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The Servicing Settlement: Banks 1, Public 0
by Adam Levitin
What are we to make of the servicing settlement announced today with much hoopla? The short answer is not much. The settlement is the large consumer fraud settlement ever, but it accomplishes remarkably little in terms of either alleviating the foreclosure crisis of holding to account those responsible for the housing bubble and subsequent foreclosure abuses. As my Texas relatives say, it's All sizzle, no steak.
Instead, I think the settlement needs be seen as the conclusion to round one of an on-going struggle for accountability and reparations for the enormous damage the housing bubble did to the United States. Whether we will ultimately see meaningful accountability and reparations in the end is very much in question. Round two, featuring the Residential Mortgage-Backed Securities Fraud taskforce, could well be stillborn; the taskforce combines more motivated and more capable agencies, but it isn't clear of the motivated can leverage the more capable or will be bogged down by them. But as for this settlement, if this is all that we get, its a big nothing.
There are two big issues to parse in the settlement: what does it cover and what sort of relief does it provide. Not surprisingly, both are quite limited; the banks wouldnt pay big dollars for a small release.
The settlement covers mortgage servicing abuses, as well as a $1 billion settlement of claims that Countrywide (BoA) was cheating the FHA. It also includes settlements of litigation by the Arizona and Nevada AGs for BoAs violations of an earlier settlement. It also covers some origination claims on which the statutes of limitations have run or will shortly expire. The settlement apparently (and here the precise language is crucial) excludes securitization-related claims, fair lending claims, false claims acts violations, MERS issues, and criminal claims. It also doesnt prevent homeowners or investors from bringing their own suits. So its really covering robosigning and overbilling in foreclosures.
Given the relatively narrow scope of this settlement, its not surprising that the dollars involved are quite small compared to the overall harms created by the housing bubble and aftermath. The formal price tag for the settlement is $25 billion, although it is projected to accomplish up to $40 billion in relief. Only $5 billion of that is hard cash contributed by the banks. Let me repeat that. The five banks involved in the settlement, which have a combined market capitalization of over $500 billion, are putting in only $5 billion. Thats less than 1% of their net worth. And they are admitting no wrongdoing. To call that accountability is laughable.
That $5 billion in hard cash is going to the state and federal government, only some of which will be given to borrowers. What about the other $20 billion? Thats to come in the form of $3 billion in refinancings and $17 billion in principal reductions, deeds in lieu, short sales, anti-blight measures, etc. The banks receive variable credit for these actions, depending on whether these measures are taken for loans owned by the banks or owned by others and serviced by the banks. Basically, its full credit if the bank owns the loan, and half credit if the bank merely services the loan. Because of this formulation, the $17 billion in principal reductions, DILs, short sales is anticipated to result in $32 billion in actual relief. In other words, it is expected that the banks will modify the loans owned by others rather than the loans they themselves own. And when a second lien loan owned by the bank is involved, it only has to be written down pari passu (at the same percentage) as the first lien loan. So from absolute to relative priority, which is a major handout to the big banks, which have large underwater second lien positions.
Or put differently, $32 billion of the settlement is being financed on the dime of MBS investors such as pension funds, 401(k) plans, insurance companies, and the likeparties that did not themselves engage in any of the wrong-doing covered by the settlement. This shouldnt be a surprisethe state Attorneys General previously cut a similar deal with Bank of America, which promised to make up for its wrongdoing by modifying loans own by other parties.
But lets get to the bigger problem. Whether this is a $25 billion or $40 billion settlement is really beside the point. Its a drop in the bucket relative to the scale of the problem. There is approximately $700 billion in negative equity nationwide weighing down the housing market and the economy. Add to that legions of homeowners dealing with unemployment or underemployment and weve got a problem that absolutely dwarfs the settlement numbers. Its Pollyannism to think that this settlement will have any impact on the national housing market. At best it makes some incremental improvements and helps a small number of homeowners. But at worst, it lets the banks off the hook for the largest financial crime in history.
I cant say Im surprised, however. There was no investigation was done prior to this settlement. That had been the sticking point for a number of attorneys general who eventually signed on to the settlement, but only once it was narrowed. But that doesnt take away the problem that there was no investigation. If you go bear hunting without any ammo, you arent going to bag a bear.
To illustrate how little the settlement does for the housing market, lets take the settlements most optimistic projections and assume that it really results in $40 billion of mortgage relief of various sorts. How much does that translate into per distressed homeowner? Lets assume that the universe of distressed homeowners is limited to those underwaterroughly 11 million. So were talking $3,636 per homeowner. That doesnt help a whit in terms of preventing foreclosure.
Now to be sure, the relief will be more concentrated on a subset of these homeowners. The settlement is estimated to help about 2 million homeowners, hopefully to the tune of about $22,000 each. That's certainly a lot better than $3,636, but consider that the average negative equity is about $50,000. At a very generous best, then the settlement only gets rid of less than half of the negative equity for 18% of underwater homeowners. So we're talking about a solution that has less than a 10% impact. Best case scenario is less than 1 in 10 are helped. In any case, those luck few,will be chosen not by where the relief will help the most or by who is most deserving, but by what will be most advantageous to the banks. So some lucky group of homeowners will have won the lottery and in some cases might avoid foreclosure. For most distressed homeowners, its no soup for you! And because fixing the housing sector is about volume, this means that there's no soup for all of us--the housing sector will remain severely depressed.
What about the argument that the settlement will help the housing market by enabling foreclosures to start up again and for banks to clear through the shadow inventory? Well, whats causing the shadow inventory? Is it the possibility of state and federal prosecutions for robosigning? Is it lack of uniform servicing standards? Nope, and nope. The shadow inventory problem is at core the result of two problems. First, the foreclosure system only has limited bandwidththere are only so many foreclosures that can be processed at a time. Second, the banks have their own staffing issues. And third, the bigger problem is that the banks dont have their paperwork in order to foreclose.This servicing settlement doesnt affect any of these problems (maybe it will encourage better staffing on behalf of the banks, but if that hasnt happened by year 5 of the crisis, I cant imagine it will any time soon). National servicing standards as part of a settlement in no way replace existing state and local requirements, and to the extent they supplement them, it may make things harder for the banks. The fact that a bank is in compliance with the servicing standards in the settlement doesn't mean that the bank can in fact foreclose, and litigation of foreclosure actions is private litigation, not governed by this deal. (And this leaves aside the question of bank compliance with this settlement.)
