I am officially proclaiming the Homeowner’s Bill of Rights in California to be DOA – Dead on Arrival.  And… good.  I’m glad it didn’t take until June.

In fact, if it wouldn’t be too much to ask, banking lobby… just hang out in Sacramento another week or so and dispatch whatever other bills remain in the California legislature as early as possible… start the recess early this year!

The Big Banks and the FHFA’s Ed DeMarco brought their considerable political muscle to the job of killing the Homeowner Bill of Rights in California, and although technically there’s still some voting to do… trust me… that’s all she wrote.

This makes the third year in a row that the banking lobby has said a resounding no to any sort of change that’s supposed to protect homeowners from abusive foreclosure practices.  Why do we keep doing this?  Haven’t we learned anything by now?

So, I’m glad it’s over… early.  I’ve had a tough year, and I didn’t need to spend any more time on this pipe dream of a proposal.

Okay, sure… our politicians running for office and elected officials did essentially nothing… BUT NEITHER DID WE… so I’m not blaming them.  The simple fact is that we don’t deserve to have such laws on the books.

The Homeowner Bill of Rights is the name that’s been given to a collection of six legislative proposals.  I’ll give you an overview of each and you decide for yourself how important it would have been to get the bill passed.

1.     SB 1470 – The Anti-Dual Tracking Bill

Dual tracking is when the servicer invites a borrower to apply for a loan modification, but proceeds with foreclosure proceedings anyway.

Now, I realize that some people are going to see nothing wrong with that practice, saying that a loan modification is an accommodation granted at the discretion of the bank, and therefore the denial of a modification should not delay a foreclosure.  The problem is that as a practical matter, dual tracking violates California’s foreclosure statutes because it deprives the homeowner of the intended time to reinstate the loan.

In California, the law says a homeowner is to receive a Notice of Default, which gives the homeowner 90 days, and then after that they are to get a Notice of Sale, which provides an additional 20 days… and then up until five days before the sale, the borrower has the right to reinstate the loan.

But, if you’re told that you are under consideration for a loan modification, and then you’re told that you’ve been denied… let’s say 10 days before the scheduled sale date… then you can find yourself with a handful of days to reinstate your loan… and that, at the very least, violates the intent of the law.

That’s what happened to Norman Rousseau, who took his own life last week, and that I wrote about HERE.  By the time Wells Fargo Bank told Norm that he was being denied for a loan modification, he only had six days to reinstate the loan, and Wells refused to delay the sale.  He had the money in his IRA, but by the time it arrived, his home was sold.

SB 1470 would prevent banks from starting the foreclosure process while homeowners are still being considered for a loan modification. The bill would also require servicers to render decisions on loan-modification applications in a more timely manner.

Assembly companion bill is AB 1602.

2.     SB 1471 – Single Point of Contact & Fines for Document Fraud

This requires servicers to streamline the foreclosure process by assigning a single point of contact for each borrower. It also imposes a $10,000 fine for any incidence of document fraud.

Assigning a single point of contact shouldn’t be much of an issue, after all the banks have already agreed to do that as part of the OCC’s consent orders, which were issued last April.

And as far as fines for committing fraud or forgery… well, there’s an easy strategy to get out of paying those, right.  Just don’t commit fraud or forgery.  And I happen to know the strategy works because I’ve been employing it for years and I have yet to pay a single fraud or forgery related fine.

Assembly companion bill is AB 2425.

3.     SB 1472 - Fight Neighborhood Blight

Neighborhood blight happens when foreclosed properties are not properly maintained.  Among other things, this bill would allow cities to fine purchasers of foreclosed properties that fail to remedy code violations within 60 days. (I believe the Senate committee unanimously approved this bill last Thursday.)

The companion bill is AB 2314.

4.     SB 1473 – Renter Protection

This bill simply ensures that renters of foreclosed properties are given at least 90 days before an eviction process is started. Seems pretty reasonable to me.

The companion bill is AB 2610.

5.     AB 1950 – File an NOD, Pay $25

This bill would requires servicers to pay a $25 fee for each Notice of Default recorded, which kicks off the formal foreclosure process. The money collected would pay for state-run fraud investigations into the fraudulent practices of servicers.

6.     SB 1464 – Special Financial Crimes

This bill would allow the state Attorney General to create a special grand jury to look into special financial crimes that involve multiple victims and I simply cannot believe that this bill isn’t already a law.

The companion bill is AB 1763.

HERE COME THE BANKS… ALL RISE…

In a letter to California legislators, written by the FHFA’s General Counsel, Alfred Pollard, the FHFA said that these laws could “restrict mortgage credit and hamper necessary home seizures.”

The letter also said that the proposed legislation would loosely define robo-signing so that it may include any incomplete mortgage document.

“Such a strict liability approach is punitive, will have a chilling effect on the processing of lawful foreclosures and may lead to reduced credit availability or higher interest rates,” Pollard said.

Pollard didn’t even like the idea that renters should get 90 days before being evicted, saying that the legislation “did not include a ‘bona fide’ lease requirement and could result in property owners gaming the system.”

The FHFA also claimed the new laws could possibly pose “significant risks for the housing markets.”

Good Lord… those would be terrible things to have happen.  I’m sure glad he pointed it out before it was too late.  Doesn’t anyone check these things out with the bankers before they become legislative proposals?  Why do we go to all the trouble to write them and get them into legislative committee, just to have a few bankers show up and make us look like fools for having done so.

I think we should ask the bankers if they wouldn’t mind reviewing all draft pieces of legislation before write and and propose it… I’d bet collectively we’d save a lot of time.  I know I would.

Next up were the banking representatives, and I hear they were beautifully dressed by the way.

One of the bankers testifying was Ms. Stephanie Mudick, Executive Vice President, Head of Consumer and Regulatory Affairs, Mortgage Banking, J.P. Morgan Chase.  For the most part, she lied her ass off about how wonderful Chase has been when handling loan modifications.

But the one thing that she said I think I’ll remember above all…

“We’re also concerned that the private right of action included in draft legislation will likely impair the housing recovery of California.”

You can read her testimony here:
Mudick, Stephanie VP Chase Testimony 15may2012 PDF FILE

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Lately, the question is: what is a strategic defaults, or as the mortgage banking industry would call them “ruthless defaults”.  These are foreclosures that happen on purpose.  People find themselves owing significantly more than their property is worth and they decide to walk away from their indebtedness instead of spending the next 20 years paying hundreds of thousands more than the property is worth.  Crazy, huh?  Go figure.

Apparently, there are some people that think such a decision involves some sort of moral dilemma.  Isn’t that just adorable?  A moral dilemma… there’s something immoral about walking away from your mortgage?  Okay, so I have questions.  Is it less or more immoral than say… gay marriage?  Or what about flag burning?  How does walking away from your mortgage compare with flag burning on the morality scale?  If you’re even thinking about trying to answer that question… give it a rest.

I understand why people want to keep their home.  I understand why they don’t want to lose it to foreclosure.  I even understand why some people choose to stay in a home that’s seriously underwater… for a while, anyway.  But, if I were underwater in a property by hundreds of thousands of dollars with no hope of ever having any equity of which to speak, I’d walk away in a New York minute without feeling the least bit immoral for having done so.  It’s a mortgage, for heaven’s sake.  What’s moral or immoral about a mortgage?

