By L. Randall Wray
Benzinga Columnist
December 23, 2010 12:43 PM
As I have written, when we peel back the layers of the real estate “onion” what we find is layer after layer of fraud. From the mortgage brokers to the appraisers and lenders, from the securitizers to the ratings agencies and accountants, from the trustees to the servicers, and from MERS (Mortgage Electronic Registry System) through to the foreclosures, what we find is a massive criminal conspiracy—probably the worst in human history. I realize that is a harsh claim but I cannot find any other words that fit.
In the old days, we used to hang horse thieves. The justification was that a man’s horse was necessary to his way of life, and in some cases, to his very survival. There can be little doubt that a home is equally important to maintenance of a middle class living standard today for most Americans. There is almost no calamity worse than loss of one’s home. It is the main asset that most Americans hold—essential to the educational success of one’s children, and to a comfortable retirement of our citizens. Americans typically borrow against their home equity to put their kids through college, to ease the financial distress caused by unexpected health care expenses, and to finance other large expenditures. The accumulated equity in the home is the only significant source of wealth for the vast majority of Americans. The home is necessary to one’s continuing connection to the neighborhood, school district, and network of friends. Theft of one’s house today is certainly equivalent to theft of a horse 150 years ago.
State-level legislation introduced earlier this year proposed that the beneficiary of a trust deed have only 30 days after payoff to deliver a written request to the trustee to reconvey the property back to the grantor.
If the beneficiary delayed delivery of the request and missed the 30-day deadline by even one day, the beneficiary would be liable to the grantor for $500, the legislation stated. This amount would be in addition to all actual damages incurred by the grantor.
Consequently, if a prospective sale of the property was lost because of a delay in following through with the reconveyance, the beneficiary would be held liable for substantial damages.
This can be a real trap if it takes more than 30 days to forward a request for reconveyance. The $500 fine could be just the beginning. In the opinion of George C. Reinmiller Trustee Inc., beneficiaries, loan servicers and trustees will probably see more of this type of legislation around the country, because a limited few have been slow in completing reconveyances.
The penalties and monetary losses don’t stop there.
With the rise in foreclosures and an increase in budget cutbacks, lenders and servicers have been seeing a higher demand to have complete and accurate collateral files to certify their pools of loans.
By completing an audit and ensuring everything is there, servicers will find it easier to close on the sale of the pool and will see a decrease in requests for the repurchase of certain assets in the file. These certified pools of loans are considered more valuable and are, therefore, sold relatively easily.
In today’s market, purchasers of pools look for any number of reasons for a seller to repurchase loans. One such reason – in fact, the most common reason – is incomplete files.
If there are problems within a pool, lenders and servicers can spend huge amounts of money trying to discover the missing pieces. Another possible headache is the time and money involved to go back and forth with the attorney trying to resolve these types of issues should the loan fall into foreclosure. If the issues cannot be resolved quickly, the seller may have to buy back the loans, which is something a struggling company shudders to hear.
What can lenders and loan servicers do to quickly correct these types of problems or keep them from occurring in the first place?
The more time that passes between origination and file verification, the more costly and difficult it becomes to obtain any missing documents. Sometimes, with cutbacks (such as loss of human resources) or, as we see happening more frequently these days, the relocation of offices, documents can be forgotten or misplaced and can end up sitting incomplete in an abandoned filing cabinet that will probably go untouched until someone accidentally comes across it.
Servicers should take aggressive document control and verify they have the documents they need in each file as soon as possible. If documents are missing, there are still strategies that can be employed.
Finding and obtaining missing original documents that have to be publicly recorded (e.g., mortgages, assignments and assumptions) are fairly easy to retrive. For instance, you can get a certified copy from the county recorder where the property is located, as long as the document was originally recorded.
Research can be done to verify whether the document was recorded by searching the county’s Web site or speaking with the recorder’s office. You may obtain a certified copy by phone or by mailing in a certified copy request to the county recorder. However, there are a few recording districts that require an abstractor to physically come in to research and/or request a copy of a document.
Obtaining copies of missing documents that were never recorded on the public record – such as title policies – can get much more complicated. One can always go directly to the title company or title agent that issued the policy, but with current conditions in the economy and mortgage industry, title companies have been closing their doors.
The next step is to contact the underwriter. Most underwriters will not send the original policy, because they normally do not have it. However, they should be able to send a certified copy. Because each purchaser is different and may have a different concept of what is acceptable, specificity is key. Get a clear definition of what a certified copy of a title policy is from the purchaser before obtaining one from the underwriter.
There is a chance that the underwriter may not have the policy, either. In that case, the underwriter might have to re-issue it, which can get pretty costly. To re-issue the policy, the underwriter will normally require a complete chain of assignments. Most underwriters will only reissue a title policy directly from the current beneficiary of the mortgage and will use the assignments on record to verify that person’s identity.
With Mortgage Electronic Registration Systems (MERS), missing assignments have, in recent years, become less of a problem for some, but there are still many mortgages that are not registered with MERS. With the countless number of banks and mortgage companies being sold or closing, it can become a Sherlock Holmes case trying to find an entity that can sign and, therefore, complete the assignment chain. It usually starts with searching various Web sites and tracking down the current holder or entity of the company.
