UNC's Center for Community Capital has posted a new analysis of 19.5 million mortgage loans originated between 2000 and 2008 finding that mandatory down payments of 10% would lock out nearly 40% of all creditworthy borrowers while a 20% down payment would exclude 60%. The study finds a significantly higher exclusion rate for African American and Latino borrowers. The authors (Roberto Quercia of UNC, Lei Ding of Wayne State University, & Carolina Reid from the Center for Responsible Lending) do find valuable default-reduction benefits of other forms of strong underwriting as the Dodd-Frank Act already requires (through the "QM" and "QRM" classifications), but signal caution about the significant access costs of government-mandated down payment levels that government regulators may be currently considering.
Credit Suisse | Mortgage Principal Cuts Don’t Help Homeowners
Quotes of the day
Money.
“Thanks to a $5 million donation from a wealthy casino owner, a group supporting New Gingrich plans to place advertisements in South Carolina this week attacking Mitt Romney as a predatory capitalist who destroyed jobs and communities, adding a full-scale Republican dimension to an assault on Mr. Romney’s business background… “The Bain-centered campaign strikes at [...]
Quotes of the day
Money.
“Thanks to a $5 million donation from a wealthy casino owner, a group supporting New Gingrich plans to place advertisements in South Carolina this week attacking Mitt Romney as a predatory capitalist who destroyed jobs and communities, adding a full-scale Republican dimension to an assault on Mr. Romney’s business background… “The Bain-centered campaign strikes at [...]
Democrats, Republicans losing ground on voter affiliation
The rise of independents, or just the disgusted?
You know that Democrats and Republicans have a problem when the question becomes: Which of the two major political parties has turned off more voters since the 2008 elections? As it turns out, it’s the Democrats, but that doesn’t mean the Republicans have gained: More than 2.5 million voters have left the Democratic and Republican [...]
Occupy the New York Times
The one percent.
Income inequality at the Progressive Death Star: Janet Robinson, who will step down as chief executive of the New York Times Co on December 31, will receive an exit package in excess of $15 million, according to people familiar with the situation. In addition to a $4.5 million consulting fee, the Times Co will pay [...]
SEC Charges Wachovia (Wells Fargo) With Fraudulent Bid Rigging in Municipal Bond Proceeds, Settles for $148 Million
- SEC Charges UBS with Fraudulent Bidding Practices Involving Investment of Municipal Bond Proceeds
- OCC Assesses Civil Money Penalty of $20 Million Against Wells Fargo, Requires Restitution of $14.5 Million to Municipalities Harmed by Bid-Rigging on Financial Products
- FL Attorney General Announces $67 Million National Settlement with Bank of America over Bid-Rigging Scheme
OCC Assesses Civil Money Penalty of $20 Million Against Wells Fargo, Requires Restitution of $14.5 Million to Municipalities Harmed by Bid-Rigging on Financial Products
- Federal Reserve Orders $85M Civil Penalty Against Wells Fargo for Steering Potential Prime Borrowers Into More Costly Subprime Loans and Falsifying Income
- Wells Fargo Damage Control Attempt – FL Attorney General Reaches Agreement with Wells Fargo Providing More Than $388 Million in Mortgage Relief to Florida Homeowners
- Cease and Desist Order In the Matter of: WELLS FARGO & COMPANY and WELLS FARGO FINANCIAL, INC.
UPDATE | Miriam Mendieta of Foreclosure Review Services (FRS) is NOT Leading the Review of 4.5 Million Fraudclosures
OUTRAGEOUS | Miriam Mendieta, Esq., Former Managing Partner of David J. Stern’s Fraud Factory to Lead Review of 4.5 Million Foreclosure Cases
- OUTRAGEOUS – Law Office of David J. Stern Files Fraudulent Foreclosure on Family Including Federal Tax Lien of Another Man with Different SSN
- Exclusive Bombshell of Foreclosure Fraud – Full Deposition of TAMMIE LOU KAPUSTA Law Office of David J Stern
- Mortgage Assignment Fraud – David Sterns Office Commits Fraud on The Court – Case Dismissed WITH Prejudice
Our FAQ on the Foreclosure Reviews
NYT: Yes, Obama’s getting big bucks from lobbyists
$5 million and counting -- so far.
Team Obama has already begun bragging in messages to supporters that they don’t take money from lobbyists in their campaign to re-elect the President, in an attempt to show that Barack Obama has kept his 2008 campaign promise. That promise got broken in the first days of the Obama presidency, however, as the White House [...]
HHS spent nearly $5 million on CLASS implementation before abandoning it
Waste.
Today, at a joint hearing of two subcommittees of the Energy and Commerce Committee, a couple of Health and Human Services officials testified that HHS spent nearly $5 million to implement the long-term care insurance program known as CLASS before it abandoned the program as unworkable. No excuse exists for that waste: Experts within HHS warned [...]
The Definition of Dichotomy
There have been times in my life when certain words gained meaning all of a sudden. Like, I knew the word before and even its definition, but then I reached a point in my life where I really knew what a certain word meant. I’ll give you an example… and I’ve said this before… I never really understood anger, joy, fear or sadness until I had my daughter. I mean, I knew what the words meant before she was born, of course, but I then again I didn’t really.
Well, yesterday I had another one of those types of experiences… no… my wife and I didn’t have another baby… actually I think the experience had been building inside and around me and yesterday it all came colliding together… and all over a sudden I understood the definition of the word, “dichotomy.”
It’s a big word… dichotomy… it means… oh, I don’t know, the word “contrast” comes to mind. It’s sort of the separation of irreconcilable things. A contradiction is perhaps the better way to define it.
I’ll tell you this though… when you run into a true dichotomy you’ll know it, that’s for darn sure. It sort of leaves you sitting there staring at the wall unsure of what to do next. The idea of screaming from the top of the tallest hill in town seems potentially gratifying at such a moment.
I’ll share my experience with you now, and see what you think about the whole… well… the dichotomy, I suppose. Here goes… just as it happened to me.
PART 1
“We are now well into the fourth year of the foreclosure crisis, and there is no end in sight. Since mid-2007 around eight million homes entered foreclosure, and over three million borrowers lost their homes in foreclosure. As of June 30, 2010, the Mortgage Bankers Association reported that 4.57% of 1-4 family residential mortgage loans (roughly 2.5 million loans) were currently in the foreclosure, process a rate more than quadruple historical averages. Additionally, 9.85% of mortgages (roughly 5 million loans) were at least a month delinquent.”
Who the heck said that? He sounds like me, don’t you think? I feel like I might be quoting myself, which is weird.
Actually, I’m flattering myself because those are the words found in Georgetown Law Professor Adam Levitin’s written testimony in provided to House Financial Services Committee, Subcommittee on Housing and Community Opportunity on November 18, 2010. The topics being covered by his testimony:
“Robo-Singing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage Servicing”
“To this sad state of affairs, there now come a variety of additional problems: faulty foreclosures due to irregularities ranging from procedural defects (including, but not limited to robo-signing) to outright counterfeiting of documents; predatory servicing practices that precipitate borrower defaults and then overcharge for foreclosure services that are ultimately paid for by investors; and questions about the validity of transfers in private-label mortgage securitizations.”
The chain of title problems are highly technical, but they pose a potential systemic risk to the US economy. If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever.
The chain of title concerns stem from transactions that make assumptions about the resolution of unsettled law. If those legal issues are resolved differently, then there would be a failure of the transfer of mortgages into securitization trusts, which would cloud title to nearly every property in the United States and would create contract rescission/put-back liabilities in the trillions of dollars, greatly exceeding the capital of the US’s major financial institutions.
These problems are very serious. At best they present problems of fraud on the court, clouded title to properties coming out of foreclosure, and delay in foreclosures that will increase the shadow housing inventory and drive down home prices. At worst, they represent a systemic risk that would bring the US financial system back to the dark days of the fall of 2008.
Okay, so you know what Professor Levitin is talking about there, right? He’s saying that we are in deep Kim chi, that’s what he’s saying. He’s saying that the loans were not properly transferred into the trusts that are now trying to foreclose on homes… and apparently, they can’t seem to come up with anything that says they own the loan… but they want to foreclose anyway.
He’s also saying that when the banksters figured out that they could come up the proper documents to conduct the foreclosure legally, they decided that the path to take… the best way to solve the problem… the optimal answer to this dilemma was… to commit forgery and fraud.
Yes, it’s true. The banksters, unable to establish that they complied with just about ANY of the laws governing the transfer of property, much less the requirements as set for in a Pooling and Servicing Agreement, came up with a plan. Let’s forge them and see if we can’t defraud the court. Yeah, great idea… run with it.
From there it’s almost like they were barely trying, as if “we” are so stupid that you can fool us just as you might a three year-old. Just pick a short name and have everybody sign it. Yeah, Linda Green’s fine, I was thinking, Don Ho, but you’re right, Linda Green is better. Yep, just sign it over and over, they’ll never notice… silly humans.
I’ve said it before and I’ll say it again… nobody chooses “robo-signing” hundreds of thousands of affidavits and various other documents off of a list of other viable alternative solutions to your problem. When you find yourself checking “YES” on robo-signing… when you’re a bank that chooses to open a fraud and forgery department… well, something has left the building, let’s say that.
So, a lot of people have been talking about this for some time now, so what’s new?
Well, both The New York Times and the Huffington Post are reporting on state investigations into the practices surrounding the packaging of mortgage-backed securities and their brethren. And even though the bank’s response has been basically flowers in springtime, the New York and Delaware Attorneys General say they’re quite serious.
He’s saying that this could be a game changer depending on how this is handled. We could explode… or maybe implode. I’m not entirely sure. But it’s bad. The kind of thing you wouldn’t want to have to live through twice.
So, clicking around yesterday, at Huff-Po it was Shahien Nasiripour with the story… still can’t pronounce it and for that I am deeply ashamed, but it is to be expected. He wrote about the New York Attorney General “launching” an “investigation into mortgage securitization.” Heady stuff, I’m sure you’d agree.
“New York Attorney General Eric Schneiderman has targeted Bank of America, the biggest U.S. bank by assets, in a new probe that questions the validity of potentially thousands of mortgage securities and their associated foreclosures, two people familiar with the matter said.
The investigation, which began quietly in recent weeks, is part of a larger inquiry that is scrutinizing whether mortgage companies and Wall Street firms took the necessary steps under New York state law when creating mortgage-backed securities, these people said, who requested anonymity because they weren’t authorized to speak publicly about the probe.