The settlement also creates really awful incentives. It has zero deterrent effect against future wrong-doing. This settlement set a price-tag for mortgage servicing abuses. If the abuses are more profitable than the cost of settlement, what rational bank wouldnt engage in them? The early CFPB-settlement analysis that was leaked months ago envisioned $25 billion as being simply the disgorgement component, not the remedial component. Here we have a settlement with $ 5 billion in actual disgorgement and very little thats remedial, let alone punitive (which is necessary to have deterrence).
Also announced in conjunction with the big settlement were the fines the OCC is imposing as part of its consent orders. They total $394 million, but they are payable either in cash or in kind via relief given to homeowners as part of the OCC Potemkin foreclosure review process. Please Hammer, Don't Hurt 'Em! (Hmm, maybe the banks' theme song should be "U Can't Touch This".)
Is this really the best our government can do? I hope not. This settlement might or might not be the end of the attempt to rectify the financial crisis, but as things stand, we have a settlement in which the banks commit to follow the law and pay out some pocket change. The settlement doesnt fix the housing market. It doesnt create accountability for the financial crisis. It doesnt even create incentives against future wrong-doing. But it provides the Obama Administration (and those attorney generals who just jumped in for the settlement at the last minute) with a fig leaf of political cover. It galls me is that the Obama Administration is going to trumpet this settlement as evidence that it is serious about prosecuting the crimes behind the financial crisis and helping homeowners. It was heartening to hear Obama talk about protecting the middle class in his State of the Union address. It was the right message, but the President is simply not a credible messenger. If Obama wants to run as the champion of Main Street against Romney, the Captain of Wall Street, hes going to need to do something a lot more credible than this settlement.
The score: Banks 1, Public 0.
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The Top 12 Reasons Why You Should Hate the Mortgage Settlement
Posted: 02/ 9/2012 8:46 am
As readers likely know by now, 49 of 50 states have agreed to join the so-called mortgage settlement, with Oklahoma the lone refusenik. Although the fine points are still being hammered out, various news outlets (New York Times, Financial Times, Wall Street Journal) have details, with Dave Dayen's overview at Firedoglake the best thus far.
The Wall Street Journal is also reporting that the SEC is about to launch some securities litigation against major banks. Since the statue of limitations has already run out on securities filings more than five years old, this means they'll clip the banks for some of the very last (and dreckiest) deals they shoved out the door before the subprime market gave up the ghost.
The various news services are touting this pact at the biggest multi-state settlement since the tobacco deal in 1998. While narrowly accurate, this deal is bush league by comparison even though the underlying abuses in both cases have had devastating consequences.
The tobacco agreement was pegged as being worth nearly $250 billion over the first 25 years. Adjust that for inflation, and the disparity is even bigger. That shows you the difference in outcomes between a case where the prosecutors have solid evidence backing their charges, versus one where everyone know a lot of bad stuff happened, but no one has come close to marshaling the evidence.
The mortgage settlement terms have not been released, but more of the details have been leaked:
1. The total for the top five servicers is now touted as $26 billion (annoyingly, the FT is calling it "nearly $40 billion"), but of that, roughly $17 billion is credits for principal modifications, which as we pointed out earlier, can and almost assuredly will come largely from mortgages owned by investors. $3 billion is for refis, and only $5 billion will be in the form of hard cash payments, including $1500 to $2000 per borrower foreclosed on between September 2008 and December 2011.
Banks will be required to modify second liens that sit behind firsts "at least" pari passu, which in practice will mean at most pari passu. So this guarantees banks will also focus on borrowers where they do not have second lien exposure, and this also makes the settlement less helpful to struggling homeowners, since borrowers with both second and first liens default at much higher rates than those without second mortgages. Per the Journal:
"It's not new money. It's all soft dollars to the banks," said Paul Miller, a bank analyst at FBR Capital Markets.
The Times is also subdued:
Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out because earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected.
2. Schneiderman's MERS suit survives, and he can add more banks as defendants. It isn't clear what became of the Biden and Coakley MERS suits, but Biden sounded pretty adamant in past media presentations on preserving that.
3. Nevada's and Arizona's suits against Countrywide for violating its past consent decree on mortgage servicing has, in a new Orwellianism, been "folded into" the settlement.
4. The five big players in the settlement have already set aside reserves sufficient for this deal.
Here are the top twelve reasons why this deal stinks:
1. We've now set a price for forgeries and fabricating documents. It's $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It's a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.
2. That $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.
3. That $5 billion divided among the big banks wouldn't even represent a significant quarterly hit. Freddie and Fannie putbacks to the major banks have been running at that level each quarter.
4. That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.
5. The enforcement is a joke. The first layer of supervision is the banks reporting on themselves. The framework is similar to that of the OCC consent decrees implemented last year, which Adam Levitin and yours truly, among others, decried as regulatory theater.
6. The past history of servicer consent decrees shows the servicers all fail to comply. Why? Servicer records and systems are terrible in the best of times, and their systems and fee structures aren't set up to handle much in the way of delinquencies. As Tom Adams has pointed out in earlier posts, servicer behavior is predictable when their portfolios are hit with a high level of delinquencies and defaults: they cheat in all sorts of ways to reduce their losses.
7. The cave-in Nevada and Arizona on the Countrywide settlement suit is a special gift for Bank of America, who is by far the worst offender in the chain of title disaster (since, according to sworn testimony of its own employee in Kemp v. Countrywide, Countrywide failed to comply with trust delivery requirements). This move proves that failing to comply with a consent degree has no consequences but will merely be rolled into a new consent degree which will also fail to be enforced. These cases also alleged HAMP violations as consumer fraud violations and could have gotten costly and emboldened other states to file similar suits not just against Countrywide but other servicers, so it was useful to the other banks as well.
8. If the new federal task force were intended to be serious, this deal would have not have been settled. You never settle before investigating. It's a bad idea to settle obvious, widespread wrongdoing on the cheap. You use the stuff that is easy to prove to gather information and secure cooperation on the stuff that is harder to prove. In Missouri and Nevada, the robosigning investigation led to criminal charges against agents of the servicers. But even though these companies were acting at the express direction and approval of the services, no individuals or entities higher up the food chain will face any sort of meaningful charges.
9. There is plenty of evidence of widespread abuses not that are appear not to be on the attorney generals' or media's radar, such as servicer driven foreclosures and looting of investors' funds via impermissible and inflated charges. While no serious probe was undertaken, even the limited or peripheral investigations show massive failures (60% of documents had errors in AGs/Fed's pathetically small sample). Similarly, the US Trustee's office found widespread evidence of significant servicer errors in bankruptcy-related filings, such as inflated and bogus fees, and even substantial, completely made up charges. Yet the services and banks will suffer no real consequences for these abuses.
