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KABOOM! Lender Processing Services LOSES Breach of Contract Claim in WAMU Case. FDIC Wants $154,529,000

KABOOM! Lender Processing Services LOSES Breach of Contract Claim in WAMU Case. FDIC Wants $154,529,000

Lender Processing Services, Inc. just filed a Regulation FD Disclosure alerting investors that

On May 9, 2011 in the U.S. District Court for the Central District of California to recover alleged losses of approximately $154,529,000. The FDIC’s complaint alleged that these losses were the direct and proximate result of the defendants’ breach of contract with WAMU and alleged gross negligence of the defendants with respect to the provision of certain appraisal services.On November 2, 2011, the court issued an order limiting the FDIC’s claims to breach of the contract and granting the Company’s Motion to Dismiss the FDIC’s claims of gross negligence, alter ego, single business enterprise and joint venture claims. With respect to the limited remaining breach of contract claim, the Company maintains that the Appraisal Outsourcing Services Agreement between LSI and WAMU clearly specifies a $10,000 per claim limitation of liability. The Company is confident that it will ultimately prevail on any remaining breach of contract claim.

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No criminal charges in WaMu failure

No criminal charges in WaMu failure

Keep moving…nothing to read here….just more of the same


No charges will be filed against the leadership team of Washington Mutual Bank, which failed in 2008 amid a cloud of suspicion that improper lending had been occurring there.

Announcing the decision late Friday, a U.S. Attorney’s Office spokesperson said in a statement that a federal task force examining the WaMu failure did not find evidence of criminal violations.

“Investigators have conducted an extensive investigation that included hundreds of interviews and the review of millions of documents relating to the operations, and the subsequent failure, of Washington Mutual Bank,” the statement read. “Based upon its investigation, the Department of Justice has concluded that the evidence does not meet the exacting standards for criminal charges in connection with the bank’s failure.”

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Federal Bank Regulators Scrutinizing Mortgage Lawsuits Against Banks, Opening New Worry For Investors, Bankers

Federal Bank Regulators Scrutinizing Mortgage Lawsuits Against Banks, Opening New Worry For Investors, Bankers


WASHINGTON — Federal bank regulators are scrutinizing more than 150 home loan-related lawsuits directed at lenders and mortgage companies, a top official at the Federal Deposit Insurance Corporation plans to say Thursday, underscoring the threat the largest U.S. banks face from faulty and improper mortgage and foreclosure practices.

The revelation will likely add to large banks’ woes, as the five biggest servicers — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — currently face up to $30 billion in penalties from state attorneys general and federal agencies for wrongful foreclosures and other mortgage-related misdeeds.

Continue reading [HUFFINGTONPOST]

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Former Washington Mutual Officials Near Deal With FDIC Over Bank Losses

Former Washington Mutual Officials Near Deal With FDIC Over Bank Losses


Former Washington Mutual Inc. (WAMUQ) Chief Executive Officer Kerry Killinger and Chief Operating Officer Stephen Rotella are in lawsuit settlement talks with the Federal Deposit Insurance Corp., according to a court filing.

Lawyers for Killinger, Rotella and David Schneider, Washington Mutual’s former home-loans president, exchanged term sheets with FDIC attorneys and are “diligently working to resolve their remaining disputes,” according to papers filed yesterday in federal court in Seattle.

“In some instances, the settlement terms must have consent of certain third parties,” lawyers for both sides said.

Continue reading [BLOOMBERG]

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Sure They’re Technical Errors | Mortgage servicer industry error rate might be 10 times higher says U.S. Trustee

Sure They’re Technical Errors | Mortgage servicer industry error rate might be 10 times higher says U.S. Trustee

NYTimes’s Gretchen Morgenson

Mistakes happen, of course. And loan servicers like to contend that if errors occur, they are rare and honestly made. But after sifting through the data produced by this investigation, Mr. White disagreed that problems are rare. “In Senate testimony, an executive from Countrywide said its error rate was 1 percent,” Mr. White recalled. “The mortgage servicer industry error rate might be 10 times higher, based on the number of cases we are looking at.”

