Sep
07
How did Solyndra get a sweetheart interest rate?
And how did taxpayers take a back seat to an Obama bundler?
ABC News discovered that the solar-tech firm Solyndra got unusually low interest rates on its federally-guaranteed loans before it collapsed last month, sending 1000 workers to the unemployment line in California. Other green-tech firms receiving loans paid as much as three and four times the interest rate Solyndra secured for its $535 million from Barack [...]
Aug
26
CREDO Sends Letter Backing Up Schneiderman in Foreclosure Fraud Fight
Firedoglake just posted the letter… CREDO rightly points out that the robo-signing scandal which was the main impetus for the 50 state AG investigation was really just a symptom of fraud, as well as fraud itself. The real problem for the banking industry is that they committed major errors when securitizing loans, improperly creating mortgage … Read more
Aug
22
Fed gave Wall Street $1.2 trillion in 2008 loans
Ugly.
As it turns out, the $700 billion TARP bailout in late 2008 was just an appetizer for Wall Street. Behind the scenes, the Federal Reserve gave out $1.2 trillion in loans to banks around the world, desperately attempting to maintain liquidity in a system that looked headed for collapse, according to Bloomberg News: Citigroup Inc. [...]
Aug
22
Wall Street Aristocracy Got $1.2 Trillion in Secret Fed Loans
Wall Street Aristocracy Got $1.2 Trillion in Secret Fed Loans Citigroup Inc. (C) and Bank of America Corp. (BAC) were the reigning champions of finance in 2006 as home prices peaked, leading the 10 biggest U.S. banks and brokerage firms to their best year ever with $104 billion of profits. By 2008, the housing market’s … Read more
Aug
08
PONZI | Fannie Mae Seeks $5.1 bln More from US Taxpayers
Fannie Mae seeks $5.1 bln more from US taxpayers By David Lawder WASHINGTON, Aug 5 (Reuters) – Mortgage finance giant Fannie Mae (FNMA.OB) said it would ask for an additional $5.1 billion from taxpayers as a weaker housing market causes continued losses on loans made prior to 2009. The largest U.S. residential mortgage funds provider … Read more
Aug
07
New York Attorney General Accuses Bank Of New York Mellon Of Fraud, Moves To Block Bank Of America’s Mortgage Deal
New York Attorney General Accuses Bank Of New York Mellon Of Fraud, Moves To Block Bank Of America’s Mortgage Deal WASHINGTON — New York Attorney General Eric Schneiderman asked a state judge to reject a proposed $8.5 billion settlement agreement over soured loans between Bank of America and a group of investors, claiming in court … Read more
Jul
21
Fed to Wells: $7000 for Wrongful Foreclosure
Yesterday the Fed announced a settlement with Wells Fargo of claims that its subprime unit had 1) deliberately steered prime borrowers into higher-cost subprime mortgage refinancings and 2) falsified income documents to put subprime borrowers into unaffordable loans. The settlement provides for an $85 million fine, plus an elaborate claims-based compensation procedure for victims, who may number 10,000 or more. Notably, families who lost their home in foreclosure as a consequence of Wells Fargo's illegal steering are to receive $7,000 for the loss of their home. That should cover some moving costs and a month's rent or so. As far as I could tell the agreement does not provide for consumers to release claims in exchange for these paltry sums, but advocates would be well advised to review settlement notices with affected consumers carefully.
The Fed announcement touts this wrist-slap settlement as the largest consumer protection enforcement fine in its history. Ample evidence that consumer protection against financial institutions needs to be transferred to a real enforcement agency at the earliest.
Jun
12
Fannie Responds to Hawaii’s New Foreclosure Law – Says… WE’RE OUT!
If you’ve been following the goings on in Hawaii as related to SB 651, the state’s new foreclosure law that requires servicers foreclosing non-judicially to produce chain of title documents, including assignments and endorsements prior to scheduling mandatory dispute resolution in front of a mediator, here’s a piece of news you’ll want to hear.
And, even if you haven’t been following the situation pertaining to foreclosures in Hawaii, but you’ve often wondered what the banks would do if they were forced to prove they actually own a home, or represent a trust that holds the actual note, BEFORE foreclosing… you’ll want to hear this too.
First of all, in case you don’t know any of the background here, you might want to click on this article: Governor Abercrombie Signs SB 651 – Toughest Foreclosure Bill in Nation, NOW LAW!
But for everyone else, those who know that recently Hawaii’s state legislature became the first in the nation to stand up to the banking lobby, passing the toughest foreclosure protection bill in the country, haven’t you been wondering what the banksters were going to do in response?
Well, I sure have… in fact, I’ve even been working on a document to send over there that analyzed the different potential bankster responses, and even after analyzing things and trying to find something out about their plans, I still really wasn’t at all sure. I just could not imagine the servicers or lenders actually being able to conform to the new law’s requirements under any circumstances.
But, you see… a lot of people, when I say that, say things like… “well, I’m sure they have the proper documentation on SOME of the loans… they can’t ALL be gone.” And I say, no they don’t.
And they say, “now how do you know that?” And I say, because of robo-signing… robo-signing does not appear on a list of alternative actions. If you chose robo-signing, it’s because you couldn’t think of anything else. And because they never have the properly endorsed note in any of the high profile cases.
If they had some, we’d have seen them by now… heard about them… instead all the banksters say is that it’s an isolated incident whenever they don’t seem to have one, or the law firm didn’t produce the proper documents… stuff like that. In the Ibanez decision in Massachusetts, they didn’t even show up with a schedule of loans…nothing.
At this point it’s at least statistically improbable that they have them… unless they have them and they’re blank on the back, as in never endorsed to anyone, in which case the are in a vault somewhere and they’ll never show them to anyone.
And even after all that and more, some people, especially journalists, still say… “well, we’ll see.” Many of them aren’t even bothered by the fact that pretty much all the banks were robo-signing… all of them… competitors… and they all seem to have the same problem and they all came up with the same idiotic solutions… and all at the same time… all of them… competitors… fascinating.
Well, I’d say that what I’m about to show you puts a proverbial nail in the benefit-of-the-doubt-coffin.
Here’s how I analyzed the situation in Hawaii… it seemed to me there were four options for the banksters:
- Conform to the new non-judicial foreclosure process.
- Go with the state’s judicial foreclosure process.
- Do nothing, stop foreclosing and hope to get the law changed next legislative session.
- Bring some sort of preemptory challenge to the new law in federal court.
That’s it, right? What else could the banks do, in light of the new law?
I figured, that if I was right, they couldn’t chose #1. They just don’t have the chain of title documents unless they forge them. They could go with judicial foreclosure, #2, but it sure could be Florida Part Two, and that’s a real mess. Besides, Hawaii courts could adopt the same standard the new law outlined for mediation, in which case there’d be little advantaged gained. #3 seemed unlikely, but was a possibility nonetheless. And #4… well, it seemed to me that banks challenging the state’s new law could be WW III.
So, I really didn’t know what the banking industry was going to do… I only knew one thing with certainty, even if everyone didn’t agree… no way would they conform to the new law governing non-judicial foreclosures. Mediation sounded nice but if you can’t prove you own the property, you can’t satisfy the requirements of the new state law in Hawaii.
That’s what’s funny, in a way… Hawaii’s new law is only demanding that the bank follow the existing laws… nothing more. SB 651 doesn’t impose some new law or new requirement on bankers related to foreclosure, it merely requires bankers to do what they should have done all along under the existing laws governing the transfer of real property.
And if they can’t do that because they didn’t follow the existing laws governing the transfer of real property, well… then that’s what needs to be addressed, right? The answer isn’t to forge documents, right? That cannot be the answer. Covering a crime with another crime cannot be the answer, right?
Let’s say I lost my pink slip to my car and I want to sell it to you. I can’t. I’m going to have to go down to the DMV and follow some sort of process to get anew pink slip. Period. The answer isn’t for me to get on my computer and make a fake new pink slip. If I do that, now I’m guilty of a crime. And no judge is going to care that I was in a hurry to sell my car and say it was okay, therefore, to forge a pink slip. I’m not a lawyer, but I’m pretty sure that what I just said is correct.
So, what’s the NEWS? Is that what you’re wondering at this point… I’m torturing you? Okay, sorry, I just wanted you to have the same foundation I did when I heard the NEWS.
Fannie Mae has announced that it will ONLY pursue JUDICIAL FORECLOSURES in the State of Hawaii. They will not even attempt to comply with the new law. And why? I know why and you should too… because they can’t… because they don’t have the properly endorsed notes and can’t produce the proper chain of title… ever.
It’s like a game of chess… they did things… Hawaii did something in response… then they make a another move… and now it’s Hawaii turn again. And I’ll be on the phone to Hawaii in the morning… because I have an idea or two about what their next move might be.
And one more thing… let us not forget that this whole thing isn’t about the borrowers. All anyone has wanted was for the banks to modify loans in order to PREVENT PREVENTABLE FORECLOSURES, as the federal government asked them to do… as they contracted with the federal government to do… as is the right thing to do after being bailed out by the American taxpayers… and after being the people that caused the economic meltdown in the first place.
Why is it perfectly okay in the mind of the banking industry that they continue to be bailed out in various forms, but it’s not reasonable to extend the same courtesy to the American taxpayers who did the bailing. Did the homeowners of this country cause housing prices to fall off a cliff in the course of a year? Or did that happen because of a global credit crisis? Because I don’t think it was the homeowners who caused the global credit crisis, was it homeowners? Did we do that?
No… we did not.
Mandelman out.
~~~
Here’s the Fannie Mae Press Release, dated today… June 10th, 2011.
Fannie Mae on Hawaii’s New Law
May
11
Mandelman’s Monthly Museletter – Version 12.0
Okay, well I’m back from my Spring vacation, a tradition I started only last year but plan to maintain, and I’m fresh off a wonderful week of watching Hawaii beat the feathers out of the banking lobby and pass the toughest foreclosure prevention bill in the nation, hands down.
So, now it’s time for another edition of Mandelman’s Monthly Museletter that is still not quite making it out monthly, but I’m working on that. At least there’s one thing you can count on though, it’ll be packed with insight into things about the financial and foreclosure crisis that matter. (By the way… all the stories that follow are actual stories although I my have embellished a bit to make a point.)
1. Treasury Reports 84% of Permanent HAMP Modifications Still Current After 12 Months!
As my mother used to say… will wonders never cease! Why, I just don’t understand it… how in the world can it be? What happened to the “60% re-default rate” on loan modifications that we’ve been hearing about ad nauseam since 2009?
It’s not just me, right? I’m not imagining things, am I? That is what we’ve been told these last couple of years, haven’t we? The answer is YES… that is what they’ve been saying… but it turns out they were full of beans.
And not only that, but the geniuses at the Treasury Department have also studied the data and guess what? You’ll never believe it… are you sitting down? There’s a relationship between the amount of the reduction in a borrower’s payment and the future performance of the loan!
Well shave my head and call me Baldy!
Turns out… and I know you’re going to find this hard pill to swallow… if you reduce someone’s payment by 50 percent, the loan performs better than if you only reduce it by 20 percent or less. I swear… it’s true! For the loans that had payments reduced by 50 percent, fewer than 12 percent are 60 days or more delinquent. You’re darn tootin’.
According to Treasury’s latest HAMP report, there are currently close to 600,000 borrowers in permanent HAMP modifications, and something like 36,000 new permanent modifications were reported in March of this year, and 36,000 borrowers began trial modifications in that same month.
And the government says that the median payment reduction in a permanent HAMP modification is 37 percent, which is about $500 a month in American money.
The Republicans, you may recall, wanted to kill HAMP just a little while ago, because they say that it costs even more than NPR or keeping Planned Parenthood open for a year in Washington D.C. But as you might also recall, and I hate to toot my own horn, but I did say back then that HAMP was finally starting to work after two years of wholesale ineptitude… so why would we kill it now?
When I said it wasn’t working everyone else said it was… and they turned out to be wrong. When I said it was starting to work, everyone said it wasn’t… and they were wrong again. Go figure.
2. Surprise, surprise, surprise… Falling Home Values… Look Out Below!
Home values fell in the first quarter of this year at the fastest rate since 2008 according to Zillow Inc. on Monday of this week. Now, I wonder why that would be? All this economic stuff is hard to figure out, don’t you think? I wonder where the home values are headed next… if I only knew…
Here’s the funny part, Zillow now says that this new data means that we won’t see a bottom until 2012 at the earliest. I’ve fallen in love with the guys over at Zillow… they just keep moving that bottom forecast out one year at a time and eventually they figure they’ll get it right. It’s one heck of a plan, I tell you what.
Zillow’s Home Value Index fell 3 percent in the first three months of 2011 and was down 8.2 percent year over year. Not that any of this stuff means anything since there’s no real estate market, no lending, a shadow inventory so big it could block out the sun and cause the next ice age, to say nothing of the gazillions of loans over 90-days delinquent and the people living in homes that they haven’t paid for since Bush was sitting in the Oval Office.
Underwater homeowners reached a record 28.4 percent of single-family homes, so if you’re not yet underwater, but you start to feel that moist feeling lapping at your toes, you’ll know what it is, and should have plenty of time to run out and get yourself a snorkel.
Here’s an adorable little quote from Zillow chief economist, and I use that term very loosely, Stan Humphries:
“Home value declines are currently equal to those we experienced during the darkest days of the housing recession. With accelerating declines during the first quarter, it is unreasonable to expect home values to return to stability by the end of 2011.”
I agree, Stan… and with the way we’re handling this foreclosure crisis, I’d say it’s damn unreasonable at that.
Zillow also said that it saw home prices decline in almost every single market… they track 132 markets, so that’s a lot of markets. The only ones that didn’t decline were Ft. Meyers, if you were there last Thursday…. Champaign-Urbana in Illinois during the 3rd week of February, and… Honolulu, Hawaii… for three days in March, the 12th, 17th, and in the afternoon of the 23rd.
3. State AGs to Servicers: Do you have any 4s. Servicers to State AGs: Go fish!
So, after what would have to be the most embarrassing months in the lives of every one of the state AG’s, the group of 50 state Attorneys General has taken a shot at turning their proposal into milk-toast in an effort to plant a big wet one on the collective buttocks of the top five mortgage servicers in the hopes that the bankers will let them go back home and crawl into their respective holes.
You remember the 5o State AGs that came roaring out of each of their states yelling things like “principal reductions,” and the like. Yes, well principal reductions, as it turns out , were such a red hot idea so they’ve been dropped from the proposal.
But principal reductions were replaced with the right of a borrower whose been tortured in a prolonged trial modification but then denied a permanent modification to go through the excruciating experience AGAIN. The AGs’ proposal says the outcome won’t change the second time around, which they hope will be reassuring to the borrowers.
There’s also talk of the servicers being limited to only losing a borrower’s paperwork a maximum of five times in any given month, after which the servicer would have to agree to not return a borrower’s calls for at least 14 business days.
The big question is how much the AGs will seek in monetary penalties from the servicers, who say they won’t borrow a nickel more than a $10 billion from the Fed at 0% to pay the AGs’ fines. A spokesperson for the servicers said that anything over $10 billion just isn’t fair to the taxpayers who will ultimately be paying the fine.
Fed Chair Ben Bernanke has already said he will quietly forgive the loans as a holiday gift for the servicers at the end of this year, but Treasury Secretary Tim Geithner said that it was his turn to forgive a loan to the servicers and that it wasn’t fair that the Fed get the credit for the whole $10 billion. “At the very least we’ll split it,” Geithner said.
The servicers are arguing that regulators have not provided evidence that servicing problems led to wrongful foreclosures and that the government has failed to prove that anything has been even slightly inconvenient about the way servicers have handled foreclosures during the crisis.
The AGs are considering using whatever money the servicers let them have to start a “Cash for Free” program to help fund annoyed bankers who will need to have a few drinks after work as a result of speeding up the foreclosure process. The funds will also be used to promote mortgage counseling. Borrowers will be able to call a dedicated line where bank employees will yell at them to “Get the Hell Out” after chastising them for living beyond their means.
The state AGs are also asking servicers stop pursuing loan modifications and foreclosures at the same time, a process known as dual tracking. Under the AGs’ proposal, servicers would start a loan modification at the same time they start the trustee sale process thereby skipping the whole foreclosure mess in its entirety.
But one thing the AGs are asking for has caused several of the servicers to become quite cross and may threaten the entire process. Apparently, the AGs are wondering if the servicers would mind if they just asked them about some sort of proof that they own the home prior to taking it back as an REO. The AGs were thinking about maybe a forged note, endorsement or even an unattached allonge would be fine… whatever is most convenient for the servicers.
Lastly, the AGs have agreed to drop the requirement that servicers provide the Consumer Financial Protection Bureau with the secret NPV formulas used to arbitrarily disqualify borrowers for loan modifications. One of the servicers was quoted as saying, “Tell Liz Warren to go f#@k herself.”
4. Iowa’s AG, Tom Miller to Servicers: STUDY THIS!
Miller called the study paid for by the banking industry, “grossly inaccurate,” and noted it was paid for by some of the servicers involved in negotiations with the 50 state AGs.
Miller’s press release said:
“This is a flawed study based on inaccurate assumptions, and it reaches grossly inaccurate conclusions. This study was bought and paid for by the industry, and that fact is reflected throughout.”
Servicers all look sincerely confused by Miller’s reaction and response to the study. They said there’s nothing unusual about the financial services industry funding their own research, in fact the servicers spokesliar said it’s been done that way for the last 35 years and the industry sees no reason to change the system now.
The study found that the proposed settlement with the top five mortgage servicers will prolong the foreclosure crisis until 2050, drive up mortgage interest rates above 20%, slow new home construction to the slowest pace since 1864, and cost $70 trillion to $100 trillion a year.
5. Shockingly, Banks Seek to Take Unfair Advantage of Distressed Homeowners
Co-published by ProPublica with Slate
Bank of America is slipping some fine print into their loan modification contracts and forcing borrowers to either sign or lose their home to foreclosure, according to a story co-published by ProPublica and Slate.
If borrowers want their loan modified by BofA, they’ll have to agree never to sue the bank for anything again for the rest of their lives, to work for the bank as an indentured servant for a period of not less than seven years, and to deliver the to the bank the second son born by the homeowner before his reaches the age of four.
Jane Azia, director of consumer protection for the New York State Banking Department says “It’s just unfair. It puts borrowers in a very vulnerable situation.”
But Bank of America disagrees. BofA Vice President, Simon Legree said: “We really don’t think we’re asking too much, and remember, just like their mortgage, no one is forcing them to sign the agreement. It’s entirely up to them. If they don’t want to sign, we spray paint ‘LOSER’ and ‘DEADBEAT’ on the front of their home and post an armed guard who will allow them 72 hours to vacate the premises, so we really feel like we’re doing more than the law would require.”
“You want a chance at saving your home? Then you’ll have to waive your rights, or at least allow 8-10 of our executives to gang rape your wife,” explains Bill Sikes from the Financial Roundtable. “We really think homeowners are making too much of this. Just make your damn payments and we wouldn’t be having this discussion.
At least one homeowner, George “Limpy” Jetson says he didn’t want to sign the agreement that cost him his left leg and his wife’s kidney, but he says he felt like he had a gun to his head. “I wasn’t going to sign it. I told the man from Well Fargo the answer was no. But then he pulled out a loaded gun and put against my right temple, and well… what could I do?”