When all else fails Then the phone calls start in an attempt to find the right person to sign the document. What happens if you can’t find anyone to sign? In many cases,when there is no one left that can sign an assignment, a lost assignment affidavit is a possible resolution. But keep in mind that only certain states and/or recording jurisdictions allow these affidavits. If all else fails, then it is up to the courts to resolve the problem, which is when the expenses start to increase once again.
By having all loan files complete, one is able to move quickly if a loan is paid in full, as well. Steep penalties can be avoided in certain states by providing a release or reconveyance in a timely manner. This is especially important if Reinmiller’s opinion holds true and the trend of shortened compliance time frames grows further.
Lenders and servicers should take a proactive approach in their daily functions and do whatever it takes to ensure that their files are complete from the start to avoid costly mistakes with unpredictable results.
Jessica Woods is vice president of Richmond Monroe Group Inc., an outsource services provider offering processing and technology solutions to the servicing industry. She can be reached at (417) 447-2931 or jessicaw@richmondmonroe.com.
The Treasury Department is vigorously opposed to a House-passed measure that would open the Federal Reserve to an audit by the Government Accountability Office (GAO), a senior Treasury official said Monday. Instead, the official said, the Treasury prefers a substitute offered by Rep. Mel Watt (D-N.C.), and would like to see it enacted as part of the Senate bill.
The Watt measure, however, while claiming to increase transparency, actually puts new restrictions on the GAO’s ability to perform an audit.
Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing’s ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.
HuffPost reporter Sam Stein lodged what he called a “formal complaint” against the ground rules. The complaint was noted and the briefing began.
Asked whether he supports the House-passed measure to open the Fed to an audit, which was cosponsored by Reps. Alan Grayson (D-Fla.) and Ron Paul (R-Texas), a senior Treasury official said he is intensely opposed to it.
The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis. He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.
He said he supports full disclosure when it comes to the scale of Fed lending and wouldn’t draw a bright line around auditing certain activities, but wants to make sure it maintained its independence.
The Watt measure, however, while claiming to increase transparency, actually puts new restrictions on the GAO’s ability to perform an audit.
Secretary Tim Geithner, Assistant Treasury Secretary Alan Krueger and Gene Sperling, a counselor to the secretary, held a briefing Monday with new media reporters and financial bloggers during which they discussed the Fed audit and other topics. Under the briefing’s ground rules, the officials could be paraphrased but not quoted, and the paraphrase could not be connected to a specific official.
HuffPost reporter Sam Stein lodged what he called a “formal complaint” against the ground rules. The complaint was noted and the briefing began.
Asked whether he supports the House-passed measure to open the Fed to an audit, which was cosponsored by Reps. Alan Grayson (D-Fla.) and Ron Paul (R-Texas), a senior Treasury official said he is intensely opposed to it.
The official said the measure would undermine the independence of monetary policy and could restrict the ability of the Fed to act in times of crisis. He said that the GAO already has audit authority and that the chairman routinely testifies before Congress.
He said he supports full disclosure when it comes to the scale of Fed lending and wouldn’t draw a bright line around auditing certain activities, but wants to make sure it maintained its independence.
A lack of independence, he said, could lead to inflation and otherwise undermine progressive priorities.
He said, however, that he would be supportive of efforts that would help the Fed earn back some of the credibility it has lost over the past few years.
HuffPost asked if central bank liquidity swaps — foreign currency trades worth hundreds of billions of dollars — should be subject to an audit. The official said that the identity of the countries that received dollars was made public as was the amount each got. It worked well and was good policy, he said, and opening it to audit could undermine its future effectiveness.
The purpose of the swaps, he said, was to make sure that foreign central banks had enough dollars to meet their obligations. The effort kept interest rates low, he said.
A member of Congress, told of the unnamed Treasury official’s comment, asked not to be named and said that Geithner, a former Fed president, should recuse himself from Fed audit legislation discussions, given that the audit would cover his own actions during the crisis.
And Rep. Grayson said he finds Treasury’s opposition to the audit troubling. “There is a growing feeling on the part of real Democrats that the president is getting bad advice from people who have sold out to Wall Street,” said Grayson. “And opposing a measure that passed overwhelmingly in the House with bipartisan support at the [Financial Services] Committee level, based up on legislation that now has 317 cosponsors in the House, shows that the president may be getting bad advice.”
The idea that the Fed’s mission would be undermined by an audit, said Grayson, “is a scarecrow erected by people who want to cover up the actions of the Fed for their own purposes, including those who actually have worked at part of the Fed, to prevent accountability at any cost.”
Geithner served as president of the New York Fed during the financial crisis.
“It’s interesting that the Fed regards the simple fact that people find out what it does as somehow being unduly restrictive. We are a government of laws, not of men,” said Grayson.
“It’s certainly no surprise that banking insiders at Treasury don’t want transparency at the Fed,” said Jesse Benton, a spokesman for Rep. Paul. “They are wrapped up in the central bank shenanagins too, and do not want their wheelings and dealings out in the open any more than Alan Greenspan or Ben Bernanke,”
Recent Comments