1. Federal Reserve’s Independent Foreclosure Review and HAMP Escalations Review
2. Federal Reserve Board releases action plans for three supervised financial institutions to correct deficiencies in residential mortgage loan servicing and foreclosure processing
3. Independent Foreclosure Review | OCC Says Independent Consultants Can’t Contact Borrowers

A few weeks ago, Fannie Mae issued an outright threat to homeowners in this country, creating a new rule that would punish anyone who stops paying their mortgage and walks away from their home, referred to as a “strategic default,” by not allowing those who choose that path to get a Fannie Mae loan for seven years.

They call it their “Seven-Year Lockout Policy for Strategic Defaulters,” and if you haven’t realized it already… look what’s been accomplished here: Homeowners have scared the heck out of industry giant, Fannie Mae.  I mean… these guys are shaking like leaves, absolutely running scared.  I know homeowners have been feeling like they have no power against the bankers, but this should prove otherwise.  It’s like we pushed the bully, and the bully ran home and got his Mom to come lay down a new rule in response.

On Fannie’s Website, Terence Edwards, Executive Vice President for Credit Portfolio Management has the following to say about the new rule:

“Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting.”

Bad for borrowers, Terrence?  Really, how so?  Are you trying to say that people who walk away from their underwater mortgages are doing it because it’s bad for them?  Because I don’t think they think that, Terence.  I’m pretty sure that those that choose to walk away from their mortgages do so because they’ve figured out that it’s better for them… in their own best interests, as they say.

Hey Terrence, you disingenuous prick, I understand that my walking away from my mortgage is bad for you, but that’s only because my house is now worth half of what I owe.  You wouldn’t mind if I walked away from my mortgage if I had equity, right?  So, in other words, you want me to lose the couple hundred grand instead of you, does that about sum up your position here?  Yeah, well… I’m sure you do.  But I, on the other hand, would prefer that you lose the money instead of me.  Sorry about that.

Terrence, last I checked you’re just a giant failed mortgage lender who is as much a part of why we’re in this mess as any, and you’re going to need $1.5 trillion in taxpayer dollars to bail you out.

I’m a taxpayer, Terrence… isn’t that enough of a loss for me to take on your behalf?  You want me to contribute my tax dollars and probably my child’s future tax dollars to your $1.5 trillion bailout.  And on top of that, you also want me to eat the loss of a couple hundred grand on my house?

Geeze… when are you guys planning to kick in on this?  Your CEO gets a $6 million a year salary, I looked it up, and best I can tell he gets paid to say “yes” to just about everything.  I don’t know, Terrence, but I’m pretty sure that I could have bankrupted Fannie Mae for a lot less than $1.5 trillion.

Walking away from a $500,000 mortgage on a house that’s now worth $250,000 isn’t bad for the borrower, it’s good for the borrower… it makes all the financial sense in the world, for the borrower.  I mean, would you recommend that someone hold onto a stock that’s lost half its value.

Then you say it’s bad for communities, Terrence, why do you think that’s the case?  I mean… bad is a relative term, wouldn’t you agree.  And, in terms of doing bad things to communities, aren’t you guys at Fannie Mae pretty much the poster children?  Like if the Olympic Games had a “Damaging Communities” event, wouldn’t you guys at Fannie be like the Michael Phelps of gold medalists, at the very least?

Yes, I’m afraid you would at that, Terry my boy.  You guys are responsible for wiping out more communities than say… I don’t know… Joseph Stalin comes to mind.  So does the bubonic plague.  So, now you’re all of a sudden so concerned about my community, are you?

Terry, my home appraised at the peak of the insanity at $925,000.  Last week, we heard there was a short sale about eight homes down from us.  Any guesses, Terry?  Well, I doubt you’d come close to $360,000 Mr. Fannie Mae spokesperson and executive VP.  I bought this house in 1990 for $340,000 you insensitive jackass.  Your incompetence has cost me a fortune.

You and your peers owe me money… or at the very least an apology… or something else, but how dare you attempt to “punish me” should I decide to become a productive member of society sooner by choosing not to take $300,000 and set it on fire.  And what would you like me to do, Terrance, if I spend the next twenty or thirty years paying for this house only to find out that I’m still under water by some amount at that time?  Any thoughts on that, you housing genius?  Maybe, try to do better in my next lifetime, Terrence?

How exactly will my strategic default harm my community?  How exactly, Mr. Edwards?  Because I’m thinking two things here:

One… If I let the home go into foreclosure, it’ll be an REO and the bank will resell it at the market price, or maybe a little below.  But, no one is going to give it away for free, right Terry?  The market price is the market price, right you mumbling mathlete?

If I’m allowed to short sale it, maybe it will sell for a little bit more, but then again, it might not sell at all, in which case I’ll still end up in foreclosure, but I won’t be able to stay in the house, saving money as a result of not making payments, while I pay a lawyer to prolong my free stay for as long as possible.  By the time I walk away, I’ll have maybe $100,000 saved up, which will make moving and renting an absolute breeze… to say nothing of my mental state, much improved as a result of controlling my destiny and screwing you.

Two… a strategic default only creates a foreclosure, and if you were so concerned about the impact of foreclosures on communities, we wouldn’t be in the situation we’re in today.  I hope you’ll forgive me if I laugh at you feigning concern about how foreclosures affect our communities.  I’ve been watching quite a few loan modifications up close and personal, and I haven’t seen Fannie Mae lift a finger to help a single homeowner.  Banks are abusing homeowners left and right, every single day of the year, with the exception of a few who take Christmas off, and where has Fannie Mae been?

Now that I finally decide to take matters into my own hands, in the best interests of me and my family, now you’re going to try to punish me, you worthless piece of trash, how dare you?  Go to hell, Terrence Edwards.  You’re an insolent punk for saying what you said, for trying to scare homeowners who are trying to survive this inconceivable catastrophe that you and yours created.  You’re an empty suit hiding behind some overpaid government job, nothing more.

You, of all people, claiming that strategic defaults are harming communities is absolutely hysterical.  Like cautioning people to take an umbrella when going for a walk into the eye of Hurricane Katrina.  Don’t forget your umbrella… you wouldn’t want to get wet.  Yeah, thanks for that advice.

Your approach is to “deter the disturbing trend” towards strategic defaulting?  Is that what you said?  Well, that’s the best damn news I’ve had in at least three years.  You and the rest of the self-important louts at Fannie Mae are actually disturbed by something.  Well, thank the good Lord, I am glad to know that.  Because you certainly haven’t seemed very disturbed at the carnage that’s been destroying the housing markets to-date, Mr. Terrence Edwards.

If strategic defaulting is disturbing you and Fannie Mae in general, well then that’s just about the best reason I could possibly think of for doing it.  You talked me into it, Terrence, and God willing quite a few others in this country whose lives have been ruined because of Fannie’s ruinous policies and incompetent management.

And then, as if Mr. Terrence Edwards hadn’t said more than enough, he went on to say:

“On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”

On the flip side?  The flip side?  I swear, someone needs to give you such a slap.  On the flip side, you actually have no idea what you’re talking about, do you?  You think people are walking away because they didn’t talk to their servicers?  You think, in that distorted little brain of yours, that it’s homeowners who need to act in “good faith” more often?

Well, that’s it for me.  I don’t know what to say in response to that, except to say that I can’t believe Terrence Edwards has a management job anywhere, let alone at the world’s largest source of lending.  After a statement like that, this guy should be asking women if they’d like to see something in a pump or a loafer.

Homeowners aren’t the ones failing to act in good faith, Mr. Ed.  Homeowners would all try to work with their servicers to resolve something in good faith.  Homeowners, and I’ve personally talked at length with thousands of them, have “good faith” written all over them.  They exude it from their pores.  That’s why they didn’t storm the castle when you and the other banksters needed to be bailed out after you guys decimated the global financial system.  But… on the flip side… their servicers consistently, and by that I do mean all the damn time and every damn day… continually lie, intimidate, bully, flagrantly break promises, and exhibit a lack of caring that would make Mary Poppins look like Dr. Mengele.

Are you unaware of this, Mr. Ed, you horse’s ass?  Has this somehow escaped your attention?  Missed it?  Busy watching the World Cup or something?  Come on, no way… you know exactly what’s going on between servicers and homeowners out there, and if you really don’t, well then you most certainly should.

