Illegal Foreclosures

OCC Findings: Illegal Foreclosures, Critical Deficiencies

posted by Alan White

At today’s Senate Banking Committee hearing on Dodd-Frank implementation, Comptroller John Walsh’s testimony gave a preview of some findings from the federal agencies’ investigation of mortgage servicing and the robosigning scandal:

“In general, the examinations found critical deficiencies and shortcomings in foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third party law firms and vendors. These deficiencies have resulted in violations of state and local foreclosure laws, regulations, or rules and have had an adverse affect on the functioning of the mortgage markets and the U.S. economy as a whole.”

More specifically, federal examiners looked at 2800 foreclosure files, and found “a small number” of plainly illegal, completed foreclosure sales, that violated a bankruptcy stay, the Servicemembers Civil Relief Act, or a temporary modification agreement.  The Wall Street Journal reports that the OCC plans to impose fines; the affected homeowners are probably hoping for more remedial measures.  In the meantime, the state attorneys general investigation is proceeding.  It will be interesting to see whether in the post-Dodd/Frank era, the OCC is more willing to play nice with the state AGs.

MERS Can’t Transfer Mortgages

posted by Nathalie Martin

MERS, which holds roughly half of all U.S. home loans, has no right to transfer mortgages, according to a Bankruptcy Court in Islip, New York. This could significantly affect the foreclosure process nationwide. MERS, which stands for Mortgage Electronic Registration Systems, tracks more than 60 million mortgages, and has filed thousands of foreclosure actions on behalf of lenders. While MERS was designed to speed up legal recordkeeping of mortgages and sales of mortgage loans through securitizations, critics including borrowers’ lawyers and advocacy groups contend it has no right to pursue foreclosures because it does not own the mortgage loans.

What will be the impact of this decision? Essentially that in future cases involving MERS, at least in cases in which the court agrees with this case, parties seeking to pursue their foreclosure rights must show they own both the note and the mortgage. See In re Agard, U.S. Bankruptcy Court, Eastern District of New York, No. 10-77338.

February 15, 2011 at 6:24 PM in Mortgage Debt & Home Equity | Permalink | Comments (11)

Clash of the Titans: RMBS Edition

posted by Adam Levitin

And so it begins. We’re about to witness the main event in financial institution internecine warefare: investment funds (MBS buyers) vs. banks (MBS sellers).

There have already been some opening skirmishes. The monoline bond insurers (MBIA, Syncora, FGIC, Ambac (and here), CIFG (and here), and–I haven’t found any litigation with them on this, but there’s gotta be some–ACA) have been litigating against some of the banks whose securitizations they insured for various fraud, negligent misrepresentation, and breach of warranty claims. Many of the Federal Home Loan Banks (Chicago, Indianapolis, Pittsburgh, San Francisco, Seattle, maybe others that I don’t recall of the top of my head), which slurped up RMBS during the bubble, only to find them toxic, have brought (separate) suits mainly on securities fraud charges, but also on common law fraud and negligent misrepresentation claims. (See here for a totally dated, August 2010 estimation of the liabilities in these suits.)

Then last fall the financial world was shaken by the New York Fed, BlackRock, and PIMCO’s demand letter to Bank of New York Mellon and Countrywide. That showed that A-list financial institutions were taking the range of problems with RMBS, from representation and warranty breaches to servicer malfeasance, seriously. (You can see the NY Fed, acting for the Maiden Lane LLCs, as really another representing AIG, essentially the mother of all monolines for these purposes.) But that wasn’t litigation proper, just an angry growl, with a threat of litigation if things weren’t resolved. (When you see the letterhead for the response, you’ll see that BoA/CW is taking this mighty seriously. Despite the typo in that snippy letter, it didn’t come cheap. These guys are lawyering up.)

And now we have the first A-list litigation. We have TIAA-CREF, New York Life, and Dexia suing Countrywide (and assorted other defendants). And it alleges invalid chain of title–the mortgage-backed securities are actually non-mortgage backed securities!

Continue reading “Clash of the Titans: RMBS Edition” »

Bank Walk Aways

posted by Adam Levitin

The phenomenon of jungle mail or “strategic default” has become well known enough over the past few years. There’s a lesser known phenomenon, though, known as bank walk aways. With a bank walk away, the lender will fail to pursue a foreclosure on a defaulted loan in order to avoid assuming the liabilities associated with the property. This practice takes various forms, including:

  • homeowner defaults, but lender never pursues foreclosure (typically very low value property in Detroit or Cleveland, and the costs of the foreclosure exceed the property value)
  • homeowner defaults, lender commences foreclosure, gets judgement, but doesn’t record the deed. Homeowner has moved out, but is still on the hook for the tax bill and possibly any torts associated with the property.
  • Homeowner discharges the debt in a bankruptcy. The lien is still valid, however and enforceable based on the default. The homeowner has moved out, but the lender doesn’t foreclose and insists that the homeowner is on the hook for taxes and (force-placed) insurance. (I’m not quite sure how the homeowner could be on the hook to the lender for these expense post-discharge, as there’s no contract any more, but tax liability here remains with the record owner of the property.

I know there’ve been a few judicial decisions on these cases, a little reporting (here and here and here, e.g.) and the GAO has done a report on the topic. An email from a Credit Slips reader got me wondering if the ex-homeowners have any way of addressing this problem. I’m curious what strategies attorneys have adopted for dealing with these issues.  Is there any way to force the lender to take title? A bankruptcy court order? Filing a quit claim deed? How about initiating a quiet title action? If the lender doesn’t claim title, then it’s your, no? And if the lender shows up, then ask for an order directing the lender to record the deed.


January 20, 2011 at 3:04 PM in Mortgage Debt & Home Equity | Permalink | Comments (11)

Foreclosures in Violation of the Servicemembers’ Civil Relief Act

posted by Adam Levitin

A few months ago, after the robosigning scandal broke, the banks assured us that they had done a thorough review of their foreclosure processes and everything was in order.  I seem to recall JPMorgan Chase’s CEO Jaime Dimon stating in an Oct. 13, 2010 earnings call, “for the most part by the time you get to the end of the process we’re not evicting people who deserve to stay in their house.” Thus, by mid-fall, the banks had sounded the all clear sign, and said it was safe to go back in the waters.