“I guess at the end of the day, at least we have our home, and we’ll gladly pay the $600,000 for the home even though it appraised for $129,500… as long as I get to keep both of my testicles and my daughter isn’t forced to carry one of the bank branch manager’s babies when she turns 18,” the man says.
Consumer advocacy groups are advising homeowners to do whatever the bank asks of them, except take a shower in a large room with others, and then get the hell out of the country as fast as possible.
6. Mish Shedlock Digs Deeper into Unemployment Hoo-Hah
Mish is the best at the unemployment numbers, so I thought I’d just give you the highlights and you can do more digging on his site if that’[s your thing:
A. The unemployment rate comes from a “Household Survey,” which is a phone survey.
B. The official definition of unemployed is you do not have a job, you want a job, and crucially, you have looked for a job in the last 4 weeks.
C. Every month the media focuses on the headline number, ignoring millions who have “dropped out of the labor force” simply because they stopped looking for work.
D. And the millions more in “forced retirement”, which Mish defines as someone over 60 whose unemployment benefits ran out so they retired to collect Social Security even though they really want a job.
E. Last month many were surprised to see the jobs report claim 244,000 jobs were added yet the unemployment rate ticked up 2 tenths from 8.8% to 9.0%.
F. The fact is, employment fell by 190,000 according to the Household Survey and another 131,000 people dropped out of the labor force last month or the unemployment would have been even higher. Fewer people (131,000 to be precise) wanted a lob and looked for jobs in April than in March.
G. Regardless, close scrutiny of the details in the report shows the headline numbers were far worse than they looked.
H. In the last year, the civilian population rose by 1,817,000. Yet the labor force dropped by 1,099,000. Those not in the labor force rose by 2,916,000.
- In January alone, a whopping 319,000 people dropped out of the workforce.
- In February another 87,000 people dropped out of the labor force.
- In March 11,000 people dropped out of the labor force.
- In April, 131,000 dropped out of the labor force.
- The 4-month total for 2011 is 548,000 people dropped out of the labor force.
I. Were it not for people dropping out of the labor force, the headline unemployment rate RIGHT NOW in this country would be well over 11%.
J. Unemployment Math Since April 2008
Those not in the labor force as noted in the April 2008 Employment Report = 79,241,000
Those not in the labor force today = 85,725,000
So, Since April 2008 6,484,000 dropped out of the labor force.
If we add those back into the labor force and to the unemployed, the math look likes this:
Civilian Labor Force: 159,905,000
Unemployed: 20,231,000
Revised Unemployment Rate = 20,231/159,905 = 12.7%!
Not 9%… 12.7%. (And that’s U3, not U6)
~~~
Mandelman out.
Apr
28
BOMBSHELL- IRS TO CONSIDER TAX PENALTIES FOR REMICS
Most of the mortgages that are currently being foreclosed on were transferred into Real Estate Investment Conduits (REMICs). As we’ve been saying for years…and as the courts are now proving for certain years after the fact…most of these loans were not transferred into the trusts properly or at all. Most of the trusts violated just about every rule and law they could think of and while courts have heretofore been unconcerned with these transgressions, a key element is the fact that violating these rules can cause the trust to lose its favorable tax treatment under the IRS REMIC rules. From the Reuters story:
In a brief statement in response to questions from Reuters, the agency said: “The IRS is aware of questions in the market regarding REMICs and proper ownership of the underlying mortgages as set out in federal tax law, and is actively reviewing certain aspects of this issue.”
Now, the IRS cannot really enforce the rules against these trusts….the penalties and the payouts would be too huge and they are too big to fail, but the fact that it is now formally being investigated shows that the issue is real…
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Apr
27
SHOCKED! APPALLED! BEFUDDLED! FORECLOSURE MEDIATIONS ARE A DISMAL FAILURE!
So now the press is reporting what we’ve all known since foreclosure mediations began….they’re a dismal failure. Could it be because mediation requires that BOTH parties participate in good faith? Could it be because the banks do not want to settle? Could it be because the banks don’t know who owns the loans and so they cannot settle?
It’s all those reasons and more….so now what?
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Apr
23
THE FRAUDCLOSURE CRISIS- BLAME IT ON THE BORROWERS!
There was a time not so long ago when most people in this country blamed the borrowers for the financial crisis this country is in. The Fraudclosuregate crisis is a microcosm of the much larger economic problems this country faces. Sure, many of the borrowers were part of the problem, taking out larger loans than they could afford, but what we all need to focus on is the fact that while on one side of the table borrowers were accepting checks they could not afford, the bankers on the other side were pushing, forcing, coercing these borrowers to accept loans that were doomed from the beginning.
The United States Senate Committee on Investigations Report on the financial crisis documents, in excruciating detail, how the Wall Street players conspired to take advantage of consumers while every level of our government sat aside and allowed the Wall Street beasts to take over Amerika.
The Wall Street Wizards profited handsomely while the rest of the country paid to bail them out….
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Mar
14
BoA’s Bad Bank – Pay No Attention to the 6.7 Million Loans Behind the Curtain
Last week, Felix Salmon stopped me in my tracks by running a headline that said that Bank of America doesn’t “believe in treating borrowers fairly.”
What? Hold on… now that’s being a bit harsh, don’t you think?
Look, it’s been over three months since I ran the story about how BofA broke into a home they didn’t own and stole the ashes of the owner’s deceased husband, among other things… and a full year since they foreclosed on, emptied out, and placed a lock-box on the Florida home that was free, clear, and previously mortgaged by Wells Fargo. And I’m almost positive that an entire week has gone by without a new lawsuit being filed against the giant ghost-bank, although on this last point I’ll concede, I may be wrong.
I mean, can’t BofA catch a break anywhere? They’ve been behaving so well for a long time, at least in BofA years. In BofA years, a week without a lawsuit is like 5 regular human years, right?
So, I start reading the story and come to find out that Felix is reporting that Bank of America is setting up and transferring roughly half of 14 million mortgages into a “bad bank,” and I figure that means that there will now be two BofAs, and one will be called the “Bad Bank” and the other, I would have to assume, will be called the “Worse Bank.”
My wife and her Mom do both bank at BofA, and I’m kind of hoping that their accounts get split between the two BofAs. That way, when I ask her where she had to go today, she could answer by saying: “Oh, I had to go from Bad to Worse.” (LOL, I crack myself up sometimes.)
Anyway, Felix was explaining what FBR analyst Paul Miller, had said in a Bloomberg article as to the reason behind the good/bad split, which was: “to get investors focus on the good” and as “a way to talk about good things and ignore the bad.”
See, these are the kinds of things that make me afraid of the world around me… like, now I don’t want to even leave my house. Does stuff like this work on “investors?” What… are the “investors” he speaks of like four years old? I’m asking because that was about the last age that I could have pulled something like that on our daughter and expected it to work.
Salmon says that BofA is essentially doing two things:
- Trying to “sweep” bad loans under some kind of carpet.
- Step up its pushback against the proposed mortgage-servicing settlement.
Now, although I have to admit that I personally don’t read him often, or actually… ever, I’ve been told that Felix Salmon is a real smart guy, and I’ve been meaning to find his column for some time, so I tend to believe him here. So, that’s all a mega-bank has to do to get investors to stop focusing on roughly half of 14 million “bad” mortgages… announce to Bloomberg that they’re putting them into a “bad bank.”
Doesn’t that scare you? Don’t these investors ever read Bloomberg? I would have thought that they did, at least on occasion. So, why would transferring almost half of 14 million “bad loans” to “bad bank” trick them into forgetting about those 6.7 million “bad loans?” If this plan works… I’ll likely never recover.
Some guy named Terry Laughlin is said to be running “bad bank,” I assume CEO Brian Moynihan will continue to run “worse bank,” or maybe it’s the other way around, but no matter… they’re both BofA, so whatever. Apparently, Laughlin was giving some sort of presentation last week, and talking about how his new “bad bank” will focus on granting loan modifications to delinquent customers. According to Bloomberg, Laughlin said that “as borrowers default, we’ll evaluate them for a loan modification.”
See, now I would have said that would make them “Good Bank,” not “bad bank,” but that just shows you how out-of-touch I am with what’s going on in this country today.
I feel completely turned around on this issue… I thought that for the last few weeks, Geithner, and a whole bunch of other politicos had been saying that granting loan modifications was a good thing… stopping foreclosures… also good. But it’s only done by “bad bank,” apparently. So, I guess that bad is now good.
Ok, fine… so, just tell me, so I don’t hurt myself… is “up” also “down” and cold also hot? What about “in” also being “out”? You do what you want, but I’m not leaving my study until someone sends me a new set of instructions.
Now, as far as stepping up their “push-back against the proposed mortgage-servicing settlement,” Felix says that the settlement does “quite explicitly does include loan modifications for borrowers who aren’t in default.”
Okay, so I see the problem here… that means that “worse bank” is going to have to do loan modifications too, but all the loan modification personnel will be working over at “bad bank.” So, big deal… send the loan mod work across the street, from “worse” to “bad,” as it were… the customers should be happy about going from “worse” to “bad,” no? I know I would be, or at least I always have been in the past.
Felix references a point from the settlement proposal that the bankers are fighting about, part II.K.8, (document shown below), that says:
“Servicer’s employees shall not instruct, advise or recommend that borrowers go into default in order to qualify for loss mitigation relief.
According to Felix:
“This is something BofA hates — because it opens the door to underwater borrowers who are making timely payments being able to get a loan modification and thereby reduce the value of the loan. And BofA CEO Brian Moynihan is on the warpath against it, saying that such a system would be unfair to borrowers who don’t get their loans modified.
Is that what that paragraph does? So what, it opens the door… big deal. The door’s been open at BofA for several years now, and when the bank wants it to be revolving, it’s revolving. And when they want it shut, well… let’s just say that you had better get your fingers out of the way and leave it at that.
Felix also quotes Georgetown Law professor, Adam Levitin, who I think agrees with me about the whole “open door” policy thing. Levitin says that there’s nothing in the proposed settlement that forces BofA to do anything unfair… like BofA needs permission to do anything like that… LOL. He says:
“BofA is encouraged to draw up its own set of standards and then apply them to all of its borrowers in a consistent manner.”
Well, I can certainly see how that “consistent” thing would be at least irksome to BofA’s CEO… that’s for sure. That would require BofA to be working with a concept entirely foreign to the organization. I mean, shunning consistency is part of BofA’s culture. It’s like asking Apple employees to “Think the Same”.
Felix says that the only reason BofA is fighting back against the settlement proposal is that if either of the banks, from “bad” to “worse,” were to behave “according to the settlement’s guidelines, it (they) would lose some of that $35 billion to $40 billion a year that Moynihan reckons it should be able to make going forwards.”
Felix also says that he’s not aware of any bank “in the history of the world” that’s ever made $40 billion in a single year… and he says he doesn’t think any bank ever should make that much in a year. I actually agree with that, pretty much… except for Goldman Sachs, of course… I mean, our nation’s future is in their hands, after all, and I don’t think we should even start talking about limiting them in any way.
For one thing you don’t bite the hand that feeds you, and for another, if they even get wind of this kind of talk, they’re likely to punish us in some significant way. Remember the collapse of the Ruble in 1998, and the bailout of Long-Term Capital Management? Yeah, well I heard that was done in response to Brooksley Born’s regulate-the-derivatives shenanigans back in ’94. I’m telling you, let’s not mess with Goldman… God’s work, if you recall… and he didn’t look like he was joking to me.
(Felix also offers a unique exception to the Federal Reserve, but I don’t think he has too much to worry about there. Unless Bernanke just keeps printing money while keeping all of the secret garbage assets on their books at their stated values that banks have been able to use as collateral for loans these past few years, we’ll be lucky if we see the Fed truly makes money again in my lifetime.)
The rest of the banks, however, I agree with Felix… they don’t need to be making $40 billion a year… especially when most people’s experience with them goes from “bad to worse” pretty darn fast. Of course, that was under the leadership, and I use that term extremely loosely… of Kenny “The Acquirer” Lewis.
Felix ends by pointing out: “Bank of America is far too big to fail, and as such it benefits greatly from an implicit government guarantee. The least it can do in return is treat its borrowers fairly,” and that’s another point that I have to say I don’t agree with in the least.
The least BofA can do is to treat borrowers fairly? That’s just not a true statement. I’d say, the MOST they can do is treat borrowers fairly… the least they can do… well, I hope we’ve already seen the least they can do, but every time I think that about one of the banks, they seem to rush right out and show me that they can do even less.
Mandelman out.
Mar
06
NY Times and the Great MERS Fiasco- MERS Swallowed Your Home
“So as far as anyone can tell their real theory was: ‘If we can get everyone on board, no judge will want to upend something that is reasonable and sensible and would screw up 70 percent of loans.’ ”
County officials appealed to Congress, arguing that MERS was of dubious legality. But this was the 1990s, an era of deregulation, and the mortgage industry won.
“We lost our revenue stream, and Americans lost the ability to immediately know who owned a piece of property,” said Mark Monacelli, the St. Louis County recorder in Duluth, Minn.
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Mar
06
NY Times and the Great MERS Fiasco- MERS Swallowed Your Home
“So as far as anyone can tell their real theory was: ‘If we can get everyone on board, no judge will want to upend something that is reasonable and sensible and would screw up 70 percent of loans.’ ”
County officials appealed to Congress, arguing that MERS was of dubious legality. But this was the 1990s, an era of deregulation, and the mortgage industry won.
“We lost our revenue stream, and Americans lost the ability to immediately know who owned a piece of property,” said Mark Monacelli, the St. Louis County recorder in Duluth, Minn.
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Feb
27
Is HAMP Poised to Improve in Year 3?
All we are saying… is give HAMP a chance… All we are saying… is give HAMP a chance… All we are saying…
Come on, what’s wrong… sing it with me?
No? Yeah, I understand… I’m not really up for singing about that subject yet either.
But the Treasury Department says they want to change all that… and they’re making some changes and are starting to sound pretty optimistic about the potential for greater success than in the past… and actually… in a distorted sort of way, I believe them this time.
Now, don’t start yelling at me about how HAMP sucks, or is not the answer for this or that… I know all that, silly… and I’ve never claimed it to be anything more than what it is. From talking with homeowners just about every single day of the last two years, I’ve come to understand that there are reasons… and perfectly acceptable reasons, I should add… for people to want to get their loans modified, even though I readily agree that at best it is a Band Aid, and certainly not any sort of real solution.
I have to admit something here… if my wife and I were at risk of foreclosure today… even knowing what I know… I’d probably chose a modification above all of the other available options… the ones available today… for mine and my wife’s needs… I think… I’m pretty sure, anyway. You never really know the answer to this sort of question until you have to ask it of yourself in real life. But I really think I would vote to modify.
Why? It’s simple, really. For one thing, our daughter is 15 years old, and we probably wouldn’t want to do anything to shake the rug that’s under her high school and after school life at the moment. And two… I’m really tired and after 20 years of living where we live, I just don’t want to have to clean out our garage this year or even next year, for that matter. I mean, underwater, schunderwater… this blogging 24/7 thing is exhausting and besides that… you haven’t seen my garage, so I’d withhold judgment if I were you.
Now, once our daughter was off to college, assuming that quaint little tradition is still possible three years from now, we’d walk away from a mortgage underwater by 50% faster than you could say, “strategic default”. We wouldn’t need to give such a move more than a few hours worth of thought to figure out that paying twice as much as a house is worth is stupid… with a capital “STUPID”. And, although I realize that prices might return to 2006 levels by something like… well, NEVER… there’s no reason to just hang around waiting for that to happen.
Assets never magically re-inflate themselves, and with the way this administration has handled the financial crisis, there’s no reason to believe that I’ll still be around when the American middle class feels anywhere near prosperous again.
Other people have their own reasons to want to stick a Band Aid on their mortgage situation, and I’ve heard them all, I think. Grandparents that don’t want to move just because they’re in their 70s and don’t want to… because they don’t want to. You ever try to argue with someone in his or her 70s whose made up their mind about something? Why, you’d have better luck trying to get paint to peel by yelling at it. It just ain’t gonna’ work, in most cases anyway.
So anyway… there’s a new name being bantered about town… and they call her HAMP’s “architect”.
The name of “HAMP’s architect” is Laurie Maggiano, although up until now it’s not hard to see why that moniker was better kept under wraps. More technically speaking, she is the Director of Policy at the Homeowner Preservation Office inside the Department of the U.S. Treasury. Yep, this mess is… at least in some ways, and I’m not trying to be rude here… her fault. And Geithner’s too, of course… let’s not overlook Transparency Tim when dealing out some blame for HAMP’s failure. He’s first, second, and third in line when serving up the HAMP blame-burgers.
It’s funny, but Tim Geithner’s about the only guy I can think of at the moment that I wouldn’t care whether he got a fair trial… you could just lock him up for a few years and I don’t think the U.S. Constitution would even cross my mind.
I mean, I think you have to give the Oklahoma Bomber a fair trial, but Geithner… well, not so much. Bye-bye Tim. You know… come to think of it… you could send Ben Bernanke up the river with about a ten-minute trial and I’d be just fine with that, too. Waterboarding for two? Absolutely, and I might even go pay-per-view on something like that… have a few people over… serve those little cocktail weenies with dough wrapped around them… some ginger ale… you know, the whole shebang.
Well, Treasury now says that they have been cooking up several new enhancements to the Home Affordable Modification Program designed to address the needs of homeowners, and they’ve already begun implementing some of them. Maggiano says all that HAMP now needs is a chance to succeed.
Nope… I’m just not feeling any sympathy for that position quite yet either, Laurie. What are these so-called “enhancements” you speak of, anyway?
Going Up?
First off… as of February 1st, Treasury has a new escalation program. The idea is to provide a place for borrowers to go when denied a loan modification or when they’ve been jerked around incessantly by their servicer. Now, they’ll be able to raise their concerns directly with Treasury Department employees, assuming they put in enough phone lines.
Yeah, when you say it like that it does start to sound kind of fun, I suppose. I’m sure those Treasury employees are a real treat when you’re at risk of losing your home and need someone to take action.
Also, the Treasury Department 1has established two call centers, one in Dallas, located at the Fannie Mae HAMP Solution Center, where trained personnel can help borrowers get explanations to their questions, and that’s actually making me laugh while I’m typing this… LMAO. The Fannie Mae HAMP Solution Center?
That’s about like naming a flight school, the 9-11 Academy. Or, maybe the McDonald’s Healthy Diet Center, or the U.S. Army’s Efficiency Center… would be better examples?
Okay, what else you got?
How about this one… each HAMP servicer is now required to have their own escalation teams that report things like the number of complaints and how they were handled directly to Treasury.
Okay, not bad… keep going…
Maggiano was recruited in 1999, by the Department of Housing and Urban Development. She designed and implemented the Federal Housing Administration’s loss-mitigation program currently in place, a program that was widely thought of as a failure for the first two years, but in year three the program started reporting more modifications than foreclosures, and today it’s referred to as a success.
Maggiano claims that in the third year of HAMP, which begins this spring, servicers will be pushed to do better. Maggiano made her comments at a recent Mortgage Bankers Association servicing conference held in Texas. Here’s some of what she had to say:
“You won’t see any major new programs coming out. (Applause!) We may tweak around the edges, but our primary objective in 2011 is excellence in the program we have. You have changed your systems at great agony. But we are ready to execute and execute really, really well. Borrowers have been jacked around the last few years. We need to improve that.”