Court testimony and independent studies have raised questions over whether banks and other financial firms passed along the required documents to trusts, the independent entities that oversee securities for investors. In some cases where trusts moved to seize borrowers’ homes, judges have determined the trusts lacked legal standing due to faulty documentation.
The inquiry could prove explosive: Wall Street’s great mortgage securitization machine took millions of home loans and bundled them into securities for sale to investors. If the legal steps that guide securitization — like taking mortgage documents from one party to another, a critical step under New York law — were not undertaken, then the investors who bought the bundled loans could force the companies to buy them back, compelling them to eat enormous losses.
New York state investigators could also find that those securities aren’t valid financial instruments at all and take action under state law.
But an investigation into whether the securities these companies created are even valid represents a new front in his ongoing probe and raises fresh questions into the potential liability sellers of these mortgage instruments face.
“If mortgages were not properly transferred in the securitization process, then mortgage-backed securities would in fact not be backed by any mortgages whatsoever,” says Adam J. Levitin.
Levitin also said that the problem could “cloud title to nearly every property in the United States” and could lead to trillions of dollars in losses.”
Shahien’s “exclusive” soon had company, Gretchen Morgenson of The New York Times also ran a story saying that both the Attorneys General from New York and Delaware were conducting such an investigation into the practices surrounding and involved in mortgage-backed securities. And if you’re wondering what’s the big deal about New York and Delaware, well… I’ll tell you…
“The trusts were governed by the laws of the states in which they were set up. Roughly 80 percent of the trusts are governed by New York law with the rest by Delaware law.”
See… I told you. So, here’s how the Times described the same topic…
The investigation is being led by Eric T. Schneiderman, the attorney general of New York, who has teamed with Joseph R. Biden III, his counterpart from Delaware. Their effort centers on the back end of the mortgage assembly lines — where big banks serve as trustees overseeing the securities for investors — according to two people briefed on the inquiry but who were not authorized to speak publicly about it.
The attorneys general have requested information from Bank of New York Mellon and Deutsche Bank, the two largest firms acting as trustees. Trustee banks have not been a focus of other investigations because they are administrators of the securities and did not originate the loans or service them. But as administrators they were required to ensure that the documentation was proper and complete.
“A complex process that produced hundreds of billions of dollars in securities during the lending boom, the issuance of mortgage securities began with home loans, which were then bundled into investments and sold to pension funds, mutual funds, big banks and other investors. The bundles were created as trusts overseen by institutions such as Bank of New York and Deutsche Bank; they were supposed to make sure the complete mortgage files for each loan were delivered within a specified time and with the proper documentation.”
“The stakes are potentially high. If the trustees did not follow the rules set out in the prospectus, they may be liable for breaching their duties to investors who bought the securities. That could expose the banks to costly civil litigation.”
“Spokesmen from Bank of New York and Deutsche Bank declined to comment about the investigation, as did representatives from the offices of both attorneys general.”
Okay, so Gretchen and Shahien seem to be in a race. It seems to me that they’ve both found a bush and they want to see who can be the first to beat around it. In fairness to them, it may be their editors that hold them back, but the point is, what they’re talking about is the 800 pound gorilla in the room.
Or, another way of putting it… in the contest to see whether mortgage-backed securities either “taste great” or are “less filling,” it’s seems that “less filling” has taken the lead.
We’re talking about mortgage-backed securities without the “mortgage-backed” part. Empty securities. Like a Twinkie without the creamy filling inside. Securities fraud. Bad, very bad. The sort of thing for which one gets sued… or possibly even charged.
Once again, Professor Adam Levitin’s testimony tells it best…
“Many of the issues relating to foreclosure fraud by mortgage servicers, ranging from more minor procedural defects up to outright counterfeiting relate to the need to show standing. Thus problems like false affidavits of indebtedness, false lost note affidavits, and false lost summons affidavits, as well as backdated mortgage assignments, and wholly counterfeited notes, mortgages, and assignments all relate to the evidentiary need to show that the entity bringing the foreclosure action has standing to foreclose.
Concerns about securitization chain of title also go to the standing question; if the mortgages were not properly transferred in the securitization process (including through the use of MERS to record the mortgages), then the party bringing the foreclosure does not in fact own the mortgage and therefore lacks standing to foreclose. If the mortgage was not properly transferred, there are profound implications too for investors, as the mortgage-backed securities they believed they had purchased would, in fact be non-mortgage-backed securities, which would almost assuredly lead investors to demand that their investment contracts be rescinded, thereby exacerbating the scale of mortgage put-back claims.
Many of the problems in the mortgage securitization market (and thus this testimony) are highly technical, but they are extremely serious. At best they present problems of fraud on the court and questionable title to property. At worst, they represent a systemic risk of liabilities in the trillions of dollars, greatly exceeding the capital of the US’s major financial institutions. While understanding the securitization market’s problems involves following a good deal of technical issues, it is critical to understand from the get-go that securitization is all about technicalities.
Securitization is the legal apotheosis of form over substance, and if securitization is to work it must adhere to its proper, prescribed form punctiliously. The rules of the game with securitization, as with real property law and secured credit are, and always have been, that dotting “i’s” and crossing “t’s” matter, in part to ensure the fairness of the system and avoid confusions about conflicting claims to property.
Close enough doesn’t do it in securitization; if you don’t do it right, you cannot ensure that securitized assets are bankruptcy remote and thus you cannot get the ratings and opinion letters necessary for securitization to work.
Thus, it is important not to dismiss securitization problems as merely “technical;” these issues are no more technicalities than the borrower’s signature on a mortgage. Cutting corners may improve securitization’s economic efficiency, but it undermines its legal viability.”
So… any questions about that? It’s a big deal. A really big deal. The banking industry associations say it’s not, but it quite obviously is. You know, there are reasons we have the laws we do governing the transfer of property rights, it’s not like such laws were created on a whim. And the pooling and service agreements, or PSAs, govern how loans are to be transferred into the REMIC trusts are some 500+ pages long, in most cases, and call me crazy, but compliance with such a document doesn’t sound like a trivial matter either.
So, now the Attorneys General from New York and Delaware are investigating in order to find out whether trillions of dollars in loans were seriously mishandled and therefore are not in the trusts, as the banksters said they were. The IRS is investigating too. And at least two large investors have already filed lawsuits alleging that they were sold “empty trusts.”
Here’s an excerpt from a real lawsuit lawsuit filed this past April 21st by the Federal Home Loan Bank of Boston, an investor in mortgage-backed securities, against just about everyone you’ve ever heard of in the financial, services industry, from Aurora to Wells Fargo… you’ll find it on page 28 of the complaint, item ‘f’.
“In order for a mortgage to be enforced, basic steps need to be taken to validly assign the mortgage and mortgage loan to the trust and ensure that the trustee has the proper papers. These basic steps, and the representations made about these steps, were critical to investors because if a mortgage cannot be enforced, then the mortgage loans and the certificates dependent on these loans, are worthless. The Offering Documents failed to disclose that in fact basic steps regarding the transfer of mortgages and mortgage loans were not followed – mortgage loans were not validly assigned, and papers necessary to ensure enforceability of the mortgage were never transferred to the trustee.”
Have I made my case yet? It’s important stuff, right? The New York Times and the Huffington Post write about state Attorneys General investigating trustees about the issue, Professor Adam Levitin testifies in Congress about the issue, and the Federal Home Loan Bank of Boston files a lawsuit that incorporates the issue into its 575-page complaint.
So, you agree, right? It’s a serious issue, how loans are transferred into trusts as part of the securitization process. Right? Right.
Okay, so here’s PHASE TWO of yesterday’s news:
FADE IN: We’re in the United States Bankruptcy Court, Northern District of California, in front of The Honorable Edward D. Jellen, a United States Bankruptcy Judge. We’re watching an Evidentiary Hearing on Debtor’s Objection to Proof of Claim, which is another way of saying that the homeowner is saying there’s something wrong with what the bank is claiming he owes.
The homeowner’s name is Felipe Zulueta, Jr. and he’s representing himself in these proceedings… pro per, or pro se… I can never figure out which is which or why to use one over the other. The point is that he doesn’t have a lawyer… he’s representing himself.
It is 9:35 AM on November 3, 2010 when the Clerk says…
The Clerk: All rise.
This is the United States Bankruptcy Court for the Northern District of California, The Honorable Edward Jellen presiding.
Be seated.
Mr. Chun: Thank you, Your Honor.
Mr. Zulueta: Thank you, Your Honor.
The Court: This is the matter of Zulueta. May I have the appearances, please?
Mr. Zulueta: Felipe Zulueta, Jr. Your Honor, Debtor.
The Court: Okay.
Mr. Chun: Joseph Chun representing the secured creditor.
The Court: All right. Mr. Zulueta, are you going to be presenting any evidence to show that they don’t have standing?
Mr. Zulueta: Actually, Your Honor, I was going to address the exhibits that they’re going to present today.
The Court: Yeah. My question was, do you have an evidence of your own…
Mr. Zulueta: No.
The Court: … that shows…
Mr. Zulueta: No.
The Court: All right. Mr. Chun, according to your trial brief, you have exhibits, is that correct?
Mr. Chun: That’s correct, Your Honor.
Mr. Zulueta: Your Honor?
The Court: Yes.
Mr. Zulueta: I just wanted to clarify, Your Honor, if counsel is representing One West Bank or Deutsche Bank National Trust Company as trustee for the mortgage loan trust.
Mr. Chun: We’re representing One West Bank, the servicing agent – who’s the servicing agent for Deutsche.
Mr. Zulueta: Okay, so I just wanted to find out, Your Honor, if One West Bank has the proper authorization from Deutsche Bank to authorize them, because I don’t see any power of attorney presented.
The Court: All right. Well, you know, the bottom line is you’re not getting a free house.
Mr. Zulueta: I’m not asking for a free house, Your Honor. I just want to make sure that the proper paperwork is in place so I can pay the right creditor.
LATER THAT SAME MORNING…
Mr. Zulueta: Okay, so the first thing I want to point out, Your Honor, is, number one, on the bottom of the page of the recorded document, there’s a handwritten scribble on the bottom after the signature of the notary that says, a notary on the basis within capacity under – which means that this is not a true and correct copy.
The Court: What difference does it make?
