After years of incompetence, intransigence, malevolence and whatever else may explain how mortgage companies have managed to screw over millions of troubled American homeowners, a fix is finally at hand.
Officials have presented the deal as justice for the so-called robo-signing scandal, whereby major mortgage companies improperly foreclosed on millions of properties. They have touted its centerpiece: a $20 billion fund stocked with fines paid by the mortgage companies, which will deliver relief to as many as 1 million troubled borrowers via lowered monthly payments, principal reduction and refinanced loan terms.
Someday the mortgage settlement will be filed in court and thus we will get to see its terms. Which day? Who knows—the latest deadline, the end of February, passed in silence, and annual reports filed at the end of the month with the SEC by Wells Fargo, JPMorgan Chase and Ally Bank, three putative deal signers, unequivocally stated there’s no final deal yet. As Wells put it, 19 days after the deal was announced:
“Furthermore, there can be no assurance as to when or whether a definitive agreement regarding the settlement will be reached and finalized or that it will be on terms consistent with the settlement in principle.”
Still, enough details of the agreement ‘in principle’ have been released, including by Wells in that annual report, for me to write this guide.
The settlement has four basic moving parts: money, lawsuit peace/liability release, mortgage servicing standards, and enforcement. I’m going to look at all four in three different posts. This one focuses on the money in the settlement.
Understanding the Money In the Mortgage Settlement
Nevada Attorney General Catherine Cortez Masto recently spoke with the Sun discussing Nevada’s participation in the national mortgage settlement as well as a separate agreement the state made with Bank of America. See here for a news story about the settlement. Here’s an edited transcript of the conversation.
Bankers, money changers, predatory lenders and financial criminals are jumping for joy after the United States government unveiled a plan that would allow each and every one of the crooks who conspired to steal trillions of dollars from innocent citizens to escape jail time.
Think about it. If your checking account is a penny overdrawn, you get punished but if you lie, cheat, falsify documents and take homes from everybody but the rich, you get bailed out by politicians.
Government talks about the great proposed settlement deal with Ally Financial, Bank of America, Citibank, JP Morgan Chase and Wells Fargo whereby the banks agreed to pay $5 billion in cash to try to remedy complaints about dubious mortgage practices and foreclosure abuses. But even if you settle with Ali Baba and four other crooks, there are still 35 thieves left to continue to rob you blind.
Since the DOJ failed miserably with mountains of evidence of fraud throughout the loans, lets see what the SEC will do.
CBS-
The SEC appears to be on the verge of doing what the Justice Department has yet to attempt — prosecuting the biggest players responsible for the mortgage securities fiasco that trashed the U.S. economy.
The securities watchdog has sent so-called Wells notices to Goldman Sachs (GS), JPMorgan Chase (JPM), and Wells Fargo (WFC), indicating that the agency may recommend enforcement proceedings against the banking firms. The investigation seems to focus on whether the companies misrepresented the quality of securities based on subprime mortgages that they bundled and sold to investors in the years leading up to the 2008 financial crisis.
It’s embarrassing that the most information we’ve yet received about the foreclosure fraud settlement comes from an annual report to stockholders by Wells Fargo. In other words, we had to wait for the banks to tell us what was in the settlement, I guess because the regulatory officials who negotiated it weren’t entirely proud of their work.
The Wells notice (it begins on page 74) isn’t legal language, and it states clearly that “the terms… do not become final until approval of the settlement agreement by the U.S. District Court and execution of a consent order.” But it provides some more detailed information than the broad sketch that has been released. For example, we have the first breakdown that I’ve seen of the credit system for principal reductions.
