A few weeks ago our friend at Chink in the Armor said it best in his post Gretchen Swoops for the Kill, and Feints … Twice. He states “Gretchen Moregenson of the New York Times is circling the MERS story. Every once in a while she will seem to make a pass at it but at the last moment she diverts to something else, plucking a nice little morsel but leaving the main dish of MERS behind. She refrains, like everyone else, from coming in for the kill. I know for a fact she knows – from two different sources – but I don’t know why she holds her powder.”
He continues… “She had two stories this past week just like that.”
Again, don’t get me wrong, but there are other players just as important as, if not more so, than the Foreclosure Mills, such as MERS, Lender Processing Services, mortgage-backed security trusts, Freddie Mac/Fannie Mae (or GSEs??).
In today’s NYT’s article Gretchen and Geraldine did, however, manage to get in touch with David J. Stern. Of course, to no one’s surprise he “attributed any backdating to sloppiness on the part of paralegals“.
I am sure that statement will not sit well with any paralegals working there who are working hard, doing exactly what their supervisors are telling them to do.
I must say the most important statement from this article comes from the Florida Attorney General,… “Thousands of final judgments of foreclosure against Florida homeowners may have been the result of the allegedly improper actions of these law firms,” said Mr. McCollum in an interview. “We’ve had so many complaints thatI am confident there is a great deal of fraud here.”
My suggestion to any journalist that fine combs this site is to please do your research and, then, write a mind blowing article that will clear the smoke from the mirrors.
Gretchen, when will you finally swoop in for the kill?
“A compensatory fee not only compensates Fannie Mae for damages but also emphasizes the importance placed on a particular aspect of the servicer’s performance,” the GSE stated in its servicing guide.
Fannie also updated the allowable foreclosure time frames for four states: Florida – 185 days; Maryland – 90 days; Nevada – 150 days; New York (upstate) – 300 days; and New York (downstate) – 420 days.
To remediate a specific problem affecting a loan or correct the servicer’s overall performance, Fannie Mae reserves the right to impose a compensatory fee as provided in the Servicing Guide, Part I, Section 207: Imposition of Compensatory Fees.
With this Announcement, Fannie Mae:
has updated the allowable foreclosure time frames for four states;
is monitoring all delinquent loans in Fannie Mae’s portfolio or MBS pools, and will begin notifying servicers of delays in processing delinquent loans;
may begin conducting reviews of servicer loan files, processes, or procedures;
requires accurate and timely reporting on the delinquency status of mortgage loans; and,
will exercise its remedy to assess compensatory fees as deemed necessary.
Effective with the date of this Announcement, any mortgage loan referred to an attorney (or trustee) to initiate foreclosure proceedings with properties located in the States of Florida, Maryland, Nevada, and New York must meet the new foreclosure time frames noted below:
Florida – 185 days
This timeline has an additional 35 days added to allow for a mediation referral prior to a foreclosure suit being commenced.
Maryland – 90 days
This timeline begins when the case is referred to an attorney to file suit together with a Loss Mitigation Affidavit. The servicer must execute a Final Loss Mitigation Affidavit at the commencement of the case, if appropriate. If a Preliminary Loss Mitigation Affidavit is required, then the time frame allowed will be extended to 120 days.
Nevada – 150 days
New York (Upstate) – 300 days
New York (Downstate) – 420 days
In the State of New York, a timeline of 300 days applies to all localities except for New York City and Long Island.
A timeline of 420 days applies for foreclosures conducted in the five boroughs of New York City — Bronx, Brooklyn (Kings County), Manhattan (New York County), Queens, and Staten Island (Richmond County) — and on Long Island (Nassau and Suffolk Counties).
From Academy Award® nominated filmmaker, Charles Ferguson (“No End In Sight”), comes INSIDE JOB, the first film to expose the shocking truth behind the economic crisis of 2008. The global financial meltdown, at a cost of over $20 trillion, resulted in millions of people losing their homes and jobs. Through extensive research and interviews with major financial insiders, politicians and journalists, INSIDE JOB traces the rise of a rogue industry and unveils the corrosive relationships which have corrupted politics, regulation and academia.
Narrated by Academy Award® winner Matt Damon, INSIDE JOB was made on location in the United States, Iceland, England, France, Singapore, and China.
For the law firms that manage and process foreclosures on behalf of investors and banking institutions, what’s a fair legal fee? What’s a fair filing fee? Should fees to outsourcers be prohibited? And just how much money should it really cost to process a foreclosure?
As I write this, the answer to these and other questions are being fought out in the trenches, in an out-of-sight but increasingly heated battle involving Fannie Mae and Freddie Mac, the law firms that specialize in creditor’s rights, default industry service providers, and various private equity interests.
It’s a complex fight that many say will ultimately shape the way U.S. mortgages are serviced over the course of the next decade — and perhaps beyond. It’s also a debate that promises to spill over into how loans are originated and priced.
“No aspect of the U.S. mortgage business will go untouched by the outcome of this current debate,” said one attorney I spoke with, on condition of anonymity. “This is the single most important issue facing mortgage markets today, and will even determine how securities are structured in the future.”
How foreclosures are managed
Typically, a foreclosure involves legal and court filing fees — it is, after all, a legal process involving the forced transfer of a property from a non-paying borrower to secured lender. But the foreclosure process also typically involves a host of other associated fees, including necessary title searches, potential property insurance, homeowner’s association dues, property maintenance and repair, and much more.
Many of these fees are ultimately tacked onto the “past due” amounts tied to a delinquent borrower — and done so legally. Much like when a credit card becomes past due and the interest rate kicks into high oblivion, consumers looking to catch up on their delinquent mortgage payments must also make up the difference in additional fees in order to successfully do so.
Legal fees in the foreclosure business, however, aren’t what you might think. Instead of billing hourly for most work, as most attorneys in other fields would do, attorneys that specialize in processing foreclosures are paid on a flat-fee basis, using pre-determined fee schedules.