When I take out a mortgage I take on a certain amount of risk.  And the investor funding my mortgage takes on a certain amount of risk.  And we both hope the risks we’re taking pan out.  If they don’t, for either party, well… that’s the way the cookie crumbles.  The investor may decide he wants out of the deal for whatever reason and decide to sell the mortgage to another investor.  And I may decide that it’s not working out for me, and if I do… and I can’t sell the property… well, I may walk away.  The investor gets the property and I get the foreclosure on my credit report.  I don’t even see where morality enters into the equation.

Let us say that you owed $600,000 and the house appraised for $400,000.  Here’s how today’s strategic default might work out:

A. You stop paying your mortgage payment, which is $3500 a month, and your property taxes, which are $8,000 a year.  Savings in 12 months: $50,000.

B. One year is how long you can easily stay in the house before they actually kick you out, and you may be able to get 18 or even 24 months, you never know.

C. Keep all other payments current… car loans, credit cards.  You only want to let your mortgage payment lapse, nothing else.  That way all of your other credit lines will remain intact.

D. Go rent a house down the street or wherever you want.  Rents are way down essentially everywhere.

E. Two years later start shopping for another house.  Pay $300,000 for the same house you owed $600,000 on before walking away, and start building equity immediately, because you’ve saved $100,000 to put down over the last three years.  Aren’t you happy now…

These days, it occurs to me, there would be even less morality involved in the decision to walk away from a mortgage.  I can’t believe anyone actually feels morally obligated to a bank today.  Why would anyone possibly feel that way?  About a bank?  You’ve got to be kidding me.

I mean, what type of business would be considered less moral than a bank?  I think I’d feel more morally obligated to a drug king pin than a bank… maybe about the same… hard to say.  It would depend on the dealer, I suppose.

I bank at Citibank and if I ever come out even a nickel ahead in our dealings, I’m having a damn party.  Heck, every time I go into Citi with a friend, we try to carry out the furniture or whatever “art” is hanging on the wall.  The manager hates me.  He chased after me once when I was trying to carry one of the bank’s potted plants to my car.  What’s the big deal?  We, the taxpayers, have given Citi something like $400 billion in fabulous cash and prizes for bankrupting themselves.  Why shouldn’t I be able to take home one lousy plant?

Morgan Stanley obviously doesn’t feel morally obligated to the bank that was financing their mortgages, and we’re not talking about a $189,900 three bedroom/2 bath in Palmdale here.  Bloomberg ran the story just two weeks ago under the headline: Morgan Stanley to Give Up 5 San Francisco Towers Bought at Peak.  Here’s how the story starts off… you’re going to love this…

Dec. 17 (Bloomberg) — Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year, Alyson Barnes, a Morgan Stanley spokeswoman, said yesterday in a telephone interview. AREA Property Partners will take over the buildings. Barnes declined to say when the transfer will occur.

“This isn’t a default or foreclosure situation,” Barnes said. “We are going to give them the properties to get out of the loan obligation.”

Now you see… that’s exactly what I was going to say.  Alyson and I see things exactly the same way.  It’s not a default or foreclosure situation… they’re just giving the bank the properties back in order to get out of the loan.  What’s wrong with that?  There’s nothing immoral about that, right?  Morgan Stanley certainly doesn’t think so, so why would anyone else?  Where this whole moral dilemma thing coming from anyway?

What a crock of crap that is.  What Morgan Stanley is doing is called a “strategic default,” simple as that.  You can dress it up and make it sound like it came directly from the Board of Directors, but at the end of the proverbial day, Morgan wants out because the property is worth half what they paid for it, and they know it will be many years, and probably decades before the price comes back to the previous level.

And guess what… it’s not even the first time Morgan Stanley has walked away this year.  According to the Bloomberg story, this is the second time the mega-bank has defaulted on its obligations… no, that’s the wrong way to say it… it’s the second time the mega-bank has negotiated to surrender property it had previously purchased and was now underwater.  Here’s how Bloomberg described it:

The San Francisco transfer would mark the second real estate deal to unravel this year for Morgan Stanley, which bet big on the property markets as prices were rising. The firm last month agreed to surrender 17 million square feet of office buildings to Barclays Capital after acquiring them for $6.5 billion in 2007 from Crescent Real Estate Equities. U.S. commercial real estate prices have dropped 43 percent from October 2007’s peak, Moody’s Investors Service said last month.

“It’s not surprising this deal ran into trouble,” Michael Knott, senior analyst at Green Street Advisors in Newport Beach, California, said in an interview. “It was eye-opening among a group of eye-opening deals. There was almost no price too high in 2007 for office space in top gateway markets.”

The Morgan Stanley buildings may have lost as much as 50 percent since the purchase, he estimated.

Morgan Stanley bought 10 San Francisco buildings in the city’s financial district as part of a $2.5 billion purchase from Blackstone Group in May 2007. The buildings were formerly owned by billionaire investor Sam Zell’s Equity Office Properties and acquired by Blackstone in its $39 billion buyout of the real estate firm earlier that year.

Well, obviously Mrogan Stanley was under the impression that real estate prices would go up forever.  And it looks like they bit off more than they could chew.  I bet they bought jet skis and Hummers too.  Probably used their office buildings like ATMs… well, maybe not.  They didn’t need to, I suppose.  After all, they turned into a commercial bank over night in order to get TARP funds and countless other taxpayer funded freebies that have allowed the bank to have a record year this year, along with everyone else on Wall Street for that matter.  So, technically they used us as their ATM, but it’s the same idea.

The Bloomberg story doesn’t bother to mention who the bank is that’s eating Morgan’s default… I mean orderly transfer of the property back to the bank that funded their mortgage.  Kind of weird… I mean, they must be very unhappy at having to take a billion dollar loss.

Oh, but wait… they don’t have to take any loss at all, do they?  Thanks to Uncle Timmy, and the myriad of others in the Banker’s Party, the bank doesn’t have to recognize the losses caused by a decline in the underlying value of commercial property at the momeny, so whew… dodged a bullet there, I’d say.  That was close.  Thank God for these new pretending rules, or we might be in serious trouble.  Tim is always thinking, I’ll say that for him.

I like this pretending stuff… it’s cool.  I don’t know why no one has ever thought of it before.  Why did we have that whole dot-com meltdown anyway?  Couldn’t we have just put some pretending rules in place?  If we had, maybe Pets.com would still be delivering 100-pound bags of kibble across the country overnight for free.  It was a great service; you’ve got to admit.  What would you like to bet George W. is watching this and thinking: “Pretending.  Of course, pretending.  Why the heck didn’t we think of that?  Laura, come in here, you’re gonna’ just love this.”

The Agonist, a blog I’ve been reading lately and like a lot, says it so well, it’s just not worth trying to write any better:

The investment banks are winning at this game. Very few mortgages are being renegotiated to allow the homeowners to keep their home, and this despite all the programs of the federal and state governments trying to force renegotiations on to the financial firms. One of the reasons the investment banks are winning is that there is a conscious, deliberate effort by the financial industry, the press, and the government to prevent homeowners from entering into strategic defaults.

Americans still view a deliberate default as immoral and a sign of personal failure.

Morgan Stanley doesn’t look at it that way, not when it comes to its own behavior. It only expects you, the consumer and homeowner, to have moral attitudes about financial decisions. With the corporations, morality doesn’t enter into it; it’s just business. That is why it is very, very important for strategic defaults by firms like Morgan Stanley to be dressed up as something different – as a negotiation done voluntarily for mutual agreement. And after all, Morgan Stanley itself isn’t going bankrupt, just the subsidiary that bought these properties is acting like it’s bankrupt.