Actually, Laurie… may I call you Laurie? It’s better than the other names for you that I’m considering right now, take my word for that. Actually, what you and yours needed to do in regards to your last two sentences was to not “jack around,” as you so eloquently phrased it, the borrowers in the first place, and if some amount of “jacking around” was inevitable, then you needed to stop said “jacking around” as soon as you became aware of it, and then punish, or at the very least admonish, those that were doing it.
And as far as the servicers enduring anything even remotely resembling “great agony,” I can only offer that you would be doing this administration a great service if you were to shut the hell up about whatever it is that you’re talking about because not only do you sound like an insensitive babbling fool, but you’re not helping improve anyone’s perception of the administration either. And, believe me when I say that you guys could use all the improved perception you can lay your hands on at this point.
Laurie, as “the architect” of the HAMP program, are you aware that these servicers you’re pandering to at the Mortgage Bankers Association conference, have been nothing short of torturing America’s homeowners relentlessly, mercilessly, and without rhyme or reason for three straight years?
Do you realize that I personally have spoken to thousands of homeowners… normally peaceable individuals who care deeply about their fellow man, and that as a result of their treatment at the hands of your servicers, would likely stand up and cheer upon learning that any of the major servicers’ main facilities had been completely destroyed by an incendiary device… and I think that would hold true even if it were to happen during the work day. I realize that sounds harsh, and I assure you that I wouldn’t have written it here if I didn’t believe it to be quite literally the truth of the matter.
What the servicers have done to America’s homeowners is criminal, even if the law doesn’t ever view it as such, and that’s to say nothing of their role in not only preventing any sort of economic recovery, but in deepening what was already the worst economic downturn in 70 years. Did they undergo any sort of “great agony?” Lord, I’d like to think so, but you and I… and at this point just about everyone else involved knows they didn’t endure any such thing. In fact, they’ve done nothing but make more money than ever before, hand over fist, as the saying goes.
One more thing, before I return to your drive towards “excellence”… does it bother you in the least to realize that the servicers have not gotten any better at modifying loans even though they’ve been ostensibly trying to do so for at least the last two years? Does that bother you at all?
I mean to say… how it such a thing even possible? If I were to force you to sit through a one hour class each day at which they taught people to speak French, do you think it would even be possible that you could not be any better at speaking French two years later? Or, how about a daily one-hour golf lesson? Could you possibly attend that learning experience and not be any better at golf after 24 months straight?
Not a chance… yet the servicers, who have been modifying loans for more than two straight years… every day… pretty much day in and day out… and they haven’t changed a bit… not one iota. Oh sure… the HAMP program has improved somewhat, but the servicers have not. They’re still “jacking around” homeowners like it was their collective first day on the job.
Another improvement that Treasury claims is on the way involves the HAMP secret NPV test.
The acronym “NPV” stands for Net Present Value, and normally an NPV calculation would be fairly easy to understand… many people think of it as a calculation used to determine the “time value of money”. But, in the case of HAMP’s NPV test, there’s a whole lot more involved and Treasury has be steadfast in their refusal to release the details of the formula.
A positive NPV result, means that the investor that owns the loan would come out ahead financially by modifying the loan, as opposed to foreclosing, and therefore the servicer should agree to modify.
Because of the Dodd-Frank Act, servicers will now be required to provide borrowers every input that went into their NPV test when they deny HAMP loan modifications due to negative net-present values. And if the borrower finds that there are errors in those inputs, they’ll be able to call the Treasury’s new call center and… well, we’ll have to see how that whole thing pans out before commenting further. I’ve called many government phone numbers over the last couple of years and let’s just say the experience has to-date been underwhelming.
Also… it’s important to note that even under Dodd-Frank’s new requirement, Treasury is not required to release the formula in its entirety, rather they are only required to release components of the formula they do not consider proprietary. So, although this is a step in the right direction, it’s a far cry from what one would think of as being transparent.
According to Maggiano…
“If a borrower can prove income was wrong, a ZIP was wrong, they have ability to appeal for reevaluation. Call center employees can short circuit these appeals if they see it would be negative anyway.”
And, for the record, I have no idea what the second sentence in that preceding statement means. They can short circuit something if they see it would be negative anyway? Huh?
Treasury is also said, now by sometime in May, to be making available an online NPV calculator that will be available to both consumers and servicers, but if a borrower finds errors causing the test’s outcome, he or she must pay the servicer $200 to re-run the test, according to Maggiano.
So, let’s just let our imaginations go for a moment, and think what this new process will look like in real life. Someone will enter their personal information into the online calculator… the servicer will say… “I’m sorry, but you’ve failed the NPV,” as is their practice today. Then the homeowner will ask that the servicer send them the inputs used in the NPV calculation, and if lucky, the homeowner will receive all of the non-proprietary components of the formula. Then if they discover some aspect of the calculation was incorrect, they can pay the servicer $200 to re-run the test with the corrected information… and then the servicer will call and say, “I’m sorry, but you’ve failed the NPV test yet again… pack your things, it’s time to go.”
Does that seem about right, Laurie? Why am I asking you? You wouldn’t have any idea, now would you?
I don’t know about the rest of the people reading this, but I’d prefer to have my own NPV test run so I can compare it to the one run by the Mystery Date Calculator that still won’t show me what’s behind Door #3. But that’s just me…
Maggiano says that she believes that, combined with some $7 billion in unemployment assistance that is being made available through the “Hardest Hit” funding, overall the HAMP program will be a turn around story. She also pointed out some of the current stats about loan modifications, such as the fact that in-house modifications are outnumbering HAMP mods by four to one, and said that in 2008, 60% of in-house modifications became 60-days late six months later, but in 2010 that percentage fell to 21%.
Okay, look… I can’t believe I’m still responding to this 60% re-default stat from 2008, but I guess I am. In 2008, 60% of the loan modifications resulted in payments that were higher than before the loans were modified… again… 60% of loan modifications in 2008 resulted in higher payments than before the loans were modified. So, is it any surprise than 60% of those modified loans became 60 days delinquent within six months?
If the payment on a loan is made higher, by the way, then it’s not a “loan modification”. Loan modifications make payments go down… period. Never up… only down. I realize that technically the loan is being “modified” even when the payment is increased, but if a payment on a loan is raised to a higher amount, it should not be referred to as a loan modification or lumped in with statistics about loan modifications. If the payment is increased it should be called a “payment increase”. And if you have any questions about that, please get yourself a Dictionary of the English Language and study up.
And please… let’s stop throwing around that garbage re-default statistic from 2008 that was thrown around by the banks in an effort to prove that loan modifications didn’t work. It was a stupid point from the start.
Of course loan modifications “work,” it’s just a matter of how much you modify… or, in other words “lower” the monthly payment. If you reduced someone’s payment to $1 a month it would “work,” right? No one would re-default on a payment of $1 a month. So, enough with the junk stats, damn it… it’s really starting to give me a headache and the next time I hear the 2008 loan modification re-default statistic used to make a point, I may just say “okie dokie” to whatever point is being made and move on to the next topic.
In Conclusion…
I’ve said this before, but I might as well say it again… HAMP started getting better last June when Treasury changed the rules for getting a trial modification to require the borrower’s income be documented before a trial modification is granted. In fact, prior to writing this, I asked several attorneys who see loans modified every single day, that in contrast to what they were experiencing a year ago, today’s trial modifications almost always become permanent ones.
But, don’t misunderstand me… HAMP improving doesn’t mean that homeowners are getting any better at dealing with servicers when attempting to get their loans modified. To say the process is cumbersome, overwhelming, unpleasant, fraught with lies and traps of quicksand, stressful, and astoundingly frustrating, represents a monumental understatement.
Servicers are still working under incentives that ensure maximal profits only by foreclosing. They are not a fiduciary to the loan and therefore should not be permitted to masquerade as the loan’s owner for the purposes of negotiating a modification of the contract’s existing terms.
Okay, but they are, and so it is what it is…
From what I see and hear about every day, the best advice I think I could offer a homeowner these days is to run a REST Report, send it to the servicer… and then never give up… and should you reach the point at which you can’t take it anymore, hire an ethical and experienced law firm to keep fighting for you.
If the REST Report shows a positive NPV, and/or that you qualify for HAMP, and assuming that you can document your income and its sufficient to make the modified payment… then you do qualify and from what I see happening today, ultimately you’ll get your loan modified. It won’t be pleasant, mind you, but it’s highly likely that it’ll get done assuming you never throw in the towel.
And so I do believe that things can only improve from here… Laurie-the-Architect, as callous and misguided as she may appear to be, does seem to be committed to improving various aspects of the program, and I would have to admit that some of Treasury’s changes certainly won’t make things worse.
So, all told… the forecast for the coming year in loan modifications, while not 85 degrees, sunny and balmy, won’t have the same perpetual storm front and tsunami warning that homeowners have consistently lived under for most of the last two years and then some. And that’s an improvement… considering from whence we’ve come.
Mandelman out.
Still stuck in loan mod hell? Write and tell me your story… mandelman@mac.com. I’m truly interested to know what you’re dealing with… and want to help in any way I can.
Feb
09
A San Diego Attorney Speaks Out on How SB 94 Has Taken Legitimate Lawyers Away from Homeowners
I think it’s fair to say that I’ve written more on the subject of lawyers and loan modifications than anyone else… I’m not bragging, in fact I wish it had never been necessary for me or anyone else to write about the topic in the first place. The question of whether a homeowner at risk of foreclosure and who is seeking a loan modification should be able to hire a lawyer to represent them, if that’s what they want to do, should never have been a question. It just shouldn’t have ever been all that complicated an issue, in my mind anyway.
A few years back, I was teaching 5-6th grade US History/Social Studies at a nearby elementary school and I’m quite sure that if I would have asked my students who they should call if they needed help when at risk of losing a home, they would have all picked “lawyer” off of the list of options. And, as to whether lawyers do a better job getting loans modified than homeowners on their own, the answer is also yes, no question about it. That doesn’t mean that a given homeowner can’t get their mortgage modified without being represented by an attorney, some can and some do. But overall, the vast majority of the hundreds of homeowners that contact me for one reason or another each month, all have similar stories… they’ve been tryingon their own to get their bank to modify their loan for a year or more and to no avail. They hire an attorney to represent them and lo and behold, in almost every instance, their loans get modified.
Moat recently, there was a woman who called me days before Christmas with Bank of America having already turned her down for a loan modification and set a sale date of January 7th. I referred her to a lawyer I know well, and two days before New Years her loan was permanently modified. Would that have happened without an attorney… no, it would not.
Another couple from Northern California also comes to mind. They had been trying to get Chase to modify their loan for over a year. Chase was talking to them but it was going nowhere and they were scared that they could lose their home of 20 years. Again, I referred them to a law firm I’ve gotten to know well, and a few months later, they not only got a modification, but a great modification, in my view, including a principal forbearance of $200,000. Do I think that would have happened without a lawyer involved… not a chance in the world.
I’ve simply seen too many similar stories over the last couple of years for just anyone to tell me I’m wrong about this, but if anyone has any data that says otherwise, I’m certainly open to taking a look or hearing about someone else’s experience if different than my own.
The issue has been muddied ever since President Obama, Treasury Secretary Geithner, and Attorney General Holder, all told the nation in so many words that, “loan modifications are free… you don’t need a lawyer, you just call a HUD counselor or your bank directly.” I was shocked when I heard that message coming from Washington D.C. because it never made any sense at all to me… because nothing that comes from a bank is ever free.
And the idea that a homeowner calling a HUD counselor or their bank directly would be as effective as paying a private sector attorney to handle things just never seemed likely to me. And I don’t think it was much of a mystery to many homeowners either.
To the California State Bar, however, I think it would be fair to say that the whole subject of attorneys being involved in loan modifications has been hard to understand. And much of the reason for this apparent difficulty, is that there have been far too many scams out there from which homeowners can far too easily choose.
It’s astounding, actually. I mean, I realize that our state and federal governments have limited resources when it comes to enforcing the law in certain areas, but my God… I have to believe that if drug dealers had Websites, wouldn’t law enforcement have moved in to shut them down faster than it has taken to go after the innumerable scams that have proliferated around the Internet claiming to be able to save someone’s home from foreclosure? Maybe I’m wrong, maybe the response would be about the same if it were drug dealers… but would it really?
To make matters worse, there have unquestionably been many firms that opened with the best of intentions only to discover that the banks were on a mission to make their lives miserable and their jobs next to impossible. I can’t mention any names, but I happen to know of one loan modification company that was opened by a retired banker… and not just any banker, but a senior level banking executive that ran an entire region of the country for one of the largest banks in the U.S. He came out of retirement to open a company that helped homeowners get loans modified. Why? Because he knew what he was doing, obviously, that’s why. But, today… his company could easily find itself branded a scammer for accepting a fee in advance of getting a loan modified.
I think there were a lot of companies, in other words, that tried and failed when it came to loan modifications, and with our government’s only advice being call HUD or your bank directly, it was left to homeowners to figure out where real help could be found and who might be in business tomorrow.
Then you had the “salesperson effect”. Salespeople working on commission who told a homeowner with monthly income of $2,000 that they could expect to keep their home even though their first mortgage was $475,000, and their current payment with which they were struggling was interest only. Again, I don’t think there should be any question that government could have done a lot to prevent that sort of thing from happening as well. They just didn’t. They rolled out a loan modification program, called Making Home Affordable, that sounded wonderful, but they failed to enforce its rules, and allowed servicers to do as they pleased… and the litigation won’t end for years to come as a result… not that it should.
What the banks have done while Treasury looked the other way, represents the worst abuses to American citizens I’ve ever seen, read about, or imagined could occur… at least since the pre-union abuses of laborers by Robber Barons at the beginnings of the 20th Century.
No one is pro-scammer, mind you… everyone hates the idea of a homeowner being scammed out of money when at risk of losing a home, or at any time, for that matter. But I think it should be clear that the only way to stop the spread of scammers is to make legitimate assistance abundant. Just imagine if the State of California had announced that you could find legitimate assistance with a loan modification at every Starbucks… no more scammers, right? Why would you need to search for such assistance using Google when you could get meaningful help while your decaf low-fat latte was being prepared?
Our regulators need to understand, and it’s about time they did, that homeowners at risk of foreclosure are going to try to get their loan modified on their own if that’s what the government says they should do, but when they find out that they can’t get it done… well, they’re going to write someone a check before they give up and look for a place to rent. If they find legitimate help, great. But they’ll write a check to organized crime before they walk away from their homes without trying something else. And no one is going to change that fact… water is wet, the sky is blue, and… you get the idea, right?
Think about prohibition. Want to get rid of bootleggers? Only way to do that is to put legal liquor stores on the corners. You can break up stills, and chase down illegal rum runners all you want, but put a legal liquor store on the corner and presto… no more bootlegger.
We need our lawyers to get us through this… simple as that.
The one thing you don’t want to do is pass a law that removes only legitimate attorneys from the marketplace, and yet that’s precisely what California did in 2009 with the passage of SB 94. I know… the state didn’t know what else to do… they thought the new law would help, but they were wrong on all counts. SB 94 hasn’t eliminated or even reduced the number of scammers preying on homeowners at risk of foreclosure. In the last few days alone, I’ve received links to Websites offering the most insane schemes to prevent foreclosure I’ve ever seen and some that I couldn’t have come up with in a hundred years.
Have you heard of “assets for value”? Who came up with that convoluted concept that requires you to buy into the supposed fact that there is no federal government having something to do with our nation coming off of the gold standard? Or how about some sort of club that you join to get your house free and clear? There’s a whole slew of “put-off-your-trustee-sale-date-for-a-grand companies. And others that claim to represent a hedge fund that’s going to buy your note from your bank and then sell it to you for less, but they can bever seem to be able to tell you the name of a homeowner fro whom their plan worked, or even the name of the hedge fund, as if such a thing would be kept secret were it in any way true.
And, of course, we’ve all heard about the forensic loan audit that is going to bring your bank to its knees for failing to do something for which the statute of limitations has expired years ago, or that requires you to get relief by refinancing and repaying your loan.
Some of the scams out there are so far out there that’s it’s hard to believe that anyone would be sucked in… until you talk to a salesperson at one of these operations and that’s when you realize how good someone of these people are at getting you to believe their stories. If you weren’t a homeowner in a panic, you’d never buy any of this, but when it comes to losing a home, people will try anything. And that’s why the unintended consequence of SB 94, although I certainly wrote about what its passage would bring on numerous occasions, has not been to stop scammers, but more so it’s made them harder to find as they carefully crafted ways to charge homeowners outside the law.
It;’s common sense really… laws only matter to law abiding people. Scammers don’t care about the laws… which is why they’re called scammers. I mean, when SB 94 was passed in California, thus making it illegal for a real estate licensed person to accept a fee for helping a homeowner get a loan modified, it was already illegal to rip someone off for three grand, wasn’t it? I’m not an attorney, but I’m pretty sure taking someone’s three grand and delivering nothing in return was always against the law.
But what it did accomplish was to take all of the legitimate companies that were offering to help homeowners out of business because no one can work to get someone’s loan modified for God only knows how long the servicer takes to stop losing paperwork and actually look at someone’s file, and then send a bill for services… a year down the road… and even then hope that the homeowner isn’t so all-fire mad by then that they will actually pay the bill. And if someone doesn’t pay, what then? Ruin their credit? Come on now… let’s be adults about this… I pay my bills but I’m not even sure I’d pay that one a year down the road after being jerked around like chum on a line for months at a time.
So, SB 94 took the legitimate providers out of the business and that includes hundreds or maybe even thousands of lawyers as well. The scammers… oh, they’re doing just fine, thank you very much.
I recently taught a continuing education class, along with two attorneys, for the Orange County Bar Association. There must have been something close to 100 lawyers in attendance, but I was shocked when the room was asked how many were offering loan modification services and less than 20% put up their hands. Why were they there, I thought to myself, and then it became clear… none of them knew for sure how they were permitted to get paid by clients needing help with a loan modification.
I’m sorry State of California, but if lawyers can’t figure out what a law allows and doesn’t… there’s a problem with the law. If travel agents weren’t sure how a new law affected them, well… that’s one thing, but an entire room full of licensed practicing attorneys? If they don’t know, who should know?
The FTC’s recently enacted final MARS (“Mortgage Assistance Relief Services”) rule, for example, regulates all providers of loan modification services nationwide, and prevents such providers from charging homeowners before a loan modification has been offered by the servicer. But the FTC’s rule also allows for licensed attorneys to be exempt from that requirement, recognizing that without a retainer up front, an attorney could not offer to represent a homeowner seeking a loan modification. Under the new MARS rule, therefore, lawyers are allowed to charge a retainer up front, as long as that money is deposited in the attorney’s trust account and earned as services are rendered.
You know… the way lawyers have always charged their clients for just about everything.
SB 94 has made it much more likely for a homeowner to find a scammer because it has taken at least hundreds and perhaps even more legitimate lawyers out of offering the services related to a loan modification, while the scammers have just found ways to appear outside the law and therefore are that much harder to catch and shut down.
Something has to be done and I’m going to take a shot at doing it. Stay tuned to Mandelman Matters for updates, and for more exposing of the scams that are turning up around every Internet search. We’re three plus years into this crisis and the government continues to fail at every turn and in every way when it comes to stopping or even slowing foreclosures. There’s just no excuse for this sort of thing to go on any longer, and I’m going to take a shot at both exposing and getting the State Bar to do something helpful. Because we need our lawyers to get us through this, and those lawyers need to know how they are permitted to practice in this area, just like the lawyers now do in the other 49 states.