In the spirit of leaving nothing to chance, allow me to explain how this whole mess happened.  We, the taxpayers, sat by and watched our elected representatives bail out Fannie Mae, and every other bankster in the country, we sucked it up and then watched Goldman et al, pay out $120 billion in bonuses last December.

Our President said he had a plan, and that banks would modify loans… there was hope.  But there wasn’t, was there, because the banks and servicers proceeded to treat homeowners like something stuck to the bottom of their custom made shoes.  They lied all the time, like constantly.  They bullied and made people feel badly, and in general they proved beyond any doubt that they could not be trusted.

No one is walking away from their home because they weren’t willing to make a good faith effort to find an alternative resolution by working with their servicer.  Never happens, or happened.  And if it has started to happen, which I still don’t believe, it’s only in response to the treatment of homeowners by their servicers. And true to form, the Wall Street Journal writes a story about homeowners happy about their decision to strategically default, some other news program interviews someone going to Hawaii as a result of not having to pay a mortgage payment, and you… you don’t bother to find out what’s really going on… you start with the threats.

Here’s what you said on Fannie’s Website:

Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.

Troubled borrowers who work with their servicers, and provide information to help the servicer assess their situation, can be considered for foreclosure alternatives, such as a loan modification, a short sale, or a deed-in-lieu of foreclosure. A borrower with extenuating circumstances who works out one of these options with their servicer could be eligible for a new mortgage loan in three years and in as little as two years depending on the circumstances.

Oh, so let me get this straight… a Deed in Lieu, a short sale… those are just fine in your mind, but a strategic default is bad for borrowers and bad for communities.  Do you hear yourself?  How would a Deed in Lieu be better for the community, Mr. Edwards?  Never mind… you don’t know.

However, in your top paragraph above, you are saying that you’re going to go after deficiency judgments in states that allow deficiency judgments?  Well, goodie for you.  But, does that mean that you won’t go after deficiency judgments in states that allow them if the borrower simply attempts, in good faith, to work it out with his or her servicer, but fails?  I doubt it, don’t you Terrence?

And you’re going to ask the servicers to “put forth recommendations” as to who should be pursued for a deficiency judgment?  The servicers?  The group of companies and individuals that have, perhaps more than any group in history, proven that they cannot be trusted to follow rules, keep promises, or tell the truth.  I suppose they will also be the final arbiters of whether the homeowners attempted to work it out in “good faith,” as well.  Yeah, that’s about right actually.  Par for the friggin’ course.

Well, I’ll tell you what, Mr. Terrence Edwards.  You think you can threaten millions of American homeowners?  Why you would presume to have such authority is beyond me, but I’ll promise you this… you’ve certainly motivated me in a big way.  How many homeowners do you suppose I can reach through my 300,000 readers if I try really hard?  Because that’s precisely what I now am more committed than ever to doing.  Just because of you and your threats.

What was the threat anyway?  Oh yeah, those that you or the servicers deem strategic defaulters won’t be allowed to get a Fannie loan for 7 years, but the “good faith” people… which I would guess are those who agree to whatever their servicer demands, might get one in two or three years.

First of all, who cares about getting another loan in 2-3 years?  No one I know.  But even more to the point, what in the world makes you guys at Fannie Mae think you’ll be around in seven?

Mandelman out.

‘

1. Ally (GMAC) Puts Mortgage Unit Into Bankruptcy
2. And Then There Was Five – Connecticut Attorney General Investigating Defective GMAC/Ally Foreclosure Docs, Demands Halt To Its CT Foreclosures
3. Mortgage Unit Troubles Ally (GMAC) Financial

If you want to know how to strategic default, ask the MBA… Mortgage Banking Association.

The CEO of the powerful Mortgage Bankers Association, John Courson, has said that underwater borrowers should keep paying on their mortgage loans and “should not walk away from lawful debts”.  In an interview this past year, Courson appeared genuinely concerned adding:

“What about the message they will send to their family and their kids and their friends?”

Obviously, Mr. Courson was not just speaking as a defender of financial institutions. Clearly, he was showing how much he cares for people and their personal relationships.  He believes the children are our future.  He thinks we should teach them well and let them lead the way.  That we should show them all the beauty they posses inside.  Give them a sense of pride.  To make it easier… let the children’s laughter… remind us how we used to be.

Thank you John… you’re no Whitney Houston, but you’ve got me all teary eyed over here.

There’s just one little, teeny-tiny, almost insignificant smidgeon of a problem with what the Mortgage Bankers Association’s CEO was saying: He was completely full of shit.

This past week, the Co-Star Group, Inc., indicated that it had agreed to buy the MBA’s 10-story headquarters building in DC for $41.3 million.  The only problem is that $41.3 million comes up a skosh shy of the $75 million first mortgage on the building that the MBA took out from PNC Financial Group way back in 2007, when they purchased the property for $79 million.

You remember 2007, don’t you John?  That was the last year that all of those irresponsible homeowners, thinking real estate prices would go up forever, kept over leveraging themselves, buying properties without the traditional 20% down payment.  What a bunch of irresponsible idiots, right Johnny Boy?  Now that the bubble has popped, those homeowners should just be taking their medicine like men, don’t you agree John?  The last thing they should do is walk away from their lawful debts, isn’t that what you said?

So I mean, what kind of message are YOU now sending to your family, your children, and your friends by walking away from your lawful $75 million debt?  Are they being morally harmed by your decision to stick the bank with close to $25 million?  And why aren’t you simply paying your mortgage as agreed, Mr. Courson? You’re not trying to destroy prices of commercial properties in Washington D.C. are you?

Just last year, you pointed out that defaults hurt neighborhoods by lowering property values, so borrowers would do less harm to our society were they just to repay what they owe.  You know… like the responsible homeowners.

(Oh, and this just in from my favorite bankruptcy attorney and all-around thought leader, Max Gardner, the MBA also defaulted on their payments and secured a forbearance agreement, prior to the short sale.  Nicely done, Johnny-O.  Maybe you should open a loan mod firm and start helping homeowners.)

Well, I think I’ve got your message, Mr. Courson.  I know exactly what you wanted to say to your family, your children and your friends…

Do as I say.  Not as I pay.

Does that about sum it up for you, Mr. John Courson?

Yeah, I thought so.

Jackass.

My regular readers will likely remember past articles in which I stated that we would not win this battle over foreclosures by fighting individually in the courts.  I’ve stated on numerous occasions that we needed to bring political pressure to bear and fight this in our legislatures, both state and federal, because for our judges to be of more help, we need some new laws to be written and some older laws to change.

The fact is that over the last thirty years, as the financial sector was steadily growing in size it was increasing its ability to influence our legislative system.

While we were all in a debt-induced coma wandering around aimlessly at our respective shopping malls, the banking lobby was busy making sure that essentially every single state or federal law proposed, having to do with creditors and debtors, either blatantly favored, or at the very least tilted towards the creditor’s interests… certainly not the borrowers’.

Now, as we’re facing a crisis of unprecedented proportion, we’re learning the hard way that our rights as borrowers are almost non-existent.  In California and around the country, foreclosure defense lawyers saw that mortgage servicers could far too often pretty much foreclose at will using almost anything as documentation.

Mickey could sign it… Donald could notarize it, and it just didn’t matter very often.

I also came to realize that as far as messages go, saying that the courts would not be the answer we were looking for went over like a lead balloon.  And since telling people something that they hate hearing is no fun, I tried not to bring it up any more than was necessary.

The problem is, and I realized this yesterday… I WAS RIGHT… AM RIGHT. 

A few days ago I noticed that several California politicians were announcing a town hall type meeting on the foreclosure crisis that could be viewed online.  They were even soliciting questions from the general public.  (I submitted a few but wouldn’t you know it, mine weren’t chosen.)

Yesterday, I watched the video… it’s an hour long and you’ll find it below.

I also watched various individuals, from homeowners to housing counselors to consumer advocates, give testimony related to the proposed bills, and one thing came crashing through… I should have testified.

I would have made a significant difference.

What I learned watching both the testimony and the round table with the politicians was that the knowledge base of those making policy decisions related to the foreclosure crisis has much room for improvement and expansion.  Clearly, no one has filled them in properly in numerous areas.  And we are making a HUGE mistake by not marshaling our forces to get involved in the political process and make our voices heard.