The last thing the financial industry and our worthy government leaders want is for American consumers to act as irresponsibly and amorally as our corporations do.  If most Americans acted like that, not one major US financial firm would be left standing.

Did everyone catch that last line? If we acted like our corporations, not one major US financial firm would be left standing.  Yeah, well make a mental note of that.  It’s the kind of thing that could come in handy down the road a piece.

Morgan Stanley doesn’t have to walk away from the buildings they purchased during the bubble.  They’re doing great as a result of being loaded with taxpayer funded cash, and not having to recognize losses, but they want out because they’re underwater to such a degree they know it makes no financial sense to continue paying what they’re obligated to pay.  If you or I did that, we be getting foreclosed on, our bank would be calling seven times a day and sending us the nastiest letters on the planet trying to scare us into paying way more than we have to for the property.  But when Morgan Stanley does it, they’re working to negotiate something amicable in order to ensure a smooth transition, or some such nonsense.

Our government seems just hunky dory with the whole deal too.  It’s fine for Morgan to stop paying a mortgage when it’s too far underwater, but not for a homeowner to do the same thing for the same reason?  Well, alrighty then… fair enough.  Whatever they say.

Listen… I can’t tell anyone what to do, nor would I want to, but let’s just make sure we’re all thinking a little more corporately as this battle continues, shall we?  Food for thought… food for thought… I report, you decide… ( walks away whistling…)

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But Obama loves JP Morgan.

Why did fundraising for Team Obama drop so precipitously in April?  The Boston Globe provides one possible answer.  In 2008, Barack Obama attracted a lot of support from the banking industry.  This time around, they have deserted Obama in favor of Mitt Romney (via News Alert): When the head of JPMorgan Chase met with shareholders [...]

Read this post »

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BRIAN!  Dude… My good friend… Mi amigo de la Hipoteca clase… My favorite lender defender from whom laughs do engender… please don’t take me an offender… but as the message’s sender… a response to you I’ll tender… and my views I’ll therefore render…

Okay, I give in… that TBWS Daily was hysterical.  I mean, people say I’m funny, but I can’t hold a candle.

Overall, I loved the show, but, if I may… there were just a couple things…  

Just to make sure I understand what you said there… the problem is that there aren’t enough homes for people to buy?  We’re having a shortage of houses for sale, are we?  Wow… you know, I was sleeping and woke up to today’s video and for a minute there, I thought I must have dozed off for a decade or more.

But seriously… I had no idea that was the problem.  Well, alrighty then… I guess I’m going back to work… Mandelman doesn’t matter anymore… our economic problems have been solved.  And, thank heavens for that, because I was getting darn tired of writing about… um… well… I guess you could refer to it as… oh, I don’t know… how about… “the truth?”

Get more houses on the market?  Seriously?  More houses is what we need?  Am I on Candid Camera, or is there a rabbit hole around here somewhere that I can’t see?

So, I guess what you’re telling me is that at this point, the banks are actually hoarding them… holding them back for their own heads?  Foreclosing on more and more of them every day because they have a plan to corner the deteriorating home market?  Or are they just trying to pay us back for bailing them out by offering to pay most of the property taxes in this country going forward?  Or, maybe they just have a handyman fetish, so the more vacant homes the better?  Nothing turns them on like monitoring property preservation companies?

Why would they be hoarding empty houses?  Correct me if I’m wrong, but I was always under the impression that empty homes COST money as a result of their tendency to… what do they call it?  Oh yeah… decompose.

Aren’t banks the ones that are always trying to MAKE money?  Or have that backwards and banks are the ones that want to have the highest possible costs?  I can never keep that one straight… like eating eggs for breakfast… are they good for me or bad for me?  I can never remember… so I eat granola.

But, I digress…

Why do you suppose it might be that banks aren’t putting more homes on the market… or in the parlance of the economist… why are they limiting supply… making sure that it remains lower than demand?

Anyone?  Anyone?  Bueller?  Bueller?

Well, it can’t be because they don’t like money, right?  Right.  Okay, good.  I was pretty sure we’d have no argument there.

Could it be that they’re just so busy foreclosing and proprietarily trading credit derivatives for fun and losses, that they just haven’t realized that there are throngs of Californians and Arizonans clamoring to buy the homes they’re holding onto?  Again, I’d have to guess that… no, that can’t be it either.

Okay, let’s try this… What happens when the demand for a good exceeds its supply?  Oh, now lets not always see the same hands…

Brian?  Is that you I see in the back of the room doodling?  What’s that a picture of?  That’s you sitting at a table refinancing a four-plex for a dentist?  Yes, that’s very nice, but we’re trying to hold a class here, so if you wouldn’t mind…

So, what happens when the demand for a good exceeds its supply? Right, Brian!  Prices go up… or actually, in this particular case, they don’t go down as quickly.

And just what do you suppose would happen if the banks decided to make a bunch of homes available for sale, as you suggested is the thing to do in today’s TBWS Daily?  Do you think prices would tend to go up or down?  I’ll give you a hint… the answer is the opposite of “up.”

And, if home prices were to go down even faster than they are as a result of all of the other factors that haven’t changed a lick, except to worsen… you know… like, unemployment, long-term unemployment, foreclosures, average incomes… GDP… the state’s $16 billion budget deficit that’s about to constrict the state’s economy even further as we cut services and raise taxes on the wealthy… those kind of things?

Well, if home prices fell further and faster I’d have to venture a guess that more people would find themselves underwater and/or further underwater… and that would mean what do you suppose?  If you guessed further reductions in consumer spending, higher unemployment and more foreclosures… well, you’d be right once again!

And then what about all the people who, having been duped into believing that housing had bottomed, bought homes recently?  Would they be gaining equity or losing it?  Losing it, right!  And assuming an FHA/new-sub-prime loan was involved many would be underwater by Christmas… and you know what that would mean, right?

Even more foreclosures!  Maybe that’s why FHA is reporting almost 20 percent defaults on loans made SINCE 2009.  It’s kind of funny if you think about it… we’re actually creating foreclosures over at FHA even faster than we can foreclose down the street at Fannie and Freddie.  It’s very “Dr. Strangelove – Or, how I learned to stop worrying and love the bomb,” don’t you think?

And I did hear you say that the shortage was “at the low end of the market,” right?  I’m sure that’s correct, because that’s the end of the market that’s not only less expensive, but also less experienced.  Those are the folks easiest to convince to buy a home because it’s never going to be this cheap or the rates this low again… so, better hurry and get your offer in today… isn’t that about right, Brian?

Of course, I wouldn’t want to leave out my favorite flavor of scumbag, the vulture investors who envision this as a once in a lifetime opportunity to become full fledged slum lords, gouging the unfortunate and credit impaired with top tier rents for at least a decade while they put the absolute minimums into maintenance and scheme to hold onto security deposits in all cases.

No, I wouldn’t want to forget them.

See, it’s not that there aren’t enough homes on the market really, right Brian?  It’s that there aren’t enough homes that can be purchased below market value that’s the problem.  Realtors don’t really want more inventory… they want more inventory that can be purchased at distressed prices.  I’ll be happy to put my home on the market tomorrow, just not at a price at which it would sell any time soon.