To read more about why I supported the attorney exemption contained in the FTC’s final rule, here’s a link to an article I wrote last year: FTC Considers Wrong Approach to Protecting Homeowners from Loan Modification Scams… http://mandelman.ml-implode.com/2010/02/ftc-considers-wrong-approach-to-protecting-homeowners-from-loan-modification-scams/
But enough of what I have to say… even I’m tired of listening to me on this topic.
Just a couple of days ago, I received the following letter from an attorney from San Diego. I was so moved by the letter that I asked for and received permission to post it. Needless to say, I’ll be including him on my listing of trusted lawyers, a list I’m expanding as fast as I can. No one knows what the outcome will be when negotiating with a servicer today, but if you can’t get anywhere you should be able to hire a lawyer and know that, if nothing else, he or she will do everything possible to save your home. And that you most certainly won’t get ripped off.
Here’s what a San Diego, Ret. Navy, attorney had to say after finding an article I wrote last year about SB 94…
Dear Mr. Mandelman:
I am sorry I missed your blog of September 9, 2009 concerning SB 94. I was trying to find a copy of SB 94 when I found your blog. You were so on the money!
I am an attorney and at the time I was doing loan modifications and if you read the below response, you will see I was successful with them. SB 94 killed my loan modification practice for all of the reasons you laid out in your blog.
Yesterday I saw the attached article on the State Bar web page and I nearly lost my mind. So I prepared the response you will find below.
Unlike the attorneys in your blog, if any of this is helpful, cite me. I do not care. The State Bar has harassed me before and as I told them then, dis-bar me, make my day. I am tired of dealing with lying crooked attorneys, crooked judges and a corrupt State Bar. (Oh the stories I can tell.) But I also told them they would have to prosecute me because, I will not go quietly into that good night.
I hope you enjoy the response. I did get Senator Calderon’s name and position from your blog, so thank you.
Albert M Sterwerf, USNR Ret, Attorney at Law
Dear Ms. McCarthy:
I just read your article “No let-up in loan modification complaints” about James Towery’s pursuit of the small number of lawyers who were doing improper work with regards to loan modifications. I noticed that your article did not answer some very important questions. Such as:
1. Is the State Bar going after the attorneys working for the banks who are illegally conducting the foreclosures you discussed in your article? No? Oh, that’s right SB 94 specifically exempted those attorneys working for banks who are responsible for the foreclosure crises.
2. Is the State Bar going after the attorneys working for the banks who are committing ethics violations, such as illegally contacting parties represented by a counsel (SB Rule # 2-100) or the so call “robo-signing” of thousands of documents a day without any review (SB Rule 3-110), etc.? No? Oh, that’s right SB 94 specifically exempted those attorneys working for banks from being prosecuted for their ethical violations while conspiring to steal people’s homes and life savings.
3. How is SB 94 constitutional, such as equal protection issues, right to counsel issues, right to contract and so on, when SB 94 limits the mortgagee’s ability to contract with an attorney, i.e. preventing the mortgagee from paying the attorney a retainer until the loan modification was completed, but the same requirement is not placed on any other attorneys in the state, including the attorneys working for the banks who are conducting the illegal foreclosures you referred to in your article? Again the banks’ attorneys are specifically exempted in SB 94. I am starting to see a pattern here, under SB 94 the banks’ representatives seem to be exempt from all of these rules and laws in California. Why is that? Who did write that bill? Oh yeah, California State Senator Ron Calderon, the Chair of the Senate Banking Committee. How much money do the banks have?
4. Since attorneys doing loan modifications can only be paid after they successfully get their client a loan modification, are the State Bar and the legislature going to make the payment of retainers illegal for all attorneys? After all, if it is good for attorneys doing loan modifications, it would be even better for divorces or criminal prosecutions or civil defense cases, etc. Why shouldn’t all attorneys have to wait to be paid until after all of the work is done on the case?
5. Since attorneys doing loan modifications can only be paid after they successfully get their client a loan modification, are the State Bar and the legislature going to make it illegal for all attorneys to be paid if they fail to win their cases? I do not see any rush to make criminal defense attorneys return the money to their clients in jail or prison. Or those prosecutors that we all pay for, shouldn’t they only be paid when they get a conviction? Think of how much money we could have saved on the OJ Trial if we had not had to pay Darden and Clark their bonuses! They lost didn’t they?
6. In all of the complaints you discussed in your article, how many attorneys were wrongfully accused and forced to defend themselves against frivolous complaints? You did not answer that question, but I did see that you did lump the innocent attorneys in with the guilty. I guess is sounds better if you double the number of all of the cases dismissed as if they were all against “guilty attorneys”. It seems the State Bar does not mind condemning the innocent with the guilty.
Since you are a staff attorney for the State Bar, I guess these questions were not important to you.
However, they are to me! The State Bar and SB 94 destroyed my loan modification practice so it is personal to me as is California families who have lost their homes and life savings because of SB 94 and the State Bar. I take offense at your cavalier treatment of all of the people that have been hurt by SB 94 and the State Bar.
Prior to SB 94, my office had over a 99% success rate on loan modifications and for the one failure(?) that I had, I complied with the terms of my contract and refunded my client’s money to them. I was unable to obtain the loan modification in that case because the client would not comply with the “bank’s requirement” that he miss two payments before they would even talk to him or me about a loan modification. (The requirement for the mortgagee to miss two payments was set up by the banks so that they could subsequently foreclose on the properties and in the process harm the mortgagee’s credit rating thereby making it more difficult for them to qualify for any other types of assistance including Federal HUD refinancing plans which in many instance could have assisted the mortgagees in saving their homes.)
THE STATE BAR AND CALIFORNIA STATE SENATOR RON CALDERON, THE CHAIR OF THE SENATE BANKING COMMITTEE KNEW THAT SB 94 WOULD AID THE BANKS AND HARM THE PEOPLE OF CALIFORNIA.
Prior to SB 94, I took one case in which the client was to pay me after I completed the loan modification. This resulted in me not getting paid after I successfully completed the loan modification for my client. I do not remember the State Bar offering to help me get paid by my client. This case was pre SB 94 and the law did not apply to that case, but based on that case, I realized that I could not run my practice doing loan modifications if I could not get paid up front for the work I would do on the loan modification and had to wait until the loan modification was completed in the hope that my client would pay me.
I cannot run a law practice in which I and my office would spend months of work consisting of hours of time preparing the required documentation and more hours on the phone going through the bank’s run around and transfers (On one call I was transferred between 6 different people in 4 different states over 2 ½ hours and I had to start over at the beginning with each person I spoke to.) and repeatedly faxing and mailing documents to the banks (which the banks consistently lost, ignored or simple said they did not receive despite evidence of their receipt, i.e. proof of mailing and receipt of fax verifications) to not get paid after I successfully got the client a loan modification.
The State Bar knew that SB 94 would make law practices like mine untenable and that most attorneys in the field of loan modifications would have to terminate that part of their practice. The State Bar knew it was cutting the legs out from under the attorneys who were the only ones protecting the families of California, by making it illegal and punishable as a felony the same conduct that every other attorney in the State of California is allowed to do, to accept a retainer.
But the State Bar did not care that it was hurting the people of California, as long as the attorneys working for the banks, the parties with lots of money, were protected. Which Senate Committee is Senator Caldron the Chairman of again? Oh yeah BANKING!
Thanks to SB 94, I now have people coming to me, people I could have helped save their homes, after their homes have been sold in foreclosure sales and the story these people tell me is fairly consistent, “I was doing a loan modification myself, they asked me to send them some more information, I sent them the requested documentation, then I got the notice that my home had already been sold in a foreclosure sale.”
That is okay. SB 94 makes unconscionable conduct by the bank lawful!
WHERE IS THE STATE BAR FOR THESE PEOPLE?
I can tell you. No where! When I was doing loan modifications, my clients consistently informed me that their banks continued to contact them despite the banks being on record that I was my clients’ attorney. When my clients told the banks that they had an attorney the banks told them, “We don’t like working with attorneys. You don’t need an attorney. We want to talk directly to you.”
Somehow the term, “You don’t need an attorney,” sounds familiar. Oh yeah, SB 94 again, attorneys doing loan modifications have to provide their clients with a notice that they can do loan modifications themselves and that they do not need an attorney or the attorney can go to jail and be convicted of a felony. Wow! I wonder how that got into SB 94? Who wrote that bill again? Senator Caldron the Chairman of the Senate BANKING Committee.
It is funny, I thought the State Bar was there to protect me as an attorney, not to make me a felon for helping people try to save their homes.
Do criminal attorneys have to provide written notice to their clients that they can represent themselves and that they do not need an attorney? I somehow do not remember that being a requirement.
Another funny thing I noticed, that while I would have had to tell any prospective loan modification clients that they did not need to have an attorney, not one bank gave up their attorneys and when I tried to deal directly with their attorneys, I was denied access to them.
I called the State Bar to complain about the banks’ attorneys ignoring me and my office and going around me to directly contacting my clients.
The State Bar’s response, “We don’t care.”
Then the State Bar supported SB 94, when I called about that and pointed out how SB 94 left all of the mortgagees, the people that the law was supposed to protect, without lawyers, the
State Bar response was, “We don’t care.”
When I asked how I was supposed to run a law practice doing loan modifications I was told, “If you are a competent lawyer, you will not mind getting paid after the work is done.”
So I go back to unasked questions 4 and 5 above, are all attorney retainers going to be made illegal? After all, if the lawyer is competent, they should be willing to be paid after the divorce is done or when their client is in prison, or how about prosecutors only getting paid when they get a conviction. If it is good enough for attorneys doing loan modifications, it should be good enough for all attorneys. As the State Bar says, “If you are a competent lawyer, you will not mind getting paid after the work is done.”
WHO HAS THE STATE BAR AND SB 94 HELPED? THAT’S RIGHT, THE BANKS!
As for Mr. Towery’s successes, congratulations. For the twenty lawyers that have been punished, how many thousands of California families have lost their homes to the banks who are protected by SB 94? How many billions of dollars have the banks stolen from the people so that Mr. Towery could get his twenty lawyers? Yahoo!
I would like to see the numbers breakdown for the following sentence in your article, “And between 2007 and 2010, the number of cases resolved through warning letters, stipulations, closure or filing of charges doubled from 902 to 1987.” I would like to see this broken down because I noticed that “closures” i.e. cases where no action was taken against the attorneys, i.e. the attorney was wrongfully accused, was lumped in with the warning letters, stipulations and filing of charges.
HOW MANY ATTORNEYS WERE WRONGFULLY ACCUSED?
Why has Mr. Towery’s office been able to go through so many cases as you discussed in your article? For two reasons:
The first reason is that over 90% of the complaints of misconduct was by the 20 lawyers that were prosecuted. It is my guess, since the article was not clear on the matter, that the 20 lawyers either ran or worked for the client mills that were scamming thousands of clients. When the State Bar gets a complaint against the attorneys that have already been disbarred or resigned, the complaint can be quickly dismissed since that attorney has already been punished. That means hundreds if not thousands of complaints which are due to those 20 attorneys can easily be dismissed.
Therefore, the majority of the valid complaints to the State Bar came from a few client mills, which were simply churning clients and performing no work. (Before you become too judgmental on these organizations, there unconscionable conduct is much the same actions that the banks were doing to obtain the illegal loans in the first place and when people contacted them for loan modifications and are what the banks are now doing to get their illegal foreclosures. Let us not forget, the State Bar and SB 94 protects the banks and their attorneys.) Just one of these client mills had over a thousand files or cases. So that means over 1,000 possible complaints against the lawyer involved with this client mill could be dismissed out of hand because the attorney responsible has already been punished.
I was contacted by one of these client mills to see if I would assist them, but I was unwilling to work under the conditions they desired and we went our separate ways. I did not know at that time that the organization was not performing the work or any other ethical violations; I simply was not willing to work on the large volume of cases they demanded and therefore I maintained a client base that I was able to manage.
The second reason that Mr. Towery could clear up so many backlogged cases is because most of them are frivolous! I had to defend myself against a claim based on one of my loan modification clients. I got the loan modification for my client (Pre SB 94) as per our contract and then months later the client tried to get the money back that I had earned and in an effort to coerce me into paying them the money, they first threatened and then filed a complaint with the State Bar.
So I had to spend valuable time and effort, away from helping my clients, defending myself against the frivolous claim of a client who was satisfied with my work until he heard about the State Bar prosecuting attorneys doing loan modifications and thought he could get his money back.
If Mr. Towery believes he is going to bust a lot of attorneys for loan modification scams, he needs to contact the substance abuse counselors at the State Bar. Most of the attorneys and other professionals that were doing loan modifications stopped after SB 94 leaving the mortgagees without any legal help and the majority of the people who are still doing loan modifications will be following the letter if not the intent of the law.
I am sorry, I made a mistake. The mortgagees are not totally without legal assistance. They can call the HUD recommended free services for help. I called a few of them to see who I could recommend to the people coming to me to for assistance. From what I could determine from my communication with these “free services”, two proverbs that came to mind, “You get what you pay for,” and “When you buy a diamond for a dime, you get a diamond not worth a dime.” I could not recommend any of the services I spoke with to the people who came to me for help.
I have had clients, post SB 94 clients, whose houses have been sold in unannounced foreclosure sales and they want me to help them get their houses back after the HUD recommended agencies had failed to perform. Yahoo SB 94!
That is another of those interesting little tidbits of SB 94, attorneys doing loan modifications have to tell their clients, in writing, that they do not need an attorney and to tell them they can go to the HUD recommended free services for help. I do not remember that requirement for criminal attorneys or divorce attorneys or malpractice attorneys or the attorneys working for banks.
The point is I know where the majority of the complaints to the State Bar came from and therefore I know that the number of attorneys involved has to be fairly limited. So to punish a few (20) bad attorneys, who could have been punished under existing ethics rules and laws, the State of California and the State Bar have allowed hundreds of thousands of California families to be thrown out of their homes. Again Yahoo!
So to answer the implicit question in the first sentence of your article, i.e. “Despite extensive efforts over the past two years to rein in improper loan modification activities by some lawyers, including legislation and aggressive prosecution by the State Bar and the attorney general, complaints from clients continue unabated.” The complaints keep coming in because people are losing their homes and life savings because the State Bar and the State of California threw them to the wolves, i.e. the banks, and then cut them off from the only people who could have protected them, their attorneys. Then after throwing them to the wolves, the State Bar has said, complain to us about your attorney and get your money back. So it is no surprise that the complaints continue to come in.
Not only did the State Bar throw the people of California to the wolves, it threw us attorneys helping them under the train. Thank you!
In case you are thinking that I am making up the above observations about SB 94 below are significant portions of SB 94.
SEC. 6. Section 10133.1 of the Business and Professions Code is amended to read:
10133.1. (a) Subdivisions (d) and (e) of Section 10131, Section 10131.1, Article 5 (commencing with Section 10230), and Article 7 (commencing with Section 10240) of this code and Section 1695.13 of the Civil Code do not apply to any of the following: (1) Any person or employee thereof doing business under any law of this state, any other state, or the United States relating to banks, trust companies, savings and loan associations, industrial loan companies, pension trusts, credit unions, or insurance companies.
To be completely clear, SB 94 explicitly states that Civil Code Section 1695.13 does not apply to banks and their employees, yet that code section states:
CC § 1695.13. It is unlawful for any person to initiate, enter into, negotiate, or consummate any transaction involving residential real property in foreclosure, as defined in Section 1695.1, if such person, by the terms of such transaction, takes unconscionable advantage of the property owner in foreclosure.
SB 94 SEC. 10. Section 2944.7 is added to the Civil Code, to read:
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.
(2) Take any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation.
(3) Take any power of attorney from the borrower for any purpose.
(b) A violation of this section by a natural person is a public offense punishable by a fine not exceeding ten thousand dollars ($10,000), by imprisonment in the county jail for a term not to exceed one year, or by both that fine and imprisonment, or if by a business entity, the violation is punishable by a fine not exceeding fifty thousand dollars ($50,000). These penalties are cumulative to any other remedies or penalties provided by law.
(c) Nothing in this section precludes a person, or an agent acting on that person’s behalf, who offers loan modification or other loan forbearance services for a loan owned or serviced by that person, from doing any of the following:
(1) Collecting principal, interest, or other charges under the terms of a loan, before the loan is modified, including charges to establish a new payment schedule for a nondelinquent loan, after the borrower reduces the unpaid principal balance of that loan for the express purpose of lowering the monthly payment due under the terms of the loan.
(2) Collecting principal, interest, or other charges under the terms of a loan, after the loan is modified.
(3) Accepting payment from a federal agency in connection with the federal Making Home Affordable Plan or other federal plan intended to help borrowers refinance or modify their loans or otherwise avoid foreclosures.
Sub-Section C is the interesting paragraph, especially when it is understood that a “bank” is considered a “person” for this section. How about that, the prohibitions do not apply to the banks or their agents.
So SB 94 makes it a crime for an attorney to represent property owners punishable by incarceration simply for being paid for work to be performed just like every other attorney in the State of California is allowed to do, yet it allows banks and their employees, i.e. attorneys working for the banks, to unlawfully and unconscionably take advantage of property owners in foreclosure.
Please tell the president of the State Bar not to send me any more requests for donations. I gave with the rest of California with SB 94.
Respectfully,
Albert M Sterwerf, USNR Ret., Attorney at Law
~~~
Mr. Sterwerf, I just can’t thank you enough, if for no other reason, than to make me feel that much less alone.
What’s being allowed to go on in this country is not something I could have ever imagined. It’s no different that were I to be forced to watch the U.S. Army water-boarding American citizens. Our government has simply sat idly by while literally millions of American homeowners have been tortured mercilessly and without recourse by our banks and mortgage servicers.
In fact, I’ll go even further… I’ll bet money that I can find thousands of homeowners in this country that would have volunteered for a couple of days of water-boarding if it meant not having to endure the torture meted out by their servicers that they all-too-often have endured for a year or more… before losing their home anyway.
“I’m sorry, Mrs Smithstone, we’ve gone and lost your paperwork once again. We’re so sorry, but you have to understand… we’re a bank… we lose stuff all the time. Not our money, of course, but yours… well, it comes and goes… that’s just the way it is around here. Complain? Why sure you can complain… hold on while I get you the number for our complaint line… click… dial tone.”
“Oh, Mr. Stonesmith, now you’re taking those HAMP guidelines awfully literally, don’t you think? I know it says you’ll get a loan modification if you make all your trial payments on time, but did you read our addendum to those rules? I didn’t think so… our rules say that you have to be wearing a purple hat every time you call and then say the magic word: “Pluthtarth Ingybingy” within 5 seconds of when we answer the phone. So, you’re home was actually sold last Thursday.”
Is this Ms. Smithrock? Yes, well hi to you too. Listen you’ve been denied once again for a loan modification, but I do have some good news for you… we’ll go ahead and let you reapply for another loan modification, and all you have to do is send us a check for $10,000 and keep making those trial payments that don’t apply to anything. Plus, I asked my boss, and he said we wouldn’t be denying you again for another four or five months… as long as you’ll pay the property tax bill that’s coming up.”
Oh, Mr. Rocksmith, you don’t want to refinance, you want a loan modification. Just stop making your payments and call us in say eight or nine months, and we’ll be taking care of that bothersome mortgage payment you’ve got hanging around your neck before you know it. That’s right, don’t worry about a thing…”
Look, anyone that doesn’t realize that we need our lawyers to get us through this simply isn’t paying attention. From robo-signers to trustees that can’t even prove they own the loan they want to foreclose on… to GAMC who just keeps foreclosing on one couple in Ohio even though they keep making those pesky payments on time. The cases of servicers breaking laws and rules are coming at us faster every day.