“There are continued flaws in the process, and they are not merely technical,” Mr. White continued. “Those flaws undermine the integrity of the bankruptcy system. Many homeowners have been harmed, including where the lender has come in and said ‘we want to lift the stay and go back into foreclosure proceedings,’ even though they lacked a sufficient basis to do it.”

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Independent reviews in mortgage servicer consent orders to stay sealed

Independent reviews in mortgage servicer consent orders to stay sealed

The investigation conducted by the OCC and the Fed included a review of just 100 foreclosure files.

Housing Wire-

When mortgage servicers signed consent orders with the Office of the Comptroller of the Currency and the Federal Reserve, these companies were required to hire outside firms to conduct “look back” evaluations of questionable foreclosure practices.

But these reviews will not be made public, according to an OCC spokesman.

William Black | ‘If you don’t look; you don’t find, Wherever you look; you will find’


FDIC Chair Shelia Bair concurs with O’Brien and Thigpen that damages to consumer’s “has yet to be quantified”

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“FRAUDCLOSURE” Whistleblowers Speak Out Against Loan Modifications That Helped Banks Not Homeowners | Dylan Ratigan

“FRAUDCLOSURE” Whistleblowers Speak Out Against Loan Modifications That Helped Banks Not Homeowners | Dylan Ratigan

NBC’s Lisa Myers introduces us to two industry whistleblowers in the third of her exclusive reports.

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FDIC’s Bair: Millions of Foreclosures Could Be ‘Infected’

FDIC’s Bair: Millions of Foreclosures Could Be ‘Infected’

This is HUGE!!


The head of the Federal Deposit Insurance Corp. is warning that flaws may have “infected millions of foreclosures” and questioned whether other regulators’ inquiries into problems at the nation’s mortgage-servicing companies have been thorough enough.

“We do not yet really know the full extent of the problem,” FDIC Chairman Sheila Bair said Thursday in written remarks submitted to a hearing of the Senate Banking Committee. “Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages to be assessed against these operations could be significant and take years to materialize.”

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COMPLAINT | FDIC v. Lender Processing Services, Inc., LSI Appraisal LLC,  Fidelity National Information Services, Inc. et al

COMPLAINT | FDIC v. Lender Processing Services, Inc., LSI Appraisal LLC, Fidelity National Information Services, Inc. et al

CORPORATION, as Receiver of
Washington Mutual Bank,



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FDIC Hits Lender Processing Sevices (LPS) with $155 Million Suit, 8k Form Filing

FDIC Hits Lender Processing Sevices (LPS) with $155 Million Suit, 8k Form Filing

According to an 8k form filed on May 10, 2011,

The Federal Deposit Insurance Corporation (“FDIC”), in its capacity as Receiver for Washington Mutual Bank (“WAMU”), filed a complaint on May 9, 2011 in the U.S. District Court for the Central District of California to recover alleged losses of approximately $154,519,000. The FDIC contends these losses were a direct and proximate result of the defendants’ alleged breach of contract with WAMU and alleged gross negligence of the defendants with respect to the provision of certain services by LPS’s subsidiary LSI Appraisal LLC, an appraisal management company. In particular, the FDIC claims that the services provided failed to conform with federal and state law, regulatory guidelines and other industry standards, including specifically the provisions of the Uniform Standards of Professional Appraisal Practice (“USPAP”). LPS previously described the possibility of this suit in its Form 10-Q filed May 5, 2011.

In its complaint, the FDIC cites, as the cause of the damages claimed, 220 appraisals performed between June 2006 and May 2008. However, for more than 75 percent of the appraisals identified by the FDIC, LSI was contracted only to provide reviews of appraisals, not to conduct the initial, full appraisals. For these properties, the full appraisals were provided by other entities, unrelated to LSI. For all appraisals subject to this complaint, LPS believes there is no basis for a claim that LSI engaged in “gross negligence” or breach of contract related to these appraisal services.