10. A deal on robosiginging serves to cover up the much deeper chain of title problem. And don't get too excited about the New York, Massachusetts, and Delaware MERS suits. They put pressure on banks to clean up this monstrous mess only if the AGs go through to trial and get tough penalties. The banks will want to settle their way out of that too. And even if these cases do go to trial and produce significant victories for the AGs, they still do not address the problem of failures to transfer notes correctly.
11. Don't bet on a deus ex machina in terms of the new federal foreclosure task force to improve this picture much. If you think Schneiderman, as a co-chairman who already has a full-time day job in New York, is going to outfox a bunch of D.C. insiders who are part of the problem, you are smoking something very strong.
12. We'll now have to listen to banks and their sycophant defenders declaring victory despite being wrong on the law and the facts. They will proceed to marginalize and write off criticisms of the servicing practices that hurt homeowners and investors and are devastating communities. But the problems will fester and the housing market will continue to suffer. Investors in mortgage-backed securities, who know that services have been screwing them for years, will be hung out to dry and will likely never return to a private MBS market, since the problems won't ever be fixed. This settlement has not only revealed the residential mortgage market to be too big to fail, but puts it on long term, perhaps permanent, government life support.
As we've said before, this settlement is yet another raw demonstration of who wields power in America, and it isn't you and me. It's bad enough to see these negotiations come to their predictable, sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners.
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Old mortgages rise from the dead, haunt homeowners
Thu, Jan 26 2012
By Michelle Conlin
(Reuters) - In July 2009, Roy and Sheila Bowers refinanced the mortgage on their suburban ranch home in Topeka, Kansas. The couple wanted to take advantage of the low interest rates that were all the rage at the time.
Roy, a truck driver, and Sheila, a former hotel housekeeping supervisor, knew their new loan from Wells Fargo would enable them to save $198.86 a month - a nice chunk to help with gas and groceries.
But what the Bowers never imagined was that their old loan, the one Wells Fargo told them was paid off, would resurrect itself, trashing their credit report, scotching their son's student loans and throwing the whole family into foreclosure. All, they say, even though they didn't miss a single mortgage payment.
The Bowers are not alone.
More and more, homeowners say that mortgages they thought were dead and buried are springing back to life, sometimes haunting them all the way into foreclosure.
"It's the most egregious manifestation of an industry that's seriously broken," said Ira Rheingold, a lawyer who is the executive director of the National Association of Consumer Advocate.
Diane Thompson, an attorney with the National Consumer Law Center, says she has defended hundreds of foreclosure cases, and in nearly all of them, the homeowner was not in default. "The record-keeping on the part of the mortgage servicers is not to be trusted."
The problems grew from a lot of sloppy recordkeeping that began during the housing boom, when Wall Street built a quick-and-dirty back-office operation to process mortgages quickly so lenders could sell as many loans as possible. As the loans were later sold to investors, and then resold around the world, the back office system sidestepped crucial legal procedures.
Now it's becoming clear just how dysfunctional and, according to several state attorneys general, how fraudulent the whole system was.
Depositions from "affidavit slaves" depict a surreal, assembly-line world in which the banks and their partner firms hired hair stylists, fast-food kids and Wal-Mart floor workers, paying them $10 an hour, to pose as bank vice presidents, assistant secretaries and corporate attorneys.
These "robosigners" became a national sensation in the fall of 2010 when it was revealed that they faked titles, forged documents and backdated affidavits so they could make up for the bypassed procedures and foreclose on properties.
They passed around notary stamps as if they were salt. They did all of this, they testified, without verifying a single word in any of the documents - as is required by law.
And it was all done, they say, to foreclose on as many homeowners as fast as possible.
No one collects statistics on wrongful foreclosures, or how many people are facing the phantom mortgage debts. But as the industry enters its fifth year of unwinding its mortgage morass, consumer groups, homeowner attorneys and foreclosure-fraud investigators say they are seeing more cases where people who don't owe the banks a dime are getting ensnared in the same hell as those who have missed payments.
They add that such problems are likely to intensify. Former industry employees have testified that they knowingly pushed through foreclosures on the wrong people.
It all casts a pall over a housing market in worse condition than it was during the Great Depression. By some estimates, 12.5 percent of U.S. homes with mortgages are either in foreclosure or the loans are at least 30 days past due, representing about $1 trillion in value.
"This is an epic problem that the economy hasn't even begun to digest," said Florida foreclosure analyst Lisa Epstein.
In some cases, mortgages that were supposed to die off in a refinancing are popping back up, while in others, the loans were paid in full. Homeowners who pay off their houses through bankruptcy programs are also falling prey.
So are homeowners who never even had a mortgage to begin with.
Homeowners say the banks' repo men sometimes even show up at work. Banks also hector them with threatening letters and phone calls. "It scared the hell out of him," said a Houston lawyer whose client was the target of such efforts. "He was absolutely spooked," lawyer Barry Brown said.
So was Shantell Curtis of Utah. She showed up at her accountant's office last year only to learn that she had been sued for foreclosure on a house she had sold years before. Bank of America reported the delinquency to credit bureaus, tarring Curtis's credit. It turned out the entire saga stemmed from a bank coding error. The amount the bank falsely alleged Curtis still owed on her mortgage? One dollar.
Vietnam vet Dwight Gaines fell behind on his payments on his Birmingham, Alabama, home. Gaines paid off his entire mortgage, plus all the fees and expenses he owed the bank in March 2010, as a part of a Chapter 13 bankruptcy plan. But Bank of America kept sending Gaines notices that he still owed $6,842.37. Nearly two years later, Gaines is still fighting the bank in court.
"In my experience, if I had not sued Bank of America, they would have eventually placed Mr. Gaines in foreclosure although he had completely paid his mortgage," said Gaines' lawyer, Wesley Phillips.
Bank of America spokewoman Jumana Bauwens said the bank is working to resolve the Gaines situation. She also said that "these situations pre-date a review of our foreclosure procedures which took place in the fall of 2010. At the time, we identified areas of our process that needed to be improved, and we have been making those improvements."
The reincarnating mortgage is only the latest development in the megabanks' mortgage debacle, a scandal that has made them the target of a mounting pile of investigations and lawsuits. Though a settlement with most of the U.S. attorneys general may be imminent, a rogue group of AGs has peeled off to launch their own investigations.
One of those AGs, New York's Eric Schneiderman, is a part of the U.S. Justice Department task force announced by President Obama in his State of the Union address on Tuesday night.
Up until Obama's announcement, the federal government's response to the alleged financial misconduct was in the form of an independent review of the banks overseen by the federal Office of the Comptroller of Currency. But critics have labeled the OCC review as a farce rife with conflicts of interest.
