1. Grand Jury Transcripts of Gary Trafford and Geraldine Sheppard of Lender Processing Services in Nevada Foreclosure Fraud Case
2. Swat Team Storms House Tasers Stroke Victims Wife During Foreclosure Eviction
3. Death by Foreclosure | Denied for Loan Modification Six Times, Man Kills Wife, Self, Burns Down Home

Look, Wells Fargo… we have to talk.  And frankly, I’d appreciate it if you’d jot down a few notes as we go because I really don’t want to have to repeat myself on this subject… and dear Lord, trust me when I say that you don’t want me to have to repeat myself either.

Here’s the deal…

When you’re dealing with a family that has lived in their home and been a part of their community for 15 years… who have raised four children in that home… and has contacted you because the father in that family who works for the school district has been seriously injured in a work-related auto accident and placed on workers comp… right after his wife lost her SECOND JOB (that’s right, she works two jobs), and they have a special needs child, a beautiful daughter who is autistic… you KNOW you are dealing with VERY RESPONSIBLE PEOPLE, right?

Because the parents I just described are the embodiment of the word “responsible,” you do see that, right?

So, when you say to them, “Let’s get you qualified for a loan modification.” you’re doing the right thing.  And when they immediately send you all of their information and documentation, including updated paystubs and bank statements every 30 days for six months, you shouldn’t be all that surprised.

Even so, their Wells Fargo representative was quite surprised, so much so that he actually expressed to them how surprised he was, saying that they had done an outstanding job getting together everything he asked for, right on time, and exactly as he had instructed.  Jeneane, the wife, explained that she used to be an escrow officer so she was quite familiar with preparing and submitting such paperwork.

Not that doing everything right and on time mattered all that much, because Wells still filed an NOD and now has scheduled a sale date for February 3, 2012.

Of course, Grant… their Wells Fargo representative, was very comforting when he explained that they should not worry about that pesky little sale date, because if a decision wasn’t made by the underwriting department, he would simply request that the sale be postponed.  Well, that certainly must have been a relief for these parents to hear, I’m sure.

A little more than a week before the sale date Jeneane called again to check on how things were going but wouldn’t you know it, her Wells Fargo specialist, Grant, was just transferred to a different department.  A department without phones, apparently.

She was told that she would have to wait to speak with her newly assigned specialist until he or she was assigned.   (That’s what your people said, Wells Fargo.  I’m not responsible for that sentence.)

So,  Jeneane called back again yesterday and was told that someone had been assigned but, darn the luck, they weren’t available, so she asked the person who answered the phone if her home’s sale date had been postponed or if there had been an answer on their loan modification.

Now, stay with me here because this is the sort of thing that you read… and it makes your hair hurt.

The Wells Fargo woman said that it appeared that they needed some additional documentation.  Jeneane is quite adamant that this was not true, because she had just sent Grant 36 pages last week.  He had said that everything was there and he even told her that he had scheduled the postponement while they were on the phone.

Are you getting confused?  Yeah, well aren’t we all.

(I have to tell you, when it comes to paperwork being together, I believe Jeneane 100 percent.  This woman knows her paperwork.  She’s a paperwork Queen, you might even say.)

Nonetheless, Jeneane asked what Wells needed and was told she needed to send in  her 2010 tax return.  Jeneane replied that she had just sent in her 2010 Tax Return last week and was quite sure that it was there.  The woman placed her on hold for 10 minutes (kind of a long time to be on hold, don’t you think) and when the woman returned she said: “”Yes, I have it,” which by the way is not the proper response in that situation.

Just so you know… in that situation you’re supposed to say, “Oh, I’m sorry… you were right… we do have it.”  Or something to that effect.  I’m not trying to be picky here, in fact my expectations of Wells people have been lowered to such a degree that if they don’t spit or throw up in the middle of a conversation, I consider it pleasant.

The Wells woman then explained that the delay is because… are you ready for this: How does the bank know that Mr. Stover will EVER return to work full-time?  Can you even imagine?  Jeneane pointed out that he is back to work half time, and everyone certainly hopes he ultimately recovers 100%.  They think he will… they’re prayers are… OMG.  Would someone like to explain to me how in the world Wells Fargo would go about answering that question.  Do they have a direct line to the Almighty… I mean, Lloyd Blankfein?  I mean… rude much?

Since the tax return thing didn’t stick… and the obnoxious unanswerable question didn’t seem to help… the next thing the Wells woman thought of to say was:  They won’t approve a postponement unless there was approval of the loan modification.

Come again?  Say what?  Ex-screws me?  Wells Fargo won’t approve a postponement of a sale… unless there’s approval of a loan modification?  Go over that sentence again for me… real slow.  Wells you are starting to make my hair hurt.  Does that make sense to ANYONE?  So, noodle me this:

If there was approval of a loan modification, why would there be a sale date to postpone?  

Jeneane then asked if there were any notes in her file from last week when good old Grant said that he had requested the postponement.  She said no… and I have no trouble believing that.  In fact, at this point I wouldn’t have any trouble believing that there wasn’t even a file in which to potentially put notes.

Then the woman said, “You can’t even request a postponement until one day prior to the sale date.”

I’m getting dizzy… is it hot in here?

Then the woman told her to contact the trustee… Jeneane had never heard of a trustee before, but she figured you guys needed the extra hands so she made the call.  Can you guess what happened next?

The trustee said they hadn’t received anything about a postponement from Wells Fargo, but that it could be with Wells’ liaison, whatever that means, and that “sometimes you can’t find out if a sale is being postponed until the day before the sale.”

That’s when in her email to me, Jeneane said: “Somebody is playing a game with me!”

A game?  I’m not sure about that.  I don’t think I’d call it a “game.”

So, here we are at the end of the day on January 27th… it’s a Friday, by the way… so Saturday is the 28th, Sunday is the 29th, Monday the 30th, Tuesday the 1st, Wednesday the 2nd… and voila’… Wednesday the 3rd will be upon us.

And still… no call from Wells Fargo. 

I know you guys must be wicked busy over there but can’t you feel what these parents must be feeling as they watch the clock tick-tock into the weekend.  They’re looking at a weekend in HELL because it’s going to be spent knowing that when it ends there will be only two days to do anything about losing your home.  And you’re dealing with an organization that can take two days just to receive a fax.

Memo to Wells Fargo CEO, John Stumpf…

You and I have been around this sort of issue before, and not very long ago.  And the last time, you were very gracious and attentive to the problem at hand, so I’m going to make the assumption… and I want very much to believe… that this is just another unfortunate slipped through the cracks sort of thing.

So, I’m going to assume that you’ll read this and feel the absolute unfairness of what Jeneane and her husband Tom are being forced to endure at the hands of Wells Fargo’s personnel and systems.

Because I just can’t believe that anyone would intentionally do this to the parents of an autistic 12 year-old girl… invite them to apply for a loan modification, and then after six months, leave them over a weekend with the uncertainty of losing the only home they’ve known for 15 years… in a matter of days… the home in which they have raised four children… all because the husband was injured while while working for the school district… and the wife lost her second job… it’s simply unthinkable.

Who will call first… underwriting to say they’ve been saved… or the investor that just bought their home?  It’s positively surreal, Mr. Stumpf.  It is very definitely a form of torture.  How can a consumer brand like Wells Fargo not feel less secure about its future every time something like this happens?  Short memories?  I think not.

And here’s the thing… I’ve looked at this couple’s numbers.  Their mortgage is around $320,000, and their income is right where it should be to qualify for a loan modification relative to that amount.  And not only that, but their home is 50% UNDERWATER, so not only do I believe they qualify, but I would bet you dinner at the Cliff House that they pass any NPV test you’ve got going at Wells.

Wells Fargo Beats Expectations… 

By the way, I couldn’t help but notice that your earnings showed the bank’s income was, “boosted by a release of $600 million from reserves.”  I’ll tell you what… that is some mighty flowery language considering what you really seem to be saying is that income was “padded by the recapture of a prior expense.”

 

So, I’m curious how was it done?  Was it booked as a negative expense provision, or just some kind of a reverse of an expense taken in a prior period?  Six of one half dozen of another, I suppose, but it’s still kind of cutting off the end of the blanket and sewing it onto the other end to make the blanket longer, right?  I don’t suppose we should we be expecting you to shift that amount back over during the next quarter or two, should we?

 

The only reason I ask is that Bloomberg said the following…

 

Slowing economic growth, low interest rates and volatile capital markets have sapped revenue at the largest U.S. banks, leading them to seek other sources and cut expenses. Stumpf, 58, reduced his staff by 3 percent to 264,200 and reaffirmed plans to trim $1.5 billion in quarterly costs by the end of this year.

I realize that I’m kind of the ultimate cynic about these things, especially when they happen in the fourth quarter… you know… bonus season.  So, what was it that led you to conclude that you wouldn’t need the $600 million in reserves for future losses in light of the fact that you reduced staff by three percent and pledged $6 billion in cuts by the end of 2012?  That sounds like you’re expecting the economy to contract this coming year, and that would seem to mean the potential for losses.

Never mind, it’s none of my business anyway.  Besides, net income up 20 percent to $4.11 billion… you beat earnings estimates by a penny a share, and best of all you made Jamie Dimon over at JPM Chase look like a piker.

Okay, back to the issue at hand…

So, Jeneane’s new Wells’ specialist is Albert at Ext. 60613.  I won’t print his last name here.  He’s the one who was just too busy to make a call before taking off for the weekend. So, is it that he just has to many people in the same position as Jeneane and Tom, so there’s not enough time to call all of them, and so what the heck… time to go?  Or if this couple’s situation is at least somewhat unique, and I sure do hope it is… then what kind of person is too busy to make a call in such a situation?  I’d have taken the number home with me… called over weekend.

But, I don’t blame Albert at Ext. 60613… well, or maybe I do… I don’t even know… honestly, the whole thing has me dumbfounded… flummoxed… you might even say that I’m completely STUMPFED?  I just do not know what else to DO…

Lucky for me, I know some people who DO know what to DO…

RIGHT DOERS?

Tom Stover & Jeneane Traynor-Stover

8216 Seeno Ave.

Granite Bay, CA 95746

Loan Number #0150299733

~~~ 

And look what I found… a whole list of email addresses for Wells Fargo execs, but let’s start with letting Mr. John Stumpf know how littler we think of this situation his bank has created.  Let’s let him know we’re here and we’re paying attention… and that there are quite a few of us.

Chairman of the Board, President, CEO: John.G.Stumpf@wellsfargo.com

