the market. The so-called “shadow inventory” of homes — those with severely delinquent mortgages, in foreclosure or already repossessed that have not yet been put on the market — has grown and is estimated to range from 5 to 7 million homes. Through June, borrowers in foreclosure have been delinquent for an average of 461 days before being evicted from their homes.

“Numerous government programs are helping slow the foreclosure process and smooth the shock to the economy; this means the eventual disposition of so-called shadow inventory will be spread out rather than absorbed in one big blow,” Aaron Smith, a senior economist for Moody’s Economy.com, wrote in a June 30 note.

A senior Treasury official acknowledges that HAMP contributes to the shadow inventory of housing.

Thanks to this backlog, fewer homes are up for sale. Home prices have stabilized. After hitting a six-year low in May 2009, home values are up four percent through April, according to the latest S&P/Case-Shiller Home Price Index.

“The administration’s programs to stabilize the housing market have helped many across the country weather this crisis,” said Allison, Treasury’s assistant secretary for financial stability, in a July 20 statement.

Extend-and-pretend is “not necessarily bad,” says Chen. “By delaying that process, you’re putting homes on the market when the economy is a little stronger and can maybe absorb them a little bit more easily. Some of these houses won’t appear on the market until quite late this year [and] early next year.”

Experts point to HAMP as one of the biggest reasons for that delay. In addition to the 529,000 trial and permanent modifications that have been canceled, 166,000 active modifications in the temporary trial phase were initiated at least six months ago.

“Some of the foreclosure sales were mitigated last year because a lot of borrowers were put into HAMP — into trial modifications — and that kept them from turning into a distressed home that would then end up on the market for sale,” Chen says. “That would have depressed house prices.”

In the last six months of 2009, more than 790,000 homeowners signed up for temporary HAMP trial plans. Less than half that amount have joined the program through the first six months of this year as the administration tightened requirements in response to the high cancellation rate.

At the end of June, there were about four million existing homes available for sale, according to the National Association for Realtors. That represents a nine-month supply at the current sales pace, the group estimates.

The shadow inventory is larger than that. But while it could wreak havoc if suddenly unleashed on the market, at least in the near term its impact on home prices “will likely be moderate because of government programs aiming at keeping homeowners in their homes whenever possible,” Standard & Poor’s analysts wrote in a July 15 report.

“If [Treasury] dumps it all on the market they’ll see prices fall, so they’re going to have to come up with some sort of vehicle to keep those homes off the market,” says Burns.

“The longer we put that off, the stronger the underlying fundamentals of the economy will be, and that will help to support housing and make the effects of those foreclosure sales less bad than it otherwise would be,” Chen says.

“Looking at the big picture, the housing market is stabilizing, but the situation is still fragile and homeowners are still facing hardship,” a Treasury spokesman said.

But the program’s success at stabilizing the housing market may be fleeting. And homeowners who have been bounced from the program are at greater risk of losing their homes.
“The modification programs have helped stabilize home prices around the country, mostly because they have created so much confusion that people can live in their home for free for one year or more, and are buying time for thousands of banks to continue improving their balance sheets with earnings from good loans, while deferring the write-off of bad loans,” real estate consultant Burns wrote in a May 6 note to clients.

“In the long term, a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog,” James J. Saccacio, chief executive officer of RealtyTrac, said in a Jan. 14 statement

Of the 2.6 million homeowners who haven’t paid their mortgage in at least three months, the average delinquent homeowner hasn’t made a payment in 300 days, or a bit over 10 months, according to Lender Processing Services data through June. When Obama took office, that average stood at 196 days, or just over six months.

Because those homeowners forced lenders to evaluate them for HAMP, it had the effect of “slowing down the initiation or processing of literally hundreds of thousands of foreclosures that already would have been executed by now,” says Rick Sharga, senior vice president for marketing at Realtytrac. Those folks that have fallen out of the program will now “tend to be prone to accelerated foreclosure proceedings,” he added.

Sharga says that “on balance, [HAMP] is a bad thing.”

“What it caused was the problem to be extended beyond the point it would have already been resolved,” he says. “And the extension didn’t result in fewer foreclosures. If you were likely to go into foreclosure anyway that delay didn’t keep you out of foreclosure — it just cost the banks and the industry more time and money, and delayed the recovery that much more because now you’re another foreclosure that has yet to be processed.”

Staying ‘Under Water’ Or Walking Away

The average HAMP beneficiary is about 50 percent “under water,” meaning they owe more on their mortgage than their home is worth, according to the June 24 GAO report. In other words, the average HAMP homeowner owes their lender more than $1.50 for every dollar their home is worth — falling right into the stratum of homeowners most likely to simply walk away from their mortgages, according to recent research by economists at the Federal Reserve Bank of New York.