The OCC spokesman, Bryan Hubbard, disputed that claim, saying the OCC has gone to great lengths to ensure that the independent consultants hired by the banks to review their procedures would report to regulators, not the banks. "During the selection process of the independent consultants and law firms, regulators rejected some proposed consultants and law firms to prevent conflicts of interest," said Hubbard.
Such reviews are supposed to gather information from homeowners like Jennifer Wilson, a former nursery school teacher from Philadelphia. Wilson settled a wrongful foreclosure case with Wells Fargo in June 2010. That month, court records show, Wells Fargo filed a satisfaction of mortgage document noting that the $8,000 loan on Wilson's home had been paid in full.
But more than a year later, on December 8, 2011, Wilson, who is disabled and lives below the federal poverty line, answered her door to see a process servicer brandishing foreclosure warning papers from Wells Fargo. The bank's letter warned Wilson that she owed 57 months of late payments, plus expenses, totaling $18,407.55. If she did not pay within 30 days, the bank said, it would sue for foreclosure.
"I thought I'd been punked," said Wilson. Even more bizarrely, one day later, a different process server from a different company showed up on Wilson's door and handed over the exact same papers Wilson had received the day before.
"We see a lot of cases like this, where they are trying to collect even though there is no mortgage," said Wilson's lawyer, Jennifer Schultz. "Once the system has marked you as delinquent, there's just this massive machinery that takes over. There are people whose lives are destroyed by the system, and there's no way to fix it."
"We are working with her to resolve this matter as quickly as we can," Wells Fargo spokesman Jim Hines said.
Some critics say the stories indicate a pattern of systemic wrongdoing. That is one allegation lobbed in a December lawsuit against the banks brought by Massachusetts Attorney General Martha Coakley, who is among the handful of attorneys general that split off from the broader AG settlement group.
For the Bowers of Topeka, it all started in July 2009, when they refinanced their home with Wells Fargo. As is standard in a refinance, the couple used the proceeds from their new loan to pay off their old loan, with Security National Mortgage Company.
On July 6, 2009, Wells Fargo sent the Bowers a letter with a header in all caps at the top that stated: "CONFIRMATION OF LOAN PAYOFF." The letter opened by saying: "Congratulations! We are pleased to inform you that we have processed the funds necessary to pay your loan in full."
At the same time, Wells Fargo also sent a certificate of satisfaction to the Bowers local recorder of deeds in Shawnee County, Kansas. That notice certified that the Bowers' old loan of $184,222.00 had been paid off.
As the Bowers had hoped, their interest rate dropped from 7 percent on the old loan to 4.875 percent on the new one. The couple say they paid their new mortgage early each month.
But what the Bowers didn't know is that, five months later, the banks' private mortgage recording service filed an "Erroneous Release of Mortgage" document on the Bowers' loan with the Shawnee County Recorder's Office. The filing stated that the Bowers' first mortgage "has not been fully paid, nor satisfied, nor discharged, but, instead, continues to exist."
The document was signed by a robosigner, the Bowers' attorney alleges.
One month later, the Bowers noticed that the loan number and interest rate on their mortgage statement had mysteriously changed. Wells Fargo was now charging them the old 7 percent rate - and it hit them with more than $3,000 in late fees.
Thus began the family's descent into their mortgage ordeal. Sheila Bowers says she called Wells Fargo over and over and finally learned that the bank was now alleging that the couple's refinance never went through, and so the bank was reverting to the terms of the original mortgage.
To Wells Fargo, it was as if the refinance had never occurred. Yet Wells Fargo then reported two mortgages to the credit bureaus. That lowered the couple's credit score to the point where they couldn't obtain their son's new student loans.
"We only ever got one bill," said Sheila Bowers. "But they kept telling us we had two mortgages."
The Bowers couldn't find a lawyer who would take their case, especially since they could pay so little. But through friends, they knew an owner of a Topeka mortgage brokerage company who was also an attorney: Donna Huffman. It turned out Huffman was defending just such cases. "I'm a lender suing lenders," said Huffman. "I fought to put people in homes, and now I'm fighting to keep them."
Huffman sued, alleging that the bank was making the Bowers pay for its mistake. Wells Fargo response, in court papers, was that the Bowers failed to sign all the paperwork necessary for the refinance to go through. But the Bowers say they signed every document that the bank gave them. The bank also says in court papers that the Bowers never attended a closing. But the Bowers say the bank never told them they needed to do so.
What made the story even more strange to the Bowers is that when Sheila Bowers called the Federal Housing Administration to get help, the FHA, in a letter filed in court papers and dated October 19, 2010, told her that the loan Wells Fargo was trying to collect on did not exist. Instead, the FHA said it had documentation showing that the Bowers' original loan "was terminated on July 1, 2009, by prepayment," suggesting that Wells Fargo did pay it off. As far as the FHA was concerned, the loan that Wells Fargo was enforcing didn't exist.
Despite the misunderstanding, the Bowers continued to send in their mortgage payment to Wells Fargo, with the amount for the new, refinanced loan, every month. They hoped the entire ordeal would one day get cleared up. But in November 2010, Wells Fargo rejected the Bowers payment and sent it back. The next month, five days before Christmas, the bank foreclosed. The family then stopped sending in payments. They continue to live in limbo in their house as they fight for resolution.
Wells Fargo spokesman Jim Hines said: "The allegations, we feel, are baseless. We feel we are entitled to protect our lien interest because the promissory note has never been paid and the note and the (original) mortgage are in default."
To this day, the Bowers say they have no idea where all the mortgage payments they sent in after they got their new loan went.
"Nobody seems to know," said Sheila Bowers. "It's a mystery."
(Corrects paragraph 10 to $10 an hour instead of $10 per day; corrects last paragraph to Bowers instead of Bowe)
(Reporting by Michelle Conlin; Editing by Gary Hill)
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Bank of America Settlements Impede Fraud Probe, Arizona Says
By Karen Gullo
Jan. 26 (Bloomberg) -- Bank of America Corp. is impeding an investigation of its loan modification practices by negotiating settlements with borrowers who must agree to keep them secret and not criticize the bank in exchange for cash payments and loan relief, Arizona officials say.
The Arizona Attorney Generals office is asking a court to block those aspects of the settlements and require the bank to turn over all the agreements. The bank denies any wrongdoing.
One 2011 accord involving a borrower facing foreclosure who defaulted on a $253,142 mortgage included a $5,000 payment, plus $7,500 for legal fees, and the defaulted payments were waived and the loan was modified to a 40-year term with a 2 percent interest rate, court documents show. The terms of the original loan and the borrowers complaint about the lender werent described in the documents.