~~~~

John Stumpf (415) 396-7018
john.g.stumpf@wellsfargo.com
CEO: John G. Stumpf
420 Montgomery St.
San Francisco, CA 94163
1-866-878-5865

~~~

Howard.I.Atkins@wellsfargo.com

James.M.Strother@wellsfargo.com

Richard.D.Levy@wellsfargo.com

David.A.Hoyt@wellsfargo.com

David.M.Carroll@wellsfargo.com

patricia.r.callahan@wellsfargo.com

kevin.a.rhein@wellsfargo.com

Carrie.L.Tolstedt@wellsfargo.com

AVID.MODJTABAI@wellsfargo.com

BoardCommunications@wellsfargo.com
sharon.cecil@wellsfargo.com
Todd.M.Boothroyd@wellsfargo.com

john.g.stumpf@wellsfargo.com
cara.heiden@wellsfargo.com
denise.erickson@wellsfargo.com
cara.k.heiden@wellsfargo.com
mary.coffin@wellsfargo.com

BoardCommunications@wellsfargo.com

 ombudsman@fdic.gov

1. State of Arizona vs. Countrywide, Bank of America, et al – Office of Attorney General Terry Goddard Charges Bank of America with Mortgage Fraud
2. BofA Lawsuit to Stay in State Court | State of Arizona vs. Countrywide, Bank of America, et al
3. State of Nevada vs Bank of America – Nevada Attorney General Sues Bank of America for Deceiving Homeowners

1. COMPLAINT | COMMONWEALTH OF MASSACHUSETTS v. BANK OF AMERICA, JPMORGAN CHASE, CITIBANK, GMAC, WELLS FARGO, MERS, et al
2. Xee Moua – Class Action Robo Suit REGINALD JONES, v. HSBC Bank USA, N.A., Wells Fargo, et al
3. Lawyer Seeks Class Status for Lender Processing Services (LPS) Robo-Signing Lawsuit

1. READERS | HELP DRAFT THIS: The Top 10 Biggest Bank Lies About Foreclosures
2. OUTRAGEOUS | Draft Uniform Servicing Standards – Proposed Deal from Bank to Attorney Generals
3. Sucker Alert | Senators Draft Bill to Give Visas to Foreigners Buying Pricey Homes, Fraudclosures

1. READERS | HELP DRAFT THIS: The Top 10 Biggest Bank Lies About Foreclosures
2. OUTRAGEOUS | Draft Uniform Servicing Standards – Proposed Deal from Bank to Attorney Generals
3. Sucker Alert | Senators Draft Bill to Give Visas to Foreigners Buying Pricey Homes, Fraudclosures

1. JPMORGAN HAMP FAIL: 200,000 HAMP Mods offered, Only 2% Permanent?
2. Hamp “Improvements” – Making Home Affordable Program Enhancements to Offer More Help for Homeowners
3. NJ Class Action | Silva v. Citimortgage, Inc. On Behalf of NJ Homeowners Who have been Denied a Permanent Loan Modification Under HAMP

1. Berger & Montague, P.C. Files Class Action Lawsuit Against CitiMortgage, Inc. on Behalf of Pennsylvania Homeowners
2. Foreclosure Fight | David J. Stern vs CitiMortgage – Bank Accuses Foreclosure Mill of Negligence, Says it won’t Pay for Previous Work
3. NJ Class Action | Silva v. Citimortgage, Inc. On Behalf of NJ Homeowners Who have been Denied a Permanent Loan Modification Under HAMP

WHAT’S THE DEAL WITH INVESTORS?  WHO ARE THEY?
ARE THEY LOSING MONEY ON FORECLOSURES?

What do the investors think about all these foreclosures?

What’s the relationship like between investors and servicers?

Do investors want to modify loans?

Do investors ever stop servicers from approving loan modifications?

Why don’t investors get more involved in this mess?

IF YOU’VE ASKED THESE QUESTIONS, HERE’S YOUR CHANCE TO GET ANSWERS!

Attorney Talcott Franklin knows mortgage-backed securities inside and out.  He should… his firm, Talcott Franklin P.C. whose main offices are in Dallas, in dollar terms represents more than half of all the investors in mortgage-backed securities on the planet.  Tal’s the co-author of the “Mortgage and Asset-backed Securities Litigation Handbook,” and he’s a very experienced and highly sophisticated litigator.

What makes Tal a pleasure to talk to, however, is that he makes a very complex subject very easy to understand… in fact, every time I talk to him, I feel like come away smarter.  Actually, the very first time Tal and I spoke, it was very clear that we couldn’t be more in-sync as to our views on the economy… where it’s headed and why.

Tal sees the foreclosure crisis essentially the same way I do, which I found interesting right from the start because he represents the other side of the foreclosure coin… the investor side.  And because of his knowledge and perspective you’re going to find listening to what he has to say absolutely fascinating.

You know how servicers are always saying “the investor says no,” when they want to deny a loan modification… well, Tal explains why that simply isn’t true.  And he walks us through the securitization process in a way that you’re likely to remember forever.  And you’ll learn all sorts of other things you did not know.  I’m telling you, you’re going to love spending an hour with Talcott Franklin on this, A Mandelman Matters Podcast.

The podcast is available in two versions… MP4 and MP3.  The MP4 version includes a couple of slides that show diagrams of the basic securitization process, but the MP4 format may not play on some computers.  The MP3 version is audio only, and should play on most any computer.  Most listeners will have no trouble following along either way.

So, turn up the volume on your speakers, and click the MP4 or MP3 version.  I loved recoding this podcast.  If you want to know more about the foreclosure crisis, you’re about to learn from an expert on the other side of the foreclosures, the investor side… it doesn’t get any better than this!

CLICK HERE TO PLAY THE ENHANCED MP4 VERSION

… INCLUDES SLIDES ON SECURITIZATION

OR

CLICK HERE TO PLAY THE MP3 VERSION

Mandelman out.

Attention California attorneys who represent homeowners seeking loan modifications: Your business model is criminal, because Suzan Anderson at the California State Bar has said so. In fact, the Bar isn’t waiting for prosecutors to act; they have already notified attorneys that they intend to bring them up on disciplinary charges.

At issue is how the Bar is interpreting a law known as SB 94.

In 2009, in response to an apparent proliferation of “scammers” widely reported to be preying on California homeowners at risk of losing their homes to foreclosure, Sen. Ron Calderon, who chairs the California State Senate’s banking committee, sponsored Senate Bill 94 (SB 94).  Scammers, you see, would promise distressed homeowners the sun and the moon, collect fat upfront fees, and do nothing.  So SB 94 stopped lawyers and licensed real estate attorneys from charging upfront fees for providing loan modification services of any kind.

For real estate agents, the law specifically prohibited breaking up the fees or services related to the loan modification process into stages, and charging for completing each stage. Attorneys faced no similar express prohibition, and as a result lawyers representing homeowners seeking modifications generally broke their services up into distinct contractual segments, billing only after the completion of each contracted segment.

Perhaps because lawyers and licensed real estate agents were not, in fact, a meaningful percentage of scammers, or perhaps because the new difficulty in getting paid drove legitimate operators to leave the marketplace, leaving only scammers, the law hasn’t helped.  Based on my interaction with at least 100 homeowners each month, it’s clear to me that the likelihood of being scammed today if you’re a homeowner at risk of foreclosure is every bit as good as it was in 2008 or 2009, if not significantly better.

It’s not a particularly controversial position to assume.

At the end of 2010, the California State Bar Association reported that it was investigating 2,000 complaints of loan modification fraud, and Suzan Anderson, who is Supervisor of the State Bar’s Special Team on Loan Modification Fraud, speaking last December to David Streitfeld of The New York Times said: “I wish the law had worked.”

Maybe because Anderson was frustrated that the law didn’t work, at the bar’s 84^th Annual Meeting, held on September 17, 2011, she presented what she said is now to be the bar’s interpretation of SB 94, precluding a lawyer from being paid for services related to a loan modification until the end of the process… which is another way of saying “very likely never.”  That is, she said the Bar would now be interpreting SB 94 as preventing attorneys from breaking up modification services into separate contractual segments, and charging only once contracted services were completed.

However, Ms. Anderson’s presentation also included the following disclaimer:

Points of view or opinions expressed in these pages are those of the speaker(s) and/or author(s). They have not been adopted or endorsed by the State Bar of California’s Board of Governors and do not constitute the official position or policy of the State Bar of California. Nothing contained herein is intended to address any specific legal inquiry, nor is it a substitute for independent legal research to original sources or obtaining separate legal advice regarding specific legal situations.

Frankly, I didn’t get very far, as she explained that she couldn’t answer questions that were based on hypothetical scenarios, saying that the bar’s cases were always based on specific facts.  I understood what she’s was saying, and it’s undoubtedly true, but it’s not particularly helpful to my way of thinking.

Below I detail why that interpretation seems wrong, given the statute’s text, and moreover why it should be wrong as a matter of public policy, since it will cause ethical and competent attorneys to stop offering loan modification assistance. Effectively denying California borrowers who are seeking a loan modification access to an attorney is a disaster, because, frankly, lawyers really are necessary for the borrower to have the best possible outcome.

It’s also very prejudicial to Californians, as under the Federal Trade Commission (“FTC”) Mortgage Assistance Relief Services Final Rule (“MARS”), which is the governing rule everywhere else in the country, lawyers can and do represent borrowers who are applying for loan modifications.   Like SB 94, MARS does not allow providers of loan modification services to charge up-front fees, however there is an “attorney exemption” allowing lawyers to accept a retainer in advance of services being rendered, as long as it is place in the attorney trust account and received “as earned.”

According to MARS…

Attorneys are generally exempt from the rule if they meet three conditions: they are engaged in the practice of law, they are licensed in the state where the consumer or the dwelling is located, and they are complying with state laws and regulations governing attorney conduct related to the rule. To be exempt from the advance fee ban, attorneys must meet a fourth requirement – they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.

The bottom line, however, is very straightforward:

Legitimate attorneys are leaving the loan modification field en masse.

Streitfeld’s article in the New York Times, chronicled the plight of California homeowners who say that since the passage of SB 94, they cannot find a lawyer to represent them when seeking a loan modification.   According to Mr. Streitfeld’s New York Times article…

“The problem for lawyers is that even a simple modification, in which the loan is restructured so the borrower can afford the monthly payments, is a marathon, putting off their payday for months if not years. If the bank refuses to come to terms, the client may file for bankruptcy. Then the lawyer will never be paid.”

Lawyers v. Real Estate Licensees…

First for the statute text argument…

As the new law applies to attorneys, SB 94 created two new sections of the state’s Civil Code, but it’s section 2944.7 that contains the language restricting when attorneys may be paid when providing loan modification services, as follows:

2944.7.  (a) Notwithstanding any other provision of law, it shall be unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following:

(1) Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.

According to that language, it would seem, a lawyer cannot receive payment when assisting a client with a loan modification until there has been full performance of “each and every service” that the lawyer contracted to perform or represented that he or she would perform.”

Note that it does not say that a lawyer in California  has to do everything loan modification related, up to and including finding out if the lender or mortgage servicer has agreed to modify the homeowner’s loan, or denied the modification request, before getting paid.  It says that an attorney who is providing services related to a loan modification, may only accept payment after full performance of the services that he or she “contracted to perform or represented that he or she would perform.”

Contrast the language with SB 94’s provisions for those licensed by the California Department of Real Estate (the DRE). SB 94 has two key provisions for real estate professionals. First, it imposes the identical fee-for-completed-service language that applies to lawyers, via a new section of California’s Business & Professions Code, B&P 10085.6.

Second, SB 94 amended B&P 10026 prohibiting real estate professionals from breaking up the services related to a loan modification:

10026. The term “advance fee” as used in this part is a fee, regardless of the form, claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed. Neither an advance fee nor the services to be performed shall be separated or divided into components for the purpose of avoiding the application of this section.

The last sentence should be noted: Neither an advance fee nor the services to be performed shall be separated or divided into components for the purpose of avoiding the application of this section.

These sections of California’s Business and Professions Code are both found in Division 4 of the code, which applies only to real estate licensees and not to attorneys. And, B&P Code Section 100116 defines “licensee” as “a person, whether broker or salesman, licensed under any of the provisions of this part.”

SB 94 also imposed some ancillary requirements on attorneys and real estate professionals offering to assist or represent homeowners seeking loan modifications such as a required disclosure, among several other relatively minor things.  (I have omitted any discussion of these ancillary requirements, as they are not in any sense objectionable, ambiguous, or germane to the point of this article.)

So that’s the statutory text argument: the language contained in SB 94 is identical whether for lawyer or real estate professional, with the one exception. Real estate professionals were prohibited from breaking up the fee or services related to a loan modification into component parts, as shown above. If the language applying equally to both sets of professionals prohibited breaking up the fee or services into component parts, why add the separate provision for real estate professionals? The state bar association’s interpretation, as announced by Ms. Anderson, would essentially render the second provision superfluous.

Truth be told, I know it’s not.  The Bar’s interpretation is wrong.

Eileen Newhall, a legislative aide to Sen. Calderon, drafted SB 94.  I spoke to her on several occasions back in 2009, including a day or two following the bill having been signed into law by the governor.   I asked her about the difference in rules for attorneys and real estate professionals. She readily acknowledged it as having been done intentionally.  She even mentioned that she liked the idea that a homeowner wouldn’t be stuck to a lawyer after one contracted set of services had been completed and paid for, so she knew exactly what we were discussing.

I asked her if she would be publishing a clarification and she said she would not.  I asked why, and she said because she didn’t want to help scammers by telling them how they could keep doing loan mods.  I agreed, and said I wouldn’t publish anything clarifying like that either.

In fairness, she did also state clearly that interpretation of SB 94 would be left to the State Bar, as far as lawyers were concerned.  Real estate professionals would obviously be the concern of the DRE.

Why can’t lawyers bill a homeowner at the end of the process?

Now for the public policy argument, namely, that the Bar’s interpretation will prevent attorneys from representing homeowners seeking modifications.

As a threshold matter, I spoke with well over a hundred California attorneys, all of which had at one time offered to help homeowners obtain loan modifications, NONE were willing to offer the services if they couldn’t be paid for as services were completed along the way.  Most have already stopped offering such services as a result of SB 94.  Why? Well, attorneys can’t work for free, at least not as a significant part of their practice.

Many have asked, upon hearing of SB 94, why a lawyer can’t just wait to be paid for his or her services until the end of the process, when the bank says yea or nay to the modification.  Some compare the situation to Realtors or mortgage brokers who are not paid until a sale or loan closes, which admittedly can take many months, but such a comparison is entirely inappropriate for at least two reasons.

First of all, when Realtors and mortgage brokers are handling the sale and financing of a home, the two parties to the transaction, a buyer and a seller, both want the transaction to close. The seller wants to sell his or her home, and presumably the buyer wants to buy it.  As anyone that has been involved in the loan modification process knows, this is anything but the case when trying to get a bank/servicer to modify a loan for a borrower.  In all cases and throughout the process, banks look for reasons NOT to modify loans, so they are an adversarial party to the transaction.

It is not at all uncommon for a bank to approve a trial modification, and then after the borrower has made all of the required payments on time and as agreed, the bank denies the permanent modification even though nothing about the borrower’s situation has changed since applying and being approved for the trial modification.  And, quite incredibly, this can happen without the bank even having to provide a clear reason for the denial.

It’s true that an experienced attorney would not allow this to transpire without appealing the bank’s decision, but regardless… in the final analysis, loan modifications are voluntary and no one can force a bank to modify a loan. Further complicating the attorney’s economics, it’s also true that while trial modifications are supposed to be for three months, they can go on for well over a year before the bank makes its final decision.

Secondly, the Realtor and mortgage broker are not at risk of not being paid when a transaction closes… their commissions are paid out of an escrow account.  Just ask a Realtor whether they would be in their chosen field if, instead of being paid out of escrow, they had to wait for the sale to close and then send the seller of the home a bill for their services equal to three or six percent of the sales price.

The other comparison sometimes made in an effort to justify why lawyers should be okay with not being paid until the end of the loan modification process is to contingency fees, and this too is a comparison of apples to oranges.

Contingency fees are most commonly seen in personally injury cases when on the other side there is an insurance company involved.  Lawyers take such cases because they believe that their client has a good enough case that the insurance company on the other side will, at the very least, settle without going to trial, or if they do go to trial and win, the insurance company’s deep pockets will be there to satisfy the judgment.  And once again, these characteristics bear no resemblance to those present when attempting to get a loan modified.

In addition, the amount a lawyer receives from a contingency fee is always more than he or she would have received by billing hourly for the actual work involved; they’re being rewarded for taking the risk that they would lose.  Conversely, lawyers offering to help homeowners get loans modified do so for a flat fee, so the longer it takes the less the lawyer earns for their time.  In all cases, that means the lawyer will earn less than he or she would have by charging hourly.

While these analogies show the economics of waiting to the end are very hard, they don’t expose why lawyers really can’t wait until the end to get paid. In short, it’s because lawyers have every reason to think that their clients won’t pay them at that point.

Why lawyers can’t be expected to wait until the end of the process to be paid…

To begin with, getting someone’s loan modified is no easy task, and depending on the bank or servicer, it could take three months, six months, 12 months or even longer.  Some attorneys have even reported servicers taking close to two years before finally agreeing to modify a loan for their client.  Attorneys offer loan modification services on a flat fee basis, and no one could operate for even six months or a year without being paid for their time… especially when there’s no assurance they will be paid at the end of the process.

By definition, homeowners seeking loan modifications are struggling financially.  They are delinquent on their mortgage payments, or certainly will be by the time they apply for their modification, so their credit score is no longer their primary concern.  Were an attorney to work on getting a homeowner a loan modification for six months or a year before sending his or her bill for services rendered, there would be no assurance the homeowner would or could pay that bill.

Perhaps even more importantly, homeowners in the loan modification process are often considering filing bankruptcy.  That’s in part because, many times, the bank seeks to foreclose and sell their home while they are under consideration for a loan modification, a practice that’s frowned upon by bank regulators, yet still goes on every day. Bankruptcy can be the only way to stop that sale.  If a lawyer were to work on getting someone’s loan modified for months, and then the homeowner were to need to file bankruptcy, the homeowner would just put the lawyer’s bill into their bankruptcy where it would be discharged along with the other debts… and the lawyer would not be paid for all the work done on behalf of the homeowner to-date.

Lastly, lawyers, should clients fail to pay them at the end of the loan modification process, are really very limited in terms of available remedies.  As a practical matter, lawyers can’t make a practice of suing their clients.  Not only does this practice too often result in a bar complaint being filed, but Errors & Omissions insurance is difficult to get once an attorney has sued their clients more than once or twice in a five year period.

Loan modifications in real life…

So what does the business model of breaking up modification services look like in practice? Well, let’s say I was having financial difficulties as a result of some sort of hardship and I wanted to talk to an attorney about my options, a loan modification being one of them, and that lawyer said he would contract with me to review my relevant documents, such as my mortgage, my tax returns, pay stubs, perhaps my year-to-date profit and loss statement, prepare and send to my bank a Qualified Written Request in order to get my correct loan balance, and then perform a series of financial calculations required when qualifying for a loan modification.

Once all of that work was completed, the attorney would review his findings with me, discuss the pros and cons of the various options, set my expectations properly, talk about the impact that applying for a loan modification has on a on a FICO score, give me some idea what the modified payment terms might look like, and recognizing that there were no guarantees, give me some idea as to my chances for success, based on his experience.  He might also discuss options under the bankruptcy code, and help me understand such things as deficiency judgments and short sales.

I would receive a retainer agreement listing the aforementioned schedule of services and it would provide that after full performance of those contracted services, I would be required to pay the attorney’s fee of let’s just say $1000.

Let’s say that based on what I’d learned about my situation related to a loan modification, I decide that I want to hire that attorney to create the loan modification application package required by my servicer.  A new retainer agreement that lists the specific set of services involved is provided to me, and again, it stated that only after full performance of the services, would I be required to pay for them.

Once my loan modification application package was ready to submit to my servicer, my lawyer might produce another contract for a specific set of services, such as contacting my servicer and representing me through the underwriting processes until approval or denial of my loan modification by my servicer, including representation through the appeals process should that be required.

I might agree to have that lawyer perform such services on my behalf, but because each contract is independent of the other, I’m not obligated to do so. And, just like the first two contracts, were I to hire the attorney to provide them, I would only be required to pay for them upon completion, which in this case is the approval or denial of my loan modification by my servicer.

Would a licensed attorney in California providing loan modification services using this approach be SB 94 compliant, assuming it incorporated all the ancillary requirements of the law, such as the inclusion of the disclosure telling consumers that they don’t need to hire a lawyer, they can apply for a loan modification on their own by contacting their bank directly or by calling a HUD counselor?

I personally believe, as do many attorneys in California, including all of the bar defense/ethics layers that make the State Bar Defense Council that I spoke with, that it would be SB 94 compliant for lawyers but not for real estate professionals. However, the Bar has announced it disagrees, without explanation.

Ball of confusion…

Since SB 94 is a criminal statute, attorneys have been very nervous about relying on its plain text and adopting the business model of providing modification services in contractual segments.  As a result literally hundreds of licensed, ethical attorneys throughout the state were unwilling to adopt the segmented business model, leaving homeowners without counsel when they really need it.  Shockingly to me, some don’t see the lack of attorneys as a problem.

For example, when I spoke with Ms. Newhall, the aide that drafted the bill, I registered my concern that few lawyers would offer loan modification services under the new law and that it would harm homeowners at risk of foreclosures if few were available in a state the size of California.  But to this point, she was positively glib.  She didn’t care if none of the lawyers wanted to handle loan modifications anymore.  It clearly wasn’t her problem and she was entirely nonplussed by what I had to say.

They [homeowners] could just deal with their banks directly, Eileen essentially said.

California’s homeowners are paying the bill for SB 94’s unintended consequences…

Ms. Newhall and Susan Anderson were far from the only people that I’ve come across with that same attitude towards the situation.

I wonder if those who dismiss this situation out of hand really know what their callous indifference translates to for so many people who lives have been so extensively and inalterably damaged by the foreclosure crisis.

You see, the most heinous unintended consequence of SB 94 is that it has created an environment in which it is far easier to be scammed than to find legitimate legal representation related to a loan modification.

For those that don’t know, or those that don’t care whether lawyers are available to homeowners who are at risk of foreclosure and seeking loan modifications, I would ask that the following be considered:

• Fewer legitimate, ethical lawyers willing to represent homeowners seeking loan modifications, means more people get scammed, more homes are lost to foreclosure, more file bankruptcy, and more turn to litigation unnecessarily, which is always more costly, and often unsuccessful.

To recognize these statements as undeniable truth, you must first understand the nature of the foreclosure crisis and resulting demand for legal representation and assistance with loan modifications.

• The idea that foreclosures are simply the result of “irresponsible borrowers” buying homes they could not afford during the bubble is nothing more than an urban myth that has been perpetuated in part by the financial services industry.  Were there some who speculated improperly or borrowed beyond their means?  Certainly, but the numbers in this category have always been diminutive as compared with the number of foreclosures.

• Initially, foreclosures resulted from rising interest rates on adjustable and teaser rate loans, some that certainly should not have been made in the first place, and many of which were predatory in nature. In mid-2007, however, the credit markets froze as investors lost trust in the ratings that had been placed on mortgage-backed securities.  Within months, loans became impossible to obtain, and housing prices, which were already in decline, went into a free fall.

• Today, reports show nearly 35 percent of California’s homeowners are “underwater,” and that percentage is rising.  Once underwater, homeowners fall into foreclosure due to the same types of life events that cause people to file bankruptcy… divorce, illness or injury and job loss, being the top three by far.  Very rarely do people file bankruptcy as a result of their inability to manage debt, and even more rare is the family that buys a home they know they cannot afford.

• Just consider that minorities, including African Americans and Hispanics, continue to be disproportionately affected by the foreclosure crisis.  Does that mean they are more often irresponsible than white borrowers?  Of course, it does not.  Well-documented in minority communities were sharp increases in predatory lending techniques and predatory loans.

The reason we don’t hear more than we do about the causes of foreclosures in middleclass and above communities is that they are a source of shame and therefore are rarely if ever discussed publicly… although that dynamic is changing fast as nationwide, according to RealtyTrac, roughly 9500 homeowners receive notices of default every single day, 365 days a year, and more than 3,000 homes a day were repossessed by lenders in 2010.

• When homeowners find themselves increasingly unable to make their mortgage payments, they contact their banks seeking assistance, but in most cases find little or none.  That’s when they look elsewhere.  Remove the legitimate and ethical attorneys from the mix and all that remain from which to choose are the con artists and scammers.  The demand for help saving a home will not subside, nor can it be suppressed.

• Homeowners will write someone a check before losing their homes.  If no legitimate and ethical lawyer can be found then they will write their checks to a scammer, but few will go down without paying someone who says they can be helped.

• Homeowners who are represented by an experienced attorney are much more likely to end up with a modified loan. My own research, which includes personally speaking with over 100 homeowners from all over the country who are at risk of foreclosure each month for the last two and a half years, shows that not only to be true, but overwhelmingly so. In part, this is due to the qualification screening techniques used by all lawyers with experience helping clients get loans modified, but it is also true because homeowners at risk of losing their homes are unknowledgeable, afraid and ashamed… while banks are none of those things

• If homeowners can no longer find qualified attorneys to represent them when seeking a loan modification, it doesn’t mean homeowners will simply give up and give the bank the keys to their houses. Instead the result will be increased litigation and bankruptcy filings, as we have seen in California since SB 94 became law.

• Some homeowners that can’t find a lawyer to help them deal with their bank/mortgage servicer feel powerless are often bound by shame and become depressed.  Although it will be several years before we will know the impact of this recession on U.S. suicide rates with certainty, calls to the National Suicide Prevention Hotline increased by 38% in 2008, as compared with 2007, and an additional 15% in 2009, over 2008.

• According to Employee Benefit News writing in June 2010, in 2008, workplace suicides jumped 28% to 251 incidences, the highest level since the government began tracking them, according to the Department of Labor. Suicides in the workplace in 2008 were at their highest level since the government started tracking the numbers.

• As a country, we’ve already had roughly 8 million homes repossessed, and the latest forecasts now say we can expect another 8 million through 2016.  The impact on state and local governments is fast becoming catastrophic.  At the local level, cities and towns are suffering from reduced property tax revenues resulting from vacant homes and lower home values.  And at the state level, foreclosures and lower home values cause consumer spending to drop, which reduces state sales tax receipts, and to higher unemployment, which cuts into state income tax revenues.  Already 500,000 state and local government jobs have been lost, according to the Associated Press as of October 24th.

• A recent study on the costs of foreclosures to communities in Massachusetts shows that when accounting for declines in property values, lost tax revenues, and the numerous other expenses that come with foreclosed homes, EACH foreclosure can cost city residents $1,000,000.  So, a hundred can cost residents $100 million.  How can anyone in California be ambivalent to the issue of hundreds of attorneys who could help mitigate the damage caused by foreclosures not doing so as a result of the Bar’s misguided interpretation of a relatively new law?

One look at the countless lawsuits filed by state attorneys general and others, and the results of several government investigations into the practices and systems employed by mortgage servicers both show egregious and often illegal behavior homeowners endure when attempting to get their loans modified.  Without legal representation, homeowners are at a significant disadvantage as they will not be able to ascertain when their rights are being violated.

The jury has come in on the issue of servicer misconduct…

Back in 2009, there were many in Sacramento who would argue that homeowners didn’t need a lawyer to get a loan modified.  One elected representative who shall go nameless told me that all homeowners had to do was send in their application and wait to hear from their bank as to which program they qualified for… and at the time, his statement left me speechless.  Today, however, I’d have a lot to say in response.

Just consider the following headlines and excerpts from this past year related to the conduct of our nation’s largest mortgage servicers…

Brown Demands JP Morgan Chase Suspend Foreclosures Unless It Can Demonstrate Compliance with California Law

California Atty. Gen. Kamala Harris will no longer take part in a national foreclosure probe of some of the nation’s biggest banks, which are accused of pervasive misconduct in dealing with troubled homeowners.

Brown Directs Nation’s Fourth Largest Home Lender to Suspend Foreclosures Until It Proves It Is Complying with the Law

The lawsuit, filed in the Eighth Judicial District of the State of Nevada, by the Attorney General was triggered by consumer complaints and follows an extensive investigation into Bank of America’s alleged deceptive practices involving its residential mortgage servicing, particularly its loan modification and foreclosure practices. The Complaint alleges that Bank of America is:

a. Misleading consumers by promising to act upon requests for mortgage modifications within a specific period of time.

b. Misleading consumers with false assurances that their homes would not be foreclosed while their requests for modifications were pending, but sending foreclosure notices, scheduling auction dates, and even selling consumers’ homes while they waited for decisions.

c. Misrepresenting to consumers that they must be in default on their mortgages to be eligible for modifications when, in fact, current borrowers are eligible for assistance.

d. Making false promises to consumers that their modifications would be made permanent if they successfully completed trial modification periods, but then failing to convert these modifications;

e. Misleading consumers with inaccurate and deceptive reasons for denying their requests for modifications.

f. Falsely notifying consumers or credit reporting agencies that consumers are in default when they are not.

These headlines and statements from the press should speak volumes… homeowners either need or should have lawyers to represent their interests when attempting to get their loans modified.  And while undoubtedly some may be able to obtain a modification without the need for an attorney, for each homeowner I speak with who has successfully obtained a loan modification from their servicer, there are literally 100 that say they couldn’t do it on their own.

And yet, according to Senator Calderon, SB 94’s sponsor, “The law is working well.  You do not need a lawyer.”  The senator as also said, “lenders were supportive of the bill.”  I’m not going to say anything further about these statements that were made by the senator in December of 2010… I believe they speak for themselves.

Plainly, ambivalence to the issue of whether it’s important that homeowners have access to attorneys when at risk of losing their home to foreclosure can only come from not knowing the facts involved.

Several months ago, I was asked to be a part of a panel at an Orange County Bar Association continuing education event… the three of us provided a class for lawyers on the dynamics of offering loan modification services.

I would estimate that out of 100 attorneys that signed up for the class, roughly 10 percent were currently involved in providing loan modification services, but the rest of the room were not and the reason was the perceived ambiguity of SB 94, and hearing the rumors and innuendo about lawyers not being able to contract to provide certain services and be paid upon completion of those services.  Based on those numbers, I would have to think that there are at least a thousand lawyers in California falling into that category.

Consider that if just 200 ethical and knowledgeable lawyers from around the state knew the business model through which lawyers were paid for completing contracted segments of services was legal under SB 94, and therefore would agree to represent homeowners through the loan modification process. Imagine each only represented 10 each month.  That would be 2,000 homeowners each month that wouldn’t be getting ripped off for thousands of dollars.

And that is to say nothing of the countless homes that would be saved from foreclosure… how many lives would be saved every month as a result… and what would be the positive impact on our economy.

One other painful dimension of this situation is that only Californians face it.

The FTC’s MARS Final Rule – Good enough for the other 49 states…

On December 31, 2010 and January 30, 2011, the FTC published its Mortgage Assistance Relief Services (“MARS”) Final Rule.  The MARS rule applies to all providers of services related to foreclosure avoidance including loan modification services and foreclosure defense litigation.

MARS prohibits up-front fees related to loan modification services, but it also provides an exemption allowing attorneys to accept client funds into an attorney’s trust account.  The attorney then deducts amounts as income as the amounts are earned.

But, the MARS Final Rule is also “subject to state law,” which in California is obviously SB 94, so the end result is that what the FTC has deemed appropriate for the rest of the nation, is not allowed in California… and only California has such a law.  The FTC, as part of their rule making process, solicited comments from interested parties and received input from all over the country, including 14 state bar associations, all of whom supported the attorney exemption.

As a result, the FTC ‘s Final Rule exempted attorneys from the prohibition on up-front fees as related to loan modifications, and it did so precisely because it recognized that to not provide such an exemption, would be to effectively prevent homeowners from hiring lawyers when at risk of losing their homes for all of the reasons heretofore mentioned.

And yet, here in California, where there almost certainly more scammers than would be found in any other state, the FTC’s MARS Rule, although governing law in the other 49 states, is rendered moot by SB 94.  Here in California, the State Bar is making the situation worse with its recent interpretation of SB 94. Why did 14 other states’ bar associations understand, but ours doesn’t?

Perhaps even more to the point, isn’t billing for a set of services that have already been delivered a better approach for all parties involved?  Doesn’t such a methodology appear to comply with SB 94’s language and entirely satisfy the law’s intent, which was to ensure that homeowners are not charged for services before they are received?  I don’t see how anyone concludes that the answer to those questions is anything but “yes.”

My experience watching several thousand homeowners go through the loan modification approval process is that there are a considerable number that simply should never have started down that path, for one reason or another, and they wouldn’t have, had they access to quality legal representation before they chose to apply.

A very important question to tens of thousands of California’s homeowners…

Whether lawyers are available to homeowners at risk of foreclosure is an important issue to me, and I think it should be to all Californians as well.  Although I am not personally at risk of losing my home to foreclosure today, I do recognize that life events happen to all of us, and were I to find myself at risk of losing my home, I would be horrified to discover that I couldn’t hire an attorney to help me get my loan modified.

As the previously referenced article from the New York Times explained, it has already become difficult for many California homeowners to find a lawyer to represent them when seeking a modification of their loan.  If the state bar says that lawyers can only be paid at bthe end of the process, there will be no lawyers available to help California’s homeowners at risk of foreclosure get their loans modified.

Under that scenario, those applying for loan modifications in California would be forced to go up against their bank alone, or find a lawyer and litigate, or file bankruptcy and attempt to get their loans modified as a result of the litigation or within a bankruptcy.  Obviously, the result would be many thousands of lawsuits and/or bankruptcies that might have been avoided were SB 94 interpreted correctly.  Because at the end of the day, the only way to save a home from foreclosure is to modify the loan.

I’ve had a front row seat for the tragedy and travesty we now know as the foreclosure crisis from its beginnings, and as a result, I have gained an in-depth understanding of both the micro and macro aspects of the crisis.  To-date, I’ve written 550 articles on the political, social, economic and legal aspects of the financial and foreclosure crises, and I would have to posit that I’ve personally spoken at length with more homeowners in or at risk of foreclosure than any other individual in the country… and were that not to be the case, then unquestionably I’d be very close.

I started writing my blog, Mandelman Matters, in 2008, in order to help homeowners and others better understand what had caused the severe economic downturn that had already led to foreclosures increasing to alarming levels… and had only just begun.

From the beginning, I decided to make myself accessible to my readers by providing my email address and phone number online, and as a result I’ve spoken at length with literally thousands of homeowners and attorneys from all over California and throughout the nation.  I’ve followed roughly 4,000 homeowners through the loan modification process, and watched hundreds of attorneys struggle to help homeowners remain in their homes and avoid foreclosure, most often through the modification of their loan.

Not a single day goes by during which I don’t hear from 5-10 homeowners who are quite literally at the end of their rope as far as getting their loans modified is concerned, many report suffering from severe depression and of having had thoughts of suicide, and most share a level of anger that borders on rage… essentially all have stories that include significant malfeasance on the part of their servicers.

The unintended consequences of SB 94…

It’s saddens me to say that the foreclosure crisis remains poorly understood.

What SB 94 did accomplish was to California take out the ethical real estate professionals who no longer could operate under the payment prohibition, and many of the ethical attorneys who didn’t think payment could be received as contracted services were completed.

Illegitimate operators and scammers didn’t need money any less as a result of SB 94 becoming law in California, so they didn’t go away to say the least.  In fact, since they were now “smarter” about the market, and funded by their loan mod operations, they proliferated.  Today, they are more sophisticated, harder to recognize and much more difficult to police as a result.

Since they couldn’t offer loan modifications anymore without attracting too much attention, they soon morphed into such things as document preparation services or “doc prep” for short, forensic loan auditors, providers of securitization audits, pre-litigation support services, or they began marketing a variety of lawsuits, and any number of other things all designed to attract a homeowner in distress.

One company I came across recently, tells homeowners they will buy their home as a short sale and lease it back to the homeowner.  The homeowner starts paying the company some agreed to amount of rent and eventually loses the home to foreclosure as no sale has taken place.  And in October 2010, for example, the California Attorney General shut down and filed a $60 million suit against a company in Northern California called U.S Home Loan Auditors.

If you’re looking for assistance getting your loan modified and you throw a dart at the front page of Google today, you can pretty much expect to get ripped off most of the time.  It’s ironic, but in general, the firms that are easiest to find are often the ones you don’t want to find.

Today there are very few legitimate loan modification companies owned by individuals licensed by the DRE.  They all closed their doors soon after SB 94 passed.  I have only found one such company that waits until the end of the process to send its bill for services, and they’ve only been open a few months.  Getting a loan modified takes an indeterminable period of time.  It could take three to six months, it could take a year, and it’s not at all uncommon to hear that the ordeal has been going on for 18 months to two years.

No business can operate on cash flows that uncertain.  And not only could it take quite a while before you are paid for your loan modification services under SB 94, but in reality, you are at least somewhat likely never to be paid in many instances, regardless the outcome.  Few come through the loan modification process as “happy campers.”  And as a practical matter, the homeowners in the loan modification process are struggling financially, their credit scores are long since impaired, and it’s easy to imagine that the bill they receive for services will not be a priority once their loan has been modified.

The impetus for SB 94 restrictions on lawyers…

On February18th of 2009, President Obama announced his Making Home Affordable program, which led to the creation of the Home Affordable Modification Program (“HAMP”), and it wasn’t until June of that year that homeowners were able to apply for a loan modification through the program.  At inception, most people believed that HAMP would be a success, with the president claiming that the program would help roughly 4-5 million Americans avoid foreclosure and remain in their homes.

The president said that homeowners only needed to call their bank directly to apply for a loan modification, or “contact a HUD counselor,” should they need additional assistance.  Loan modifications, he explained during his speech introducing the grogram, would be free.

Today, we know the realities of HAMP and the process of applying for a loan modification.  We know that the number of HAMP loan modifications will end up being a lot closer to one million than four million, and we also know that the experience endured by those applying for a loan modification has consistently been described as hellish.

But, Barack Obama was our “smart” president, and for most of 2009, most people in government and the media believed that the new president’s plan was working and would work.  So, when a homeowner tried contacting their bank directly and then a HUD counselor, as the president had said they should, and got nowhere, they often hired attorneys to help them, and if they didn’t get approved for their modification, they were quick to blame their lawyer.

In some cases, they were right, but in most it was not the lawyer that had failed… it was the HAMP program itself.  The banks have let the administration and the nation down, as far as loan modifications are concerned, at this point there should be no question about that.

In 2009, the number of complaints the California State Bar received spiked to unprecedented levels, at one point the state bar said they were getting 8-9,000 a month, and the assumption was that lawyers were taking advantage of distressed homeowners and therefore should be restricted as to the ability to accept fees in advance.  How many lawyers were scamming people could not be ascertained, but at the very least, it was clear that some number of lawyers were not adhering to ethical guidelines.

In the two years since SB 94 became law, however, the State Bar has taken disciplinary action against only 20 California lawyers.  In a state with over 200,000 practicing attorneys and almost 37 million people, it’s just not that many… in fact were the number five or even ten times as high it would still be considered not many.

At fifty years old, I’ve seen my state and federal governments mishandle many things in my lifetime, but the mishandling of programs related to the foreclosure crisis and SB 94 could only be compared with how our nation took action during Prohibition.

For roughly a decade, in an effort to stop the flow of illegal hooch, we ran around smashing stills, and dumping confiscated beer into the streets, and I think an argument could be made that those efforts didn’t even prevent a single person who wanted a drink… from having one.

What those efforts did help to create, however, was a well-funded, entrenched and even highly evolved mob – in an effort to prevent people from drinking alcohol, we fueled the growth of organized crime in this country.

If we’re trying to emulate that historic incompetence today in California, then we’re doing it flawlessly.  Just two short years since the bill becoming law, and we’ve already created an industry of scammers that can barely be located, much less policed, and is certain to be fleecing residents out of millions of dollars each day.

Were the California State Bar to have realized all of this by now and therefore be handling things differently, I suppose I could readily forgive past transgressions.  But, that is not the case, and in fact, the State Bar’s latest interpretation of SB 94 is, quite inconceivably, a step backwards.

By incorrectly interpreting SB 94, there is no question what will result.  The bar will drive out the only legitimate resources our state has left for homeowners to call on for help with a loan modification, and they will do so at a time when the number of foreclosures is increasing dramatically.  Statewide, in third quarter of 2011, foreclosures increased by 25.9%.  In zip codes with a median home sales price of $800,000, foreclosures increased by 12.1% during the third quarter.  And without legitimate attorneys to help, the scammers will be right there, where they’ve been all along, ready to answer the phone when distressed homeowners call for help.

No one is pro-scammer…

We are witnessing an unprecedented event in this country.  And when it’s over, most analysts today forecast that 16 million Americans will have lost their homes to foreclosure, but of course, no one really knows whether that number is correct.  While it’s doubtful that it will be fewer than 16 million, the number could easily be significantly higher than that because foreclosures breed foreclosures.

To believe that 16 million Americans all suddenly became “irresponsible” is preposterous… these people are being sucked under by the worst economic downturn in 70 years.  By some measurements, this Great Recession is already worse than The Great Depression of the 1930s.

As more than 3,000 homeowners are being evicted from their homes every single day in this country, the rich continue to get richer.  Many of those rich people are bankers, and it’s no secret that acts of those bankers not only caused our economic decline, but they only go forward based on the largesse of the taxpayers in this country.  Homeowners feel cheated, and very likely they are right to feel that way.

Very few, if any, will leave their homes without a fight.  The only way they will save their home from foreclosure is if their bank will agree to modify their loan.  They’ll try to do it on their own, but most will fail, and once they fail, they’ll seek out someone who says they can help… and they’ll write them a check for whatever they can afford.  They’ll do whatever they can to save their home from foreclosure.  And nothing the government says or does will change that fact.

Hopefully, the person they write that check to is an licensed, ethical and experienced attorney… that is the best possible outcome for everyone, because not only can that attorney represent and protect the homeowner’s interests when working with the bank, but that attorney can also advise the homeowner as to the validity of other options that may protect that homeowner’s home, such as bankruptcy and litigation.

However, if we preclude our consumer attorneys from being paid until the end of a process of indeterminable length, one that can often end in bankruptcy, we are asking lawyers to do the imprudent… or even the impossible. And if no lawyers are available to represent that homeowner at risk of foreclosure, that doesn’t mean the homeowner will give up and move out of their home, it only means that he or she will find someone else who says they can help and to whom a check can be written.

The way the State of California and the State Bar Association has handled this foreclosure crisis has been abominable, and it has led to more people being scammed than would have otherwise occurred.  But the state bar is about to make it worse because of an incorrect interpretation of a two year-old law, passed during a perceived crisis.

And let’s be honest about this, in August of 2009, the California Bar Journal was reporting that they were receiving 900-1100 complaints a month since the beginning of that calendar year, and that number must have seemed to be evidence of a calamity especially when you consider that in 2008, the Bar received only eight complaints all year.  However, the State Bar also admitted at that time that the complaints had not yet been read.

Just do the math… 1,000 complaints a month since the beginning of 2009… roughly 12,000 complaints a year… and with the Bar’s admission that they were investigating 2,000 complaints as of the end of 2010… and during that same time period the Bar has taken disciplinary action against only 20 attorneys… come on now… it’s time for the Bar to admit that it overstated the nature of the problem back in 2009.

Back then, I also took note of another interesting fact… both the DRE and the Consumer Affairs Division of the Attorney General’s Office also reported that they were receiving record numbers of complaints, and CNN/Money was as well.  Only CNN/Money was receiving complaints from homeowners who didn’t hire anyone to assist them with their loan modification.

What was fascinating was that, I read complaints from each repository, and they were almost identical.  It was obvious to me at that point that it wasn’t the lawyers or the scammers driving the volume of complaints… it was the HAMP program itself.

It’s time to get smarter about all of this…

We all want to stop scammers from preying on homeowners in distress.  We should also all want to mitigate the damage to our state that’s being caused by millions of foreclosures.  And we can do both… we can achieve those universally shared objectives… if we are smart… if we are thoughtful in how we address the problem… if we stop pretending that the untold millions that are losing their homes are somehow deserving of their fate and therefore unworthy of our help.

There is only one possible way to stop scammers related to foreclosure avoidance, and that is to make legitimate assistance ABUNDANT.  When legitimate assistance is abundant, there’s no reason to seek out a scammer.

Consider how we finally made bootleggers go away… not by breaking down more illegal stills and shuttering speak easies… but by putting a legal and regulated liquor store on the corner.  And as soon as we did that…  Presto!  No more bootleggers.

Instead, we have reacted as scared people in a panic often do… irrationally.

The state bar started receiving thousands of bar complaints from homeowners throughout the state, and rather than taking the time to understand the dynamics of what was causing the abrupt change in the behavior of our lawyers, we knee-jerk reacted and passed a law to make legitimate assistance more scarce.  And that’s exactly what the scammers needed us to do in order for them to take over more of the market.

The only saving grace was that the lawyers that were still helping homeowners by billing in distinct contractual segments persevered.  But now, we intend to take a situation already horrendously unjust and make it even worse by misinterpreting the law, thus relegating our state’s economy to traveling an even more disastrous path.  And still this new interpretation will not stop or even change the plans of a single solitary scammer.

The state bar’s new interpretation of SB 94 was announced on September 17th of this year, a full two years after the state’s governor signed the bill that created the new law.  It was announced as if the bar was deciding that it would close early on Fridays… like its decision would impact no one but the scammers, when it reality is that scammers are the only ones sure to not be affected by the erroneous conclusion by the bar.

Consider that the state and federal government have failed at every single turn in the foreclosure crisis.  None of the programs have worked in the slightest, let alone lived up to expectations.  I’ve seen my government fail before, to be sure, but never this many consecutive times and never when so many lives were being destroyed as a result.

Don’t we owe it to the homeowners of California to be more thoughtful this time around… to make different decisions… better decisions… more thoughtful decisions… don’t we owe it to the people of this state to finally do something right as related to the foreclosure crisis?

We are witnessing an unprecedented event in this country, and California is certain to take the lion’s share of the hit.  What’s happening will change our society for decades, perhaps forever.  And people who are at risk of losing their home need a lawyer to both advise and protect them… in fact I don’t think we will make it through this crisis intact without our lawyers for we are a nation built on laws and forged by lawyers.  From the time of the Boston Massacre to grave moments such as those we are facing today that our laws and our legal system have allowed us to survive.

The people need access to lawyers, and that access to lawyers is the only way we can hope to prevent scammers from robbing those in distress of their last hope.  How can we turn our back on such an easy choice to do things right, after we’ve done them wrong for so long and caused pain to so many?

To allow an incorrect interpretation of SB 94 by the California State Bar to prevail under circumstances such that we face today is unconscionable.

Senator Calderon himself, writing in the Sacramento Bee in 2009, just before SB 94 was passed by the state legislature, had the following to say about why he chose SB 94’s approach over that of AB 764, a competing bill that specified that one couldn’t be paid until a loan modification was obtained.

“I considered the approach in AB 764 when drafting SB 94, but ultimately rejected it for three reasons.

First, preventing fee-for-service providers from charging their clients, unless they obtain a modification, will almost certainly increase the fees that fee-for-service providers charge their clients. If fee-for-service providers can only charge certain clients, they will need to increase the fees they charge those clients, to make up for their inability to charge other clients.

Second, the approach in AB 764 is likely to cause fee-for-service providers to cherry-pick their clients. If a provider knows he or she can only get paid if a modification is offered to a borrower, that provider is unlikely to take on the difficult cases, leaving borrowers most in need of help with fewer options for assistance.

Third, AB 764 is likely to force many fee-for-service providers out of business, which is likely to reduce the options for troubled borrowers even further.”

And finally, here’s what Bar Defense/Ethics Attorney, and former associate trial counsel for the California State Bar, David Cameron Carr had to say on this subject:

“The intent of the Legislature and the Governor was not to put legitimate firms out of business, rather it was to ensure that homeowners are only changed for work that has legitimately been done in service of the clients’ goal to modify their mortgage.

Attorneys cannot guarantee the outcome of legal representation and the banks have not made it easy for individuals seeking to modify their loan obligations, whether represented by attorneys or not. Staking all of the attorney’s fees on the successful loan modifications will lead to no attorneys willing to even make the effort. This is an access to justice issue clearly recognized by the Governor when he vetoed AB 764.

Allowing consumers to pay for legal services in discrete ‘unbundled’ increments serves the interests of clients and attorneys. Chief Justice Ronald George recently co­ authored an op-ed article in the New York Times praising unbundled practice as allowing ‘lawyers – especially sole practitioners – to service people who might otherwise have never sought legal assistance.”

Contract for specific services… complete those contracted services… get paid for those contracted services.  And nowhere in the law that applies to lawyers does it say that attorneys cannot divide the services related to a loan modification into component parts.

The state bar’s interpretation is wrong… it must not be allowed to further our undoing.

I rest my case…

Mandelman out.

If you’re an attorney licensed to practice law in California and you’re either offering loan modification services, or realize the importance of this issue for other reasons, I NEED TO HEAR FROM YOU.

Email me at: mandelman@mac.com

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3. Bloomberg | Goldman Sachs Will Sell Litton Loan Servicing to Ocwen for $264 Million

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3. Hey Regulators, Settle This! | Military Man Returns from WAR to Find Home Foreclosed by Wells Fargo

For the last three years plus… as the foreclosure crisis has quietly sucked the life out of at least 10 million Americans, there’s been essentially nowhere for these defrauded individuals to turn for justice.  They’ve been told that HAMP’s rules are merely guidelines, that loan modifications are purely voluntary… and they’ve learned the hard way that if you can’t make your mortgage payment, many of the things that should matter… don’t.

Well, two lawyers that I interviewed on the video below have spent the last six months plus, doing the research and preparing the complaint that they will now use to sue mortgage servicers on behalf of California homeowners.  And Mark Zanides and Kenneth Gertz are formidable opponents, even for Bank of America or JPMorgan Chase.  They’re not the types that are used to losing, and they’re not the kind to be pushed around either.

It’s no secret to anyone close to the crisis that homeowners in distress are routinely lied to by servicers…  often homes are lost as a result of those lies… and what’s even more shocking than that is how so few Americans care about the plight of their neighbors.  I would never have believed how callous so many of us are… how quick to judge when someone doesn’t have the money they need to pay a few bills.

I knew when the credit markets froze back in the summer of 2007 where we were headed economically speaking.  Perhaps I wasn’t as early as some, but I was a lot earlier than others as far as seeing the future was concerned.  But, I could never have imagined how servicers would be permitted to treat American homeowners struggling financially as a result of the most severe and longest recession in more than 70 years.

If you’re a homeowner who applied for a loan modification and you went through a process that felt like it should be illegal… well, it probably was and I recommend that you call Mark or Ken and talk to them about what they’re doing.

Maybe there’s going to be some justice in the world after all.

I’ve gotten to know both of these lawyers pretty well over the last couple of years and I can honestly say that I cannot think of two other attorneys that I would want asserting my interests in a courtroom more than Mark Zanides and Ken Gertz… I think you’ll see why I feel that way when you watch the video.

But you may be assured that I have NO FINANCIAL INTEREST in what they do, or what you do with them… this is not an advertisement.  When they told me that they would be filing lawsuits against servicers on behalf of California homeowners, I immediately said that I’d write about it so people would know that they were among their options, and then since I was interviewing them for the documentary I’m producing, I decided to ask them a few questions on camera about their servicer lawsuit and I used their answers to make this video.

So, understand… even though I do consider Mark and Ken friends, our relationship alone would not be enough to get me to write about their lawsuit, let alone make a video about it.  I wanted to do it because, well… it’s important… and how could I not cover such an important development in the war against the banksters? And because all too often, the lawyers who are the easiest to find, are not the lawyers you want handling your case.

So, if you feel that you’ve been defrauded or otherwise unfairly treated by your servicer when you applied for a loan modification… and I have spoken with several thousand that were, and heard from tens of thousands more… I would suggest you call either Mark or Ken and talk to them about your specific situation.  I included their Website address at the end of the video because on that site you can find their contact information including their phone numbers.

They’re both very easy to communicate with, they’re on your side… the side of homeowners… and they’re certainly not “salespeople,” so you don’t have to worry about that sort of thing.

Okay, so that’s all I have to say about that.  And I hope I’ve been helpful.

Mandelman out.

A homeowner from Tennessee called me today in a panic because she had just been notified that Bank of America is planning to sell her home at auction on October 19th.  She was very upset, and even downright scared, truth be told.  She’s disabled and has lived in the home for the past 16 years.  She doesn’t know where she’d go, and doesn’t see how she could possibly move out in under a month.

Her name is Cynthia McMahan and she lives in Knoxville.

She also admitted to being quite confused, and understandably so, because she’s not in foreclosure.  Nor, is she late on her mortgage payments.

I tried to explain to her that none of that mattered.  Bank of America obviously wants her out, so she had better start packing.

She became even more upset.  She explained that after a positively joyous year spent applying for a loan modification at Bank of America, making all of her trial payments and the rest, three months ago Bank of America offered her a permanent loan modification… and she signed the contract, accepted the deal, and has made all of her payments on time and as agreed.

“So what?” I replied.  “Why should any of that mean that you get to keep living in your house?”

Silence.  Clearly, I had her.

“But… I signed the contract they sent me, and I made all my payments…” her voice was trembling now and I could tell that she was less and less sure of her position.

“Who said that your home was to be auctioned off on October 19th?” I asked.

“A lawyer from Wilson & Associates PLLC in Little Rock, Arkansas.  Her name is Shellie Wallace, Attorney at Law,” she replied.

“And did you call Bank of America to beg and plead?” I inquired.

“Yes,” she said.  “But first they left me on hold for an hour, and then when the woman came back on she said there was nothing to worry about because I’m not in foreclosure… that I should put my trust in trust Bank of America and everything would be just fine.”

“Okay, so what’s the problem?” I asked.

“Well, I called that lawyer from Wilson & Associates to tell her that Bank of America said that I’m not even in foreclosure, and that my home isn’t going to be sold on October 19th,” she explained.  “But she said the bank was wrong and that I’d be out on the street if I didn’t make some plans to live somewhere else.”

“Okay, so are you making plans to live somewhere else?  I mean, that lawyer sounds like she knows what she’s talking about,” I said bluntly.

“But where will I go,” she cried out.  I’m disabled.  I’ve lived here 16 years.  I made all my payments.  I have nowhere to go…”

“Look, this is Bank of America we’re talking about here, so I really don’t see that you have much choice,” I said trying to be helpful.  “What about a tent, do you own a tent?”

“Isn’t there anything you can do?  I read your blog… can’t you help me in any way?  Everyone said you’d be able to help,” she pleaded.

“I’m trying to help you… I mean, come on… who was it that came up with the tent idea?  Me, right?  So, don’t say I’m not trying to help.  Sheesh.  Okay, what about a homeless shelter?  Is there a homeless shelter near where you live?  Or, I know… how are you fixed for cardboard boxes?”

“This isn’t fair… it’s not right.  Bank of America has been torturing me for over two years… I’ve done everything they asked, over and over again.  And after all that… they’re going to sell my house right out from under me and there’s nothing I can do?  How can that be?  You have to help me… ”  Her breathing was getting heavier as she spoke.

“I’m sorry, did you say something… I was just watching a Gomer Pyle re-run,” I explained.  The one where Sergeant Carter makes Gomer go on a double date… that show always cracks me up… sorry, go on, what were you saying?”

She was sobbing now…

“Can you hold on for a sec,” I asked.  “The dryer just buzzed and I don’t want my shorts to wrinkle.  Hang on, I’ll be right back…”

“Oh my God,” she screamed into the phone…

“Okay, okay… don’t get your panties in a bundle… there is one thing I could try…” I said, not really having any idea what I was talking about at the time.

But then… all of a sudden… out of nowhere… it came to me.  And the voice said… If you post it, they will come…

Just in case you’ve forgotten, the homeowner’s name is Cynthia McMahan from Knoxville.

And I’m just sure she’d be very appreciative if anyone could lob a call or an email on her behalf over to the nice trust worthy folks at Bank of America and maybe that nice lawyer too.  So, what do you think, DOERS?

Let’s hit this one out of the park for Cynthia in Knoxville, shall we?  Come on… did you have a frustrating day?  Me too.  So, here’s something to take all that frustration out on, what do you say?  The woman is current… just signed her permanent loan modification three months ago.  And now this?

I don’t know about you, but I’m damn tired of Bank of America torturing folks on a daily basis, especially the ones like Cynthia.  Let’s do something memorable, shall we?

Shellie Wallace, Attorney at Law

Wilson & Associates PLLC

1521 Merrill Drive, Suite D-220

Little Rock, AR 72211

Phone: 501-219-9388

Email: swallace@wilson-assoc.com

Shellie Wallace is a Partner and Supervising Attorney of the Foreclosure Legal and Foreclosure Title Departments. She received her education from Arkansas Tech University (B.A., 1989, Highest Honors) and the University of Arkansas at Little Rock School of Law (J.D., 1992). She was admitted to the Bar of the State of Arkansas in 1992. She is a member of the Arkansas Bar Association, serving on the Debtor/Creditor and Real Estate Law Committees.

And let us not forget the Grand Poobah at good ole’ Bank of America:

Brian Moynihan, President, CEO & Chairman

Bank of America

Email: brian.t.moynihan@bankofamerica.com

Matthew Task, Executive Relations, 
Office of the CEO (At BofA)

Phone: 813-805-4873

The word on the street is that if you call enough, Matthew Task will answer his phone eventually, but that sending emails directly to Bryan Moynihan generally gets a lot more attention.

Oh, and Bryan Moynihan… you should thank me for only sending my DOERS… ‘cause if they don’t take care of this… I’m coming… and hell’s coming with me.  Fix this and fix it now…

Mandelman out.

And if you haven’t already donated in support of the documentary I’m in the middle of producing on the foreclosure crisis, you’re letting the rest of the homeowners down.  It doesn’t matter how much… send a dollar for heaven’s sake… sign on as someone who wants the voice of homeowners to be heard.  Seriously, what’s holding you back?

You know, I had never considered it before, but do you want to know what I’ve just decided is probably the most personally insulting act in the world?  I mean the ultimate in callous and disrespectful?  Like the best way to say you are entirely meaningless to your society and community?  I’m serious about this… it’s certainly not a joke by any means.

Okay, ready?  They jerk you around for a year, teasing you about a loan modification, making you send the same paperwork in over and over again as they question you about why you spend $70 a month on meat, when you could be eating chicken, and then they foreclose on you anyway, without any notice really… and then evicts you and says you must be out in 30 days… no way can you have 60…

… and then some number of months later… the bank comes along and bulldozes your home to the ground.

Oh, betch!  No you did not!  You did?  No you did not!

And this didn’t happen to Jews in Nazi Germany … this is happening today in Cleveland and will be happening soon in Chicago and Detroit, and my guess would be just about everywhere else you can think of, with the possible exception of Wyoming and North Dakota, although I couldn’t even be sure of that without checking it out.  It certainly wouldn’t surprise me.

I’ve written about this day coming, so I can’t claim to be totally shocked, but there’s a big difference between envisioning it and actually seeing it happen.

Am I wrong?  Is there something even more insulting than that?  Get out of that house in 30 days or the sheriff will carry you out… and then so the home can be razed to the ground… and not because something else had to be built there right away either … just because.

Bank of America is kicking off the festivities by donating 100 foreclosed homes located in and around Cleveland, Ohio and the money to fund their demolition.  Bank of America plans to work with a local agency that handles “blighted property” to dispose of the properties.

Next, BofA’s Glut Cutting Tour will be be destroying 150 homes in Chicago and 100 in Detroit, and spokesperson, Rick Simon says the bank expects to announce additional nine cities soon.  With Wells Fargo, Citigroup, JPMorgan Chase and Fannie Mae already either conducting housing destruction programs of their own, someone should be tearing down homes near you sometime this year.

Wells Fargo and Fannie Mae have both already started destroying homes in Ohio.  According to the bank, since 2009, Wells has made 800 such “donations.”

P.J. McCarthy, who’s in charge of “alternative disposition programs,” for Fannie Mae says that Fannie made its first deal with the Cuyahoga land bank in 2009.  He says Fannie “sells” houses to the organization at a “very nominal value,” which means about $1… with an additional $200 to cover closing costs.  P.J. also says that Fannie Mae sold 200 foreclosures to the Cuyahoga organization in 2010 and has similar programs in Detroit and Chicago.

P.J. must be very proud of his work.  He’s probably one of the only department heads at Fannie Mae doing something constructive… buy destroying homes.  Is it just me?  Because I feel like I’m living in “Dr. Strangelove – Or How I learned to stop worrying and love the bomb.”

Apparently, Cleveland is the only city where Fannie Mae contributes $3,500 toward the demolition of the homes.  P.J. call it an “economically justifiable transaction.”  He explains that…

“Holding on to a property that might sell for $1,000 or $2,000 or $5,000 for several hundred days is not in anybody’s best interest.”

No, I guess it’s not, P.J.  I reckon it’s not, at that.

Now get this… Jim O’Donnell, who is the manager of community revitalization at JPMorgan says the bank has donated or sold at a discount almost 1,900 properties in more than 37 states since late 2008, including 22 in Cleveland, said.  Total value of the properties… over $100 million.

And Mr. O’Donnell says… “The majority aren’t demolished.”

Excuse me?  Not demolished?  Just given away then?  To someone else?  Just given away?  The majority of $100 million in homes just given away by JPMorgan since late in 2008?  Oh, Holy Mother of God, are these people serious?  Is this really happening?  I’m starting to feel light headed… not sure how much longer I can write this.

Oh, and Citibank’s been doing it since 2008 too.

So, who would have ever thought that fixing the housing market was just a matter of finding the right tool for the job… a bulldozer.

To celebrate the finding of the new tool, I think a song is in order, don’t you?

TEARING DOWN YOUR HOUSE

(With apologies to Talking Heads)

