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Will Wall Street Mortgage Settlement Talks Halt Homeowner Abuse?

Posted by Larry Doyle on April 7, 2011 5:57 AM |

Call me old fashioned but the idea that those engaged in abusive, and very likely fraudulent, business practices are allowed to negotiate a settlement strikes me as un-American.

That said, the world of unintended consequences in our Uncle Sam and Wall Street dominated economic system brings us just such an un-American approach in terms of addressing our current mortgage mess.

Negotiate? Settlement? Growing up in Boston in a family full of lawyers, I was under the impression that fraud and abuse likely got you 5 to 7 years in a medium security facility and maybe you got out in 3 to 4 with good behavior. Perhaps that form of justice still applies to you and me but for the large monied interests who run this country, we’re talking negotiations and settlement. Wow!! Little wonder why the rage in our nation directed at the Wall Street-Washington incest continues to burn so strongly. Let’s navigate.

My commentary of earlier this week, Did Wall Street Violate the Racketeering Act? struck a chord like none other during the life of this blog. I thank all those who wrote to me and shared their stories. A number of people expressed a similar situation as that detailed by Rachel last evening,

Thank you for this story! We were first time homeowners in 2006 credit score 800. We said no to all the bad loans, 40 years ARM, interest only …we made improvements every year and in 2010 had to move for employment. Our realtor said we were underwater and the only way to sell was shortsale. Our bank said we were eligible for this program only if we were not current. We moved and the house didn’t sell and we couldn’t pay for rent and mortgage so in not paying became eligible.

Little did we know the bank didn’t accept 4 offers never enough money for them. Now we are going to foreclosure and bank refuses a deed in lieu. We can’t get a correct appraisal so we can’t sell. I guess we made too many improvements. Now our credit will be destroyed.

All the realtors I spoke with said anyone who bought or took out seconds during 2005 to 2007 are screwed. I am ashamed that our government helps the bank and has abandoned the homeowners who have been screwed. As first time homeowners putting thousands of dollars into a home because we thought being a homeowner was a good thing never to make money. But now our good name is ruined and the last two years has been hell with the bank and we didn’t do anything wrong. We did what they told us to do…..

I obviously do not know all of the particulars of Rachel’s situation or that of others who wrote to me over the last few days. Additionally, I will not deny the fact that there are plenty of individuals who knowingly lied on mortgage applications in an attempt to defraud. That said, there is rampant evidence that many homeowners have truly suffered abuse at the hands of a number of banks.

The American Banker addresses this fact in writing, Seize the Moment: Use Settlement Talks to Halt Abuse of Homeowners,

State attorneys general and federal financial regulators are locked in settlement negotiations with U.S. banks that engaged in abusive, often fraudulent, mortgage and foreclosure practices. These negotiations may be the last, best chance to help struggling homeowners, stabilize neighborhoods and strengthen the economy.

It shouldn’t come as a surprise that before it’s even finalized the settlement is under attack by some in Congress who don’t want banks held to account for their actions. But banks should be held accountable, and if anything the proposed terms should be strengthened.

While the deal is still being negotiated, some elements have been leaked. If these proposed terms get more detail, time frames and teeth, they could go far to prevent future abuses.

All of this, of course, argues for a larger monetary settlement than the $20 billion that has been floated.

What is my immediate reaction to this article acknowledging the fact that negotiations and a likely settlement to this mortgage mess and abuse will occur? $20 billion will not go very far. Moreover, I want to witness the public apology from JP Morgan’s Jamie Dimon, Bank of America’s Brian Moynihan, and Wells Fargo’s John Stumpf to acknowledge and apologize for the abusive and fraudulent practices within their organizations. Ben Bernanke and Tim Geithner should do the same. The only individual who strikes me as having a degree of remorse is the FDIC’s Sheila Bair.

While the $20 billion, or whatever final figure is negotiated, will help somewhat, the very real costs of cleaning up this mess go far beyond the monetary. The loss of confidence in Wall Street, our overall economic system, and our government will likely be felt for generations.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • wsm

    “While the $20 billion, or whatever final figure is negotiated, will help somewhat, the very real costs of cleaning up this mess go far beyond the monetary. The loss of confidence in Wall Street, our overall economic system, and our government will likely be felt for generations.”

    But public apologies from those 3 CEO’s would make you feel better?

    • LD

      As a start…not an end.

      Open the door a crack so a chance for real change in our systems on Wall Street and in Washington can begin.

      Plus what do you think the chances are that these individuals will apologize and acknowledge the abuse? Little to none, so better to be on the record asking for it.

  • Peter

    Larry, it is the audacity in your daring to speak for the vast majority of Americans (representing both sides of the isles’ constituency) that continues to be SPOT ON! You have been blessed with extraordinary pragmatism, wisdom, and chutzpah. The thought provoking insight and common sense values that you bring to the table are an extraordinary example of GOOD CITIZENSHIP!