State’s AG Backs California Homeowners Bill of Rights

In an effort to prevent now well-documented foreclosure abuses, California’s Attorney General has been pushing the state’s legislature to adopt a series of legislative proposals containing stricter consumer protections related to mortgage servicing and foreclosure.

The proposals are part of what’s come to be called the “Homeowner’s Bill of Rights.”

Politicians, no doubt recognizing that this was not a debate they wanted to be having publicly and desperate for political cover, decided to take many of the proposals out of the normal legislative process and place them instead into what’s being called, “a special conference committee.”

The special committee’s members, if it matters and I’m not at all sure that it does, include four Democrats and two Republicans.  State senators Noreen Evans and Ron Calderon… and Assembly members Mike Feuer and Mike Eng are the Democrats.  Senator Sam Blakeslee and Assembly member Donald Wagner are representing the GOP on the committee.

Party affiliation may not be important because just like all the past legislative proposals related to preventing abuses in the foreclosure process, the Homeowner Bill of Rights is vehemently opposed by the banking lobby.  And that means that the more important distinction will likely prove to be who is pro-banker and who is pro-consumer, or at least somewhat neutral.

So, how does the committee break down in that regard?  Here’s a quick look:

Noreen Evans appears to me to be pro-consumer, with stated policy priorities that include protecting the environment, fighting for women and children, and the reform of our legal system.  Currently, she chairs the Senate Judiciary Committee.

Also, her district covers Humboldt, Lake, Mendocino, Napa, Solano, and Sonoma counties.  However, and not that this in conclusive, she previously served in the State Assembly (2004-2010) and during that time she was a member of the Assembly’s Banking and Finance Committee.

Mike Feuer seems to be at least neutral, if not solidly pro-consumer.  He’s a graduate of Harvard College and Harvard Law School.  He chairs the State Assembly’s Judiciary Committee, but previously he co-chaired the Assembly’s Working Group on Jobs and Economic Recovery, and chaired the Budget Subcommittee on Transportation and Information Technology.

Also, while serving on the Los Angeles City Council, Feuer co-authored the Affordable Housing Trust Fund, funded meals for 75,000 indigent seniors, led efforts to create playgrounds accessible to disabled children, and bolstered the city’s Ethics Commission.

Ron Calderon is an ex-banker, and I think it’s more than safe to say that left to his own devices, he’ll vote with the banking lobby every single time.  Today, Calderon chairs the very influential Senate Insurance Committee, which I believe until recently was the “banking and insurance committee,” but during his two previous terms in the State Assembly, he served as chair of the Banking and Finance Committee.

Calderon says his policy priorities include a balanced state budget, strengthening state and local infrastructure, creating jobs, and protecting the rights of consumers.

The problem is that Calderon’s idea of protecting consumer rights is presumably what drove him to sponsor California’s SB 94, a bill signed into law by the governor in 2009, ostensibly designed to protect consumers from foreclosure scams, but that ended up doing nothing more than chasing legitimate attorneys away from helping homeowners get their loans modified.

Almost three years later, foreclosure related scammers remain ubiquitous in California, while now, in the hands of the State Bar, SB 94 threatens to make it literally impossible for a homeowner to hire a lawyer to help with a loan modification.  I understand why the Mortgage Bankers Association supported SB 94, but I for one don’t need or want that kind of “protection,” thank you anyway.

Mike Eng chairs the Assembly Committee on Banking & Finance, which oversees California’s financial institutions, real property finance, and corporate securities law.  The Committee develops and shapes public policy in such as areas as mortgage foreclosures, payday lending, regulation of state chartered banks and credit unions, consumer lending, and financial privacy.

That seems pretty conclusive, I understand, but watch him talk on the subject of the Homeowner Bill of Rights on the video below.  He makes clear that public support or the lack thereof is going to be a key driver of the committee’s decision.

Sam Blakeslee’s says he’s “known as one of the state legislature’s most bipartisan members,” and he chairs the Select Committee on Recovery, Reform and Realignment, which is described as a bipartisan Senate think tank.

But, Blakeslee is also president of his family’s business, the investment firm Blakeslee & Blakeslee, founded in 1971.  He is a Certified Financial Planner, a Registered Securities Principal, and a Registered Municipals Principal.  So, I don’t know what all that means, necessarily, but I’d say it’s worth keeping an eye on this guy for sure.  Maybe he’s the state’s most bi-partisan banker.

And finally, Don Wagner, the Vice-Chair of the Assembly Judiciary Committee, is from South Orange County (I live in North Orange County, by the way), and it looks to me like he’s a typical Orange Country conservative Republican… he ran for his seat in the State Assembly on a platform of fiscal responsibility… which on its face, doesn’t bode well as far as his support for the Homeowner’s Bill of Rights goes.

His website says that his “district has not raised taxes, but by floating bonds, it has paid off all of its debts, and balanced every budget.”  So, does that mean that he floated bonds to take on the debt needed to pay off the debt?  I’m not trying to be funny… that’s what it says on his site.

Wagner’s a lawyer involved with the Orange County Bar Association and he’s served as a Judge Pro Tempore in the Superior Court of Orange County.  He also founded the Orange County Chapter of the Federalist Society, which is “a national organization of conservative lawyers, judges, and law professors committed to ensuring a judicial integrity and strict adherence to the Constitution of the United States.”

Were I a betting man, and I am, I’d have to bet he’s a vote against the Homeowner’s Bill of Rights, but I’m certainly willing to be proven wrong.

Scoreboard says…

So, based on that cursory analysis and absent any information to the contrary, I’d say that as far as the “special committee” goes, the score at halftime is:

BANKERS – 4                        CONSUMERS – 2

Under just about any other circumstances, I’d say that based on who the committee’s members are… the fix was in.  I’d stop following the Homeowners Bill of Rights and just wait to read bad legislative news once again… “Killed in committee, but thank you for playing.  The End.”

But, this time I’m not so sure how this will turn out, especially if I were to be successful at getting others involved… like I was with Norm Rousseau’s suicide, for example.  Or even half that successful would probably do it.

Which, of course, ultimately comes down to you.

Here’s why I think this time could be different:

• Attorney General Kamala Harris is publicly backing the Homeowner’s Bill of Rights.  It’s the first thing you see when you visit her website.  And it’s an election year.

• Servicer abuses and misconduct are now very well documented and widely known.  The DOJ settlement provides some $17 billion in principal reductions nationwide, and California gets the majority of that amount.  Plus, there’s another $8 billion involved.  That’s going to keep a light shining on whatever is happening for a while.

• California is the third hardest hit state, but its size makes it number one by far.  Our state budget deficit is the result of the foreclosure crisis, and the austerity ahead is going to touch everyone’s life, not just those at risk of foreclosure, and last for several years.

• This time, everybody’s watching, which is why the politicians pulled the Bill of Rights proposals into a “special committee.”  It’s dark in there and they’re hoping they can kill it without anyone seeing who done it.  But that’s not going to be easy this time around.

• This time, maybe enough Californian’s have been affected by the crisis, or see that they’re about to be affected by the crisis, so they’ll actually take the time to send emails and contact their elected representatives… and ask that their friends and family do the same.

The only way this country ever gets onto a path not fraught with risk of pain, civil unrest, and violence is if some balance is restored.  The pendulum has been allowed to swing too far to one side… it can’t stay there… the question is how is gets pushed back.  As Robert Reich says in his brilliant book, “Aftershock,” the two choices are radical revolt or radical reform.  (If you haven’t read it I HIGHLY recommend it.”)

Regardless, the fact that our elected representatives still have such a rudimentary understanding of the crisis and its impact on our society is proof that we are failing to educate them.  Homeowners are spending more time talking about robo-signing than they are talking to their elected representatives at the state and federal levels.

I’m not saying we should stop anything.  But I am saying we need to significantly expand our communications capabilities.  And I know we can do so fairly easily…

… Norman Rousseau taught me that.

More people read, shared, forwarded and talked about the story I wrote about Norm’s suicide than any of the articles I’ve written in the past.  And that’s sad.