Mr. Zulueta: Well, it does make a difference, Your Honor, because I’m trying to establish a pattern here of the fact that this document appears fraudulent.
The Court: Do you have any evidence that it’s fraudulent? I mean, whether it’s recorded or not doesn’t make any difference.
Mr. Zulueta: Well, it does, Your Honor, because all of the exhibits that counsel is presenting today, there is a system of how my loan is supposedly deposited into the trust, and since they’re representing the trust, I want to make sure that they’re the proper creditor for my loan.
The Court: All right. Who do you think is the proper creditor?
Mr. Zulueta: Right now, Your Honor, it’s a mystery. I mean, after my research…
The Court: All right. But you don’t get a free house.
Mr. Zulueta: I understand, Your Honor.
So, how about that? And I’m not making any of that up, by the way… in fact, I didn’t even change a single word from the court transcript. And you don’t even have to take my word for it, because the link to the court transcript can be found at the bottom of this post.
According to April Charney, of Jacksonville Legal Aid, this case goes before the 9th Circuit Court of Appeals next week. Any guesses as to what will happen? I don’t really care whether the documents are all fraudulent. I don’t really care how many laws were broken, or whether the REMIC trust is as empty as my wallet on December 26th… I only want to know one thing…
Will Mr. Zulueta get a “free house?”
Are you getting what I’m trying to say here? Because we have here is a true “dichotomy,” wouldn’t you say? It’s dichotomous, if you’re an adjective person.
That’s only two of the contrasting stories I had to work with that day. At the same time, Fannie Mae announced that it would not participate in Hawaii’s new mediation program. Why? Because they don’t want to have to prove standing… that the servicer is foreclosing on behalf of the trust that actually owns the note… as is required by Hawaii’s new mediation program.
And this afternoon, a lawyer in Hawaii told me that he has learned that title insurance companies are refusing to write title insurance on non-judicial foreclosures in Hawaii. And why in the world would that be, do you suppose?
Meanwhile, in Utah, a judge apparently granted Quiet Title to Scott Harvey, a homeowner, who promptly sells his now free and clear house after no one shows up to contest the matter. Someone want to explain that one to me?
Harvey v Garbett, Quiet Title Case in Draper Utah
Oh, and Bank of America’s being accused of obstructing a federal investigation by HUD investigators in Arizona and now that fact has been added to the lawsuit filed by the State of Arizona against Bank of America less than a year ago, I believe. So, go figure.
My Conclusion…
This is a mess. A real mess. And I see only one way out… follow the laws of our land.
Ours is a country built on laws, and forged by lawyers. It is our laws that have held us together for over 200 years, and only adherence to our laws will get us through this mess.
Did Wall Street’s bankers screw up the securitization of millions of loans? Well, obviously the answer is yes. Does that mean that the REMIC trusts are going to collapse? Yes it probably does at that. Will that be the end of the world? No, I don’t think it will. Answers will be found… equitable answers. And we will go on.
Want to know what won’t work… what will ultimately destroy us? What we’re doing now. The path we’ve been on for the last two years has been disastrous for tens of millions of Americans and we cannot stay on that path much longer. The cost will simply be too great.
Whatever the answer the answer is, I’ll tell you what it is not… it’s not fraud and forgery… it’s not turning our country into a class society where the mega-rich live behind gates and the rest of us… well, eat cake… and it’s not free houses either.
We are only here because the bankers have proven themselves untrustworthy and abusive. That’s right… that’s why we’re here, no other reason. The anger is rising and palpable. The banks continue to lie to homeowners every day. They have already gone too far and will pay a huge price for years to come, but that price is going up every day, and someone has to find a more equitable path.
I think I can help. I leave for Hawaii this coming Monday. I’m meeting with members of the legislature and numerous others. Wish me luck. Pray for us all.
Mandelman out.
ZULUETA Answer Brief Deutsche Bank
Attorney General Probe Of Florida Foreclosure Companies Expanding….
Not so long ago, it looked like the banks were going to moonwalk away from the crime scene they created with no penalty…not even much of a slap on the wrist. First the banks protested the paltry $20 million dollar settlement and other terms, then they objected to the $5 million settlement terms. But it wasn’t just the banks that were protesting settlement terms, the banks had the support of four of this country’s attorneys general who howled about how the banks could not face any consequence…they warned us of the dire….
MORAL HAZARD
that would occur if they leaned on the organized crime syndicate..no I’m sorry, I mean the banking and foreclosure industries. The basic gist of the warning issued by these four attorney generals was that the country would collapse and the rapture would definitely come if any of their constituents….(I’m talking about the banks of course) were forced to face any consequence.
But now there are serious breaks in the ranks of the attorneys general from all across the country. It appears that some state AG’s want to let the criminals moonwalk away…while others have decided that their job as attorney generals is to investigate and prosecute crimes. It’s terribly ironic that Florida is a focus of these investigations….but not, apparently, by Florida’s Attorney General…..
Read on here for a little disgusting story…..then after your read, please visit Pam Bondi’s Website and Facebook page to let her know what side you think she should be on.
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David J. Stern Enterprises Announces Earnings…..
Profits at this state’s most notorious foreclosure mill were announced yesterday. The thing that I still cannot understand is why our local, elected circuit court judges allow so much shotty practice of law to occur from this mill and others, while the mills are allowed to announce million dollar profits…oh and another question about how what is essentially a law practice can be permitted to be publicly traded. The whole problem with this is the rules and ethical obligations of lawyers are inconsistent with a publicly traded company.
When will all this stop? Make sure to tune into the earnings conference call at 8:30 (Perhaps every judge in the state should tune in for this call.)
Management will conduct a conference call at 8:30 a.m. Eastern Time on Wednesday, September 8, 2010, to discuss the second quarter and year-to-date 2010 results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877-312-5504. When prompted by the operator, mention conference ID 94593027.
PLANTATION, Fla., Sept. 7, 2010 (GLOBE NEWSWIRE) — DJSP Enterprises, Inc. (Nasdaq:DJSP – News) (Nasdaq:DJSPW – News) (Nasdaq:DJSPU – News), one of the largest providers of processing services for the mortgage and real estate industries in the United States, today announced financial results for the three and six month periods ended June 30, 2010.
Second Quarter Financial Highlights
- Total revenue for the second quarter 2010 decreased 9.1% to $56.1 million from $61.7 million in last year’s comparable period.
- Excluding client costs, total revenue for the second quarter 2010 decreased to $28.9 million from $30.9 million or 6.5% compared to the same period last year.
- Adjusted Net Income including noncontrolling interests was $5.5 million for the second quarter 2010 or $0.28 per diluted share.*
- Adjusted EBITDA for the second quarter 2010 was $6.7 million.
Year to Date Financial Highlights
- Total revenue for the six months ended June 30, 2010 increased 9.3% to $127.7 million from $116.8 million in last year’s comparable period.
- Excluding client costs, total revenue for the six months ended June 30, 2010 decreased to $59.7 million from $61.0 million or 2.1% compared to the same period last year.
- Adjusted Net Income including noncontrolling interests was $14.2 million for the six months ended June 30, 2010 or $0.73 per diluted share.*
- Adjusted EBITDA for the six months ended June 30, 2010 was $21.1 million.
*Calculated using treasury stock method assuming an average ordinary share price of $8.25 for the quarter ended June 30, 2010; assuming 19.5 million average diluted shares outstanding.
Second Quarter Results
Total revenue for second quarter 2010 decreased 9.1% to $56.1 million from $61.7 million in the same period last year. This was primarily due to a decrease in foreclosure referrals, title fees, and client reimbursed costs. Title fees decreased due to the decrease in foreclosure volume and the switch made by some clients to use their own title company. These decreases in revenue were partially offset by increases in REO closings, REO liquidation operations at Default Servicing, and eviction fees. Two new service offerings, Deed-in-lieu and Mediations, also contributed to offsetting these decreases. During the second quarter, client reimbursed costs decreased by 11.7% to $27.2 million from $30.8 million in the same quarter in 2009 as a result of a decrease in foreclosure volume. Our REO closing business became an increasingly significant source of revenue during the quarter, generating $3.5 million in revenue compared to $2.1 million in the same period last year. Our REO liquidation business, which emanates from a single customer, contributed $3.2 million in revenue in the second quarter compared to $2.9 million in the same quarter last year. Going forward, we intend to offer both REO closing and liquidation services to additional customers as a means of increasing revenues and profits. Deed-in-lieu and Mediation services were initiated in the second quarter and contributed a combined $0.7 million to our revenues during the quarter. Revenue from foreclosure services decreased by $1.5 million, or 8.3%, for the quarter to $16.6 million, compared to $18.1 million during the same period last year.
Our adjusted EBITDA decreased to $6.7 million for the three months ended June 30, 2010 from $17.7 million in the same period last year. This decrease was primarily due to three factors: the decrease in foreclosure volume; an increase in compensation expenses; and an increase in expenses related to becoming a public company, including $0.9 million in legal expenses. Our compensation expenses increased $2.6 million, on an adjusted basis, primarily as a result of staffing increases. Increases in staffing were made to address expressed client needs, expanding legacy files due to court delays, and necessary upgrades to the corporate management structure. A much smaller increment of the increase in staffing was due to the mandatory mediation requirement dictated by the Florida Supreme Court for foreclosure files.
During the second quarter 2010, our adjusted net income decreased to $3.5 million from $8.3 million in for the same period in 2009, due to the decrease in revenue and increase in our expenses stated above.
Year-to-Date Results
Total revenue for the six months ended June 30, 2010 increased $10.9 million, or 9.3%, to $127.7 million from $116.8 million in last year’s comparable period. The revenue resulted from an increase in client reimbursed costs, REO closings, REO liquidations, eviction services, and two new services, Deed-in-lieu and Mediation. These increases were offset by decreases in our foreclosure and title services fees. Excluding client reimbursed costs, our total revenues decreased by $1.3 million, or 2.1%, to $59.7 million compared to $61.0 million for the same period last year. Revenues from our REO closing and liquidation business increased by $2.4 million and $1.6 million, respectively, over the same period last year. As mentioned above we initiated two new services, Deed-in-lieu and Mediations, which contributed a combined $0.7 million to total revenue.
Compensation expenses, on an adjusted basis, increased by $5.9 million, or 30.7%, to $25.1 million for the six months in 2010 compared to $19.2 million during the same period in 2009.