    • LD

      Peter,

      You are beyond gracious. Remember, this is not about me nor has it ever been. These are critically important issues for our nation as a whole. They need to be addressed and aired. I am happy to do just that.

      Spread the word …and the Sense on Cents.

  • Rick Longlott

    Take the 20 billion multiple it by at least a factor of 5 and maybe, just maybe, you’ll begin to see the bottom of the barrel.

    So, that takes care of some of us, but the idea that an apology will make me feel better, is wrong; it won’t.

    What will make me happy is to see a caravan of FBI, Police and US Marshalls pull up in front of each of the Banks you mentioned,(and Goldman Sachs, too) go to the top floor and handcuff everyone of the CEO’s and their top VP’s.

    Only when I see them shackled and drug through the hallways and lobbys in front of all their employees and out onto the sidewalk with the media filming away, will I even begin to feel a sigh of relief.

    Seize their homes and assets, ruin their credit ratings make them homeless…and I might crack a smile.

    Convict those bastards, put’em in prison…(and not the candyland prisons…REAL ones)for 20 years and I promise, I’ll do cartwheels down the block.

    RL

  • LD

    Rick,

    Wow!! $100 billion is not exactly a small number but the fact is the costs to the system as a whole may even be greater given the fact that the derivatives contracts written on a wide swath of the mortgage market actually served to accelarate the damage and the costs rather than mitigate them. That fact is hardly ever addressed but it is very real. Thus despite the fact that a number of banks have started to pay dividends again the largest hole remains primarily within Bank of America given its own mortgage origination business and that of Countrywide whom they purchased.

    Taxpayers and the nation as a whole continue to subsidize that organization.

    Regrettably you and so many others are paying the price directly and excessively.

    I empathise and understand your sentiments. Wall Street banks violated the trust of so many on so many different fronts.

  • Bob

    Bank of America Seeks to Defeat Loan Modification Mitigation

    “BOA’s general practice and culture is to string homeowners along with no intention of providing actual and permanent modifications,” the complaint says. “Instead, BOA has put processes in place that are designed to foster delay, mislead homeowners and avoid modifying mortgage loans.”

  • Ed

    What did we learn about the impact of politicians on the real estate mortgage industry? That if you do not send the crooks to prison, they will keep doing it!

    We all know about the abusive business practices of Freddie Mac and Fannie Mae – stimulated by political figures, not serious, experienced mortgage bankers. Well, they (and their partnering banks) are already doing it again!

    The following letter was received by an Ohio homeowner – on March 25, 2011:

    Dear Homeowner:

    By now you’ve heard about President Obama’s Stimulus Plan and the benefits for homeowners. Fifth Third Mortgage is pleased to play a key role in supporting home ownership by offering refinancing opportunities under the federal Making Home Affordable Program*. Your current mortgage loan may be eligible for a refinance under this program.

    This new plan will make refinancing easier for many homeowners. Some benefits to refinancing under this plan now include:

    Refinance up to 125% loan-to-value ratio…for instance, if your home is worth $200,000 and your current mortgage exceeds that amount, under this program, you may be ale to refinance your mortgage up to $250,000

    No appraisal required on some single-family homes

    With the relaxed qualifying requirements available through the Making Home Affordable Program, it makes sense to review your current situation now.

    To find out more about your eligibility, please call us during our extended hours: Monday – Thursday 8 a.m. – 8 p.m. Friday 8 a.m. – 6 p.m. and Saturday 9 a.m. ET. You can also visit your neighborhood Banking Center. Our specialists will walk you through your options and help you meet your current financial needs.

    Sincerely,

    Vice President….

    It turns out the bank had purchased lists of borrowers in areas that might now be “under water” and they now want to help them get further under water. When called the bank officer was very polite and eager to help the process move along quickly by “tweaking the numbers” to get a swift and positive action. Now ask yourself, “What type of loan should be made without an appraisal?”

    Question: How many other lenders in America are buying the lists of mortgaged owners and sending similar offers of assistance?