Consider the following 3 facts:

A. When it comes to our politicians, there’s only one thing more important than money in this country… and that’s getting reelected.  If politicians think banking lobby money is what’s needed to get them reelected, then they’ll vote with the banking lobby.

But, if they realize that by voting with consumers they won’t need banking lobby money to get reelected… and that if they do vote with the banking lobby, there’s not enough money in the world to get them reelected… why, then they’ll vote with consumers.

B. There are only two ways to gain real political influence in this country.  One involves having a lot of money, and on that front we’ll never win… they’ve got the money advantage cornered.

The other way to gain political influence is to have a lot of people, and that’s currency we should be able to come up with in the thousands, or even millions. Already, there are easily 20 million Americans that have been directly affected by the foreclosure crisis… enough to sway a national election if organized.

C. This is an election year.  Right now, in Washington D.C. those in the House of Representatives all know that soon, they’ll be coming home to campaign for reelection in their home districts.  And right now, they’re polling their constituents and likely voters to see what’s on their minds, because they don’t want to come home to find people throwing tomatoes at them.

If any one of them received 500 emails on the same topic right now, they’d start sweating like Rick Santorum at HomoCon-2012. 

(Or, maybe like… Tim Geithner at a Save My Home convention?  Pelosi on a duck hunt with Cheney?  Boehner at a Hallmark Film Festival?  G.W. Bush on Jeopardy?)

WE’LL WIN BECAUSE WE’RE RIGHT.

The special committee is reviewing what are considered to be the “more far-reaching of the proposals.”

So, what the heck does that mean?  Well, it includes things like a law that would, according to the San Bernardino County Sun…

“… prohibit foreclosures whenever a homeowner makes a timely application for a loan modification, mandate that banks establish a single-point of contact for borrowers facing foreclosure, and let borrowers challenge proceedings in court, among other things.”

Well, why didn’t you say so?  Good Lord, those things are incredibly “far reaching.”  In fact, I could have sworn that one of them just reached out from Sacramento and tickled my tushie some 400 miles away.  That’s some reach, I’ll tell you what.

Banking industry representatives are said to oppose these ideas on grounds that they may encourage strategic defaults and spurious lawsuits.

To which I would only reply: Prospice tibi, ut Gallia, tu quoque in tres partes dividaris.

(Latin, meaning: “Watch out, you might end up divided into three parts, like Gaul.”)

Come on, banking industry representatives… why would any of those things increase the probability for strategic default, or was that just all you guys could come up with on short notice.  What happened to, “there won’t be any more lending or borrowing costs will rise?”  Those didn’t make any sense either, but I was getting comfortable with them nonetheless.  Strategic default?  Phooey.

And spurious lawsuits?  I’m not sure we both understand what that word means, that is to say… I do… but do you guys?  Would you like to know what’s causing the spurious lawsuits in California?  I’ll be happy to tell you.

It’s SB 94, which was your idea in the first place, was it not?  Don’t try to tell me that it was Senator Calderon’s idea because clearly he’s a marionette.  You chase all the legitimate lawyers away from helping homeowners modify loans and what you get are spurious lawsuits by the hundred.  Haven’t you figured that out yet?

Attorney General Harris has said exactly what I was suggesting several months ago when the settlement was first announced, albeit a tad prematurely.  She said it’s important to strengthen due process by writing some of the provisions of the national mortgage settlement with the nation’s five largest banks into state law.

Finally, there is intelligent life in politics.  It absolutely takes my breath away that finally, someone in a position of power actually agreed with me about something.

And I wrote the following on March 1, 2012…

If the new servicer standards were made into state law that had a private right of action and a provision for attorneys fees, that would save homes and stop foreclosures, and it would do so more effectively than any amount of money.

I’m not talking about bailouts for borrowers, I just want the rules associated with a national program to be followed and enforced, and I think every homeowner in the country should and would want that too, regardless of whether at risk of foreclosure or not at this moment.

 

Every homeowner in America should want federal programs to operate as they were intended to operate.  It’s not about who is at risk of foreclosure and who isn’t.  It’s simply about being in favor of basic fairness in our federal or state programs.  No one should oppose any of those ideals, and those that suffered as a result of being deprived such fairness would engender sympathy from others.

We simply have to do what the Attorney General is suggesting… otherwise all we’ll have are another set of HAMP guidelines, and we don’t need another set of useless guidelines that no one follows and no one can enforce.

No one should want that, by the way, because we understand that “HAMP HAPPENS.” 

But, if HAMP HAPPENS TWICE, strategic defaults and spurious lawsuits are going to look like a picnic at the beach on a sunny day with someone you love.

A SPECIAL MESSAGE TO ATTORNEY GENERAL HARRIS…

Okay, I’m a HUGE fan.  Brilliant!  How can I help?

 Reach me anytime at mandelman@mac.com.

Mandelman out.

# # #

NOW CLICK PLAY TO WATCH CALIFORNIA’S

Foreclosure Crisis Town Hall

1. Independent Foreclosure Review Fail | NY Times – Foreclosure Relief? Don’t Hold Your Breath
2. Independent Foreclosure Review | OCC Says Independent Consultants Can’t Contact Borrowers
3. Federal Reserve’s Independent Foreclosure Review and HAMP Escalations Review

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. Mortgage Bankers Association Letter to the Federal Reserve RE “Skin in the Game” and the Ability of Borrowers to Repay
3. Mass Court May Rule on Retroactivity of some Foreclosures Tied to ‘Naked Mortgages’

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

Does anyone know what’s happened at Wells Fargo Bank?  If so, please let the rest of us know, because in a line up of TBTF bank CEOs, to stand out as being particularly awful is no easy task… and yet Wells Fargo’s CEO, John Stumpf has risen to the challenge and then some.

At the beginning of April of this year, Judge Elizabeth Magner, a federal bankruptcy judge in the Eastern District of Louisiana, characterized Wells Fargo’s behavior as being “highly reprehensible.”  Think about that for a moment.  That means that the judge decided that to describe Wells Fargo as merely “reprehensible,” wasn’t enough.

Wow, that is something.  Can you imagine someone saying that about you… a federal judge, no less?  I’m thinking that if a federal judge ever has the occasion to describe my behavior as being worse than “reprehensible,” I’m going to jail for a long time.

Of course, no danger of anything like that happening here… bankers don’t go to jail in this country, every one knows that.  But, in this instance, after more than five years in litigation with a single homeowner, Judge Magner ordered Wells Fargo to pay the New Orleans man $3.1 million in punitive damages.

Now, if that sounds like a paltry sum for the likes of Wells Fargo, that’s only because it is.  And that it represents one of the largest fines ever levied related to mortgage servicing misconduct hardly makes it feel any better.

It’s kind of like being forced to eat dog turd ice cream, but finding out that it’s okay if you pour motor oil on top.  Does that improve your circumstances?  I guess so, but…

Judge Magner, in her opinion, wrote…

“Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate the amounts owed, but perhaps more disturbing is Wells Fargo’s refusal to voluntarily correct its errors. It prefers to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than voluntarily relinquish gains obtained through improper accounting methods.”

So, what was Wells Fargo doing exactly?  Well, they were systematically over-charging the people least able to do anything about it… those filing bankruptcy.  In this case, Wells Fargo improperly charged the borrower $24,000 in fees, but it wasn’t done by hand, it was the bank’s automated systems doing precisely what they were programmed to do.  Like, anything but an isolated incident.

After the borrower fell into default on his mortgage, Wells Fargo’s automated system began applying his mortgage payments to interest and fees that had accrued instead of to principal, as required by his servicing contract, which in turn led to him being charged with a virtual waterfall of additional fees and interest.  And even after the borrower filed bankruptcy, Wells Fargo continued to misapply his payments, according to Judge Magner’s written opinion.

And why wouldn’t they?  I know, it sounds weird to say it, but I think I would have been disappointed had Wells stopped there.

There’s even a terme de l’art for this scenario used by consumer lawyers… they call it a “rolling default.”  I suppose the name refers to the idea that once the scheme gets rolling, it’s all downhill from there.  I think it should be called a “boiling default,” because once it’s boiling, you’re goose is most assuredly cooked.

Or, wait a minute… hang on… how about we call it: “Getting Stumpfed.”

(Come on, admit it… I’m good.)