LPS stands firmly behind the integrity of the services it provides to the mortgage industry and intends to vigorously defend itself against these allegations.

Source: Edgar Online

H/t Social Apocalypse

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Congresswoman Herrera Beutler Seeks Answers from FDIC on Clark County Foreclosures

Congresswoman Herrera Beutler Seeks Answers from FDIC on Clark County Foreclosures

Congresswoman Jaime Herrera Beutler today sent a letter to the Federal Deposit Insurance Corporation (FDIC) seeking answers regarding a troubling pattern of Clark County foreclosures resulting from the failure of the Bank of Clark County.

What has been particularly troublesome to Congresswoman Herrera Beutler is what she learned from several Bank of Clark County borrowers: they made all of their scheduled payments on time, in full.  Why Rialto Capital has chosen to foreclose on borrowers who have honored their loan agreements remains unclear.
“I’m deeply concerned by what I’ve learned so far about FDIC’s deal with Rialto Capital,” said Herrera Beutler.  “If borrowers who have lived up to the terms of their original loans are facing foreclosure, I want to know why.  It certainly seems like the FDIC has a responsibility and moral obligation to ensure entities like Rialto act in a decent and ethical manner.
“The FDIC has not been completely forthright about its decision-making process, even after multiple requests for information by my office.  While Southwest Washington families and businesses suffer the consequences of its decisions, the FDIC may have made it possible for real estate investor Rialto to end up with large tracts of Clark County land at a bargain price by breaking contracts.  That doesn’t seem right.
“I am going to remain vigilant with FDIC and with Rialto until we get answers.”
The text of Congresswoman Herrera Beutler’s letter to the FDIC is below, and attached:

Chairman Sheila C. Bair

Federal Deposit Insurance Corporation
3501 N. Fairfax Dr.
Arlington, VA 22226

Chairman Bair,

In recent weeks I have been contacted by a number of my constituents with concerns about the closing of the Bank of Clark County in Vancouver, Washington. More specifically, the concern is with the FDIC’s decision to sell many of the bank’s outstanding loans to Rialto Capital Management LLC and the management of those loans by Rialto and the FDIC.

Since the closing of the Bank of Clark County a large number of construction properties have been forced into foreclosure. Many of these foreclosures are due to Rialto Capital’s refusal to work with builders in honoring the existing loan agreement, even when the builders are current in their loan payments. Instead, Rialto moves to simply collect on collateral.

In order to understand the FDIC’s role in these procedures I respectfully request that you answer the following questions:

To my knowledge when the FDIC sells a loan package it retains a certain percentage of the package in order to ensure a return on investment. What oversight does the FDIC perform on Rialto Capitol and its management of the loans?

Numerous builders with whom my office has spoken had not missed a single payment on their loans when Rialto Capital took over. What consideration, if any, is given to the lendee’s payment record when deciding to terminate loans?

As a holder of a percentage of the loan package, does the FDIC require Rialto to honor the conditions of previous contracts made and carried out in good faith? What steps has the FDIC taken to ensure that any ensuing foreclosures are not directly attributable to changes in contract conditions made without the consent of the customer by Rialto?

How many construction loans did Rialto Capitol take over from the Bank of Clark County? Of those contracts how many have Rialto and the FDIC continued to honor?

Rialto Capitol calls itself a real estate investment management company. It is my understanding that typically other banks buy these loans. Why is the FDIC selling bank loans to non-banks?

I realize the FDIC closed the Bank of Clark County due to poor performance and bad loan approvals played a role in that. However, many of the people Rialto and the FDIC have decided to foreclose on made sound loan decisions, made their payments on time, and through no fault of their own still lost their loans. In some cases those loans were worth millions of dollars, and in many cases the loss of loans cost people their livelihood.