And yet now we learn that JPMorgan Chase has been engaged in wide-scale violations of the Servicemembers Civil Relief Act, including overcharging active duty military members on their mortgages and wrongfully foreclosing on their homes.  That’s a lot of egg on JPM’s face right now.  I guess, given the scope of JPMorgan’s foreclosures, Dimon’s “for the most part” statement is true, but it hardly instills confidence that our foreclosure process is working properly.

Banking is a business based on trust, and the farther we go down the foreclosuregate rabbit hole, the harder it becomes to believe the banks.  How many times are we going to keep believing the “there’s nothing to see here folks” line?  Can we trust Jaime Dimon when he tells us that the situation is under control?  What happens to our financial institutions when they lose their credibility with the public?

Footnote:  anyone want to specultate on whether JPM as a servicer is liable for FDCPA violations? How about FCRA?

Ibanez: About that Loan Schedule….

posted by Adam Levitin

Did Ibanez a particularly screwed up set of securitization documentation?  Or was this just snafu?  Looking around at other PSAs, I’m starting to think the latter.  In Ibanez, the Massachusetts Supreme Judicial Court noted that PSA was insufficient to serve as an assignment of the loan because what was presented as the affiliated loan schedule:

“did not include property addresses, names of mortgagors, or any number that corresponds to the loan number or servicing number on the LaRace mortgage. Wells Fargo contends that a loan with the LaRace property’s zip code and city is the LaRace mortgage loan because the payment history and loan amount matches the LaRace loan.”

So how do other PSAs fare under the Ibanez metric?  I’ve been looking at them, and it seems that there are lots of RMBS deals where the schedules in the PSAs are possibly insufficient to meet the Ibanez standard.  And that means that there are lots of RMBS trusts that might not be able to successfully foreclose in Massachusetts or maybe in any other title theory state.  (Read on…I name names!)

Continue reading “Ibanez: About that Loan Schedule….” »

Ibanez: Trustee Liability

posted by Adam Levitin

I’ve gotten a bunch of questions in recent days about whether the RMBS trustees in the Ibanez case are on the hook for the screw up. The trustees (US Bank and Wells Fargo) insist that they have no possible liability.  I’m not so sure.  I think it’s actually a more complex issue.

Continue reading “Ibanez: Trustee Liability” »

Ibanez and Securitization Fail

posted by Adam Levitin

The Ibanez foreclosure decision by the Massachusetts Supreme Judicial Court has gotten a lot of attention since it came down on Friday. The case is, not surprisingly being taken to heart by both bulls and bears. While I don’t think Ibanez is a death blow to the securitization industry, at the very least it should make investors question the party line that’s been coming out of the American Securitization Forum. At the very least it shows that the ASF’s claims in its White Paper and Congressional testimony are wrong on some points, as I’ve argued elsewhere, including on this blog. I would argue that at the very least, Ibanez shows that there is previously undisclosed material risk in all private-label MBS.

The Ibanez case itself is actually very simple. The issue before the court was whether the two securitization trusts could prove a chain of title for the mortgages they were attempting to foreclose on.

Continue reading “Ibanez and Securitization Fail” »

Noncompliance with HAMP Guidelines as an Affirmative Foreclosure Defense?

posted by Adam Levitin

To date, homeowners have not met with any real success in bringing suits alleging private rights of action under HAMP or, for that matter, alleging that denial of HAMP modifications is an a violation of their 5th Amendment due process rights. But it’s one thing to bring an a suit offensively; it’s another to raise an argument as a defense. (This is old hat to our lawyer readers, but I recognize that it isn’t intuitive to non-lawyers that there are different standards regarding whether an argument can be raised offensively or defensively, with generally more lenient standards regarding defenses).

Which brings me to the Indiana Court of Appeals’ ruling in Lacy-McKinney v. Taylor, Bean & Whitaker Mortg. Corp., 937 N.E.2d 853, which was graciously brought to my attention by a Credit Slips reader. (I’m not able to reply individually to every email, but I do read them.)  The Indiana Court of Appeals held (citing a number of precedent rulings) that a compliance with servicing guidelines is a condition precedent to a foreclosure that can be raised as an affirmative defense.

This raises an interesting question:  can a servicer’s failure to comply with HAMP guidelines provide an affirmative defense to foreclosure?

Continue reading “Noncompliance with HAMP Guidelines as an Affirmative Foreclosure Defense?” »

December 30, 2010 at 9:30 PM in Mortgage Debt & Home Equity | Permalink | Comments (13)

Mortgage Servicing Paper

posted by Adam Levitin

Credit Slips Guest Blogger Tara Twomey and I have a new paper out on mortgage servicing in the Yale Journal on Regulation.  It’s long, but it tries to present a comprehensive overview of the economics and regulation of the servicing industry, as well as an argument that servicing suffers from a serious principal-agent problem.  We hope it will be a useful resource for those dealing with servicing and working on foreclosure-related issues.

21% HAMP First Year Redefault Rate

posted by Adam Levitin

The Congressional Oversight Panel has a new HAMP report out. Like all COP reports, it’s long and chock full o’ analysis. There’s an executive summary up front, but some of the most important points are only in the report proper (especially pp. 100-111). I think there are three big things to take away from the report:

  • First, 21% of HAMP permanent modifications have redefaulted in their first year. That’s ghastly given that HAMP permanent modifications have an additional 3 months of trial seasoning and fairly serious payment reductions. The fact that Treasury hasn’t been reporting on this itself, much less analyzing the reasons for the redefaults is disgraceful.
  • Second, if past trends continue, starting this month, there will be more HAMP redefaults each month than new permanent modifications. That means that the total number of active permanent modifications will peak at around 500,000 and decline.
  • Third, it looks as if Treasury will only end up spending $4B for HAMP out of the $75B allocated for homeowner assistance.

My take: Treasury should shut down the program. At this point all it does it provide political cover for the failure to take meaningful steps to help homeowners and stabilize the housing market. But is anyone really buying it?