  • Nora

    Usually an apology would have to come from someone who is regretful about his/her action, people who cannot admit to their faults or wrong doings are not apologetic and if they do, then it’s not sincere! Here’s what I think should happen, the banks need to return to the Feds the 3+ trillion Dollars they took, to fill in some of the deficit so the government can function and get out of some of it’s debt. Then the banks need to give all of the TARP money, and that money should go to the struggling home owners so they can pay their debt, (if it’s due), and the economy can move forward. $20Billion, is not enough, not only that, but where exactly is the money going, who is getting that money, the states? Who is going to benefit if an agreement is reached, and how is this going to solve the problem or erase the fraud? The milk has been spilled, tears have been shed, homes have been wrecked, families have been displayed, how can this be forgotten or forgiven? One meeting, one plan few Billion here or there, cannot erase or remedy the entire situation. But, that’s just my opinion, I am not an economist nor a politician, I am just a simple home owner who have been touched by this issue in more ways then one, I know that no matter what the out come, my reality is what it is. The struggles and the trials mixed with pain and anger, eventually will subside, the memory however, will linger on for a while longer. In my case an apology is not wanted, my home is wanted, my good credit is wanted and my health is wanted, peace and joy is needed. All I can say is the banks would have to do much better than what they are doing, and so will the politicians who left us out to dry, in order to get to some kind of a proper clean up. God help everybody, and not forget me!

  • fred

    LD,

    If fraud is committed, fraud should be prosecuted.

    I know I’m in the minority on this issue with your new bloggers, but diverse opinion should be encouraged not shouted down.

    I read Rachael’s story and to me, the fraud she contends, is not clear. It does seem that the short sale requirements should be modified soas to not exclude persons who are current and banks should be required to accept any reasonable offer reflective of current market value; upon property disposition, assuming the homeowner can work out a settlement to repay the lender in full, credit ratings should not be affected.

    That being said, real estate is an illiquid asset and the market can and does go down. If you stop making your monthly mortgage payments your credit rating should reflect this fact. Just because you spend alot of money on home improvements, there is no guarantee you’ll get your money back.

    Like it or not our political and regulatory leaders decided that the bailout of banks was in the best interest of society. Our leaders also made the decision to keep bondholders whole at taxpayer expense. (I was not supportive of either decision).

    But do all property owners who can no longer afford/decided not to pay their mortgage or those faced with a loss on sale in a down market be made whole just because the banks were given bailout money?

  • LD

    Fred,

    The commentary the other day questioning whether Wall Street violated the racketeering Act clearly hit a very deep nerve. I will admit that while I always strongly suspected serious fraud on behalf of the banks during the period of loan origination (let’s say the bulk of this occurred from 2003-2008), I did not appreciate the stories and sentiments regarding the abusive and fraudulent practices alleged and effectively acknowledged by banks during this go round. The robo-signing is blatantly fraudulent.

    All this said, clearly markets fluctuate. Market risks do need to be borne by those taking them.

    Is there any doubt, though, that what we witness here is the very deeply and strongly held sentiment and massively unintended consequence that if the banks got bailed out then others should as well. As one homeowner told me a few years back regarding his choice to strategically default, “I only defaulted on my mortgage and the bank after they defaulted first.”

    What a mess. I will admit that I have gained a much greater appreciation for those subjected to abusive and fraudulent bank practices. I think there is sufficient smoke here to reasonably acknowledge that there is some sort of fire with bank practices at the center of it.

  • Harry

    If this were done by community banks, rather than Chase, Wells, and Bank of American, the FDIC would be prosecuting officers and directors like they currently are at community banks across the land seemingly for the fact that they did not accurately predict the CRE fall. This sure seems a bit more criminal than community bankers not owning crystal balls. What the hell is going on in this country? I’m beginning to get a bit cynical.

    • LD

      Harry,

      GREAT point and one worth repeating. With the overwhelming percentage of the mortgage market dominated by the very few largest banks, the broad brush of condemnation should not include the entire banking industry. Many community bankers and local credit unions are literally fighting for their lives while the bailouts and monetary policy of the Fed truly benefits the largest institutions.

      Thank you, Harry!!

  • John

    A recap from the American Banker.

    Regulators Force Mortgage Servicers to Upgrade Systems, Establish Single Point of Contact

    After months of investigation, the federal banking regulators issued Wednesday a final cease and desist order against the 14 largest servicers that will require them to overhaul their operations, including improving loss mitigation efforts and foreclosure proceedings and creating a single point of contact for troubled borrowers.

    The order will also require servicers to upgrade technology systems for recordkeeping, payments and fees, ban so-called “dual tracking” of mitigation efforts and foreclosure procedures, force enhanced oversight of third parties and mandate a third party consultants to review recent foreclosure activities.

    Although the servicers agreed to the orders, they did not admit to or deny regulators’ allegations. Nor did they pay a monetary fine. Several of the same servicers are facing a separate action from the 50 state attorneys general and other federal agencies which is likely to include a fine. Bank regulators, too, said some kind of fine was still in the offing.

    “The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties,” the central bank said in a press release. “These monetary penalties will be in addition to the corrective actions that the banking organizations are expected to take pursuant to the enforcement actions.”

    Regulators also released an 18-page report on the result of their investigation in which they noted weaknesses throughout the foreclosure and loss mitigation process.