I do not know what Rialto ultimately intends to do with the large tracts of land it would hold as a result of these foreclosures, but it is clear the company purchased these loans with no intention of working with the citizens of Southwest Washington. Surely the FDIC did not close the Bank of Clark County in order to give real estate investors the opportunity to obtain land for pennies on the dollar by breaking contracts signed and honored by local builders.

The FDIC has a responsibility and moral obligation to ensure the companies that obtain loans as the result of a bank closure act in an ethical and decent manner toward their customers. I strongly urge you to take a hand in this matter and review with great diligence the actions of Rialto Capital.

I appreciate your attention to this matter and look forward to a response. Please contact Chad Ramey in my Washington, D.C. office at (202) 225-3536 for further detail or clarifications.


Jaime Herrera Beutler

Member of Congress

Source: http://herrerabeutler.house.gov

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WaMu execs Kerry Killinger and Steve Rotella respond to FDIC lawsuit. Killinger calls it “political theater:”

WaMu execs Kerry Killinger and Steve Rotella respond to FDIC lawsuit. Killinger calls it “political theater:”

From the Puget Sound Biz Journal:

“The factual allegations are fiction. The legal conclusions are political theater. Trial in a courtroom that honors the rule of law — and not the will of Washington D.C. — will confirm Kerry Killinger’s management, diligence and commitment to Washington Mutual responsibly and consistently served the interests of its depositors, customers and shareholders.”

Killinger added: “Washington Mutual’s management structure was a model of corporate governance.”

Read more: WaMu execs: FDIC suit is “political theater” | Puget Sound Business Journal

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COMPLAINT | F.D.I.C. Sues WAMU Execs. and Wives For $900 Million

COMPLAINT | F.D.I.C. Sues WAMU Execs. and Wives For $900 Million

Via: Brian Davies




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WSJ | FDIC’s Tab For Failed U.S. Banks Nears $9 Billion

WSJ | FDIC’s Tab For Failed U.S. Banks Nears $9 Billion

From the Wall Street Journal and it doesn’t stop there.

FDIC officials expect to make an additional $21.5 billion in payments from 2011 to 2014. More than half of that total is predicted for this year, followed by an estimated $6 billion in loss-share reimbursements in 2012, according to the agency. Some of the loss-share deals will be in place for 10 years.

The payments to date are smaller than FDIC officials anticipated, and they say it would cost much more to liquidate the mountain of bad loans at fair-market value. The FDIC said Wednesday that it couldn’t be more specific about its previous estimates for future payouts because the agency continually revises those estimates based on new loss-share deals and claims submitted under existing arrangements.

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MUST READ! NY Judge Vacates NOTE Over Confusion, LQQK And SEE WHY! JPMorgan Chase v. RAMIREZ

MUST READ! NY Judge Vacates NOTE Over Confusion, LQQK And SEE WHY! JPMorgan Chase v. RAMIREZ

CA Retired Judge Samuel L. Bufford said it best

“Lenders passed around the deed to Vargas’ house as if it were a whiskey bottle at a frat party”





Finally, a court may vacate a note of issue at any time on its own motion if it appears that a material fact in the certificate of readiness is incorrect (see, 22 NYCRR 202.21 [e]; Simon v City of Syracuse Police Dept., 13 AD3d 1228, 787 NYS2d 577 [4th Oept 2004], Iv dismissed 5 NY2d 746, 800 NYS2d 375 [2005]). Here, based on the evidence submitted with the moving papers and the confusion regarding plaintiff’s standing and prosecution of this foreclosure action, the Court concludes that the certificate of readiness contains a misstatement of material fact, namely, that
disclosure is complete and the action is ready for trial. Accordingly, the Court, sua sponte, vacates the note of issue filed by plaintiff and strikes this action from the trial calendar (see 22 NYCRR 202.21 [e]).