Continue reading “21% HAMP First Year Redefault Rate” »

Fisking the American Securitization Forum’s Congressional Testimony

posted by Adam Levitin

Tom Deutsch, the Executive Director of the American Securitization Forum (ASF) testified before the Senate Banking Committee this past week about chain of title problems in securitization.  I was fascinated to see how much attention the ASF spent in attempting to rebut my testimony from a pair of previous hearings (here and, in a more polished form, here). My first thought was “gosh, ASF’s awfully defensive. They sure seem spooked.” And on looking at the details of the ASF’s rebuttal, my sense is they’re on very shaky ground if these are the best arguments they have.

Below I review some of the ASF’s arguments and show why they’re just wrong. In particular, note the PSA language that I quote that demolishes the ASF’s claim that PSAs do not require an endorsement from every party in the securitization chain:

“the original Mortgage Note bearing all intervening endorsements showing a complete chain of endorsement from the originator to the last endorsee”

If there’s any doubt about what that language means (more discussion below), I’d love to hear it in the comments.  There’s a very specific method of transfer required in securitization by PSAs and if it wasn’t followed, then under New York law, the transfers are void.  And it is sure looking like many deals didn’t comply with the PSA terms.

Continue reading “Fisking the American Securitization Forum’s Congressional Testimony” »

The New Robosigning

posted by Adam Levitin

First there was robosigning.  Now there’s illegal practice of law.  It seems that one of the major Pennsylvania foreclosure mills, Goldbeck, McCafferty & McKeever, was routinely using non-lawyers to do all the paperwork in foreclosure cases without any review by attorneys.  (See here for Yves Smith’s take.)   That works in most small claims courts, but raises real problems in a foreclosure context.

Perhaps related to the apparent lack of attorney oversight, every Pennsylvania foreclosure filing that I’ve looked at by Goldbeck, McCafferty, & McKeever appears to be facially defective because of a failure to include the note with the complaint.

Continue reading “The New Robosigning” »

December 4, 2010 at 9:10 PM in Mortgage Debt & Home Equity | Permalink | Comments (3)

WSJ: The Tail Wags the Foreclosure Dog

posted by Adam Levitin

The Wall Street Journal’s economics blog had a poorly thought-through take on foreclosures. The main point of the piece was that the time from default to foreclosure has grown much, much longer. (Not noted is that the timeframe varies significantly by state).  The piece has scant analysis, but it’s conclusion is that longer times to foreclosure makes strategic default more attractive as in lengthens the time a home-owner can remain in the home and consume housing for free.  The blog concludes that therefore we need to speed up foreclosures.

This really gets the strategic default problem backwards. It has the tail wagging the dog. The problem is that the homes are underwater, not that foreclosures are taking too long, and strategic default actually plays a very important role in market clearing on housing prices.

Continue reading “WSJ: The Tail Wags the Foreclosure Dog” »

November 28, 2010 at 1:10 PM in Mortgage Debt & Home Equity | Permalink | Comments (7)

Robosigning and Evidence

posted by Adam Levitin

The robosigning issue brought to mind a Talmudic evidentiary rule that declares the testimony of certain types of people inadmissible:

These are they who are ineligible (as witnesses): a dice-player, a usurer, pigeon-flyers, traffickers in Seventh Year produce, and slaves. This is the general rule; any evidence that a woman is not eligible to bring, these are not eligible to bring.

Mishnah Rosh ha-Shanah 1:8.

This is hardly the Federal Rules of Evidence, but I just thought it interesting.

Lots of Smart People Couldn’t Possibly F*%! Up, Could They?

posted by Adam Levitin

In relation to the chain of title argument on securitization, I have been repeatedly confronted (often unsolicited) with an argument that there’s no way there were massive screw-ups because thousands of top Wall Street legal minds were working on securitization deals.  Yes, and there’s no way the underwriting was lousy on the mortgages themselves because thousands were being done.  I tend to get this argument from people with a large financial stake in ensuring that securitizations don’t fail. This is a really bad argument, so let me just debunk it now (and hopefully never hear it again):

Continue reading “Lots of Smart People Couldn’t Possibly F*%! Up, Could They? ” »

The Big Fail

posted by Adam Levitin

Last week the US Bankruptcy Court for the District of New Jersey issued an opinion in a case captioned Kemp v. Countrywide Home Loans, Inc. This case looks like the first piece of evidence in what might turn out to be the Securitization Fail or, in homage to Michael Lewis, The Big Fail.

Briefly, Countrywide as servicer filed a proof of claim for a mortgage in a bankruptcy case on behalf of Bank of New York as trustee for a securitization trust.  The bankruptcy court denied the claim because there was no evidence that Bank of New York ever owned the mortgage. The mortgage note had never been negotiated or delivered to Bank of New York, despite the requirement to do so in the Pooling and Servicing Agreement (PSA) that governed the securitization of the loan.  That meant that Bank of New York as trustee had no interest in the loan, so the proof of claim filed on its behalf was disallowed.

This opinion could turn out to be incredibly important.  It provides a critical evidence for the argument that many securitization transactions simply failed to be effective because non-compliance with the terms of the transaction:  failure to properly transfer the mortgage meant that the mortgages were never actually securitized.  The rest of this post explains the chain of title issue in mortgage securitizations and how Kemp fits into the issue.

Continue reading “The Big Fail” »

Can HAMP Help in Bankruptcy?

posted by Katie Porter

About six months ago, the government rolled out guidelines for how HAMP should work for people in bankruptcy. Given bankruptcy’s historical role as a foreclosure prevention device, it never made sense to me why from its inception, HAMP did not envision ways for homeowners in existing chapter 13 cases to seek loan modifications and for people to try to obtain a loan modification as part of their chapter 13 bankruptcy. This may have just resulted from the right people not being in touch in a timely fashion. But now that HAMP is available for people in bankruptcy, does it really provide much?

Continue reading “Can HAMP Help in Bankruptcy?” »

Do Mortgage Servicers Even Understand Their Own Business?

posted by Adam Levitin

The House Financial Services Committee’s Subcommittee on Housing and Community Opportunity had a hearing today on foreclosures, modifications, and servicing.  There was a deja vu aspect to the hearing.  Congress has been holding this same type of hearing for 4 years now, and nothing seems to change.  The servicers all say that they promise to make improvements, but that they can’t help everyone and nothing really changes.