~~~

GET OUT!  Or you could be in danger

WHAT’S NEXT? It’s gone from strange to stranger

We kick you out so we can start

TEARING DOWN YOUR HOUSE

~~~

DON’T FIGHT.  The judge is in our pocket

YOU’RE JUST…  A deadbeat on his docket

We won’t delay it one more day

TEARING DOWN YOUR HOUSE

~~~

3-Day Notice time to go… need your house by tomorrow

We’ll rent the bulldozer

Can’t short sale, rent or modify… Deed in lieu’s pie in the sky

We love the foreclosures…

~~~

YOU’RE SCREWED.  You must get out this week

WHO CARES?  Of havoc that we wreak

Our docs have all been robo-signed

TEARING DOWN YOUR HOUSE

~~~

We don’t care how much you moan… we won’t modify your loan

You’re stuck, you can’t sell it

Notes we signed them all in blank… We’re a too big to fail bank

It stinks, can’t you smell it?

~~~

TEARING DOWN YOUR HOUSE!

~~~

OUR HOUSE… And we do not say please

DON’T OWN IT.  With your whine have some cheese

Watch what we do on pay-per-view

TEARING DOWN YOUR HOUSE

~~~

Payments you could not support… the sheriff is now your escort

Don’t cry for your Mama

If you think this don’t make sense… all at taxpayer expense

Hey, go ask Obama!

~~~

TEARING DOWN YOUR HOUSE!

Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corp. said…

“There is way too much supply. The best thing we can do to stabilize the market is to get the garbage off.”

Is that really the best thing we can do to stabilize the housing market, Gus?  The very best thing?  You see, I’m not so sure about that, Gus, and I’d be willing to continue this conversation with you except that I’d have to lower my IQ by 70 to 80 points in order to do so… instead how about if I just say the following: You’re a real tool, Gus.  As in a screwdriver or maybe a wrench… as in you have the IQ of a screwdriver or maybe a wrench.

According to Frangos, demolishing all of Cleveland’s foreclosed and abandoned properties might cost $250 million, which I have to tell you is making me nauseous as I write this.  Case Western Reserve University in Cleveland and Neighborhood Progress, a nonprofit whose website says is “working to counter the effects of foreclosures in six Cleveland areas” say that there are as many as 13,000 properties that need to be destroyed in Ohio.  Currently, the Cuyahoga County land bank owns about 899 properties and plans to demolish 700 this calendar year… again, according to Mr. Frangos.

So, Bank of America and the rest are struggling to deal with thousands of foreclosed and abandoned homes that can’t be sold.  Not only is disposing of these homes a headache for all of the mortgage servicers, when you consider that when banks foreclose they become responsible for taxes and maintenance costs, it’s also a costly headache.  And with roughly 1.7 million homes in some stage of foreclosure today, according to RealtyTrac, it’s also a headache that’s certain to worsen.  In the first quarter of this year, Bank of America alone foreclosed on 40,000 homes.

BofA is slated to pay up to $7,500 for demolition of a home, unless it’s in an area eligible to receive funds through the federal Neighborhood Stabilization Program, in which case it will only pay $3,500.

Once a given home has been demolished, the land may be used for development, as an open space, or for urban farming, according to Bank of America’s official statement, but spokesperson Simon declined to mention how many foreclosed properties Bank of America holds, or how many the bank plans to raze.

Also according to RealtyTrac Ohio ranked among the top 10 states with the most foreclosure filings in June, with 71,617 foreclosed homes.  I wonder how many of those are ever going to sell again… and how many are going to be used as an “open space” or for “urban farming.”

To be fair, the homes being torn down are in varying states of disrepair, and Simon says “some are worth less than $10,000, and it would cost too much to make them livable.”  Well, as long as Simon says it, I suppose it must be true.

See, these are homes that live on the Island of Unwanted Homes, according to the banks and as echoed by many in the media.  It’s easy to find that island, by the way, just head towards the Island of Misfit Toys and turn left when you see the Abominable Snowman.

It’s funny… these homes sure became “unwanted” fast, because I’m pretty damn sure they were WANTED BY SOME FAMILY just a year or two ago.  Wanted, until Bank of America, or one of the other banking families, refused to modify a mortgage, foreclosed and then kicked the old owners out into the streets, isn’t that right, Bank of America.  I wonder what Simon says about that little at least slightly relevant fact, don’t you?

Some guy, Christopher Thornberg, who is apparently a founding partner at Beacon Economics LLC, a forecasting firm based in Los Angeles, had the following to say:

“No one needs these homes, no one is going to buy them… Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations.”

I know everyone appreciates that I don’t swear on my blog, they tell me that all the time… it gives my message more credibility, is the general consensus.  But this makes it hard to give a rat’s petute about any of that… damn hard.  I don’t even know who to start railing about… who to call a jackass first.

Mr. Thornberg… there’s so much wrong with the way you think, I can’t think of anything to say except, shut up, shut, shut up!  Think about what you’re saying, before you open your mouth, and you’ll avoid having said something so stupid next time.  I’ll break it down for you, so maybe you can understand it.

You said:

“No one needs these homes, no one is going to buy them.”

Someone did though, right?  Someone WAS living in these homes, right Chrissie?  So, someone “needed” them at some point in the fairly recent past, isn’t that correct, you economic genius for our times?  But, if no one did need them, and since you are most assuredly correct that no one is going to buy them… then WHY DID IT MAKE SENSE TO FORECLOSE ON THEM IN THE FIRST PLACE, Dr. Thornberg?

Why didn’t the bank modify the loans?  Are you telling me that the investors who actually own these loans came out ahead by tearing them down and giving them away?  Is that what you’re saying?  Tell you what… show me the numbers that back-up that assertion and I’ll not only apologize profusely for what I’ve said in this article, but I’ll write a glowing article about how you’re brilliant in your field every day for a year.

(I’ll await your email… it’s mandelman@mac.com, in case you’re interested.  I live in Southern California, so with you being right here in L.A. I can drive on up to take a look at those numbers anytime.)

Then you said…

“Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations.”

I’ll get back to the issue of the bank’s “losses” in a moment.  First, let’s talk about that “little write off,” you refer to.  How much of a “little write off” were you thinking the bank might get as a result of giving away and demolishing these homes, Thornbug?  I only ask because Robert Williams, an independent accounting analyst based in New York was quoted by the press as saying that a bank “might deduct as much as the fair market value assuming the home wasn’t acquired with the explicit intent of knocking it down.”

Wow, fair market value?  That seems like more than a “little” tax deduction, don’t you think CT?  Because 100% of fair market value is… why that’s… let’s see… why that’s just about what the bank could hope to receive were it to be able to SELL THE HOUSE, am I right?  (The suspense is killing me, am I… am I?)

And just who do you suppose is going to be determining the “fair market value” to be used to calculate the bank’s write off, Mr. Thornburg?  Here’s a hint, Thorny… it’s not going to be you or me.  So, getting back to the bank and its inability to cover its losses… which losses might those be specifically, sir?  Are you sure the bank is even taking losses here, all things considered?  I’m not.

And as far as the prospect of “nice public relations” goes… well, let’s just say that I’m going to have something to say about how well that works out, so maybe best not to count on too much more of that.

Positively Surreal…

I remember a year or two back when Warren Buffett quipped that one solution was to “blow up a lot of houses — a tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program.’”

He was joking, I thought… and I think he thought at the time.

But, don’t worry… according to RealtyTrac’s Rick Sharga, foreclosures are likely to accelerate so the knockdowns aren’t going to outpace foreclosures… not even anywhere close, so…

“These sorts of programs will basically only be nibbling on the edges.”

Which I assume is a euphemism for “accomplish very little if anything as far as mitigating damage cause by the foreclosure crisis” is concerned.

Well, good then.  As long as we’re not going to be accomplishing anything… then I guess I’m for it.  By the way, however, aren’t there just going to be more and more homes that need to be destroyed as time goes by?  I mean, with the huge shadow inventory of homes just sitting there doing nothing, aren’t we just going to see more and more homes beyond repair, economically speaking?

Because I don’t think empty homes do all that well over time, isn’t that correct?  I’m not home construction expert.  I’m just saying…

And I hope people don’t get too upset about being tossed out of their homes in a hurry only to find out they ended up tearing them down… giving them away…

Mandelman out.

Isn't it about time for some good news on mortgage modifications? Here is some, in the form of a paper titled Who Receives a Mortgage Modification? Race and Income Differentials in Loan Workouts. The authors use data from the Home Mortgage Disclosure Act (HMDA) to assess borrower characteristics against the incidence of loan defaults and modifications on a group of more than 100,000 subprime loans.

The first two findings are depressing and not surprising: loan modifications are rare, and minority borrowers are more likely to be delinquent. The good news is that minorities are faring well in seeking modifications. As a descriptive matter, among those 60 or more days delinquent, 11 percent of blacks and 9 percent of Hispanics received a loan modification, compared to 5 percent of whites. In regression modeling that controlled for borrower, loan, and housing/labor market conditions, blacks were slightly more likely to get modifications, conditional on being delinquent, than other races. This effect persists even when researchers control for the fact (also good news in my mind) that borrowers who got a high-cost loan are more likely to get a loan modification. In further analysis, the authors find that blacks receive a similar interest rate reductions to borrowers of other races.

As with any empirical study, there are some limitations. The authors use data from only trustee (although several servicers) and examine loans originated in only three states--all Western and all non-judicial foreclosure. And, as the authors note, they cannot assess whether there are differences in loan modification denial rates. Put concretely, if blacks are applying at twice as high of a rate for loan modifications as whites, their analysis would not pick up this high rate of denial compared to applications. This paper ends with interesting thoughts on the racial disparities in loan origination, and why these patterns are not found in loan modifications. It asks whether there are lessons from HAMP or the loan modification process generally that could be useful in designing loan origination programs that reduce the longstanding racial disparity in that crucial financial transaction.

Turns out we sold your house by mistake.  Funny story…

You’re not going to believe this, but remember last year when we denied you for a loan modification, sold your house and kicked you out in the street?  Well, as it turns out… we screwed up… yep, it was all a big mistake… a misunderstanding, really.  Can you believe that?  It’s just the craziest thing.  Whoopsie!  Sorry about that.

How did it happen?

Well… funny story… you’re really going laugh… I swear.

Guess what… the federal government has ordered 16 of the largest mortgage servicers to reimburse homeowners who they foreclosed on IMPROPERLY.

Not only that but regulators, including the Federal Reserve, the Office of Thrift Supervision (“OTS”) and the Office of the Comptroller of the Currency (“OCC”) also told the servicers they have 45 days to hire auditors to figure out exactly how many homeowners they shouldn’t have made homeless in 2009 and 2010.

Well, isn’t that nice?  What a lovely surprise.

The joint report cited the usual suspects including Citibank, Bank of America, JPMorgan Chase and Wells Fargo, Ally Financial Inc., Aurora Bank, EverBank, HSBC, MetLife Bank, OneWest Bank, PNC, Sovereign Bank, SunTrust Banks, U.S. Bank, Lender Processing Services (“LPS”) and MERSCORP.

The servicers have all agreed, based on the auditor’s reports, to “remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies.”  No minimum or maximum amount was set by the agreement, so the sky’s the limit, I suppose?

The Federal Reserve’s stated that it believed financial penalties were “appropriate,” and I’d have to concur.  I mean, if a bank threw me out of my home without good reason… maybe caused my marriage to break up… made my kids change schools, leave their friends… possibly forced me into bankruptcy… you know, destroyed the rest of my adult life, I can’t think of anything but financial penalties that would possibly be appropriate.

I mean… flatware?  No, too personal.  A Cuisinart?  No, people might already have one.  Besides some of these folks are probably living in the park and without electricity… nope, the Fed’s right for once, it’s financial penalties for sure.

And don’t forget to buy a card to slip the penalties into… something tasteful… maybe get one of those that plays music when you open it… everyone likes those.

All three of the bank regulators promised to review the audits and the Fed also said that it plans to levy fines in the future as well.

And isn’t that a relief?  I’m sure glad this isn’t a one time thing.  I mean, I think there should be financial penalties every single time a bank throws someone out of their home that shouldn’t have been throw out, don’t you?

I have to say that I like the Fed’s attitude on this issue.  I mean, the central bankers didn’t even pretend that banks might be able to stop throwing people out of their homes improperly, they just went ahead and said they’d continue with the financial penalties in the future when they do… not even “if” they do, but “when” they do.  Well, at least they’ve set expectations properly this time.

The government regulatory agencies stopped short of listing specific instances of bad foreclosures, but they did note in their report that:

“… deficiencies in foreclosure processing observed among these major servicers may have widespread consequences for the housing market and borrowers.”

Actually, I’m not entirely sure how to take that sentence… do they mean that in a good way or a bad way, do you suppose?  Like, do they mean “widespread” as in a lot of people will get checks, or that there’ll be lots of improper foreclosures?  Why do they have to be so cryptic… use the English and say what you mean, would you please?

It’s been four years since the housing meltdown started pulling our economy down the drain and I started screaming about it.  Since then, there have been more than five million homes lost to foreclosure, and roughly 2.4 million first mortgages were in foreclosure at the end of 2010, while another two million were at least 90 past due, so at serious risk of foreclosure.

And as of July 2011, foreclosures are up 12.8% over last year’s number, according to LPS, and there are some 6,452,000 mortgages going unpaid in the United States as of June 2011.

Not everyone was encouraged by the plan.  Congressional Democrats refer to the order as being too lenient on the servicer, and so House Democrats introduced a bill on Wednesday that if passed would require servicers to adhere to a series of specific steps, and include an appeals process, before even starting a foreclosure, but that sounds like the sort of thing that the banking lobby and the Republicans… (oh wait, that was redundant, wasn’t it?), I meant to say the sort of thing that the banking lobby will strongly oppose.

Rep. Elijah Cummings, D-MD, who is the top dog on the House Government and Oversight Committee said that he wanted to know what all of the abuses were that the government identified, who exactly committed them, and how this consent agreement will fix the behavior in the future.  He said:

“Based on what I have read … I am not encouraged at all.”

Well, no one said anything about fixing something in the future, did they Elijah?  No, they most definitely did not.  In fact, the Fed even made it clear that it would be happening in the future, so what more do you want than that in terms of transparency?  Some people are never happy.  I’m encouraged, aren’t you encouraged… I’m actually overcome with encouragement.