The average borrower with a five-year HAMP modification devotes nearly two-thirds of their monthly gross (pre-tax) income, or 64 percent, to servicing debt like credit card payments, home mortgages and auto loans, Treasury data show.

Many homeowners will be lucky to survive HAMP, experts say.

“One way you can tell that HAMP is destined to fail is to look at page three of the monthly report,” says Mark Hanson, a housing industry analyst based in California, referencing HAMP homeowners’ high debt loads. “If you figure that modifications are just loans, look at subprime: New Century would not have given you a loan with a 150 percent [loan-to-value ratio] and a 64 percent [debt-to-income ratio].”

New Century Financial, a top subprime lender, went bust in 2007 after subprime borrowers began defaulting on their mortgages en masse.

“Why would mortgage modifications with so much higher leverage than the original loan — why would these work?” Hanson asks.

John Burns told his clients that “this is nothing more than a fully documented version of the same garbage that took down the banking system two years ago, and this time the federal government rather than Countrywide and New Century are underwriting it. Almost all of these borrowers will eventually re-default.”

He added:

“It is very obvious that the architects of HAMP are short-term focused, and are tricking us into thinking they are solving the problem by calling these permanent modifications. Until these loans are renamed, let’s call them ‘Liar Loans 2,’ except this time the liar is the Bank of the United States rather than the borrower because this modification is anything but ‘permanent’. We do believe that stabilizing home prices and the banking system are critical to the recovery of the U.S. economy, but let’s at least tell the truth about what is being done.”

The underwater figure is a “frightening number,” says Sharga. “What we’re doing is betting on trends here. If a loan is 50 percent upside down, what you’re betting on here is that five years’ time will allow for enough appreciation so that the homeowner will either be right-sized again or at least close enough so that another trigger [like job loss or an unexpected costly expense] won’t cause them to bail.”

Diminished Expectations

Analysts say there’s little chance HAMP will meet Obama’s original goal.

Chen of Moody’s Economy.com estimates that HAMP will ultimately save about 500,000 homeowners from foreclosure, she wrote in a July 21 note to clients. Sharga says it’s likely to help just 10 percent of the homeowners the administration initially sought to save.

In June, analysts at Fitch Ratings projected that as many as 75 percent of HAMP homeowners will ultimately re-default — despite the lower monthly payments. Last month, analysts at Barclays Capital said they project a 60 percent re-default rate.

Through March, federal bank regulators report that about 7.7 percent of HAMP homeowners were 60 or more days delinquent on their modified mortgages three months after the modified mortgage took effect. Overall, 11.3 percent of modifications completed during the last three months of 2009 were at least 60 days late after three months, according to a June 23 report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

But mortgages modified during the fourth quarter of 2009 have exhibited lower re-default rates, bank regulators note. By comparison, almost a third of homeowners with reworked loans during the fourth quarter of 2008 were falling at least 60 days behind on their payments after three months.

Regulators attribute the lower re-default rates to the significantly lower payments newly-modified loans require, according to their June 23 report. Experts say HAMP played a large role in the change.

Treasury argues that a focus has been to standardize the way that servicers modify mortgages across the industry — something homeowner advocates acknowledge as a success. They and Treasury point to the fact that servicers are lowering required monthly payments on non-HAMP modifications, and that as a result re-default rates have improved.

Experts, though, argue that re-default rates at six months and 12 months are much more meaningful than the three-month rate.

To Hanson, HAMP “was a way to kick the can and hope for a better day. The problem is, that day is here now.”

He forecasts that the next six to 12 months “will really tell the fate of housing. It looks like we’re heading for a pretty big disappointment,” he says. The next quarter is “definitely going to be ugly” as more foreclosures are processed and more of them hit the market, depressing home prices.

Banks have repossessed about 1.4 million homes since Obama took office, according to RealtyTrac.

Former Federal Reserve Chairman Alan Greenspan said Sunday on NBC News’ “Meet the Press” that a so-called double-dip recession was possible “if home prices go down.”

Treasury may be running out of options. HAMP is slowing. The number of homeowners entering the program dropped 35 percent to a one-year low in June. Cancellations outpaced new trial and permanent mods in each of the last three months.

“The government sort of did what it had to do to stop the bleeding,” Sharga says. “We now have a housing market that’s very much like a patient that’s in critical condition. I know the government would like to take it off life support, but I’m unsure they know exactly which dials to turn or which hoses to unplug.”