Don’t get me wrong… I do understand that the banks dumping homes on the market at distressed prices would make summer fun for Realtors and mortgage brokers… and Lord knows I do like seeing you guys having a good time… after all, you’re always a fun lot to have at a party.

But, since the banks doing what you suggest under today’s circumstances would only push us further into a recession, with housing prices falling even faster than they will otherwise, thus creating even more foreclosures… thus further destroying the housing and credit markets once the fun ends… well, I’d like to humbly suggest that IT’S A TERRIBLE IDEA.

So, if you put it all together… the worsening employment and overall economic conditions (except in the media where it’s an election year), combined with the tightening of the already tight credit markets… and with the unabated flood of foreclosures on the horizon (forecasted to exceed the number of homes lost to-date, by the way)… and the permanently broken private securitization market… CA’s $16 billion and growing state budget deficit… and the need for Washington D.C. to reduce spending going forward…

… to say nothing of the EU’s high wire act, sans net, that’s destined to see one or two countries fall to their deaths sooner than we think, thus causing us to nationalize or bailout several or more of our TBTF banks once again… and then factor in the possibility of Mitt Romney and the GOP actually winning in November… OMG, OMG, OMG… consider all that…

… And you’ll want to eat a gun.

But… STOP!  Don’t do that.  That is NOT the answer, Brian.

Just like it’s NOT the answer to… “put more homes on the market.”

From your good friend who loves you… and as always I remain…

Most sincerely yours…

Martin

xoxoxoxoxo…

Martin Andelman

Mandelman Matters

P.S. If I’m in town, I think I’m going to come to Anaheim to see you guys… I figure you’re just dying to buy me a beer.  And tell Frank to be careful on that bike.

Mandelman out.

Hey, to subscribe to TBWS… CLICK HERE!

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1. $80.35 Million in Foreclosure Fraud Settlement Funds Now Getting Redirected to State Budgets
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Finally, there are places online where homeowners, lawyers and other advocates can go to lodge complaints about a mortgage servicer’s handling of mortgage modifications, et al.  And all I can say is, it’s about time.

A story by Ben Hallman in the Huffington Post, quoted Joseph Smith, the ex-banking commissioner charged with enforcing the national mortgage settlement…

“This allows me, as monitor, to hear complaints and learn more about advocates’ impressions of how the settlement is working,” he said. “Although I’ll extensively review reports and monitoring from the banks and my own team of auditors, it is still critical for me to receive information from the heart of each community this settlement serves.”

Now, it’s probably at least somewhat important to remember that Smith has no power to investigate individual complaints or help individual homeowners in any way. Here’s what it says on the complaint form in bold…

“Please note that the Monitor cannot intervene with the servicer on behalf of your individual client.”

Of course, I’d also guess that he doesn’t have the manpower to read the hundreds of thousands of complaints the sites would no doubt receive if homeowners and their lawyers were actually to hear about the website.  (I’m also betting that there’s not much of an advertising budget with which they’ll be getting the word out across the nation.)

But, so what?  There may be another way to view these new online complaint sites.

Sure, there won’t be any action taken based on the complaints filed online, and nothing will likely change as a result.  And I realize that if a homeowner is being dual-tracked, can’t get a response from a mortgage servicer for months, or is losing a home to a wrongful foreclosure, these sites may only represent websites effectively dedicated to ignoring complaints online.

But, wait… there may be more.  Here’s what it says on the new sites…

“The Monitor and the Office of Mortgage Settlement Oversight can assist you by providing information about the organization in your state that is appropriate for you depending on your situation. By filling out the simple form below, you will open a webpage that has state-specific contact information of various organizations that may be able to help you. The Monitor will use this information to better understand how the servicers are treating their customers and detect any patterns in violation of the agreement.”

So, I really do hope that everyone takes advantage of the new websites should they have problems with their servicers related to the National Mortgage Settlement.  Here’s what Mr. Smith says about the two new sites…

“Lawyers, caseworkers and other consumer advocates are the eyes and ears on the ground who will know first, and know intimately, what kind of difference these payments, adjustments and programs are making,” Smith said. “That’s why we’ve created this dedicated tool -– to see what they’re seeing.”

Look, people… the man used to be the banking commissioner in North Carolina, but now Mr. Smith has gone to Washington and he says he needs us to be his “eyes and ears on the ground,” as far as the AG settlement’s effectiveness goes.  So, let’s not let him down, okay?

Besides, if you consider the math, the whole thing becomes that much more fun…

Assuming one person can read a complaint in 10 minutes, and they were to read them 6 hours each day, working the standard 2080 hours a year, it would take 1.3 years to read 100,000 complaints.

So, if the same numbers applied and there were a million complaints, it would take 13.3 years for one person… they’d need to hire a thousand people to get it done in 1.3 years.  And that assumes everyone is writing fairly short complaints.  Stretch those babies out to a 20-minute read and now we’re talking two thousand people to read them in 1.3 years.

So, look… do you want to help create jobs in this country or what?  Oh, and don’t forget to attach a large file to your complaint, I’m sure the servers are quite robust, and someone may want to read the details.  Like they said back in the 60s… can you dig what I’m saying here?

So, for HOMEOWNERS who want to file a complaint having to do with the National Mortgage Settlement, click here: WHERE CAN I FIND HELP?

For LAWYERS or ADVOCATES. click here: REPORT CLIENT ISSUES HERE.

Here’s a list of topics under which your complaint may fall, as listed on the new sites…

Documentation: Documentation problems with foreclosure, bankruptcy or your loan file

Fees: Improper assessment of fees, including default, foreclosure, bankruptcy, attorney, late, or third party fees.

Loan Modification: Failure to modify or refinance loan.

Customer Service: Poor customer service, including no single point of contact or no customer portal.

Third Party Firms: Failure to properly oversee firms working for servicer on your mortgage.

Military Personnel: Failure to comply with legal protections afforded military personnel.

Bankruptcy: Improper failure to provide relief to homeowners in bankruptcy.

Force Placed Insurance: Required purchase of property insurance unnecessarily or improperly.

Community Blight: Failure to minimize community blight.

Tenant Rights: Violation of the rights of tenants in foreclosed properties.

Other: __________.  No issues. I just would like further information

The Huffington Post story also pointed out that the federal government has also made available two other avenues where borrowers can appeal for direct assistance.

1. CFPB

One is the Consumer Financial Protection Bureau (“CFPB”), which you can access here: File a Mortgage Complaint.  According to the Huffington Post, the CFPB,

“… promises to forward a grievance to the financial institution, assign it a tracking number and keep borrowers updated on the status.”

So, that’s very exciting, I would think.  I mean, if nothing else it sounds like you’ll have your very own individual tracking number, so that’s something right there.  I wonder how effective it will be when trying to persuade a judge not to have you evicted?

“But, hold on Your Honor… not so fast… have I showed you my tracking number?”

 

2. The OCC

And for homeowners who were in foreclosure during 2009 and 2010, don’t forget about the OCC’s infamously dishonest and entirely corrupt, Independent Foreclosure Review, which you can access here: Submit a Request for Review.  I visited the site to check out what would be involved and the best part was that right in the middle of the page there’s a warning for homeowners that reads:

“Watch out for scams – There is only one Independent Foreclosure Review.”

So, for parents reading this who have been looking for a really good example with which you could teach your children the meaning of the word “IRONY,” I’d have to say that your search has ended. 