John Taylor, who is the Chief Executive of the consumer housing watchdog group, National Community Reinvestment Coalition, said the government’s action is a year too late.  Apparently, he’s okay with it taking three years to make amends when you throw someone out of their home improperly, but four years is too long.

He also points out that this order does little to help those who are now wrestling with a foreclosure and those who have already been thrown out improperly.  According to Taylor, instead of moving swiftly to foreclose and seize people’s homes, the banks should have been better at helping people modify their mortgage payments.

Oh my God… that is such a good idea… why didn’t we think of that?  I’ll have to remember to keep my eye on Taylor, he is one sharp cookie.  He also said…

“This should have happened a long time ago.  There are so many people who, if they had received a meaningful modification, could have stayed in their homes.”

Yeah, well you should have spoken up sooner then, shouldn’t you?

Look, this guy’s a bit of a whiner.  I mean… so, our government stood by and did nothing as potentially thousands of American citizens were thrown from their homes improperly, so what are you going to do… make a federal case out of it?

I mean, it’s not like the servicers beat the homeowners with sticks, right?  And they don’t seem to have raped any children.  No burning crosses on front lawns.  I’d say we got off easy here.  They might have done any of those things and more, heck, BofA stole someone’s dead husband’s ashes last year… and kept taking homes they didn’t even hold mortgages on… so, let’s just be thankful for the little things, okay.

So, my goodness… get over it… be happy… so, you got thrown out of your home of twenty years for no reason… your marriage broke up and you haven’t seen your kids in 18 months as a result… you lost your job when your employer saw your credit score fall to 420… and then you tried to kill yourself… you’re okay now… is it really that big a deal that you’re living in an apartment where the kitchen smells like ass?

See, that’s why everyone hates the Democrats, it’s all that whining.

Citigroup issued a statement saying it had “self-identified” needed changes in 2009.

Okay, good to know.  And don’t feel pressured to rush into changing anything… take your time on the whole implementation thing, we understand.

The bank also said that it has helped more than 1.1 million homeowners avoid foreclosure, but who knows… Hampsters always say stuff like that.  Citi also said:

“We are committed to working with our regulators to further strengthen our programs in these areas and meeting these new requirements.”

Now, that sounds a little brown-nosey for my tastes, but okay then.

And then our good friend Ally Financial, or GMAC if you’re in the you-don’t-want-to-know, said it had not found “any instance where a homeowner was foreclosed upon without being in significant default.” Thus proving conclusively that they have no sense at all of what the issue here is.

In fact, after writing this article, I’d say it’s an absolute lock that none of these people have the slightest idea what the issues are here.

N’est-ce pas?

Mandelman out.

And just because I know that some of you are probably thinking that I made some of this up just to be funny… HA!  I didn’t have to… it was that funny all by itself.  And that sad, and that scary.  Here’s the link to the story in the Cristian Science Monitor, and what could be less funny than that?  Click it, you’ll see.

Let me say this from the outset… there is a wide range of people and companies out there (including even some attorneys) who are selling “Forensic Audits.” They vary from outright scam artists to slick salespeople performing some [overly simplistic] level of some sort of a mortgage loan transaction audit but who charge exorbitant prices for the services and, ultimately, the work product they produce rises to the level of a scam as well because their fee and what they produce are universes apart – so I deem that a scam as well – that’s just my humble opinion of course.

There is one fairly high profile retired attorney out there operating a very popular blog selling extremely high-priced garbage [in my opinion]; unfortunately, many of his victims, I mean clients, have purchased this “audit” are left with many pages of virtual nothing-ness that they will never be able to use in a court of law. Quite ironic that it’s coming from an “attorney” or “counselor at law” – so to speak.

But, I don’t think any of you reading this right now are actually surprised of the story of another attorney or ex-banker taking advantage of people because they have a license, degree or bar number and using that “credential” to sell people on a scam. There are many prisons with such people calling those places home for these types of crimes.

So, now that I’ve spent a minute on the soap box, let me get to work to explain the difference between a “Forensic Audit” and a “Mortgage Loan Compliance Analysis” because there is a difference – like night and day. I think it’s a good place to start to say that I come from the mortgage banking industry and I have over a decade in actual experience in the inner workings of this industry and I have had to demonstrate continued competence in the actual compliance with the very laws we are looking into to see if these loans complied with these laws. I challenge you to find a “forensic mortgage loan auditor” out there in or even around the mortgage banking or finance industry. You won’t. You will find compliance officers. You will find fraud investigators. You will find compliance analysts and underwriters and risk managers. The closest thing might be the field of Forensic Accounting. But you will never find a legitimate forensic mortgage loan compliance officer using the term “forensic audit” or “forensic auditor” or even “forensic loan audit.” This is simply some deceptive marketing term invented by slick scammers who could probably sell a lot of people a box of coal and pass it off as a box of diamonds.

“Forensic” literally means “suitable for use in a court of law.” So the layman’s translation means that whatever report or whatever you might get from a “forensic auditor” must, and I mean MUST, withstand the legal scrutiny of a judge, jury and opposing counsel.

So, I’ll just dive right in here and make a point: you can use the word “forensic” if – and only if – your work product is deemed suitable for use in a court of law. So that’s the lens that any and all investigation by YOU as a homeowner MUST use in conducting your due diligence if you’re in the position of needing help to defend yourself from foreclosure or the potential illicit collection of mortgage loan debt.

I will say this… if you see ANYONE pitching a “Forensic Audit,” I would just turn and run. Even the simple use of that title – forensic audit – should set of alarm bells. What is it a forensic audit of? What does that even mean? Really, it doesn’t even tell you anything – other than it’s a slick marketer using a buzz term to sell you something. The question really is or should be – “will it be suitable in a cour of law?”

Conversely, a Mortgage Loan Compliance Analysis is EXACTLY what it’s name implies plus a bit more. What do we do? We analyze the mortgage loan documents for actual compliance with Federal Lending Laws. Did the original lender provide the borrower with the mandated loan disclosures from the date the borrower applied for the loan through to the closing or ratification of the mortgage loan transaction and were the material Truth in Lending Disclosures such as the APR, Amount Financed, Finance Charge, Amount of Payments and Payment Schedule were properly and accurately computed – this is a mathematical process that requires a very comprehensive understanding of Regulation Z, Section 226.4 along with the Official Staff Commentary for that section. It’s also an investigation and analysis of the transaction to see if the original lender [and any mortgage broker involved] that may have been involved complied properly with underwriting guidelines and a look into any possible mortgage fraud or predatory lending violations such as bait and switch tactics or even forgery of the borrower’s initials or signature on loan disclosures or loan closing documents. Finally, it’s also an investigation into whether the lender and/or broker was properly licensed. All of these issues are examined, documents analyzed, TILA disclosures re-computed for accuracy and comparison and then all of this is [or should be] rendered in a report or affidavit format along with any and all supporting exhibits such as the loan documents and other components of the investigation.

Now, here’s the clincher… a “Forensic Audit” is almost always going to be a collection of boiler plate fluff with a few specifics strewn throughout the template to pass this garbage off as legitimate. However, any real scrutiny of these documents by someone who knows what to look for – or worse, a judge or creditors rights attorney – will easily reveal the  fact that 99% of these “forensic audits” aren’t worth the paper they’re printed on [ie. utter worthlessness]; which is real shame seeing that the homeowners who get suckered into these scams have precious few economic resources. They deserve a real service and a real work product that will actually stand up in a court of law.

A real mortgage loan compliance analysis and investigation will be highly CASE SPECIFIC. For it to be considered “forensic” in any sense of the word, it MUST be specific to YOUR CASE, not boiler plate. And judges HATE boiler plate, non-specific pleadings and if you try to throw a boiler-plate, template of a “forensic audit” at a judge in your case, you are asking for his/her wrath not to mention being completely discredited which never has a happy ending. I always tell people who are inquiring to hire me that there is no shortcut to these analyses and investigations. A mortgage loan transaction and any corresponding foreclosure case is like a fingerprint… no two of them are the same. Yes, you have a set of laws and guidelines that apply to all transactions but no two transactions are the same, period. Any and all work product must reflect that level of specificity if it is to be considered “forensic” in any way and has any chance of actually helping you make valid claims in a court of law.

So here’s my tip to help any homeowners facing foreclosure reading this: ASK for attorney references even IF they are an attorney. Ask to see their credentials. Ask for actual samples. Ask to see actual court cases their work product has been filed in and/or used in. Ask for customer references. Two words: DUE DILIGENCE… plus four words: DON”T BELIEVE THEY HYPE.  Because your money can either be completely wasted or put to very good use depending on WHO you hire and what they produce. Finally, call or email me… I’ll send you a couple samples with borrower info redacted so you have something to compare the garbage to. Hopefully this helps a bit… Good luck and happy hunting.

If you’re a regular or even occasional reader of Mandelman Matters, you’re reading this now… and waiting for the twist or the punch line, right?  You’re thinking… “Oh yeah right… I know him… what’s he saying by saying he doesn’t care about his readers?  Okay, you hooked me in… now tell me what you’re talking about.”

But, it’s not like that… sorry to disappoint you… I’ve recently realized that I actually don’t care about my readers.  You read me all the time?  So what?  It’s not like I get a nickel a reader, or anything like that… so read me… read something else, I could care less.

I used to care about my readers but, truth be told, this past week leading up to today, something happened that changed me… and I think you all have the right to know what it was that has caused me to think this way.

You see… today, Dina and Robert Giangregorio of Huntington Beach, California received their permanent loan modification from Ocwen Loan Servicing.  Do you remember them?  I wrote about them last week… three kids… Robert has “Primary Progressive Multiple Sclerosis, one of the worst types of MS one can have.  He only has use of one of his arms and he’s in a wheelchair.  The headline to the story I wrote about them was: “Ocwen Loan Servicing Takes Home from Handicapped Because There’s Equity.”

Now do you remember?  If not, you’d better click that link and read the article before going on or the rest of this article won’t make nearly as much sense.  Like missing “Part One” of something and then trying to just dive in at “Part Two.”  It’s never the same as if you had seen the first one.

So, yes… Ocwen sent the Giangregorio’s the documents for their permanent loan modification today, and as you might imagine… they were way beyond pleased… in fact, it’s safe to say that they were overwhelmed.  Dina sent me an email right after she heard… all it said was:

“Martin!!  I am crying. Words cannot express…”

I understood.  I felt the same way, but not for the same reason.

I emailed her back maybe 15 minutes after they learned of the great news and asked her to call me.  I wanted to ask if they would be interviewed on camera for a documentary on the foreclosure crisis that I’m filming this summer.

Dina emailed me back right away… she said she needed time to compose herself… calm down a bit… before she could call me.  Like I said, they were quite happy that after living through a sale date for their home last Monday, they would not be moving any time soon after all.  Quite a relief, I’d imagine.

So, a few minutes later she and Robert called… I was on the speakerphone and as one might expect, they were both thanking me for helping them save their home.  Dina told me that she felt as if a cloud had been lifted… I said I understood, even though for me… that cloud was still there.

I said they were welcome and not to give it another thought.  Besides, as I told them… I was only a part of it… there were lots of others involved, and those others were really the ones who deserve the credit for making this happen.  First of all, CDA Law in Mission Viejo, who are true stars of the loan modification world, jumped in against all odds to represent Dina and Robert and really were the technical experts here, and Julie Greenfield, who is the absolute top of the food chain when it comes to loan modifications, also volunteered to help push the ball over the line. (Both CDA and Julie can be found on my Trusted Attorney list.)

All I did was write about it… it was the others who took action and made Ocwen take notice… they weren’t just “my readers”… they were my “DOERS,” and how I feel about them… well, I think Dina said it best when she said… “Words cannot express…”

It had all started a little over a week ago… my wife had just picked me up from the airport.  I had just flown in from Hawaii after meeting with members of the state legislature on issues related to the foreclosure crisis.  I wrote their story the following day, I believe.  It was hard to write, because it made me angry and sad.

And then, after wiping away a few tears and swearing like a drunk pissed off sailor… down at the very bottom of their article, after I typed “Mandelman out,” I gave out the email address and phone number of Ocwen’s Executive Chairman, and said:

“Want to send Mr. Erbey a note to share your thoughts on the Giangregorio’s situation… Well, by all means… be my guest…”

It wasn’t even 15 minutes later that I received an email… I was being cc’d on an email sent to Ocwen’s Executive Chairman by someone who I had thought was just a “reader,” but now I saw was a “DOER.”  I wrote back to her right away, thanking her for doing what she had done.

Minutes later another email… same thing… another DOER was cc’ing me on another email to Ocwen’s Executive Chairman.  And then another came in before I could even send another thank you note in response… and then another… and another… and yet another.  Some of my readers were DOERS and they had read my article and done something about it.

That went on for a few days.

Then I received an email from a senior executive at Ocwen’s Washington D.C. office.  He was responding to an email that I had sent him before I posted the Giangregorio’s story, telling him that I was about to run the story and giving him a chance to comment.  I wasn’t expecting to hear back from anyone… I do it all the time before I go after a banker or servicer or government boob… it seems like the journalist-sort-of-thing to do, right?  But no one ever responds.

Here’s what Ocwen’s senior exec said in his email to me:

Martin,

Your email was forwarded to me but I have been traveling and didn’t see
it until yesterday.  I apologize for not getting back sooner.

I understand the Giangregorious story has been posted, but would like to
discuss the situation with you if possible. We’ve actually worked very
hard on this case, are saddened by it and will continue to do what we
can. We have not foreclosed and will continue to try to assist the
family within our legal constraints. I can assure you that our
commitment to helping distressed homeowners keep their homes with
sustainable payment plans is genuine — it is also very much consistent
with our own business interests.  Since the outset of the mortgage
crisis, we’ve worked out solutions for over 100,000 families to avoid
foreclosure and are recognized as the industry’s loan modification
leader.

But, again, I think it would be worthwhile to talk…would there be a
time say later this afternoon or anytime this week for a call?

Thank you…

And then he signed it.

I emailed him back and within an hour or so we were talking on the phone.  It was later in the afternoon on the Friday before July 4^th weekend, and with him being in D.C. I didn’t expect the call to last very long… but it did…  at least a couple of hours… it was after 7:00 PM East Coast time when we hung up, resolving to talk again after the holiday.

I had expected him to be a nice guy… and he was… but, he was also very smart and we talked about the financial and foreclosure crises in the big picture sense, going back to examine all of the many different factors that led to the meltdown.  He knew some “insider” sort of things that I hadn’t known, and I knew some stuff that he was interested to hear about.

I liked him, and I had not expected that to be the case.  As he phrased it… we were in “violent agreement” on just about every single issue we discussed.  He said he’d send me an article he’d written a couple of years back on loan modifications and the foreclosure crisis, and I said I’d send him links to a couple of hundred articles that I’d written on the subject.

After we hung up, I had two thoughts come immediately to mind:

1. Wow… maybe he and I can make something happen here… start something that other servicers would see as a success, and then follow.  I felt the same way about what had happened in Hawaii… maybe, just maybe… I was gaining on it.  And…
2. OMG… If April Charney and Max Gardner find out that I liked the guy, and that I could possibly work with him on something… they’ll kill me.  To say nothing of what my “readers” would think if I said something positive about Ocwen.  Someone could have a heart attack.

Well, I’m going to be talking with Ocwen some more… I did genuinely like the guy, so why not?  Someone has got to show those on the other side what’s going on from the homeowner’s perspective, and after writing 500 articles on the subject and talking to thousands of homeowners over the last couple of years… it might as well be me.

Also, just as I had posited to myself while sitting in a meeting in Rep. Herkes office in the Hawaii State Capitol building… if I wasn’t here, who would be… to which I answered what was the obvious truth of the matter… NO ONE.  There simply wasn’t anyone else, which made me wonder if perhaps I was insane, for a couple of seconds anyway.

So, now it looks like I might be visiting with members of other state legislatures as well.  I might even go to Florida and Atlanta to visit Ocwen and see what they’re doing down there…. maybe make a stop in D.C. too.  And I decided I would do whatever I needed to in order to finish the documentary I’d been working on for over a year… I wasn’t sure how exactly, without my wife choking me to death in my sleep, but I decided that I had to figure out some way to get it done.

Because that’s what DOERS do… they DO THINGS… they get things DONE… important things.

So, you see… it’s been quite a learning experience this past week or two… although I think I worked 120 hours and missed two nights of sleep, which I can’t keep doing if I expect to be able to DO anything for very long.

As far as my “readers” go, however, well… they can keep reading me if they want… or not… I don’t really care because from now on, I’m going to be concentrating on my “DOERS.”  Together, we’re going to DO IMPORTANT THINGS and we’re going to finally bring this unconscionable travesty of justice they call the foreclosure crisis to an end.

And after that, we’re going to start to rebuild America’s working middle class, brick by brick.  And one day… perhaps sooner than you might think… this country will once again be a place in which I can know that my daughter’s life will be as wonderful as mine has been… before all this happened… before Wall Street took over and broke the world.

People have asked me numerous times over the last two or three years, why I do what I do… and how I can possibly hope to beat the bankers… and I’ve always replied the exact same way: Because I’m going to win, I assure them.  Some also ask me why I’m so passionate about this? And I always reply: Why aren’t you?

You see, when Dina said that she felt that a cloud had been lifted, I understood but I didn’t feel that way at all, because I knew when I hung up with Ocwen that first time that they would modify the Giangregorio’s loan.  But, although that would be great for the Giangregorio family, what about the thousands of others all over this country that I didn’t write about?   No one should lose a home if there’s a way for them to keep it.  Not one person… ever.

Dina and Robert sent me another email shortly after we spoke… it read:

“We cannot express our gratitude for taking such an interest and huge involvement in our situation.  We are in awe that we are actually finally being ‘heard’.”

They sent it to me, but it’s a message to all of my readers who are also DOERS.  You really did something here… and what you did is a big deal… huge.  I’m so proud of you… and thankful… you should be proud of yourselves too.  You made a real difference in the lives of many.

And the best part of the whole thing is that even if you’re weren’t a DOER this time around… even if until now you’ve just been a “reader,” it doesn’t matter… ANYONE CAN BECOME A DOER AT ANY MOMENT.

That’s right… even right now… this moment… you can transform yourself from being a useless “reader” to being a DOER of important things.  Just say to yourself… assuming no one is around because you don’t want to appear as if you’re talking to yourself…

Starting today… I’m a DOER!

What are we DOERS going to DO?  Well, we’re going to figure that out as we go.  Every week, I’m going to try to post an article under the heading: “THINGS TO DO… THAT MATTER.”  So, when you read that line, you’ll know that after you’ve read the article, there will be work that needs to be DONE… send an email… make a phone call… whatever it is… so, JUST DO IT.  (LOL, I just couldn’t help that.)

This is a game of inches… there are no magic bullets or big sweeping solutions, of that I am quite sure.  We need to hit singles, not home runs… and sure as shootin’ we’ll win this battle one day… little by little, step-by-step… one day at a time, as they say… (OMG, I think I just mixed enough metaphors and exploited enough clichés to cause myself physical harm.)

Warren Buffet told Bloomberg today that he predicts “Job Growth When Housing Rebounds.”  Genius… that man really is a genius… who would have ever thought that solving the foreclosure crisis was so important.  Hmmm… maybe I should write something about that point.  I’ll have to give it some thought.  Thanks for weighing in, Warren… we’ll let you go back to bed now.

Housing doesn’t “rebound” as long as the foreclosures continue unabated, in fact nothing “rebounds” unless someone first throws a ball.  We have to DO something to STOP the foreclosure crisis. It’s a forest fire and it will continue to burn until it runs out of forest.

Every time housing prices fall, more people go underwater on their loans.  And every time a homeowner goes underwater, they are removed from the real estate market because most of the people that buy homes are not first time buyers, they have to sell their old home before buying their new one.  But once underwater, they can’t, so demand for housing falls as more people find that they owe more than their home is worth.  And as demand falls, so does price… and that means even more people go underwater.

Once you’re underwater, any of life’s events can lead to foreclosure.  An illness… an accident… a divorce… the loss of a job… any of those can lead to a foreclosure when the homeowner is underwater.  The Giangregorio’s only fell two months behind and that almost led to them losing their home.

Foreclosures breed foreclosures… period.  In Hawaii, Rep. Herkes repeated the phrase several times to others, and I’m sure he’s said it quite a few more times since I was there.  He’s a DOER, by the way.

Okay, so that’s all for now… I just thought I’d let my readers know how I feel and why… and I had to give my DOERS the great news about the Giangregorios.  Again… thank you from the bottom of my heart.

Oh, and Dina and Robert both agreed to be filmed next week, and I’m really looking forward to that.

But, now I’m off to Palm Desert where my daughter is dancing in a national dance competition this weekend.  She goes every year.  It’ll be 125 degrees outside, which is miserable, but inside there’ll be 5,000 girls from 5-16 years old all screaming their heads off at the same time, as the Moms try to get them ready for their next number.  So, when you think about it… 125 degrees really isn’t even that hot… LOL.

Mandelman out.

When it comes to homeowners applying for loan modifications, mortgage servicers come in three types:  Terribly Annoying, Unbearably Annoying, and Make-You-Want-to-Burn-Your-House-to-the-Ground Annoying.

Some people laugh at that description, and I might have laughed at it too, before I came to realize that it was such a dramatic understatement.

Not only are all mortgage servicers absolutely God-awful to deal with all the time and in every conceivable way, but they haven’t changed even one iota in three years.  They were entirely incompetent when they started modifying loans and they are every bit as incompetent today.  It’s really quite stunning… the only thing they do consistently is perform poorly.

A couple of years ago, with homeowners all saying how difficult it was to reach their servicers, I asked some Bank of America management types why the bank was having such a hard time answering the phone.  Was it all those buttons?  Because I would understand that… I hate all those buttons.

As I told them, I was asking because I happened to be one of the 44 million people carrying a Bank of America Visa card around, and I had discovered that I could call the toll-free number on the back 24 hours a day, 7 days a week and within a couple of minutes talk to a live person that could tell me where I bought gas last Thursday and how much interest I paid in 2005.  But apparently, were I to have a question about a loan modification… oh no… Bank of America couldn’t seem to answer the phone?  Is that what BofA was expecting me to believe?

Chase is no better… might even be worse, although in a race to the bottom it does get murky towards the finish line.  For the longest time Chase maintained that they simply weren’t able to hire enough people to handle the volume of calls they were receiving related to loan modifications, as if the whole foreclosure-modification thing had caught them entirely off guard.  So, wherever it was that Chase was, the financial sector was apparently running at full employment.

But then I met Jared, an ex-employee of Chase’s servicing company.  He had worked in the foreclosure department for 18 months, left on very good terms, and agreed to an interview.

Jared explained that it was his responsibility to make sure foreclosures were being completed in compliance with Fannie’s guidelines, and to document everything that went on with each file. “Everything the homeowner sends in has to be scanned, copied and attached to their file,” he said.

So, how come servicers are always losing paperwork submitted by borrowers, I asked?  He said that didn’t happen at Chase.  “We never lost anything, it’s was a big part of how you’d be awarded the maximum bonus of $12,000 a year.”

I must be thinking about Wells Fargo, I replied under my breath.

“Half of the bonus was tied to documenting your files in case investors wanted to audit them,” and the other half was based on how fast you’d foreclosure… at Chase they say that the ‘perfect foreclosure’ is 120 days,” he said.

Well, that must have been something to aspire to, I replied.  I mean, not every foreclosure can hope to be “perfect,” right?  He nodded in agreement, not quite sure of my meaning.

Jared recalled what his boss had told him during his first week on the job: “We’re in the foreclosure business, not the modification business.”

“Foreclosures are a no lose proposition for servicers,” Jared explained. “The servicer gets paid more to service a delinquent loan, and they get to tack on extra charges.  If the borrower reinstates, which is rare, then the borrower pays the extra fees.  If the borrower loses the house, then the investor pays them.  Either way, the servicer gets their money.”

What about modifications, I wanted to know.

“Their whole focus is to foreclose, not to modify.  They make borrowers jump through every hoop so that when something fails to get done on time, they can deny it and foreclose. That’s what it seemed like to me, anyway,” explained Jared.

I told him that it seemed like that to me, too.

It was all starting to make sense to me.  They weren’t trying to figure out how to modify… they were trying to find a reason to foreclose.

That had to be why so many of the stories about modifications sounded like they came straight from the reality television show: “The Amazing Race”.

“You have exactly 11 hours to sign and notarize this form.  Then deliver three copies to one of three addresses in your home city between 3:00 PM and 4:30 PM on Thursday.  The catch is that you must arrive by elephant.  When you arrive at your destination a small Asian man wearing one red shoe will give you your next clue.  You have exactly $3.95 to complete this leg of THE AMAZING CHASE!”

It’s easy to laugh about… unless you’re the one trying to hail an elephant in Stockton, California.

But, what about modifying loans to avoid foreclosures whenever possible?  How could the servicers get away with this sort of institutional behavior?   Were they trying to torture people and destroy all of the equity in the country?  Why?

Each night, I prayed for the answer to come… Dear Lord, I would say quietly to myself so my wife wouldn’t slap me for praying about HAMP… help me to understand… send me a sign…

And, sure enough HE did… on CNBC.  It was during an interview with JPMorgan Chase’s CEO, Jamie Dimon when the light began to shine through the darkness…

“Giving debt relief to people that really need it, that’s what foreclosure is,” Dimon said.  They (Homeowners) are probably better off going somewhere else, because they get relieved almost 100% of the debt through foreclosure.”

Oh, no he didn’t.  Did he just say what I thought he said?  He has got to be the most astonishingly arrogant, out-of-touch, uncaring jackass I have ever come across.  I don’t even think The Donald would say something like that.

Foreclosures weren’t bad for people… they were more like a gift… a way of providing much needed relief from the burdens of having a home in which to live.  Foreclosures weren’t debt collection… they were debt forgiveness.

Rejoice, people, rejoice!  Rejoice and revel in the fact that you’ve got thirty days to pack your crap and move out of your house!

At that very moment I knew two truths to be self-evident:

1. I had found the source of the problems with mortgage servicers… bankers.  I don’t know why I hadn’t seen it clearly before.
2. I would feature that obnoxious, hardhearted and seriously twisted man in my column because without a doubt he is one of the biggest REAR ENDS mankind would ever come to know.

Mandelman out.

Okay, this is becoming positively surreal.  Yves Smith at Naked Capitalism calls it “Banker Derangement Syndrome,”  (actually, she calls it Banker Derangement “Sydrome,” but I’m pretty sure that’s just a typo), but whatever it is there’s no question that it’s absolutely some of the fruit loopiest sort of thinking I’ve ever seen.

The bankers… yes, the very same bankers who leveraged up on garbage CDOs as if housing prices would never ever go anywhere but up are now supposedly shocked and dismayed that mortgage lending volumes don’t seem to be “coming back,” and that EVEN with some of the lowest interest rates in years, the only thing that seems to be happening is refinancing.

Really, Scooby-Doo?  Why Velma and I can’t imagine why that would be.  Hurry, let’s get to the Mystery Machine and see what Shaggy knows.

The article below comes from American Banker by way of Naked Capitalism, and I don’t usually write about what Yves Smith is writing about, at least not on the same day like this… partially because she’s smarter than me and I figure she’ll do a better job, but also becausde I just think it’s icky.  Today, however, I just couldn’t help it.

So, with mortgage lending activity now apparently not coming back… wait a minute… why would that be the case?  Could it be that the bankers have been the proximate and even SOLE CAUSE of this economic calamity the Obama administration continues to call a “recovery?”  Wells Fargo and BofA both say they’re laying off people?  Yeah, great… because they’re so darn over staffed in their loan modification departments, I suppose.

Listen people, I’ve said this before but there’s no real estate market.  We don’t have one.  It’s gone.  The bankers blew it up.  The only reason we didn’t sink straight through the floor two years ago was that Timmy, Benjamin and Sheila have all been blowing air into our economic tires to keep things looking like they’re running smoothly, but make no mistake about it… we’ve done run out of Fix-A-Flat, there’s not a service station for miles, and that giant railroad spike we ran over back in the summer of 2007 is sure-as-shootin’ going to bring our journey to an abrupt halt starting this summer.

Hey banker-people… people aren’t buying homes because you broke the bond market… that’s right… no one buys your mortgage-backed… and I use that term very loosely… IN-securities anymore because of the bang-up job you did defrauding them only a few years back.  I don’t know when investors around the world will be ready to try them again, but my guess would be that they’ll give you another shot with RMBSs and the like, about the same time I’m ready to take a flyer on a dot-com IPO with no profits or customers who’s heralding the dawn of a “new economy.”

Are you feeling me here?

For the most part, all you’ve been doing is refinancing the same people annually since 2009, courtesy of theObama administration’s fabulous housing rescue program, and if you didn’t know that, then you really do need serious help.