Thanks to the market-making power of the GSEs, Fannie Mae and Freddie Mac — both of whom publish allowable fee schedules for every imaginable legal filing and process in the foreclosure repertoire — the entire foreclosure process has been reduced to a set of flat fees.
And not even negotiated fees, at that. For firms that operate in the field of foreclosure management, the GSE allowable fees amount to a take-it-or-leave-it menu of prices.
“For us, it doesn’t matter who the client is, even if it isn’t Fannie or Freddie,” said one attorney I spoke with, under condition of anonymity. “We know we’re only going to be able to claim whatever that flat fee schedule they set says we can claim, since other investors tend to employ whatever the GSE fee caps are.”
Fannie and Freddie as housing HMOs? In the foreclosure business, that’s pretty much what it amounts to.
But beyond determining the legal fee schedule for much of the multi-billion dollar default services market, the GSEs also largely determine who gets their own foreclosure work. Both Fannie and Freddie maintain networks of law firms called “designated counsel” or “approved counsel” in key states marked with significant foreclosure volume — and they either strongly suggest or require that any servicers managing a Fannie or Freddie loan in foreclosure refer any needed legal work to their approved legal counsel.
Each state will have numerous designated counsel — sometimes as many as five law firms — but in practice, attorneys say, two to three firms end up with the lion’s share of each state’s foreclosure work. In states hit hard by the housing downturn and foreclosure surge, like Florida, the amount of work can be substantial.
“The GSEs can force a servicer to use their designated counsel, especially if timeline performance in foreclosure management is out of some set boundary,” said one servicing executive at a large bank, who asked to remain anonymous. “It’s usually easiest to simply use their counsel on their loans, even if we don’t see that firm as best-in-class.”
With the vast majority of the mortgage market now running through the GSEs, and much of what’s left of the private market following the guidelines Fannie and Freddie establish, it should come as no surprise to find that a few law firms in each state end up with the majority of the foreclosure work, sources say.
The rise of the ‘foreclosure mills’
Being designated as approved counsel by Fannie Mae and/or Freddie Mac does carry risk. Just ask Florida’s David Stern, who has seen his burgeoning operation pejoratively branded a ‘foreclosure mill’ by consumer groups, dragged through the press for both alleged and real consumer misdeeds, and facing numerous investor lawsuits surrounding the operation of DJSP Enterprises, Inc. (DJSP: 3.22 -1.23%) — the publicly-traded processing company tied to the law firm.
While Stern’s operation may win the award for ‘most susceptible to negative publicity,’ how the law firm operates is far from unique in the foreclosure industry.
Kenneth Eric Trent, P.A. of Broward County has amended the Class Action complaint Figueroa v. MERSCORP, Inc. et al filed on July 26, 2010 in the Southern District of Florida.
Included in the amended complaint is MERS shareholders HSBC, JPMorgan Chase & Co., Wells Fargo & Company, AIG, Fannie Mae, Freddie Mac, WAMU, Countrywide, GMAC, Guaranty Bank, Merrill Lynch, Mortgage Bankers Association (MBA), Norwest, Bank of America, Everhome, American Land Title, First American Title, Corinthian Mtg, MGIC Investor Svc, Nationwide Advantage, Stewart Title, CRE Finance Council f/k/a Commercial Mortgage Securities Association, Suntrust Mortgage, CCO Mortgage Corporation, PMI Mortgage Insurance Company, Wells Fargo and also DJS Processing which is owned by David J. Stern.
Marcia Heroux Pounds, Sun Sentinel
August 20, 2010
After months of wrangling with CitiMortgage, Dennis and Joyce Brown got fed up and hired an attorney to fight CitiMortgage’s foreclosure on their Lauderdale Lakes home. The Browns claim they are victims of fabricated documents used to foreclose after CitiMortgage failed to credit them for mortgage payments.
“They ran my blood pressure up so bad,” said Dennis Brown, who hired Fort Lauderdale lawyer Kenneth Eric Trent to fight the foreclosure.
CitiMortgage and its lawyers, David Stern Law Offices, voluntarily withdrew the case against the Browns in Broward County Circuit Court on June 16. But the Browns can’t rest easy. Recently, they’ve received newforeclosure letters from another lawyer representing CitiMortgage.
The Browns’ story is just one example of foreclosures resulting from allegedly fraudulent mortgage assignments and other tactics that “eliminate due process for the homeowner,” Trent said.
He also is suing Stern and his Plantation law firm in federal court in a separate foreclosure case with similar allegations.
In that lawsuit, on behalf of Oakland Park homeowner Ignacio Damian Figueroa, Trent contends that Stern and a mortgage registration firmgenerated fraudulent mortgage documents that are intentionally ambiguous to cloud the real ownership of the Figueroa’s mortgage note.
The foreclosure practices of Stern and two other law firms are under investigation by the Florida Attorney General’s Office. The attorney general recently requested records going back to Jan. 1, 2008, from Stern as well as The Law Offices of Marshall C. Watson, P.A., and Shapiro & Fishman, LLP.
Thousands of Florida homeowners may have lost their homes as a result of improper actions by the firms under investigation. In announcing the probe, Attorney General Bill McCollum, a Republican who is a running for governor, said the law firms may have presented fabricated documents in court to speed the foreclosure process and obtain judgments against homeowners.
Jeffrey Tew, a Miami attorney who represents Stern’s firm, said while the attorney general may have received complaints, there “will not be evidence of fraud.” Due to the large volume of foreclosures, there may have been clerical mistakes, he said. “In past two to three years, the Stern law firm has processed probably 100,000 foreclosures.”
But he disputes that Stern’s law firm fabricated any documents. “I haven’t seen any example where a bank didn’t have a mortgage in default,” Tew said.