    “Although borrowers whose foreclosure files were reviewed were seriously in default at the time of the foreclosure action, some servicers failed to accurately complete or validate itemized amounts owed by those borrowers,” the report said. “At those servicers, this failure resulted in differences between the figures in the affidavit and the information in the servicing system or paper file. In nearly half of those instances, the differences— which were typically less than $500—were adverse to the borrower.While the error rates varied among the servicers, the percentage of errors at some servicers raises significant concerns regarding those servicers’ internal controls governing foreclosure-related documentation.”

    In their enforcement actions, regulators said they found “deficiencies and unsafe and unsound practices in residential mortgage servicing and in the banks’ initial handling of foreclosure proceedings.”

    The regulators said that banks, contrary to law, filed affidavits for which they did not have personal knowledge or were not properly notarized. They also engaged in foreclosure litigation without ensuring that mortgage documentation was properly endorsed, failed to devote sufficient staffing and resources to the foreclosure process, and did not properly oversee outside and third-party vendors.

    But regulators also backed up a key bank defense that despite significant problems in the foreclosure process, they did not uncover proof that institutions had wrongfully foreclosed on troubled borrowers.

    “Examinations of these eight national bank servicers identified significant weaknesses in mortgage servicing and foreclosure governance that resulted in unsafe and unsound practices,” the Office of the Comptroller of the Currency said in a press release. “The scope and degree of these practices differed among the servicers; however, based on the sample of the files reviewed by OCC examiners, borrowers in the sample were seriously delinquent at the time of foreclosures and servicers held the notes and the documents required to foreclose.”

    The investigation report said that, “with some exception, examiners found that notes appeared properly endorsed, and mortgages appeared properly assigned.”

    “The loan-file reviews showed that borrowers subject to foreclosure in the reviewed files were seriously delinquent on their loans,” the report said. “The reviews also showed that servicers possess original notes and mortgages and therefore had sufficient documentation available to demonstrate authority to foreclosure.”

    While a monetary fine is still in the offing, some banks have already seen losses related to their servicing units. In its first quarter earnings announcement on Wednesday, JPMorgan Chase & Co. said that it is taking a $1.1 billion pretax loss from mortgage servicing rights assets adjustment and allocating $650 million in pre-tax expenses for costs related to foreclosures.

    Under the order, banks are also required to reimburse any borrower who has been harmed by the institutions’ actions.

    Regulators are forcing the servicers to hire an independent consultant to conduct a review of their foreclosure actions from Jan. 1, 2009 to Dec. 31, 2010. The independent review should determine if lenders filed affidavits properly, charged improper fees to borrowers, and conducted loss mitigation activities in accordance with standards established under the Home Affordable Mortgage Program. In general, the review must determine if there were errors or deficiencies in the foreclosure review that resulted in financial harm to a borrower.

    Banks must also stop conducting foreclosure proceedings at the same time they are pursuing loss mitigation efforts with a borrower. Regulators are requiring banks to establish a single point of contact for borrowers throughout the loan mitigation and foreclosure process.

    The order also directs the banks to upgrade their loss mitigation and foreclosure proceedings, including improving communication, increasing staff, reviewing borrower complaints, ensuring proper credit from payments to borrower’s accounts, and establishing mitigation procedures for second liens.

    Banks must also upgrade their management information systems or technology systems that record payments and fees charged.

    Banks also must improve their practices for outside consultants or third-party providers such as law firms. The banks must submit a plan to improve controls and oversight of their activities with the Mortgage Electronic Registration System.

    Separately, the bank regulators and the Federal Housing Finance Agency are issuing orders against MERS and Lender Processing Services, which processes foreclosure documents. The order requires the companies to enhance governance and quality control and perform audits.

    Under the cease and desist orders, banks must submit detailed action plans to regulators describing how they plan to comply with the order including timing, metrics and staffing. The regulators plan to share those details with the Justice Department with the hope of helping that side move toward an agreement with the servicers in the ongoing settlement talks.

    The state AGs offered terms to the top five servicers in February that were primarily focused on pushing for principal reductions. But banks have said such a plan is a nonstarter.

    On Tuesday, Brian Moynihan, the chief executive officer of Bank of America Corp., dismissed calls for principal reductions.

    “In general, we do not see broad-based principal reduction as a sound policy decision for America,” Moynihan said at the National Association of Attorneys General Presidential Initiative summit in Charlotte, N.C. “Fairness is a major concern — it’s hard to see how we could justify reducing principal for many delinquent customers who represent a small portion of borrowers, but not for the vast majority of our customers who have stayed current on their loans — or to reduce principal for an investor, or a person who took out a cash-out refi at the height of the value in their market, when others were more conservative. There are unintended consequences to any policy, and we don’t know what kinds of incentives such a policy could introduce into the market. There also is a question of whether it impacts the customer in any meaningful way.”






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