There was one particularly enlightening moment from the hearing, however.  Rep. Brad Miller (D-NC) asked a panel with some 5 servicing executives on it why it makes sense for a servicer to be affiliated with either a loan originator, a loan securitizer, or a trustee.   He might have been speaking Klingon to these executives.  They stared blankly at him like he was asking them something that was far beyond their comprehension.  None of them had a real answer for him,.

This wasn’t a case of the servicers not wanting to speak an uncomfortable truth.  There are perfectly legitimate reasons to bundle origination and servicing, for example–servicing is countercylical to origination (this is hardly news; banks’ 10-Ks state as much).  Instead, this was a case of silence from ignorance.

I was rather stunned to realize that a bunch of senior servicing executives clearly had no understanding of their own industry and that they had probably never given it any thought.  Maybe I’m just too used to navel-gazing academics, but if top servicing executives don’t understand basic things about their own industry, why are we listening to them about anything?

(Miller’s question is just at the end of the second panel, at around 1:15 pm, which should be 3:15 or so into the total hearing.)

November 18, 2010 at 11:00 PM in Mortgage Debt & Home Equity | Permalink | Comments (10)

Erroneous Foreclosures

posted by Alan White

At this week’s hearings on mortgage servicing and robosigning, featuring the able testimony of Credit Slips’ Adam Levitin, members of Congress asked the usual unimaginative question, “aren’t all these borrowers delinquent, so that foreclosure is inevitable?”  The answer to this question comes in two parts:
1) No.
2) Even homeowners who are indeed delinquent should not be foreclosed in the current housing market if any reasonable workout is possible.

Erroneous foreclosures thus come in two flavors.  Foreclosing someone who is not actually behind, or whose default was precipitated by junk fees, unnecessary or overpriced forced-place insurance, or payment application errors (common in bankruptcy cases) is obviously wrong.  Equally wrong, however, are foreclosures of homeowners who have sufficient income to fund a modified loan that will produce significantly higher investor returns than a distressed foreclosure sale.  Contrary to the pronouncements of servicers and Treasury officials, modification and workout consideration is not happening before foreclosure starts, it runs on a parallel track with foreclosure processes.  Frequently, the foreclosure train wins the race.

Continue reading “Erroneous Foreclosures” »

November 18, 2010 at 9:38 AM in Mortgage Debt & Home Equity | Permalink | Comments (12)

Why a Foreclosure Compensation Fund Is a Bad Idea

posted by Ethan Cohen-Cole

The Washington Post yesterday wrote :

“State attorneys general and the country’s biggest lenders are negotiating to create a nationwide fund to compensate borrowers who can prove they lost their home in an improper foreclosure”

The fund is being compared to the BP oil spill and other general compensation funds.

A general compensation fund is reasonable if a large, non-specific damage has occurred. In such a case, one needs some intermediary to figure out who was damaged and by how much. In the foreclosure example, we don’t have generalized damage; each bank in question had the ability (and the responsibility) to evaluate each document.

A compensation fund would validate the idea that foreclosures are necessarily an error-ridden and imprecise process; that is, that robo-signers are the way of the world.

Do we really want to put the burden of proof on borrowers? If the note holder can’t figure out ownership, how could we expect a homeowner to do it? See huffpost on this.

Anything short of holding the banks fully responsible for current legal requirements is yet another subsidy.

They Really Did Know the Loans Were Bad…

posted by Ethan Cohen-Cole

A firm which few know of – Clayton holdings—will likely soon be at the center of a wide variety of lawsuits and individual complaints. Clayton’s job was to validate the innards of mortgage backed securities (MBS) when made available for sale. The typical setup would have an issuer of a MBS call Clayton and ask them to take a 10 percent sample of the loans, and evaluate whether the loans met the portfolio criteria (had documents been filed, credit scores as reported, etc.). If the loans were incorrect, they could either be taken from the pool and replaced with a good one, an exception made, or a substitute placed into the sample and evaluated instead.

Clayton holdings staff testified last month that 255,802 mortgages out of 911,000 evaluated did not meet portfolio screening criteria. The bank underwriters waived more than 100,000 of them (>39%); that is, even though the mortgages failed the criteria, the banks included them in the MBS pools anyway.

So much for the idea that the issuers didn’t know the loans were bad…

Am I Paying for My House or the Brooklyn Bridge?

posted by Ethan Cohen-Cole

The foreclosure mess has raised new tough questions. We once again seem back to distributional issues. If a foreclosure is in question for a homeowner that has not been paying and a bank that has no good proof of its ownership, what should happen to the house?

1. The bank should get it because a homeowner that fails to pay should forfeit his/her collateral. Morally, why should this deadbeat get an asset for free? Particularly if the whole thing was stirred up by a lawyer. (See the WSJ article on this).

2. We should work through the mess in the courts to determine the validity of the individual case. No one should lose their home based on falsified documents. Careful determination ownership is important.

I have a new suggestion:

3. Any payments that the homeowner made to the bank, the one with no evidence of ownership, should be placed into a third party escrow account.

Continue reading “Am I Paying for My House or the Brooklyn Bridge?” »

MERS: Symptom or Cause

posted by Katie Porter

MERS, which stands for Mortgage Electronic Registration System, is under fire. Courts in a few states have held that MERS does not have standing to pursue a foreclosure in its own name, and there is a pending multi-district litigation claim against MERS. The most recent MERS news is the press release by the Attorney General for the District of Columbia. The District of Columbia has a non-judicial foreclosure process that begins with a Notice of Foreclosure form. The AG has announced that people facing foreclosure can assume that the completion of such a Notice, with its identification of the “Holder of the Note” and the “Security Instrument recorded” in the DC land records means that every intermediate transfer of the security interest is documented in the public records. Under the AG’s interpretation, MERS does not meet this requirement. MERS, when it works properly, is privately tracking the transfer of mortgages without notation in the public records.

Continue reading ” MERS: Symptom or Cause” »

November 6, 2010 at 5:22 PM in Mortgage Debt & Home Equity | Permalink | Comments (12)

Faulty Foreclosures

posted by Adam Levitin

Here’s a real disconnect in the faulty foreclosure story:

Last week Bank of America announced that it was restarting foreclosures after conducting a thorough review of its foreclosure process in two weeks and found everything to be all right.