Stern represents well known mortgage lenders including Bank of America, Chase, CitiMortgage, Inc., Fannie Mae, Freddie Mac, HSBC, SunTrust, and Wells Fargo. These lenders also are the shareholders of Mortgage Electronic Registration Systems (MERS).
MERS is at the heart of the matter for Trent and other lawyers trying to stop what they view as illegal foreclosures in the nation.
The mortgage registry was created by lenders in the early 1990s to track home loans, including those repackaged as securities and sold to investors. When such loans were in foreclosure, MERS – not the original lender — was often the entity foreclosing. Some lawyers have successfully fought foreclosures by contending that MERS doesn’t own the note, or the borrower’s obligation to repay.
University of Utah law professor Christopher Peterson said MERS mortgage processing system goes against long-standing principles of property law in assigning rights to a note or mortgage. He said the “owner” of a mortgage can’t be the same as the “agent” representing the homeowner, for example.
Yet MERS records “false documents” with names of people who are not executives of the registry system, but often paralegals and clerks of law firms, he said. “It’s an extremely controversial and arguably fraudlent practice,” Peterson said.
Merscorp spokeswoman Karmela Lejarde declined to comment on the criticism of MERS or Trent’s lawsuit, citing company policy not to comment on pending lititgation.
Tew, who represents Stern’s Law Offices, called Trent’s lawsuit “fiction.” He points to Florida’s 5th District Court of Appeal that ruled in July against a homeowner who tried to fight foreclosure on the basis that MERS didn’t own the note or mortgage.
For the Browns’, foreclosure troubles began with not getting credit for their payments fromCitiMortgage, their mortgage servicer.
The couple says they couldn’t clear it up with the lender. “They were claiming I was behind in payment, but I was paying every month,” said Brown, a carpenter who works for the Broward County School System and whose three children and four grandchildren also live in his Lauderdale Lakes home.
They stopped paying on their mortgage in late 2007 and sought legal help.
Another issue in Browns’ case isthe signature on the assignment of Brown’s mortgage, giving rights to CitiMortgage, Trent said. The signature is by Cheryl Samons, who is identified as “assistant secretary of Merscorp.” In reality, Samons is an employee of Stern’s law office.
Tew confirmed Samons’ employment by Stern, but said “it’s very common for companies to appoint a registered agent. That process is absolutely legal and normal.”
But Trent contends that mortgage assignments need to be made on personal knowledge, not hearsay, to be admissible in court.
The Browns could be facing another foreclosure action, but Trent said he is confident he can fight it again. “They don’t have the basis to foreclose,” he said.
CitiMortgage spokesman Mark Rodgers said privacy restrictions prevent the financial institution from discussing a customer’s foreclosure action. But Rodgers said procedures may resume in cases “where, despite our best efforts, we have been unable to arrive at a satisfactory resolution acceptable to all the parties involved.”
Tew said foreclosure defense lawyers are portraying homeowners who have defaulted on their mortgages as helpless victims. “Everyone is sympathetic, including us, for the homeowner who can’t pay his mortgage. But it’s not fair to paint the banks and law firms that represent them as wearing the black hats.”
In accordance with Title 17 U.S.C. Section 107, any copyrighted work in this message is distributed under fair use without profit or payment for non-profit research and educational purposes only. GRG [Ref. http://www.law.cornell.edu/uscode/17/107.shtml]
Banking Executives Tell Obama Officials Government Needs To Play Large Role In Mortgage Market
(AP) WASHINGTON (AP) – The Obama administration invited banking executives Tuesday to offer advice on changing the government’s role in the mortgage market. Their response: stay big.
While the executives disagreed on the exact level of support needed, the group overwhelmingly advocated the government should maintain a large role propping up the nearly $11 trillion market.
Bill Gross, managing director of bond giant Pimco, said the economic recovery required more government stimulus, particularly in the housing market. He suggested the administration push for the automatic refinancing of millions homes backed by mortgage giants Fannie Mae and Fannie Mac.
Refinancing those homes at the lowest mortgage rates in decades would give Americans more money each month. That would boost consumer spending by $50 billion to $60 billion and lift housing prices by as much as 10 percent, he said.
Without such stimulus in the next six months, Gross said, the economy will move at a “snails pace.”
Treasury officials have said they have no plans to enact such a plan, which has been the subject of intense rumors on Wall Street in recent weeks.
Tuesday’s conference at the Treasury Department is the administration’s first of many steps toward restructuring the troubled industry. So far, rescuing Fannie and Freddie has cost the government more than $148 billion. That number is expected to grow.
Treasury Secretary Timothy Geithner pledged “fundamental change” to the structure of Fannie and Freddie. The mortgage giants profited tremendously during good times but burdened taxpayers with losses when the housing market went bust. He said the two companies weren’t the only cause of the financial crisis, but made it worse.
Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. They have ensured that millions of Americans can get home loans – even after the housing market collapsed.
The two companies, the Federal Housing Administration and the Veterans Administration together backed about 90 percent of loans made in the first half of the year, according to trade publication Inside Mortgage Finance.
Geithner did not offer a specific exit strategy for Fannie and Freddie. He agreed that the government could remain involved in the mortgage system by guaranteeing investors in mortgage-backed securities get paid, even when borrowers default.
There is a “strong case to be made” for such an arrangement, Geithner said.’
But Geithner suggested that Fannie and Freddie’s replacements could pay the government to insure the loans. That money could be tapped if the housing market collapses and would ensure taxpayers do not get hit with losses in the future.
“It is our responsibility to make sure that we create a system that is not vulnerable to these same failures happening again,” Geithner said.
Republicans are expected to pick up seats in Congress in November and the Obama administration will need support from both parties to enact changes next year.
The Obama administration’s management of Fannie and Freddie has been under fire for months from Republicans on Capitol Hill. In December, the Treasury Department eliminated a $400 billion cap on how much money it would give the mortgage giants to keep them from failing.