The deadline to submit your complaint is July 31^st, so if you’re planning to be condescendingly placated by the equivocation of your claims, you don’t want to put it off.  Fewer than three percent of eligible homeowners have submitted their cases for review, so the Obama Administration is no doubt planning to announce that 97 percent of those foreclosed on during those two years were okay with it.  I think that’s really taking one for the team, and I, for one, salute you.

And although it would seem that no flaws have been uncovered as yet, that’s no reason not to participate in the process.  I mean, look… someone has to win something, right?  Like the lottery.  Or, maybe not in this case… I really don’t know.

Here’s what the OCC’s site says about the review:

“The Independent Foreclosure Review will determine whether individual borrowers suffered financial injury and should receive compensation or other remedy because of errors or other problems during their home foreclosure process.”

The OCC’s site also STRONGLY WARNS HOMEOWNERS who want to file their case for independent review NOT TO PAY A LAWYER to help them do it under any circumstances.

Good heavens no… who would ever think of doing such a thing?  I mean, give us some credit, would you?

I think everybody knows by now that when it comes to authoring a document that alleges the suffering of financial injury for which damages or other remedy may be assessed in conjunction with errors committed by a party purporting to be the holder in due course or to have been assigned the rights of a beneficiary to a deed of trust, and or the substitute trustee who is seeking to enforce said rights as part of a foreclosure or unlawful detainer action… the last thing you’d ever want to do is hire a lawyer.

Sheesh, it’s not like we’re children.

After all, we handled getting our mortgages all by ourselves, initialing and signing all those contractual pages containing 3 point type about how our snapping turtle, spring loaded mortgage might result in payments that exceed our monthly income by three-fold at a time when the credit markets would require a 780 FICO and 30 percent equity to refinance.

And if we can competently handle that sort of complicated transaction, surely we all know not to pay a lawyer a nickel for something as simple as filing a complaint with the Office of the Comptroller of the Currency.

Look, even if the OCC finds nothing was wrong with the foreclosures in 2009 or 2010, I think we’ll all be able to join in a giant collective sigh of relief.  At least we’ll know that no one “suffered financial injury” because of errors in the foreclosure process during those two years, and we can finally move from insult to injury as we close the chapter on the unnecessary destruction of some two million family’s lives.

It reminds me of the stress tests they use with the banks… you know, the ones where every bank always passes.  Like something from a Monty Python skit.  Aren’t those the best?

Move along people, there’s nothing to see here.

Mandelman out.

Finally, there are places online where homeowners, lawyers and other advocates can go to lodge complaints about a mortgage servicer’s handling of mortgage modifications, et al.  And all I can say is, it’s about time.

A story by Ben Hallman in the Huffington Post, quoted Joseph Smith, the ex-banking commissioner charged with enforcing the national mortgage settlement…

“This allows me, as monitor, to hear complaints and learn more about advocates’ impressions of how the settlement is working,” he said. “Although I’ll extensively review reports and monitoring from the banks and my own team of auditors, it is still critical for me to receive information from the heart of each community this settlement serves.”

Now, it’s probably at least somewhat important to remember that Smith has no power to investigate individual complaints or help individual homeowners in any way. Here’s what it says on the complaint form in bold…

“Please note that the Monitor cannot intervene with the servicer on behalf of your individual client.”

Of course, I’d also guess that he doesn’t have the manpower to read the hundreds of thousands of complaints the sites would no doubt receive if homeowners and their lawyers were actually to hear about the website.  (I’m also betting that there’s not much of an advertising budget with which they’ll be getting the word out across the nation.)

But, so what?  Sure, there won’t be any action taken based on the complaints filed online, and nothing will likely change as a result.  But, at least now, if a homeowner is being dual-tracked, can’t get a response from a mortgage servicer for months, or is losing a home to a wrongful foreclosure, there’s a website effectively dedicated to ignoring complaints online.

Very cool, don’t you think?

I for one am glad to see that this country is finally taking the foreclosure crisis seriously and that my tax dollars are being put to good use, and I really do hope that everyone take advantage of the new websites.  Here’s what Mr. Smith says about the two new sites…

“Lawyers, caseworkers and other consumer advocates are the eyes and ears on the ground who will know first, and know intimately, what kind of difference these payments, adjustments and programs are making,” Smith said. “That’s why we’ve created this dedicated tool -– to see what they’re seeing.”

Look, people… the man used to be the banking commissioner in North Carolina, but now Mr. Smith has gone to Washington and he says he needs us to be his “eyes and ears on the ground,” as far as the AG settlement’s effectiveness goes.  So, let’s not let him down, okay?

Consider the math, and the whole thing becomes much more fun…

Assuming one person can read a complaint in 10 minutes, and they were to read them 6 hours each day, working the standard 2080 hours a year, it would take 1.3 years to read 100,000 complaints.

So, if the same numbers applied and there were a million complaints, it would take 13.3 years for one person… they’d need to hire a thousand people to get it done in 1.3 years.  And that assumes everyone is writing fairly short complaints.  Stretch those babies out to a 20-minute read and now we’re talking two thousand people to read them in 1.3 years.

So, look… do you want to help create jobs in this country or what?  Oh, and don’t forget to attach a large file to your complaint, I’m sure the servers are quite robust, and someone may want to read the details.  Like they said back in the 60s… can you dig what I’m saying here?

So, for HOMEOWNERS who want to file a complaint having to do with the National Mortgage Settlement, click here: WHERE CAN I FIND HELP?

For LAWYERS or ADVOCATES. click here: REPORT CLIENT ISSUES HERE.

The Huffington Post story also pointed out that the federal government has also made available two other avenues where borrowers can appeal for direct assistance.

One is the Consumer Financial Protection Bureau (“CFPB”), which you can access here: File a Mortgage Complaint.  According to the Huffington Post, the CFPB,

“… promises to forward a grievance to the financial institution, assign it a tracking number and keep borrowers updated on the status.”

So, that’s very exciting, I would think.  I mean, if nothing else it sounds like you’ll have your very own individual tracking number, so that’s something right there.  I wonder how effective it will be when trying to persuade a judge not to have you evicted?

“But, hold on Your Honor… not so fast… have I showed you my tracking number?”

 

And for homeowners who were in foreclosure during 2009 and 2010, don’t forget about the OCC’s infamously dishonest and entirely corrupt, Independent Foreclosure Review, which you can access here: Submit a Request for Review.  I visited the site to check out what would be involved and the best part was that right in the middle of the page there’s a warning for homeowners that reads:

“Watch out for scams – There is only one Independent Foreclosure Review.”

So, for parents reading this who have been looking for a really good example with which you could teach your children the meaning of the word “IRONY,” I’d have to say that your search has ended. 

The deadline to submit your complaint is July 31^st, so if you’re planning to be condescendingly placated by the equivocation of your claims, you don’t want to put it off.  Fewer than three percent of eligible homeowners have submitted their cases for review, so the Obama Administration is no doubt planning to announce that 97 percent of those foreclosed on during those two years were okay with it.  I think that’s really taking one for the team, and I, for one, salute you.

And although it would seem that no flaws have been uncovered as yet, that’s no reason not to participate in the process.  I mean, look… someone has to win something, right?  Like the lottery.  Or, maybe not in this case… I really don’t know.