Meanwhile, Treasury isn’t being forthcoming with the public about its goals, plans, or metrics for success, auditors from three government agencies say.

Treasury officials declined to state how many homeowners will eventually end up with permanent HAMP modifications.

“The American people are essentially being asked to shoulder an additional $50 billion of national debt without being told, more than 16 months after the program’s announcement, how many people Treasury hopes to actually help stay in their homes as a result of these expenditures, how many people are intended to be helped through other subprograms, and how the program is performing against those expectations and goals,” SIGTARP wrote in its July report to Congress. “Without such clearly defined standards, positive comments regarding the progress or success of HAMP are simply not credible, and the growing public suspicions that the program is an outright failure will continue to spread.”

“One of the things that drives me nuts is Treasury’s literal refusal to look at the housing market,” says Dean Baker, co-director of the Washington-based Center for Economic and Policy Research. Baker argues that the housing bubble has yet to fully deflate. In other words, we haven’t hit bottom yet — a point echoed by analysts like Burns and Hanson.

Nearly 15 million homeowners are underwater, according to a presentation for members of Congress by Mark Zandi, chief economist for Moody’s Economy.com, and Robert Shiller, a Yale professor and one of the two creators of the Case-Shiller Home Price Index.

What’s Missing From HAMP

“We’ve got a huge amount of people who are under water that aren’t going to be made whole,” Baker says. “If you can’t persuade the banks to do a write-down that will allow them to stay in their homes, then you haven’t done that person a favor.”

But HAMP doesn’t call for mandatory principal reduction.

“We have consistently said a very small portion (less than five percent) have reported using principal reduction despite the fact that HAMP permits principal reduction at any point,” Caldwell says.

As few as 0.1 percent of mortgage modifications initiated under HAMP involve reductions of principal, according to a June report by federal bank regulators. SIGTARP recommends that Treasury “re-evaluate” its approach, arguing that mandatory principal reductions may be the best way to save homeowners from foreclosure. Moody’s Investors Service projects that HAMP homeowners will re-default at a potential 70 percent rate without principal reduction. “The ultimate level of re-defaults will depend heavily on the successful implementation of principal forgiveness,” Moody’s analysts wrote, according to a SIGTARP report.

But while Treasury complains that widespread principal writedowns would exacerbate moral hazard — the concept that bad behavior without consequence only leads to more bad behavior — SIGTARP picked apart Treasury’s reasoning in its report to Congress, noting that not only could Treasury ensure that undeserving homeowners don’t receive principal reductions, but also that “any incremental moral hazard implicated by making principal reductions for homeowners mandatory pales in comparison to the moral hazard caused by TARP assistance to Wall Street.”

“Failure to make [principal reduction] mandatory may severely undercut the ability of HAMP” to prevent large-scale re-defaults, SIGTARP noted.

Hanson believes the housing problem was “a lot greater” than the administration’s response. “The response should have been a super HAMP,” Hanson said, arguing that the administration should have pushed for principal reduction and to amend bankruptcy law to allow for judges to rewrite mortgages on first-lien, owner-occupied homes (bankruptcy judges are powerless to change those terms under current law).

Absent that, Treasury shouldn’t have done anything, he said. Rather, the market should have been allowed to run its natural course.

But because Treasury chose something in between, the recovery will be delayed. Hanson forecasts lower home prices nationwide four years out. Treasury is banking on a rebound.

“If you’re 50 percent underwater you’re not securing equity and you’re not secure in your house,” Baker says. “We just handed banks money for nothing.”

*************************

Shahien Nasiripour is the business reporter for the Huffington Post. You can send him an e-mail; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get e-mail alerts when he reports the latest news. He can be reached at 646-274-2455.

Arthur Delaney can be reached at arthur@huffingtonpost.com or on Twitter @ArthurDelaneyHP.

Ripoff Report

Don’t let them get away with it.® Let the truth be known!

  • Report: #558177

Report: Aurora Loan Services

Reported By: Glenn (Kankakee Illinois)

U.S.A.

Aurora Loan Services Class Action Lawsuit FILED. This is not a joke. Littleton, Colorado

Aurora Loan Services

10350 Park Meadows Drive Littleton Colorado
Littleton Colorado 80124
United States of America
Phone:  720-945-3000
Web Address:  http://www.alservices.com

Category: Finance

Submitted: Thursday, January 21, 2010

Posted: Thursday, January 21, 2010

A New York Lawsuit With Promising Implications for Chicago Homeowners
January 6, 2010

Posted In: Foreclosure Defense , In The News , Mortgage Foreclosure Update
By Sulaiman & Associates on January 6, 2010 9:27 AM | Permalink

In November 2009, the Legal Aid Society of New York filed a class action suit against Aurora Loan Services, L.L.C., Timothy Geithner, and other Federal officials. The suit, filed in the U.S. District Court for the District of Columbia, takes an interesting approach.