Today the Wall Street Journal reports that Bank of America has found problems in 10-25 of the first “several hundred” loan files it has reviewed as it refiles foreclosures.

So what’s going on?  I think the only way to read these two stories together is to conclude that Bank of America didn’t actually conduct much of a review during its brief foreclosure freeze.   At best, they engaged in some sampling of loan files, and at worst, they merely reviewed procedures, not actual files.

Continue reading “Faulty Foreclosures” »

October 25, 2010 at 9:44 PM in Mortgage Debt & Home Equity | Permalink | Comments (11)

What the Foreclosure Fiasco Means for People in Foreclosure

posted by Nathalie Martin

It’s hard to keep up with all the foreclosure news or to make heads or tails of it, but two articles strike me as critical reading for foreclosure defense attorneys and people in foreclosure, the first quoting our own Adam Levitin, as well as one on the MERS debacle quoting both Adam and Professor Chris Petersen of the University of Utah. Both explain why robo-signing is not about formalities but real, substantive defenses to foreclosure. The latter article also explains why questions about MERS’ standing are not frivolous. There also is a fabulous series of PBS videos those in foreclosure might want to watch.

Continue reading “What the Foreclosure Fiasco Means for People in Foreclosure” »

October 22, 2010 at 1:21 PM in Mortgage Debt & Home Equity | Permalink | Comments (4)

WSJ Blames Evil Consumer Lawyers

posted by Alan White

Although the Wall Street Journal has provided some excellent coverage of the foreclosure crisis, this story by Robbie Whelan (via Naked Capitalism rebuttal) is pure drivel.  The ludicrous premise is that a coterie of clever consumer lawyers have contrived to keep deadbeat homeowners out of foreclosure by raising silly technicalities.  Never mind that the case used as an illustration involved a homeowner whose timely payments were improperly refused by GMAC Mortgage, and whose dispute is still in litigation.

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October 21, 2010 at 6:42 PM in Mortgage Debt & Home Equity | Permalink | Comments (4)

Moratorium for What?

posted by Alan White

There is little to be accomplished by halting foreclosures and sales in process without some plan resolve the 5 million seriously delinquent mortgages other than by foreclosure sale.  While something can be said for delays that stretch out the process of dumping more unsold homes into a saturated existing homes inventory, we are only about one-third of the way through the crisis at present (having foreclosed or forced the sale about two to three million homes since 2007).  If a moratorium is to do some good, it has to result in diverting some foreclosures to better resolutions.

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October 11, 2010 at 10:59 AM in Mortgage Debt & Home Equity | Permalink | Comments (8)

The Finality of Foreclosure Sales

posted by Bob Lawless

Over at the New York Times, Ron Lieber has an article today with a new angle on the document problems that have caused mortgage lenders like GMAC Mortgage, JP Morgan Chase, and Bank of America to call a halt to foreclosure proceedings. Lieber asks what would happen “if scores of people who had lost their homes to foreclosure somehow persuaded a judge to overturn the proceedings?” What would happen to the persons who had purchased the homes out of foreclosure and are now living in them?

The answer, Lieber writes, might depend on whether they have title insurance. Lieber is not necessarily wrong, but the article conveys more of a sense of crisis than is probably appropriate for the title insurers. That is not to say that the mortgage documentation problems are not serious for other reasons or that the title insurers are home free. The law, however, strongly protects the finality of past foreclosure sales.

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October 9, 2010 at 1:21 PM in Mortgage Debt & Home Equity | Permalink | Comments (14)

Wondering How Lenders Are Making Up for Missing Credit Card Fees? Check Your Home Escrow.

posted by Nathalie Martin

Following credit card reform, interest rates on credit cards have gone up, but this is not the only way lenders are making up for lost fees. My own home loan escrow was recently reset, and increased by about $120 a month on a $1,450 loan. I saw similar things happening to clinic clients and decided to inquire. My taxes and insurance went up roughly $750 or about $60 a month. So what, I wondered, explained the extra $60 a month I was being charged?

The gentleman I reached at my lender (and yes I did find a live body) was super-polite. He explained that the extra $60 was the “voluntary” portion of my escrow. I asked why he called it voluntary.  He said this was the voluntarily portion because “if you would prefer not to pay it, we will stop charging you for it.”

This begs the question of why anyone would want their lender to hold this money for them. Multiply this practice over millions of mortgages, and this really will help lenders’ bottom lines. If you don’t want to help in this way, however, be sure to inquire and let the lender know.

Correction:(10/13) I originally misstated the increse in my monthly escrow payment as $200, not $120 a month, and attributed $80 to the “volunarty” or “unaccounted-for” portion, when the correct amount for the “unaccounted-for” portion is  $60 out of the total $120 increase.  I apologize for the confusion.


October 4, 2010 at 12:11 PM in Mortgage Debt & Home Equity | Permalink | Comments (16)

Wrongful Foreclosures and Clouded Title

posted by Adam Levitin

I think there’s a much bigger problem lurking in the shadows behind the GMAC/JPMChase foreclosures freezes due to concerns about faulty foreclosures:  clouded title.

There’s a lot of wonderful technical stuff involved with wrongful foreclosure claims, but the basic problem is pretty easy to understand:  you have to own a mortgage in order to bring a foreclosure action.  If you don’t own the mortgage, you don’t have any right to kick someone out of his/her house, even if that person has defaulted on his/her mortgage.  And GMAC/JPMChase are sufficiently worried that the trusts they service might not own the mortgages they are foreclosing on that they have put a halt to their foreclosure actions.

Consider, though, what it means if there have been widescale wrongful foreclosures.  If these foreclosures were nonjudicial foreclosures (and maybe even for judicial foreclosures), it means that the foreclosure sale purchasers have clouded title.  The homeowner still has claim to the property and there might still be a valid mortgage on it.  And as many foreclosure sales end up with the lender buying the property and reselling it, what does that mean for the eventual end-buyer?   What does that mean for their title insurer?   This raises all of the classic bona fide purchaser protection issues, but as the linked article reports, at least one title insurer has gotten spooked.