first lien principal forgiveness for LTV less than or equal to 175%: 100% credit (must constitute at least 30% of the Consumer Relief Program credits);
first lien principal forgiveness for LTV greater than 175%: 50% credit for portion forgiven over 175% LTV;
forgiveness of forbearance amounts on existing loan modifications – 40% credit;
earned forgiveness over no more than a 3 year period: 85% credit for LTV less than or equal to 175%; 45% credit for forgiveness over 175% LTV;
second lien principal forgiveness: 90% credit for loans 90 days or less delinquent; 50% credit for loans greater than 90 but less than 180 days delinquent; 10% credit for loans 180 days more delinquent. Subject to a number of requirements, servicers participating in the settlement will be obligated to implement second lien principal forgiveness on second mortgages it owns when another participating servicer reduces principal on a first mortgage via its proprietary non-HAMP modification programs (must constitute at least 60% of the Consumer Relief Program credits when combined with the first lien principal forgiveness credits);
deficiency balance waivers on first and second lien loans: 10% credit;
short sale deficiency balance waivers on first and second lien loans: 20% to 100% credit depending on whether the servicer, servicer/lien holder or investor incurs the loss;
payment arrearages forgiveness for unemployed borrowers: 100% credit;
transitional funds paid to homeowners in connection with a short sale or deed-in-lieu of foreclosure for payments in excess of $1,500: 45% credit if a non-GSE investor bears the cost or 100% if the servicer bears the cost;
anti-blight – forgiveness of principal associated with properties where foreclosure is not pursued: 50% credit;
anti-blight – cash costs paid by servicer for property demolition – 100% credit; and
anti-blight – donation of real estate owned properties to qualifying recipients such as non-profit organizations: 100% credit.
Update: My original headline said “Sold Out” where it now says failed. I think it’s more accurate.
Dear State Attorneys General:
Rumor has it that this week we will learn precisely how you failed us all regarding the criminal enterprise that is mortgage servicing and foreclosure in America. That is, rumor has it that more than two weeks after you announced a deal with five bailed-out banks, we’ll all get to see the deal. Well, precisely speaking, we’ll all see the court filing containing the settlement.
Why the Secrecy?
Why aren’t you releasing the deal before filing it? I realize that you’re not officially rulemaking regulators who must seek public comment before finalizing rules. But much of your agreement functions like a regulator’s rule making. So why wouldn’t you, as a matter of good public policy practice, make the deal public for comment before seeking to finalize it with the judge? …
The $26 billion settlement between government officials and the five largest mortgage servicers will exacerbate servicer conflict of interest by allowing the banks to use investor dollars to foot the bill, according to Amherst Securities Group.
The analysis comes as representatives from mortgage banks, trade groups and organizations expressed relief as the settlement with state attorneys general and federal prosecutors finally arrived.
By receiving credit for principal write-downs on the loans owned by investors, servicers can settle their liability claims with private investor money, Laurie Goodman and her team of analysts at Amherst noted.
_Who are you going to put in jail? They all work for the government. Do you think “O” is going to lock any of his administration up? Goldman, Citi, JP, are all run DC…LPS is just getting started.
Barry Ritholtz-
After many months of wrangling, a foreclosure settlement has been reached between 49 state attorneys general and a consortium of banks.
It is an epic failure of law and a triumph for bank attorneys.
It will accomplish little of value, as I’ll explain. First, let’s recall what the “robosigning” foreclosure scandal was all about.
Foreclosure is an extremely serious issue in American jurisprudence. As a nation of laws with strong respect for property rights, we have always treated this process appropriately. After all, having a sheriff forcibly evict a family that typically made a down payment, moved into a home, lived there for some years, made payments, etc., is disruptive — for the family, the lender and the neighborhood.
Foreclosure laws vary from state to state. However, all are specific and precise as to the legal steps that must be followed, from the homeowner’s initial delinquency onward. There are benefits to giving the homeowner a chance to “cure their default.” It is in everyone’s interest for the homeowner to catch up if possible.
Homeowners best interest was never a priority in the settlement discussions… If it was, do you think any of this would be happening? Would this even be legal?
Too bad you can’t question authority because there is none.