Rep. Spencer Bachus, the top Republican on the House Financial Services Committee, accused the Obama administration of excluding critics of the government’s role in the mortgage system from Tuesday’s conference.
In a letter to Geithner, Bachus said Treasury appears to be “laying the groundwork for a predetermined policy outcome that looks uncomfortably similar to the failed status quo.”
But the industry executives and experts at the conference seemed to agree that the government should maintain a role in the mortgage market, even if Fannie and Freddie disappear someday. Where they disagreed was on the level of government involvement and whether it should be reduced gradually.
Gross advocated the biggest government role. He said Fannie and Freddie’s function should be consolidated into one government agency that would issue mortgage-backed securities. Without such a solid guarantee, mortgage rates would soar, he warned.
Gross said he is skeptical of having those securities issued by the private sector, saying that doing so would favor “Wall Street as opposed to Main Street.”
Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
I’m not so sure this is a wise decision to go after strategic defaulters on their part mainly because they are associated with “Strategic Fraudsters”! I don’t think they realize this may not be limited to just Florida…Attorney Generals in every state should follow Florida’s lead on investigating the Foreclosure Mill’s in their states and see whether or not they are following the correct legal procedures to.
If I were Fannie and Geithner, I would seriously reconsider anything plans they may have.
THE Federal National Mortgage Association — known as Fannie Mae — and the Federal Home Loan Mortgage Corporation — Freddie Mac — were poorly structured from the time, 40 years ago, when they were set up as so-called government-sponsored enterprises. Both of these technically private companies, designed to foster the issuance of home mortgages, enjoyed implicit federal backing in the event they got into financial trouble but only weak regulation to prevent such trouble. Essentially, the federal government insured the companies’ liabilities but never charged a premium.
Fannie and Freddie had a license to print money. They could borrow at an interest rate only a bit over the Treasury rate and then accumulate large portfolios of mortgages and mortgage-backed securities earning the market rate. What a deal — borrow at the low rate, invest at a higher one, hold little capital and let the federal government bear the risk! Investors enjoyed high returns, and management enjoyed high salaries. Incidentally, politicians also got a steady flow of campaign contributions from the companies’ executives.
Fannie and Freddie’s risky policies led to their near collapse; in September 2008, the federal government brought them under federal conservatorship. Fannie and Freddie have cost taxpayers about $150 billion so far.
On Tuesday, the Obama administration plans to hold a conference to address the question of what to do with the two companies. Clearly, it would be an inexcusable mistake to reconstitute them as private companies in anything close to their prior form. Some people have suggested recasting them as a single new “Fan-Fred agency” that would continue to securitize and guarantee home mortgages. It’s true that Fannie and Freddie played an important role in developing the market for mortgage-backed securities. But they have completed that work, and they should not be preserved in any form. They should be thanked for their successes and gracefully retired.
William Poole, a senior fellow with the Cato Institute and a distinguished scholar in residence at the University of Delaware, was president of the Federal Reserve Bank of St. Louis from 1998 to 2008.
It is alleged that the firms, which were hired by loan servicers to begin foreclosure proceedings when homeowners were behind on their mortgages, may have fabricated mortgage assignments in order to speed up the foreclosure process.
“Thousands of final judgments of foreclosure against Florida homeowners may have been the result of the allegedly improper actions of the law firms under investigation,” said McCollum, who is running for governor.
“We are seeing a paperwork trail where law firms, through a mill, prepared paperwork with signatures from lenders who had assigned the mortgage,” he said.
All they have to do is look into several blogs and attorney sites to see the evidence of fraud including this one.
________________________________________
Here is Stern’s subpoena below…
Excerpts:
YOU ARE HEREBY COMMANDED to produce at said time and place all documents, as defined above, relating to the following subjects:
1. A list of all employees, independent contractors and/or subcontractors of the Law Offices of David J. Stern (DJS) for the past 5 years (former and current employees, independent contractors and/or subcontractors) including their job title(s), their duties and responsibilities and the length of their employment with DJS, including any contracts DJS has or had with them.
2. For the past five years, the names and addresses of any and all lawyers and/or law firms that DJS hires/uses throughout the State to represent their clients in foreclosure cases and in what capacity said lawyers/law firms serve DJS, including any contracts between DJS and the lawyer(s) and/or law firm(s).
3. The names and addresses of the lending institutions that DJS has represented in foreclosure cases over the past 5 years, including any contracts between DJS and said institutions.
4. The names and addresses of any and all companies used by DJS to draft and/or execute Assignments of Mortgage or Affidavits for the past 5 years, including any contracts between the lending institutions and DJS allowing for the use of the companies to draft and/or execute said Assignments of Mortgage.
5. The names and addresses of any and all persons and/or companies hired and/or used by DJS to perfect service of process on foreclosure defendants for the past 5 years, including their relationship to DJS and/or David J. Stern, individually including any and all contracts between the person or persons and/or company and DJS.
6. The names and addresses of any and all servicing companies DJS represents or represented for the past 5 years.
7. For the past 5 years, the names and addresses of any corporations, companies, partnerships or associations that David J. Stern and/or DJS has any interest in, including any foreign corporations, and detail what the business does and what type of interest is held by Stern and/or DJS.
9. List all notaries for the past 5 years that worked or works for DJS who notarized Affidavits as to fee and Assignments of Mortgage, include their names and addresses.
10. Copies of all non-disclosure agreements that DJS has or had over the past 5 years with any and all of its employees, subcontractor or independent contractors.
11. Copies of all checks and/or evidence of any other form of payment(s) from the plaintiffs that DJS represents in court in foreclosure cases to DJS and/or any of DJS’s affiliates and/or subsidiaries for services rendered in foreclosure cases.
12. Documents, including emails, that evidence what the pay scales, pay grades and/or bonuses paid by DJS to employees, subcontractors or independent contractors for completion of foreclosure cases within a certain time period.