General and administrative expenses, on an adjusted basis, increased by $5.1 million, or 60.7%, to $13.5 million from $8.4 million last year. Public company and nonrecurring expenses increased our expenses by approximately $2.5 million during the first six months of 2010. Other operating expenses, including rent, supplies, travel, mailing, and others, increased as a result of the increase in headcount.
During the first six months of 2010, our adjusted net income decreased to $7.8 million from $15.8 million in the same period in 2009.
We generated $17.1 million in cash from operating activities in the six months ended June 30, 2010, compared to $26.4 million in the six months ended June 30, 2009.
Our overall debt of $74.6 million bears an average interest rate of 2.9%. The senior note of $35 million bears no interest for the first six months.
Operating Discussion
As a result of management’s discussions with our largest client, The Law Offices of David J. Stern, P.A. (“DJSPA“) and with the major lenders and servicers for whom DJSPA processes foreclosure files, we believed file volume would increase in the third quarter and we previously decided to maintain current staffing levels. However, file volumes continue to be delayed and existing staffing levels are not sustainable indefinitely.
Rick Powers, President and COO commented, “While a large portion of our business can only be processed with human capital, we are identifying opportunities where technology and process change can be implemented to create efficiency. We are prepared to create efficiencies and make cuts where appropriate over the next three to six months.”
DJSP Enterprises continues to diversify our service offerings beyond default services. As part of our effort to grow our business, we are building business to address the new government initiatives. In this regard, we have expanded our national Deed-in-lieu and modification services. Our Deed-in-lieu business has been our fastest growing service offering in the third quarter. In addition, with the addition of Timios we are moving to expand our title services, which among other things, provides title work for refinancing, into the nation’s largest and hardest hit real estate market of California.
Timios, Inc.
As of August 1st, all Florida title operations have been consolidated under the common management of Timios, Inc. and have already adopted Timios’ best in class paperless operating system for all new orders. In addition we are in the process of licensing Timios in California, the nation’s largest real estate market. This is a major step in becoming a cyclical provider of services to the mortgage industry.
Rick Power added, “That we were able to accomplish this consolidation in such a short period of time speaks to the strong technology at Timios and the quality of both management teams. We are looking forward to entering the California market and expect continued strong performance from Timios.”
Management
David J. Stern Chairman and CEO stated, “We are happy to announce that Kerry Propper will be taking Matthew Kayton’s seat on the board of directors. Mr. Kayton will transition roles with the company and will continue to work with us on a consulting basis in the areas of Title services, acquisitions and other strategic initiatives.”
Mr. Stern continued, “I am very thankful to Matthew for his service and I look forward to his continued contribution as a consultant. Kerry brings a great deal of public company experience to the board and I am pleased that he will be joining us.”
Conference call Information:
Management will conduct a conference call at 8:30 a.m. Eastern Time on Wednesday, September 8, 2010, to discuss the second quarter and year-to-date 2010 results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877-312-5504. When prompted by the operator, mention conference ID 94593027. Participating in the call for DJSP will be David J. Stern, Chairman and Chief Executive Officer, Rick Powers, President and Chief Operating Officer, and Kumar Gursahaney, Executive Vice President and Chief Financial Officer.
If you are unable to participate in the call at this time, a replay will be available for one week starting on Wednesday, September 8, 2010, at 11:30 Eastern Time. To access the replay, dial 706-645-9291. Please use passcode 94593027. The call will also be carried live by webcast over the Internet and accessible at www.djspenterprises.com.
About DJSP Enterprises, Inc.
DJSP is the largest provider of processing services for the mortgage and real estate industries in Florida and one of the largest in the United States. We provide a wide range of processing services in connection with mortgages, mortgage defaults, title searches and abstracts, REO (bank-owned) properties, loan modifications, title insurance, loss mitigation, bankruptcy, related litigation and other services. Our principal customer is DJSPA, whose clients include all of the top 10 and 17 of the top 20 mortgage servicers in the United States, many of which have been DJSPA clients for more than 10 years. We have approximately 1,200 employees and contractors and are headquartered in Plantation, Florida, with additional operations in Louisville, Kentucky and San Juan, Puerto Rico. Our U.S. operations are supported by a scalable, low-cost back office operation in Manila, the Philippines that provides data entry and document preparation support for our U.S. operations.
Forward Looking Statements
This press release contains forward-looking statements about us within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), including but not limited to management’s expectations about efficiencies and expense reduction efforts. Mr. Kayton’s ongoing consulting role with us, our strategic growth initiatives and our ability to provide closing services in California. Additionally, words such as “anticipate,” “believe,” “estimate,” “expect” and “intend” and other similar expressions are forward-looking statements within the meaning of the Act. Such forward-looking statements are based upon the current beliefs and expectations of our management and are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions, changing interpretations of generally accepted accounting principles; outcomes of government or other regulatory reviews, particularly those relating to the regulation of the practice of law; the impact of inquiries, investigations, litigation or other legal proceedings involving us or our affiliates, which, because of the nature of our business, have happened in the past to us and the DJSPA; the impact and cost of continued compliance with government or state bar regulations or requirements; legislation or other changes in the regulatory environment, particularly those impacting the mortgage default industry; unexpected changes adversely affecting the businesses in which we are engaged; fluctuations in customer demand; our ability to manage growth and integrate acquisitions; intensity of competition from other providers in the industry; general economic conditions, including improvements in the economic environment that slows or reverses the growth in the number of mortgage defaults, particularly in the State of Florida; the ability to efficiently expand our operations to other states or to provide services we do not currently provide; the impact and cost of complying with applicable U.S. Securities and Exchange Commission (“SEC”) rules and regulations; geopolitical events and changes, as well as other relevant risks detailed in our filings with the SEC, including our Annual Report on Form 20-F for the period ended December 31, 2009, which are available at the SEC’s internet site (http://www.sec.gov). Forward-looking statements in this press release speak only as of the date of the press release, and we assume no obligation to update forward-looking statements or the reasons why actual results could differ.
Non-GAAP Financial Measures
The financial information and data contained in this press release are unaudited and do not conform to the SEC’s Regulation S-X. This press release includes certain estimated financial information and forecasts presented that are not derived in accordance with accounting principles generally accepted in the United States (“GAAP”), and which may be deemed to be non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. Management believes that the presentation of these non-GAAP financial measures serves to enhance the understanding of the Company’s financial performance. Such measures are not recognized terms under GAAP, and should be considered in addition to, and not as substitutes for, or superior to, operating income, cash flows, revenues, or other measures of financial performance prepared in accordance with GAAP. Such measures are not a completely representative measure of either the historical performance or, necessarily, the future potential of the Company.
The adjusted EBITDA measure presented consists of income (loss) from continuing operations before (a) interest expense; (b) income tax expense; (c) depreciation and amortization; and (d) income and/or expense items that are expected to be at different levels in future periods. We are providing adjusted EBITDA, a non-GAAP financial measure, along with GAAP measures, as a measure of profitability because adjusted EBITDA helps us to evaluate and compare our performance on a consistent basis with the operating cost structure in place as a publicly traded operating company, reflecting the effects of that cost structure and our current fee schedule. In the calculation of adjusted EBITDA for the three and six months ended June 30, 2009, we exclude from expenses the compensation paid to Mr. Stern that exceeded the base compensation that he was entitled to receive after we became a publicly traded operating company (and prior to September 1, 2010), because the Company no longer has any arrangement with Mr. Stern that would require any payments to him at a comparable level. Mr. Stern does not have an incentive plan arrangement providing for pay above base compensation. In addition, we excluded the payroll taxes associated with such compensation, as well as travel expenses incurred on behalf of Mr. Stern in prior periods that are no longer provided since we became a publicly traded operating company. The adjustment to Fee to Processing reflects the additional fees DJS Processing, LLC would have received under the Services Agreement if the fee schedule under the Services Agreement had been determined in a fashion consistent with the current fee schedule. In the calculation of adjusted EBITDA for the three and six months ended June 30, 2010, we included additional fees due to DJS Processing, LLC as a result of a retroactive amendment to the fee schedule for the Services Agreement agreed to by DJS Processing, LLC and DJSPA to increase the fees payable to DJS Processing, LLC effective January 1, 2010.
In the calculation of the adjusted net income measure presented for the three and six months ended June 30, 2010, we deducted the actual GAAP interest, depreciation and amortization for the period from the adjusted EBITDA calculation and then subtracted assumed income tax expense, calculated at the expected going forward tax rate of 38.6% on pre-tax income after minority interest. For periods prior to our becoming a publicly traded operating company, we were not subject to income tax and therefore did not record income tax expense. We are providing adjusted net income, a non-GAAP financial measure, along with GAAP measures, as a measure of profitability because adjusted net income helps us to evaluate and compare our past performance on a consistent basis with the taxable structure in place after our becoming a publicly traded operating company, reflecting the effects of that taxable structure on profitability. In the calculation of adjusted net income measure presented for the three and six months ended June 30, 2010, we deducted the actual GAAP interest, depreciation, amortization and income taxes for the period from the adjusted EBITDA calculation. The following table provides reconciliations of net income (GAAP) to Adjusted EBITDA (Non-GAAP) and adjusted net income (Non-GAAP).
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CONGRESS: It’s Not About Right and Left Anymore… It’s About Right and Wrong.
On Thursday afternoon, when Melissa Bean, a Democrat from Illinois, stood in the way of the Walt Street Reform and Consumer Protection Act, which was introduced on the floor of the House of Representatives just days before, frankly I was shocked. I expected this sort of thing from any one of the Republicans, but from a Democrat? And a woman, no less? Stunning, absolutely stunning.
Come to find out Friday afternoon that she and other “moderate democrats” (Read: “the banking lobby”) actually killed the proposed amendment that would have allowed judges to modify mortgages for homeowners in bankruptcy court.
In the end, 50 Democrats that voted for it the last time it passed the House, this time voted against it. From start to finished in something like 72 hours. And without a peep from homeowners in this country, of which more than 5 million have already lost homes to foreclosure, and with maybe 14 million coming in the next three years, according to Goldman Sachs’ forecasts.