The borrower will remove and delete any online statements regarding this dispute, including, without limitation, postings on Facebook, Twitter and similar websites, and not make any statements that defame, disparage or in any way criticize the banks reputation, practices or conduct, according to documents filed in state court in Phoenix. The borrowers name and address were redacted.
Non-Disparagement
Bank of America attorneys argue that borrowers dont have to sign the agreements to get a loan modification and deny that settlements hinder the states probe. Borrowers can be subpoenaed to disclose the accords, and the Charlotte, North Carolina-based bank wont enforce the non-disparagement provision if they talk to investigators, the banks lawyers have said in court filings.
A hearing is set for Feb. 1 on the dispute.
Arizona Attorney General Thomas Horne, a Republican who took office last January, is investigating Bank of America as part of a 2010 lawsuit alleging customers of its Countrywide Financial mortgage unit were misled about requirements for loan modifications. The bank, which acquired Calabasas, California- based Countrywide in 2008, provided inaccurate and deceptive reasons for denying modification applications, according to the the complaint. A similar suit was filed by Nevada.
The settlement agreements came to light as state investigators followed up on borrower complaints filed with the attorney generals office. The office learned of 12 settlements while examining 1,900 complaints and when it attempted to contact the borrowers, Assistant Attorney General Carolyn Matthews said in Jan. 11 court filing.
Frequent Contact
Only four returned phone calls and none would provide a copy of the settlement, Matthews said. Some who signed the settlements had previously been in frequent contact with the attorney generals office, according to court records.
Matthews contends that under the terms of the settlements, even if subpoenaed, borrowers cant reveal any unflattering information about the bank. They couldnt talk about misrepresentations the bank made about loan modifications, which is what the state is investigating, she said.
These agreements have completely silenced even the most communicative consumers, Matthews said in the filing. The settlement agreement purposefully makes it impossible, legally and practically, for a consumer signing it to come forward, voluntarily and promptly, to provide evidence in this case.
She asked a state judge to order Bank of America to notify borrowers who signed the agreements that they dont have to adhere to the confidentiality and non-disparagement provisions.
Inappropriate Practices
Settlements with borrowers are more likely in cases in which the bank engaged in inappropriate practices, such as steering customers away from more affordable loans, or canceling a mortgage modification after a single payment went missing from a borrower who otherwise kept up with payments, said Patricia Garcia Duarte, chief executive officer of Neighborhood Housing Services of Phoenix Inc., which works with families facing foreclosure. Bank of America is a contributor to the organization, according to the groups website.
Patricia Lee Refo, a Bank of America attorney, said in court filings that the confidentiality provisions are common in settlement agreements, which the bank uses on a limited basis to resolve disputes and avoid a costly lawsuit. Theres no policy to ask borrowers to sign settlement agreements in exchange for loan modifications, David Thornton, senior vice president for social media and urgent customer relations, said in a filing.
Extremely Serious
Plaintiff cannot ask this court enter the extremely serious finding that defendants have interfered with law enforcement based on one settlement agreement, or even 12, containing plain vanilla terms litigants use every day to resolve disputes, Refo said in a court filing.
The bank cant say how many settlements have been reached with Arizona customers because the agreements arent centrally stored on computers, Thornton said.
We look at each situation on a case-by-case basis and decide what to do based on the specific situation, Shirley Norton, a Bank of America spokeswoman, said in an e-mail.
Wells Fargo & Co., the biggest U.S. bank by market value and the largest mortgage lender, has a similar practice, said James Hines, a spokesman for the San Francisco-based bank.
Each case is unique and for a variety of reasons we may elect to include a confidentiality and/or a non-disparagement agreement as part of the settlement, Hines said in an e-mail. He said he didnt know how many settlements had been reached.
Borrowers' Boon
Loan modification settlements are a boon for borrowers struggling to keep their homes, Duarte said in a phone interview. Duarte said she doesnt see many such settlements and that borrowers who sign one cant talk about them.
That shouldnt apply to investigators like the attorney general, she said.
Lump sum payments of thousands of dollars and provisions blocking borrowers from criticizing banks arent common, she said.
Clearly the banks are freaking out, they are paranoid, Duarte said. Bank of America has the worst reputation because its so large. A lot of it isnt their fault, it was Countrywide.
The case is Arizona v. Countrywide Financial Corp. CV2010-033580, Arizona Superior Court, Maricopa County (Phoenix).
--Editors: Peter Blumberg, Glenn Holdcraft
To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
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Bank of America's back-door TARP
(With OMGIII Update at Foot of the Article)
August 10, 2011: 11:37 AM ET
Taxpayer-owned Fannie Mae just bought the servicing rights to a bunch of bad loans from the struggling Bank of America. Where does it end?
By Abigail Field, contributor
FORTUNE -- Taxpayers may not realize it, but they just bailed out Bank of America again, this time to the tune of more than a half billion dollars.
The Charlotte, NC-based bank was one of the biggest recipients of bailout funds during the financial crisis. But Bank of America (BAC) continues to face deep problems related to its troubled mortgage portfolio and investors have battered the stock, which has plunged over 40% so far this year. That's escalated concerns that the bank may need to raise more capital. Yves Smith at Naked Capitalism has even started aBofA death watch.
But apparently the federal government is determined to resurrect BofA: theWall Street Journalreportsthe feds have just used Fannie Mae, which is controlled by the U.S. government, to infuse BofA with $500 million and ease one of the bank's biggest headaches.
According to the WSJ, Fannie Mae spent $500 million to buy the Master Servicing Rights to a big chunk of the "seven million loans still causing the most problems." Although the $500 million is a paper loss to BofA, in that the rights were "originally worth more," it looks like BofA is still getting a good deal because the portfolio's "value is expected to deteriorate further."
In fact, the deal is worth much more than $500 million to BofA, because getting rid of those servicing rights lifts a huge cost burden off BofA's shoulders. And if securitized loans are involved, which they most likely are, the sale also limits the BofA's potential liability to investors for its current servicing violations. Finally, the $500 million is surely more than the servicing rights are worth in an arms-length transaction. How do we know? Beyond the comment that the loans are expected to "deteriorate further," the goal of the intervention can only be to fix Bank of America's capital structure, which is easier for the government to do if it overpays for the rights.
In short, purchasing these servicing rights was another Troubled Asset Relief Program.
Servicing defaulted loans can be good business if cheaply produced foreclosure paperwork isn't questioned, and if the foreclosures have equity and can be resold easily with lots of junk fees. But the mortgage servicing rights Fannie Mae bought are stinkers: they have a 13% delinquency rate, which means lots of foreclosures and loan modifications.