Oh, I know… you also turned FHA into the “new sub-prime” and conned a few people into believing that “now was a good time to buy” over the last two years (it is fun to profit off of the misfortunes of others, isn’t it.), but trustee sales just aren’t what they used to be, now are they?  What fun is just another credit bid and then it’s Hi-Ho-Hi-Ho… it’s REO we go… (insert your own whistling here).

And as far as blaming the slowdown on the proposed onerous capital requirements of Basel III, or compliance with Dodd-Frank, or whatever else isn’t your fault… oh, I don’t know… let’s see… what would be appropriate here?  Oh wait, I’ve got it…  how about… SHUT UP, SHUT UP, SHUT UP.

No one’s buying houses because you made it impossible for anyone to even think about doing so.  People in this country are either so far underwater that they’re thinking more about walking away from their current mortgage than they are burying themselves in a new one, or they couldn’t qualify for a loan that requires an 850 FICO and 50% down.  You see the only people left in America that can qualify under those terms are… hmmm… let’s see… um… oh yeah… BANKERS!  And why do you suppose that would be?

Come on… let’s not always see the same hands… who can spell TAXPAYER BAILOUTS?  That’s T-A-X-P-A-Y… what in the Sam Hill are these people thinking… what planet are they living on?

But golly… interest rates are so low… and the stock market is so high… and everything’s just getting positively swell around here… banks are just fine… that little insignificant scare we had during the fall of ‘08… don’t fret over that… that was mostly just Hank Paulson getting panicky.  We didn’t even need the TARP funds… that’s why we paid them back so fast, it had nothing to do with the restrictions on executive pay… and taxpayers made a profit… our books are right as rain…

FOR THE LOVE OF GOD, THE ONLY PEOPLE WHO BELIEVE ANY OF THAT DRIVEL AREN’T YET OLD ENOUGH TO READ… (or they could be a certain group of Republicans, I suppose, but I have no explanation for that.)

JPMorgan Chase is planning on opening 4500 branches in and around California?  You must be kidding.  Anyone care to bet on how many of those new branches end of being rented out to small businesses like dry cleaners or perhaps being replaced by a Taco Bell within 24 months of opening?

I do have one idea… it’s kind of out-there, I realize… what about… no, you’ll think it’s silly… well okay, I’ll say it anyway… promise you won’t laugh?  Well, you could consider modifying loans?  That might… just maybe… slow down the foreclosures that are sweeping the nation’s housing market right into the trash can.  And fewer foreclosures could tend to stop the free fall in housing prices, which would mean fewer people going further underwater, which in turn might cause someone to want to fix something in their house, and won’t Home Depot be happy about that.  And… well… why that could lead to… I don’t know what to call it… umm… prosperity?  See, I knew you’d laugh.

Banker-people… you are the ones who’ve made… and continue to make our collective bed, and now you’re surprised that you too are going to be laying in it?  Well, get used to it because it’s only just begun to suck around here.  You didn’t need the middle class, remember?  Let them eat cake?

Well, don’t ask for whom the bell now tolls… ’cause it tolls for thee.

Mandelman out.

FROM AMERICAN BANKER:

A drop in mortgage lending volumes to the lowest level in over a decade is forcing lenders to consider new cost cuts and staff reductions. The lack of activity comes despite a boost from low interest rates that has sparked a wave of refinancings, and is prompting lenders to face the prospect that refis and home purchases may remain moribund for an extended period.

“This is the bleakest I’ve seen the forecast in 26 years,” said Mick Rizzo, vice president and operations manager in Marshall & Ilsley Bank’s mortgage unit.

Mortgage origination volume fell 35% in the first quarter, to $325 billion, according to the Mortgage Bankers Association. For the entire year, the figure is expected top out at around $1 trillion and to remain at that level in 2012, the MBA predicts. That would be the lowest level of originations since 2000.

During past downturns, low interest rates helped pull mortgage lending out of the doldrums. This time around, however, lenders appear resigned to the notion that refinancings have run their course. With housing starts and permit issuances flat, there simply are not enough purchases of new and existing homes to offset declines in refinancings.

“If anyone is depending on the market to rescue them, I’m not sure that’s a sound strategy,” said Willie Newman, head of residential mortgage originations at the $4.6 billion-asset Cole Taylor Bank, a unit of Taylor Capital Group Inc. of Chicago.

Bankers are responding to the slump by reducing head counts, expanding into new markets and reducing costs.

Wells Fargo & Co. in April said it planned to cut 4,500 employees from its mortgage division. Bank of America Corp. eliminated 3,500 employees and closed 100 small fulfillment centers.

JPMorgan Chase & Co. has avoided staff cuts and instead is focusing on opening 1,500 to 2,000 retail branches in the next five years, mostly in California and Florida.

More cuts and further consolidation appear likely in the coming quarters, as well as a reduction in the ranks of small and midsize lenders and brokers.

Lenders have long been bracing for a drop in mortgage volume, despite previous reprieves from falling interest rates, said Cameron Findlay, chief economist at LendingTree, a unit of Tree.com Inc….

Some lenders also say the largest banks are propping up their own margins and refusing to lower prices for borrowers because of capital restrictions that have been proposed as part of Basel III liquidity requirements.

The expected drop in originations this year would result in a 10% to 20% drop in profits from mortgage originations, largely as a result of lower loan spreads and fees, Moody’s said in a report released in May. A 30% drop in origination volume would mean a 45% decline in net income from mortgage sales, according to the rating agency.

This appears to have the mortgage industry in a Catch-22. Lenders need new borrowers to sop up the shadow inventory of foreclosed homes. They are scarce, however, because the traditional crop of “move-up” homebuyers is unable to sell existing homes…

Tightened underwriting guidelines have increased the risk that a loan will not make it all the way through the pipeline, further increasing costs….

Concerns about buybacks from the government-sponsored enterprises and indemnifications of Federal Housing Administration loans also have forced many lenders to adopt new technologies to catch compliance problems.

“Reviews from investors are very detailed and post-closing scrutiny is high,” Newman said. “Lenders have to be adept at learning quickly what the issues are with investors on the closing side, because there has been significantly more focus placed on closing documents relative to two years ago.”

With a P.S. by Yves Smith over at Naked Capitalism who writes…

The new found religion on documentation at the time of origination is encouraging, but it is hard to tell whether the banks have gotten religion or are simply responding to outside pressure. It sounds like the latter, which suggests the industry has not abandoned its posture doing everything it can get away with. And with that attitude well entrenched, investors and borrowers are right to continue to be leery.

Remember the San Diego homeowner, Ademar Marques, who was applying for a loan modification with his servicer (Wells Fargo, dba, America’s Servicing Company, which for the purposes of this article, we will refer to as “the Hampster”) who wasn’t cooperating at all.  Wells Fargo wanted to just skip all of those messy and time-consuming formalities required when considering someone for a loan modification, and just jump straight to foreclosure.

So, Mr. Marques filed a lawsuit against Wells Fargo’s Hampster because he had read about the Home Affordable Modification Program (“HAMP”) and the program’s guidelines said that his servicer was “REQUIRED” to screen him for a hardship, and consider him for a loan modification.  He also alleged that he qualified for the loan modification program based on all of the published guidelines, and that his servicer, a participating servicer in HAMP never said that his loan could not be modified, they just refused to modify it, and instituted foreclosure proceedings.

He sued based on breach of contract, alleged that Wells Fargo’s Hampster violated the Unfair Competition Law (Cal. Bus. & Prof Code § 17200 et seq. (“UCL”) and he sought damages and declaratory judgment that would stop Wells from foreclosing on the Property.

Here’s the part you might recall: (I wrote about it at the time, in case you need a refresher.)

Marques claimed that he could sue Wells Fargo for breach of contract, referring to the contract between the federal government and the HAMP participating servicers, because he argued that he… and in fact all eligible homeowners in this country, are “intended third party beneficiaries” to that contract.

Intended third party beneficiaries, now is it coming back to you?  The judge, was the Honorable M. James Lorenz, and he had quite a bit to say.

He started with establishing that Federal law controls the interpretation of a contract entered into pursuant to federal law and to which the United States is a party.  So, if it says in the contract that the servicer “MUST” do something, and that servicer doesn’t do it… you the borrower may be able to sue the servicer for breaching that contract… if you’re the intended third party beneficiary to that contract.

Judge Lorenz also said:

“To qualify as an intended beneficiary, the third party must show that the contract reflects the express or implied intention of the parties to the contract to benefit the third party. Although intended beneficiaries need not be specifically or individually identified in the contract, they still must fall within a class clearly intended by the parties to benefit from the contract.”

The bottom-line in the decision of last year was that Mr. Marques WAS to be considered a third party beneficiary of the HAMP contract between Fannie Mae and the servicers, so he would be permitted to sue for breach.  Everyone was really excited at the prospects for justice in this insane world of HAMP, Hampsters, and loan modifications, until…

January 3, 2011… The Hampster Strikes Back… A day that shall live in infamy… Judge Lorenz rules against Mr. Marques and says he is not an “intended third party beneficiary.”  Flags flew at half-mast in the hearts of homeowners in California and across the nation. I was just pissed… I hate it when Hampsters win.

Judge Lorenz ruled that Mr. Marques, and another plaintiff named Sampson, are “incidental” beneficiaries,” causing me to ponder just exactly how many types of beneficiaries might exist in the law that started with the letter ‘i’.

Could one be an “involuntary” beneficiary?  Or what about an “insouciant” beneficiary? Could you become an “intractable” beneficiary?  Or at times feel like an “incongruent” beneficiary.  Or even an “incredulous” beneficiary?  After all this, I fear I’ve become an “inculcated” beneficiary. And it would seem impossible to be deemed an “ineffable” beneficiary, right?   (Some of those are funny; look ‘em up if you need to, no one will know.)

Judge Lorenz said that “although the overall HAMP program undoubtedly has a gial of assisting homeowners, the HAMP agreement does not express any intent to grant borrowers a right to enforce the HAMP contract between the government and the Hampster… I mean, loan servicer… the judge didn’t know to use the word, “Hampster.”  (He will now.)

So, Lorenz granted Wells Fargo’s motion to dismiss, also saying that the plaintiff might have various state law tort claims, and then wrapping up by saying that the court had no opinion as to their viability, followed by a sentence saying that the plaintiff was free to file an amended complaint within 20 days.  The whole thing was making me dizzy by that time, and I felt like I was watching a Hampster running in one of those little wheels, so I stopped writing about it.

Below is the judge’s decision in the second at bat for Mr. Marques… we can call it “The Hampster Wins.”

Intended Beneficiary Doesn’t Work

Okay, so Mr. Marques is nothing if not persistent, apparently, and God bless him for that, because this time out… his third time at bat… he hits one out of the park!

This time Mr. Marques sued for:

1. Breach of a HAMP modification agreement (although a friend of mine who’s a lawyer said that he thought that from the way the facts are laid out, that instead of a HAMP mod, Wells offered him a non-HAMP mod);
2. Breach of the third-party beneficiary contract–specifically, the agreement between Fannie and Wells pursuant to which Wells agreed to participate in HAMP;
3. Unfair Competition under California’s Unfair Competition Law.

Apparently, the court had earlier held that the plaintiff was entitled to sue as an intended third-party beneficiary of the agreement between Wells and Fannie, but that in order to do so, he had to amend his complaint and allege more facts.  So, Marques went straight out in search of said facts and amended his complaint.

The Hampster, of course, leapt into action and moved to dismiss the amended complaint, arguing that its factual allegations were still not good enough.  In a way, they sort of called him an “insufficient” beneficiary, I suppose. (I crack myself up sometimes.)

The Hampster clearly knew that he was fighting for his life.  First he filed a motion to dismiss for failure to state a claim upon which relief can be granted.  Then, the Hampster tried to say that the first amended complaint failed to correct the pleading defects.  Judge Lorenz said, “Sorry, not this time,” well, actually I’m kind of paraphrasing.

After that he argued that Plaintiff did not sufficiently allege breach of the HAMP Agreement because he did not allege that the Hampster had obtained the necessary consents and waivers to modify the loan.  To which I would have replied… “Huh?”

Next, the Hampster contended that Mr. Marques’ claim that the Hampster breached the loan modification agreement “undermined” his claim that the Hampster breached the HAMP Agreement. (Do you see how annoying Hampsters are in court?)

But, Judge Lorenz said that even if the two claims were inconsistent with each other, as Marques was claiming, it wasn’t fatal to the complaint, because “Federal Rules of Civil Procedure allow for pleading of inconsistent claims., and thank the good Lord for that.”

So, the Hampster tried to pull a fast one and slipped in for the first time in its reply brief, the argument that the loan modification agreement was “unenforceable pursuant to the statute of frauds.”  But Judge Lorenz said… oh, no you don’t Hampster… “this issue was not briefed in your moving papers and Mr. Marques therefore did not have an opportunity to respond.”

The Hampster tried to play it off as if he did not know that new issues should not be raised for the first time in a reply brief.  And isn’t that just like a Hampster?

Hampsters love to play golf.

Lastly, the Hampster argued that Mr. Marques’ UCL claim should be dismissed for the same reasons his breach of contract claims should be dismissed. Mr. Marques was alleging that the Hampster had violated the Unfair Competition Law, which prohibits unlawful, unfair or fraudulent business acts or practices, which are all well known Hampster specialties.

But, this time the court was not feeling very Hampster-friendly and Judge Lorenz came through.  He disagreed with everything the Hampster said and ultimately denied the Hampster’s motion to dismiss.

Congratulations Mr. Marques!  You deserve a standing ovation from homeowners everywhere.  You stuck with it, didn’t give up and I’m guessing that now, with the Hampster’s motion to dismiss solidly rejected, you will get your day in court as your case will proceed to trial?

That’s what it seems like to me anyway… is there a lawyer in the house?  I know you’re there, I can sense it.  Here’s the case, let me know if I missed anything:

Marques vs. Wells Fargo LIVES

~~~

And homeowners… stay tuned to Mandelman Matters for continued coverage of…

Mr. Marques v. The Wells Fargo Hampster.

There’s sure to be lots more to come…

~~~

And I’ll try to go to the trial and sit in the back.  I’ll even get a lawyer to go with me who speaks fluent Hampster so I can follow along and let you know what happens.

Mandelman out.

Wells Fargo Bank, with their all-American stagecoach logo, has just been accused of violating the Servicemember Civil Relief Act, a federal law that requires members of the armed forces on active duty to be told about civil actions like foreclosure, and allows them to delay the process until they return home to defend themselves against the action… assuming they make it home, of course.

That doesn’t seem too difficult a law to follow, does it?  I mean, there couldn’t be that many active duty military personnel in any one state… that are over seas at any one time… that all have the same mortgage servicer… and are all in foreclosure at the same time, right?  How many could there be in a single state? A few thousand would seem like a lot, right?

Hard to believe there could even be that many, maybe more like a couple hundred would be at the high end of your guess, wouldn’t you think?  The kind of number that by my way of thinking you could keep track of with an index card system, to say nothing of some souped-up-servicer supercomputer.

So, what exactly is the problem here, banker-people?  Don’t you have enough homeowners under consideration for a loan modification that you can foreclose on without notice that aren’t active duty military?  No one, save a handful of foreclosure defense attorneys and bloggers, would even care if you did it to regular folk… you can deceive and defraud them all you want… just leave our men and women on active duty military alone, okay?

You’re welcome to do it to veterans, for example… they’re not active duty anymore, so what have they done for us lately?  Nothing.  You can do it to police officers, teachers, firefighters, nurses, single moms who work three jobs and have three kids… you can do it to senior citizens with disabilities, for heaven’s sake… we do not care.  But active duty Army, Navy, Air Force, Marines and Coast Guard… they’re all off-limits, what’s so hard to remember about that?

After all, it was only a few weeks ago… actually, according to Bloomberg it was May 6, 2011…  that JPMorgan Chase, admitting it mishandled mortgages of U.S. service members, paid $56 million to settle the claims.

Isn’t a $56 million settlement paid a couple of weeks ago by one of your brethren enough to get you guys at Wells Fargo to at least make a note not to repeat the same mistake?  I only ask because my wife got a parking ticket last week for parking on the wrong side of the street on Wednesdays and the fine was $45 and that was enough to get me to remember not to park there next time.  Is $56 million to you guys not even the equivalent of $45 to me… is that the problem?

The settlement provides $27 million in cash which will be split among to 6,000 military personnel involved, and JPMorgan Chase has agreed to return the houses they stole, even if they have to pay fair market value to buy them back from purchasers in cases where the homes were already sold at auction.  The bank will also forgive any remaining mortgage debt of the military borrowers who were supposed to be protected under the law… but weren’t… and the bank will reduce the interest rate on all mortgages held by deployed troops to 4 percent for one year.

Regardless, according to ABC Action News, Coast Guardsman Keith Johnson, who had been overseas fighting one of our wars, had just returned home and was greeted by his wife… oh, and also the news that Wells Fargo Bank had foreclosed on, and sold, his home while he was away.

His wife had no idea the bank was working hard behind the scenes to sell their home because they were in the middle of applying for a loan modification.  And he had no idea what the bank was planning because… well, because he had been overseas fighting for his country.

Since Keith and his wife had no knowledge of what was happening, no defenses to the foreclosure were filed on their behalf, and Wells Fargo obtained a summary judgment and then auctioned off the Johnson’s home.  Must be because Tampa needed another foreclosed home to go back to the bank and then sit vacant for many months or even years.

According to the ABC Action News story…

“Attorney John Odom is a nationally known expert on the act, and says it also protects soldiers against default judgments because, ” Active duty personnel are not free to come and go as they might need to defend themselves,” Odom tells us.

Well, now you see I hadn’t really thought about it until now, but I suppose that’s true.  The folks on active duty military are not free to come and go as they might need to defend themselves.  Do you see the thinking behind the Servicemember Civil Relief Act now Wells Fargo Bank people?  I’ll bet you can find out even more about the law on Wikipedia, if you think that might help you to remember to stop breaking it.

Also from the ABC Action News story, here’s Wells Fargo entire response:

Wells Fargo takes our responsibility to comply with the Servicemembers Civil Relief Act (SCRA) very seriously. We work hard to make banking easier for our servicemen and servicewomen — around the world. For example, we have 11 military base locations across the country, allowing our military customers to have convenient access to banking services, including dedicated a website and phone lines.

We did everything we could in this case but there were obligations the homeowner was unable to meet. We followed the service member act by requesting an attorney ad litem, and we were acting on the validity of the court document filed by his court-appointed attorney.

Wells Fargo exhausted all efforts to resolve this matter. We made numerous attempts to resolve the case and facilitate a modification, short sale, refinance or payoff. We do our best to avoid foreclosure whenever possible, however, in some case we are unable to reach a mutually agreeable resolution.

Vickee J. Adams
Vice President, Mortgage Communications

Vickee, Vickee, Vickee… my darling Vickee… I just don’t get the sense that you are embracing the spirit of the law here, because if you were you would know that the entire country knows that Wells Fargo Bank screwed up bad… you violated federal law… you stole someone’s home, and not just anyone’s home, but the home of someone who has been overseas fighting for his country. And when that sort of thing happens, you don’t start blathering on about how you make banking easier with 11 branches on military bases from coast-coast that allow customers to essentially have convenient access to “Almost Free Checking,” and a dedicated Website.

Can you see why yours is an inappropriate response under the circumstances, Vickee dearest?  And by the way, you most certainly didn’t do everything you could have to avoid foreclosure in this case, because if you had done EVERYTHING you could have done, you wouldn’t have ended up being in violation of federal law and you wouldn’t have ended up lying to the Johnsons and then stealing their home, can you see the logic there, Vickee?

Because you see, Vickee, my darling, when one does in fact do EVERYTHING one can do… by definition… one doesn’t end up breaking federal laws.  If one does discover that one is breaking federal laws, then I think it’s safe to say… and I hate to speak in absolutes here, but… I do think it’s safe to say that you’ve come up short as far as having done EVERYTHING you could do.

And, Vickee… you guys at Well Fargo… or any of your too-big-to-jail compadres, for that matter… this case really has proven that you don’t “do you best to avoid foreclosure whenever possible,” now do you?  Because this was not a case of you doing your best and not being able to reach a mutually agreeable resolution, as you claim in your boiler plate statement.

This was a case of you simply not communicating with the homeowner, except to tell them they were under consideration for a loan modification… until you turned around and sold their house without telling them of your plans.  And you’re Vice President of Mortgage Communications, Vickee, so it’s ironic that I should have to be tell you this.

According to attorney Odom:

“He (Johnson) is never contacted by anyone about the foreclosure procedures being filed. And he comes home and he has no home. Now that’s wrong. Somebody didn’t do their job, because the law says that shouldn’t not have happened.”

Florida foreclosure defense attorney Matt Weidner is representing the Johnsons, and so I called Matt this afternoon to ask him what was happening.  Incredibly, Matt told me that Wells Fargo is pushing back hard.

Wells Fargo is saying that they followed the law by requesting an “attorney ad litem.”  The Latin phrase “ad litem” means “for the suit,” and an attorney ad litem is a lawyer generally appointed for an incapacitated person.  Matt’s view… and mine too, by the way… is that Wells Fargo could and should have notified the Johnsons.

Me being the “Lay-person Ad Litem,” I asked Matt if the Johnsons have a telephone, and he assured me that they do.  So, there’s one way Wells could have gotten in touch with them if they were really interested in preventing foreclosures or in not selling the home of one our soldiers out from under him.

“They (Wells Fargo) say they couldn’t locate Keith Johnson to notify him, but one thing that our military does exceptionally well is locate their soldiers… they know where their soldiers are at all times.  For Wells to claim that they were unable to locate Mr. Johnson is just not a credible statement,” Matt said.

Matt also says has filed pleadings with the court including a motion to vacate, saying: “Foreclosure sales without notice are wrong and I expect the judge to agree with that.”

Matt Weidner said that he and his fellow foreclosure defense attorneys in Florida are committed to making sure that no service member faces foreclosure without an experienced foreclosure defense attorney to represent them.  Florida has a well developed network of highly skilled attorneys who work together and are dedicated to protecting the rights of all homeowners, but he says that protecting those that are overseas serving in our military today must remain a top priority.

Let me guess banker-people… if Wells Fargo is found to be in violation of the federal law that protects our servicemen and servicewomen, you’re going to claim it to be yet another “isolated incident?”  You know like the robo-signing that was an isolated incident, or the inability to produce documentation that shows you as the trustee actually won the note on which you are trying to foreclose in the Ibanez decision… was an isolated incident?

Or, is complying with this federal law going to raise the cost of borrowing for all Americans, not that there is borrowing for most Americans.

I don’t know about everyone else, but it strikes me as funny that the biggest difference between The Great Depression and today’s depression, is that during the 1930s, people robbed banks.  Today, banks rob people.

Mandelman out.

First posted in December 2009,… but re-posted at reader’s request.

I’ve had a love-hate relationship going with FDIC Chair, Sheila Bair since 2006.  In case you don’t remember, Sheila was the Bush appointee with a brain and a heart, go figure, who first uttered the term “loan modification,” to which, I believe, Hank Paulson replied: “Yeah right… Sheila, be a doll and run down to the corner and get me a Nonfat Grande Vanilla Latte, would you please.  Thanks.”

And, even though she brought it up several times after that, and Congress asked her to come testify about it, that was about as far as she got with the idea while Bush was in office.  Oh, I know, I’m leaving out the one Hope-4-Homeowners modification… so, big deal.

So, then as all the Bushies were loading up the wagons and heading west to the Lone Star State, Sheila stayed behind.  Republicans accused her of sucking up to the incoming Obama Administration, jockeying for a position that would let her keep her job.  Frankly, I didn’t care what the Republicans said at that point in the game.  If Sheila thought she could get something done in the loan modification department, then by golly, let’s give the woman a try… Lord knows Paulson was in no hurry to modify loans, unless perhaps Goldman Sachs was the borrower.

So, at this point I liked her.  After all she was getting absolutely no support from her Red State pals, and she seemed to have her heart and brain in the right places.

Then she took over IndyMac Bank and did a masterful job, the papers reported.  I don’t really know how perfect it was, but quite a few people said it was a model for the rest of the banks in this country.

Then Obama announced the making Home Affordable program, the one that had absolutely no shot whatsoever of working, and basically she went along for the ride.  She was honest on ABC News last April, telling everyone watching that the Making Home Affordable was not designed to stop foreclosures, and I published several articles in which I referenced her quotes on that subject… but no one listened back then.  That was when the Obama plan could do no wrong.  (Now, it seems, it can do nothing right.)

Sheila is also the one that negotiated with the purchasers of banks like IndyMac, so that they could buy the bank with a loss sharing agreement.  Under most loss sharing agreements, the FDIC agrees to assume up to 80% of any future losses, up to a certain threshold, and the bank gets the other 20%.  If losses exceed that threshold, FDIC picks up 95%.

Pretty cool, huh?  Maybe we should pool our money and buy one of these failed financial institutions. After all, there are going to be quite a few going on sale in the coming months.

FDIC says they have loss sharing agreements with 53 financial institutions, but I haven’t been able to find the list.  Bloomberg reported the FDIC having loss sharing agreements worth $101.9 billion, including 44.7 billion for single-family loans.

Of course, after IndyMac was sold to a new group of investors (the largest two shareholders are George Soros, Michael Dell) and renamed One West Bank, I started liking her less.  She just hasn’t been doing much lately.  Oh sure, she takes over a couple of banks a week these days, but I can’t think of a thing she’s done this whole year to help a single homeowner.  I’m sure I’m wrong about that… I hope, but it doesn’t change the fact that IndyMac and other banks and servicers have been abusing homeowners and she hasn’t done anything meaningful to prevent it.

Well, now Sheila the Care Bair is speaking out once again.  And this time she’s talking about principal reductions.  (You go girl!)  Late this week, Sheila told Bloomberg News:

“We’re looking now at whether we should provide some further loss sharing for principal write downs.  Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs. So you have other factors now driving mortgage distress.”

Sheila has started talking seriously about lenders reducing the principal on $45 billion in mortgages that have been acquired from failed banks taken over by FDIC.  It’s not like this step alone would solve the foreclosure crisis the country is facing, but it would certainly be a step in the right direction, as it would establish the importance of principal reductions.

Up until now, of course, the issue of principal reductions has been a bit of a third rail with the American public.  Why should “they” have their mortgage balance reduced?  “They,” who made irresponsible decisions, took on too much risk… blah, blah, blah.

The truth is, those thinking this way are their own worst enemy, they just don’t realize it yet.  They will soon enough, however.  It may seem counter-intuitive, I realize, but I’m going to take a shot at simplifying the issue… so, here goes.

First of all, let’s just establish a few things:

A. Banks don’t really have much money to lend out for 30 years.  They have a lot of money to lend out for short periods of time, like annual revolving credit lines, things like that, but not much at all for longer-term borrowing.  That’s because people don’t put their money into banks and just leave it there for 30 years. The vast majority of people would put money into a CD for a year or two, but not much beyond that.

B. So, when a bank originates a mortgage, it plans on selling it in the secondary mortgage market*… not keeping the loan on its balance sheet.  (*The one we don’t have any more because no one trusts those AAA ratings Wall St. was so fond of during the bubble.)

C. Banks have ratios they must comply with in order to be considered solvent by federal banking regulators.  They have to have x amount of cash or cash equivalents, and they can only hold x amount of less liquid, and therefore higher interest bearing, types of securities.

D. When a bank holds a loan on its balance sheet and it is paying as agreed, it remains in a homogenous pool of loans and everything is fine.  But when a bank learns that a loan they are holding is at risk of default, the bank has to take that loan out of the homogenous pool of loans and place it as an impaired loan into a heterogeneous pool… and reserve for the future loss of that loan defaulting.  Banks don’t like doing that because the higher the reserve account balance (called the ALLL – Allowance for Liens, Losses and something else I can’t remember at this moment) the lower the profitability and therefore, the annual bonuses.

Okay, got it so far?  Hope so…

We have reached a point where we have to stop foreclosures, because if we don’t property values will continue to fall and more and more people will start walking away from their mortgage whether they can afford the payment or not.  This will put even greater pressure on the bank’s financials, because at a certain point what we’re talking about is stabilizing the banks, remember.  Lower values mean less spending, which in turn means layoffs, which bring more foreclosures… foreclosures breed foreclosures, remember?

There’s another dynamic involved and it involves the so-called toxic assets that are still on bank balance sheets just as they were last fall when Hank Paulson wanted to buy them off of the bank balance sheets with the $700 billion TARP money.  Eventually, we are going to have to buy these “toxic assets,” from the banks, or they won’t recover and start lending again and we won’t see a recovery,

When Paulson tried to buy the toxic mortgages from the Banks into order to try to stop them from closing their doors for good, the problem was that the banks wouldn’t sell them at anything less than face value, even though they had been written down in most cases, and they certainly weren’t worth anything near face value.

Paulson couldn’t come up with another way of valuing them, especially in the time he had before the banks defaulted, so he didn’t have any other option other than to buy preferred shares of stcok.  Without going into detail, preferred shares are equity, but they function more like debt or bonds, and they don’t have voting rights, as do common shares.