But… I suppose it’s understandable… why would we possibly want judges to have a say? After all, lately we’ve all learned how FABULOUSLY well the banks are doing at modifying loans this year under Obama’s HAMP CRAP. Want the latest results from Treasury? Well, you’re getting them whether you want them or not:
1. Remember SAXON Mortgage Services? You know, the servicer that finished in 1st PLACE back in late July on those “Report Cards” that were going to shame these lying pieces of garbage into complying with the government contracts they signed? That Saxon… THE ONE THAT WAS WAY AHEAD OF WELLS FARGO AND BANK OF AMERICA?
Well, as of DECEMBER 10TH SAXON has issued 42 PERMANENT LOAN MODIFICATIONS out of 35,608 TRIAL MODS, FOR A WHOPPING .1%… THAT’S ONE TENTH OF ONE PERCENT. Woofrigginghoo!
And you want to know the really funny part of that statistic… I don’t even believe that they’re telling the whole truth. Would anyone like to bet against me saying that some of those 42 ended up with higher payments than before the modification, because if so… bring it. I’ll even give you odds, how’s 10:1? Anyone? Anyone? Come on, someone write in and put up a grand… I could use the extra Christmas cash.
Oh, and would you like to know how much money our government has offered the friendly folks over at SAXON in the way of INCENTIVE CASH for taking the trouble to modify a few mortgages they lied people into… $886,400,000.00. Yeah, you read that right… $886.4 MILLION. And I’m not going to say anything even remotely funny about that.
So, there’s our 1st PLACE winner… ready for our next contestant? Come on… this is fun, isn’t it? How about good old IndyMac/One West Bank… that’s got to be worth a few grins and giggles… I don’t know about you, but I’m having a great frigging time doing this, aren’t you?
2. IndyMac/One West Bank – Let’s see… Good old IndyMac has done 19,623 trial mods, but how many permanent mods? I’m going to need a calculator here, hang on… carry the 7… times 3… minus 14… I’ve got it… ZERO PERCENT! NONE. NOT A GODDAMN ONE! ZIPPO. NIL. SANS ANY.
Now, I bet you’re wondering how much incentive cash they’re in line for, aren’t you? Just on the edge of your seat over there? Well, I hope you’re sitting down, because the number is $814,240,000! That’s $814.2 MILLION DOLLARS. You do understand that’s just shy of a BILLION DOLLARS, right?
Would you like to know how much a BILLION really is? Well, try this for an example:
1 million seconds is 12 days.
1 billion seconds… is 32 YEARS!
Or how about this one…
A stack of $1 million is about two feet high.
A stack of $1 billion… is three times higher than the Washington Monument!
In other words… a billion is a whole lot. A whole frigging lot.
Yeah, why would we possibly need judges to help in this situation? I certainly can’t think of a reason. And you want to know something else… a lawyer asked me today why I do what I do. I should have said… “Well shut the front door… I don’t know. Just bored I guess. I didn’t really want to see my daughter grow up, so I figured I’d write about something seven days a week, and since no one else was saying a damn word about this, I figured the competition level was perfect for a remedial writer like myself.”
Look, I’ve got to be brutally honest here. I love having people read my articles and all, but not enough to be quiet about this. What the hell are you people doing out there? I’m thinking of going back to work and watching the country meltdown from a seat in the bleachers. Maybe start writing about something else, because obviously I’m not accomplishing anything here. Rents have dropped a lot in Hawaii, and I could do Hawaii full time. I play a mean ukulele, not sure if I ever mentioned that?
Democrats killed it in the House… dead in three days. The best chance to stabilize the U.S. housing market without costing taxpayers a dime. A chance to stop the tragedy that is the foreclosure crisis, a tragedy that is going to do nothing but grow in size and scope for years to come… a tragedy that’s tearing people’s lives apart… and the banks said no, so it’s no.
And we’re all just hunky-dory with that? I can’t believe it. Oh wait… I forgot… you’re busy. Not too busy to call and email me a couple of hundred times a week, I’ve noticed. People, this is not funny in the least.
And before I go on, let me get one thing out of the way: Melissa “The Banker” Bean, an obvious bought-and-paid-for sycophant, should be tossed out of office directly onto her ample buttocks come the midterm election. Period. We’re still experiencing the worst economic downturn since the Great Depression… a condition unquestionably caused by the unbridled greed and unchecked power of Wall Street’s bankers. And she is clearly some banker’s betch, to use a word my 14 year old daughter and friends taught me.
Think I’m guessing about this? Well, I’m not. I looked up Ms. Bean… it was easy, like falling off a blog. Melissa received at least $515,438 from banks and other financial institutions, including most notably JPMorgan Chase, Morgan Stanley and Bank of America. That’s a half a million dollars plus from the people who don’t want anyone telling them what to do, or what they can’t do.
Of course, checking the Treasury report on servicer performance, I do see that Chase has done quite a bit better in the modification department than either Saxon or IndyMac. Chase has permanently modified a whopping 3% of its trial modifications. Of course, before you get too excited, Chase has only offered trial modifications to 32% of its eligible mortgages, so I guess we better say the jury’s still out. I wouldn’t want to jump to any conclusions and give them a pat on the back for that 3% prematurely.
Anyone feel like betting against some of those 3% ending up with higher payments than before the modification in Chase’s three percent pool of permanent mods? Come on… you guys are not fun. Okay, forget the 10:1… I’ll go 100:1 on Chase’s mods. Step right up… No limits… I’m covering all takers.
Are you frigging kidding me?
Guys… look. I don’t mean to beat up on you… I know how hard this whole thing is… believe me, I do. But this is not the same country I grew up loving if all this sits just fine with everyone. We can’t just sit around wondering who’s likely to win on American Idol, as we wait for the moving truck. Because if we do, that truck is coming… sure as I’m writing this… it’s coming.
And what about all the lawyers I know are reading this? You guys became lawyers for more than one reason, I’m sure. Wasn’t any part of your motivation because you believed in the fairness that’s supposed to be inherent to our system of government… a “representative democracy”? Could you really sit this one out? Are you imagining that you’re immune from losing a house to foreclosure? Because you’re not, you know. No one is.
I’m 48 years old. I’ve owned my own firm for better than twenty years now. I’ve enjoyed a very successful career. I’m fairly enterprising, and I’m wicked smart… and I could lose my house, so don’t kid yourself… you absolutely could lose yours too.
I’m learning a lot this year about politics in this country. I’ve learned that we have more power than we think we do.
Did you see the latest news about Goldman Sachs and the $16.7 billion in bonuses they had been planning to give out this year? Well, they’re still giving the bonuses, but not in cash… stock options instead. Why do you suppose that is? It’s because our representatives have been flooded with letters and calls all year long related to the egregious bonuses at Goldman, AIG and the numerous others. And the political pressure in a midterm election is intense. Congress doesn’t want to go home to campaign and find people standing around holding pitchforks and torches.
We can do the same thing for our cause, you know. We really can. My “A Hundred Thousand Homeowners” project is one such initiative, and there are others I’m working on, as well.
I’ve realized for some time that we live in a politically divided nation, but I was thinking that the divide was between Democrats and Republicans… the “left” and the “right”. Apparently, I was wrong… today we’re actually divided between the Banker Party and the Common Sense Party…. Something like that anyway, it needs work.
Members of the Banker Party think banks are awesome in every way. They never do anything the banks don’t like. Members of the Common Sense Party understand that foreclosures must be stopped, and they think that causing the most severe economic recession since the Great Depression requires some level of new oversight to ensure the same thing doesn’t happen again five years from now. And they’re willing to stand up and fight, before their country disappears before their own tearful eyes.
THIS ISN’T ABOUT RIGHT & LEFT. IT’S ABOUT RIGHT & WRONG.
And in case you’re waiting for “it” to come back… “it’s” not coming back. Or rather… it will be back, just like the technology IPO market will come back too. But, it could easily be a decade before we see any sort of return to prosperity… and it could also be quite a bit longer than that. Here’s one of the most telling statements I’ve seen in a while on this point. It’s from the Congressional Oversight Panel’s December 2009 Report: “Taking Stock… What Has the TARP Achieved?” They wrote:
“It is apparent that after 14 months, that significant underlying weaknesses in the financial system remains.”
We don’t have another 14 months to play around and let the banks destroy our way of life, which they most certainly will do. Here’s another link to my favorite article on the topic. It’s written by Simon Johnson, who in addition to have served as the Chief Economist for the International Monetary Fund (“IMF”), is now a professor at MIT. Here’s his article about what’s happened in this country, which was published in The Atlantic last May.
And here’s one from Rolling Stone from yesterday. You should definitely read this one: President Obama’s Big Sell Out – Rolling Stone.
In Conclusion, don’t worry… I won’t quit if you won’t…
Pastor Martin Niemöller (1892–1984) wrote a very famous poem that, being Jewish, I’ve known since I was a little boy. He wrote it in reference to the inactivity and apathy of German intellectuals following the Nazi rise to power and the purging of their chosen targets, group after group after group.
Niemöller was an anti-Communist and as a result, supported Hitler’s rise to power in the beginning, but he soon after became the leader of a group of German clergymen opposed to Hitler. Hitler hated Niemöller and in 1937 had him arrested and sent to the Sachsenhausen and Dachau concentration camps. His widely known and frequently quoted poem is a popular model for describing the dangers of political apathy.
First they came for the communists, and I did not speak out—because I was not a communist;
Then they came for the trade unionists, and I did not speak out—because I was not a trade unionist;
Then they came for the Jews, and I did not speak out—because I was not a Jew;
Then they came for the Catholics, and I did not speak out—because I was a Protestant;
Then they came for me—and there was no one left to speak out for me.
Speaking out on subjects that matter. That’s what Mandelman Matters is all about. But click that last link and you find my T’was the Night Before Christmas – 2009, Political Year In Review.
Better Astroturfing through Craigslist; Update: Soros pours another $5 million into fake grass-roots
Loan Servicer Tactics… Foreclose don’t modify; lie, deceive, whatever it takes
As a citizen, please start asking tougher questions and demanding truthful answers of your elected officials. We MUST hold these men and women accountable to representing ‘we the people’ instead of their lobby pals.
Whatever you hear from the Administration or any of the large institutions via the drive-by media you can assume that it’s a lie or many shades of gray with dash or two of spin. Why? Well, of course, the truth is not going to get votes for politicians or more investors and account holders for any of these characters who operate in the shadows of financial institution corporate offices across America.
Let me give you a dose of truth serum in case you’re tempted to believe the drive by media reports on the foreclosures and the Making Home Affordable plan we’ve been told is going to rescue our economy and the housing market and the millions of families jobless and now facing foreclosure. You ready?