Here’s what the OCC’s site says about the review:

“The Independent Foreclosure Review will determine whether individual borrowers suffered financial injury and should receive compensation or other remedy because of errors or other problems during their home foreclosure process.”

The OCC’s site also STRONGLY WARNS HOMEOWNERS who want to file their case for independent review NOT TO PAY A LAWYER to help them do it under any circumstances.

Good heavens no… who would ever think of doing such a thing?  I mean, give us some credit, would you?

I think everybody knows by now that when it comes to authoring a document that alleges the suffering of financial injury for which damages or other remedy may be assessed in conjunction with errors committed by a party purporting to be the holder in due course or to have been assigned the rights of a beneficiary to a deed of trust, and or the substitute trustee who is seeking to enforce said rights as part of a foreclosure or unlawful detainer action… the last thing you’d ever want to do is hire a lawyer.

Sheesh, it’s not like we’re children.

After all, we handled getting our mortgages all by ourselves, initialing and signing all those contractual pages containing 3 point type about how our snapping turtle, spring loaded mortgage might result in payments that exceed our monthly income by three-fold at a time when the credit markets would require a 780 FICO and 30 percent equity to refinance.

And if we can competently handle that sort of complicated transaction, surely we all know not to pay a lawyer a nickel for something as simple as filing a complaint with the Office of the Comptroller of the Currency.

Look, even if the OCC finds nothing was wrong with the foreclosures in 2009 or 2010, I think we’ll all be able to join in a giant collective sigh of relief.  At least we’ll know that no one “suffered financial injury” because of errors in the foreclosure process during those two years, and we can finally move from insult to injury as we close the chapter on the unnecessary destruction of some two million family’s lives.

It reminds me of the stress tests they use with the banks… you know, the ones where every bank always passes.  Like something from a Monty Python skit.  Aren’t those the best?

Move along people, there’s nothing to see here.

Mandelman out.

1. It’s Alive! | Florida Supreme Court to take on PINO V. BANK OF NEW YORK to Answer “A Question of Great Public Importance”
2. Bank Satisfied Mortgage in PINO after Fraudclosure Exposed But Can’t Seem to Pay Off Four Judges in the Florida Supreme Court
3. Florida Supreme Court to Address Foreclosure Fraud | ROMAN PINO vs THE BANK OF NEW YORK

Originally posted in November 2009.

According to just about everyone on television and in print these days, should a homeowner get the crazy idea that they might be able to avoid losing their home to foreclosure through a loan modification, the thing they should do is call their bank and, I would assume, ask for one. I say “I would assume” because no one on television or in print has offered anything more detailed in the way of instruction than to say: “Call your bank.” So, alrighty then… fair enough.

~~~

Being that I had some extra time this morning, I thought… what the heck… the guy on 20/20 said it would work so he must know, right? So, I decided to call my own mortgage holder… First Nationalized Bank.

Ring… ring… ring… Thank you for calling First Nationalized Bank. If you know the extension of the person you are calling you may enter it now. For the company directory, press 9. (Silence…)

If you are calling about a checking or savings account, press 1. For credit cards, press 2. Auto loans… 3. Other options… press 4. (I pressed 4.)

(Ring… ring… ring….) You have reached First Nationalized Bank. For questions about home mortgages press 5… for questions about… (I pressed 5.)

You have reached First Nationalized Bank. If you know the extension of the person you’re trying to reach, you may enter it now. (Silence…) To return to the main menu, press 7. To hear a duck quack, press 8. (Silence…) To speak with an operator, press 0. (I pressed 0.)

Ring… ring… ring… No one is available to take your call… But we value your business… If you’d like to leave a message press… (Click)

I figured maybe it wasn’t a good time, and decided to try back a little later. Mornings are probably busy times for banks. No reason to make any snap judgments based on just that one attempt.
Plus, I’m of a mind to give the banks a break. They’ve had a very tough year. Giving out all those bonuses is time consuming. It’s not like they’re direct deposits you know? And that’s to say nothing of the envelopes. Who’s going to lick all those envelopes, huh? And the TARP money? Hey, you think all those billions just store themselves? No sir, someone has to store all that money away somewhere.
Then, when you add in all the time it takes to get the sub-prime borrowers evicted and onto the streets where they belong… all that crying and sobbing… please Mr. Banker… please… we’ll pay soon… please… it gives me a headache just thinking about it. I mean, if I just picked up a bonus check for a couple of million… I’m sure I want to go deal with some dead beat who couldn’t even handle it when his mortgage payment doubled over a couple of months… like, deal with it people… I’m booked on the 7:05 to Maui and I don’t have time for your whining… like I said… I’m quite sure it’s been hectic.
The only saving grace has been that at least the banks didn’t have to worry about making loans to actual customers… and do all that other stuff.

I remember that Citibank laid off like… I don’t know… what was it… two million people? And I heard that David Rosenberg, who used to be the Chief Economist at Merrill Lynch, is now working as a teller at B of A. So, there’ve been some very significant changes at most banks for sure.

Heck, Citi even had to cancel the purchase of one of its Lear Jets that had been on order. See how dangerous all that populism crap is? You let that stuff get out of control and next thing you know bankers are going to start forcing executives to drive the Mercedes instead of the Bentley. It’s dangerous. It’s socialism. It’s a slippery slope.

So… let’s give First Nationalized Bank a break on that first call and talk about something else. We’ll try them back in 15 minutes, how’s that?

You may remember this past year there was a study released that showed that loan modifications were re-defaulting at the rate of like 60% within the first year after being modified. It sort of came across like proof that sub-prime borrowers shouldn’t have been allowed to buy their homes in the first place, because apparently even if you modified their loans, they still couldn’t make their payments. Ah ha! I knew it! Dead beats, one and all.
I saw the study. It was actually two studies. One done by Credit Suisse and the other by the Swiss banking giant, UBS. (U… BS. I love that name.)
The total number of mortgages in both studies, as I remember it, was right around 1400. And roughly 40% – 60% of the loans defaulted in six months depending on the exact circumstances, but the point was the same either way. A lot of modified loans defaulted, or rather re-defaulted… that was the point.
I immediately wanted to figure out why that would be the case. Why, you ask? I’m not sure… it just seemed like an awfully high percentage in an awfully short period of time. I mean, even hard core dead beats make it more than six months, right? A year, maybe?
So, I dove in to the data, trying to see if there were any reoccurring themes that would lead me to that “Ah ha!” moment for which I was hoping. I tried to see if there were any patterns as far as the borrowers were concerned… but nothing popped out. I tried to see if the numbers presented a path to follow… again nothing looked indicative of anything special. I even tried to find out the average credit scores or whether there was a geographical consistency, like maybe a whole bunch of the borrowers lived in Michigan. Nope, nothing.

So, feeling a little bit lost, I called a friend of mine who used to be a big time corporate treasurer at a Fortune 100 company. He’s smart as a whip, and I wanted to see if he had any ideas. He didn’t. But he did offer to refer me to a senior executive at PIMCO, which to me sounded like the transmission place ‘Aamco,’ but without the horn honking at the end. The CEO’s name is Bill Gross, and he’s a zillionaire.

PIMCO is like the world’s largest bond holder, or something like that. I never even bothered to look them up. I just called the woman my friend recommended and said hello.

My friend was right… she was double sharp and knew everything about the whole mortgage mess. When I mentioned the bond ratings agencies she immediately got hot under the collar. She almost raised her voice saying “They should be in jail.”
“Really,” I said. “How so?” And she went on to explain the intricacies of the bond market as it related to securitization and derivatives. She laughed towards the end of her rant, which woke me up and luckily she wasn’t asking a question so I was free to get back at my original topic of interest: loan modifications.
She had no idea why borrowers would default in such high numbers and so quickly. She did however express surprise that the investors had let Credit Suisse or UBS modify their loans, and she told me that PIMCO wouldn’t let one of their servicers do that.
I asked why, a little hesitantly now, and she explained…
“The banks don’t own the loans,” she explained. “Investors like PIMCO do, and why would an investor allow a servicer to cut into their profitability, just because someone wasn’t making the payments on their mortgage?” Foreclose, was her answer. I mentioned that the costs of foreclosure in this market were rather high, but she wasn’t having any of it. Foreclose, and that’s that. Well alrighty then… interesting.
Then I suggested that a cost comparison could be done using a net present value calculation as compared with the costs of foreclosure and her attitude changed.

“Oh, well… that would be different, I suppose,” she was clearly softening at the mere mention of a “net present value calculation,” bond people are so easy. “If someone showed us a net present value calculation as compared with a foreclosure costs and the data was solid, I suppose we’d have to take a look at it.” Bingo.
Maybe this would be a good time to try First Nationalized Bank again. What do you think? No? Okay, let’s give them a few more minutes, then we’ll call back. I’m sure we’ll get someone. Anderson Cooper said so.
I thanked my new net present value oriented friend and hung up. Next I would need to find a homeowner whose loan had been modified directly by the bank as a result of their request. This wasn’t easy. Lots of refinancing, but no modifications. Finally, I found an older gentleman who said that he asked his bank about modifying his mortgage and they did.
“Perfect,” I said to him on the phone. “How’s tomorrow?”
The next day I found myself driving out to Palm Springs. It was crisp and sunny… a beautiful day and I was anxious to see how he had done it and why he had chosen to do so. I spent the entire afternoon with the old guy; we drank a couple of martinis and drove around a golf course in his private cart. It was fun and I genuinely liked him. He told me how it went, and answered all of my questions. I started to think that maybe the banks weren’t so bad after all.

As I was leaving, I stopped by a glass case by the hallway leading to the home’s main door. There was a plaque that read “Employee of the Year… Bank of America… 1965.” Uh oh. “Were you with Bank of America before you retired” I called out to him. “Yes,” he replied, “44 years,” he said with great pride. So, I guess when you called B of A for your loan modification, you knew exactly who to call, right? And they took your call because they saw it was you, right?”
“Oh absolutely,” he said. I was the Senior Vice President of Consumer Loans and Mortgages for 21 years… when I retired, there were more than 1,000 people at my party. They held it at our loan-processing center in Pasadena. Want to see some pictures?”
“Maybe next time,” I said. It was getting late… so, I said my goodbyes and got back on the road toward home, kicking myself that I hadn’t thought to ask about that before driving for two hours to interview Mr. Bank of America Ret. Oh well… people are losing their homes to foreclosure, who am I to complain about a little extra driving.

Alright, so let’s give old First Nationalized Bank a call… it has to work, the guy on Sixty Minutes was sure of it. And even President Obama said we wouldn’t need to pay anyone for help… okay, one more try…. here goes… dialing now…

Ring… ring… ring… Thank you for calling First Nationalized Bank. If you know the extension of the person you are calling you may enter it now. For the company directory, press 9. (Silence…)

If you are calling about a checking or savings account, press 1. For credit cards, press 2. Other callers, press 3.

I pressed 3. (Ring… ring… ring….) You have reached First Nationalized Bank. For questions about loans press 5… for questions (I pressed 5)

You have reached First Nationalized Bank. If you know the extension of the person you’re trying to reach, you may enter it now. (Silence…) To return to the main menu, press 1. (Silence…) To speak with an operator, press 0. (I pressed 0)

Ring… ring… ring… No one is available to take your call… If you’d like to leave a message press… (Click)