Both foreclosures and mods have been big headaches for BofA, which faces potential liability for document fraud in its foreclosures on multiple fronts. Beyond that, foreclosures are simply expensive to do well. BofA was recentlypunished by Treasuryfor failing to do modifications well, and it's also beensued for how it does them.
But the loans Fannie Mae now has to deal with are even worse than 13% delinquency rate suggests. According to the WSJ, "more than half of the loans are in troubled U.S. real-estate markets." This likely means markets where a high percentage of the houses are underwater and there's a huge oversupply, driving prices down further and making defaults more likely.
Fannie Mae is purchasing "the servicing rights in order to transfer the day-to-day management of those loans to a different company." That's another huge sign that Fannie Mae is overpaying. If the rights were really worth $500 million, wouldn't a private company pay that for them? Instead, it sounds like Fannie Mae is doing a bailout two-step, one to BofA and one to whomever takes these rights off Fannie Mae's hands.
Another thing needs to become clear: where did Fannie Mae get the money to do BofA the favor of buying these rights? Fannie Maejust asked for another bailoutof its own, seeking a new $5.1 billion infusion last week.
Think about how good this deal is for BofA: it gets to stop the bleeding, or at least cauterize much of the wound in its balance sheet that lousy mortgage servicing rights and mortgage securities liabilities are creating. And it gets half a billion dollars to boot.
UPDATE: January 17, 2012
The February 2012 edition of "Mortgage Servicing News" just reported that the MSRs purchased from BOA by Fannie involved the rights to service defaulted notes with unpaid principal balances of up to $74 billion dollars. In lieu of selling these Master Servicing Rights, Fannie has retained Green Tree, Nationstar Mortgage and Seterus, Inc. (the IMB operation) to "sub-service" these loans for Fannie. Fannie has been using loans from the Treasury to fund the purchase of these MSR rights from BOA and has also entered into at least 14 other non-disclosed transactions of a similar nature. Mortgage Servicing News refers to this as the "forced placed repurchase of Master Servicing Rights" by Fannie with taxpayer money. Fannie, as owner of the MSR rights, has also assumed the obligation to advance the principal and interest payments each month on the serviced loans to the Trusts involved regardless of whether these advances are recoverable or not recoverable at an eventual REO sale. Fannie is also advancing all of the funds for the sub-servicers to fund foreclosures, bankruptcy filings, property inspections, appraisals, broker price opinions, etc.
By:
O. Max Gardner III
MaxGardnerLaw, PLLC
PO Box 1000
Shelby NC 28150
maxgardner@maxgardner.com
www.maxgardnerlaw.com
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naked capitalism
As weve said repeatedly, despite bank executives braying about the need to be bigger to compete or to gain efficiencies, the evidence runs completely the other way. Every study on bank efficiency in the US has found that once banks hit a certain size level (the most commonly found one seems to be ~$5 billion in assets) banks exhibit a slightly positive cost curve, which means they are more, not less, costly to run. Any economies of scale are probably offset by diseconomies of scope.
So why do bank executives sell and act on a patently phony story? Aside from the fact that doing deals is much more fun than managing a business, the BIG reason is CEO pay is highly correlated with the size of the bank, measured in total assets.
So no one should cry at the prospect that Bank of America might have to shrink to if it continues to be in financial and litigation hot water. Those of you who have been in the financial services industry will recall that it was built out of mergers of large regional banks: NCNB (North Carolina National Bank, later Nationsbank) ate First Union, Bank of America, Fleet, and of course, Countrywide and Merrill.
The Wall Street Journal has gotten some details about emergency moves the Charlotte bank would take if it condition worsens. This is not its Dodd Frank mandated living will but apparently a set of plans prepared at the request of the Fed. Bank of America is on a short leash known as a memorandum of understanding, which is accompanied by more intrusive oversight.
What is striking is that it did not contemplate a sale or spinoff of Merrill Lynch, which is the operation which makes it most difficult to resolve. Instead, it would issue a tracking stock as a way to raise money.
In other words, even for a bank developing scenarios on how to cope with serious financial trouble, the priority is to raise dough quickly rather than reconfigure the business into something tidier. Even if still not TBTF, it would be less costly to rescue. But, predictably, the priorities of management and their enablers, the regulators, is to prefer quick fixes to badly needed surgery.
Notice that a Countrywide bankruptcy was apparently not included as an option.
From the Wall Street Journal:
Bank of America Corp. has told U.S. regulators that it is willing to retreat from some parts of the country if its financial problems deepen, according to people familiar with the situation.
Bank of America Chief Executive Brian Moynihan put a possible geographic retrenchment on the list submitted in the middle of last year to Fed officials. Also on the list is a potential sale of a separate class of shares tied to the performance of Merrill Lynch & Co., the securities firm owned by Bank of America, according to people familiar with the matter. Merrill was sinking when Bank of America swooped in to buy the firm in 2008, but has since turned itself around. The Fed, which acts as the companys primary regulator, asked for documentation about contingency plans last year in response to uncertainty about a U.S. recovery and the downward swing in Bank of Americas share price.
The drastic moves would be seriously considered only if Bank of America needs to raise more capital to cushion itself from mortgage woes and other turmoil. The exercise wasnt intended to force immediate action but rather to prepare Bank of America if its situation worsened, according to a person familiar with the Feds approach.
The bank still is operating under a secret U.S. sanction known as a memorandum of understanding, which puts the bank under stricter oversight, despite steps taken by Mr. Moynihan to consolidate risk controls and shed assets. Regulators have warned the board that the sanction could escalate to a more formal, public enforcement action if they arent satisfied with the results of the ongoing shake-up.
The article also devotes a surprising amount of space to CEO Brian Moynihans leadership. Needless to say, it portrays him as struggling. This sort of account would normally be a sign that he was on his way out, and the story suggests the board would be rid of him if they thought it could find a better replacement:
Another person familiar with the boards recent discussions about Mr. Moynihan said they are working hard to help him improve his performance. Who else is going to run the ship? this person said. Thats a dilemma.
As a mortgage investor said to me, Can you imagine what its like being C level at Bank of America? Its like being in the brace position on an airplane running on one engine.
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Fair Game
From East and West, Foreclosure Horror Stories
By GRETCHEN MORGENSON
January 7, 2012
THE authorities have fallen silent lately about a possible settlement over foreclosure abuses at big mortgage servicing companies.
The talks began in earnest last March, and people keep whispering that a deal is nigh. But last week, a spokesman for Shaun Donovan, the secretary of Housing and Urban Development and a lead negotiator, said that there was nothing new to report.
Thats probably not a terrible thing. After all, no deal is better than a bad deal. State and federal authorities jumped into these talks without conducting serious investigations into foreclosure shenanigans. Why strike a deal one that would, say, shield banks from new litigation over toxic loans, flawed securitizations and the mess at MERS, the registry that has made such a jumble of land records without knowing what happened?