HuffPO-
The ink wasn’t even dry on a settlement with the nation’s top mortgage lenders when Missouri Gov. Jay Nixon laid claim to a chunk of the money to avert a huge budget cut for public colleges and universities.
He’s not the only politician eyeing the cash for purposes that have nothing to do with foreclosure. Like a pot of gold in a barren field, the $25 billion deal offers a tempting and timely source of funding for state governments with multimillion-dollar budget gaps.
Although most of the money goes directly to homeowners affected by the mortgage crisis, the settlement announced this month by attorneys general in 49 states includes nearly $2.7 billion for state governments to spend as they wish.
Someone obviously didn’t do their homework! Perhaps reading MERS 101 might help.
WSJ-
New York Attorney General Eric Schneiderman seems to think his job is to sift through the wreckage of the housing market and shoot the wounded. His latest target is electronic mortgage record-keeping, which he calls a scandal, perhaps because he doesn’t understand it.
Mr. Schneiderman is following Delaware’s Beau Biden, who sued the Mortgage Electronic Registration Systems in October, and Massachusetts’s Martha Coakley, who added banks to her suit in December. The New York complaint names many of the same institutions and alleges that MERS, as the database is known, has harmed homeowners by undermining judicial foreclosure and creating “confusion and uncertainty” about property ownership interests.
I know, I understand…we’re not surprised. They were dangling carrots in front of the banks for better checks.
Republic Report-
This is interesting. In December, 2011, the month before signing on to the mortgage fraud settlement, the entity charged with electing Republican Attorneys General called the Republican State Leadership Committee collected a bunch of large checks from big banks.
As this IRS disclosure form shows, on December 19, 2011, it received a $10,000 donation from Wells Fargo. On December 30, 2011, JP Morgan Chase PAC made a $15,000 donation to the committee.
Even as government officials prepare to unveil new standards this week for how banks treat millions of Americans facing foreclosure, housing advocates and homeowners are skeptical the rules will be able to do something past efforts have not: provide a beleaguered borrower with one individual to help them navigate the mortgage maze.
While the entire process of seeking a mortgage modification is complicated and time-consuming, few elements are as maddening as the inability to get through to a representative at the bank, or being asked for the same documents again and again.
Just wait until they finally figure it out “It’s The Title Stupid”…the banks will get a pardon for this too, just wait and see.
Chaos will break and title companies will go after the banks for all the lemons.
FORBES-
After over a year of wrangling, last week the Obama Administration and 49 state attorneys general announced that they had reached a comprehensive settlement with five large mortgage servicers over claims related to their infamous “robo-signing” foreclosure practices.
The settlement provides $25 billion to state governments and homeowners in the form of principal reductions and cash payments, a figure that would rise if other banks sign on. In addition to imposing punishment and providing recompense for alleged past misbehaviors, the settlement provides much-needed relief and a path to recovery for a housing market paralyzed by the continued uncertainty concerning the ability of lenders to foreclose on nonperforming loans.
U.S. Housing Secretary Shaun Donovan is playing Julie the Cruise Director on the Titanic, telling everyone ‘Don’t worry, there’s no icebergs in these waters. Really, if you see any floating ice in front of us, it’s not the visible tenth of a catastrophe to come.’ Unfortunately ice is visible, it is an iceberg, and the leading edge of the submerged ice is already ripping into our democracy and our economy, leaving deep damage.
The happy talk to distract attention from the iceberg comes from two camps and has two synergistic messages.
Secretary Donovan is trying convince the American public that the what the Obama administration is doing is all that can be done to address our housing and foreclosure crisis. That’s farcically false. Other people are pushing the related message that fraud and forgery by foreclosing bankers isn’t important; the only thing that matters is whether homeowners are in default. Both groups want you to believe that the foreclosure fraud “settlement” is a good and just. Except the “settlement” isn’t. The “settlement” is just the latest in a long line of decisions not to enforce the law and further reinforces the idea that gold-collar criminals are above the law. (I put “settlement” in quotes because we’re now double digit days past the February 9 announcement, and still, there’s no deal submitted to a court for approval. And that means there’s no deal.)