Here it is: the loan servicers don’t care about anything but money and the modus operandi is clear… foreclose as fast as possible on everyone in a mortgage hardship. Just modify enough loans to make everyone think we’re really on board with this. Make excuses for everything else. Lie to media about what’s really going on because mostly everyone believes what they hear anyway.
A deeper look into the numbers and statistics will leave you scratching your head though – and asking yourself the question, “but why?”
According to an article by Gretchen Morgenson from the New York Times, “Alan M. White, an assistant professor at the Valparaiso University law school in Indiana, analyzed data on 3.5 million subprime and alt-A mortgages in securitization pools overseen by Wells Fargo. The loans were written in 2005 through 2007; data on their performance is provided to the trusts’ investors. Mortgages handled by five of the nation’s largest loan servicing companies — Bank of America, Chase Home Finance and Litton Loan Servicing among them — are contained in the Wells Fargo data.
Mr. White found that mortgage modifications peaked in February and have declined in all but one month since. While servicers modified 23,749 loans in these trusts in February, they changed only 19,041 in May and 18,179 in June. This is exactly when servicers were supposed to be responding to the government’s loan modification urgings.
Foreclosures, meanwhile, keep rising. In June, 281,560 were in process, slightly above the 277,847 in May. Last January, there were about 242,000 foreclosures in the pipeline among the Wells Fargo trusts.”
Well, isn’t that interesting. You see, the numbers simply don’t lie. They tell the truth and expose the raw data of what is really happening. The report continues, “the most fascinating, and frightening, figures in the data detail how much money is lost when foreclosed homes are sold. In June, the data show almost 32,000 liquidation sales; the average loss on those was 64.7 percent of the original loan balance.”
Did you catch that? The AVERAGE loss on a house that a servicers takes to foreclosure sale is a whopping 64.7% of the original loan balance!!!! The average loan amount was $223,000. But in the liquidation sale, the property sold for $144,000 less, or a $79,000 sales price on average.
So any logical person goes, “why? Why would a servicer foreclose on the home instead of providing a loan modification for a homeowner who wants to pay but just needs a reduction in that payment?” I know I can’t be the only one who’s wondered that…
If you want to find the answer you just gotta follow the money… it’s that simple. And the answer does not shed any more favorable light on these servicers – who, by the way, are just subsidiaries of the main financial institutions. Example: Citimortgage is the servicer. They are owned by Citigroup. America’s Servicing Company is the servicer. They are owned by Wells Fargo.
So back to following the money. First, the pooling and servicing agreements governing these trusts, servicers and trustees usually contain “default servicing provisions” which provide the servicer which much higher fees when the loan goes into default. Then the servicer also gets all sorts of other fees reimbursed to them upon a liquidation sale such as BPO fees, inspection fees, legal fees, etc. These fees may get paid to the servicer right away but may not be reimbursed until the sale goes through. But, here’s the BIG reason…
Very often, if not most of the times, these servicers were paid in full for all these loans when they acted as the sponsor and sold the Notes (assets) to these trusts. The trust investors put up a lump sum amount to the servicer and the servicer agreed to collect the monies, manage the escrow accounts and in turn, made a guarantee of cash flow payments to the trust each month. The trust investors are most worried about one thing… their monthly payment on the cash flow. If they keep getting their monthly cash payment, do you think they’re going to be screaming bloody murder? Probably not. As long as the check keeps coming, I got no qualms. Stop the checks and I’m going to be gettin’ all in your business. Think about it… haven’t you noticed a peculiar lack of lawsuits being filed by MBS trust investors or the trusts themselves? One would think the federal courts would be littered with lawsuits by these trusts against all the institutions in the securitization chain for all sorts of allegations regarding the massive losses you’d think they’re realizing due to the defaults.
So, to keep the investors out of their “business” the servicer has to figure out a way to keep those cash flow payments going. Well, let’s say I’m servicing a pool of 1000 loans and the monthly cash flow on that pool is $1 million (or $1000 per loan average). But my default rate starts rising and now 10% of these loans are not paying. Well, that’s $100,000 per month less that I’m getting as the servicer. Shoot, how do I keep making the payment of $1 million per month if I’m only receiving $900,000?
Oh, I got it! If I can foreclose on a couple homes in default, take a 64.7% loss on it but I still get $79,000 in one lump sum from each home I liquidate, I can keep making that cash payment to the trust. All I need to do is liquidate about 1.2 homes per month on average, and, even though I take a huge loss on these homes, I can keep making that cash flow payment to the trust, keep my investors happy and better yet, keep them out of my business and away from asking all sorts of questions I really don’t want to answer. Note: this game can only carry on for so long. At some point the pied piper is going to pipe…
This my best stab at a simplified answer to “why” these servicers are ignoring the Making Home Affordable program and foreclosing as fast as they possibly can. Nothing else makes sense to me. If you have any other input, I’d love to hear about in the forum on this topic.
The kicker here is that these servicers don’t have legal standing to foreclose. They don’t own the Note in 80%+ of the cases – and that number is probably higher than 90% of the time. So they unlawfully seize a family’s home, sell it even though they don’t own it and in the process they also violate the servicing agreements they are governed by. These agreements mandate that the servicer act in a fiduciary manner with respect to the interests of the investors. I can tell you unequivocally that taking an average 64.7% loss on a trust asset is worse for the trust versus modifying the loan at a higher amount (still with principal reduction for the borrower) and recapturing the interest. There is NO WAY the current servicer model of foreclose and liquidate passes the NPV test for these trust assets – at least as far as I can see.
For reference and further context, here is the article written by Gretchen Morgenson at the New York Times.
So Many Foreclosures, So Little Logic
By GRETCHEN MORGENSON
LAST week, the stock market tumbled on news that housing foreclosures and delinquencies rose again in the first quarter. The Office of the Comptroller of the Currency said that among the 34 million loans it tracks, foreclosures in progress rose 22 percent, to 844,389. That figure was 73 percent higher than in the same period last year.
But the comptroller’s office also said that amid the gloom, there was promising data about loan modifications: they rose 55 percent in the quarter. That growth came on a very low base, of course, but the move encouraged John C. Dugan, head of the comptroller’s office.
“As the administration’s ‘Making Home Affordable’ program gains traction and helps offset the impact of this very difficult economic cycle,” he said in a statement, “we should continue to see progress in future reports.”
A glimpse of second-quarter mortgage data, however, indicates that the progress Mr. Dugan and his colleagues in Washington are hoping for may take longer to emerge — raising questions about whether policymakers and banks are moving quickly or intelligently enough on the foreclosure problem.
Foreclosures remain one of the great financial ills for the economy. The Bush administration largely overlooked foreclosures affecting average homeowners, focusing instead on propping up elite, troubled financial institutions with taxpayer funds. The Obama administration has said it wants to wrestle the foreclosure issue to the ground by encouraging mortgage loan modifications, but its efforts have gotten little traction.
Loan modifications occur when a lender agrees to change terms of a troubled borrower’s mortgage; the most common approach is to reduce the loan’s interest rate. Cutting the amount of principal owed — an option that could be of more help to a borrower — is rare because it means homeowners pay less money back to the bank over time.
Lenders and their representatives, however, don’t like to modify loans through interest rate cuts or principal reductions because, of course, it reduces the income they receive from borrowers. No surprise, then, that loan modifications have been a trickle amid the recent foreclosure flood.
Enter the government, with the program it announced in March to encourage modifications. It offers incentives to loan servicers to change mortgage terms, providing $1,000 for each loan they modify. The program focuses on making payments more affordable through lower interest rates, but delinquent amounts and late fees are typically tacked onto the mortgage balance. “Making Home Affordable” does not compel lenders to reduce mortgage balances.
Servicers signed on to the program in April. The program’s early months were not covered by the O.C.C.’s first-quarter report. But other figures on modifications conducted in April, May and June are available. And they show a decline in modifications, not an increase as the government hoped.
Alan M. White, an assistant professor at the Valparaiso University law school in Indiana, analyzed data on 3.5 million subprime and alt-A mortgages in securitization pools overseen by Wells Fargo. The loans were written in 2005 through 2007; data on their performance is provided to the trusts’ investors. Mortgages handled by five of the nation’s largest loan servicing companies — Bank of America, Chase Home Finance and Litton Loan Servicing among them — are contained in the Wells Fargo data.
Mr. White found that mortgage modifications peaked in February and have declined in all but one month since. While servicers modified 23,749 loans in these trusts in February, they changed only 19,041 in May and 18,179 in June. This is exactly when servicers were supposed to be responding to the government’s loan modification urgings.
Foreclosures, meanwhile, keep rising. In June, 281,560 were in process, slightly above the 277,847 in May. Last January, there were about 242,000 foreclosures in the pipeline among the Wells Fargo trusts.
“I was hoping we would see some impact in June of the government’s program,” Mr. White said. “Is ‘Home Affordable’ working? My short answer is no.”
To be sure, the government’s data differs from that which Mr. White analyzed, and its loan modification figures for the second quarter may look better as a result. The O.C.C. includes prime loans as well as subprime, for example, while the Wells Fargo data contains no prime loans.
Nevertheless, Mr. White has collected the figures since November 2008, and he said that in the months since, the performance of the 3.5 million mortgages that he analyzes tracked the O.C.C. data pretty closely.
THE Wells Fargo data is illuminating. It shows that in June, 58 percent of modifications cut the payments that the borrower has to pay, a slightly smaller percentage than in April or May. The average reduction in June was $173 a month.
But the most fascinating, and frightening, figures in the data detail how much money is lost when foreclosed homes are sold. In June, the data show almost 32,000 liquidation sales; the average loss on those was 64.7 percent of the original loan balance.
Here are the numbers: the average loan balance began at almost $223,000. But in the liquidation sale, the property sold for $144,000 less, on average. Perhaps no other single figure shows how wildly the mortgage mania pumped up home prices. It also bodes poorly for the quality of the mortgage-related assets lurking in banks’ books.
Loss severities, like foreclosures, are rising. In November, losses averaged 56.1 percent of the original loan balance; in February, 63.3 percent.
Given losses like these, Mr. White said he was perplexed that lenders and their representatives were resisting reducing principal when they modify loans. His data shows how rare it is for lenders to reduce principal. In June, for example, 3,135 loans — just 17.2 percent of the total modified — involved write-downs of principal, interest or fees. The total loss from these write-downs was just $45 million in June.