Consider also what this means for homeowners who are current on their mortgages and want to sell their house.  Are we sure who actually owns their mortgage?  If not, there’s a problem.  If it is owned by A, it doesn’t do any good for B to release the mortgage upon the sale.  I think the title insurers’ potential problem goes much further–it’s not just title to foreclosed mortgages that are in question, it’s potentially all private-label securitized mortgages.  Once the title insurers recognize the potential danger here, how willing will they be to write new policies?  And without those policies, how many folks will be able to get mortgages to buy houses?   (And without new business, the title insurers are themselves going to be a bind).  I’m very curious to see how the title insurance industry handles this problem.

September 30, 2010 at 9:13 PM in Mortgage Debt & Home Equity | Permalink | Comments (8)

What’s Eating Todd Zywicki?

posted by Adam Levitin

It’s no secret that there’s no love lost between Todd Zywicki and Elizabeth Warren.   But Todd’s latest salvo in this feud is simply filled with inaccuracies.

Todd goes after Elizabeth for (1) her medical bankruptcy research, (2) the Two-Income Trap, and (3) the treatment of strategic defaults in Congressional Oversight Panel reports.  Todd’s charges in (1) and (2) are just rewarmings of his past critiques of Elizabeth’s work and of Meghan McArdle’s botched hatchet job of Elizabeth in the Atlantic for which she was taken to the woodshed by numerous observers (see also here and here, for example).

But what about the Congressional Oversight Panel’s treatment of strategic defaults? Here, Todd’s claim is demonstrably false.

Continue reading “What’s Eating Todd Zywicki?” »

Rates are Low–Where Are All the Refis?

posted by Adam Levitin

Jean Braucher’s post on the Hubbard-Mayer housing market reform proposal points to a really interesting question:  why is it that despite historically low interest rates, there has been relatively little in the way of refinancings?   This is a critical question because the housing market has traditionally been a prime channel through which the Federal Reserve can use interest rates to affect the economy.  I’ve seen one estimate that the missing refinancings would put $90 billion into the pockets of mortgaged households (around 50 million of ’em) every year, without affecting the federal budget.  That’s real a direct-to-consumer annual stimulus of $1800/mortgaged household. So, what’s preventing more refinancing activity?

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Where Did HAMP Go Wrong?

posted by Adam Levitin

Jean Braucher’s posts about servicers as gatekeepers raises the question of just where did HAMP go wrong?

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September 21, 2010 at 11:39 PM in Mortgage Debt & Home Equity | Permalink | Comments (5)

Mortgage Relief for All; But Who’s Paying??

posted by Jean Braucher

Glenn Hubbard is the dean of the Columbia Business School as well as the former chairman of the Council of Economic Advisors under President George W. Bush. That resume is what makes so puzzling his op ed (with a Columbia colleague, Chris Mayer) in yesterday’s Sunday NY Times: Op-Ed Contributors:  How Underwater Mortgages Can Float the Economy. Maybe I shouldn’t be surprised that their proposal seems unhinged from reality.

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September 20, 2010 at 3:14 AM in Mortgage Debt & Home Equity | Permalink | Comments (10)

Foreclosure Crisis Update

posted by Alan White

Screen shot 2010-09-03 at 4.03.35 PM New numbers are out for the second quarter from the Mortgage Bankers Association’s National Delinquency Survey and HOPE NOW.  After three years, the ramp-up phase of the foreclosure crisis seems to be ending, as the rate of mortgages in default or foreclosure has leveled off, albeit at historically unprecedented and appalling levels.  The bad news is that new (30- and 60-day) delinquencies are still high, although down just a bit from their early 2009 peak, so that the foreclosure pipeline will remain primed for many months to come.   Equally problematic are the huge numbers of very-overdue loans not yet in foreclosure, still at five times their normal level, and portending continued high foreclosure inventory and sale rates for the foreseeable future.

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Explaining the Housing Bubble

posted by Adam Levitin

Some self-promotion:  I’ve posted a new paper to SSRN, coauthored with Susan Wachter (Wharton).  It’s entitled “Explaining the Housing Bubble.”  Here’s the abstract:

There is little consensus as to the cause of the housing bubble that precipitated the financial crisis of 2008. Numerous explanations exist: misguided monetary policy; government policies encouraging affordable homeownership; irrational consumer expectations of rising housing prices; inelastic housing supply. None of these explanations, however, is capable of fully explaining the housing bubble, much less the parallel commercial real estate bubble.

This Article posits a new explanation for the housing bubble. It demonstrates that the bubble was a supply-side phenomenon, attributable to an excess of mispriced mortgage finance: mortgage finance spreads declined and volume increased, even as risk increased, a confluence attributable only to an oversupply of mortgage finance.

The mortgage finance supply glut occurred because markets failed to price risk correctly due to the complexity and heterogeneity of the private-label mortgage-backed securities (MBS) that began to dominate the market in 2004. The rise of private-label MBS exacerbated informational asymmetries between the financial institutions that intermediate mortgage finance and MBS investors. The result was overinvestment in MBS that boosted the financial intermediaries’ profits and enabled borrowers to bid up housing prices.

Despite mortgage securitization’s inherent informational asymmetries, it is critical for the continued availability of the long-term fixed-rate mortgage, which has been the bedrock of American homeownership since the Depression. The benefits of securitization, therefore, must be reconciled with the need for economic stability. The Article proposes the standardization of MBS to reduce complexity and heterogeneity in order to rebuild a sustainable, stable housing finance market based around the long-term fixed-rate mortgage.

Direct-to-author (not posted) comments are most welcome.

HAMP fizzles

posted by Alan White

Treasury reported Friday that a hopelessly inadequate 37,000 mortgages were permanently modified as a result of the Administration’s HAMP program in July.   The program, funded by TARP bailout money, offers mortgage servicers incentives and subsidies to modify mortgages, something they were doing before and should be doing far more anyway.  Last month’s total translates to fewer than half a million modifications annually, compared with perhaps 3 million new foreclosure starts and 1 to 2 million completed foreclosure sales we can expect in this Year Four of the foreclosure crisis.  The future prospects of the program are dim:  fewer than 25,000 new trial modifications were generated last month, compared to the more than 100,000 monthly at the program’s peak in the fall of 2009.