So let’s take a good look at the foreclosure fraud iceberg.
Think you’ll have a free pass from that under water, submerged house that will only continue to sink further.
The so called principal reductions were to be a penalty not a money making scheme!
Your title will still have issues…lots of them!
FT-
The $40bn foreclosure-abuse settlement reached last week between regulators and big US banks gave President Barack Obama another shot at resuscitating his three-year-old initiative to help troubled homeowners.
As details of the agreement dribble out, it appears the deal may also give big banks reason to celebrate and mortgage bond investors and taxpayers reason to pause.
[…]
But in allowing the banks to use taxpayer-funded Hamp to meet their obligations under the settlement, the government presented the banks with an opportunity to reduce their losses, experts said.
“If the banks are doing something under this settlement, and cash flows from taxpayers to the banks, that is fundamentally an upside-down result,” said Neil Barofsky, a former special inspector-general of the troubled asset relief programme.
WASHINGTON–People seeking a review of their mortgage foreclosures under the Federal banking agencies’ Independent Foreclosure Reviewnow have until July 31, 2012, to submit their requests.
The Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System (Federal Reserve) today announced that the deadline for submitting requests for review under the Independent Foreclosure Review has been extended. The new deadline, July 31, 2012, provides an additional three months for borrowers to request a review if they believe they suffered financial injury as a result of errors in foreclosure actions on their homes in 2009 or 2010 by one of the servicers covered by enforcement actions issued in April 2011.
The deadline extension provides more time to increase awareness of how eligible people may request a review through the Independent Foreclosure Review process and to encourage the broadest participation possible.
As part of enforcement actions issued in April 2011, the OCC, Federal Reserve, and the Office of Thrift Supervision required 14 large mortgage servicers to retain independent consultants to conduct a comprehensive review of foreclosure activity in 2009 and 2010 to identify borrowers who may have been financially injured due to errors, misrepresentations, or other deficiencies in the foreclosure process. If the review finds that financial injury occurred, the borrower may receive compensation or other remedy.
Borrowers are eligible for an Independent Foreclosure Review if they meet the following basic criteria:
The mortgage loan was active in the foreclosure process between January 1, 2009 and December 31, 2010.
The property securing the mortgage loan was the borrower’s primary residence.
Participating mortgage servicers include: America’s Servicing Company, Aurora Loan Services, BAC Home Loans Servicing, Bank of America, Beneficial, Chase, Citibank, CitiFinancial, CitiMortgage, Countrywide, EMC, Everbank/Everhome Mortgage Company, Financial Freedom, GMAC Mortgage, HFC, HSBC, IndyMac Mortgage Services, MetLife Bank, National City Mortgage, PNC Mortgage, Sovereign Bank, U.S. Bank, Wachovia Mortgage; Washington Mutual, Wells Fargo; and Wilshire Credit Corporation.
The investigation concerns whether the Company or its fiduciaries breached their fiduciary duties by improperly processing mortgages and mortgage foreclosures. A civil lawsuit filed in December 2011 by the Office of the Attorney General of the State of Nevada alleges that LPS and certain of its subsidiaries: (1) engaged in a pattern and practice of falsifying, forging and/or fraudulently executing foreclosure related documents, resulting in numerous foreclosures that were predicated upon deficient documentation; (2) fraudulently notarized documents without ensuring that the notary did so in the presence of the person signing the document; (3) implemented a widespread scheme to forge signatures on key documents, to ensure that volume and speed quotas were met; (4) concealed the scope and severity of the fraud by misrepresenting that the problems were limited to clerical errors; (5) improperly directed and/or controlled the work of foreclosure attorneys by imposing inappropriate and arbitrary deadlines that forced attorneys to churn through foreclosures at a rate that sacrificed accuracy for speed; (6) improperly obstructed communication between foreclosure attorneys and their clients; and (7), demanded a kickback/referral fee from foreclosure firms for each case referred to the firm by LPS and allowed this fee to be misrepresented as “attorney’s fees” on invoices passed on to Nevada consumers and/or submitted to Nevada courts.