Paulson wasn’t fixing anything but the very near term problem of imminent default of the banking system.  And since then we’ve basically done more of the same, except that we’ve run out of money to paper over the real problem… so, the banks remain technically insolvent.  Ultimately, we need to buy the toxic mortgages off of the banks balance sheets, because only the government can take on the re-default risk, or the risk that what says AAA is actually D-.

If we pay some lower amount than the face value of the loans, then we’ll leave a gaping hole in the balance sheets of the bank sold us the assets, and I use that term lightly… and we’ll have to give the banks the money to refill that hole we created by paying less than face value.  In other words, we’re going to paying for them one way or the other.  No question about that.  We only fix the problem by paying the face value of assets we know are not worth face value.

So, the only remaining question really is: How toxic do you want the assets to get before “we” have to buy them all at face value?  We could let the entire housing market drop to essentially zero, but that would cause massive numbers of strategic defaults, which is the phrase being used to describe people walking away irrespective of whether they could afford the payment or not, which would quickly get out of control, collapse the banking system, and make any sort recovery impossible.

Critics, who don’t think homeowners deserve the government’s help, are the cause of the “third rail” aspect of the issue.  These people think that modifying a loan for a homeowner who is seriously underwater is somehow giving that homeowner an undeserved taxpayer funded gift – a reward for having acted irresponsibly.  Speaking about these unfortunate homeowners, you hear them say things like: “They took a risk and lost, so they must pay the price.”

The problem is, and I’ll try to be kind here as some of “these people” are friends of mine, they’re not looking at the situation correctly.

When you have someone with a $500,000 mortgage, and the market value of the home is now $300,000… and you modify the loan by lowering the interest rate by a few points and extending the term to 40 years… that’s no gift, sweetheart.

That may not be considered manslaughter under the law, but it’s certainly the financial slaughter of a man… or woman, as the case may be.  When you modify that mortgage by lowering the interest rate and extend the term, you just cost that person who was already $200,000 underwater, a lot of money.

The banks know this.  They also know that the likelihood of that person staying in that home and making all of the payments is slim to none because it’s going to be decades before that homeowner has any shot at building any equity.

That’s why the bank doesn’t want to modify the loan.  The bank knows that even though the person, when threatened with losing the home, will agree to almost anything to keep it… a year or two later, when the shock of losing the home has worn off, that homeowner is going to wake up one morning and realize that they’re paying twice as much as the home’s worth… and they’re going to walk away.

The only way you’re going to keep that homeowner in that house and paying the mortgage is to write down the principal to the market value.  If you keep the mortgage balance at $500,000, it’s a foreclosure waiting to happen.  Maybe not today… maybe not next year… but at some point that person will realize that they’re paying hundreds of thousands of dollars they don’t have to pay to live where they live.  And that just doesn’t make sense.

I recently received a call from a homeowner who was quite upset with her bank who had treated here unconscionably for months.  I won’t mention which bank it was except to say that it used to be called IndyMac Bank.

In typical IndyMac fashion, they had jerked her around for months before foreclosing and selling her home without telling her about it.  She found out when the new owners stopped by to take a look at the home they had just purchased at auction for $420,000.  Her balance on her loan was $760,000, and she was upset.

After a few minutes, I interrupted her as politely as I could and asked her the following question:

“What if I could call IndyMac’s CEO right now, and then called you back and said that I had struck a deal and you could keep your home. You’re approved to buy it back right now with no money down for $760,000… would you do it?”

There was silence on the phone.  I waited.  After a minute she said quietly: “That’s a really good way of looking at that.”

“What do you mean?” I said.  “You wouldn’t buy it back for $760,000?  Why not?”

“Well, because the investor just bought it for $420,000, why would I pay $760,000?”  She replied.

“But that’s exactly what you said you wanted when you asked for a loan modification,” I pointed out.

“That’s a really good way of looking at that,” she said again.

“Glad I could help,” I said back.

Okay, so I’m not exactly Mr. Sensitive… so, what’s your point?  What I showed her was a glimpse of the future.  How long do you suppose it would have taken her to realize that the modification she would have agreed to was an absurd proposition?  A year… two… three?  My guess would be that she’d wake up to the fact when her youngest, who’s now 14, was about to graduate from high school, if not sooner.

And there you have a loan modification in all its glory.  Some gift.

Hi, Mr. Banker.  Would you mind burying me in my home in such a way that I’ll never build equity while I pay way more than the market price to live here every single month for… oh, say 25 years?  You wouldn’t mind a bit?  Why, thank you kind sir… what a lovely gift.  You really shouldn’t have…

Now, if that banker had written down the principal that would have been a very different story.  In that case there’s a chance that she would continue paying the mortgage on time as agreed.

Let’s get back to the crowd that thinks of mortgage modifications as some sort of undeserved gift.

There are a few facts this crowd is missing.  Try this on for size:

The average REO property sells for 66% of the non-REO sale.  That means that when there’s a foreclosure on your street or very near by, your $100,000 home just dropped in value and is now worth something like $83,000, all things being equal.

Now let’s say another home on your block just went back to the bank.  It will sell for 66% of the $83,000… or $54,780, making your home’s value something like $73,000 and change.  Should I throw in one more REO, or is that enough?

Now the homes on your block are selling for $73,000, as a result of the foreclosures, and now someone else on your block goes into foreclosure because they’ve been transferred by their employer and they’re now underwater.  That person wasn’t underwater after the first foreclosure on the block, but by the third or fourth they most definitely are.  And when they have to move, there’s nothing else they can do.

You see, foreclosures breed foreclosures, by destroying the equity in homes not in foreclosure.

If my neighbor is at risk of foreclosure, I pray the bank will modify their mortgage.  Not for them… who gives a damn about them?   I pray the bank will modify my neighbor’s loan FOR ME, and all of the other homeowners on the block who are NOT in foreclosure.

And if that means reducing my neighbor’s principal balance to the market value, well then goodie goodie, because that means my neighbor  won’t walk away next year when he or she comes to their senses about a loan modification that makes no sense.

My neighbor isn’t costing me money by having their principal reduced, they’re saving me from having to lose money.  They’re not taking money out of my pocket by having their principal reduced, they’re stopping the market from taking money out of my pocket.  When my neighbor’s principal gets reduced, I’m the one getting the gift.

In fact, if the bank refuses to grant a principal reduction, and instead decides to foreclose and sell the home at auction, the new sales price will bring down the value of all the other homes on the block.

In fact… the ONLY way I’m not going to lose a good chunk of my home’s value in this scenario is if the bank will reduces the principal balance my neighbor owes on his or her mortgage.  Remember, I own the equity… the bank owns the property.

Of course, I realize that the people who are opposed to helping those they consider irresponsible homeowners are upset and would like to see those people punished for wanting a nice house to live in.

I suppose they think that the irresponsible people should have seen that the credit ratings agencies were about to improperly rate bonds, that Wall Street investment bankers would then sell the improperly rated bonds to investor groups all over the world, and that the result would be the total decimation of the secondary mortgage market, which would make it impossible to get credit for anything essentially overnight.  (But if they do, then they’re nuttier than a fruitcake.)

I suppose it should have been abundantly clear that housing prices were about to be cut in half over 18 months… after all, everyone else saw all of that coming.

And please don’t bring up some outrageous one-of-a-kind example of an unemployed 22 year-old who loaded up on beachfront investment properties financed with nothing down, stated income, spring-loaded adjustable rate loans… because that’s not what we’re talking about here and you know it.

Experian just published data a few days ago about “strategic defaults” that I’m sure made someone in The White House nauseous.  The data showed that 18% of foreclosures are strategic defaults, meaning that the homeowners could have made the payments, but chose not to and walked away.  That’s almost one out of five.  In light of what I explained above, isn’t that just a lovely thought?

If you’re a homeowner who is not yet at risk of foreclosure, assuming such a thing is possible today, you should be campaigning wildly for the banks to be writing down principals for everyone in the country that’s in foreclosure.

I know… you think not modifying those loans is punishing the homeowners for getting in over their heads… but in realty, it’s not punishing them… it’s punishing you.  In reality, you are running about, commenting on blogs, and advocating the kicking of your own ass.

Sheila Bair, the Care Bair, understands what it means when 18% of foreclosures wouldn’t have happened if housing prices hadn’t fallen quite so far.  She knows that the 18% will only go up as prices fall further.  And she knows that, as prices drop the toxic assets will be that much more toxic.  She knows that the sort of downward spiral I’m describing is bringing an end to our already much to wobbly banking system.

She thinks she can start the bowl rolling with mandatory principal reductions from banks with loss sharing agreements, so good for her.  I don’t care how she does it, she can sleep with Jamie Dimon or Kenny Lewis for all I care… just get it done.

Oh, and in case you’re thinking that investors get screwed when reducing the principal on someone’s loan, think again.

Remember… it’s being written down to market value, so if the investor were to have foreclosed instead of writing down the loan, that’s all he or she would have gotten anyway.

Principal reductions don’t cost investors 10¢ more than foreclosures.  And in fact, because principal reductions don’t incur the costs associated with foreclosing, reducing the principal SAVES the investor money.

It would certainly save the rest of us a bundle.

HERE’S A CLIP FROM THE BLOOMBERG STORY THAT SHOULD SUM IT ALL UP:

FDIC CHAIR, Sheila Bair is stepping up her effort to prevent U.S. home foreclosures, using the agency’s relationship with lenders to make change.  The agency now is considering whether lenders that acquire banks should share a larger portion of the losses on loans whose principal is cut, and whether the FDIC will recover the additional subsidy through reduced foreclosure rates.

“I think we’re going to gain by reducing re-default rates or delinquencies with people walking away,” Bair said. “We’ll obviously lose by providing loss-share for principal write-downs.”

Principal reductions will help borrowers who are “underwater” on their payment-option adjustable-rate mortgages, whose principal expands over time, said Julia Gordon, senior policy counsel at the Center for Responsible Lending.

“In order to make those loans affordable and give those homeowners a reason to stay rather than walk away, principal reduction is going to be key,” Gordon said.

The Washington-based FDIC insures deposits at 8,099 institutions with $13.2 trillion in assets. The agency is charged with dismantling failed banks and manages an insurance fund it uses to reimburse customers for deposits of as much as $250,000 when a lender collapses.

(THEY’RE ALSO BROKE, BUT WE DON’T NEED TO MAKE A BIG DEAL OUT OF THAT HERE… GO SHEILA!)

Mandelman out.

On May 5, 2011, the Government Accountability Office (“GAO”) released its study of mortgage servicers and foreclosures… I guess now that everyone and their brother-in-law have conducted such a study into the mortgages servicers’ maladroit, dishonest and criminal best practices, the GAO figured they couldn’t get in any trouble for piling on with more of the same.  Personally, I’m holding out for the U.S. Post Office’s study of mortgage servicer performance, which I hear is going to be followed up by a scathing report being issued by the Bureau of Land Management in conjunction with the Department of Transportation.

And I’m sorry if this sounds at all bitter, but do you think it has it occurred to any of the GS-geniuses inside the beltway that I’ve been writing about the… shall we say, inadequacies of mortgage servicers for two and a half years, and they’re just now getting around to issuing a series of studies at a cost I don’t even want to know about, that say the same things I and others could have told them about over coffee in 2008.  I don’t know about you, but it scares the heck out of me.

Well, anyway… the GAO’s study showed the same things that all the other studies have shown, causing several legislators including Sen. Al Franken, who presumably were not able to jump onto the last study’s release, to write a letter to several of the banking regulators (and I use that term very loosely) and Federal Reserve Chairman, Ben If-You-Don’t-Have-It-Print-It Bernanke. According to a story by Jim Spencer, writing for the Twin Cities’ Star Tribune, the letter said:

“We have seen countless examples of servicers giving borrowers the run-around and continuing the foreclosure process when a loan modification has already been obtained.  Perhaps the most egregious cases of servicer wrongdoing have been violations of the Service Members Civil Relief Act by wrongly foreclosing on active-duty service members.  Correcting these problems and ensuring they do not reoccur should be a priority for all of your agencies.”

Before I say anything about their statement above, let me make it clear that I served in the U.S. Air Force following graduation from high school, so I’m perfectly capable of being biased about our troops, and hyper-sensitive about them being inadequately treated by our government, which they are in so many ways.  However, that being said… I’m not sure I can distinguish between someone on active duty losing their house as a result of an illegal foreclosure and… oh, I don’t know… anyone else.

I wrote about a family in which the father was diagnosed a few years ago with advanced diabetes.  His kidneys have failed, he’s on dialysis, has developed heart disease, was on a respirator the last time he was hospitalized.  He worked for the City of Placentia in Southern California for some 27 years.  His wife has her own small business.  They have an adorable eight year-old daughter who goes to school near by and loves her home.

Medical bills combined with the economy sliding off a cliff caused them to ask JPMorgan Chase to modify their loan, and they made their payments every month on time until the day that they got a notice on their door saying their home would be sold out from under them… in an hour, they learned after calling Chase in a panic.  They now have a lawyer, and the sale has been stopped, for the moment anyway… Chase won’t accept any more trial payments, which is another word for “payments”.  It must be nice to live in your home after paying what the bank told you to pay every month, knowing that at any hour you could be told you are out on the street.

Of course, no one in the family is in the U.S Armed Forces at the moment… perhaps the 8 year-old could sign up now, but be permitted to defer her enlistment for a decade when she’ll turn eighteen.  Would that make this family any more deserving of relief in the eyes of our legislators?   I’m not sure I can think of anyone that deserves to be illegally foreclosed upon, can you?

Just two weeks ago, I was introduced to a couple who had just been approved for a loan modification by Bank of America… the only problem was that Fannie Mae was going to sell their home in 24 hours… and BofA wouldn’t be able to “issue” the modification for 48 hours.  Should be an easy one right?

Wrong.  Fannie refused to postpone the sale date, even though BofA informed them that the loan modification was a day away.  Now, is that an illegal foreclosure?  If it’s not, then I have nothing to say to the leaders of this country except that you should all be ashamed.  The couple filed bankruptcy to stop the sale… they didn’t want to… but Fannie Mae, our bankrupt mortgage mess, forced them to do it.  Of course, neither of them is active duty military either.

Want some more… give me a couple of hours and I could provide you with a few hundred… just off the top of my head.  Let me check my notes and call around and I’ll come up with a thousand within 24 hours.

Sen. Franken, however, only referred to the revelation of mishandled foreclosures for those in the military a scandal, saying in an interview last Thursday:

“If people broke the law and foreclosed on service members, they should be indicted.”

I don’t want to put words into Al’s mouth here, but what if people broke the law and foreclosed on just regular old U.S. citizens?  What should happen to them as a result?  Community service?  A stern talking to?  When did it become relatively more acceptable to steal homes from ordinary U.S. citizens than anyone else?  What about stealing homes from veterans?  Does that fall somewhere between active duty and never served?  What if someone served in the Peace Corps?

The senator’s letter went on to say that the GAO’s report described mortgage servicers hiring employees to sign tens of thousands of affidavits without ever looking at the documents to determine if the loan was in default.  And isn’t it nice to see the GAO reporting robo-signing seven months after new of the practice first made headlines.

The study also pointed out the same things the OCC, OTS, and Federal Reserve’s study pointed out about three weeks ago, such as:

“Documents used to force people from their homes were not properly prepared or legally notarized. Foreclosure work contracted by loan servicing companies to third parties received little or no oversight.”

Sen. Franken, perhaps coming out of a coma that lasted two years said…

“Loan servicers make it difficult for delinquent borrowers to even talk about solutions.  I’ve talked to so many people who try to go to their servicers and can’t get in touch with anyone.  When they can reach the mortgage company, they never speak to the same person twice to try to work on ways to save their homes.  A single point of contact is the most important thing in any of this.”

You know what, Sen. Franken… I like you.  I think you’re a very smart guy who is also very caring and I even think that you ran for public office for the right reasons.  I even read your last book, and enjoyed it very much.  But let me assure you of something, Sir… you are in no way qualified to ascertain what “the most important thing in any of this” is or is not.

Like all of your peers in our legislature, you are incomprehensibly late to this tragic party, your contribution to anything having to do with the foreclosure crisis has been woefully inadequate, assuming you’ve done anything at all… and from your statements it is clear that what you know about the what’s gone on or continues to go on as related to foreclosures in this country we could fit in a thimble.

Look, don’t get me wrong, Sen. Franken… I’m glad you’re finally here taking a look, and I’m happy that the little you’ve seen offends you and a few of your legislative pals.  And by all means, get out there and make some strong statements in support of our troops, after all being a Democrat you pretty much have to do that or risk Rush Limbaugh calling you a pansy or whatever, right?

But this is a crisis that has been going on at least three full years now, and it’s gotten no better during that time, which you guys have been playing around with the pretend priorities of partisan politics in Washington D.C.  We all see that… you’re not fooling anyone.

Why do you think it was that the Dems got “shellacked,” as the president put it, in the midterms?  That’s right, it was the foreclosure crisis and your party’s dramatic and unconscionable mishandling of everything related to it.

So, go ahead… help stop our men and women in our Armed Forces from losing their homes as a result of what is plainly criminal behavior on the part of mortgage servicers… behavior that you and yours have essentially condoned for the last TWO YEARS.

It’s you and your peers that have allowed these egregious acts by servicers to strip people of their most valuable and treasured assets illegally.  You’ve stood by and done nothing… and now you’re reading what is just another in a continuing series of reports that all say what you have either known or should have know for the last two years.

So, fine.  Better late than never, but don’t add insult to political expediency by standing up at the microphone claiming that there is some meaningful distinction between stealing someone’s home through illegal foreclosure when they are active duty military because if that’s true… what about if it happens to a police officer… or a public school teacher… or a firefighter… or an emergency room nurse… or just a hard working American citizen caught up in the same financial crisis as everyone else… a crisis not of their making, but one that was created by the very same bankers now behind the illegal foreclosures.

Do something Sen. Franken.  The letter talked about in this article was signed not only by Sen. Franken but also fellow Democrats: Sen. Robert Menendez of New Jersey, Rep. John Conyers of Michigan, Rep. Luis Gutierrez of Illinois and Rep. Mike Capuano of Massachusetts.

But, you are going to be held to a higher standard because that’s why you came to Washington D.C., right Al?  Because as we used to say, if you’re not part of the solution, you’re part of the problem.  And not to put to fine a point on it, Sen. Franken, but at this point in time, that would make you what, as far as the foreclosure crisis goes?

Mandelman out.

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California Senate Bill 729 failed to pass in the Senate Banking Committee for the second time in the last two weeks.  In a related story, it seems that the rights of chickens have suffered yet another blow, with the Chicken Rights Bill failing garner the votes it needed to pass in the Colonel Sanders’s Committee, as well.

Well, now that certainly is some “breaking news” right there, wouldn’t you say?

Senate Bill 729 was just one more feeble attempt to bring reason to the foreclosure process, but it’s now quite clear that the mortgage bankers industry is just flat out too stupid to support anything that might change their little world today, even if it might just save their lives tomorrow.  Yes, you read me correctly… I said stupid… as in, stupid is as stupid does.

Here’s what SB 729 would have accomplished:

1. This bill would prohibit a mortgagee, trustee, beneficiary, or authorized agent from recording a notice of default unless that party makes reasonable and good faith efforts to evaluate the borrower for all available loss mitigation options to avoid foreclosure.

I was under the impression that servicers were supposed to be doing that already.  The federal government thought so too, I’m pretty sure..

2. The bill would prohibit a mortgagee, trustee, beneficiary, or authorized agent from recording a notice of default on residential mortgages and deeds of trust, as defined, until various notice requirements and other requirements regarding loan modifications are fulfilled.

The bill would include among these requirements informing the borrower of the deadline for applying for a loan modification, which would be prohibited from being earlier than a specified date.

Oh gee… now there’s a classic deal killer.  Some people might call that fairness, or even common decency.

3. The bill would prohibit a mortgagee, trustee, or beneficiary from recording a notice of default on a residential mortgage or deed of trust if a borrower who is eligible for a loan modification submits an application, as specified, unless the mortgagee, trustee, or beneficiary has, in good faith, reviewed the application, rendered a decision on the application, and sent the borrower a denial explanation letter.

Again, the goal is to modify loans, banker-people… are you with me on this?

4. The bill would provide a process for reviewing a mortgage loan modification application, which would depend, in part, on whether the mortgage servicer, as defined, is participating in the federal Making Home Affordable Modification Program.

Oh, good Lord no… not a “process.”  I’m not entirely sure the rest of the world would recognize mortgage servicers were they to start using even one single process.

5. The bill would require that a borrower who requests a loan modification and is denied receive a denial explanation letter stating the reason or reasons for the denial, as specified.

Don’t tell me you can’t handle this one, banker-people, because you send out denial letters better that any industry in history.  They’re often incorrect and guaranteed to be rude, but you send them out just fine.

6. The bill would require a mortgage servicer to whom the provisions described above apply, to perform specified actions as part of foreclosing on a residential mortgage or deed of trust, including compiling a record documenting compliance with those provisions, which would be signed, certified, and transmitted to the foreclosure trustee or authorized agent.

The bill would require the declaration of compliance to be included or attached to every notice of default recorded, as specified, and a notice of default recorded without the compliance declaration would be void.

This is another one that I just can’t imagine banker-people getting too hinkey about, because for one, “compiling a record documenting compliance,” isn’t exactly moving Mt. Everest.  And for another, in light of the problems in this area, such as selling homes while homeowners are under consideration for a loan modification, which is bordering on being considered a common practice, as opposed to an exception to the rule, I would think this would be seen as a reasonable request going forward as it would also protect the servicer in the event of legal action brought under the new law.

Is it headache sort of thing… okay, yes… perhaps it is.  But viewed in light of the larger picture problems, and recognizing that maintaining the status quo is not an option, I think servicers would be better severed to acknowledge and accept such “record keeping” changes as being a win.

7. The bill would prescribe a form for the declaration and would require that the declaration substantially comply with it.

The only thing I have to say about any objection to that is: YAWN.

8. The bill would permit an eligible borrower to enjoin a trustee sale if provisions of the bill are not satisfied, and would authorize a borrower to recover damages, attorneys fees, and costs, as specified, if the property is sold without compliance with the bills requirements.

Well, well, well… now let’s be honest about this one… this one’s the problem for you banker-people, isn’t that right?  You don’t so much care about the rest of the bill’s provisions were this one not included, right?  Yeah, I’m right.

You see, this provision is what’s know as “a private right of action with a provision for attorneys fees,” and it means that if a homeowner were damaged by a servicer’s failing to comply with the law as stated above, the homeowner would have the right to sue the servicer to recover the damages involved.  And not only that, but the lawyer hired by the homeowner would be able to send his or her bill for legal services to the servicer, assuming a victory in court, of course.

And that means that if a homeowner had a really good case, there would be many attorneys willing to take the case without charging the homeowner an arm or a leg… and maybe even not charge the homeowner at all.

I just learned about this private right of action issue this past year, and frankly I was shocked at what I learned.  It seems that there are instances where our legislators pass laws that sound like they have been passed for our protection, but because no private right of action is included, even if we are damaged when the law is broken, we can’t do anything about it.  Nice… isn’t it?

The HAMP rules are example of this… if servicers fail to follow them, and we lose homes as a result… tough luck pal… HAMP does not offer a private right of action.  And in California, Civil Code 2923.6, which basically says that a bank must modify a loan if it would be financially advantageous when compared with foreclosure.  A lovely sentiment, but no private right of action, so good luck showing up in court claiming it was violated.

In my opinion, failing to include a private right of action and provision for attorneys fees in a bill that impacts homeowners is irresponsible at the very least.  By including such provisions, you allow those who believe they have been damaged to have access to the judicial system, and the ability for an attorney to recoup his or her legal fees from the defendant means that high quality cases will find representation… as they should.

This past year, in the State of New York, a bill was introduced basically saying that whenever a mortgage on residential property allows the bank to recover attorney’s fees in a foreclosure proceeding, the mortgage must also allow the borrower the same right when the foreclosure is unsuccessful.  (I wrote about the bill at the time in my article titled: BANKERS: Count on them to be petty and offensive every single time.)

The reason I chose that headline, as opposed to one more neutral, was that the banking lobby was vigorously opposing the bill’s passage… and even once it passed, the financial industry’s lobbyists were reportedly still trying to convince the governor not to sign it.  Their points included the same sort or arguments the California Association of Mortgage Bankers made to kill this bill, SB 729, things like “a blizzard of litigation,” that its passage would be certain to unleash.

CMBA Member Alert – SB 729 Fails Passage in Committee Vote

SB 729 (Leno & Steinberg) failed passage in the Senate Banking & Financial Institutions Committee hearing today.  The bill also failed passage in the committee last week, but was granted reconsideration.  Among many problematic provisions, the bill would create a number of procedural traps in servicing/modification efforts, and would create a new private right of action (which would result in a blizzard of new lawsuits) that would extend for a year after the foreclosure sale.  A nearly identical bill was defeated last year.

CMBA has led the opposition to this problematic bill and will continue to closely monitor the situation.

Now, let’s face facts here… the bill in New York advocated what should be thought of as fundamental fairness.  To oppose what the New York bill was proposing, to my way of thinking, is like coming out against handicapped parking spaces, or brail on elevators.

After months of political wrangling, the governor did finally sign the bill, as reported by Peter R. Scribner, writing in Mortgages and Mortgage Foreclosures. And I’m still waiting patiently for the “litigation blizzard” to begin as a result.

New York Governor Patterson signed a new law on October 20, the “Access to Justice in Lending Act” (Chapter 550 of the Laws of 2010), which allows defendants who are successful in defending against foreclosures to have the bank pay their attorney fees. Bill A01239 (also known as S2614b), passed the New York State Assembly and Senate in June.

The bill states that if a mortgage document contains a provision that the lender may recover attorney fees and expenses in a foreclosure, then there shall be an “implied covenant” that the borrower may also recover attorney fees and expenses “in the successful defense of any action or proceeding” commenced by the lender against the borrower arising out of the mortgage contract.

Attempting to prevent homeowners in this country from being able to fight for their rights and their homes is like trying to stop the tide from coming in, or if you’d prefer, the dyke from bursting by telling the little boy to hold his finger in the first hole that appears.  It’ll never work, and all the mortgage bankers are doing is pulling the pendulum way far over to their side… watch out when they’re forced to let go and swings in the other direction.

The mortgage bankers would be well-served to read Hawaii’s new foreclosure law, signed by the governor today as a matter of fact, and they’ll see what legislation of the future looks like if they continue on their current path.

9. The bill would permit the Attorney General to enforce these provisions.

The mortgage bankers couldn’t be worried about this, California’s AG doesn’t prosecute banks for anything, ever… right?  I mean she did fine Mozilo something like $1.95, but so what?

10. The bill would also establish other penalties for certain acts, including for a false declaration of a lost note representing a mortgage or deed of trust.

I know, banker-people… you don’t like this one either, but look… you couldn’t have possibly believed that you’d be able to just continue lying to the courts forever.  You got away with it a few million times, and I think that should be enough.

11. The bill would provide that any person licensed by the State of California who violates the bills provisions is deemed to have violated the licensing law applicable to that person. Because the violation of certain licensing laws, including those regulating mortgage services, are punishable as crimes, this bill would impose a state-mandated local program.

I don’t even know what this one means, but it can’t be a reason to freak out and throw all your weight at killing a bill in committee.  I mean, modify a bill that affects foreclosures… okay.  But kill the thing completely?  Really?  Like this state doesn’t need anything to change as far as the foreclosure crisis is concerned?  Is that really your position?  Because that’s just insane.

Keep it up, banker-people… keep it up.

I’ve warned you guys for some time now that you may think you’re in the lead on this sort of thing, but have you noticed how over this past year, things are starting to crack… courts are going with homeowners more and more… and now both Hawaii and Arkansas have laws that are going to make foreclosing a real bear?

Do yourselves a favor and take my advice for once… start looking at the situation more objectively… you’re not really winning anything here.  Homes are all going back as REOs, they’re not selling.  Home prices are continuing to fall, and the federal government can’t just continue funneling you cash indefinitely.  And you’re becoming less popular than in this country than North Korea.

Save yourselves while you still can and get reasonable… become part of the solution instead of being 100% of the problem.  If you don’t… pretty soon, the people will start solving things without your input and you won’t like that one bit.

Remember Hawaii!

Mandelman out.

Sb 729 Senate Bill – Introduced

Preface…

Sit down and relax… you’re going to need a comfortable chair.  But, I promise you… it’ll be worth it.

In the fall of 2008, news stories about “scammers” taking advantage of homeowners at risk of foreclosure started appearing frequently in the media.  I remember watching a prime-time national news magazine type program, I think it was 20/20, that was airing a story that featured a sleazy looking middle-age man in Denver, hurriedly walking from a small, strip mall store front to his car, his hand covering his face, as a reporter tried to ask him questions that he obviously did not plan to answer.