So its nice to know some attorneys general are taking matters into their own hands. One is Martha Coakley of Massachusetts, whose lawsuits against big banks have unearthed important details about dubious mortgage practices.
Another is Catherine Cortez Masto of Nevada. She filed a case against Morgan Stanley that was settled last year, generating as much as $40 million in monetary relief for borrowers. She also participated in a suit against Wells Fargo that resulted in $45 million in principal forgiveness for Nevadans. And she has a case pending against Bank of America.
Last month, Ms. Masto sued Lender Processing Services, the huge default and foreclosure processor that works behind the scenes for most large banks. With this case, she demonstrated how enlightening an in-depth study can be. The complaint, which came after a 14-month inquiry, contends that L.P.S. deceived consumers by committing widespread document execution fraud, misrepresenting its fees and making deceptive statements about its efforts to correct paperwork. Investigators interviewed former L.P.S. employees and customers and examined foreclosures the company had worked on.
L.P.S. played a critical role in the deceptive foreclosure practices that have harmed Nevada homeowners and burdened Nevada courts, the complaint said. Consumers have paid the price, it continued, through bankruptcies, evictions and foreclosures that were predicated upon false, forged, fraudulent and/or inaccurate documents.
L.P.S. strongly disputes the allegations and has vowed to fight. The company has come under the microscope partly because of its size and scope: its loan-processing services touch 27 million loans, half of all the mortgages in the nation, by dollar amount. Most large loan servicers use L.P.S. systems.
Its a lucrative business. For the nine months ended Sept. 30, the companys loan transaction services generated operating margins of 20 percent on $1 billion in revenue.
When mortgages go into default, L.P.S. provides banks servicing the loans with an automated system that monitors the cases as they proceed.
The details recounted in the Nevada lawsuit describe how that system hustled borrowers through the foreclosure process. A boiler-room operation comes to mind, or that great Lucille Ball skit in which she tries in vain to keep up with the assembly line at a chocolate factory.
For example, a former L.P.S. employee who worked in attorney management, overseeing firms that performed legal work for foreclosures, told Nevada investigators that L.P.S. required him to resolve issues raised by the firms at a rate of 30 foreclosure files every hour. Thats two minutes apiece. The employee soon left L.P.S.
Former workers at another division described their work as surrogate signers. They said their job was to forge signatures on documents. These people were hired through temporary agencies; one said she was paid $11 an hour and told that her job was to sign somebody elses signature on documents, the lawsuit said. She told investigators that she signed roughly 2,000 documents a day for months.
Another former worker said that when a banking executive came by for a tour, the signers were told to lie and tell the executive they were signing their own names, the lawsuit says.
Notarization worked much the same way, the complaint said. One former worker said she realized that she might have notarized documents she had also signed as a surrogate.
As a result, the lawsuit said, borrowers had to deal with documents containing false assertions about which entity was authorized to foreclose, and false assertions about whether the consumer was delinquent on a loan payment.
Kind of important details, no?
Michelle Kersch, a spokeswoman for L.P.S., said it no longer executes documents in Nevada and does so elsewhere with stringent controls in place to ensure compliance with all rules.
In an interview last Thursday, Ms. Masto declined to talk specifically about the case against L.P.S. But she said that her office had been working on mortgage-related investigations since 2007, when consumers began complaining. It really required our team to figure out what was going on, she said, to understand it from the beginning to the end, then put in place a plan based on our limited resources to target the types of fraud we were seeing. Eighteen people investigators, prosecutors and support staff work full time on mortgage issues in the Nevada office.
The challenge we have is statute of limitations on these cases, Ms. Masto said. It could be anywhere from four to six years, depending on the incident.
When she filed suit against L.P.S., she said it was the next, logical step in holding the key players in the foreclosure fraud crisis accountable. That suggests other cases are forthcoming.
If you are going to allow banks to skate around the integrity of the system, she said, what kind of justice is that? Good question.
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HOUSINGWIRE
NY Fed believes Fannie, Freddie should order principal reductions
by JACOB GAFFNEY
Friday, January 6th, 2012, 10:06 am
Investors who buy delinquent mortgages routinely reduce principal to maximize value on these loans, according to William Dudley, president of the Federal Reserve Bank of New York. Therefore the government-sponsored enterprises should do so as well.
"It would make sense for Fannie and Freddie to do this as well in order to minimize loss of value on the delinquent loans they guarantee," Dudley said in a speech at the New Jersey Bankers Association Economic Forum in Newark, N.J., on Friday.
The GSEs routinely resist calls for principal reduction. Michael Williams, CEO of Fannie Mae, told HousingWire in September that the company has no plans to ask mortgage servicers for principal reductions.
In May, Freddie Mac CEO Ed Haldeman, who recently announced his resignation, said principal write-downs do not make sense for Freddie Mac. Further, principal reduction may lead borrowers to default at higher rates to try to get their mortgage debt reduced.
Dudley said such a tactic would need to be avoided if Fannie and Freddie were to order mortgage servicers to reduce principal on the loans the GSEs securitize.
"I believe we should also develop a program for earned principal reduction for borrowers who are underwater but keep on making their mortgage payments," he said. "Such a program would strengthen the incentives for mortgage holders who are underwater to continue to stay current on their loans, and reduce the likely number of defaults and REO sales."
Dudley said analysis from the New York Fed suggests that without a significant turnaround in home prices and employment, a substantial proportion of negative-equity mortgages default, without an earned principal reduction program in place.
"One option developed by my staff is for Fannie Mae and Freddie Mac to give underwater borrowers on loans that they have guaranteed the right to pay off the loan at below par in the future under certain circumstances, including that the borrowers have continued to make timely payments," he added.
"For instance, the borrower could be given an open-ended option to pay off the loan at a loan-to-value ratio of 125%, and the right to pay off the loan at an LTV of 95% after three years of timely payments," according to Dudley.
He adds that this would protect borrowers against further declines in home prices who, in return, give up a portion of any upside from future capital gains on the home via a shared appreciation agreement.
"Note that under this arrangement some of the reduction in the loan amount would be paid by the borrower as the outstanding balance was amortized by continued monthly payments," he said.
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SFGate.com
6 million estimated foreclosures by 2016
Wednesday, December 28, 2011
Number of the day
6 million
That's how many homes will be repossessed by banks or sold at distressed prices by 2016, according to Oliver Chang, a Morgan Stanley analyst in San Francisco. The dismal environment has prompted Fannie Mae and Freddie Mac to rethink their strategy. The mortgage companies, which were seized by the government in 2008, are turning some of their inventory of repossessed homes into rentals - part of a bid to cut losses, stabilize neighborhoods and support housing values.