And yet, the losses incurred in foreclosure sales involving loans in the securitization trusts were a staggering $4.59 billion in June. “There is 100 times as much money lost in foreclosure sales as there was in writing down balances in modifications,” Mr. White said. “That is not rational economic behavior.”
If banks have written down the value of these loans to the 40 cents on the dollar that they are fetching on foreclosures — the only true value for these homes right now — then why don’t they bite the bullet and reduce the loan amount outstanding for the troubled borrowers? That type of modification would be far more likely to succeed than larding a borrower who is hopelessly underwater with yet more arrears.
“You can reduce payments with a lot of gimmicks similar to those built into subprime loans — temporary rate reductions that defer a lot of principal, balloon payments,” Mr. White said. “To me that leads to a situation where American homeowners are paying 50 to 60 percent of their incomes for mortgages which reset in 2011 and 2012. That is not solving the problem.”
Certainly not for borrowers, that is. And because many of these losses will ultimately be passed on to taxpayers, it’s not solving our problem, either.
More failure – Obama’s plan to help homeowners is struggling
Lies, lies and more lies. I mean, this now the new norm. Can anyone in this administration actually tell the truth or pay their taxes?
The story below from Zach Carter at salon.com is all too familiar for me. I’ve been saying this since mid-2008 and I just told our local Ft. Myers News Press this a couple weeks ago. Click Here to read that post…
Namely, that what the media is widely reporting on the loan modifcations and HAMP program, at least until recently has been a lie by the government and the institutions like Citi, Wells, Chase, Bank of America, ASC, Aurora Loan Services, and the list goes on and on. The lie the Obama Administration has been feeding is how much they are doing for you, Mr. and Mrs. Homeowner in distress. How much Making Home Affordable program is helping folks like you. They’ve thrown out numbers like 3-5 million homeowners are being helped by this program. Blah blah.
All I can say is that is unequivocally a lie. Here’s the number of homeowners HAMP has helped to date… you ready? 235,247 – No, we’re not missing a digit.
I have about 10 clients who are 10 of those 235,247. But folks this is joke. Dealing with the servicers is like dealing with a crack addict. Nothing they say can be trusted and they’ll do anything to squeeze another $100 out of you if they can. They’re unscrupulous debt collectors – the whole lot. Oh, but the government put them in charge of policing themselves and all the tax payer dollars going to them through the HAMP program. Looks like the Chicago mafia is running the country…
Let me give you some input that no one in this administration would ever give… “You’re best bet is to find all the TILA violations, the RESPA violations, the Servicing violations and anything else you can find and even the playing field.” The servicers and institutions only know how to play dirty and you better man up if you don’t want them to clean your clock. Reference the stories below for more…
If you’re one of the lucky few who qualify for a TILA Mortgage Rescission you’ll really have them. Remember: valid TILA mortgage rescission is a COMPLETE defense to foreclosure. When you have the valid legal right to rescind and do so, the security instrument (mortgage) becomes VOID by operation of law. The mortgage (or trust deed) is the security instrument and the only thing that gives the real party in interest the legal right to foreclose. When that instrument is voided automatically upon lawful rescission, they real party in interest, the servicer or anyone else claiming a right have no legal standing to foreclose anymore.
Here’s the story from salon.com…
David and Marilyn Baldwin live in the same modest house in rural Pennsylvania where David grew up. David’s brother lives in a house behind them, while his cousin owns a farm visible from the couple’s front door. They’ve lived there for 25 years, but when I went to interview them in April, they were on the verge of losing their home.
A battle with congestive heart failure and diabetes forced David to leave his job as a car salesman in August of 2007. He and Marilyn — both in their early 60s — tried to keep up on their mortgage as best they could until David’s disability payments started arriving in April of 2008. But once they started receiving the checks, it became clear their existing mortgage was now beyond their means.
“We didn’t think that Dave was going to be at a point where he’d have to be on disability,” Marilyn said. “We always paid it before, we just can’t do it now.”
In February of 2009, newly inaugurated President Obama unveiled a foreclosure prevention program called Making Home Affordable, promising to keep “up to 3 to 4 million” borrowers from losing their homes. But like a similar initiative adopted under the Bush administration, the Obama plan is flawed because it relies on the housing industry itself — namely the industry’s debt collectors, known as mortgage servicers — to fix the problem. And like the Bush plan, it isn’t working especially well, as the Obama administration’s own numbers now show. While 1.5 million homes have gone into foreclosure in 2009 as of June 30, just 235,247 borrowers have been granted trial loan modifications under the Obama plan since its inception, according to an Aug. 4 U.S. Treasury Department report.
Helping homeowners is not what mortgage servicers do. Making Home Affordable asks mortgage servicers to identify troubled borrowers and fast-track them to relief. But servicers specialize in squeezing borrowers for money, and have never been interested in devising long-term solutions for people in trouble. The poorly paid individuals, some of them offshore, that they hire to contact homeowners are not trained to renegotiate loans. Obama’s program, like the Bush plan, is strictly voluntary — if servicers don’t want to participate, they don’t have to. As in the Bush plan, servicers who do participate face no penalties for failing to assist qualified borrowers, and no government agency is policing servicers to make sure they live up to the terms of the contract. Meanwhile, they actually benefit from letting homes fall into foreclosure, because foreclosure means they are guaranteed an upfront payment from the sale of the home.
“Nothing has changed,” says Daniel Lindsey, an attorney with Legal Assistance Foundation of Metropolitan Chicago who heads the group’s home ownership preservation effort.
The Baldwins’ loan is handled by CitiMortgage, a mortgage servicer owned by Citigroup Inc., the foundering finance behemoth that has received $45 billion in direct bailout funds from the U.S. government and hundreds of billions in federal guarantees. As a condition for taxpayer support, Citi agreed to implement a major borrower relief effort, and was one of the first companies to adopt Obama’s anti-foreclosure plan when it was unveiled earlier this year.
In April of 2008, when the Baldwins realized they were in serious financial trouble, Citi was signed on to the Bush administration’s private-sector mortgage fix-it plan, Hope Now. Hope Now was a coalition of banks organized by then-Treasury Secretary Henry Paulson. Members of Hope Now held several splashy press conferences in late 2007 and early 2008 encouraging people who were having trouble paying their mortgages to contact their loan servicers and work out a new arrangement.
But there wasn’t much more to Hope Now than press conferences. The government’s role was that of a cheerleader, encouraging servicers to help borrowers, but providing no guarantees or penalties. The data for the program — the stats on the number of loans modified — was even collected by the Financial Services Roundtable, a lobby group for the banking industry that pushed hard against multiple congressional efforts to reduce foreclosures. (The data collected by the Financial Services Roundtable gives Hope Now credit for loan modifications from July 2007, even though the program wasn’t announced until Oct. 10, 2007.) Servicers were free to do what they wanted with troubled borrowers, and usually, that meant foreclosure.
But in April 2008 David and Marilyn Baldwin did what Hope Now encouraged them to do and contacted their loan servicer. David had earned about $50,000 a year when he was working, but only receives $1,800 a month on disability. Marilyn takes home $1,000 a month driving a van for the local public school district, putting their $2,250 monthly mortgage payment well out of reach
Citi wasn’t interested in helping.
“They told me flat-out, they wouldn’t accept any partial payments,” David said. “To put it plainly, they’ve been jerking me around ever since.”
Over the next several months, Citi alternately cut off contact with the Baldwins for weeks on end, and made threatening phone calls to demand money. The company repeatedly insisted that the Baldwins would lose their house if they didn’t pay up everything they owed in full, immediately. Sometimes the bank would make vague promises of debt relief, but always refused to put any agreement in writing, or even specify the terms of a solution over the phone. The mantra was always the same: Send us the full payment, and send it now.
“This woman told me, ‘If you can’t send me this money and we can’t arrange this right now, then we can’t help you. Don’t bother calling me anymore,’” David said.
Hope Now bragged about helping 1 million families avoid foreclosure in 2008 by modifying their loans, at least according to the figures assembled by the Financial Services Roundtable. That’s more than the Obama plan has modified — but the Hope Now modifications were apparently crap.
Economists at the Boston Federal Reserve published a paper last month indicating that only 8.5 percent of seriously delinquent borrowers received any kind of loan modification in 2007 and 2008, while only 3 percent received a loan modification that actually reduced their monthly payment. A lot of this so-called help actually drove borrowers deeper into debt and increased their monthly bills. Instead of cutting the interest rate or the loan principal — that is, the total amount the borrower owes — servicers would add missed payments and penalty fees to the principal, resulting in more overall debt and higher monthly bills for borrowers. According to an analysis by the Center for Responsible Lending, an advocacy group that promotes fair lending practices, less than 20 percent of the loan modifications reported by Hope Now actually reduced borrowers’ monthly payments.
When David and Marilyn felt like they had reached a dead end with CitiMortgage, the couple got in touch with the National Community Reinvestment Coalition (NCRC), a nationwide borrower advocacy group that helped the couple consider their legal options and fend off foreclosure proceedings for nearly a year, until the Obama plan, Making Home Affordable, took effect in 2009.
Servicers participating in Making Home Affordable are supposed to determine if a troubled borrower meets a set of minimum criteria for relief, and then immediately reduce her monthly payment to 31 percent of her monthly income. If she can make the reduced payment for three months, it becomes permanent and she keeps the house.
Under the Obama plan, unlike the Bush plan, servicers don’t get to pick and choose who gets offered relief, or the terms of the relief. If a borrower meets the standards, she has to be enrolled in the program. The criteria are straightforward: The borrower has to live in her home and must actually be having trouble paying off her mortgage. Modifying the loan to the program’s standards must be cheaper for investors than foreclosure. The program provides servicers with two incentives to make modifications. If the servicer will reduce the borrower’s payment to 38 percent of her monthly income, the government will fund the reduction to 31 percent. Taxpayers are also paying servicers $1,000 for every mortgage modified under the plan.
“There’s more meat on the bone, but it’s in the form of sweeteners and encouragement,” says NCRC president John Taylor. “It’s all carrot and no stick.”
Borrowers and housing counselors who have been through the plan report intense and prolonged difficulties from working with servicers, and routine violations of the plan’s rules. Servicers frequently demand that borrowers waive their legal rights to challenge servicer actions in court in exchange for an Obama plan modification, attempt to steer borrowers into modifications much less helpful than the Obama plan modification, mislead borrowers about the terms of the Obama plan and refuse to enroll qualified borrowers in the program. The program provides no penalties for failure to follow through.