The story involved a company that had charged a handful of homeowners several thousand dollars up front to help them negotiate with their banks to get their mortgages modified.  The core issue being raised by the show’s host was that the homeowners had been victims of a scam because, as a couple of the homeowners interviewed were saying, their loans had not yet been modified.

I remember wondering, to begin with, how in the world such a story had become the subject of a national news magazine television program.  I mean, “Three homeowners get ripped off by small business in Denver,” is not usually the sort of event that makes national headlines.  The implication being made was that this case was emblematic of a more widespread problem, but nothing further was offered in the way of proof… no statistics, no additional facts… just statements about how homeowners should NEVER pay anyone up front to help them negotiate with their bank over a loan modification because they were “scammers.”

Around the same time, I also remember quite clearly reading a newspaper story that appeared on the front page of a major mid-western paper… it might have been the Minneapolis Star, but I can’t be certain.  The large photo on page one was of a young couple with a baby in arms and maybe a four year-old standing at Dad’s hip… there was a white picket fence in the background… and a for sale sign in the yard.  I can easily sum up the story in a single sentence: About eight months ago the couple had paid a law firm $1,000 to help them get their loan modified… and that’s the reason why they were now losing their $300,000 home.

And I remember thinking how ridiculous that sounded.  I remembered the time that my wife and I paid a contractor $2500 and he never came back to even start the work on our deck.  We were plenty angry, all right, but we didn’t even come close to losing our home because of it.

Now, you have to understand that, at the time, I was devoting my weekends to driving around Southern California conducting on-camera interviews with homeowners who either had already saved their homes from foreclosure, or were in the process of trying to get their loans modified, and the reoccurring theme was coming across loud and clear: “We tried contacting our bank on our own for a year and got nowhere, so we hired a law firm or mortgage expert company for $3,000, give or take, to help us and they saved our home from foreclosure.”

In addition, I had visited with several mortgage experts and lawyers back then, and they had let me sit by their side as they contacted banks on behalf of their clients… with their client’s permission, of course… so I knew that calling one’s bank to apply for a loan modification was not an easy thing to do.  I remember once sitting waiting on hold for just under two hours only to hear the phone go dead.

And once, while I sat with a lawyer while he called a well-known bank on behalf of a client… with that client on the 3-way call… and the first thing the woman from the bank said upon hearing that the homeowner had hired an attorney was: “You know… you don’t have to pay him.”

I was taken aback, and since we were on speaker phone, I just couldn’t help but say something, so I interrupted the conversation, introduced myself as a writer, and asked the question: “How do you know she’s paying him, I mean, maybe her lawyer is her son-in-law or a friend of the family… how do you know whether he’s even being paid?  Are you instructed by the bank to say that to anyone that hires someone to help them?  Do they tell you to do that as part of your training?”

The line went dead.  I remember saying: “She did not just hang up on me, did she?  Call her back.”  The lawyer explained that we’d never get her back on the phone, but he dialed the number anyway and a full 60 minutes later… it was still ringing.  “Okay, I think I’ve got the picture,” I said.  I thanked him for everything and left.

I can’t tell you the name of the bank in question, except to say that when they’re a “bank,” and their name starts with “IndyMac”.  You’ll have to put it together yourself from there.

Within a month or two, the number of stories appearing in the media warning homeowners about “scammers” who offered to help prevent foreclosure, increased to the point that one might have easily started to believe that tens or even hundreds of thousands of “scammers” had mobilized to overrun the country.

I found it very hard to believe that there were large numbers of such “scammers.”  I mean, how many people would be willing to take advantage of working class homeowners, many of whom had lost jobs and now were at risk of foreclosure?  What would be next, mugging the blind?

Many of those I spoke with back then told me that I was naïve, but I just couldn’t believe that all of a sudden there were that many people willing to steal three grand from a middle or working class family at risk of losing their home.  It was like hearing about an epidemic of criminals stealing food stamps from octogenarians on fixed incomes.  Really?

I’m not saying that such aberrations never happen in this country, but it’s at least somewhat rare.  Our society simply doesn’t produce that many people willing to commit such despicable acts.  You might find thousands willing to rip off rich people, or big companies… but working class families losing homes?  How many would sign on for a job doing that?

Well, apparently… quite a few.

After two and a half years spent covering the financial and foreclosure crises, I have come to realize that there are a whole lot more people in this country willing to take advantage of homeowners at risk of foreclosure than I would have ever thought possible.  In fact, I’d have to say that if you throw a dart at the front page of Google when looking for advice related to preventing foreclosure, the odds of being scammed are absolutely excellent.  It’s shocking to me that this is the case, but it unquestionably is.

Look, I grew up in Pittsburgh… born in Brooklyn, hung out in places like Philadelphia, Chicago, Los Angeles… and I’ve traveled all over the world… but I’ve never heard about large numbers ripping-off working class people suffering the trauma of losing their homes.  To say nothing of the risk involved… I mean, aren’t most people in this country still afraid of going to jail?

A change in our cultural norms…

Consider that in the mid-1990s, headline crimes in New York City started including descriptions of mob hits that shocked even members of the Italian mob and NYPD, including: “Arms hacked off with an ax.”  “Victim castrated with crescent-shaped knife.”  “Man was gutted like sheep.”  “Victim buried to the neck in gravel.”  What kind of person that grows up in our society does these types of things?

But, it was after the fall of the Soviet Union, and the murders were being committed by a new group of gangsters that had only recently arrived in this country, and they had very different ideas about violence than our home grown gangs.  They quickly became known as the “Russian mob.”

You see, the Russian gangsters that appeared on the scene after the fall of communism didn’t exactly grow up in New Rochelle watching Leave it to Beaver and drinking Tang… in fact, many grew up in the gulags of Siberia… places where right and wrong have very different definitions than they do in our country.  One member of the Russian mob vocalized his contempt to the NYPD saying: “I did time on the Arctic Circle. Do you think anything you’re going to do is going to bother me?”

The fact is… before the current financial and foreclosure crises, I don’t remember there being nearly as many scammers looking to con anyone, anytime, anywhere.  Where did the incredible numbers of scammers willing to defraud anyone without giving it a second thought come from, that is to say, what were they doing five or ten years ago?  Did someone put something in the water since then?  Could alien spaceships have dropped them off in 2007?  Is it possible that the Internet just brings out the worst in people?

It seemed to me unlikely… nothing I could think of would change societal norms to the degree seen today over such a short period of time.  I set out to analyze the situation more closely and I began by profiling a sample of those individuals that had been shutdown by authorities for scamming homeowners, and those that I’ve come across quite willing to continue operating even though they are not operating legally.

The construct of my focus group sample…

Had they all come from faraway lands, as in the Russian mob example, I would have looked at cultural differences as being the root cause of their apparent willingness to scam anyone at anytime, but the group was not predominately from anywhere, and the majority could be described as being “average Americans.”

The most common factor was their chosen profession prior to the financial meltdown of 2008… almost all had come from the mortgage industry.  In fact, depending on whether I looked at a sample of 25, 50, or 100 individuals… the number of ex-mortgage people was always above 80%.

I realize that should not be surprising when you consider the target for these scammers is homeowners at risk of foreclosure, a group well-known to those that worked in the mortgage industry, but I also know many that came from the mortgage industry that would be no more likely to scam a homeowner in distress than I would.

The other commonality that I found to be present was their age… most were relatively young.  Depending on the sample group I looked at, three-quarters were under 40… and more than half were under 35.  It was difficult to be precise but I think it’s safe to say than fewer than 20% were over 45.

Education was the third commonality I was able to identify, and I estimate that 80% of the group never earned a college degree, although more than half reported that they had attended some number of college classes after high school.  Almost all said they never finished college because the mortgage business paid so well.

I also found it interesting that a large percentage, perhaps just over half, reported having lost a home or homes as a result of the economic meltdown, and my sense was that a very low number saw the meltdown coming, fully understood its causes, or recognize the permanent or long-term nature of the changes to the mortgage industry.

In terms of the U.S. economy, they are a very optimistic group.  I would say that 80% believe that worst case, the housing market will bottom out in the next 2-3 years, and many think that some areas have already hit bottom, and a similarly large percentage think that what they’re doing today is temporary… and at some point they will return to careers in mortgage lending.  The longest timeframe for our country’s economy to recover that I heard from 90% of the group was 5-7 years.

The absolute ineffectiveness of the government’s response…

Over the last year, there have been a flurry of new state and federal laws ostensibly created to protect distressed homeowners from scammers, and one would have to assume that awareness among distressed homeowners about the potential for being scammed is certainly higher than ever.

However, there is absolutely no evidence that any of this legislation has reduced the number of scams, and in fact, my research strongly indicates that the number of scams targeting distressed homeowners has continued to increase.  But the effect of the new laws has also caused scammers to diversify their illicit offerings and therefore will now be more difficult for regulators to address and law enforcement to police.

The latest count, as listed on California’s Office of the Attorney General Website dedicated to loan modification fraud as of April 23, 2011, lists 55 individuals and 32 companies, against which the AG has taken legal action related to fraudulent loan modification, forensic loan audit, and related foreclosure-related services, to-date.  Considering the size of the State of California, the numbers are essentially zero.

The California State Bar is reporting the same numbers of consumers filing complaints this year as last, although the number of disciplinary actions taken by the bar hasn’t changed in any meaningful way, indicating that they are having a difficult time both investigating and prosecuting lawyers accused of being “scammers”.

This article seeks to explain where today’s proliferation of scammers came from, who they are… why they are the way they are…

… And why their presence is all but certain to continue to impact our society for a generation unless we come to understand that the same people that caused of the crisis, also created the scammers.

They Once Were Lenders…

Being a lender of money… the phrase itself congers up images of stature and great wealth.  Investors funding loans providing the capital that drives our economy, building industries, creating prosperity… to be a lender of money has always meant having power and prestige… to be the person with the gold that makes the rules.

To be the provider of funds is to have a seat at the proverbial table.  In our society, such a person is to be respected, their opinions are sought out… when they talk… others listen.  And although in the past, being a lender meant being a “banker,” over the last thirty-odd years, the advent of securitization and financial innovation, supported by ongoing legislation favorable to the finance industry, a series of disastrous attempts at deregulation, and the growth in equities markets, all combined to broaden the types of lending and increase the need for “lenders.”

The type of lending that grew the fastest over the last three decades was “sub-prime.”

Sub-prime lending began its meteoric rise in the late 1970s, but the lowering of interest rates in the early part of the 1980s was the fuel it needed to explode.  And from the start, sub-prime lending attracted individuals with very a very different set of ethics than were found among the traditional bankers and financiers of Wall Street.  Many, in fact, came from failed Savings & Loans.

You see, the 1970s, with the decade’s spiraling interest rates were very difficult for the Savings & Loan industry ironically because of over-regulation.

S&Ls were originally a very important component of the government’s response to the financial disaster that caused the Great Depression, because they made it possible for people to buy homes at a time when our nation’s bankers were reluctant or incapable of lending.

S&Ls were required to pay a regulated amount of interest on short-term deposits that were insured up to $40,000 by the FSLIC, and then invest those deposits in 30-year fixed rate mortgages on residential real estate within a 50-mile radius of the S&L’s home office.  In the 1970s, an S&L might pay 5.25% to 5.5% on deposits, and because long-term interest rates were generally higher than short-term rates, the owner of a Savings & Loan could make a fairly nice, if somewhat boring living.

Of course, that was fine during the decades of relative stability that followed WWII… before the inflation of the 1970s appeared on the scene thus causing interest rates to rise.

Higher rates caused homeowners to keep their homes longer, first-time buyers were forced to delay becoming first time homeowners, and rising unemployment all combined to significantly reduce the demand for housing.

Those that did buy homes more frequently took advantage of the “assumable” clause in mortgages that allowed them to take over the mortgage at the existing interest rate.  The typical S&L’s mortgage portfolio, that had traditionally turned over every 5-7 years, stagnated during the latter part of the 1970s… and S&L earnings followed suit.

At the same time, S&Ls were finding it increasingly difficult to attract depositors as well.  The five percent interest rates they were permitted to pay out started to look pretty silly with inflation at 12% a year… and climbing.  Depositors flocked to Money Market mutual funds that pooled deposits in order to purchase large Certificates of Deposit from banks and S&Ls, and on which there were no interest rate controls.

S&Ls were now stuck between the rock of the rising costs of funds, and the hard place of stagnant incomes, and with only 30-year fixed rate mortgages to provide returns on invested capital, the S&L industry was doomed even before deregulation and other legislation would start it on a rollercoaster ride that would end in its demise.

When the pendulum swings too far…

First, Congress and the Carter administration gave us the Depository Institutions Deregulation and Monetary Control Act of 1980, which abolished state usury laws that limited how much interest could be charged on primary mortgages, began a six-year phase out of deposit interest rate ceilings, and raised the deposit insurance provided by the FSLIC from $40,000 to $100,000.

Then, a couple of years later, the Gain-St Germain Depository Institutions Act of 1982, expanded what S&Ls were allowed to invest in, permitting investment in short-term consumer loans, credit cards, and commercial real estate, among others.

The idea was simple… allow S&Ls to diversify their portfolios in order to increase their short-term earnings and it would help shield them from economic instability in the future.

But, it’s not hard to imagine that many owners of S&Ls were a less-than-happy group back in 1980.  Many S&L owners were second-generation owners… in other words… they were the sons of founders.  For the last decade they had watched their institution’s capital erode as the housing market had essentially slowed to a standstill… and their customers started saving in Money Market mutual funds.

In other words, spending the 1970s running the S&L your Dad founded was no fun whatsoever, and by many wanted out badly enough that they weren’t all that picky about the price, so when deregulation of the S&L industry soon created buyers for S&Ls that saw nothing but opportunity ahead, many were more than ready to sell.

Most were initially under-capitalized, however, but the new owners found that they could get their hands on almost unlimited funds simply by raising the interest rates they offered on deposits, and since such deposits were insured by the federal government, the financial health of the S&L didn’t much matter to anyone.  The new owners raised rates and money flooded in.

Deregulation also meant that there were now plenty of investment opportunities available to S&Ls for the first time, in much riskier commercial real estate developments, for example, and the S&Ls could compete with the banks by making loans based on more relaxed credit standards, such as home loans that required no down payments.

These new S&L owners, however, were poor managers and as many S&Ls failed, the deposit premiums paid by those that remained went steadily higher.  And because there was no distinction between well-capitalized S&Ls, and the ones that were taking on too much risk, the well-capitalized and more conservative institutions found themselves forced to match the competing interest rates offered by their problem competitors, causing their costs of funds to increase.

It was a recipe for the disaster stew that was about to boil over… and yet, Congress kept its collective head firmly planted in the sands of short-term thinking.  (It’s nice to know that some things never change.)

Had the federal government empowered the regulators to take a tougher stand on S&Ls in 1982, it’s likely that the whole mess could have been avoided, but notwithstanding the extreme pain felt during the Great Depression, regulating financial institutions has never been our government’s strong suit.  Back then, because virtually every congressional representative had at least one “good friend” that owned an S&L in his or her district none was in any hurry to cause immediate problems for their important constituents, even to ensure their longer-term financial health.

If we hit the jackpot, what have we won?

As described by Michael Hudson in his fabulously detailed if terribly disturbing book about sub-prime lenders, titled “The Monster,” when President Ronald Reagan signed an S&L deregulation bill in 1982, he is said to have quipped: “All in all, I think we’ve hit the jackpot.”

State governments, Hudson explains, immediately started competing for S&Ls by offering the lowest barriers to entry and the most lenient oversight.  And one didn’t need much start-up capital to open an S&L, in fact, you could list “non-cash” assets to establish that you could operate in a stable manner.  As in, “gosh… I don’t have any cash right now, but I do own a 4-plex in Poughkeepsie, a ’67 Mustang that’s totally cherry, and I suppose I could throw in my baseball card collection from the 60s.”

The State of California was among the most aggressive in terms of marketing to the S&Ls, in fact in Hudson’s book, he recalls seminars being held all over the state that promised to teach attendees how to start their own Savings and Loan, including one in particular titled: “Why Does It Seem Everyone is Buying or Starting a California S&L?”

At the end of the decade, when the Bush administration and congress were finally forced to deal with the failed industry’s problems, all S&Ls were tarred with the same broad brush.  The Financial Institutions Reform, Recovery and Enforcement Act of 1989, didn’t distinguish between well-run S&Ls and insolvent institutions, it took away from the entire industry, most of the investment freedoms granted at the beginning of the 1980s.

An Industry About to be Born…

It seems to me that two key pieces of legislation, the previously mentioned Depository Institutions Deregulation and Monetary Control Act of 1980 (“DIDMCA”), and the Alternative Mortgage Transactions Parity Act of 1982 (“AMTPA”), worked like sperm and egg to give birth to sub-prime lending, with securitization being the incubator.

The AMPTA, which was intended to provide “parity” to non-bank lenders, preempted many state laws that had precluded lenders from offering anything but conventional fixed-rate mortgages, and in practice, allowed for the obfuscation of a loan’s total costs.  This was the legislation that led to the creation of a variety of new types of mortgages, including the different flavors of adjustable rate mortgages (ARMs), interest only mortgages, and those offering balloon payments.

Because of AMPTA, consumers could now be titillated by teaser rates for the first few years, only to be slammed when the adjustments caused payments to be reset.  And even worse were the loans that gave the borrower the ability to decide how much they would underpay during the first few years, with the amount of the underpayment being tacked onto the loan’s balance.  Now your mortgage balance could actually increase from $300,000 to $350,000 in the first few years, destroying any equity a homeowner had in his or her home when they bought it.

Of course, many would argue that it’s not the loans themselves that were the problem, rather it was the people that chose these loans that caused their own future grief.  These are the same people that continue to oppose anything even remotely resembling a bailout for homeowners, and according to Fannie Mae’s most recent survey, it remains a sizable group, roughly 53% of their survey’s respondents, which is why even after three years of watching the foreclosure crisis drag our economy straight down, our government lacks the political will to address the problem and stop the carnage.

(Sidebar: In case anyone is interested, my initial motivation for writing my blog, Mandelman Matters, was to combat the rhetoric of the banking industry following the meltdown that began in 2007, which was starting to place blame for the emerging crisis on “irresponsible sub-prime borrowers,” a group that could never have caused Wall Street’s demise, let alone the global meltdown that followed.

During the fall of 2007, then Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke… the crazy guy with the beard who just keeps printing money to no avail… both blamed “sub-prime borrowers” during the fall of 2007, and the bankers saw their opportunity and the industry’s P.R. machine echoed the message throughout the media.

So, in a letter I wrote in November of 2007, which I sent to my representative in Congress, my two state senators, Hillary Clinton, and others… the problem with allowing the public to erroneously place the blame for the meltdown on “irresponsible sub-prime borrowers,” was that when the government finally came to understand the real cause of the crisis, they would lack the political will to do what’s needed to fix the problem… because by then, too many voters would strongly oppose bailing out “irresponsible sub-prime borrowers.”

My letters were, of course, ignored, and Mandelman Matters was born.  And yet, here we are 450 articles and countless trillions in taxpayer funded bank bailouts later, and the same core issue continues to prevent our elected officials from doing what’s required to fix the problem.  Hank Paulson, however, in his book about his last two years as Treasury Secretary, titled “On the Brink,” admits this pivotal mistake, saying that when he looks back at statements he made about sub-prime loans back in the fall of ’07, it makes him “cringe.“

“We just plain got it wrong,” he says in his book as he talks candidly about this very subject.  And when I read his admission while sitting up in bed one night about a year ago, I’ll admit that I started to cry.)

The truth is, that under normal circumstances, I might even agree, at least in part, with those that place blame on borrowers for signing up for toxic mortgage products.  But, because our financial crisis and economic meltdown have not been the result of a housing bubble popping, but rather they are the byproduct of Wall Street’s actions that caused the total destruction of the credit markets in the summer of 2007 when triple A rated bonds were downgraded and the demand for mortgage-backed securities dried up overnight, the circumstances surrounding obtaining a mortgage in this country, or being able to refinance it, or even selling a home that became unaffordable, have been anything but normal.

Easy to be Hard for Minorities…

A common practice employed by lenders in the past was called “red lining,” and it commonly meant that they wouldn’t lend in minority neighborhoods, regardless of an individual’s credit score.

So, first it was hard money that showed up to fill the void, but soon the consumer finance companies started offering small loans in disadvantaged communities that people used to pay medical bills, or maybe to get through the holidays, but by the mid-1980s, securitization was lowering the risk associated with lending and they began offering second mortgages.

In “The Monster,” Michael Hudson provides vivid descriptions of how these companies would hook someone with a $300 loan, and then systematically barrage them with offers for additional loans in an effort to make them a “customer for life”… although a “debtor for life,” would be more accurate.  Since being deregulated, these companies would make loans at 15 to 18 percent, with as much as 10 points up front, which was still less expensive than the hard money lenders, so they could actually say… with straight faces… that they were the good guys for providing loans to underserved communities.

Ultimately, these consumer finance companies would be accused of cheating borrowers in any number of ways, setting aside many millions to settle class action lawsuits accusing them, in so many words, of robbing and cheating their customers.

As companies go, these were literal pressure cookers for sales people.  They were widely known for their abusive managers that would constantly drive salespeople to make more loans at all costs… and then make even more still.  It didn’t matter what you had to do, you just had to do more than you did the month before, or you would risk being berated by your boss in front of your peers.

An excerpt from “The Monster”…

In Arizona, a judge scolded Transamerica for trying to throw a 77 year-old widow out of the house her late husband had helped her build 42 years before.  Lennie Williams, a retired house cleaner, was getting by on $438 a month.  Her mind was failing her and she got snookered into signing up for a mortgage that obligated her to pay Transamerica $499 a month.

The loan carried 8 points in up-front charges and an interest rate of nearly 18 percent.  The mortgage salesman who put together the deal later testified he didn’t think Williams understood the loan, but he had said as little as possible about the details because he didn’t want to lose the sale.

“I didn’t want to bring up the fact that we could foreclose on your home.  People don’t want to hear this,” he explained.  “When you close a loan, you try to get through with it.  You say everything you have to say and no more.”

Consumer finance companies were the predecessors to the sub-prime lenders that would come out of the failed Savings & Loans.  After being trained in the horrific environments at Transamerica, ITT Financial, Household Finance, Beneficial and others, they were recruited by institutions like First Alliance Mortgage and Long Beach Savings & Loan, which was started by a man whose name would become synonymous with sub-prime lending, Roland E. Arnall.
Hudson paints a picture of Arnall that explains a lot… he was born in Europe during WWII and escapes with his family to come live in the U.S.  He’s a hard charging kind of kid, doing everything possible to make money at all times.  He becomes a real estate developer in the 1970s, ends up opening Long Beach Savings & Loan, and when the restrictions on S&Ls become too much for his tastes, he opens Long Beach Mortgage… which he later renames “Ameriquest.”

Long Beach recruited loan officers that had worked at Transamerica and the like, and combined with his overdriven personality, he was known for doing things like doubling sales goals moth over month and firing anyone who said they couldn’t do it.  He began to build one of the country’s largest sub-prime mortgage companies, but he would never have gotten very far alone, because fairly early in the life of Long Beach Mortgage, he was making so many loans that he simply ran out of money to loan.

He needed a new source of funds, looked to Wall Street, and wouldn’t you know it, he found Lehman Bros.

Enter the Financial Innovation of Securitization…

Wall Street’s new invention was “securitization,” and it would allow lenders like Arnall’s Long Beach Mortgage to make essentially an unlimited number of loans because they could now be immediately sold to Lehman Bros., who would then use them to create a pool of loans, which would then be sold in slices, called “tranches,” to investors.

The investments were referred to as “mortgage-backed securities,” and the investors that bought these bonds, of sorts, did so in order to receive a percentage of the cash flows generated by the mortgage payments that were paid into the pool.  As compared with other investments, they were considered very safe, and yet they paid a relatively high rate of interest… like tasting great and being less filling all at the same time… what’s not to love?

(If you’re not already up to speed on securitization and how it works, you really should consider reading my article on the subject: “Mandelman U. Presents… Securitization and Mortgage Backed Securities.”)

Now, with essentially unlimited capital at their disposal, the sub-prime lenders had enough fuel to make it to Mars and back as many times as they wanted to go.  The world was about to change for the next few years, anyway… because now anyone would be able to get a loan.  Prices would rise with the increasing demand that would be created by the flood of accessible capital, and so those loans could be refinanced over and over as the value of the collateral increased.

With no limits on the how much they could loan, all they needed now were army of loan officers…

We’re Going to Need an Army…

Roland Arnall’s Long Beach Mortgage, now with unlimited funds, would spread out across the United States bringing his high cost loans to millions of Americans, and he became immeasurably wealthy as a result, as did those that worked for him.  He was never satisfied… a billion a month in loans, only made him demand two billion.

To do so, however, he needed an army of salespeople, and he wanted them trained the Ameriquest way.

In all-important California, prior to 1996, this meant finding loan officers licensed by the California Department of Real Estate, and recruiting them to come over to Ameriquest.  It couldn’t have been easy, and he must have realized that it would be much easier to hire and train sharp, young sales people than it would be to recruit someone licensed by the California DRE who would be more established and would have to be changed to fit the Ameriquest way of selling loans.

Not just anyone would put up with working in an environment in which you could be berated to get more sales, and likewise, not just anyone could be pushed into taking advantage of little old ladies and their Social Security checks.

The types of individuals that studied and passed the DRE’s exam, did so expecting to go into business for themselves as independent contractors, and therefore were independent thinkers… clearly not the type of people companies like Ameriquest were looking to bring on board.

Wasn’t it incredibly lucky, therefore, that in 1996 the law governing the licensing of mortgage lenders in California changed when the California Residential Mortgage Lending Act and the California Finance Lender’s License (“CFL”), used when you sold only through in-house loan officers, and the broader CRMLA licenses were created, both became operational.  Now someone could become licensed to broker, originate and service mortgages without the need to pass that pain-in-the-neck test required by the state’s Department of Real Estate.  Yes, it was very lucky, indeed.

Licensed under the CRMLA/CFL are individuals, partnerships, associations, limited liability companies and corporations, including many of the largest “Fortune 500″ companies.  Those with these new licenses were required to be employees issued W-2s, which was fine for larger organizations, as opposed to their DRE licensed counterparts who worked as independent contractors.

Now large sub-prime lenders could easily recruit the personnel they needed to grow their sales without having to bother with new sales people having to receive any training or pass any tests.  Armall and others in his peer group were free to hire young salespeople in masses, put them in classes, and if they didn’t perform… toss them out on their behinds.

Hudson’s investigations of Ameriquest showed that the company’s system was designed to back borrowers directly into a corner, or if you prefer, put them up against a wall.  The company’s loan officers were trained that when a customer complained about the costs of their loans, they were to assure them that they need not worry because once they’d made their payments on-time for 12 months, the company would refinance them into the lower cost loan.

In addition, the payments on Ameriquest’s 2/28 adjustable rate mortgages ALWAYS shot up towards the end of the second year, driving the borrowers to refinance with Ameriquest or pay higher fees somewhere else.

As the second half of the 90s came and went, Ameriquest employees saw the company’s sales practices investigated by various state attorneys general, and numerous fines get paid, but at the end of the proverbial day, they also saw Armall become a billionaire as he lived out the rest of his life in opulent luxury.

He and his wife, Dawn, bought a $30 million, 12,000 square foot mansion in the Holmby Hills section of Los Angeles.  Tony Curtis had owned it in the early 1960s before selling to Sonny and Cher.  A year later, the Arnalls shelled out $46 million to buy Aspen’s Mandalay Ranch, a 650-acre property with a 15,000 square foot mansion, and a 3,500 square foot guesthouse.

Many of Ameriquest’s customers lived out very different lives than that of the Arnalls, with many borrowers, after being tricked and trapped by the company’s sales practices, and after their payments shot up with no opportunity to refinance and prices starting to fall.  A few in Hudson’s book, lost homes and found themselves living out their lives in motel rooms or as long-term guests with relatives.

Like a gaggle of raptors…

The loan officers that trained at companies like Ameriquest and had come out of places like Transamerica, would ultimately move on to places like WaMu, IndyMac, or even Wells Fargo, Bank of America or Countrywide.  And as the housing bubble began to inflate in 2003, sub-prime was going mainstream.  Wall Street firms like Lehman Bros. were buying sub-prime mortgage originators… and what had been a relatively small group of loan officers was now multiplying like a gaggle of raptors.

They had learned the business of lending in the most oppressive and unethical environments and as they moved up corporate ladders at various commercial banks and mortgage companies, they instilled their own ways of doing business, developed their own cultures, and tried to make work what worked before, cross pollenating sales techniques until the influence of places like First Alliance Mortgage and Ameriquest could be seen and felt throughout hundreds of lenders all over the country.

What had once been a respected career that involved honest dealings and careful underwriting to protect one’s financial institution and look out for the borrower’s interests, was being transformed into high pressure sales organizations only concerned with profits and at best operating on the edge of the law.