Judge Magner went on to describe Wells Fargo’s litigation tactics as involving the filing of dozens of briefs, motions and other filings clearly designed to slow down legal proceedings to such a point that anyone thinking of mounting a legal challenge against a bank quickly finds it essentially impossible.

And since it’s only through costly litigation that the insidious crimes of Wells Fargo become apparent, all the bank has to do is prevent those with limited resources from doing what they can’t do with limited resources.  Now there’s a winning business model for you.  Like making billions by stopping blind people from seeing.

What sort of a company engineers this sort of strategic core competency anyway?  Remember Ford’s infamous Pinto strategy… rather than fix the problem, just settle them as they exploded?  Well, this Wells Fargo stuff makes that look as benevolent as Girl Scouts selling cookies after church.

Wells Fargo actually engineered a strategy and built a system to rampantly abuse the individuals in our society least able to defend their interests.  This is a bank that deserves to have a statue erected in its likeliness and even its own Lazarus-styled sonnet.  I’m just thinking out loud here, but how about…

“The Statue of Larceny”

And inside the base, engraved on a bronze plaque, could be these words…

Give us your jobless, injured, bankrupt filers, whose lawyers won’t work free. 

The wretched refuse against whom in court we’ll always score. 

Send them one by one, homes all sold by substitute trustee,

We’ll rape them, rob them, force them out Wells Fargo’s golden door.

Not bad, right?  No?  Sheesh… tough crowd. 

Judge Magner, in an interview with Ben Hallman of Huffington Post, said that she personally analyzed the loan files of twenty borrowers in her court and found supposed “errors” in every single instance.  So, at least we know the systems are working properly, and somehow I find that oddly reassuring.

I don’t know why but there’s something even more terrifying about the idea that we might be getting ripped off by banks in an entirely random way.  Like one day you get hit for a hundred… and the next day not only is your entire IRA gone, but two weeks later you learn that the bank bounced one of your checks to the IRS for the penalty on the early withdrawal.

I know, right?  Now, that would be rude.

I guess I only have a couple of questions I’d like to ask, and the most obvious is: Why would anyone whose read about this decision continue to bank at Wells Fargo? 

I mean, if they do this sort of thing systematically… AND THEY UNQUESTIONABLY DO, how do you know where the other spots are that are picking your pocket for twenty here and twenty there.  Because you’re not going to tell me you think this case has uncovered the only place at Wells Fargo where this sort of thing goes on, are you?  Come on… what are you, six?

And, my second question is: What do our elected representatives do these days… I mean specifically?  State or federal, I don’t care which… you pick.  Because it kind of seems like we’ve quietly been transformed into a lawless society in many ways, don’t you think?

Like in this bankruptcy case… the judge has uncovered the systematic stealing from the defenseless, but it’s not like it’s a major news story, or anything.  To the contrary, it’s nowhere.  Doesn’t anyone but me find that amazing?  How do they do that?  Where have all the journalists gone?

I can tell you that I receive more complaints about Wells Fargo refusing to approve loan modifications than any three other mortgage servicers combined.  But then, Wells did modify one of the homeowners I wrote about a few months back.  I don’t know why, maybe it was an accident.

Here’s one more thing Judge Marner said about Wells Fargo in her written opinion…

“These are loans of working-class people who bought homes they could afford and whose loans were not administered correctly from an accounting perspective,” Judge Magner said. “I think that these types of problems occur in almost every [defaulted] loan in the country.”

Good Lord.

So, Mr. John Stumpf… Wells Fargo’s CEO… you just go ahead committing those criminal acts with impunity.  Don’t change now… go down with your ship.  Besides, I’m sure there are deceptions your people haven’t thought of yet.

Do you have a program that targets autistic children yet? Or what about something abusive for unmarried pregnant chicks that never finished high school? Or, what about the elderly, are you doing enough to take advantage of the elderly?

I’m sure you’ll think of something, which is why I’ve told my wife and daughter to stay out of banks for the foreseeable future.  We only make deposits at the ATM at night, which may sound crazy, but I’m betting will one day soon prove considerably safer than being inside during the day.

Lo siento.  Que se mejore pronto.

Mandelman out.

1. 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
2. OCC Settles Civil Money Penalties Against Large National Bank Mortgage Servicers for $394 Million; Penalty Assessment Coordinated with Servicers’ Actions and Payments Under Federal-State Settlement
3. Federal Reserve Orders $85M Civil Penalty Against Wells Fargo for Steering Potential Prime Borrowers Into More Costly Subprime Loans and Falsifying Income

1. More than 7.2 Million Loans Behind On Payments; Estimated 1 Million Properties in REO Status
2. Federal Reserve Orders $85M Civil Penalty Against Wells Fargo for Steering Potential Prime Borrowers Into More Costly Subprime Loans and Falsifying Income
3. Mortgage Bankers Association Sold $79 Million Headquarters for $41 Million, New Buyer Flips Building for $101 Million

1. Independent Foreclosure Review | Flaws Jeopardize New Attempt to Help Homeowners
2. Independent Foreclosure Review | OCC Says Independent Consultants Can’t Contact Borrowers
3. Federal Reserve’s Independent Foreclosure Review and HAMP Escalations Review

Our local AG's office just held a meeting for people who serve homeowners in foreclosure, to explain what the settlement means to consumers. In this blog, I share what I learned. Homeowners in each state that is a part of the settlement (sorry Oklahoma) will receive tens of millions of dollars for forgiving principal on loans, refinancing for borrowers who are current but under water, and direct payments to those whose homes were foreclosed between January 1, 2008 and December 31, 2011.  KEY FACT: Because people need to apply for these funds, education and outreach is essential. Please circulate this information as far and wide as you can.  The funds are available for three years, and funds not used are retained by the banks. Five pots of money are available, and I’ll provide the New Mexico estimates where available just so you can see the proportions, but each state’s numbers are different and most will be much higher.

First, there will be money for those who are delinquent and whose loans are serviced by the five settlement banks (BAC, JPMorgan, Wells Fargo, Citi, and GMAC/Ally) (these funds are estimated to be about $63,000,000 in New Mexico). These funds are available for various types of assistance, including principal reduction or forbearance. Information and application forms can be found on most state AG’s web sites. As part of the settlement, banks agreed to 45 pages worth of servicing standards. The activities of the banks are subject to independent review by a former bank commissioner from North Carolina who will have “unfettered” access. AGs also have access and oversight. There are penalties for non-compliance, though I am not sure if there are third party beneficiary rights.

Second, moneys are earmarked for homeowners who are behind but cannot refinance because they are under water, as long as the homeowner's note is owned (as opposed to just serviced) by the five settling banks (an estimated $2,500,000 in New Mexico). It looks as though notes in a trust administered by one of the settling banks are eligible for this benefit as well. Third, money is set aside for state financial services, and fourth for foreclosure prevention. 

Fifth and finally, homeowners whose homes were foreclosed between January 1, 2008 and December 31, 2011 are eligible for direct payments. These funds are not meant in any way to compensate for the loss of the home, just to say “I’m sorry.” These funds are estimated to be in the range of $1,500 to $2,500 per lost home Nationwide, depending on how many people apply.

There also will be some other assistance including deferred payments for homeowners, relocation assistance, waiver of some deficiency balances, and funds for fixing blighted properties. AG's offices will also get funds to ameliorate the problem however they see fit.

What steps must consumers follow to take advantage of the settlement? Each servicer will have its own process, but consumers should contact their local AG's office and that office’s web site. Also check out this amazing web site that explains the settlement in clear terms, through diagrams.

We are lucky here in New Mexico, that the local AG’s office is so transparent.  Part of their meeting Friday was dedicated to brainstorming about how to get the word out to consumers.  Nothing could be more important in the context of this settlement, because servicers will only pay these high dollar settlement figures if people apply. The settlement website will be updated with helpful information and details on how to proceed as information becomes available, so help us spread the word.

These details are good to know, but the $25 billion question remains. Following robo-signing, fraudulent documents, incomplete ownership trails etc., will servicer behavior change? If not, won’t more liability follow for the servicers? If so, how will servicersaccomplish change? Better staffing? Better settlement opportunities for borrowers? Distribution of much of these funds is still in the discretion of the servicers, so one can only hope we see real change. I am a bit similar to those buyers in the  Shaken faith cases.  To quote my father, I am hopeful for change, but I’ll believe it when I see it.