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August 25, 2010 at 10:38 AM in Mortgage Debt & Home Equity | Permalink | Comments (4)

Portrait of California Foreclosures

posted by Alan White
An important and empirically robust new study belies the stereotype of the California foreclosure crisis as resulting from house flippers and social climbers overreaching to buy 4,000 square foot mansions.

The typical California home in foreclosure is a very modest 1,500-square-foot, 2- to 3-bedroom house in the Central Valley or Inland Empire, refinanced in 2005 or 2006 by a Latino family.  The average home value at the time of the loan was about $400,000, considerably less than the $500,000 median home price statewide.   At today’s prices, that average California foreclosure property is likely to be worth between $200,000 and $300,000.   Fewer than half of mortgages in foreclosure were purchase loans.  Thus, the typical foreclosure story is not a family reaching too far in order to buy an unaffordable house, but more likely, of using home equity to pay credit card debt and maintain a middle-class standard of living in the face of stagnating incomes.  Essentially half of all foreclosures in California involve Hispanics, roughly in the same proportion that subprime mortgages were given out in the years prior to the crisis.  Thus, the last to arrive at the bottom rungs of the middle class ladder are the first to be pushed back off.

The picture that emerges from this foreclosure study is of a generation of Hispanic homeowners, typically refinancing an existing, modest home, rather than buying an extravagant McMansion, losing years of accumulated wealth and savings in the process.  Opponents of foreclosure relief and debt reduction regularly invoke the useful fiction of foreclosure victims as profligate yuppies with surplus bathrooms.  The facts are otherwise.

Bankruptcy and the Crisis: Why so Few?

posted by Alan White

Many thanks to Bob for the invitation to guest blog here.  Those who follow Bob’s postings on bankruptcy filing numbers will have seen that U.S. consumer bankruptcy filings have been plodding upwards steadily, but only to roughly where they were before the BAPCPA bubble back in 2005.  One of the inscrutable mysteries of the financial crisis of 2007-??, which is after all a housing and consumer debt crisis, has been how few bankruptcies have been filed.  Somehow, historically unprecedented levels of consumer debt and loan defaults have not produced the surge in bankruptcy filings one would expect.

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HAMP Update: Still Ineffective

posted by Adam Levitin

Another HAMP data report is out.  Same old story–HAMP isn’t doing very much for very many people. We’re up to 398,021 permanent modifications. That’s out of around 1.7 million HAMP eligible mortgages and 5.7 million mortgages that are 60+ days delinquent (the June report doesn’t contain the updated eligibility waterfall, unfortunately). Drop in the bucket. The trial modification numbers are a bit better, at 1.28 million, but the number of new trials each month seems to be flattening out–just 15,153 new trials started in June.  That means new permanent modifications will also start to taper off in a few months. And there are an awful lot of failed trial modifications, as Felix Salmon (commenting on the May numbers) has noted.

I’ve long been skeptical about HAMP as doing too little at too high a cost, and I think the numbers bear out that skepticism. How much evidence has to amass about the failure of HAMP to provide effective foreclosure relief before the program is canned and the policy debate is refocused on providing meaningful foreclosure relief?

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Foreclosure Update: the Good and the Bad

posted by Adam Levitin

Here’s the good news: foreclosure starts in Q1 2010 fell a bit, to 691,017, their lowest number since 2008, according to HOPE Now. It’s encouraging to see the numbers fall, rather than rise, but they are still at extremely high levels.

Here’s the bad news: completed foreclosure sales in Q1 2010 rose significantly to 291,381, their highest number in US history. Some of this might be a matter of reporting over quarters–the Q4 2009 numbers were down, perhaps because of Yuletide forbearance. But the clear message from these numbers is that we are nowhere close to being out of the woods on foreclosures.

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July 13, 2010 at 10:56 AM in Mortgage Debt & Home Equity | Permalink | Comments (7)

Getting Rid of Nonrecourse Mortgages?

posted by Adam Levitin

It’s interesting to look at some of the reader comments to the NY Times article about the rich being more likely to default on their mortgages.  A lot of them are aghast that a mortgage might not be full recourse–that one can walk away and have no personal liability.  What happened to one’s word being their bond, honor, etc?

Since the onset of the mortgage crisis, some commentators (starting with Martin Feldstein in 2008) have been discovering to their horror that a lot of mortgage lending is nonrecourse.  They think this situation is an invitation to moral hazard and argue that we should do away with nonrecourse mortgages and otherwise punish strategic defaulters (without ever saying how we identify a strategic default–not everyone who walks away from an underwater property is a strategic defaulter…)  Putting aside the issue that a lot of mortgages are recourse, I don’t think these commentators have fully thought through the implications of doing so.

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July 12, 2010 at 9:16 AM in Mortgage Debt & Home Equity | Permalink | Comments (5)

Are the Rich More Likely to Default on Their Mortgages?

posted by Adam Levitin

The NY Times has an article about mortgage default rates being higher on larger (>$1M) mortgages than on small mortgages.  The argument suggested by the article is that the rich are more likely to see their homes simply as investments.  Put a different way, the consumption utility component of the home is relatively less important to the rich.  A house has two value components–it’s an investment, and it is also a consumable (but durable) product.   The consumption value of a home is basically the same for everyone–I might derive more or less utility from any particular house, but it is all within a relatively constrained range, and my range is probably around the same as everyone else’s.  That means that the consumption value component of a house is largely fixed, regardless of the house’s price.  The more expensive the house, the smaller the ratio of the consumption value to the investment value.  Therefore, it would follow that people with more expensive houses place more value on the investment component and treat the house more like an investment.