Over the years, a variety of state AGs have tried to take action against the business practices of various sub-prime lenders who were clearly abusing communities and ruining the lives of homeowners, and in limited instances have had some success.  But, the lenders on the losing side of such actions often just file for bankruptcy and the perpetrators end up opening new companies that go right back to their underhanded business as usual.

And the lending industry’s lobbying efforts have won out in all cases, essentially arguing that poor and working class neighborhoods need loan sharks.

That sinking feeling…

By the summer of 2006, the Fed had raised interest rates 17 times in a row, housing sales had slowed, prices were softening, and I had long-since started warning my own friends to get out of speculative real estate deals as the evidence of dark skies forming on horizon was now abundant. In response, they’d tell me about real estate’s safety and something about how a home’s value couldn’t go to zero, I suppose as their technology stocks did after the dot-com bubble popped in 2000.

By summer of 2006, a parade of prominent economists were already explaining to the world what was about to transpire… not that many people were listening, least of all Ben Bernanke, who proved beyond any doubt that what he knew about the housing market could not hope to fill a thimble.

Then came the tenth of July, in the year of our Lord, 2007, and at a news conference being held in London, Standard & Poors and Moody’s, the two largest bond rating agencies were about to completely botch the handling of their announcement that the ratings on 1,032 bond offerings were being downgraded.  Some would drop from AAA to AA, but others would find themselves with a BBB rating.

The bonds being downgraded represented less than one percent of the mortgage-backed securities backed by sub-prime loans, but investors saw smoke and knew there would be fire to follow, because if the ratings agencies had gotten these wrong, what was to say that they didn’t improperly rate others as well.

It’s astonishing how fast things locked up beginning on that inauspicious day.  The credit markets were frozen solid within a week or two… tops.  Demand for residential mortgage-backed securities (“RMBS”) dried up almost as fast, and derivatives such as Collateralized Debt Obligations (“CDOs”), which derived their value from the mortgage-backed bonds, went with them.

With no demand for MBS, the secondary mortgage market stopped buying mortgages almost immediately and banks and other non-bank lenders found themselves unable to sell the loans that were now stuck on their balance sheets, and capable of destroying their required ratios.  Everyone started hoarding cash… banks stopped lending even to each other… no one knew who had what on their balance sheet, who would prove overleveraged and potentially not recover.

It was roughly four weeks later, on August 8, 2007, when the Fed reversed its position of just a few weeks prior, and Bernanke started pumping liquidity into the financial system like a fire hose locked in the “On” position.  Money needed to flow through the global financial system or the system would collapse, companies wouldn’t make payrolls, all sorts of credit derivatives and transfer payments wouldn’t be made…it would be the end of the world as we knew it.

On August 10, 2011, PBS News Hour’s, Jeffrey Brown interviewed two “experts” in global finance, Laurence Meyer, a former Federal Reserve Board Governor, and Glenn Hubbard, who was at the time, Chairman of the President’s Council of Economic Advisers.  It had been two days since the Federal Reserve and EU Central Banks had pumped $326 billion into the global financial system, and PBS was asking why.

JEFFREY BROWN: All together, central banks have pumped some $326 billion into the global financial system in the past 48 hours.  Why don’t you explain what the Fed, other central bankers are doing? What does it even mean to pump extra cash into the financial system? Where does that money come from, and where does it go?

LAURENCE MEYER: Well, it creates deposits at the Federal Reserve by lending, by lending to these primary dealers, for example.

JEFFREY BROWN: Primary dealers meaning…

LAURENCE MEYER: Large banks and broker-dealers.

Doesn’t that exchange make you wonder why Lawrence Meyer didn’t just say that the $326 billion was being pumped into large banks and Wall Street broker-dealers, instead of saying “it creates deposits at the Federal Reserve by lending to primary dealers?”

JEFFREY BROWN: So that, what, so they can lend to each other? What is the problem that they’re trying to fix?

LAURENCE MEYER: So they can lend to each other, and so that they can, more generally, so that the lending can take place between banks and other institutions who lend to each other in the money market. And what happened was that that got disrupted because of a very abrupt re-pricing of risk in the economy. They became less willing to lend to each other.

You see… banks wouldn’t lend to each other because no one knew who was solvent and who had leveraged themselves across a bridge too far.  And “disrupted because of a very abrupt re-pricing of risk in the economy.” Abrupt re-pricing of risk is just another way of saying that bond ratings were lowered overnight.

JEFFREY BROWN: Mr. Hubbard, explain more about this idea risk and re-pricing of risk. I think it sounds simple, but it’s at the heart of what we keep talking about in all of this. Explain it a little more for us.

GLENN HUBBARD: Well, exactly. I think many economists believe that risks had not been accurately priced in recent times, that risk premium — that is, the spread you would get for bearing risk — were very, very low by historical standards.

What we’ve seen is a pricing where the risky assets would now require much higher rates of return. We saw this in this market for so-called subprime mortgages, but it’s really filtered throughout markets for risky debt into higher-grade mortgages and into the leveraged loan market.

Did you read that last sentence carefully?  We saw it in so-called sub-prime mortgages, but it has really filtered throughout markets into high-grade mortgages and leveraged loans?  Hmmm… I guess “irresponsible sub-prime borrowers buying homes they couldn’t afford” didn’t cause the crisis after all… what do you know about that?”

JEFFREY BROWN: And staying with you, how does this happen? How do we get in a situation where the risk factor is out of balance? How do smart people in the financial world not make the equation right so that we tip over into a kind of bubble here?

GLENN HUBBARD: Well, it can happen in a number of ways. First of all, there’s been enormous global liquidity in financial markets chasing returns, putting downward pressure on yields and on risk premia. Also, people can learn more about risk characteristics. There’s been a change in views in the past few months about how risky subprime lending is and other forms of lending. So it really is about learning over time.

Glenn has no clue how this happened.  Global liquidity pushing down yields and risk premia… premiums, for the rest of us… Hubbard has always been a real pompous ass.  A change in views over the past few months about how risky lending is?  Was “lending” something new, and we just didn’t understand it on Wall Street back then… in 2007?

So, Brown tries the same question with Meyer:

JEFFREY BROWN: How do you explain how this happens?

LAURENCE MEYER: Well, I think there are some fundamental forces that have been in play over the last 20 years. The economy is more stable; there are longer expansions, shorter contractions. So there are some fundamentals that support that credit risk spread should be narrowed.

But things go in cycles, and they get overdone. Long-term rates were very low; credit spreads were very low. People were searching for yield, looking for more exotic, going out to the fringes, and taking on more risk and becoming complacent about that risk.

I think, in some sense, it was inevitable at some point that credit spreads were going to widen. It just happened quickly, very abruptly. And sometimes when it happens so abruptly, people get worried about the riskiness of people who were there, who, you know, they’re borrowing and lending, and they pull back very sort of aggressively from that.

So, you should see clearly… if you’ve always been confused at what went on back then… it’s only because these are the kind of clowns we’ve got running our financial system and they don’t have a clue about what’s happening, so they stumble about incoherently throwing big words around.

Just remember the number of times these guys pointed out that whatever it was that happened, it had happened “VERY ABRUPTLY.”

Will the real “irresponsible borrowers,” please stand up?

Between 2004–2007, the banking lobby asked Congress to approve of our nation’s banks issuing enormous amounts of debt, investing the proceeds in mortgage-backed securities (“MBS”).  This is what the experts are referring to when they use the term “financial leverage.”  Essentially, the bankers were betting that house prices would continue rise, and that homeowners would continue to make their mortgage payments, but for those things to happen there would have to be mortgage lending… but mortgage lending had dried up “VERY ABRUBTLY” as banks hoarded cash, and now there wasn’t any mortgage lending.

No mortgage lending,,, VERY ABRUPTLY… means housing prices will fall, because can’t get a mortgage means can’t buy a home, and when demand for something goes down… anyone, anyone… price goes down… very good, class.  Refinancing loan also dried up VERY ABRUPTLY, and by the time there was any hope of refinancing most people were already underwater.

What the banks did leverage-wise is akin to a homeowner taking out a second mortgage in order to invest in the stock market.  As long as the market was rising, this leverage magnified their returns, but when prices started falling the effect was horrendous.  Lehman Bros. was leveraged by about 30:1.  WaMu, I believe was around 40:1.  Other institutions were even in worse shape.

Our bankers had assets-to-capital ratios that were way out of whack, as well.  Assets, by the way, on a bank’s balance sheet are loans, and capital is, well… capital or shareholder’s equity.  Having an assets to capital ratio of 25:1 means that the bank has $25 in loans for every $1 in capital.  It also means that if the bank’s assets fall in value by 4%… it will wipe out the bank’s capital.

It’s an oversimplification, to be sure, but it doesn’t matter… just remember that at 25:1, if the assets go down in value by 4% it leaves the bank insolvent.

Well, in the fall of 2008, Bank of America was 73.7:1, which means if the value of its assets had slipped by even one or two tenths of a percent, its capital would have been wiped out and the bank would have been insolvent.  And if you were to have included BofAs “off-balance sheet” transactions, the bank’s assets to capital ratio was a staggering 134:1. (To contrast those numbers, just consider that during the 1970s, a bank’s assets to capital ratio might have been 7:1.)

Everyone should be able to clearly see that Bank of America’s problems were not caused by anyone but Bank of America.

Let’s wrap it up, stick a bow on top, and ship it to everyone who still blames borrowers for the financial and foreclosure crisis, shall we.

So, our nation’s banks had gorged themselves on Collateralized Debt Obligations and credit derivatives, leveraged assets by 30-40 to 1, and lowered loss reserve account balances in order to pay themselves unprecedented sums.

And as if that weren’t enough to ensure insolvency, their assets to capital ratios were at levels far beyond reckless… certainly bordering on criminal in many countries, and likely punishable by death in some… and not only were these bankers not punished, not only do they all still have their jobs, but they were rewarded with multi-generational wealth to be layered on top of their unconscionable billions and encouraged to do whatever they think is right going forward.

All while they were permitted to publicly lay blame for their catastrophic outcome that has broken the economic back of the world’s wealthiest nation, on the working class American homeowners, to whom they’ve also been allowed to send the bill.

And, to add insult to injury, our government has stood by obtuse and witless as these same banks have been permitted to lie, mislead, abuse, disrespect, malign and outright torture homeowners trying to apply for a government program funded by the taxpayers themselves… only to find at the end of three years that the outcome of a regulatory investigation into the banks and servicers is that they must investigate further and self-assess what should happen as a result of their egregious behavior?

And still, when most homeowners try to turn to the courts for the possibility of some sort of relief, however remote, they find themselves chastised for having had a financial hardship, told they lack standing, and called irresponsible borrowers… by the bankers who in point of FACT are WITHOUT ANY QUESTION… the most irresponsible borrowers the world has ever seen.

It’s amazing that America’s homeowners haven’t risen up with a voice so loud to make the Tea Party sound like a dropped pin.  I understand it, however, they are in large part ashamed and don’t want anyone to know they’re struggling to make their mortgage payment, and secondly… homeowners could not have seen this coming… our country treating homeowners as though their lives or rights meant nothing.

But, that’s not all…

I guess that would be enough to say about what’s transpired these last so many years, but in addition, todays homeowners must also face the fact that they are almost literally being hunted by a group of highly trained individuals desperate for money from any source, and trained by the banking class to take whatever money they need from homeowners in distress whenever they want and using any means possible.

And yet our government’s response is collectively for the last three years continues to be… “We’re trying our best… awfully busy you know… try not to get ripped off, but if you do just dial 1-800-EAT-SH#T?”  That about cover it?

Federal regulatory agencies, such as the FTC, says it just doesn’t have the manpower to effectively police what’s going on today.

But, Memo to the Obama Administration: If you can’t adequately police Baltimore, perhaps we have to bring a few guys back from one of the foreign military posts that are still sitting on the 38^th parallel in order to stop the spread of communism, a form of government certain only to bankrupt a nation were it to actually succeed in spreading.

They once were lenders…

As a group, those that hunt homeowners in distress are still relatively young in terms of their years, they have little if any formal education… they have natural sales abilities, which were honed by professionals hell bent on training them to deceive so that they would become an army of sorts… an army trained to seek only dollars regardless of their cost and irrespective of who they hurt achieving their petty objective.

Their competitiveness has been heightened as well, because that too served their bosses.  They earned, in many cases, $50,000 a month, and more… Over a decade they were shown indisputable evidence that crime pays, and pays handsomely.  They watched their bosses make incalculable sums through highly questionable means… and flat out get away with it.

Them one day, quite abruptly, the proverbial music stopped… without any warning they could discern, the whole thing was over… overnight.  The money was gone, and they were not prepared.  They lost their cars, their homes, their boats, everything, and they could no longer do for a living what they had been trained to do.  But what was it that they had been trained to do, really?  Sell free money for which everyone qualified?

But this meltdown wasn’t their doing either… they were only pawns whose lives were played with by the titans of Wall Street who cared little for any damage they might cause.

It was over too fast and they were left with no seat at tomorrow’s table.  They once were lenders, but now what?  Now, many of them were, in truth, scammers.

Loan modifications and debt settlement programs provided a soft landing for the first few years.  .  The up front fees made them feel rich again.  They rented huge offices for their loan modification and debt settlement companies… tens of thousands of square feet they weren’t even using… they took it so they could grow into it… without giving it a second thought.

It’s not clear just how many loan modification and debt settlement companies were truly deserving of the moniker “scammer,” but regardless, state and federal regulators started receiving thousands of complaints from homeowners claiming to have been scammed, and the FTC, state Attorneys General, State Bar associations, and other regulatory and law enforcement agencies have all played a role in shutting down companies that were run by those that came from the mortgage lending industry for unethical or illegal acts involving homeowners in distress.

With enforcement actions making headlines it was predictable that state legislatures would get involved and starting in the latter part of 2009, new laws protecting consumers gradually took the ability to market loan modifications and debt settlement services away from those licensed as loan officers, by making it illegal for them to charge a customer until they had obtained a loan modification for that customer.

And the FTC finally, at the end of 2010, enacted the MARS Final Rule, which is a federal rule that prohibits anyone, with the exception of attorneys from charging homeowners for loan modification services before homeowner have received and agreed to a written offer to modify their loans from their servicer.  Because no one can know how long it will take to get a servicer to agree to a loan modification, without the ability to charge a customer in advance or along the way, few were interested in offering the service as part of their business.

So, was that the end of the line for those willing to scam homeowners… certainly not, in fact, now that they couldn’t sell loan modifications or debt settlement programs anymore, they moved into areas that were more difficult for authorities to pin down… and that often delivered even less value than the loan mod or debt settlement services had in the first place.

Many started selling “forensic loan audits,” which are report that claim to identify laws that were broken by the originator of the loan.  The pitch was (and is) that armed with this proof of impropriety the homeowner could hire an attorney, sue their servicer who would be forced to modify the loan.  Homeowners bought them in the tens of thousands… it felt like a way to regain some of their power and once again feel in control of their lives.

(At this point, there are likely more American homeowners that want to sue their bank than there are that want to kill Osama Bin Laden.)

The problem, however, was that these “audits” were largely worthless, either because they failed to take into account statute of limitations issues, or they pointed out violations that offered only impractical remedies or provided for no cause of action for the homeowner whatsoever.  The homeowners were buying something for thousands of dollars that would end up being thrown into the trash.  In the most outrageous example, a company that was shut down by California’s Attorney general, and is currently being sued by the state for something like $60 million, is alleged to have charged an elderly man $53,000 for a forensic loan audit that was to put him in the driver’s seat with his mortgage servicer.

More recently, as the securitization process has been increasingly shown as being, at best, seriously flawed, and with questions surrounding chain of title and the ownership of loans prevalent in the courts, there are an increasing number of companies now offering to sell homeowners securitization audits.  Some of these are unquestionably legitimate, but homeowners will undoubtedly have a very hard time differentiating between what is real and what is just another scam.

Some unemployed loan officers found new jobs in lending selling FHA loans, which many are referring to as the “new sub-prime.”  An array of Do-it-Yourself loan modification kits hit the market starting in 2009.  And some of the emerging scams are so bizarre, that I would have a hard time describing them without sounding like I was insane.  For example, something called “an administrative process” promises homeowners that by sending a series of letters to their bank, they will end up owning their home free and clear.

The Latest Sales Pitch: Sue Your Lender

Most recently, the idea of selling homeowners participation in a “Mass Joinder” lawsuit against their servicer has taken off like wild fire nationwide.  Sue your bank today for only $5,000!  I’ve got a suit against Chase on sale for $3500!  Join our lawsuit and you’ll receive thousands in damages, or even a free and clear home.  And, when you sign up for our lawsuit, you won’t have to make your mortgage payment for years, while the bank can’t foreclose and sell your home.

Mailers that make promises such as these are NEVER TRUE, but scammers in this space have never been bothered by lying to get a check for five grand from a homeowner… desperation is heavy in the air… fear is palpable… many have become able to talk themselves into anything.  They don’t care about getting caught… nothing bad will happen to them, because crime pays, remember?

None of this is to say that some of the lawyers seeking to represent homeowners against their lenders aren’t perfectly legitimate.  And there’s no question decisions coming out of the courts around the country this year are increasingly favoring homeowners over bankers.

Prominent Los Angeles attorney, Mitchell J. Stein, who filed the very first lawsuit on behalf of multiple homeowners… and largely on a pro bono or contingent fee basis by the way… against Bank of America/Countrywide in Los Angeles Superior Court, back on March 12, 2009.  Stein’s Curriculum Vitae (that’s a resume that went to college) shows that he’s successfully represented many of the world’s largest companies in State and Federal Court over the last 25 years… but most importantly, his list includes something like 300 banks and financial institutions.

Mitchell Stein’s complaint in the Ronald v. Bank of America lawsuit, which is a case that after two years is proceeding in the Los Angeles court, has been used as the model for suits recently filed by attorney Phillip Kramer, and there are numerous others, many of which are likely little more than sales gimmicks in lawsuit clothing.

But, as Mr. Kramer acknowledged in his interview with me that I posted on February 23^rd of this year, the numbers of Websites that popped up marketing his lawsuits has made it almost impossible for most people to figure out what is real and what isn’t. Stein says he’s been shocked at the number of people that have attempted to use his name or his firm’s identity to market their own version of his case, or even to sell a homeowner participation in his suit.

For the record, Stein says unequivocally that he has never authorized anyone to accept clients on his behalf (he has a warning on his site to this effect), and that homeowners that are interested in being represented by him should only contact his firm and speak with someone authorized to evaluate their case.  “There is no other way to do it,” he explains.  (The Law Offices of Mitchell J. Stein can be reached at 877-475-2448.)

Kramer said basically the same thing, readily agreeing that homeowners should never hire a lawyer without speaking with someone at the firm.

According to Stein, the term mass joinder doesn’t mean protection from the bank taking action to foreclose. It doesn’t mean stopping foreclosure.  It doesn’t actually mean anything.  He points out that the only protection a homeowner can get is the protection gained by having a good lawyer.  Each client Stein represents is represented individually and he spends time talking at length with every client before he agrees to represent him or her.

Stein says he considers the lawsuits he has filed against banks to be individual lawsuits with individual clients, saying “the phrase mass joinder” is really meaningless and terribly misleading.  And as far as I can tell, no bank has ever made a blanket agreement not to foreclose on homeowners just because they are plaintiffs in any lawsuit, mass joinder or otherwise.

Stopping the ongoing regulatory failures to stop scammers…

There are indeterminable thousands of individuals unleashed in our society today that were raised in a mortgage industry at its worst… taught to hunt for homeowners in distress… and shown that acts of fraud are profitable and likely to go unpunished… and now unable to make their livings making loans, and with little if any formal education, they continue to seek out ways of using their skills to target homeowners in order to line their pockets.

They look just like the rest of us… they present themselves very well… ooze with credibility when needed… lie effortlessly and entirely without conscious.  They were trained by bankers and sub-prime lenders to function as sociopaths.  They represent a clear and present danger to our society today and they aren’t going to go away anytime soon.

Passing new laws in an attempt to stop them from earning a living has not stopped a single scammer, nor will it.  When Senate Bill 94 in California was going through the legislative process, a bill that prevents those operating under a mortgage/real estate license from charging an up-front fee in conjunction with loan modification services, I tried to explain in countless articles that the bill would not stop a single scam, rather the scammers would simply find something else to sell to homeowners.

And that is precisely what has transpired.

The only way to stop the scammers who prey on homeowners in distress as a result of the foreclosure crisis, is for our government officials and legislative bodies to take action that acknowledges the need for legitimate legal representation for homeowners, along with other applicable programs and resources, and then makes access to such services readily available.

Specifically, that means taking the time to become educated as to the true nature of the situation… that is was not the borrowers, sub-prime or otherwise, that caused the financial or foreclosure crisis, and that homeowners will not find answers by following the utterly useless advice: “Call your bank directly, or call a HUD counselor.”

Consider that during prohibition of the 1930s, G-Men running around the country trying to enforce the 18^th Amendment to the U.S. Constitution by smashing stills and spilling illegal booze in the streets accomplished nothing.  The only way our government ultimately stopped bootleggers… was to put legal liquor stores on the corner.  People wanted to drink, and they were going to find a way.  The only lasting outcome of prohibition was well-funded organized crime.

The same factors apply here.  Homeowners at risk of foreclosure are going to do everything they can to save their homes, including writing a check to organized crime, if that option becomes available.  Calling a HUD counselor or your bank directly, when at risk of foreclosure is certainly not something that results in the homeowner having someone working in the homeowner’s “best interests.”  In fact, as countless thousands have learned the hard way… it’s often a waste of time that produced nothing.  That’s why homeowners start looking elsewhere.

Banks and servicers don’t do anything in the homeowner’s best interests, they are only there to protect their own interests.  And HUD non-profits… well, let’s just start admitting here that, for example, a couple of weeks ago, Bank of America presented a check for $100,000 to a HUD non-profit in Southern California for doing such a bang up job.

Homeowners who are at risk of foreclosure need to be able to find someone ON THEIR SIDE, competent legal representation that works only to protect their best interests.  Not some group funded by the banks.  And why isn’t it ever disclosed that it’s the banks who are funding the non-profits helping homeowners?  I know why, the question is rhetorical.

The banking lobby has far too much power in this country and the people are starting to notice.  Our politicians are going to pay for that in the end.

This crisis was not the fault of homeowners and they should not be treated like deadbeats because they are struggling financially… because our banks are also struggling financially, and for the very same reason.  The difference is that it’s the bankers that caused the “abrupt” changes in the financial markets back in July of ’07, not the homeowners.  And yet, they continue to be blamed by banks and eve n our government.

The anger felt by homeowners is building and their knowledge of the situation is increasing each day.  Our government’s response to the crisis has been laughable, were it not so inconceivably tragic.  And all of this while the scammers continue to come up with a new way to rip someone off who is suffering the trauma of possibly losing a home.  And things are worsening, economically speaking… unless you are one prone to believing the government’s drivel about some phantom recovery.

It’s the bankers that led us to this crisis… they trained their loan officers to scam and then abandoned them after the meltdown, as well.  Homeowners are paying the bill for both, and until our government regulators come to grips with what’s really going on here, the scams will proliferate freely, home prices will continue to fall, and our economy will deal out paid more broadly.

And all I want to know is… for what?

Mandelman out.

The two highest universal human needs are food first, then shelter.  From our position on the front lines of the Fraudclosure war, I see first hand how our government, at every level has been totally and completely corrupted, 100%.  This has been going on for decades now, but it is beyond dispute that everyone from the Presidents (both parties), to Congress, to state legislators and even down to the local level have completely surrendered or abdicated their responsibilities to keep Americans safe and secure in their homes.  MERS and the mortgage monster have chewed up our record property ownership, and law enforcement are content to let banks come in, kick down doors and throw your property into the street.  Oftentimes, courts go along with this.

The Jack booted thug cases are just the most dramatic example of how vulnerable we have become, but the breakdown of the entire legal system vis a vis foreclosure is an ongoing testament to just how desecrated our concept of protection from thuggery by an independent court system has become.  Our courts are not funded properly and the dominant player in disputes takes advantage of the void created to lie, cheat, bully and abuse.  Forget about your quaint notions of civil rights, due process and a higher legal power to protect you from this abuse…it’s gone.

I frankly see things as quite hopeless, especially here in Florida.  And as news comes from the legislative session now burbling in Tallahassee, I am confirmed that things are going to get much worse.  The state has a massive budget void and cuts must be made everywhere.  And while the state (that was you and me) are tapped out and busted, the stronger and more powerful forces aligned against us have more money than ever. (2010 was one of Wall Street’s most profitable ever)  While banks cannot fairly process loan modification or short sale paperwork, the big boys have been quite adept at shoving billion dollar profits in their pockets. (financed by you and I)  They are going to use every dollar and every strategy at their disposal to gut what’s left of due process in this state and bulldoze over whatever stands in their way….because we’ve got to GROW THIS ECONOMY!

The legislative bills that attack our courts that have been proposed in this session are TERRIFYING. A proposal to split the Florida Supreme Court , a proposal to limit the Florida Supreme Court’s ability to make rules (primarily because the legislature is furious, furious about the verified complaint rule) and now a proposal to fire, terminate, desecrate thousands of judicial assistants across the state.  And they are not done.  I promise you, there will be major legislation to “fix the foreclosure problem”.  Our courts are broke, busted, shut down.  Our entire state court system has become utterly dependent upon foreclosure filing fees to keep the lights on and to keep judges and staff employed.  The legislature just provided enough funding to keep the lights on for a few more weeks, but this is quite like providing crack to a junkie.  Our courts cannot be funded based on filing fees and our judges certainly should not be paid based on the number of cases they clear. (another extraordinary proposal coming out of this legislative session)

But that’s not what I wanted to start talking about.  I started this post because I wanted to share what I’m learning from farmers and country folks about what’s happening out far away from the cities.  All that prior discussion was the appetizer, just to set the stage for the main course.  The proposition I wanted to present is that our government has become totally corrupted and overtaken by business interests that are exploiting all of us.  If you do not believe or understand this proposition, I want some of whatever you’re taking….in fact, I want double of whatever you’re taking.

So if you understand just how corrupted our entire government has become and see how this is proven out so dramatically in relation to the most basic human need for shelter, then it won’t be too far a stretch for you to believe that the same principles have been allowed to infect the primary human need….food.

Until just a short time ago, I didn’t pay one lick of attention to food.  All I knew or cared about was there is a grocery store down the street and plenty of restaurants nearby.  But from my front row seat where I’m watching profound and absolute corruption first hand, I’ve realized just how vulnerable we really are.  I then started reaching out to the people with the dirt under their fingernails and they confirmed my worst fears….the same corporate thuggery that permeates our housing and economy has infected our food supply.  When you’ve got a little time google, “Monsanto and GMO” just to start.  Before that, think about the following and read the article below:

To the person who wanted to know if anyone commenting was actually a farmer with “on the ground” experience- I raise grass fed beef and pastured poutry and while I do not feed my cattle grain products, I can honestly say I noticed a definite difference in the behaviour of our broiler chickens once gmo soy (and corn) became standard fare at the feed stores (we get our grains custom ground)- the chickens refused to eat the soy component of the feed, and if they did eat it it was eaten last when there was no other choice left. And they took two weeks longer on average to reach the same weight as before the local feed mills became flooded with gmo feedstuffs. Commercial broilers are (sorry if I offend any chicken fanciers) as dumb an animal as you can get, and they had the brains to know something was wrong with the food. What do you think this crap is doing to us- eat anything with soy protiens or corn syrups/soilds not labled as organically certified and you are eating gmo too. They dont want gmo labled because people would be shocked to find out how much they consume on a daily basis.

More Here

Then read this:

• Monsanto monopolizing the seed supply for the US… and the world
• Monsanto’s GMO seeds are designed to maximize use of pesticides, as well, further impacting the environment
• Use of pesticides has already led to super-weeds that acquire resistance
• Bacteria transfer genes directly. This could lead to super-bugs with unknown consequences
• Monocultures – reliance on one crop – is bad agriculture. Reliance on a single strain could be disastrous. Biodiversity is nature’s insurance policy.
• Traditionally, farmers have saved some of their crop as seed to plant the next season. It’s the heart of sustainability. Not with Monsanto – they want you to buy new seed from them every year. Keeping some of your crop to plant next season is a violation of your contract, and farmers get sued for it.
• American farmers with access to credit can buy seed every year. But Monsanto is also pushing their product line in the developing world, destroying a 10,000-year-old system of sustainable agriculture.
• Monsanto has a history of suing farmers for “stealing” their patented genes… when they get contaminated by pollen from nearby GMO fields. And the court system has generally backed Monsanto.
• That same GMO gene contamination has already led to some farmers losing their organic certification.
• Monsanto hired the mercenary company Blackwater (now Xe) to spy on anti-GMO activists.

Full Article Here Monsanto and GMO

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