13. Documents, including emails, that evidence what the pay scales, pay grades and/or bonuses paid by lenders to DJS or its employees, subcontractors or independent contractors for completion of foreclosure cases within a certain time period
Washington Post Staff Writer
Saturday, August 7, 2010
For several decades, whenever a question of housing policy came up in Washington, two companies dominated. Fannie Mae and Freddie Mac marshaled armies of lobbyists, deep political connections and millions of dollars in contributions to get their way.
But now Fannie Mae and Freddie Mac, titans of the mortgage finance industry, are wards of the state, bailed out by Washington to the tune of $160 billion and banned from political activity. As the Obama administration and Congress prepare to take up overhauling the $12 trillion U.S. mortgage market, new interests are shaping the debate like never before.
Among those influencing many Democrats are affordable housing advocates and liberal think tanks that want the government to do less to foster homeownership and more to support rental housing for low-income people. Those influencing Republicans favor sharply reducing all federal support for housing.
In the past, Fannie and Freddie found backers on both sides of the political aisle. Key Democrats in Congress and in the Clinton administration were their most ardent supporters. President George W. Bush touted an “ownership society,” relying on Fannie and Freddie to help low-income people buy homes.
Officials from both parties now agree that the housing finance system is unsustainable; virtually all new home loans are guaranteed by Fannie, Freddie or the Federal Housing Administration, putting taxpayers on the line. Administration officials say they still believe in a significant government role in promoting home ownership, but one less expansive than under previous presidents. Republicans, who have introduced legislation to get rid of Fannie and Freddie altogether, might not vote for an overhaul that retains any government role in housing.
On Aug. 17, the Treasury Department is hosting a conference of financial companies, housing advocates, academics and other interested parties to begin discussing how to design a new system that doesn’t rely as much on taxpayers. The Obama administration is required to make a proposal by January under the bill recently passed by Congress to reshape financial regulation.
All these problems came about the same time MERS came to existence…now tell me something? Isn’t this a tad of a coincidence these issues became at the same time sub-prime loans hit peak?
MERS was created in 1995 under the auspices of the Mortgage Bankers Association (MBA), as the mortgage industry’s utility, to streamline the mortgage process by using electronic commerce to eliminate paper. Our Board of Directors and shareholders are comprised of representatives from the MBA, Fannie Mae, Freddie Mac, large and small mortgage companies, the American Land Title Association (ALTA), the CRE Finance Council, title underwriters, and mortgage insurance companies.
Our initial focus was to eliminate the need to prepare and record assignments when trading mortgage loans. Our members make MERS the mortgagee and their nominee on the security instruments they record in the county land records. Then they register their loans on the MERS® System so they can electronically track changes in ownership over the life of the loans. This process eliminates the need to record assignments every time the loans are traded. Over 3000 MERS members have registered more than 65 million loans on the MERS® System, saving the mortgage industry hundreds of millions of dollars in the process. The Federal Housing Administration (FHA) and Veterans Administration (VA) approved MERS for government loans because they recognized the value to consumers. On table-funded loans, MERS eliminates the cost to the consumer of the mortgage assignment ($30 – $150). In addition, the MERS process ensures that lien releases are not delayed by eliminating potential breaks in the chain of title. Similar to the residential product, we also addressed the assignment problem in the commercial market with MERS® Commercial, on which is registered over $110 billion in Commercial Mortgage-Backed Securities (CMBS) loans.
More than 60 percent of existing mortgages have an assigned MIN, making a total of 65,000,000 loans registered since the inception of the system in 1997. The corresponding data for these mortgages is tracked on the MERS® System from origination through sale and until payoff. MERS therefore offers a substantial base of historical data about existing loans that can be harnessed to bring transparency to existing MBS products. Attached are letters from the MBA, FHA, Fannie Mae and Freddie Mac on this point.
Financial giants have figured out yet another way to profit from fraud. After devastating communities across the country with shady subprime loans, the mortgage industry has launched a new assault on America’s neighborhoods. Big banks are now outsourcing their foreclosure processing to shady law firms with a history of breaking the law for a quick buck. These foreclosure scammers forge documents, backdate signatures, slap families with thousands of dollars in illegal fees and even foreclosure on borrowers who haven’t missed a payment.
Andy Kroll lays out the insanity in a terrific piece for Mother Jones. “Foreclosure mills,” as they are known, have been around for years, but they’ve become a much bigger problem as the mortgage crisis has deepened. Fannie Mae and Freddie Mac spurred the creation of these social beasts decades ago to help them process large volumes of foreclosures quickly and cheaply. Pretty soon big banks wanted in on the action, and bailout barons at Wells Fargo, Citigroup and Bank of America starting sending foreclosures to these scummy law firms by the thousands.
Banks opt to outsource dirty work like this for a reason. It takes weeks to process the legal work necessary to kick somebody out of their home, since cops and judges don’t want to give borrowers the boot without proof. If you can cut down that processing time, you can save a lot of money on legal bills. Foreclosure mills cut costs for banks by cutting corners—when they can’t compile the documentation needed to push families out of their homes right now, they simply fabricate the documents. Still worse, these guys illegally withhold documentation from borrowers seeking to negotiate loan modifications with their banks—effectively forcing borrowers out of their homes instead of allowing them to cut a deal with the bank. When borrowers actually do straighten things out with foreclosure mills, the scumbags slap them with huge illegal fees. Kroll details a foreclosure mill that erroneously tried to evict a Florida couple who had been paying their mortgage on time. When it became clear that the couple could not be kicked out of their home, the foreclosure mill tried to charge them $18,500 in fees for mistakes committed by the foreclosure mill and the bank. The foreclosure mill even invented two new people who it said lived in the home in order to demand four sets of legal processing fees instead of two.