~~~

Okay, this is embarrassing… maybe I should have tried this earlier… don’t get impatient; we’ve got a lot more to cover anyway. Besides it’s getting close to lunchtime, maybe that’s the problem… they probably don’t answer as many calls around lunchtime.
So, getting back to my analysis of the disappointing loan modification data… through several interviews with borrowers and a few with bankers, I was able to ascertain what I referred to as my “7 Points of Blight” behind the high re-default percentages. It wasn’t the borrowers that caused the high numbers of re-defaults, it was the nature of the transactions. Banks simply were not handling loan modifications effectively, and none of the reasons for this should be the least bit difficult to understand.

Banks Negotiating Directly With Borrowers: 7 Points of Blight

1. Banks have a hard time getting in touch with distressed borrowers. As in: “Honey, it’s the bank.” “Tell them I’m not here.” Or mail that goes unopened. It’s just not that easy for a bank to get in touch with someone who is four months or more behind on their mortgage payments. And in many instances, by the time the bank did reach the borrower, it was often too late to stop the foreclosure process.

~~~

2. Banks and loan servicers today are anything but overstaffed, as one might imagine. They certainly haven’t upsized this past year, right? So, as an industry, they simply don’t have the additional staff sitting around trained to handle loan modifications.

~~~

3. Banks and servicers are set up to process tens or hundreds of thousands of mortgage statements and handle routine foreclosures and collections… all processes made possible by systems, more so than people. Loan modifications, however, are like a hand made car. One at a time… working with the borrower… putting the package together for submission to the lender… as a process it bears little resemblance to routine mortgage processing.

~~~

4. Perhaps most importantly, I was able to determine that the negotiation between a bank and a borrower at risk of losing their home is not a negotiation at all. It’s more like having a gun to your head. Being at risk of losing a home is nothing if not frightening. Distressed homeowners who received an offer from their bank that allowed them to stay in their homes, too often, jumped at it… and understandably so. After all, I realized, if I was going to lose my home to foreclosure, I suppose six months from now beats the heck out of next week, right?

~~~

5. Systems were lacking, as well. Banks and servicers had robust systems to handle the processing of payments, normal collections and even foreclosures, but loan modifications were another animal altogether. And few in the industry were prepared to invest in a system enhancement that would likely only be used for a couple of years. If you were a mortgage lender or loan servicer, would you invest in systems and people to handle loan modifications, when you saw that such modifications will only be a factor for a limited number of years? Exactly.

~~~

6.Investors are reticent to give banks and loan servicers the authority to write down their assets. No standardized guidelines exist, and investors need criteria upon which such decisions are to be made. Otherwise, it seems safer to foreclose.”