First and foremost, any individual who is eligible for a loan under the Federal Home Affordable Modification Program (HAMP), and whose loan is serviced by Aurora is likely a member of the class. This means that an untold number of borrowers in Chicago, greater Cook County, and across the state of Illinois may be part of the class. Some of our own clients may very well fall within the class. At some point in the future, those whose loans are serviced by Aurora may very well receive a notice telling them that they may opt-out of the class if they wish to pursue their own lawsuit.

More thoughts on the complaint after the jump.

The complaint itself is fifty-one pages of light reading. In order to spare you the full read, here’s our back-of-the-napkin take on what the Legal Aid Society is claiming.

HAMP is a program that stems from the Troubled Asset Relief Program (TARP). Its goal is to get eligible borrowers into trial loan modifications, that ultimately convert to permanent loan modifications. In turn, this allows borrowers to keep their homes. As we’ve mentioned before, the HAMP program hasn’t been a resounding success so far. A very small number of applications actually convert to permanent modifications. According to the Treasury, only 31,382 mortgages out of 759,058 trial modifications have converted to a permanent modification.

The Legal Aid Society’s complaint places the burden of this failure on lenders like Aurora and Federal officials. It notes that mortgage servicers that participate in HAMP must sign a contract with Fannie Mae “as Financial Agent of the United States Government.” (Complaint p. 3-4.) This contract describes the process and guidelines for the HAMP program. Among other obligations, servicers must evaluate non-Governmental Sponsored Enterprise loans for the program, forestall any foreclosure filings for home owners attempting to participate in the program, and must not offer forebearance agreements or require borrowers to waive legal rights. (Complaint p. 3-4). The complaint continues to outline ways in which Aurora allegedly violated its contract.

The complaint also takes Treasury and Fannie Mae officials to task for failing to implement procedures that protect the due process rights of borrowers. It points to a supplemental directive that only took effect on 1 January 2010 as evidence of this lack of procedural protection. Prior to the beginning of this year, servicers that had signed a HAMP contract were not required to provide detailed reasons for denial of a loan modification. This, in turn, has made it difficult for borrowers to challenge such a determination. Given the nature of the contract and the relationship of the parties, the complaint further alleges that all of this activity took place under the color of federal law. This key phrase is how the complaint attaches its due process claims to a private entity (Aurora) and a quasi-Governmental entity (Fannie Mae).

All of this background leads up to what I consider the most interesting and novel approach the complaint takes — establishing standing for the named plaintiffs and the rest of the class. Since home owners do not sign this HAMP contract, they cannot normally enforce that contract. However, the complaint argues that the home owners are the intended third party beneficiaries of the contract. The contract may provide some benefit to the servicers and Fannie Mae, but the intention of HAMP was to assist home owners. In turn, this makes the home owners intended beneficiaries of the contract. Because the home owners have a vested interest in the benefits of the contract, they also have a right to sue to enforce the contract.

This represents a very interesting legal argument — something that would likely have been poo-pooed as interesting legal theory, the domain of a student comment in a law review, not the lynch pin of a Federal class action lawsuit. It also begs the question — what other servicers have signed these HAMP contracts? The complaint mentions that 60 banks have signed up. If this has legs, it is very much worth pursuing on a local level. Suing Federal officials may not ever lead to their personal liability (the immunity of Federal officials is a pretty specific area of Constitutional law), but holding the lenders accountable for their often byzantine approach to the HAMP process may create some leverage for individuals seeking to keep their homes.


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BEAR MARKET NEWS

New York Times

The Way We Live Now

Walk Away From Your Mortgage!

Chris Schedel

By ROGER LOWENSTEIN

Published: January 7, 2010

John Courson, president and C.E.O. of the Mortgage Bankers Association, recently told The Wall Street Journal that homeowners who default on their mortgages should think about the “message” they will send to “their family and their kids and their friends.” Courson was implying that homeowners — record numbers of whom continue to default — have a responsibility to make good. He wasn’t referring to the people who have no choice, who can’t afford their payments. He was speaking about the rising number of folks who are voluntarily choosing not to pay.