1. HAMP | Federal Payments Halted to Bank of America, J.P. Morgan Chase and Wells Fargo for Failing to Meet Basic Program Requirements
2. BofA Lawsuit to Stay in State Court | State of Arizona vs. Countrywide, Bank of America, et al
3. Notice of Appeal Filed – Stay of Court Order to Vacate Injunction Stopping Bank of America Foreclosures in Utah Requested

1. HAMP | Federal Payments Halted to Bank of America, J.P. Morgan Chase and Wells Fargo for Failing to Meet Basic Program Requirements
2. BofA Lawsuit to Stay in State Court | State of Arizona vs. Countrywide, Bank of America, et al
3. Notice of Appeal Filed – Stay of Court Order to Vacate Injunction Stopping Bank of America Foreclosures in Utah Requested

Good for the Banks, Good for the Borrowers

By Lauren E. Willis, Professor of Law, Loyola Law School Los Angeles

February 17, 2012

Beginning in 2007, the federal government took drastic action to save the nation’s banks. The banks were underwater, with liabilities that exceeded assets by any honest accounting. In response, we committed to them not only $700 billion in much-ballyhooed TARP funds, but also, hidden from public view, trillions of dollars in loans at rates as low as .01 percent, far below what any private investor or bank would have given them.

Although the banks have made much of having paid back much (but not all) of the face value of TARP funds extended, they have not paid a market rate of interest on the money they borrowed. They have even kept what Bloomberg calculates to have been a neat $13 billion in profit from lending the money they borrowed back to American consumers and businesses at higher rates. The American people not only threw the banks a life raft, but pulled most of them ashore.

Yet over four years later, millions of American homeowners are still sinking. About twelve million homeowners are underwater, summing to the ironic number of about $700 billion. To avoid foreclosure, these homeowners will have to make, month after month, year after year, payments totaling far more than their homes are worth.

Many will not be successful. Best estimates are that if we stay on our present course, we are only half way through the foreclosures precipitated by dropping home values, and that the economy will remain in its feeble state for years. The social costs of foreclosure will roll on, increasing the tax burdens and decreasing the quality of life for all households, renter, former homeowner and current homeowner alike.

There is as yet no Troubled Asset Relief Program for homeowners, despite the Obama Administration’s many incarnations of its “Home Affordable” programs. Many Americans’ most troubled asset is their over-mortgaged home, and the government has neither committed $700 billion to help them, nor extended them .01 percent interest rate loans. The $17 billion in principal reductions just agreed to by the banks to settle charges that they lied to the courts in foreclosure documents and charged homeowners bogus fees is less than three percent of the total housing debt overhang.

But what was good for the banks would be good for homeowners, and for renters too.

How would a TARP for homeowners work? Through the power of eminent domain. Eminent domain allows the government to take private property for a public purpose, so long as the owner is paid just compensation. Eminent domain can be used to correct deficiencies in the market, particularly when they threaten public tranquility and welfare.

Homeowners trapped underwater threaten the welfare of our society. After sending inflated monthly payments off to banks, they have little left to spend each month in their communities. They cannot sell because they cannot afford to pay the mortgage balance that exceeds any price their houses could command. Stuck in place, they cannot move to cheaper housing, better jobs,
or training opportunities.

With so many Americans removed from the pool of potential buyers, those who own their homes with smaller mortgages or outright cannot sell their homes for decent prices, trapping them too in place and forcing some to delay retirement. The low house prices do not even benefit renters, who cannot easily buy – in communities that are not decimated by foreclosures, sellers cannot afford to sell, and in communities that are decimated by foreclosures, banks refuse to lend.

With everyone frozen where they were when the housing bubble burst, the workforce is not nimble enough to follow businesses that have quickly changing needs, and so American businesses outsource the work to companies in other countries – both to assemble products and to assemble the engineering teams to develop those products.

Eventually, underwater homeowners will have too little income to make their payments or will give up trying. Further foreclosures will not only drag housing prices down further, but lead to property hazards, fires, crime, and other social costs, threatening the nation’s tranquility.

The logistics of providing homeowners relief from their troubled assets are not particularly complex, and similar programs have been done before. Any jurisdiction with eminent domain authority – the federal government, state governments, or in some states, local government bodies – could do it.

Two general methods could be used, either triggered by a petition of the homeowner. One, which I first proposed in 2008, would allow the government to take primary residences at risk of foreclosure and then sell the homes back to the homeowners at current market prices, with new fixed rate mortgages that do not exceed the value of the home. Because just compensation in eminent domain is measured by the market value of the property, today’s fire-sale home prices would be a boon to this plan. Lenders and investors would receive the lesser of the mortgage balance or the amount paid by the government as just compensation.

A more elegant method, similar to one proposed by Professor Howell Jackson at Harvard Law School, would allow the government to take mortgages at risk of foreclosure, reduce the principal balances and renegotiate the terms with homeowners, without title to the home changing hands. The government would pay the lenders the market value of the mortgages, meaning what an investor today would pay for them; no investor would buy these mortgages for more than the value of the collateral securing them.

The government could sell the new or renegotiated mortgages to private investors directly or could sell bonds backed by the mortgages. So long as the government underwrites the mortgages well, with documentation of borrower income and assets, fair appraisals and monthly payments the borrowers can afford, banks and investors will buy the mortgages or bonds.
This plan is not entirely unprecedented; eminent domain has been used to boost homeownership in the U.S. before.

At one time in Hawaii, concentrated land ownership was injuring the public tranquility and welfare by preventing ordinary families from owning the property on which they lived. To fix this market failure, the state took land from large landowners and compensated them at fair market value. The state then sold the property to the families who had been living there and paying rent, offering them mortgages through the Hawaii Housing Authority. The Supreme Court had no trouble finding this to be constitutional.

Naysayers will predict that banks will never lend to homeowners again in any jurisdiction that implements this plan. But banks are not giving out many new mortgages now. A state or locality with homeowners that are no longer weighted down by excessive debt would be the best place in America to lend.

Others will say that forcing banks to realize the true deflated values of the mortgages on their books will send them back under. But history says otherwise. During the Great Depression, and against the strenuous objections and predictions of doom by creditors, the federal government nullified all clauses in contracts that pegged debt to the price of gold. By taking these contracts off the gold standard, debts were reduced by roughly 40 percent.

Economist and former Federal Reserve Board Governor Randall Kroszner examined the effects of this sweeping debt reduction and found that both stocks and bonds responded favorably. Despite their prior opposition, creditors decided that the elimination of debt overhang and the avoidance of threatened corporate bankruptcies more than offset the cost to creditors of receiving 60 cents on the dollar.

Like the abrogation of the gold standard clauses, eminent domain is a blunt instrument, one that inevitably will be more generous to some than others. Politicians may proclaim that irresponsible homeowners should not be given a helping hand. But in four years, underwater homeowners have already learned all they are going to learn, and to continue punishing them unfairly punishes the rest of us.

Now that we know the Wall Street bailout will not flow out to buoy up the rest of the country’s families and businesses, it is time to help ourselves.

# # #

Lauren E. Willis is a Professor of Law at Loyola Law School Los Angeles, and an expert on the regulation of consumer financial products, including home mortgages.

Professor Willis earned her BA with high honors in general scholarship from Wesleyan University, and her JD, with distinction and Order of the Coif, from Stanford Law School where she was on the senior staff of the Stanford Law Review, a co-founder of the Stanford Public Interest Law Students Association, and a Foreign Language and Area Studies (Russian) Fellow.  Lauren received the Block Civil Liberties Award, the Stanford Women Lawyers Scholarship, and the University Goldstein Award for Scholarship on Children at Risk. 

After law school, Lauren clerked for the Office of the Solicitor General of the United States and for Judge Francis D. Murnaghan, Jr. of the United States Court of Appeals for the Fourth Circuit.  Before coming to academia, Willis was a litigator in the Housing Section of the Civil Rights Division of the U.S. Department of Justice and worked with the U.S. Federal Trade Commission on predatory mortgage lending litigation.   She currently serves on the Research Advisory Council of the Center for Responsible Lending in Washington, D.C.