And our government obviously doesn’t care… or at least they don’t care much. Why, cause as far as they’re concerned, we’re all nothing but a bunch of irresponsible homeowners that caused this financial catastrophe, and we don’t deserve anything better than what we’re getting already. I’m sorry to have to break it to you, but that much is clear.
Luckily, we still have laws and lawyers. We’re a nation of laws, as a matter of fact, forged by lawyers. And, as we’re seeing happen more and more each day, the banks may be able to buy our legislators, and even our president, but they just aren’t having much luck getting to the thousands of judges in this country who are starting to smell a rat, and by rat I mean banker.
The FTC’s rule is good enough to protect the homeowners in the other 49 states, why can’t we live by it here in California. SB 94 isn’t doing anything but making it impossible for licensed attorneys to help homeowners when they are being jerked around by their banks and servicers. Isn’t it clear yet?
SB 94 is simply a law written by the Senate Banking Committee to make it next to impossible for a homeowner to hire a lawyer when at risk of foreclosure. I bet the banks wish they could have passed such a thing in Florida and then maybe none of this nasty robo-signer business would have come out, and they could have just kept on illegally foreclosing with fraudulent documents for as long as they pleased. That would have been nice for the banks, wouldn’t it?
Something else you should know… remember all those scamming lawyers that we were told were raoming the countryside scamming everyone out of their money left and right? And remember the 8,000 complaints that are now 2,000 complaints? Yeah, well a year later, the State Bar has taken action against 20 lawyers… TWENTY LAWYERS, and that includes lawyers who didn’t get convicted of anything… 12 of the 20 simply resigned.
There are 200,000+ lawyers in California. We needed to take thousands of legitimate lawyers away from homeowners because 20 were doing something wrong?
It’s ridiculous. To any thinking adult, it’s just plain ridiculous. Stop the banking lobby from making laws that only help them not get caught. Write to your state senator and tell them you’re paying attention to what’s happening as a result of SB 94. Tell them you don’t want it to be difficult or even impossible to hire an attorney if you want to hire an attorney. We have a right to legal representation in this country.
We need our lawyers to level the playing field and fight the banks who are unjustly taking our homes even when the investor would make more money by modifying the loans. And put the bad guys in jail where they belong… for a change.
And me? I’ll take water-boarding for $200, Alex.
Mandelman out.
Want to read more about what I’ve written on this topic… here’s a few just to get you started… why am I like the only person writing about this topic… I don’t even know anymore, but it sucks, I’ll tell you that. And it’s pissing me off because I could keep adding links below until there were so many I’d want to eat a gun. Can’t we just get this one thing right? Do I have to make an entire f#@king career out of this one stupid easy subject? Dear God…
Loan Modifications and the Right to Representation (May 2009)
Did Attorneys “Turn Bad” in 2009? What… is there Something in the Water (August 2009)
Journalists on Crack… Are Lawyers Turning to Crime in Tough Times? (January 2010)
Kings of Loan Mod Scams – Arizona, Nevada Sue Bank of America Over Loan Mod Program (December 2010)
Chris Adams, McClatchy Newspapers, Get It! Servicers Suck. (October 2009)
A Bill in California Will Establish That Lawyers Cannot Be Trusted (August 2009)
My Year in a Trance: What I’ve Learned About Loan Modifications (May 2010)
Jan
25
Fighting the Government…The Real Battle in Fraudclosuregate
I have grown increasingly frustrated in fighting this battle because in many cases the fight is senseless. More often than not, a deal could be reached that would serve the best interests of the homeowner and……it would make the most business sense to the lender. The problem is in many cases it’s not the lender that’s calling the shots, it’s the federal government and their absurd policies and programs. Loans cannot be modified because of rigid HAMP guidelines. Short sales cannot get approved because the FDIC’s loss share agreement is more profitable to the lender if they take a loss. The lender will not waive deficiency against my judgment proof debtor because it’s Fannie/Freddie.
The record profits of the banks show they’ve figured out how to turn all of this to their advantage; not so the American people. They’re stuck fighting their government and the absurd policies that are working to their detriment…..policies they paid for through hard earned tax dollars. It’s the Golden Rule….
He who has the gold rules…..
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Jan
23
How Banks View Loan Modifications
I can’t think of any subject that has been so widely and frequently discussed and studied, over such a long period of time, by such a large number of experts and observers, who continually espouse such a diverse range of opinions and cite such a large number of conflicting facts, that is still so misunderstood… or understood differently by different people… or in short, is such a mess… that affects so many people… and is so important to our government and our economy… yet remains pretty much unsolvable… AS LOAN MODIFICATIONS.
See… loan modifications today represent such a complex subject that even writing a sentence describing the situation surrounding them, such as the one above, was a pain in the neck.
Let’s start with the questions on everyone’s mind… Why aren’t more loans getting modified? Why is it so difficult to get the bank to modify a mortgage? Why are trial modifications ending in foreclosure? Why is it that people are consistently treated so poorly by the banks? Is it the investors that are making it hard to get a loan modification? Is the government doing enough to get banks to modify loans? And should people hire an attorney to help them obtain a loan modification, or go it alone? That’s at least a pretty good start, right?
I think the fundamental thing that almost no one understands involves how a bank views a borrower’s request for a loan modification. Lot’s of people, including me in past articles, have said that banks simply don’t want to modify mortgages. Lot’s of people, including me, have also pointed out that servicers make more money by foreclosing than modifying loans.
All of those points apply in certain circumstances, but they’re also beside the point to some degree.
A Banker’s View…
Your bank views you calling to request that your mortgage be modified as the beginning of a process. Maybe you truly need and deserve a loan modification, but maybe not. The only way the bank will be able to tell one way or the other is by putting you through that process, and it’s not a pleasant process in the least.
Let’s say that you’re someone that has good credit, you’ve never missed a payment, and now are saying that you need your loan modified or you may lose your home to foreclosure. When you call your bank to ask about a loan modification, they’re going to tell you that they can’t talk to you until your payment is delinquent by at least 30 days.
You hang up the phone. You’re disappointed. And you now have your first decision to make: Do you let your credit score get trashed by going 30 days late on your mortgage? It’s not an easy decision. Once you head down that path it’ll be years before your credit score is back up where it’s always been, and if you need your credit to be good for other reasons, chances are you’ll decide that you no longer want a loan modification because the cost of trying to get one… sacrificing your credit score… is too high.
The bank’s process has just saved the bank quite a bit of money. Had the bank agreed to modify your loan, it would have been like throwing money away unnecessarily because you kept making your payments without them having to modify your loan.
Now, let’s say that you decide to go 30 days delinquent on your mortgage. You call back, now 30 days late, but now your bank tells you that you have to be 90 days late before you can be transferred to a negotiator. You hang up the phone. Again, you’re disappointed. Do you go 90 days late, or do you bring your loan current and forget the whole thing? Some bring their loans current, others don’t.
If you don’t bring your loan back to current status, you’re about to start receiving a series of letters and phone calls designed to make you feel ashamed, guilty and scared. And those letters will come more and more frequently, and they’ll be written using stronger and stronger terms. And chances are you’ll feel worse and worse as time goes by.
Then in 90 days, assuming you’ve gone the distance, you call the bank again. This time they’ll tell you that your credit score is now too low to qualify for a loan modification. Now you’re enraged. You stomp your feet. And then, if there’s anyway you can do it, chances are you bring your loan current and try to forget the whole idea of a loan modification. Maybe you get rid of a car payment to do it, maybe you rent out a room or take on a part-time job to generate the extra income you need, or maybe you borrow the money from a relative.
You never even bring up the whole experience to your friends or family members because you’re ashamed that it even happened. You’re ashamed that you were having trouble making the mortgage payment that you signed up for, and you’re ashamed about having gone 90 days late on your mortgage payment and almost losing your home. The whole thing becomes one of those skeletons that you hope will soon fade away in your closet of memories.
Besides, what would your friends or family members even say if you did tell them? Do you think they’d be on your side and angry at the way your bank treated you? Or would they take the view that the bank had every right to handle your situation the way they did, because after all, you signed the mortgage and agreed to make the payments… the bank has no obligation to lower your payment just because you having trouble making it. You’re lucky the bank didn’t foreclose, in the eyes of your friends or family members.
Oh, and one or two more things, while we’re at it… maybe you should have opted for a little less house and not gone quite so far out on a limb… maybe you should have spent a little less on your car too, and not used your credit cards for all those nice clothes you wear… maybe you’re just living way beyond your means. You’re probably not saving for retirement either. You’re one of THOSE irresponsible people and maybe losing your home to foreclosure would teach you a lesson.
Whew… it’s exhausting, isn’t it?
But, let’s say for a moment that you could not find a way to bring your mortgage payment current when told, when you were 90 days delinquent, that your score was now too low to qualify for a modification. Now you’re 120 days behind, and soon it’s been six months since you’ve made a payment to your bank on your loan.
By now the bank is sending you the most threatening letters imaginable. They could foreclose at any moment according to the letters, and their tone tells you that you are basically an irresponsible failure who cannot be trusted because your word means nothing. You promised to make the payment and now you’re not living up to that promise. You’re a promise breaker… a liar. How do you sleep at night? You shouldn’t even have friends, because if your friends knew what you were up to, they likely wouldn’t want to be your friend anymore.
Nonetheless, you’re now seven months late, then eight, and then nine. Now the bank is calling you almost daily, the pressure is becoming unbearable, you’re trying everything to make more money so that you can make the payment. If you do find a way to come up with the cash, you bring your mortgage payment current immediately. If you get a new job that pays more, you call your bank and start begging and explaining that everything is going to be okay… you’re working again… if they’d just please understand… you’re a good person… you’ll pay your payment every month and on time from now on… you’re sooooo sorry to have gotten behind… How about $1200 this week, and then $1200 the following week, and then $2000 by the end of the… blah, blah, blah.
You’re a babbling fool that will agree to just about anything the bank says at that moment. If the person you’re talking to at the bank acts the slightest bit nice to you, or comes off as even a little bit understanding of your situation… you gush with appreciation and feel like you want to be their BFF. Thank you, thank you, thank you, thank you, thank you, thank you… really… thank you so much. My husband thanks you, my children thank you… my dog thanks you. Yuck. It’s disgusting, really.
Or, maybe that’s not what happens. And now you’re almost eleven months late. You’re working. You could make a reasonable payment if you weren’t so far behind. You’ll never be able to pay off the arrears though, so what’s the point. You’re desperate… you’re about to give up and resign yourself to the fact that you’re going to lose your home to foreclosure. You’re trying to get used to the idea that you’ll soon be packing and calling the moving truck… its heart wrenching for anyone to watch.
Well, guess what? Depending on the specifics of your situation… whether there’s any equity in your home… how far underwater you are… how long are homes like yours and in your area remaining on the market before being sold? Things like that.
Do you see what’s going on?
Since foreclosure is now imminent, the bank can’t threaten to ruin your credit score anymore, as it’s already ‘F’ and would be ‘G’ if scores went that low. The bank is now trying to figure out two things:
1. What is the likelihood of you being able to make the payment if the bank modifies your loan? What if they take the amount in arrears, tack it on to the back end of the loan, and reduce your monthly payment by a couple hundred a month? Would that do it? Or would you agree to the deal and then not be able to make the modified payment… and again in six months end up right back in foreclosure where you are now.
If the bank thinks that might happen, they won’t modify your loan. They’d rather foreclose now than go through this same thing next year and end up foreclosing then. Real estate values will likely be lower next year, so by waiting the bank just assures itself of a bigger loss on the property.
The cost of foreclosure to your bank is going to be 30% to 50%, or even more in the worst of instances. But that’s not the most important factor to your bank… this is all about your bank’s degree of certainty that if they modify your loan, you won’t be back in foreclosure anytime soon, and likely never. Your bank views a loan modification as pretty close to unthinkable in the first place, so it’s unquestionable that it’s a once in a lifetime thing in their eyes. You should be too embarrassed to even ask a bank to modify a loan a second time, according to your bank. It’s almost like… if that happens, you’ll probably want to change your name and move to another state. What a load of crap the banks have peddled our way all these years.
So, you see… it’s a range. In order to get your loan modified, you need to fall somewhere between “Definitely won’t default again if loan reasonably modified,” and “Will self-cure the mortgage before home is actually taken back by the bank”. Get it?
I talk to people all the time that have recently applied for a loan modification, and they always talk to me about how it will cost the bank more to foreclose on their particular house, so they expect the bank to modify the loan. But then the bank refuses, and I hear people say that they can’t understand it because the bank should do what’s in the best interests of investors. Then we start talking about how servicers make more money foreclosing, all of which is true.
The problem with this line of thinking, however, is that it fails to incorporate all the data… it’s not just a numbers game to the bank. First they need to know, if they offer you nothing, will you really end up losing the home to foreclosure, or will you let the Devil himself rent out a room to avoid that shameful outcome? Then they need to know that if they do accommodate you and provide you with a modification, chances are good that you’ll never miss a payment for the rest of your life.
Shame, shame, shame…
So, how should a bank go about getting the answer to either or both of those key questions? Self-cure and/or re-default? It’s not like you can find the answer to either of those questions from looking at an application or a credit report. You certainly can’t tell by talking to someone on the phone.
The only way a bank can know for sure whether you’re going to self-cure and eject yourself from the foreclosure process, is to let you get to that point and see what you do.
It’s like a game of poker… will you fold under extreme stress and pressure and show up with the money to save your home, or will the bank actually be forced to foreclose, and therefore better off to modify your loan… and if they do approve your “mod,” as they say in the biz, will you make it just fine for a long, long time, or will you end up right back where you are today, next year at this time, if not sooner?
Once a bank knows the answer to those two questions about you, then the bank’s cost comparison between modification and foreclosure becomes pivotal, but until then, chances are the bank will play out its inherently superior hand and count on you folding your cards before foreclosure by coming up with the money you said you could not possibly come up with when you were talking with your bank’s representative about a loan modification.
I talked to a woman a few days ago, she said she was in her early sixties, said she owned two homes, desperately needed at least one loan modified and probably both, otherwise she’s going to be on the street. She wanted me to recommend a few attorneys for her to talk to, and I gave her the contact information for the lawyers I knew in reasonably close proximity to her home. Then she asked me a few questions, and the last one I’ll always remember. Referring to the lawyer, she said:
“Do you think I have to tell him about my trust account?” (Adorable, right?)
I answered as honestly as I could. I said: “I wouldn’t.” (It’s probably not the right answer, I realize, but I’m just saying…)
If this were a tennis match, the score would always read: Advantage – Banks & Servicers
The reason that, other things being equal, I advise people to hire an attorney to help them negotiate a loan modification is that their lender or servicer will ALWAYS have a huge built in advantage in any negotiation over the settlement of a debt you contracted to repay, because the moral norms for borrowers work against them, and the market norms that apply to banks, support the bank doing pretty much whatever it thinks it needs to do to get the borrower into compliance with the terms of his or her loan… or reclaim the property.
Even when people hear that a bank did something really egregious or even illegal, many of them just say: “Yeah, well, I guess that can happen.” It’s as if to say that perhaps the bank went too far, but the borrowers were juggling flaming chainsaws in terms of risk, and the bank still has the right to take back its home and punish the irresponsible homeowner who fell outside of our society’s norms by failing to fulfill his or her promise to repay a debt.
See, there are some things in our society that work the way they do only because we believe they will work the way they do. The FDIC, or Federal Deposit Insurance Corporation, is a commonly offered example of this principle at work. The FDIC “guarantees” cash deposits up to $250,000 per account, as of last year, I believe. So, no one has to worry about rushing down to the bank to get their money out if there’s a problem at the bank, the FDIC will cover any loss up to $250,000 per account.
Except, even in the best of times, the FDIC could not possibly come up with the money to cover even a small fraction of bank deposits in this country. If there ever were a disaster that caused all the banks to fail, the FDIC would be meaningless. The FDIC is an independent agency of the federal government and you might call it a “faith based” organization because it only exists to give us faith in our banking system, and only works as intended because of that faith.
Well, loan modification negotiations are a little bit like that. The bank gets to use shame, guilt and fear to get you into compliance with your loan. Once you’re deeply ashamed, you won’t tell anyone what’s going on… and you’ll feel worse every day. Then you become afraid to answer the phone. Then you’re turning off the machine… you won’t even want to hear the phone ring.
Your bank will also greatly exaggerate what it will cost you to lose your property to foreclosure. You’ll be told that you won’t be able to buy anything for a decade, and all kinds of other nonsense. By the time you’re done reading a few of the letters you get from your lender each week, you can easily become convinced that losing your home is almost the end of all opportunity in your life. Might as well be a bum after that. It’s absurd of course… you can buy another home in 2-3 years, if that’s even what you want to do. There’ll be so many foreclosures on the market… you’re going to be hearing about foreclosures selling ten years from now.
The Point Is…
The point is, that when homeowners start the process of negotiating with their lender, they’re not only subject to being made to feel guilty and ashamed, but they are also likely to over-estimate the personal cost of foreclosure, all as a result of the bank’s and our society’s intentional efforts to make borrowers feel that way. It’s no accident, is what I’m trying to say.
You see, we keep the banks open and safe by believing in the FDIC, and we keep people from walking away from their homes when the value of those homes drops significantly by imposing our society’s moral norms, which include shame, guilt and fear, related to repaying debts. If the government and the banks can make homeowners deeply ashamed and afraid to lose their homes, then fewer people will even ever ask for a modification in the first place. With me?
Why the Bank Doesn’t Want You to Hire a Lawyer or other Expert…
When a homeowner hires an attorney to help negotiate a loan modification, that attorney is not going to being made to feel ashamed, guilty, or afraid… the borrower can be made to feel all of those things and more, but the lawyer, not so much. He or she is a hired gun, if you will. That’s why the banks don’t want homeowners to be represented, and why they want homeowners to call them directly.
Treasury looks the other way on this “put-the-borrower-through-hell” process because it understands that banks have to make sure that they are not throwing away money by modifying loans for borrowers who would have self-cured. Nor does the government want the banks to modify loans for people who won’t be able to make the modified payment. And since the only way for the bank to really know either of those things is to put the borrowers through their paces, as it were. Many will self-cure, some should be foreclosed upon… blend, shake, stir and pour,,, see what comes out. And of those that fall somewhere in the middle, some will have more or less equity, and some will be in markets where houses are selling relatively faster than others.
Out of that psycho-social-financial-market analysis, the bank will modify some loans… but the process used to conduct the so-called analysis is guaranteed to frustrate the hell out of everyone who enters it that’s determined to obtain a loan modification.
Being represented by an attorney or other expert throughout the process is unquestionably better than not being represented, mostly because that attorney won’t be subject to the bank’s tactics of trying to shame, guilt or scare, and as a result of that, is likely to think more clearly than you would be able to. And also because of the attorney’s or other expert’s knowledge of the law related to the foreclosure process and the HAMP guidelines, that attorney is more likely to get a result that’s acceptable to you, the homeowner… and by acceptable, I mean a modification that’s sustainable over time.
Is This How Things Should Be Done Today?