Such voluntary defaults are a new phenomenon. Time was, Americans would do anything to pay their mortgage — forgo a new car or a vacation, even put a younger family member to work. But the housing collapse left 10.7 million families owing more than their homes are worth. So some of them are making a calculated decision to hang onto their money and let their homes go. Is this irresponsible?

Businesses — in particular Wall Street banks — make such calculations routinely. Morgan Stanley recently decided to stop making payments on five San Francisco office buildings. A Morgan Stanley fund purchased the buildings at the height of the boom, and their value has plunged. Nobody has said Morgan Stanley is immoral — perhaps because no one assumed it was moral to begin with. But the average American, as if sprung from some Franklinesque mythology, is supposed to honor his debts, or so says the mortgage industry as well as government officials. Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

The moral suasion has continued under President Obama, who has urged that homeowners follow the “responsible” course. Indeed, HUD-approved housing counselors are supposed to counsel people against foreclosure. In many cases, this means counseling people to throw away money. Brent White, a University of Arizona law professor, notes that a family who bought a three-bedroom home in Salinas, Calif., at the market top in 2006, with no down payment (then a common-enough occurrence), could theoretically have to wait 60 years to recover their equity. On the other hand, if they walked, they could rent a similar house for a pittance of their monthly mortgage.

There are two reasons why so-called strategic defaults have been considered antisocial and perhaps amoral. One is that foreclosures depress the neighborhood and drive down prices. But in a market society, since when are people responsible for the economic effects of their actions? Every oil speculator helps to drive up gasoline prices. Every hedge fund that speculated against a bank by purchasing credit-default swaps on its bonds signaled skepticism about the bank’s creditworthiness and helped to make it more costly for the bank to borrow, and thus to issue loans. We are all economic pinballs, insensibly colliding for better or worse.

The other reason is that default (supposedly) debases the character of the borrower. Once, perhaps, when bankers held onto mortgages for 30 years, they occupied a moral high ground. These days, lenders typically unload mortgages within days (or minutes). And not just in mortgage finance, but in virtually every realm of our transaction-obsessed society, the message is that enduring relationships count for less than the value put on assets for sale.

Think of private-equity firms that close a factory — essentially deciding that the company is worth more dead than alive. Or the New York Yankees and their World Series M.V.P. Hideki Matsui, who parted company as soon as the cheering stopped. Or money-losing hedge-fund managers: rather than try to earn back their investors’ lost capital, they start new funds so they can rake in fresh incentives. Sam Zell, a billionaire, let the Tribune Company, which he had previously acquired, file for bankruptcy. Indeed, the owners of any company that defaults on bonds and chooses to let the company fail rather than invest more capital in it are practicing “strategic default.” Banks signal their complicity with this ethos when they send new credit cards to people who failed to stay current on old ones.

Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.

In some states, lenders also have recourse to the borrowers’ unmortgaged assets, like their car and savings accounts. A study by the Federal Reserve Bank of Richmond found that defaults are lower in such states, apparently because lenders threaten the borrowers with judgments against their assets. But actual lawsuits are rare.

And given that nearly a quarter of mortgages are underwater, and that 10 percent of mortgages are delinquent, White, of the University of Arizona, is surprised that more people haven’t walked. He thinks the desire to avoid shame is a factor, as are overblown fears of harm to credit ratings. Probably, homeowners also labor under a delusion that their homes will quickly return to value. White has argued that the government should stop perpetuating default “scare stories” and, indeed, should encourage borrowers to default when it’s in their economic interest. This would correct a prevailing imbalance: homeowners operate under a “powerful moral constraint” while lenders are busily trying to maximize profits. More important, it might get the system unstuck. If lenders feared an avalanche of strategic defaults, they would have an incentive to renegotiate loan terms. In theory, this could produce a wave of loan modifications — the very goal the Treasury has been pursuing to end the crisis.

No one says defaulting on a contract is pretty or that, in a perfectly functioning society, defaults would be the rule. But to put the onus for restraint on ordinary homeowners seems rather strange. If the Mortgage Bankers Association is against defaults, its members, presumably the experts in such matters, might take better care not to lend people more than their homes are worth.

Roger Lowenstein, an outside director of the Sequoia Fund, is a contributing writer for the magazine. His book “The End of Wall Street” is coming out in April.

This article has been revised to reflect the following correction:

Correction: January 10, 2010
An essay on Page 15 this weekend about underwater mortgages misstates the parties who believe their homes will go up in value quickly. It is the homeowners — not the “mortgagees,” who issue mortgages.

More Articles in Magazine » A version of this article appeared in print on January 10, 2010, on page MM15 of the New York edition.