Lauren taught at Stanford Law School as a Fellow, joined the Loyola faculty in 2004, and spent the 2008 Spring semester as a Visiting Associate Professor at the University of Pennsylvania Law School.  She was honored by Loyola’s graduating day class with the 2008 Excellence in Teaching award.

In her lecture, panelist, and media appearances in the U.S., the E.U., Korea, and South Africa, Willis has discussed regulation of the U.S. home mortgage market, predatory lending, financial literacy education, behavioral decisionmaking, and a variety of consumer law topics.  She is a member of the State Bars of Maryland and Massachusetts.  Currently she teaches: Civil Procedure, Consumer Law, Contracts, and Problems and Reforms in the Home Mortgage Market.

Other papers written by Professor Willis I think you’ll find of interest…

1. Delaware Officials Wrestle Over Foreclosure Fraud Deal
2. David Dayen | Foreclosure Fraud Settlement Docs (I): Ally’s Side Deal
3. Letter | Curtis Hertel Jr Urges Michigan AG Bill Schuette Not to Sign on to Foreclosure Fraud Deal

To add to Jean's post on the National AG's mortgage settlement, we now have a copy of a complaint that formed the basis for the AG settlement, in which the United States of America (along with all the states but Oklahoma) sued most of the major  servicers for committing misconduct in connection with the origination and servicing of single family mortgages. Here is the complaint (Download US v Servicers), but to give you a flavor the suit alleges, among other things, failing to discharge underwriting obligations, failing to do modification underwriting, losing the paperwork, failing to train or maintain sufficient staff to deal with the modification processes, allowing borrowers to stay in trial modifications for excessive periods of time, wrongfully denying modifications, misleading consumers in connection with modifications, and foreclosing while a customer is in modification.

1. Mortgage Bankers Association Letter to the Federal Reserve RE “Skin in the Game” and the Ability of Borrowers to Repay
2. Federal Reserve Governor Sarah Bloom Raskin Urges Penalties on Mortgage Servicers
3. OpESR | Anonymous Vs. The Federal Reserve June 14th – Ctrl+Alt+Bernanke

1. Fearmongering, Economic Terrorism, or End Game? Obama “I cannot guarantee that those checks go out on August 3rd”
2. Obama Criticized For Living In Lavish Mansion While Most Americans Struggle To Make Ends Meet
3. Fraudclosure Smoking Gun? Liar Loans – JP Morgan Chase Loan Officer Lied on Borrowers Loan Applications to Make Numbers Work

1. Forced Placed Insurance | Big Banks Face Inquiry Over Home Insurance
2. NY Times | Forced Placed Insurance ONE of the Richest and Most Secretive Sources of Profit
3. Forced Placed Insurance | Elderly Couple Facing Foreclosure Claims JPMorgan Took Payments for Principal and Interest and Applied it Toward Insurance

1. Forced Placed Insurance | Big Banks Face Inquiry Over Home Insurance
2. NY Times | Forced Placed Insurance ONE of the Richest and Most Secretive Sources of Profit
3. Forced Placed Insurance | Elderly Couple Facing Foreclosure Claims JPMorgan Took Payments for Principal and Interest and Applied it Toward Insurance

1. Oregon | House Proposal Would Weaken Senate Foreclosure Protection Bills, Validate MERS Retroactively
2. Homeowners’ Response to Banks’ Dual Track Mod/Foreclosure System
3. Oregon | Re: PRR 174 – Public Records Request Acknowledgment on Oregon House Judiciary Committee Records Dash-7 Amendment to Senate Bill 519

1. KABOOM | Illinois Attorney General MADIGAN ISSUES SUBPOENAS Against Lender Processing Services (LPS) & Nationwide Title Clearing (NTC)
2. WTF? PerfectChain℠ – Nationwide Title Clearing (NTC) Helps Homeowners and Borrowers by Identifying Cloud on Title of Properties
3. Nationwide Title Clearing | Scientology founder’s tenets drive Pinellas title company, under fire for rapid document processing

The foreclosure wars have always had two easily identifiable sides.  It’s homeowners in one corner… and banks and mortgage servicers in the other.  In the beginning the battle was largely over TILA and RESPA claims.  After that, we fell into loan modifications, and then into the HAMP guidelines that were never really followed by the servicers, or if they were on occasion, no one could tell.

Lawyers who went to court over HAMP “rules” quickly discovered that they were more like pointers, intimations, tips, or perhaps clues… but whatever they were, HAMP had no teeth, and if there was anything that could be construed as a rule or law, then there was no private right of action.  And as far as the HAMP contract between Fannie Mae/Treasury and the participating servicers, well… forget about it because borrowers were not considered third party beneficiaries to that contract.

I never liked any of these decisions one bit… and I still don’t.  But I’m no lawyer, so I went along with whatever the foreclosure defense attorneys thought best.  Obviously, on these points at least, the fix was in, so I climbed on the bus and went on down the road.

We arrived at the battleground called “securitization fail,” and soon everybody on the homeowner side was learning to sing a new version of their ABCs that went like this… A to B, B to C, C to D, which represented the steps required to properly negotiate a note into a REMIC trust, steps that were almost never followed… or maybe never followed.

The argument, however, was a technical one and judges weren’t exhibiting much patience for the technical learning that was required to understand the argument.  It seemed that the judges were having trouble seeing past the 300 cases on their dockets and the homeowner who hadn’t paid their mortgage payments in over two years.  The argument may very well have been rock solid, but many lawyers came back from court reporting that their judges had heads that were solid as rocks.

Next up was the media darling “robo-signing,” a practice that created documents to be filed in the records that were forged or signed without knowledge of anything, or illegally notarized, or whatever else you could think of… the paperwork was all wrong.

This debate is still raging, but it hasn’t done a lot of good for many homeowners, truth be told.  It certainly has delayed things, in certain instances, and it even slowed the number of foreclosures filed during the year… but it’s certainly not keeping people in their homes in any number.

The bank and servicer side of this argument says that it’s just sloppy paperwork, technicalities causing no harm to borrowers… to which the foreclosure defense side replies, “YOU’RE BREAKING THE LAW… and then in response we hear, “IT DOESN’T MATTER.”  “YOU’RE BREAKING THE LAW.”  “IT DOESN’T MATTER.”  It’s annoying… I’ll certainly give it that.

Good Morning, New Jersey…

Well, yesterday the New Jersey Supreme Court ruled in the Guillaume case, a much-anticipated decision, so I’d been told… and the ruling says that in addition to the servicer’s name and address, the lender’s name and address must appear on the document that states that a bank intends to foreclose on a mortgage.  (You’ll find a copy of the case at bottom.)

Earth shattering news?  Yes, I thought so too.  File this one right next to “Brown v. The Board of Education,” or “Plessy v. Ferguson.”  I’m sure law schools all over the nation are rushing to change their curriculums to add a class on the “Much Anticipated but Meaningless.”

 140 Elmwood Ave, East Orange, NJ

The case involves an East Orange, New Jersey home owned by Maryse and Emilio Guillaume.  The couple received a notice of intention to foreclose in May of 2008, and that notice included the name and address of the mortgage servicer, America’s Servicing Co., but it failed to include the name and address of the lender.  And somehow, this issue made it all the way to the state’s Supreme Court.

The state’s high court ruled that because the foreclosure notice that the servicer sent to the Guillaumes did not include the name and address of the lender in addition to that of the servicer, it did fail to comply with New Jersey’s Fair Foreclosure Act.

The court said that, failure to include such information creates the potential for “significant prejudice” to homeowners.  According to the high court…

“A misunderstanding about a lender’s identity could prompt a homeowner to make a critical error at a time when he or she is struggling to avert foreclosure.”

From the sounds of that, you’d think that the decision represents some sort of a win for homeowners, right?  Not so much.

While the court ruled that the lower court judge was wrong about the need to include the lender’s name and address on the notice of intent to foreclose in addition to the servicer’s, the ruling also said that the lower court was correct to order a default judgment against the couple. Specifically, the court ruled that the couple did not make a case for “excusable neglect” or a “meritorious defense” related to their foreclosure, so the Guillaumes still lose their home.

Additionally, the high court also reversed a separate appellate decision, known as “Laks.”