Absolutely not. The situation we’re in today is NOT a normal market correction, and I thought I’d better make it clear how I feel about how the banks are handling loan modifications: I hate everything about it, and I think it could not be more wrong. The Obama Administration has continued our government’s tradition of implementing pointless programs designed to help stop the foreclosure crisis. Nothing our government has done has helped in the least… they’ve failed us at every turn.
It’s not today’s homeowners that are responsible for the position in which they find themselves… no matter what anyone tells you… it is NOT your fault. If someone would like to debate that point with me, bring it. I’m easy to find and can be emailed at mandelman@mac.com. But come to the discussion prepared, because I am.
This meltdown was caused by this country’s financial institutions, and not by people with mediocre credit scores who wanted to buy houses. It’s the banks that did this, but no one is making them do anything to fix what they’ve clearly broken.
We’ve given the banks in this country something like $11 TRILLION so far, and we’re going to have to give them a lot more. The so-called toxic assets are still right where they were last fall, and the banks that were too big to fail last year, are now bigger. They have an obligation to act in the best interests of the homeowners they screwed, and in the best interests of our nation’s economy because without American taxpayers, they wouldn’t even be open for business.
So, don’t read what I’ve written and come away thinking that I approve of the way banks view borrowers asking for loan modifications… I don’t. I’ve only written what you’ve just read because I think it’s important that people understand the dynamics of what’s going on… that the reason they feel guilty and ashamed is because the banks and our government want them to feel that way, so that people don’t just start walking away from their mortgages because they’re so far underwater.
They’re manipulating you into feeling ashamed for being in trouble on your mortgage… but don’t let them make you feel that way. It’s not your fault… it’s the banks that wear the black hats in this horror movie, make no mistake about that.
And, in the event that you’ve already lost a home to foreclosure, don’t believe the crap about how your life will be ruined for another ten years. It’s simply not true. You may not be able to buy another house for the next few years, but so what? We haven’t come close to hitting bottom, so you wouldn’t want to buy another home in the near future anyway.
All forecasts say that we’ll have 12 million more foreclosures in the next two years, and that number is probably low, so don’t feel alone and ashamed about your situation. The people you’re talking to down the street have problems too, they’re just too ashamed to tell anyone about their situation, just like you’ve been afraid to talk about yours.
Let it go… and let’s turn up the heat on exposing what the banks have done and continue to do. Next year the mid-term elections will mean that every single representative in the House is up for re-election. Let’s just see if we can’t send a message they’ll hear and listen to… I’m sure we can, if we want to.
It’s not over until it’s over. Don’t give up the fight. Knowledge is power. As Winston Churchill once said:
“Never give up. Never give up. Never. Never. Never.”
Jan
19
Investors Suing Banks Are On The Same Side As Homeowners In Foreclosure
It’s next to impossible to get any information while you’re in foreclosure from the servicer or trustee. Reasonable discovery requests for basic information are objected to and almost never complied with. It’s not just homeowners receiving the cold shoulder…the investors are as well….JUST WHAT ARE THEY HIDING?
JPMorgan Chase & Co.’s EMC Mortgage, facing homeowner lawsuits over foreclosures, was sued by the trustee of a mortgage portfolio for refusing to turn over documents detailing the quality of loans bought by the trust.
Wells Fargo & Co., the trustee, is seeking access to files for more than 2,000 underlying mortgages in the Bear Stearns Mortgage Funding Trust 2007-AR2, according to the complaint filed today in Delaware Chancery Court in Wilmington.
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Jan
05
Americans Got Hammered by The Bank of America Settlment
How would you like a 39% principle reduction on that faulty Countrywide loan that you’re struggling to pay? How bout a 39% principle reduction on any one of the faulty loans that were originated by a shady subprime lender that engaged in a whole range of questionable activities in order to get you to sign?
WELL THAT’S NEVER GOING TO HAPPEN, but the Bank of America at least apparently just inked a major deal that results in a dramatic reduction of their exposure. The equivalent to a principle for some of their loans….and this is probably going to continue among all the servicers….
Bank of America agreed to pay nearly $3 billion to Fannie and Freddie, which equates to 39 cents on the dollar or about 20% less than the 50 cents on the dollar the Congressional Oversight Panel recently estimated.
“Yet that does not mean Bank of America got a bargain,” MF Global said. “The bank has been paying out on GSE loans for many quarters. The first loans that the enterprises returned contained the most obvious defects and defaulted quickly. That means the most recent put backs – those covered by the settlement – may be less clear cut.”
So much for the state’s attorney generals really sticking up for the American people. So much for the rule of law. We continue with the 1% getting all the benefits and sucking them all from all of us.
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Jan
04
DEATH FROM FORECLOSURE- WE’RE GOING TO SEE MORE OF THIS
One of the things that I’m most concerned with in the middle of this Foreclosure Fight is the increasing desperation I see and hear from clients and consumers. Even if people are being treated fairly and getting foreclosed on, there are some folks who are just so desperate, so angry, so abandoned that they are going to take desperate measures. There have been two examples just in the last month in my immediate area, and I’m certain that we’re going to see many more before this is all through.
It’s bad enough when people feel like they’re losing out when it’s a fair fight, but when people feel like they’re being abused and mistreated, then things are going to take a very ugly turn. And we know from the testimony in front of Congress and all the reports that real people are suffering real abuse. I’m not just saying abuse because your loan modification was denied. I’m calling abuse the endless cycle of phone calls and lost paperwork and resubmitting documents over and over. I’m calling abuse throwing a homeowner into the street then selling her home at foreclosure when they wouldn’t give the homeowner the same deal. I’m calling abuse refusing to acknowledge the real purchase price of some of these loans…especially when the loans were purchased in government-subsidized sweetheart deals.
This has all got to stop. Now. We’ve all got to start looking after one another and protecting our neighbors and communities. We cannot let people suffer in silence. We cannot let people think there is no hope. The story reported below is tragic, but I want us all to think how we could have intervened to help this couple before this tragedy took place. And because we’re going to see more and more of this, we all need to be working on ways to reach out to assist people before it gets this bad….
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Dec
20
OOHOORAH! Foreclosures Suspended for Active Duty Military!
Freddie Mac has instructed its loan servicers to delay initiating foreclosure for at least nine months for financially troubled service members who are released from active duty through the end of 2011 and have Freddie Mac-owned mortgages.
This is good news, but not the end. More than ever that means we need to start ripping into those loans now and go on the offensive. I remind everyone of my commitment to active duty military….I want to review your cases for potential free representation…this also extends to farmers in rural areas of Florida.
If you’re in the military or running a family farm, I want the privilege of representing you.
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Dec
11
Truly Mind Boggling Disclosures of Documentation Errors in Mortgage Loan Pools
I run a tight, very organized and fairly lean organization. In these unfortunate economic times, I could grow fast and manage a large operation, but I want to do things correctly and be able to keep my eyes on everyone and my hands in all my files. Quite simply, I don’t want things to grow sloppy and out of control. A major reason for this crisis is the banks and institutions failed to accurately document and close massive transactions involving billions of dollars. Rather than do things slowly and carefully, things spun wildly out of control.
Have a long and detailed read of the document attached here that relates to a federal bankruptcy case. It provides a sobering and sickening look into document problems for trusts that (theoretically at least) own billions of dollars in loans. Now if I were closing billions of dollars in loans, you can be darn sure I’m going to work hard to prevent the types of errors like the ones reported in this report from occurring.
It’s very hard to digest, but read it carefully and consider the impact of all of this on the larger economy…..we’re all paying for this after all……
As of the most recent reports, there exist missing or defective loan file documents for several billion dollars in original principal amount of loans.
Repurchase Claims, the Trustee asserts that, based on its information and belief regarding the mortgage loan securitization market, such claims will exist with respect to 2% to 30% of the aggregate original principal balance of the loans in the Trusts (i.e. $908,468,758 to $13,627,031,372).
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Nov
23
Mandelman U. Presents: There’s Credit Default Swaps & then there’s Credit Default Swaps
Complexity We Eschew at Good Old…
Mandelman U.
Sit, Sulte, Simplex
In 1998, there were so few Credit Default Swaps in play that they were hardly worth counting. Not only were there a relatively small number of these credit derivatives being issued, but they essentially never paid off. That’s right. Issuing credit default swaps, at least as they were originally conceived and utilized, was risky like issuing flight insurance was risky.
So, what the heck happened to elevate credit default swaps to the status of global economy killer as they might rightfully be described today? Well, there are credit default swaps… and then there are credit default swaps.
The Set-Up…
Let’s start with this fact: banks are required to hold funds in reserve for future losses, and the amounts they reserve can not be invested to maximize return, so they want to hold as little in reserve as is permitted by what are called Basel II regulations. How much a bank is required to hold in reserve depends on what type of assets… read: loans… are on its balance sheets. The riskier the loans a bank owns, the more capital the bank must keep in reserve. But, additionally, riskier loans pay better.
If a bank has invested in a bunch of sub-prime mortgages, they have to reserve for some percentage of homeowners who default on their payments and/or pre-pay their mortgages, but if those mortgages are inside a triple A rated security, and if that security is “insured” by a credit default swap, then they don’t have to reserve anything for a future loss, because it doesn’t appear that there will be a future loss. Oh, and if the whole transaction can be handled off the bank’s balance sheet in the first place, such as inside an SIV or Special Investment Vehicle, that’s held off-shore… then so much the better.
How it all began…
Sometime in 1994, JPMorgan created the first credit default swap.
It seems that JPMorgan had provided Exxon with a $4.8 billion credit line, but Exxon was now facing $5 billion in punitive damages as a result of the Valdez catastrophe, so JPMorgan was required to reserve the funds for such a credit risk. To clean up their balance sheet, JPMorgan sold the credit risk involved in the Exxon credit line to a large European banking concern, and thereby reduced the amounts it was required to hold in reserve. It swapped the risk of $4.8 billion in extended credit defaulting.
It worked so well that, in 1997, JPMorgan created BISTRO, which stood for “Broad Index Securitized Trust Offering.” BISTRO was a proprietary product for JPMorgan that used CDSs to clean up a bank’s balance sheet, just like the bank had done for itself in the case of Exxon a few years back.
But, BISTRO actually used the securitization process to break up the credit risk into smaller pieces, which allowed smaller investors to get in the game… not everyone can take on a $4.8 billion risk… and in that sense BISTRO was the first “synthetic collateralized debt obligation” or synthetic CDO.
Don’t be discouraged if you’re not getting all that at the moment, hopefully I’ll straighten it all out in a minute or two.
Then, in 2003, best I can tell, Goldman Sachs convinced AIG to offer a credit default swap on a CDO… a collateralized debt obligation. You can think of a CDO as being a derivative of a mortgage-backed security.
Remember how we create mortgage-backed securities? We take a bunch of mortgages and put them into a pool and then we create a contract that prioritizes the payment streams into slices called tranches. The top is the safest tranche, it pays the lowest interest rate and is always rated triple A because it receives its payments before any other tranche. The middle tranche, called the mezzanine or “the mez,” if you’re that Wall-Street-cool, gets its payments after the top tranche has been filled, and it is rated BBB. The bottom tranche doesn’t get a nickel until the top two have been filled as expected, and it is often unrated, or in other words is like a junk bond. It offers the highest rate of interest, but also carries the greatest amount of risk.
Okay… still with me, right? If that last paragraph was confusing, you should probably go back and read another Mandelman U. article: Securitization and Mortgage-Backed Securities, which explains the securitization process and mortgage-backed securities thoroughly and in simple terms.
So, let’s say that we’ve sold all the triple A rated tranches and we’ve got a bunch of BBB rated stuff laying around. Well, if we… let’s call it… re-securitize all of the BBB tranches, we’ll end up with another top tranche that will again be rated triple A, another “mez” rated BBB, and another unrated bottom tranche. But notice that the first time we securitized the mortgages the payment streams that went into the tranches came directly from the mortgages in the pool. But this time, we re-securitized the BBB tranches from other securitizations, so we’re one step removed as compared with the first time around.
This time, for our triple A rated tranche to get a nickel, the top tranches in the first securitizations have to have been filled up with payment streams as expected. So, a CDO’s income isn’t based on payment streams from mortgages, rather it’s income is based on payment streams from securities whose incomes are based on mortgages.
So, Goldman Sachs convinces AIG to offer credit default swaps on triple A rated tranches of CDOs. I mean, why not? After all, the historical loss rates on American mortgages were damn near zero. And, thus was reborn the credit default swap… now tailor made for the mortgage boom that was fast bringing the U.S. economy out of the recession created by the bursting of the dot-com bubble a few years before.
Now, investors buy CDOs, which look great, because they are based on BBB rated tranches, so they pay higher interest than were it based on the triple A rated tranche, BUT… it’s re-securitized, if you will, so it has a new triple A rated tranche itself. And you can get a CDS so there’s no risk at all… load ‘em up. They look as safe as U.S. Treasury bonds, but they pay much higher interest rates, and have no risk of default as a result of the inexpensive CDS you added on top.
Oh, and these CDOs are hard to construct and value, so Wall Street investment bankers can make a bundle putting the deals together and selling them all over the world. In fact, almost no one on the planet can truly understand what they’re made up of, and what they’re worth… absolute heaven for Wall Street types.
(You see, it’s important to understand that the harder it is to value something, the more a Wall Street investment bank can charge to put the deal together and make a market for whatever it is. Just think of it as being the opposite of gold. Gold is a commodity that trades all over the world, so all you need to do is look up the price of gold today and there it is for all to see. So, Wall Street firms aren’t much interested in selling gold… too easy to price, get it?)
The most simplified example of a credit default swap would be issued as related to highly rated corporate bonds. Let’s say your Aunt passed away and left you $100,000. And you decided to put that $100,000 into a triple A rated Exxon-Mobil corporate bond, perhaps instead of a Treasury bill of some sort, because Exxon-Mobil was offering a slightly higher interest rate and since Exxon-Mobil is one of the world’s largest and most stable corporations, you saw the investment as being just about as safe as bonds issued by the U.S. Treasury.
But, just in case… because you didn’t want any risk whatsoever, you decided to buy a credit default swap, which in essence insured the investment you made in the Exxon-Mobil bond. If Exxon-Mobil defaulted on their obligation to pay you as promised, the company who issued the credit default swap would pay you what you were owed under the terms of the bond.
Of course, triple A rated corporate bonds, like those that might be issued by Exxon-Mobil, very rarely default… and by very rarely, I mean like never, so you probably wouldn’t need to insure against such an event, but that’s also why doing so wouldn’t be very expensive… very much like the flight insurance that you can buy before boarding a given flight.
The odds of that individual flight crashing and you being killed as a result are remote… very remote1. So, if you’ll pay something like $50, some insurance company will pay $1,000,000 if your flight crashes and you die as a result. A credit default swap issued on a triple A rated Exxon-Mobil corporate bond might be considered about that risky, and therefore it wouldn’t cost very much to buy.
For example, Michael Lewis, in his book “The Big Short,” quotes the cost of a credit default swap on a $100 million mortgage-backed security as being $200,000 a year for ten years. So, if you paid the annual premium for the entire ten years, you would have paid 2% of the insured amount. Two million to get you One hundred million… that’s 50:1… better than the odds when playing roulette.
Of course, you might not have paid for ten years before your bond or mortgage-backed security defaulted, so in that case your return would have been much greater. Like if you owned the credit default swap for one year, and as a result had only paid one $200,000 premium payment, then your return would be 500:1, right? Not too shabby, if you can get in on something like that, I’m sure you’d agree.
I’m not saying that’s exactly how today’s credit default swaps work because for one thing, they are only offered to institutional investors, and not on the bond you bought with money your Aunt bequeathed to you. But, as descriptions go, it’s not that far away either, so hopefully you’re getting the general idea.
You see, that’s what I mean when I say there were credit default swaps and then there were credit default swaps.
In my Exxon-Mobile example, the credit default swap was insuring against a single corporation defaulting, and in the “CDSs” of our current financial crisis and resulting mortgage meltdown, it was individual homeowners paying mortgages that could cause your bond or CDO (considered to be another derivative) to default. Also, in our Exxon-Mobile example, you owned the bond and in the recent fiasco, you didn’t need to own anything to buy the credit default swap “insurance,” and thereby place a bet against the bond paying off as agreed.
Bond insurance… sort of…
And that’s what a credit default swap is, really… bond insurance. But no one ever wanted to refer to it that way because they were afraid that the State Insurance Commissioners would want to regulate CDSs like they regulate all other forms of insurance, requiring the companies that sold CDSs to hold money in reserve against potential future claims.
Besides, it was argued, CDSs weren’t actually insurance, they just played insurance on T.V.
For example, the buyer of a CDS doesn’t have to own the underlying security that in a sense is being insured against default. In fact, the buyer doesn’t even have to suffer a loss as a result of the defaulting security in order to cash in on the CDS. That’s not very insurance like. And insurance companies manage risk using actuarial data and the law of large numbers to determine appropriate loss reserves, while the sellers of CDSs price them using financial models and attempt to hedge risk using other securities dealers and a variety of transactions in underlying bond markets.
So, since none of the companies that issued credit default swaps ever thought that they’d have to pay a claim related to the insurance they were selling, they didn’t tie up their cash in a reserve account when it could be invested elsewhere, and therefore earning returns. By referring to them as “swaps,” they were completely unregulated, falling under the Commodity Futures Modernization Act (“CFMA”), which was a statute passed in 2000, that removed swaps transactions from any and in fact essentially all substantive federal oversight.
The CFMA legislation was, it’s interesting to note, pretty much rushed through Congress during a lame duck session. It was a rider to an 11,000-page omnibus appropriations bill. So, I think one would have to say, very well done there.
And the end result is that credit default swaps remain entirely unregulated… even after this latest financial disaster, we’ve done nothing to change that, which is sort of like finding out the day after 9-11 happened that we are still allowing passengers to carry box cutters on commercial flights.
What the bankers did…
Okay, so you’re a European bank and you’ve got too many deposits because in your country people still save money, actually.. You’re looking for something to invest in that will help you increase the spread between the interest rates you pay people for their deposits, and the interest rates you’re able to earn by lending.
You need the safest thing you can find, at the highest possible rate of interest… a difficult balancing act for all of us, to be sure.
You could, of course, but a bunch of triple A rated mortgage-backed securities based on sub-prime loans, but that would increase your reserve requirements, which would reduce the amount of cash you can invest and hence the amount of leverage (read: borrowing) you can employ.
But wait… maybe not. AIG is offering a way for you to have your cake and eat it too. Isn’t financial innovation wonderful?
With the AIG answer, you can forget the Basel II rules by using the unregulated insurance contract called a “credit default swap.” For let’s say 2% of face value, AIG agrees to guarantee the subprime mortgage-backed security you want to buy against default for five years.
As long as it maintained a triple-A credit rating, AIG didn’t have to put up any capital as collateral on its swaps. There was no real capital cost to selling then; there was no limit to the number that could be sold. Of course, as AIG’s credit rating fell, the company was required by its own contracts to post collateral… money… to ensure that it could pay off the claim in the event of a default. And that’s what buried AIG… collateral calls from the likes of Goldman Sachs and many others around the world.
And thanks to “mark-to-market” accounting, as described in FAS 157 and FAS 159, AIG could book the profits from a five-year credit default swap as soon as the contract was sold, based solely on the expected default rate. What the computer said AIG was likely to make on the deal, the accountants would write down as actual profit. The broker who sold the swap would be paid a bonus at the end of the first year – long before the actual profit on the contract was made.