If nobody holds you accountable, then lying, cheating and stealing are very profitable business models. That’s one reason why banks love sending this kind of work to foreclosure mills. While the foreclosure mills and their lawyers have been bombarded with lawsuits for their trickery, the banks are not directly involved in the funny business. So Citi, BofA, Fannie and Freddie get to cut their costs with shady practices, but they don’t have to shoulder the legal liability for them, even though they must surely know what goes on (if they don’t know, they’re being astonishingly negligent, and should be held responsible).
The foreclosure mill scandal is very similar to a game the banks played in the craziest days of the housing bubble. A few years back, banks outsourced much of the work that goes into issuing mortgages to third-party mortgage brokers. Banks knew that many of these brokers were up to no good, and routinely trained brokers how to steer borrowers into unaffordable subprime loans. Banks also lobbied regulators aggressively for the right to look the other way when brokers abused borrowers or committed fraud. For a few years, banks made big bucks as mortgage brokers turned out fraudulent loans by the truckload. When those loans started defaulting, the banks pleaded innocence and blamed the brokers for the social and economic fallout.
Fannie Mae executives bungled their stewardship of the federal government’s massive foreclosure-prevention campaign, creating a bureaucratic muddle characterized by “mismanagement and gross waste of public funds,” according to a whistleblower lawsuit by a former Fannie Mae executive and consultant.
Caroline Herron, a former Fannie vice president who returned to the mortgage giant in 2009 as a high-level consultant, claims that the homeowner-relief effort was marred by delays, missteps and executives preoccupied with their institution’s short-term financial interests.
“It appeared that Fannie Mae officers were focused on maximizing incentive payments available to Fannie Mae under various federal programs – even if this meant wasting taxpayer money and delaying the implementation of high-priority Treasury programs,” she claims in the lawsuit.
Herron alleges that Fannie Mae officials terminated her $200-an-hour consulting work in January because she raised questions about how it was administering the federal government’s push to help homeowners avoid foreclosure, known as the Home Affordable Modification Program, or HAMP.
A good piece at Mother Jones, “Fannie and Freddie’s Foreclosure Barons” (hat tip Foghorn Leghorn) provides a window on a seamy big business: cut rate foreclosure processing machines that routinely ride roughshod over borrowers and the law.
Unfortunately, space limitations prevent the story from going deeply into some critical issues. The piece does a good job of explaining how these cut rate legal services operations are creations of Fannie and Freddie and illustrating how they are engaging in fabricating documents. The story focuses on a specific bad actor, a law firm founded by David Stern that handles roughly 1/5 of the foreclosures in Florida:
Ariane Ice sat poring over records on the website of Florida’s Palm Beach County…She and her husband, Tom, an attorney, ran a boutique foreclosure defense firm called Ice Legal…. Ice had a strong hunch that Stern’s operation was up to something, and that night she found her smoking gun.
It involved something called an “assignment of mortgage,” the document that certifies who owns the property and is thus entitled to foreclose on it….By law, a firm must execute (complete, sign, and notarize) an assignment before attempting to seize somebody’s home.
A Florida notary’s stamp is valid for four years, and its expiration date is visible on the imprint. But here in front of Ice were dozens of assignments notarized with stamps that hadn’t even existed until months—in some cases nearly a year—after the foreclosures were filed. Which meant Stern’s people were foreclosing first and doing their legal paperwork later. In effect, it also meant they were lying to the court—an act that could get a lawyer disbarred or even prosecuted. “There’s no question that it’s pervasive,” says Tom Ice of the backdated documents—nearly two dozen of which were verified by Mother Jones. “We’ve found tons of them.”
This all might seem like a legal technicality, but it’s not. The faster a foreclosure moves, the more difficult it is for a homeowner to fight it—even if the case was filed in error. In March, upon discovering that Stern’s firm had fudged an assignment of mortgage in another case, a judge in central Florida’s Pasco County dismissed the case with prejudice—an unusually harsh ruling that means it can never again be refiled. “The execution date and notarial date,” she wrote in a blunt ruling, “were fraudulently backdated, in a purposeful, intentional effort to mislead the defendant and this court.”…
But the Ices had uncovered what looked like a pattern, so Tom booked a deposition with Stern’s top deputy, Cheryl Samons, and confronted her with the backdated documents—including two from cases her firm had filed against Ice Legal’s clients. Samons, whose counsel was present, insisted that the filings were just a mistake. She refused to elaborate, so the Ices moved to depose the notaries and other Stern employees whose names were on the evidence. On the eve of those depositions, however, the firm dropped foreclosure proceedings against the Ices’ clients.
It was a bittersweet victory: The Ices had won their cases, but Stern’s practices remained under wraps. “This was done to cover up fraud,” Tom fumes. “It was done precisely so they could try to hit a reset button and keep us from getting the real goods.”
Backdated documents, according to a chorus of foreclosure experts, are typical of the sort of shenanigans practiced by a breed of law firms known as “foreclosure mills.” ….The mills think “they can just change things and make it up to get to the end result they want, because there’s no one holding them accountable,” says Prentiss Cox, a foreclosure expert at the University of Minnesota Law School. “We’ve got these people with incentives to go ahead with foreclosures and flood the real estate market.”
Yves here. This is far from the only form of document forgeries. A widespread abuse is what bankruptcy attorney Max Gardner calls the “alphabet problem.”
Mortgage securitizations were very carefully designed to satisfy a number of concerns. One of them was bankruptcy remoteness, that if an originator failed, as Countrywide, New Century, IndyMac and a host of others did, that the creditors in the bankruptcy would not be able to claw mortgages back out of securitizations (assets sold close to the date of a bankruptcy may be deemed to have been conveyed fraudulently, and thus can be seized by the court on behalf of the creditors).
To prevent this from occurring, the Pooling and Servicing Agreement (the master document that governs the securitization) would provided for a minimum of two independent legal entities to sit between the originator and the trust that would hold the mortgages being securitized (technically, the note, which is the IOU; the mortgage, which is a lien, follows the note in 45 states). So the prescribed minimum number of steps was A (originator) => B => C => D (trust). Some securitizations (for reasons unrelated to establishing bankruptcy remoteness) would provide for even more steps.