The Laks decision said that a foreclosure should be dismissed if the notice of intent to foreclose did not comply with New Jersey’s Fair Foreclosure Act, and by reversing that decision, now trial court judges that find a notice that’s fails to comply, will be able to either dismiss the action, or simply order a corrected notice, or even select another solution they deem appropriate.

So, now… after all this… while it’s true that the lenders name and address has to be included on the notice of intent to foreclose along with the name and address of the servicer’s, in the event that the lender’s name is missing, that will no longer necessarily mean that the foreclosure will be dismissed and the servicer will have to start over.  Now, the judge will have the discretion to simply order a corrected notice and allow the foreclosure will proceed.

Throughout last year, uncertainty over how the court would ultimately rule in this case led servicers to postpone foreclosures in New Jersey, and as a result foreclosures were down by 80 percent.

Now, I’m not saying that’s necessarily a bad thing, and if it were the goal, then I would call it a success. But, time is the natural enemy of a loan modification, because the longer the delay, assuming no mortgage payments are being made, the greater the amount of arrearages that have to be dealt with in order to modify the loan.

Now consider that reports all indicate that there are at least 100,000 New Jersey foreclosures that were stalled throughout last year, and that will now move forward.  That’s 100,000 or more homes that have less chance of being modifiable today than they would have a year ago.  So was the delay truly beneficial to homeowners?

I suppose for those that have no chance to  save their home by getting their loan modified, they got an extra year living in the house, but  even these people might have been better off dealing with it  a year ago and today being one year closer to rebuilding their credit and buying their next home, assuming that’s they’re goal.  The point is that a delay can be a dual edged sword, because it almost never leads to saving homes from foreclosure.

Lawyers that represent servicers all appeared quite happy with this decision because now a process that’s been clogged by uncertainty has been clarified by the court, and foreclosures will be free to move forward.

But it occurs to me… homeowners would not have been happy regardless of how this decision had gone.

I suppose I could be missing something, but I just don’t see a potential win in this case for homeowners no matter what.  It was from its outset, a lose – lose scenario.

Bloomberg, covering news of the decision, quoted Rebecca Schore of Legal Services of New Jersey, an attorney for the Guillaumes, saying that…

“While she was pleased with the ruling on the need to name the actual lender in a notice of intention to foreclose, she was disappointed that the court didn’t require dismissal of the complaint.”

Okay, I hate to say this but… does any of this really matter to homeowners?  Aren’t both positions merely a delay, and not much of a delay at that? 

I mean, one way the notice of intent to foreclose includes the name and address of the lender in addition to the servicer, and the other way the notice doesn’t.

It seems to me that we’re pretty much exclusively fighting for delays, these days… in the hope of gaining leverage… all to achieve one thing… an affordable and therefore sustainable loan modification, because that is the only way homeowners are remaining in their homes in any number.  Everything else seems to carry the odds of a Hail Mary at best.

Why are we giving our government a pass?

In February of 2009, our president introduced a plan that was to provide a path to precisely that, a sustainable loan modification, but when the participating servicers weren’t following that program’s rules, no one was willing to enforce them.  And because of that entirely unacceptable and unforgivable unwillingness to enforce the programs rules, our entire nation has endured unspeakable suffering and financial pain.

But we didn’t turn to our legislature to demand that something be done to correct the unjust situation, we followed other paths instead, perhaps for good reason.  But the fact remains that we have largely ignored the fact that the failure of HAMP is our government’s failure. As such, it is our government that should be held accountable.  And as this is an election year, it seems the timing for such efforts is fortuitous.

I’m certainly not saying that people and their attorneys shouldn’t be doing whatever they can to protect their homes, and I’m sure there are times when a delay is advantageous.  All I’m saying is that when the rules set forth by a federal program are being ignored it’s up to our elected representatives to do something to make damn sure those rules are followed because they were written in best interests of the program’s participants.

EPILOGUE…

The rules set forth under HAMP should be followed.  Now, with whatever the AG settlement says, we’re about to have a new round of rules… and since it’s possible that Congress will again refuse to enforce those rules, I believe that we should be working to structure and demand a private right of action and attorneys fees to allow homeowners and trial attorneys to turn to the courts for relief. 

To be blunt, it seems to me to be insane that our president should be allowed to announce and implement a $75 billion program designed to save homes from foreclosure, in order to rescue our economy and protect our middle class population, and then when program applicants are abused because program rules are not followed, that our legislature sit on their hands pretending that nothing can be done… as we go off to try other approaches.

It also seems ridiculous that a $75 billion program, three years after its launch, has only spent five percent of its budget, and no one says a word.  If we had a $75 billion program for rats and mice, and three years later only five percent of the budgeted amount had been spent, there would be people screaming about how we’ve underserved the rats and mice.  In fact, I don’t think I’ve ever heard of a government program under-spending to this degree.  Has it ever happened before?

Why is there no effort to hold the administration and member of Congress accountable for what has clearly been their failure related to the federal government’s loan modification initiative?  Why are we accepting such utter failure and holding them accountable for nothing, when in point of fact, their failure has cost the country trillions, and destroyed the lives of millions?

Instead it seems that we’re being corralled into a position where almost all of our efforts, even if successful, only have the potential to lead to a delay… a delay that in most cases reduces the potential to save the home.

We still have a democracy of sorts, do we not?  Isn’t it the responsibility of our elected representatives to protect us from abuses caused by inadequacies in federal programs?  Aren’t we supposed to be holding them accountable and demanding they so something. That’s how democracy is supposed to function, is it not?  Why are we not trying to force our democracy to function, as it was intended to function… as it has functioned for hundreds of years?

Or, what about at the state level?  Our AGs settled and let us down.  That much seems water under the bridge, so fine.  Well, I for one want the “new” servicer standards or guidelines to be more than mere suggestions… can they be codified at the state level.

I’d certainly feel a lot less let down by the AG’s settlement if the servicer standards were made into law that had a private right of action and a provision for attorneys fees because that would save homes and stop foreclosures, and it would do so more effectively than any amount of money.

Let’s UNITE homeowners around fairness, instead of DIVIDING them over delays…

I’m not talking about bailouts for borrowers, I just want the rules associated with a federal program to be followed and enforced, and I think every homeowner in the country should and would want that too, regardless of whether at risk of foreclosure or not at this moment.

Every homeowner in America should have an interest in federal programs operating as they were intended to operate.  It’s not about who is at risk of foreclosure and who isn’t.  It’s simply about being in favor of basic fairness in our federal or state programs.  And basic fairness, competence and accountability from our elected officials.  No one should, and few would, oppose any of those ideals, and those that suffered as a result of being deprived such fairness would engender sympathy from others.

Technically deficient paperwork, on the other hand, as was the crux of the Guillaumes decision by the New Jersey Supreme Court, is an entirely different matter.  Guillaumes will appear to many to be a distinction without a difference.  Who cares if the lender is mentioned on the notice or not… the answer is most assuredly not many people.

It will also appear to be a transparent a stall tactic, since even if the judge were to dismiss a foreclosure that failed to comply with the state’s Fair Foreclosure Act, the remedy would simply be to begin again.  I realize that this would buy a homeowner some time, but it would not buy much, and the time it would buy would make it that much harder to get the loan modified, as time is the enemy of modifications.

The truth is, Guillaumes is what it appears to be… stalling… hoping for leverage, and losing a house to foreclosure.  And that does not engender sympathy from homeowners not facing foreclosure.  What it does is further divides those in foreclosure from those who are not.

Delays for technical reason are never going to make homeowners in foreclosure look good to those not in foreclosure.  Don’t shoot the messenger, but it’s one thing if you’re being treated unfairly… screwed around by a government program where participating servicers who are receiving money from the program are not following the rules.  That’s wrong in anyone’s book.

It’s quite another when it appears that all that’s happening is a delay of the inevitable based on what’s perceived as relatively trivial or technical, and that’s what comes to pass.  This decision helps no one but servicers, and does significant further harm to the image of homeowners at risk of foreclosures as “deadbeats” postponing the inevitable.

I believe it is to large degree indicative of a need to re-think our strategy on behalf of homeowners and the foreclosure crisis.  The track we’re on far too often has no win available, and can cause significant harm to the cause and the individual homeowners we’re trying to help.

I would appreciate responses to the ideas presented in this post, at least the  Epilogue… Thank you.

Mandelman out.

US Bank National Association v. Guillaume

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