The European bank was now able to assure its regulators that it was holding only triple-A credit securities, and certainly not a bunch of subprime loans given to people without jobs, income or assets. The bank could employ the maximum amount of leverage allowable under Basel II, and AIG could book hundreds of millions in “profit” each year, without having to pony up billions in collateral, or really even invest a dime of its capital.
They even started selling “synthetic CDOs,” which were collateralized debt obligations, but with only credit default swaps inside… no mortgage-backed securities at all… just the credit default swaps that were to pay off in the event of a CDO’s default.
And the bankers who sold these securities and swaps to others around the globe knew they were selling crap in a CDS crapper. They knew the ratings agencies models weren’t tracking the important variables inherent to the loans used in creating the CDOs they were selling. They knew because they were betting against them at the same time they were selling them.
So, what’s not to love?
Well, the fraud part isn’t that attractive, I suppose, but don’t be such a doom and gloomer.
So, our Wall Street bankers sold this scheme all over the planet taking in trillions of dollars and ultimately bankrupting the global financial system and costing hundreds of millions of working class citizens their savings, their livelihoods and their homes. And the profits AIG and the others on Wall Street booked never came true, although the bonuses that got paid out were very real.
On July 10, 2007, Moody’s and S&P downgraded the ratings on 1,032 bond issues, which was less than one percent of the bonds backed by sub-prime mortgages, but the percentage didn’t matter… investors panicked and ran for the exit door. If the ratings on these bonds were wrong, what about the rest… the ALT-A… the Option ARMS… the prime loans… everything was all of a sudden questionable, and within two weeks the credit markets froze solid… banks wouldn’t lend to each other. And the giant write downs began in earnest.
In residential mortgage land, all of a sudden no one could get a mortgage or refinance one. Housing prices, which had already started to cool off as a result of Greenspan having raised interest rates 17 times in a row as of the summer of 2006, now fell off a cliff and kept falling.
Our government just didn’t see what was happening. Treasury Secretary Hank Paulson, in his recently published book, writing about this moment in history, explains it this way:
“We were just wrong.”
And it may just be that no truer words have ever been spoken, because there’s no question that Mr. Paulson, Mr. Bernanke, Ms. Bair… and all who surrounded them were all monumentally and catastrophically wrong.
The dominoes were falling faster and faster and yet our government did almost nothing to prevent them from falling or even slow them down. As a result, the default rates on mortgage-back securities underwritten in 2005, 2006, and 2007 turned out to be many multiples higher than expected. There are instances in which the securities the bankers claimed to be rated triple A ended worth less than 15¢ on the dollar.
By the end of the calendar year, 2007, AIG reported an $11 billion charge to earnings and managed to raise the capital to cover it. But the writing was all over the walls, the floors, the ceilings, and even the windows. The credit markets were now broken, the days of being able to get a mortgage were over for tens of millions of Americans and as prices fell, defaults increased and the foreclosure crisis would soon be in full swing.
When AIG lost its triple A rating, it had to come up with tens of billions in collateral overnight, in addition to the amounts it owed its trading partners… and there was no way… AIG… the world’s largest insurance company… was bankrupt. Lehman fell the same day… Merrill Lynch was sold in a shotgun wedding to Bank of America. Goldman Sachs and Morgan Stanley were forced to become commercial banks, able to borrow from the Federal Reserve’s discount window, among other things.
The Federal Government stepped in with an $85 billion loan for AIG in exchange for almost all of the equity in the company. AIG’s largest trading partner was Goldman Sachs, and so $20 billion in taxpayer dollars went directly from the people of this country to Goldman’s balance sheet… most of which to be paid out in bonuses over the next year or two. Treasury Secretary Tim Geithner, who was then heading up the New York Federal Reserve Bank, forced AIG to sign away their right to sue any of the major banks for most of what’s happened.
Because we can keep pointing fingers in all directions if it makes us feel better, but the Wall Street bankers who perpetrated this fraud on our world knew what they were doing as they did it. They did it because they became incredibly wealthy by doing it, simple as that.
The collapse of the market for credit default swaps also meant that the giants of the investment banking world – every last one of them, by the way – with no one to insure their debts, could no longer borrow. Without the CDS market, banks can’t report the real value of the assets (read: CDOs, CDSs, et al). To do so would render them all insolvent and in default with Basel II regulations. Absent AIG’s credit default swaps to provide fraudulent cover, all we can do is play accounting games and pretend that their assets are worth far more than they are actually worth.
The era of the Wall Street investment banker was over. Bankers had leveraged their organizations beyond all reason, meaning that they had borrowed 30:1 or 40:1… or as in the cases of Fannie and Freddie, a mind boggling 110:1 and 174:1, respectively. That means for every dollar the bank carried on it books as an asset, the banks had borrowed thirty or forty dollars. Accounting regulations had to be suspended lest the banks all be seen as insolvent.
Just to fund their operations, our TBTF banks are totally dependent on the Federal Reserve. In fact, things got so bad that the Fed had to change the long-standing rules so that Goldman, Morgan and Merrill could use equities as collateral for trillions in loans.
Additionally, a little known and almost never discussed provision of the TARP bailout bill says that the Fed can pay interest on the collateral it’s holding… a simple, but very effective and yet covert way to pump untold billions in taxpayer dollars directly into the banks without the need for congressional approval.
Without the government having taken these steps, however inadequate and transient, AIG’s failure would have likely led to the failure of every major bank in the world.
But there should be no question… the enabler of the global credit bubble of the last eight years was AIG unregulated selling of credit default swaps without collateralizing the risk. In 1998, there were so few Credit Default Swaps in play that they were hardly worth counting. By late 2009, between newly instituted processes allowing CDSs, which offset each other to be cancelled, combined with the termination of recently paid out contracts, the face value of the CDS market was reduced to an estimated $30 trillion.
And the Dodd-Frank financial reform bill that was signed into law last summer does nothing to address regulation of this volatile and dangerous market.
Seventy percent of the U.S. economy is driven by consumer spending, which has been driven by borrowing over the last ten years. Even if we wanted to do so, we can’t borrow our way back to prosperity this time around, however, because the credit markets are broken for good this time… because they were a fraud in the first place. Our economy has entered a downturn that, before it reverses itself, will force most of us to reduce our standard of living for many of not most of our remaining years. Some believe that foreign spending and spending by the very rich can bring us back, but the numbers just don’t prove out.
Meanwhile, our helpless, hapless, and perhaps hopeless government continues to treat this financial crisis like it’s a liquidity crisis… lowering interest rates and pumping cash into a failed and fraudulent system being run by the same men that brought us here.
Or maybe I’m wrong about all of this… maybe it was all simply the fault of irresponsible sub-prime borrowers who all went out and bought homes they couldn’t afford. Yeah, that must be right. Lower the rates again… extend the tax cuts… print some more dough and pump it into Wall Street’s banks… that’ll probably fix everything.
Mandelman out.
*1 According to the FAA’s Aviation Safety Statistical Fact Book, there are 16 fatalities per one million hours of general aviation, and according to the National Transportation Safety Board, of the airplane accidents that occurred between 1983-2000, 51,207 of the 53,487 of the affected passengers survived. Even if you only consider the 26 most serious airplane accidents during that period, 1,525 of the 2,739 passengers survived… that’s a 56% survival rate. And take out the Lockerbie crash, which wasn’t an accident, but rather a bomb planted by a terrorist, and the survival rate goes up to 61%. So, all told, you being killed in a plane crash is very unlikely.
Nov
23
Mandelman U. Presents: There’s Credit Default Swaps & then there’s Credit Default Swaps
Complexity We Eschew at Good Old…
Mandelman U.
Sit, Sulte, Simplex
In 1998, there were so few Credit Default Swaps in play that they were hardly worth counting. Not only were there a relatively small number of these credit derivatives being issued, but they essentially never paid off. That’s right. Issuing credit default swaps, at least as they were originally conceived and utilized, was risky like issuing flight insurance was risky.
So, what the heck happened to elevate credit default swaps to the status of global economy killer as they might rightfully be described today? Well, there are credit default swaps… and then there are credit default swaps.
The Set-Up…
Let’s start with this fact: banks are required to hold funds in reserve for future losses, and the amounts they reserve can not be invested to maximize return, so they want to hold as little in reserve as is permitted by what are called Basel II regulations. How much a bank is required to hold in reserve depends on what type of assets… read: loans… are on its balance sheets. The riskier the loans a bank owns, the more capital the bank must keep in reserve. But, additionally, riskier loans pay better.
If a bank has invested in a bunch of sub-prime mortgages, they have to reserve for some percentage of homeowners who default on their payments and/or pre-pay their mortgages, but if those mortgages are inside a triple A rated security, and if that security is “insured” by a credit default swap, then they don’t have to reserve anything for a future loss, because it doesn’t appear that there will be a future loss. Oh, and if the whole transaction can be handled off the bank’s balance sheet in the first place, such as inside an SIV or Special Investment Vehicle, that’s held off-shore… then so much the better.
How it all began…
Sometime in 1994, JPMorgan created the first credit default swap.
It seems that JPMorgan had provided Exxon with a $4.8 billion credit line, but Exxon was now facing $5 billion in punitive damages as a result of the Valdez catastrophe, so JPMorgan was required to reserve the funds for such a credit risk. To clean up their balance sheet, JPMorgan sold the credit risk involved in the Exxon credit line to a large European banking concern, and thereby reduced the amounts it was required to hold in reserve. It swapped the risk of $4.8 billion in extended credit defaulting.
It worked so well that, in 1997, JPMorgan created BISTRO, which stood for “Broad Index Securitized Trust Offering.” BISTRO was a proprietary product for JPMorgan that used CDSs to clean up a bank’s balance sheet, just like the bank had done for itself in the case of Exxon a few years back.
But, BISTRO actually used the securitization process to break up the credit risk into smaller pieces, which allowed smaller investors to get in the game… not everyone can take on a $4.8 billion risk… and in that sense BISTRO was the first “synthetic collateralized debt obligation” or synthetic CDO.
Don’t be discouraged if you’re not getting all that at the moment, hopefully I’ll straighten it all out in a minute or two.
Then, in 2003, best I can tell, Goldman Sachs convinced AIG to offer a credit default swap on a CDO… a collateralized debt obligation. You can think of a CDO as being a derivative of a mortgage-backed security.
Remember how we create mortgage-backed securities? We take a bunch of mortgages and put them into a pool and then we create a contract that prioritizes the payment streams into slices called tranches. The top is the safest tranche, it pays the lowest interest rate and is always rated triple A because it receives its payments before any other tranche. The middle tranche, called the mezzanine or “the mez,” if you’re that Wall-Street-cool, gets its payments after the top tranche has been filled, and it is rated BBB. The bottom tranche doesn’t get a nickel until the top two have been filled as expected, and it is often unrated, or in other words is like a junk bond. It offers the highest rate of interest, but also carries the greatest amount of risk.
Okay… still with me, right? If that last paragraph was confusing, you should probably go back and read another Mandelman U. article: Securitization and Mortgage-Backed Securities, which explains the securitization process and mortgage-backed securities thoroughly and in simple terms.
So, let’s say that we’ve sold all the triple A rated tranches and we’ve got a bunch of BBB rated stuff laying around. Well, if we… let’s call it… re-securitize all of the BBB tranches, we’ll end up with another top tranche that will again be rated triple A, another “mez” rated BBB, and another unrated bottom tranche. But notice that the first time we securitized the mortgages the payment streams that went into the tranches came directly from the mortgages in the pool. But this time, we re-securitized the BBB tranches from other securitizations, so we’re one step removed as compared with the first time around.
This time, for our triple A rated tranche to get a nickel, the top tranches in the first securitizations have to have been filled up with payment streams as expected. So, a CDO’s income isn’t based on payment streams from mortgages, rather it’s income is based on payment streams from securities whose incomes are based on mortgages.
So, Goldman Sachs convinces AIG to offer credit default swaps on triple A rated tranches of CDOs. I mean, why not? After all, the historical loss rates on American mortgages were damn near zero. And, thus was reborn the credit default swap… now tailor made for the mortgage boom that was fast bringing the U.S. economy out of the recession created by the bursting of the dot-com bubble a few years before.
Now, investors buy CDOs, which look great, because they are based on BBB rated tranches, so they pay higher interest than were it based on the triple A rated tranche, BUT… it’s re-securitized, if you will, so it has a new triple A rated tranche itself. And you can get a CDS so there’s no risk at all… load ‘em up. They look as safe as U.S. Treasury bonds, but they pay much higher interest rates, and have no risk of default as a result of the inexpensive CDS you added on top.
Oh, and these CDOs are hard to construct and value, so Wall Street investment bankers can make a bundle putting the deals together and selling them all over the world. In fact, almost no one on the planet can truly understand what they’re made up of, and what they’re worth… absolute heaven for Wall Street types.
(You see, it’s important to understand that the harder it is to value something, the more a Wall Street investment bank can charge to put the deal together and make a market for whatever it is. Just think of it as being the opposite of gold. Gold is a commodity that trades all over the world, so all you need to do is look up the price of gold today and there it is for all to see. So, Wall Street firms aren’t much interested in selling gold… too easy to price, get it?)
The most simplified example of a credit default swap would be issued as related to highly rated corporate bonds. Let’s say your Aunt passed away and left you $100,000. And you decided to put that $100,000 into a triple A rated Exxon-Mobil corporate bond, perhaps instead of a Treasury bill of some sort, because Exxon-Mobil was offering a slightly higher interest rate and since Exxon-Mobil is one of the world’s largest and most stable corporations, you saw the investment as being just about as safe as bonds issued by the U.S. Treasury.
But, just in case… because you didn’t want any risk whatsoever, you decided to buy a credit default swap, which in essence insured the investment you made in the Exxon-Mobil bond. If Exxon-Mobil defaulted on their obligation to pay you as promised, the company who issued the credit default swap would pay you what you were owed under the terms of the bond.
Of course, triple A rated corporate bonds, like those that might be issued by Exxon-Mobil, very rarely default… and by very rarely, I mean like never, so you probably wouldn’t need to insure against such an event, but that’s also why doing so wouldn’t be very expensive… very much like the flight insurance that you can buy before boarding a given flight.
The odds of that individual flight crashing and you being killed as a result are remote… very remote1. So, if you’ll pay something like $50, some insurance company will pay $1,000,000 if your flight crashes and you die as a result. A credit default swap issued on a triple A rated Exxon-Mobil corporate bond might be considered about that risky, and therefore it wouldn’t cost very much to buy.
For example, Michael Lewis, in his book “The Big Short,” quotes the cost of a credit default swap on a $100 million mortgage-backed security as being $200,000 a year for ten years. So, if you paid the annual premium for the entire ten years, you would have paid 2% of the insured amount. Two million to get you One hundred million… that’s 50:1… better than the odds when playing roulette.
Of course, you might not have paid for ten years before your bond or mortgage-backed security defaulted, so in that case your return would have been much greater. Like if you owned the credit default swap for one year, and as a result had only paid one $200,000 premium payment, then your return would be 500:1, right? Not too shabby, if you can get in on something like that, I’m sure you’d agree.
I’m not saying that’s exactly how today’s credit default swaps work because for one thing, they are only offered to institutional investors, and not on the bond you bought with money your Aunt bequeathed to you. But, as descriptions go, it’s not that far away either, so hopefully you’re getting the general idea.
You see, that’s what I mean when I say there were credit default swaps and then there were credit default swaps.
In my Exxon-Mobile example, the credit default swap was insuring against a single corporation defaulting, and in the “CDSs” of our current financial crisis and resulting mortgage meltdown, it was individual homeowners paying mortgages that could cause your bond or CDO (considered to be another derivative) to default. Also, in our Exxon-Mobile example, you owned the bond and in the recent fiasco, you didn’t need to own anything to buy the credit default swap “insurance,” and thereby place a bet against the bond paying off as agreed.
Bond insurance… sort of…
And that’s what a credit default swap is, really… bond insurance. But no one ever wanted to refer to it that way because they were afraid that the State Insurance Commissioners would want to regulate CDSs like they regulate all other forms of insurance, requiring the companies that sold CDSs to hold money in reserve against potential future claims.
Besides, it was argued, CDSs weren’t actually insurance, they just played insurance on T.V.
For example, the buyer of a CDS doesn’t have to own the underlying security that in a sense is being insured against default. In fact, the buyer doesn’t even have to suffer a loss as a result of the defaulting security in order to cash in on the CDS. That’s not very insurance like. And insurance companies manage risk using actuarial data and the law of large numbers to determine appropriate loss reserves, while the sellers of CDSs price them using financial models and attempt to hedge risk using other securities dealers and a variety of transactions in underlying bond markets.
So, since none of the companies that issued credit default swaps ever thought that they’d have to pay a claim related to the insurance they were selling, they didn’t tie up their cash in a reserve account when it could be invested elsewhere, and therefore earning returns. By referring to them as “swaps,” they were completely unregulated, falling under the Commodity Futures Modernization Act (“CFMA”), which was a statute passed in 2000, that removed swaps transactions from any and in fact essentially all substantive federal oversight.
The CFMA legislation was, it’s interesting to note, pretty much rushed through Congress during a lame duck session. It was a rider to an 11,000-page omnibus appropriations bill. So, I think one would have to say, very well done there.
And the end result is that credit default swaps remain entirely unregulated… even after this latest financial disaster, we’ve done nothing to change that, which is sort of like finding out the day after 9-11 happened that we are still allowing passengers to carry box cutters on commercial flights.
What the bankers did…
Okay, so you’re a European bank and you’ve got too many deposits because in your country people still save money, actually.. You’re looking for something to invest in that will help you increase the spread between the interest rates you pay people for their deposits, and the interest rates you’re able to earn by lending.
You need the safest thing you can find, at the highest possible rate of interest… a difficult balancing act for all of us, to be sure.
You could, of course, buy a bunch of triple A rated mortgage-backed securities based on sub-prime loans, but that would increase your reserve requirements, which would reduce the amount of cash you can invest and hence the amount of leverage (read: borrowing) you can employ.
But wait… maybe not. AIG is offering a way for you to have your cake and eat it too. Isn’t financial innovation wonderful?
With the AIG answer, you can forget the Basel II rules by using the unregulated insurance contract called a “credit default swap.” For let’s say 2% of face value, AIG agrees to guarantee the subprime mortgage-backed security you want to buy against default for five years.
As long as it maintained a triple-A credit rating, AIG didn’t have to put up any capital as collateral on its swaps. There was no real capital cost to selling them; there was no limit to the number that could be sold. Of course, as AIG’s credit rating fell, the company was required by its own contracts to post collateral… money… to ensure that it could pay off the claim in the event of a default. And that’s what buried AIG… collateral calls from the likes of Goldman Sachs and many others around the world.
And thanks to “mark-to-market” accounting, as described in FAS 157 and FAS 159, AIG could book the profits from a five-year credit default swap as soon as the contract was sold, based solely on the expected default rate. What the computer said AIG was likely to make on the deal, the accountants would write down as actual profit. The broker who sold the swap would be paid a bonus at the end of the first year – long before the actual profit on the contract was made.
The European bank was now able to assure its regulators that it was holding only triple-A credit securities, and certainly not a bunch of subprime loans given to people without jobs, income or assets. The bank could employ the maximum amount of leverage allowable under Basel II, and AIG could book hundreds of millions in “profit” each year, without having to pony up billions in collateral, or really even invest a dime of its capital.
They even started selling “synthetic CDOs,” which were collateralized debt obligations, but with only credit default swaps inside… no mortgage-backed securities at all… just the credit default swaps that were to pay off in the event of a CDO’s default.