Keep in mind that the PSA also required that the notes be conveyed to the trust, with the proper chain of endorsements, by closing; certain exceptions and fixes were permitted up to 90 days after closing, but these would be applicable only to a very small proportion of the pool.
Retirement of HomeSaver Advance Servicing Guide, Part VII, Section 609: HomeSaver Advance
Technology Usage and Electronic Invoice Submission Charges to Attorneys and Trustees Servicing Guide, Part VII, Section 501.03: Allowable Attorney Fees, and Part VIII, Section 104.04: Attorney (or Trustee) Fees
Prohibition Against Servicer-Specified Vendors for Fannie Mae Referrals Servicing Guide, Part VII, Section 501.03: Allowable Attorney Fees, and Part VIII, Section 104.04: Attorney (or Trustee) Fees
Prohibition on Outsourcing Fees, Referral Fees, Packaging Fees, and Similar Fees Servicing Guide, Part VII, Section 501.03: Allowable Attorney Fees, and Part VIII, Section 104.04: Attorney (or Trustee) Fees
Attorney or Trustee File Transfers Servicing Guide, Part VII, Section 501: Selection of Bankruptcy Attorneys and Avoiding Delays in Case Processing, and Part VIII, Section 104: Referral to Foreclosure Attorney/Trustee
New Documentation Aging Requirements Established for Loss Mitigation Options Servicing Guide, Part VII, Section 601.01: Requesting Preliminary Financial Information
Mandatory Nature of Retained Attorney Network Servicing Guide, Part VII, Section 501.01: Fannie Mae-Retained Attorneys, and Part VIII, Section 104.01: Fannie Mae-Retained Attorneys
Deeds-in-Lieu of Foreclosure Servicing Guide, Part VII, Section 606: Deeds-in-Lieu of Foreclosure
Clarification Regarding Foreclosure Actions in the Name of Mortgage Electronic Registration System (MERS)
Monitoring Pooled from Portfolio (PFP) Mortgage Loans
Announcement 08-31, Fannie Mae 2009 Single-Family Master Trust Agreement, the Amended and Restated 2007 Single-Family Master Trust Agreement, and Certain Servicing Clarifications and Changes, Including Expanded Loss Mitigation Flexibility, and Announcement 07-03R, Reissuance of the Instructions for the Fannie Mae Single-Family MBS Master Trust Agreement
Servicer Responsibilities for Non-Escrow Mortgage Loans Servicing Guide, Part III, Section 103: Escrow Deposit Accounts
Audit Confirmation Request Process Changes Servicing Guide, Part X, Section 106: Audit Confirmations
How the federal housing agencies—and some of the biggest bailed-out banks—are helping shady lawyers make millions by pushing families out of their homes.
LATE ONE NIGHT IN February 2009, Ariane Ice sat poring over records on the website of Florida’s Palm Beach County. She’d been at it for weeks, forsaking sleep to sift through thousands of legal documents. She and her husband, Tom, an attorney, ran a boutique foreclosure defense firm called Ice Legal. (Slogan: “Your home is your castle. Defend it.”) Now they were up against one of Florida’s biggest foreclosure law firms: Founded by multimillionaire attorney David J. Stern, it controlled one-fifth of the state’s booming market in foreclosure-related services. Ice had a strong hunch that Stern’s operation was up to something, and that night she found her smoking gun.
It involved something called an “assignment of mortgage,” the document that certifies who owns the property and is thus entitled to foreclose on it. Especially these days, the assignment is key evidence in a foreclosure case: With so many loans having been bought, sold, securitized, and traded, establishing who owns the mortgage is hardly a trivial matter. It frequently requires months of sleuthing in order to untangle the web of banks, brokers, and investors, among others. By law, a firm must execute (complete, sign, and notarize) an assignment before attempting to seize somebody’s home.
A Florida notary’s stamp is valid for four years, and its expiration date is visible on the imprint. But here in front of Ice were dozens of assignments notarized with stamps that hadn’t even existed until months—in some cases nearly a year—after the foreclosures were filed. Which meant Stern’s people were foreclosing first and doing their legal paperwork later. In effect, it also meant they were lying to the court—an act that could get a lawyer disbarred or even prosecuted. “There’s no question that it’s pervasive,” says Tom Ice of the backdated documents—nearly two dozen of which were verified by Mother Jones. “We’ve found tons of them.”
This all might seem like a legal technicality, but it’s not. The faster a foreclosure moves, the more difficult it is for a homeowner to fight it—even if the case was filed in error. In March, upon discovering that Stern’s firm had fudged an assignment of mortgage in another case, a judge in central Florida’s Pasco County dismissed the case with prejudice—an unusually harsh ruling that means it can never again be refiled. “The execution date and notarial date,” she wrote in a blunt ruling, “were fraudulently backdated, in a purposeful, intentional effort to mislead the defendant and this court.”
Stern has made a fortune foreclosing on homeowners. He owns a $15 million mansion, four Ferraris, and a 130-foot yacht.
More often than not in uncontested cases, missing or problematic documents simply go overlooked. In Florida, where foreclosure cases must go before a judge (some states handle them as a bureaucratic matter), dwindling budgets and soaring caseloads have overwhelmed local courts. Last year, the foreclosure dockets of Lee County in southwest Florida became so clogged that the court initiated rapid-fire hearings lasting less than 20 seconds per case—”the rocket docket,” attorneys called it. In Broward County, the epicenter of America’s housing bust, the courthouse recently began holding foreclosure hearings in a hallway, a scene that local attorneys call the “new Broward Zoo.” “The judges are so swamped with this stuff that they just don’t pay attention,” says Margery Golant, a veteran Florida foreclosure defense lawyer. “They just rubber-stamp them.”