I think that’s correct, but I also think there’s more going on and wish that the analysis in the article had dug deeper because it has unfortunately fed into a narrative of the mortgage crisis being one of strategic default by ruthless investors, with the corollary being that they do not merit any government assistance and even deserve opprobrium or punishment (although they are only playing by the rules of the game, which should have been priced in by lenders).  Here’s what I wish the story had pointed out:

Continue reading “Are the Rich More Likely to Default on Their Mortgages? ” »

Bank of America Settlement — A Sign of True Progress?

posted by Henry Sommer
In my last post I noted the beginnings of some positive movement by consumer protection agencies that have been largely dormant and, in some cases like the United States Trustee program, actively anti-consumer. A few weeks ago, as Katie Porter noted in a recent post, Bank of America (BOA) reached a settlement with the Federal Trade Commission with respect to certain mortgage overcharges, including overcharges in bankruptcy, on mortgages formerly serviced by Countrywide Mortgage. The settlement requires reimbursement to consumers who were overcharged. BOA, in addition to agreeing not to lie, steal, or file documents without reviewing them, will also have to follow notice procedures similar to those that are already required or are likely to be required for all mortgage companies once new Bankruptcy Rule 3002.1 becomes effective in December, 2011. The United States Trustee (UST) Program assisted the FTC in its efforts.  This settlement is the first significant positive result of increased UST scrutiny of mortgage lenders, although the extent of the UST’s participation is not known.

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Combining Chapter 13 with a Voluntary Mortgage Modification

posted by Henry Sommer
First of all, thanks to the Credit Slips gang for giving me a chance to venture into blogging on their site. I hope people find my posts to be of interest.

Most of us are all too familiar with the failure of Congress to pass legislation allowing judicial modification of mortgages in chapter 13 bankruptcy cases. Sadly, our predictions of millions of foreclosures, most of which could have been prevented by that legislation, are coming true, and most knowledgeable observers believe the worst is yet to come. In the absence of a law requiring lenders to modify mortgages, creative bankruptcy attorneys have been doing the best they can with the tools that are available and are having considerable success.

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June 28, 2010 at 1:55 PM in Mortgage Debt & Home Equity | Permalink | Comments (8)

$108 Million Settlement on Countrywide’s Servicing Practices

posted by Katie Porter

Last week, the FTC announced a $108 million settlement with Countrywide based on allegations that Countrywide’s loan servicing operations collected excessive fees. The complaint describes Countrywide’s servicing practices for default fees as part of its strategy to keep on profiting from consumers, even in hard economic times. I’ve previously commented on Countrywide’s description of this as a “countercyclical diversification strategy” that it trumpeted to investors, and what Senator Schumer thought of such a strategy. The complaint alleges that Countrywide used subsidiaries to mark-up fees–often by 50-100%–on default services such as property inspections. Instead of Countrywide loan servicing working directly with vendors for these default services, Countrywide loan servicing would contract with its subsidiary, who would then work with the vendor. And that extra step–from one Countrywide entity to another–dramatically boosted the fees that got charged to struggling homeowners. To me, the lesson of the FTC’s enforcement action is that businesses can use subsidiaries but they can’t use subsidiaries to upcharge consumers and obscure the real costs of services.

The settlement also addresses the problems with Countrywide’s mortgage servicing in bankruptcy. The FTC alleged many of the same wrongs that I identified in a law review article on mortgage servicing in 2008, including that filing claims that it could not substantiate. The UST Program cooperated with the FTC on the enforcement activity, and the settlement also resolves the UST litigation against Countrywide.

If you are a consumer who filed a chapter 13 bankruptcy case with a mortgage serviced by Countrywide, you may be eligible for a cash award. The FTC website has more details.

How to Find the Owner of Your Mortgage

posted by Katie Porter

Concerns continue about parties filing foreclosures when they do not own the note. Florida recently enacted a rules requiring plaintiffs in foreclosure to verify ownership of the note. (Here’s a brief article on the rules, with the original subheading “Bankers Don’t Like It”). While these concerns may be interesting for those of us who understand civil procedure, standing, and the importance of the rule of law, the practical problem looms for homeowners who want to know who owns their note. Particularly, in non-judicial foreclosure states or for those families who are not in foreclosure, they do not have the option to ask the judge to order the plaintiff (foreclosing lender) to prove ownership.

John Rao, an attorney at the National Consumer Law Center and Credit Slips guest blogger, wrote a great short piece in the National Association of Bankruptcy Trustees publication this winter called “Six Ways to Find Out Who Owns and Services the Mortgage.” I can’t seem to find an online version, so I’ll give the short story here. For ownership (rather than servicing), the best options that John identifies are:


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April 20, 2010 at 5:40 AM in Mortgage Debt & Home Equity | Permalink | Comments (8)

Putting the Bankruptcy Option Back on the Table for Distressed Homeowners

posted by Bob Lawless
The New York Times editorialized that “it is time to revive the fight to open the courthouse door to bankrupt homeowners.” Specifically, the NYT wants to revive the proposal to let homeowners use the bankruptcy process to write down the principal balance on their mortgages to the value of the home. Yes, exactly right, as discussed many times here, here, here, here, here, here, here, and here on Credit Slips.

April 16, 2010 at 11:54 AM in Mortgage Debt & Home Equity | Permalink | Comments (5)

The Business of Document Production

posted by Bob Lawless

In legal circles, “document production” is a term of art usually used to describe the transmission of evidentiary documents from one side to another as part of the discovery process in civil procedure. With the mortgage crisis, it also now can refer to the business of documenting the complex ownership chains that were created when mortgages were passed from originator to bank to securitization pool and then perhaps even further down the line. As Katie Porter commented a few weeks ago here at Credit Slips, there seems to be a boom industry in creating the documents to be back upon lenders’ claims that they own a particular mortgage. (If you’re unfamiliar with these issues, Porter’s post provides the relevant background plus some links for more information.)

Now comes a Wall Street Journal story, courtesy of reporter Amir Efrati and Carrick Mollenkamp, saying there is a criminal probe involving one of the top providers of mortgage documents to the lending industry. According to the story, prosecutors are said to be “reviewing the business procedures” of Docx LLC, a subsidiary of Lender Processing Services, Inc. Given the problems that have been reported about mortgage documentation, I was surprised that this article did not get more attention. The article also links to some bankruptcy court documents where LPS services were used, and court sanctions are being sought. Well worth a read.



About timothymccandless

Attorney at law, specializing in litigation, labor law overtime, criminal record expungement, partnership dissolution, and Real Estate workout solutions. Employment law claims and Wage and Hour claims Wrongful termination
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