~~~

7. Compensation was another issue. Banks servicing mortgages are being paid to do so, but they weren’t being paid to handle loan modifications, and investors that we spoke with all indicated that in their opinion, mortgage servicers were over paid when times were good in order to cover times that were not. In other words, the investors weren’t all that hot on the idea of paying the banks anything extra to modify loans in order to avoid foreclosure.

~~~

When I finished my analysis of why so many borrowers were re-defaulting six months after their loans were modified by their lender or mortgage servicer, I went around testing my theories with everyone who would listen. And guess what?

Everyone agreed, most said something equivalent to “Duh… like, of course.”

Meanwhile, the stories about modified loans re-defaulting were showing up everywhere. In fact, it was becoming an urban legend, for a while anyway. I’d show up at a meeting, the sub-prime crisis would come up and within a minute, someone would bring up the Credit Suisse or UBS data. Most of the time the person bringing it up didn’t even know from where the stats came. All they knew was that modified loans were re-defaulting 60% of the time after just six months. And that made homeowners at fault. How could they not be… if 60% of them couldn’t even make it six months after modification, although not much of a modification, if you ask me.
I went ahead and called First Nationalized Bank again, just in case the phone lines had cleared up, but obviously they must be having some kind of problem over there. It can’t be the norm, can it? Assuming it was just a bad phone day, I stopped in at a bank to see if they could answer a few questions about President Obama’s plan to rescue the housing market.
They said they didn’t know anything. Just that the paperwork hadn’t been sent out to banks as yet. One of the guys who worked for the bank asked me a few questions and I fielded them all. I gave them the government phone number from the Treasury Website, and I told them this:

“Whatever you do, don’t hang up… no matter how many times it rings, stay on hold… or they put you all the way back at the end of the line… so even if it takes an hour… just wait there… they’ll answer, it just takes time. And once they do, it’ll be really helpful… you’ll love it, they answer everything…”

Then I got into my car and laughed the buttons off my shirt… You’ve got to have a hobby… I think I’m going to take up making fun of banks.

For want of a refi the payment was lost.
For want of a payment the mortgage was lost.
For want of a mortgage the house was lost.
From too many lost houses the market was lost.
For want of a housing market the financial sector was lost.
For want of a financial sector the credit markets were lost.
For want of the credit markets the economy was lost.
For want of the economy prosperity was lost.
For want of prosperity the country was lost.

And all for the want of a sustainable loan modification?

~~~

Mandelman out.

 

1. Bulldoze ‘Em | Banks turn to demolition of foreclosed properties to ease housing-market pressures
2. Ohio | Attorney General DeWine and Ohio Department of Commerce Announce Settlement with Carrington Mortgage Services
3. CNBC Video | Let’s Bulldoze The Foreclosed Homes Because the “Fixtures, the WIFI, or Whatever, Even the Colors are Not Going to be Stylish By the Time Someone Buys Them”

1. FraudclosureGate – First Thing We Do, Kill All The Foreclosure Defense Lawyers (Then Throw The Deadbeats Into The Streets)
2. Action Alert | SB 670 Looks to throw Everyone Out in the Streets! Even Tenants with Leases!
3. Hurry, Throw them Deadbeats Out! Cities have Trouble Selling Fixed-Up Foreclosures

1. Florida Governor Rick Scott Floats Huge Gimmie for Banks: Taking Foreclosures Out of the Court System
2. Florida Gov Rick Scott OKs last-minute bailout for courts
3. Deadbeats? | Rick Scott to Florida’s Courts, Live Within Your Means

1. Attn Captain Obvious | Fed Proposes Rule that Would Require Creditors to Determine a Consumer’s Ability to Repay a Mortgage BEFORE Making the Loan
2. American Banker | JPM Chase Quietly Halts Suits Over Consumer Debts
3. The Settlement Would Require Massachusetts, Nevada and Arizona, Which Have Sued Banks Involved in the Talks, to Settle those Cases

The Fed released some data on debit interchange fees since the Durbin Amendment went into effect (here in spreadsheet and here as a memo with more data). It's all still very early numbers, and things may well change. But so far a few noteworthy things have caught my eye:

(1) There is two-tier interchange pricing, just as I and other supporters of Durbin predicted. Big banks (>$10B in assets) have one pricing scheme and small banks, which are exempt from Durbin's "reasonable and proportionate" requirement have another. Many Durbin opponents said that there wouldn't be two-tier pricing and that Durbin would spell the ruin of small banks. So far that hasn't happened.  This won't fix our too-big-to-fail problem, but it's a small move in that direction. 

(2) The small banks are getting a leg up on the big guys in the two-tier system. Small banks are making on average 19 cents or 50bps more on every transaction than the big boys.  That breaks down to 31 cents advantage of signature and 8 cents on PIN (where the pricing was lower to begin with, making less room for differentiation). 

(3) Interchange fees for small banks haven't moved much. It's possible to have two-tier pricing with small banks still losing revenue. That doesn't seem to have happened. (It's also possible to have two-tier pricing with interchange fees continuing to rise for small banks...)

(4) The small banks' debit card transaction market share grew slightly. It's not clear to me that this is a real trend, but it's possible that this is a side-effect of the big banks like BoA clumsily trying to recapture reduced debit interchange revenue with direct consumer fees. It seems that some consumers don't take well to hidden fees being replaced with direct fees. It's still not clear how many accounts were really moved to small banks/CUs in response to BoA and the like, but that could explain the growth in debit card market share for small banks.   In any case, merchants aren't steering away from small banks as we were told they might do. (It was never clear how they would steer anyhow).

(6) There may be other, harder to measure benefits for small banks from Durbin. To the extent that it makes their deposit account/debit product more competitive, this could have spillover benefits for their other products.  The deposit account (monetizable via debit or check) is the gateway relationship.  It enables the cross-selling of other products (loans, investments, insurance). So the benefits to small banks may be more than just on the debit revenue side. 

(5) The big issuers are paying lower network fees (4 cents lower for sig, 2 cents lower for PIN), which means that small issuers are really getting a 23 cent/transaction advantage of signature and 6 cents/transaction advantage on PIN.  It's not clear, however, what the network breakdown of small issuer transaction is.  

Again, it's still early in the game. There's still the merchants' litigation challenge to the Fed's Durbin Amendment rulemaking, and we could well see a bunch of market moves. Visa seems to be trying to go back to tying credit and debit products via its network fee, and there's always the possibility of either some innovation (think mobile), a new settlement network (PayPal?), or a new entrant buying an existing player and shaking things up (Google or Apple buying MC?). 

A final thought. The more distance we get from Durbin, the more I like the amendment. It's public utility regulation: rate regulation (section 920(a)) and open access (section 920(b)). That's not a totally new move in bank regulation (think Reg Q), but it really encourages thinking of at least some banking functions as being public utility functions. There might be something to that.  

1. MERS | Mass. AG Coakley Launches Probe of Foreclosure Mess
2. MA AG Coakley Lawsuit Against Banks Ripped to Shreds in Settlement
3. HAFA – New Program Offers Borrowers Foreclosure Alternatives

1. Naked Capitalism | Is Schneiderman Selling Out? Joins Federal Committee That Looks Designed to Undermine AGs Against Mortgage Settlement Deal
2. Naked Capitalism – American Securitization Forum Tells Monstrous Whoppers in Senate Testimony on Mortgage Mess
3. Naked Capitalism | So What Else Has the American Securitization Forum Said That is Wrong?

1. Bank of America Threatens Foreclosure Over $1 From Already-Sold Home
2. Bank of America | Court Threatens To Throw Local Manager In Jail Over Lender’s Refusal To Demolish Vacant Foreclosure
3. Stopa Stomps on the Loan Mod Lies – Loan Modifications – How Banks Dupe Homeowners

1. Statement of U.S. Representative Brad Miller on Treasury Department’s Investigation Into Illegal Military Foreclosures
2. Banks Colluding with Insurers to Rip Off Homeowners, Lawsuit Alleges
3. Bank Makes “Mistake” Trashes Out Soldiers Family’s Home, Brakes Down Doors, Changes Locks, Removes Belongings