They aren’t ready…they’re still figuring out how to add the finishing touches to screw you!
HW-
The state attorneys general and federal prosecutors will likely file the actual $25 billion foreclosure settlement documents in court by the end of the month, according to a source familiar with the deal.
The top five servicers agreed to general terms in the settlement last week, which would include billions in principal reduction, refinances, and even pay outs to homeowners affected by missteps in the process.
Questions arose recently over whether the finalization of the deal would its change the scope.
Rich Andreano, who co-leads the mortgage banking group at law firm Ballard Spahr, said while it will be difficult for analysts and officials to anticipate precisely how much aid each state will get from the deal until the documents are filed, results should not vary too significantly from the announcement made last week.
“I got the sense last week that they weren’t really ready. They weren’t done. It was one of those things where they were moving so fast that they had to announce it because it was getting leaked out,” Andreano said in an interview.
The chief regulator and conservator of Fannie Mae and Freddie Mac is adamantly opposed to principal forgiveness, a key element of the foreclosure settlement. But analyses show he’s wrong.
LA TIMES-
You can love or you can hate the recent $25-billion federal-state mortgage foreclosure settlement, but there’s no getting around one simple fact: There’s a huge, gaping hole right in the middle of it.
The hole is that if your home loan has been bought from your lender by Fannie Mae or Freddie Mac, you’re not eligible for the mortgage relief encompassed by the deal.
Since Fannie and Freddie control well more than half of all outstanding mortgages, this shortcoming looks to be what engineers would call “non-trivial.”
As Neil Barofsky asked Nick Timiraos “So perhaps that’s why the settlement was announced before even a term sheet was hammered out? To cover up FHA budget hole“?
WSJ-
The Federal Housing Administration will exhaust its reserves over the coming year, according to budget projections released Monday, which would require a Treasury infusion for the first time in its 78-year history.
But Obama administration officials said more recent developments, including fines that will go to the FHA from last week’s $25 billion mortgage settlement with five major banks, could cover any shortfall and obviate the need for taxpayer funding.
The FHA has burned through its reserves over the past three years as defaults mount on loans it guaranteed as housing markets deteriorated. FHA-backed mortgages are an attractive option for borrowers because they can make down payments as low as 3.5%. But as home prices continue to fall, many of those borrowers have fallen underwater, where they owe more than their homes are worth and are at greater risk of default if they experience income shocks.
Servicing standards: The 42-page servicing standards “term sheet” lists various requirements for banks’ documents used in foreclosure and bankruptcy proceedings; documentation of borrowers’ account balances; and ensuring integrity of the chain of title. It also includes requirements around how borrowers must be treated when they’re being evaluated for a modification or short sale, as well standards around the appropriateness of servicing fees and the use of force-placed insurance.
Borrower relief: A separate 12-page document outlines how banks have to satisfy the $20 billion portion of the deal that requires them to help homeowners. At least half of that portion must go towards writing down loan balances for homeowners that are at risk of foreclosure. Another $3 billion must be used to help homeowners who owe more than their homes are worth but are current on their loans to refinance. The remaining $7 billion can go towards anti-blight provisions, forbearance for unemployed homeowners, and short sale assistance.
Menu of “credits”: Complex formulas spell out exactly how much credit banks will receive for that aid. For example, every $1 of principal write-downs earns $1 of credit on loans that they own. However, they receive less credit for writing down second-lien mortgages that are severely delinquent.
now have until July 31, 2012, to submit their requests.
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