And the bankers who sold these securities and swaps to others around the globe knew they were selling crap in a CDS crapper. They knew the ratings agencies models weren’t tracking the important variables inherent to the loans used in creating the CDOs they were selling. They knew because they were betting against them at the same time they were selling them.
So, what’s not to love?
Well, the fraud part isn’t that attractive, I suppose, but don’t be such a doom and gloomer.
So, our Wall Street bankers sold this scheme all over the planet taking in trillions of dollars and ultimately bankrupting the global financial system and costing hundreds of millions of working class citizens their savings, their livelihoods and their homes. And the profits AIG and the others on Wall Street booked never came true, although the bonuses that got paid out were very real.
On July 10, 2007, Moody’s and S&P downgraded the ratings on 1,032 bond issues, which was less than one percent of the bonds backed by sub-prime mortgages, but the percentage didn’t matter… investors panicked and ran for the exit door. If the ratings on these bonds were wrong, what about the rest… the ALT-A… the Option ARMS… the prime loans… everything was all of a sudden questionable, and within two weeks the credit markets froze solid… banks wouldn’t lend to each other. And the giant write downs began in earnest.
In residential mortgage land, all of a sudden no one could get a mortgage or refinance one. Housing prices, which had already started to cool off as a result of Greenspan having raised interest rates 17 times in a row as of the summer of 2006, now fell off a cliff and kept falling.
Our government just didn’t see what was happening. Treasury Secretary Hank Paulson, in his recently published book, writing about this moment in history, explains it this way:
“We were just wrong.”
And it may just be that no truer words have ever been spoken, because there’s no question that Mr. Paulson, Mr. Bernanke, Ms. Bair… and all who surrounded them were all monumentally and catastrophically wrong.
The dominoes were falling faster and faster and yet our government did almost nothing to prevent them from falling or even slow them down. As a result, the default rates on mortgage-back securities underwritten in 2005, 2006, and 2007 turned out to be many multiples higher than expected. There are instances in which the securities the bankers claimed to be rated triple A ended worth less than 15¢ on the dollar.
By the end of the calendar year, 2007, AIG reported an $11 billion charge to earnings and managed to raise the capital to cover it. But the writing was all over the walls, the floors, the ceilings, and even the windows. The credit markets were now broken, the days of being able to get a mortgage were over for tens of millions of Americans and as prices fell, defaults increased and the foreclosure crisis would soon be in full swing.
When AIG lost its triple A rating, it had to come up with tens of billions in collateral overnight, in addition to the amounts it owed its trading partners… and there was no way… AIG… the world’s largest insurance company… was bankrupt. Lehman fell the same day… Merrill Lynch was sold in a shotgun wedding to Bank of America. Goldman Sachs and Morgan Stanley were forced to become commercial banks, able to borrow from the Federal Reserve’s discount window, among other things.
The Federal Government stepped in with an $85 billion loan for AIG in exchange for almost all of the equity in the company. AIG’s largest trading partner was Goldman Sachs, and so $20 billion in taxpayer dollars went directly from the people of this country to Goldman’s balance sheet… most of which to be paid out in bonuses over the next year or two. Treasury Secretary Tim Geithner, who was then heading up the New York Federal Reserve Bank, forced AIG to sign away their right to sue any of the major banks for most of what’s happened.
Because we can keep pointing fingers in all directions if it makes us feel better, but the Wall Street bankers who perpetrated this fraud on our world knew what they were doing as they did it. They did it because they became incredibly wealthy by doing it, simple as that.
The collapse of the market for credit default swaps also meant that the giants of the investment banking world – every last one of them, by the way – with no one to insure their debts, could no longer borrow. Without the CDS market, banks can’t report the real value of the assets (read: CDOs, CDSs, et al). To do so would render them all insolvent and in default with Basel II regulations. Absent AIG’s credit default swaps to provide fraudulent cover, all we can do is play accounting games and pretend that their assets are worth far more than they are actually worth.
The era of the Wall Street investment banker was over. Bankers had leveraged their organizations beyond all reason, meaning that they had borrowed 30:1 or 40:1… or as in the cases of Fannie and Freddie, a mind boggling 110:1 and 174:1, respectively. That means for every dollar the bank carried on it books as an asset, the banks had borrowed thirty or forty dollars. Accounting regulations had to be suspended lest the banks all be seen as insolvent.
Just to fund their operations, our TBTF banks are totally dependent on the Federal Reserve. In fact, things got so bad that the Fed had to change the long-standing rules so that Goldman, Morgan and Merrill could use equities as collateral for trillions in loans.
Additionally, a little known and almost never discussed provision of the TARP bailout bill says that the Fed can pay interest on the collateral it’s holding… a simple, but very effective and yet covert way to pump untold billions in taxpayer dollars directly into the banks without the need for congressional approval.
Without the government having taken these steps, however inadequate and transient, AIG’s failure would have likely led to the failure of every major bank in the world.
But there should be no question… the enabler of the global credit bubble of the last eight years was AIG unregulated selling of credit default swaps without collateralizing the risk. In 1998, there were so few Credit Default Swaps in play that they were hardly worth counting. By late 2009, between newly instituted processes allowing CDSs, which offset each other to be cancelled, combined with the termination of recently paid out contracts, the face value of the CDS market was reduced to an estimated $30 trillion.
And the Dodd-Frank financial reform bill that was signed into law last summer does nothing to address regulation of this volatile and dangerous market.
Seventy percent of the U.S. economy is driven by consumer spending, which has been driven by borrowing over the last ten years. Even if we wanted to do so, we can’t borrow our way back to prosperity this time around, however, because the credit markets are broken for good this time… because they were a fraud in the first place. Our economy has entered a downturn that, before it reverses itself, will force most of us to reduce our standard of living for many if not most of our remaining years. Some believe that foreign spending and spending by the very rich can bring us back, but the numbers just don’t prove out.
Meanwhile, our helpless, hapless, and perhaps hopeless government continues to treat this financial crisis like it’s a liquidity crisis… lowering interest rates and pumping cash into a failed and fraudulent system being run by the same men that brought us here.
Or maybe I’m wrong about all of this… maybe it was all simply the fault of irresponsible sub-prime borrowers who all went out and bought homes they couldn’t afford. Yeah, that must be right. Lower the rates again… extend the tax cuts… print some more dough and pump it into Wall Street’s banks… that’ll probably fix everything.
Mandelman out.
*1 According to the FAA’s Aviation Safety Statistical Fact Book, there are 16 fatalities per one million hours of general aviation, and according to the National Transportation Safety Board, of the airplane accidents that occurred between 1983-2000, 51,207 of the 53,487 of the affected passengers survived. Even if you only consider the 26 most serious airplane accidents during that period, 1,525 of the 2,739 passengers survived… that’s a 56% survival rate. And take out the Lockerbie crash, which wasn’t an accident, but rather a bomb planted by a terrorist, and the survival rate goes up to 61%. So, all told, you being killed in a plane crash is very unlikely.
Nov
08
Why Servicers Foreclose When They Should Modify… YAWN.
The subject of why mortgage servicers foreclose when it appears that they should modify is one that has been written about extensively at this point, both by me and countless others. Frankly, the whole thing is not only bringing me to tears, but it’s starting to bore me to tears, as well.
I’ve certainly read much of what’s been written about the behavior of servicers and have drawn my own conclusions as a result… they make more money foreclosing, they’re set up to foreclose as opposed to modify loans, and most of all, because they can and nobody does much about it… although I readily admit that attorney Diane Thompson of the National Consumer Law Center is not someone to be overlooked. Her report on the subject can be found here:
Why Servicers Foreclose When They Should Modify
You see, the thing is… this situation has long since gotten way out of control, and anyone who doesn’t see that at this point simply isn’t paying attention. Our economy is in a vice grip caused by the fraudulent and I would think criminal acts of our too-big-to-fail bankers, and our government that has failed to understand the situation’s dynamics from the very beginning, and therefore has failed to mitigate the damage as a result.
In fact, best that I can tell from listening to President Obama… his view is that some 20+ million Americans, inexplicably all became irresponsible at the same time, all bought homes they couldn’t afford, and now deserve to lose their homes to foreclosure… because losing 20 million homes to foreclosure will HELP our economy.
Do I have that about right? I mean, please… I don’t want to put words into anyone’s mouth here, am I being unfair? The White House even admitted publicly this past year that they underestimated the severity of the housing crisis. In 2007 or maybe 2008, Bernanke said on television that it was unlikely that the sub-prime crisis would spill over into the larger economy. I mean, what more do we need in terms of evidence that these guys don’t know what they’re doing as far as this meltdown is concerned.
Last week, and I’m writing a separate piece about this now, Bernanke printed up $600 billion so he could use it to buy our own Treasury bills… our own National Debt. It’s called “Quantitative Easing,” and it’s NOT a Marvin Gaye song… like the flip side to “Sexual Healing,” or anything like that. It’s nuts… that’s what it is.
I don’t care what your opinions are about out economy, just consider this… WE’VE NEVER DONE ANYTHING LIKE WHAT BERNANKE IS DOING NOW, AND HE WOULDN’T BE DOING IT IF WE WERE RECOVERING. GET IT?
Ben thinks… and this is according to him, himself… that by injecting this paper currency into our economy two things will happen: 1. Interest rates will come down… ’cause they’re so friggin’ high now we really need that… and 2. The stock market will go up… which, if investors are the morons they’ve proven to be thus far probably will happen. Are you thinking: So what and who cares? Good for you.
Bernanke actually thinks the stock market going up with create the “wealth effect,” which means that we’ll feel wealthier and therefore spend more, and anyone who agrees with that position lives in some other America because where I live, people haven’t stopped spending because of the stock market, it’s housing prices falling through the floor and no or low paying jobs that are putting a major crimp in spending. Well, that and the fact that we’d rather save now that we know what’s ahead and behind us, if you follow my meaning.
No matter… Ben’s quantitative easing has no shot at fixing either of those things, housing prices or jobs, so woohoo! I’ll be sure to stay tuned to developments on that one… someone do me a favor and wake me when China says they’re cutting us off.
And here are a few additional fast facts:
… The lawsuits are coming and coming fast. Investors who purchased mortgage backed securities are starting to file lawsuits against our banksters, and they want the banks to buy them back at their original valus, plus damages.
… The cost to bail out Fannie Mae & Freddie Mac will top $1 trillion. I know, the government is saying it’ll be half that amount, but they’re just lying or wrong. Oh, and Fannie & Freddie want the banks to buy back billions in in bad mortgages too.
… Homeowners who may have been improperly evicted from their homes are looking for any legal basis to sue the bankers, as are those that haven’t lost their homes yet, but are now at risk.
… The State Attorneys General, from all 50 States are just starting their investigations into the foreclosure practices of the bankers, and with 50 AGs looking my bet is they’ll find something. If everything was fine, as I’ve pointed out before, the bankers wouldn’t have people called “robo-signers” signing their names 10,000 times a month on affidavits they don’t read.
… The banks currently hold millions of homes in their foreclosure inventory… and when I say millions, I’ve heard numbers like 7 million… so figure 10 million… to account for the “they’re always lying factor”. PLUS, another 10 million homes are forecasted to be lost to foreclosure in the next few years. Can you imagine what this country will look like and feel like when things are two or three times as bad as they are now?
… Strategic Defaults are rising… and I love that. Currently, 70% of Nevada homeowners are underwater, 50% in Arizona & Florida and in California 35% of homeowners are underwater.
But everyone is a lot worse off than any of those numbers show because there is no “real” real estate market. The demand for loans is lower than anyone can remember, the availability of loans is abysmal, and credit will remain tight for the foreseeable future.
Don’t believe me, mortgage people? Well, wake up and smell the coffee my lender friends… here’s a link to the Federal Reserve’s latest study in that regard… go ahead, take a gander… you can’t handle the truth… (Sorry, maybe you can… I was just feeling very much like Jack Nicholson there for a moment.)
Lending to Remain Tight for Foreseeable Future
The worst of it all is that the government and the Federal Reserve continue to deal with the crisis as if it’s a “liquidity crisis,” and it’s simply NOT. I’ve come to realize that Ben Bernanke couldn’t keep a hot dog stand open for the summer. It’s not a liquidity crisis, otherwise injecting $3.7 trillion last year would have solved something and if definitely did not.
This crisis is the same one we faced two years ago… the banks broke the financial system… their balance sheets are packed with assets they cannot sell, and no one knows what their worth.
CDOs, CDSs, RMBSs and CMBSs… “Toxic assets,” I believe was what we were calling them, right? Well, they are still there… right where they’ve been since the beginning, on bank balance sheets… and the only thing different is that Geithner and Bair aren’t making the banks write them down, which may fool us, but isn’t fooling them. Banks don’t loan to banks when they don’t who is solvent and who isn’t. The system is grinding to a halt, no matter how the Fed and Obama try to stop it by printing money and sending to Wall Street.
Now Obama and the Dems have lost control of the House and Senate, not that they had control of anything before, for all intents and purposes. But not we have gridlock and nothingness. And Obama has said clearly that there will be no more help for homeowners… because they’re all irresponsible, remember? Unlike our bankers who are pillars of responsibility, don’t you know.
So, I have bad news… help is not on its way. No one is going to do anything to make this situation better. It’s up to us and us alone. In my mind this is war, people, and America is at stake.
In my mind, the country I grew up in will not survive as a two class society made up of rich and working poor… divided we will fall… and divided is where we are headed, if we’re not already there.
My America is the America of “Saving Private Ryan”… where we go back for every last soldier… we leave no one behind. Our government is of the people, by the people and for the people. Any time it hasn’t been the case it has almost broke us in two, and this time will be no different.
With liberty and justice for all… damn it… it has to be that way… we won’t make it under different terms. Why my president doesn’t seem to realize that, I cannot tell you, because I know it to the core of my being.
So, you want to know why mortgage servicers are foreclosing when they should be modifying, do you? Because we’re letting them, that’s why.
Because we’re letting them…
And we can stop them too.
Mandelman out.
Nov
04
The REST Report Matters at REST Report Matters
By now, I would think, most of my readers know that when homeowners ask me questions about today’s loan modification process, I tell them that, if it were me… and it certainly could be one day… I’d run a REST Report. In fact, I wouldn’t even consider applying for loan modification, without running my own REST Report, and assuming it was NPV positive, sending it to my mortgage servicer, along with the other documents required, to my mortgage servicer.
I say this without hesitation, because the REST Report has now been used by more than 1,000 homeowners facing foreclosure, and it is the only way, outside of a HAMP servicer, that you can know with certainty whether you qualify for a loan modification under the president’s HAMP program. And should the REST Report show that you do not qualify under HAMP, the report shows whether the NPV of other loan modification scenarios would cause the investor who holds your note to come out ahead financially as compared with foreclosure.
In point of fact, it’s the only tool or practice I’ve ever seen that’s made a consistent, measurable, and highly positive difference for homeowners, attempting to get their loans modified. Last year at this time, if someone asked for my advice on how to increase the odds that a servicer would ultimately modify a loan, I would have said “get a lawyer.” Now I respond to those inquiries, by saying, “get a REST Report.” You can always hire a lawyer later, should you feel the need.
There are law firms and individual attorneys stretching from coast-to-coast that offer the REST Report along side loan modification services, and in fact several have told me that they are no longer accept a new client until he or she has run the report, and that report shows a positive NPV as compared with the costs of foreclosure.’
Enter REST Report Matters…
Founded a few months ago, with offices in San Diego, California, REST Report Matters is the brainchild of partners, Michael Nazarinia and Charlie Rose. But even though it’s their vision and leadership that drives their organization forward each day, the pair has also made a special commitment to supporting the readers of Mandelman Matters.
For example, they invited me to their offices to provide three days of training to their staff, in addition to the extensive training they themselves offer, and that training not only covered the technical aspects of the REST platform, but also created a professional atmosphere designed to be more consultative than sales driven, according to Charlie. He wanted me to tell my readers that they should feel free to call REST Report Matters with questions anytime, without worrying that the person they speak with will be singularly focused on selling them something.
I’ve known Michael for about a year now. In his last position, his firm helped support my efforts to protect the rights of a homeowner to hire an attorney when at risk of foreclosure. He and I got along from the very first time we spoke on the phone, as I recall… you’ll find him to be smart, knowledgeable and caring. Like me, Michael is a lifetime learner, which I believe is a euphemism
for what we used to call a nerd, in my day.
The team at REST Report Matters also stands out in my mind, as many have worked with Charlie and Michael in past positions so there is a sense of shared purpose beyond what one would expect in a young company. Oh, and that’s the company that’s young, the staff… not so much, which I also like a great deal. Call me crazy, but I’m not sure I’d care much for talking about my mortgage with someone whose experience with mortgages consists of hearing about them from Mom & Dad, so no worries about that here. Charlie is actually pretty young… 30 years-old, I believe, and I although I usually don’t find myself in conversations with too many thirty year-olds, entirely by design actually, but Charlie’s certainly the exception. He’s quick to grasp the significance of new things, and I can’t imagine any homeowners not liking him and appreciating his candor right away.
But, I am perhaps most excited about a new password protected section of the firm’s site, that although still under construction as I write this, REST Report Matters is in the process of incorporating several unique features into their “clients only” Website that, soon will be capable of delivering a unique, technology-driven ongoing educational support and community component that I think homeowners will find both valuable and even enjoyable… to the extent that anything having to do with this topic can be considered enjoyable… perhaps stimulating is a better word in this instance.
I wouldn’t want to spoil anything that’s in development and only a few weeks away from the public launch, so suffice it to say that the suite of services the firm is developing are designed to fit together and complete the picture of what optimal support for working with the REST Report to get a loan modified should look like.
REST Report Matters is not a law firm, and as such they do not represent homeowners with their lenders and servicers, nor do they provide advice to homeowners, or in any sense offer comprehensive loan modification services. It’s just the REST Report, packaged with other important support tools and educational programs… delivered by the highly trained, compassionate professionals at REST Report Matters.
You can visit REST Report Matters here.
Or, call them at: 877-737-8440
And, as always, you can reach me for further discussions at mandelman@mac.com.
Mandelman Matters is a California Nonprofit Corpooration and does receive a small percentage of the revenue generated by sales of the REST Report.
However, you may be assured that it a very small percentage and nowhere near enough to get me to recommend something I wouldn’t be recommending regardless. If you want any additional details, including, email me and I’ll be happy to disclose anything and everything.
Because if I can’t disclose it, I don’t do it.
Nov
01
CHASE NOT DEALING IN GOOD FAITH WITH BORROWERS (SURPRISE)
It will come as no surprise to anyone following the foreclosure wars to know that the lenders absolutely do not want to modify loans or work with borrowers. One need look no further than the September Hamp Numbers for specific facts to back this up, but the bottom line is the servicers are taking billions in taxpayer dollars (dollars that Congress now admits they are not entitled to in some cases), but they are not working with the very taxpayers that are funding their effort. That’s heaping insult on top of injury on top of obscenity…but then who really cares right?
It’s bad enough that they’re not being dealt with fairly, but below is proof positive from a lender that they are going to be actively working behind the borrowers back.
Chase Waiver Request (redacted)
This is an absolute license to negotiate in bad faith, provide false hope while at the same time, work hard to achieve the ultimate goal (take the home). Anyone need anymore proof that there are perverse, hidden motives here and that the lenders are not interested in keeping borrowers in their homes?
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