But the Ices had uncovered what looked like a pattern, so Tom booked a deposition with Stern’s top deputy, Cheryl Samons, and confronted her with the backdated documents—including two from cases her firm had filed against Ice Legal’s clients. Samons, whose counsel was present, insisted that the filings were just a mistake. She refused to elaborate, so the Ices moved to depose the notaries and other Stern employees whose names were on the evidence. On the eve of those depositions, however, the firm dropped foreclosure proceedings against the Ices’ clients.
It was a bittersweet victory: The Ices had won their cases, but Stern’s practices remained under wraps. “This was done to cover up fraud,” Tom fumes. “It was done precisely so they could try to hit a reset button and keep us from getting the real goods.”
Backdated documents, according to a chorus of foreclosure experts, are typical of the sort of shenanigans practiced by a breed of law firms known as “foreclosure mills.” While far less scrutinized than subprime lenders or Wall Street banks, these firms undermine efforts by government and the mortgage industry to put struggling homeowners back on track at a time of record foreclosures. (There were 2.8 million foreclosures in 2009, and 3.8 million are projected for this year.) The mills think “they can just change things and make it up to get to the end result they want, because there’s no one holding them accountable,” says Prentiss Cox, a foreclosure expert at the University of Minnesota Law School. “We’ve got these people with incentives to go ahead with foreclosures and flood the real estate market.”
Stern’s is hardly the only outfit to attract criticism, but his story is a useful window into the multibillion-dollar “default services” industry, which includes both law firms like Stern’s and contract companies that handle paper-pushing tasks for other big foreclosure lawyers. Over the past decade and a half, Stern has built up one of the industry’s most powerful operations—a global machine with offices in Florida, Kentucky, Puerto Rico, and the Philippines—squeezing profits from every step in the foreclosure process. Among his loyal clients, who’ve sent him hundreds of thousands of cases, are some of the nation’s biggest (and, thanks to American taxpayers, most handsomely bailed out) banks—including Wells Fargo, Bank of America, and Citigroup. “A lot of these mills are doing the same kinds of things,” says Linda Fisher, a professor and mortgage-fraud expert at Seton Hall University’s law school. But, she added, “I’ve heard some pretty bad stories about Stern from people in Florida.”
While the mortgage fiasco has so far cost American homeowners an estimated $7 trillion in lost equity, it has made Stern (no relation to NBA commissioner David J. Stern) fabulously rich. His $15 million, 16,000-square-foot mansion occupies a corner lot in a private island community on the Atlantic Intracoastal Waterway. It is featured on a water-taxi tour of the area’s grandest estates, along with the abodes of Jay Leno and billionaire Blockbuster founder Wayne Huizenga, as well as the former residence of Desi Arnaz and Lucille Ball. (Last year, Stern snapped up his next-door neighbor’s property for $8 million and tore down the house to make way for a tennis court.) Docked outside is Misunderstood, Stern’s 130-foot, jet-propelled Mangusta yacht—a $20 million-plus replacement for his previous 108-foot Mangusta. He also owns four Ferraris, four Porsches, two Mercedes-Benzes, and a Bugatti—a high-end Italian brand with models costing north of $1 million a pop.
Despite his immense wealth and ability to affect the lives of ordinary people, Stern operates out of the public eye. His law firm has no website, he is rarely mentioned in the mainstream business press, and neither he nor several of his top employees responded to repeated interview requests for this story. Stern’s personal attorney, Jeffrey Tew, also declined to comment. But scores of interviews and thousands of pages of legal and financial filings, internal emails, and other documents obtained by Mother Jones provided insight into his operation. So did eight of Stern’s former employees—attorneys, paralegals, and other staffers who agreed to talk on condition of anonymity. (Most still work in related fields and fear that speaking publicly about their ex-boss could harm their careers.)
Andy Kroll is a reporter at Mother Jones. For more of his stories, click here. Email him with tips and insights at akroll (at) motherjones (dot) com. Follow him on Twitter here.
The GSE rule is: A borrower is denied equal access to government supported financial markets for seven years unless the borrower “waives” rights to challenge servicer claims? This is a direct attempt to deprive an individual of access to the legal system in order to redress grievances. This is an unconstitutional exercise of power by these quaisi-govt authorities controlled by government. If the govt cannot do that in its own name–how can it be proper to do it under a nameplate of an entity owned and controlled by the government. Aside from implications in respect of civil liberties, it is not even good financial policy for servicers and lenders to be automatically released of liability for predatory lending and collection activities. This rule can have only one effect and that is to encourage more abuses. This is tantamount to abolishing judicial oversight of lending abuses.
By: Carrie Bay 07/26/2010 DSNEWS
Last month, Fannie Mae announced new policy changes intended to deter financially competent homeowners from walking away from their mortgage obligation by imposing stiffer penalties for strategic default – a phenomenon that has become increasingly more common as home prices have plummeted and more and more borrowers find that they owe more on their mortgage than the home is worth.
The GSE says borrowers who intentionally default when they had the capacity to pay or those who do not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage for a period of seven years from the date of foreclosure.
Fannie Mae says the policy change is designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure. While a bold attempt at preventing unnecessary foreclosures, the analysts at Moody’s Investors Service argue that the GSE may encounter snags ahead since figuring out who to penalize for strategically walking away will be a significant challenge and implementing the policy could be difficult.
Previously, the GSE barred homeowners who’d been foreclosed on from obtaining a new mortgage for five years. However, Fannie Mae’s new policy extends the foreclosure-waiting period to seven years unless the borrower can prove that they faced extenuating circumstances when they defaulted on the loan.
For borrowers who can prove hardship or document that they attempted to contact their servicer to obtain a loan workout, the waiting period could be reduced to as little as three years. For borrowers who attempt to “gracefully exit” their mortgage obligation by means of a short sale or a deed in lieu may only have to wait two years to obtain a new Fannie Mae mortgage.
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