In other words, that means that for a homeowner who needs a loan modification, dealing with mortgage servicers is little different in 2009 than it was in 2008. It’s still a version of call center hell.
Talking to a mortgage servicer is like haggling with the phone company — except over hundreds of thousands of dollars, your credit rating and your future financial security. When you call a servicer, you’re first treated to an electronic call management system. A digital voice warns you that you are talking to a debt collection service and any information you offer will be used for those purposes. The voice then asks you for information about your loan, your house and yourself. Once this is over, you listen to hold music while you wait for an actual person to answer the phone. Depending on the servicer and the time of day, it can take 15 minutes just to get through to an actual human being.
When and if the caller does get through to a live person, many borrowers are simply told they cannot be helped and need to send in payments. But some borrowers get placed on hold and referred to another person in another department and another expert. This can happen several times before you speak to someone with the corporate authority to actually help you. Sometimes calls dead-end in an answering machine. Servicer employees often take down borrower information and take weeks to get back to them. And servicers rarely assign specific people to handle individual borrower cases, so every time a borrower calls, they’re subjected to the same bureaucratic mess.
Should the caller ever have a substantive conversation with an employee at the call center, however, the person on the other end of the line is not a mortgage expert, but simply a poorly paid, hourly employee whose prime directive is debt collection. “Most loan servicing personnel are poorly paid debt collectors, not credit analysts,” says Raj Date, a former executive with Capital One Financial who now heads the Cambridge Winter Center for Financial Institutions Policy. “It’s just not a skill set that is at all aligned with what they’re trying to get done here.
This is all part of the servicer business model. Servicers aren’t banks, although they’re often owned by banks. They don’t make mortgages or buy the crazy securities mortgages are packaged into. Since they communicate directly with borrowers, servicers are usually described as a customer service business, but the truth is, they’re more like specialized investment speculators. Servicers bid on contracts called mortgage servicing rights, which can be bought and sold. These contracts give the owner the right to collect payments from borrowers and skim a little off the top before forwarding the money to the investors who purchased the mortgages. If a borrower gets into trouble, the servicer is responsible for limiting any losses for investors, but the key to the servicer business is figuring out which pools of mortgages to bid on, and making the right bid. Working with troubled borrowers to avoid foreclosures is a secondary concern.
“Servicers’ contribution to corporate profits is often more tied to their ability to keep operating costs low than their ability to reduce losses,” wrote mortgage consultant and Louisiana State University finance professor Joseph Mason in a paper published in March.
Labor expenses are kept to an absolute minimum, which means fewer people answering the phones, and less expertise. The people answering the phones can be making as little as $8 an hour.
Different servicers have different standards. Christopher Orlando, a spokesman for Carrington Mortgage Services, an independent servicer who specializes in subprime loans, insists that his company has faster response times and higher staffing levels than most prime servicers, because they set up their business to be involved with customers who are more likely to have trouble paying their loans.
“We are structured for more active and regular communications with our customers, which made us well-equipped to manage the current crisis,” says Orlando. According to Treasury data, Carrington has agreed to modify 597 mortgages under the Obama plan guidelines, about 4 percent of the loans the company services that Treasury believes are eligible for the plan.
Most subprime servicers are better known for boosting their bottom line at any cost. Before subprime specialist IndyMac failed in the summer of 2008, the company had spent years outsourcing much of its servicing operations, including customer calls, to India. And many of the prime servicers Orlando references service a lot of subprime loans. The Baldwins received their loan from subprime lender Ameriquest, and the loan was sold multiple times before CitiMortgage began handling it.
When Christopher and Crystal Nndouechi of Jacksonville, Fla., heard about the Making Home Affordable plan, they’d been stuck in the Hope Now impasse for months. The couple — both teachers — had stable jobs, but their mortgage had an adjustable interest rate that reset in May of 2008, resulting in dramatically higher monthly payments.
The Nndouechis’ loan is serviced by Countrywide, a major subprime servicer whose parent company, Bank of America, has received $45 billion in government bailout funds, plus hundreds of billions in federal guarantees. Like Citi, Bank of America agreed to adopt a rigorous anti-foreclosure plan as a condition for taxpayer support, and was among the first servicers to agree to the Obama plan. According to the Treasury, the company has agreed to just 27,985 trial modifications under the program, roughly 4 percent of the seriously delinquent mortgages the company services that Treasury thinks are eligible. Bank of America did not return multiple calls for comment for this story.
When the couple called Countrywide about the Obama plan, the company told them they were not eligible. So the Nndouechis’ NCRC representative went to bat for them, but Countrywide again insisted that nothing could be done. When NCRC enlisted a lawyer to fight on the Nndouechis’ behalf, Countrywide finally acknowledged that the family did in fact qualify for the Obama plan.
“I thought if we went to Countrywide in good faith, I thought they would do what they could,” Christopher said. “But it wasn’t like that. The NCRC attorney went through this intense negotiation. They were even trying to give him the runaround.”
But just one week after agreeing to enroll Christopher and Crystal in the Obama program, Countrywide told the couple that, while they were in fact eligible for the plan, company guidelines barred the NCRC lawyer from representing the Nndouechis in negotiations. As a result, Countrywide was going to deny them relief — even though the family actually qualified.
This aggression is deeply ingrained in the culture of mortgage servicers. And ultimately, it’s probably not something that would be cured by retraining or upgrading the industry’s call center employees.
Most of the mortgages that servicers handle are owned by Wall Street hedge funds and major banks. “Wall Street made a ton of money on securitized mortgages,” says Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, an economic advocacy group based in New York City. “The servicers that got the big contracts were those that would collect most aggressively. So it wasn’t in their culture to work with a borrower and try to find something that was in their interest. They would just move as aggressively as possible.”
If the servicers could not collect, they would still win — by foreclosing. When borrowers stop making payments, the servicer is required to advance the interest payments to investors out of its own pocket. Once the servicer forecloses, it gets to recoup those payments from the sale of the home. But if the servicer works out a loan modification, it doesn’t get to recoup its out-of-pocket advances until the borrower actually pays them back, which can take a very long time, particularly if the borrower his missed several payment
“The investor losses may be very large, but the servicer will almost always benefit by completing a foreclosure sale,” wrote Valparaiso University Law School professor Alan White in a paper published in January.
So servicers opt to stonewall borrowers and foreclose on them, even when doing so sacks investors with massive losses. In March of this year, with the Baldwins scheduled to lose their home to foreclosure on April 16, Citi told the family they were prequalified for a new aid program. The company said it would postpone the foreclosure on their home until June 16 while their house was reappraised, but only if the family made a full $2,250 payment. Once again, Citi refused to detail the terms of any future relief, so the Baldwins took the NCRC’s advice and declined to pay. The very next day, their local paper featured a notice informing the entire town that their home would be foreclosed on in mid-April. When I interviewed the family on April 5, no appraiser had come by to evaluate their home after an entire month, and Citi had dropped out of contact.
“We’re hoping that nobody comes and puts locks on our doors on April 16,” Marilyn said. “They won’t eve let you come and take any of your belongings after that.”
When I called Citi for comment, a spokesman told me that the company helped four out of five distressed borrowers it serviced in 2008, and claimed Citi’s “loss mitigation successes” outnumbered foreclosures by more than 10-to-1 in the first three months of 2009. According to the Treasury, CitiMortgage has implemented 27,571 modifications under the Obama plan, about 15 percent of the number of seriously delinquent mortgages the company services that Treasury thinks are eligible.
When I contacted the Treasury Department for a comment on the success or failure of Making Home Affordable, a spokesperson directed me to the Aug. 4 report and accompanying press release, but declined to comment further. The press release claims the program is meeting Treasury’s expectations. “This pace of modifications puts the program on track to offer assistance to up to 3 to 4 million homeowners over the next three years,” Treasury says.
In the meantime, the foreclosure situation is growing increasingly bleak, pushing the entire U.S. economy deeper into recession. The foreclosure proceedings initiated on more than 1.5 million homes between Jan. 1 and June 30, 2009, represents a 15 percent increase from 2008, itself a dismal year for foreclosures. The Center for Responsible Lending estimates that 2.4 million homes will be lost to foreclosure in 2009, and 9 million by the end of 2012.
The numbers indicate that the modification program is not keeping pace with foreclosures, and that while the rate of modifications ticked up as soon as Obama took office, it has fallen since. In addition to the Treasury Department’s figures, Alan White has been tracking a database of 3.5 million subprime and Alt-A mortgages since late 2008. In November, the Valparaiso professor found that servicers modified just 21,219 mortgages, while 233,000 homes were in the foreclosure process. The Obama plan has not altered those numbers significantly. In 2009, modifications peaked at 23,749 in the month of February. In June, there were just 18,179 modifications, compared to 281,560 homes in foreclosure.
Ultimately, what is most disturbing about the Baldwin and the Nndouechi cases is the fact that both are actually success stories. Countrywide eventually sent the Nndouechis paperwork for their Making Home Affordable modification. In late May, after more than a year of talks with CitiMortgage, the Baldwins were finally approved for the plan — and given less than 24 hours to mail in their payment or be foreclosed on. This, incidentally, also violates the Obama plan. While servicers are processing a Making Home Affordable application, they have to suspend any foreclosure proceedings. The eventual enrollment of both families, of course, underscores the absurdity of the delays and diversions Citi and Countrywide deployed to deny them access. But more important, neither family would have made it through the process on their own. Even with intensive and prolonged legal assistance from a borrower advocacy group, getting relief was a tremendous struggle, making it easy to see why both Hope Now and the Obama plan have proved so disappointing.
“Everyone out there says, ‘Call your lender!,’” says Paula Sherman, a foreclosure prevention counselor with Virginia-based nonprofit Housing Opportunities Made Equal (HOME). “But for the average borrower doing this themselves, it’s impossible. They just don’t get the help they’re promised.”
– By Zach Carter
The Sisyphean Housing Problem
“The Obama administration’s housing program, unveiled in February, was meant to stem the pace of foreclosures. But the reality is turning out to be more Sisyphean. There were more than 1.5 million foreclosures filed in the first half of the year, according to RealtyTrac and there may be close to as many as that in the second half, more than three times the normal average. “