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naked capitalism
By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha)
There Goes the Neighborhood, which ran on 60 Minutes last Sunday, is a must-see piece. Scott Pelley walks through a pillaged house in Cleveland, slated for demolition in a county neighborhood stabilization program. This abandoned house is owned by Structured Asset Investment Trust 2003-BC11. An investor reports lists the property as in foreclosure despite no court filing. Ohio is a judicial foreclosure state, so a foreclosure filing requires a lawsuit, but there isnt one.
According to the prospectus, Trust 2003-BC11 was underwritten by Lehman Brothers. Aurora Loan Services is the Master Servicer, though the entire trust was passed to sub-servicers. Specifically Chase, Option One, Ocwen, and Wells Fargo serviced 30.46%, 29.47%, 26.84%, and 12.19% of the loans.
The Murrayhill Company is the Credit Risk Manager. According to the prospectus Murrayhill will monitor and advise the servicers with respect to default management of the mortgage loans. Later, the prospectus clarifies The Murrayhill Company, a Colorado corporation .. will monitor and make recommendations to the Master Servicer and the Servicers regarding certain delinquent and defaulted Mortgage Loans
Murrayhill literally wrote the book on how Aurora should deal with defaults for Trust 2003-BC11, then took upon themselves to the obligation to monitor that same book.
Colorado-based Murrayhill was founded by Sue Ellis Allon and apparently did spectacularly well back in the past. In a case study published by the Tuck School of Business at Dartmouth in 2003, the same Trust 2003-BC11 closed, Allon bragged her company enjoyed more than 100% annual growth for the prior three years.
Murrayhill was eventually acquired and merged into Clayton Holdings. Allon served on their Board of Directors. Eventually she formed Allonhill, her newest company, also in Colorado. Various news reports portray Allon as a reformer, really trying to get to the core of the housing crisis.
On September 9, 2011, Allonhill signed an engagement letter a definitive agreement with the Office of the Comptroller of the Currency (OCC), as part of the consent order wherein servicers agreed to submit foreclosure fraud for review by independent third-party companies. The engagement letter notes that Allon founded Murrayhill, which pioneered the concept of independent third-party oversight of loans and servicers. But there is no mention that Murrayhill was tasked with promulgating and monitoring Auroras default policies and procedures.
That is, OCC chief John Walsh signed off on hiring Allon to audit her prior work for fraud.
Lets repeat that; the OCC an arm of President Obamas Treasury Department signed off, allowing a company founded and managed by the woman who created Auroras foreclosure practices to audit her own firms work, and did so pursuant to a consent order and under the guise of consumer protection. Allonhill, the firm that promulgated and enforced foreclosure policies, is based less than a mile away from the address listed for Murrayhill, the firm auditing for foreclosure fraud on behalf of borrowers.
Until now there has been a mountain of circumstantial evidence that the Obama administration has been comfortable with foreclosure fraud. There is the conspicuous lack of prosecutions, unwarranted and unwelcome intervention in the 50-state Attorney General review, and references that infer robosigning is a victimless crime. But, until this disclosure, there has been no solid evidence the federal government is actively covering up bank-perpetrated fraud.
This arrangement clarifies that the Federal Government, at the highest levels, are comfortable, or even arguably complicit, covering up foreclosure fraud.
The section regarding Conflicts of Interest in the Allonhill contract reads Allonhill .. represent(s) that this engagement does not create a conflict of interest But it is impossible to think of a more substantive conflict of interest the notion that a former executive is supposed to bust herself than this arrangement. Even Bernie Madoff hired a storefront accountant to robosign his audits; he didnt have the chutzpah to appoint himself to the role.
The agreement continues, Allonhill will implement various controls to manage conflicts and ensure that the loan review services are provided with an appropriate level of independence. These controls include: (a) Restricting any individual who was previous employed by, or otherwise under contract to provide services to, Aurora Bank from a long list that includes essentially everything Allonhill is supposed to be doing.
I guess they overlooked that the founder and CEO of Allonhill is the same woman that created and monitored the fraud Allonhill is supposed to be monitoring while working for Aurora.
Allonhill is so massively conflicted with regards to Aurora that the decision to engage the firm taints not only the entire OCC review process into question, but also every person involved in the review, and the Treasury Department itself. It is impossible to think of any company that could be more conflicted in performing these audits. Even Aurora itself could blame Murrayhill for the problems, but Allonhill cant, at least not without implicating its own founder and CEO.
John Walsh, the head of the OCC, should finally be fired for incompetence. His boss, Bailout King Treasury Secretary Timothy Geithner, also deserves the axe. Congress should let the subpoenas fly in every directions, including and especially towards the White House, to figure out how this could have happened.
Forget just firing Allonhill and Walsh; every reviewer has to be fired: its clear that the entire review process is corrupt.
Once Walsh, the Bush appointee who was reappointed by Obama (Youre doing a heckuva job, John) is gone the new director should void these contracts, start from scratch, and be sure to disqualify anybody who had anything to do with this fiasco. In the interim, there is now a persuasive argument for a nationwide freeze on foreclosures until this mess is straightened out.
As the reviews are reformulated every document, every email, every engagement letter absolutely everything should be released without a single redaction. Any firm that doesnt want to work in sunlight can simply decline to bid. Im sure theyll have plenty of takers. Id personally be pleased to have one of these contracts, and would staff up a firm with top-notch auditors who would find foreclosure fraud.
News reports say that President Hope & Change Obama, who promised Hope but gave us the ineffectual and arguably outright harmful HAMP, has apparently decided to reincarnate himself in the likeness of President Teddy Roosevelt. He might want to think about this quote from President T. Roosevelt: No man who condones corruption in others can possibly do his duty by the community.
Paraphrasing from a Senatorial candidate I once adored, foreclosure is not a Blue State problem, its not a Red State problem, its an American problem. And its long past time the White House wakes up and doesnt something besides protect the perps who caused this mess.
Disclosure: Aurora has foreclosed against a house I purchased with an ex-girlfriend. That loan, which Lehman/Aurora purchased as they were going broke, is a full-documentation loan with a substantial down-payment and no second. I dont live there; my ex-girlfriend does. My own home has no mortgage and is not affected. This isnt what drew me to focus on Aurora the house in the 60 Minutes segment is what perked up my interest though it does explain why they told me that I had to stop paying the mortgage in order to qualify for a short-sale, a policy probably promulgated by Murrayhill .. and now audited by Allonhill.
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Special Report: The watchdogs that didn't bark