This is a MUST read below…

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OHIO JUDGMENT REVERSED FULL Payoff Rejected, Broken Entry (2), FDIC, as Receiver of WAMU v. TRAVERSARI

OHIO JUDGMENT REVERSED FULL Payoff Rejected, Broken Entry (2), FDIC, as Receiver of WAMU v. TRAVERSARI

Don’t you just love it when links and posts go missing for absolutely NO reason whatsoever!


Fed. Deposit Ins. Corp., as Receiver of WAMU v. TRAVERSARI, 2010 Ohio 2406 – Ohio: Court of Appeals, 11th Dist., Geauga 2010
dinsfla | June 5, 2010 at 9:49 am |


Federal Deposit Insurance Corporation, as Receiver of Washington Mutual Bank, Plaintiff-Appellee,
Robert Traversari, et al., Defendants-Appellants.
No. 2008-G-2859.

Court of Appeals of Ohio, Eleventh District, Geauga County.

May 28, 2010.

Karen L. Giffen and Kathleen A. Nitschke, Giffen & Kaminski, L.L.C., 1300 East Ninth Street, #1600, Cleveland, OH 44114 and Donald Swartz, Lerner, Sampson & Rothfuss, P.O. Box 580, Cincinnati, OH 45210-5480 (For Plaintiff-Appellee).

Edward T. Brice, Newman & Brice, L.P.A., 214 East Park Street, Chardon, OH 44024 (For Defendants-Appellants).


{¶1} Appellants, Robert Traversari (“Traversari”) and B & B Partners (“B & B”), appeal from the August 5, 2008 judgment entry of the Geauga County Court of Common Pleas, granting summary judgment in favor of appellee, Washington Mutual Bank, and entitling appellee to a judgment and decree in foreclosure.

{¶2} In 1994, appellant Traversari borrowed $190,000 from Loan America Financial Corporation which was memorialized by a promissory note and further secured by a mortgage on property located at 9050 Lake-in-the-Woods Trail, Bainbridge Township, Geauga County, Ohio. Appellant Traversari obtained the loan individually and/or in his capacity as the sole member and principal of appellant B & B, a real estate based company. The mortgage at issue was subsequently assigned to appellee.

{¶3} On January 8, 2007, appellee filed a complaint in foreclosure against appellants and defendants, JP Morgan Chase Bank, N.A., Charter One Bank, N.A., Jesse Doe, and Geauga County Treasurer. In count one of its complaint, appellee alleges that it is the holder and owner of a note in which appellant Traversari owes $149,919.96 plus interest at the rate of 7.75 percent per year from September 1, 2006, plus costs. In count two of its complaint, appellee alleges that it is the holder of a mortgage, given to secure payment of the note, which constitutes a valid first lien upon the real estate at issue. Appellee maintains that because the conditions of defeasance have been broken, it is entitled to have the mortgage foreclosed. Appellee indicated that appellant B & B may have claimed an interest in the property by virtue of being a current titleholder.

{¶4} Appellants filed an answer and counterclaim on February 16, 2007. In their defense, appellants maintain that appellee failed to comply with Civ.R. 10(D) and is estopped from asserting a foreclosure by its waiver of accepting payment. According to their counterclaim, appellants allege the following: on or about September 25, 2006, appellant Traversari sent a check in the amount of $150,889.96 to appellee for payment in full on the loan, which included the principal of $149.919.96 plus $970 of interest; on or about November 17, 2006, appellee issued a new home loan statement to appellant Traversari indicating the amount due was $5,608.95; appellant Traversari contacted appellee stating that a check had been sent for payment in full; appellee failed to respond; appellant Traversari mailed a check to appellee in the amount of $155,000; no stop payment was issued on the first check; because the house was vacant, appellant Traversari went to check the residence on December 26, 2006, and discovered that it had been broken into; an orange placard was placed on the premises indicating that a representative from appellee would secure the home; appellant Traversari immediately purchased new lock sets, secured the premises, and called and left a message for appellee to inform them to not enter the home; on December 31, 2006, electronic transmission was sent to appellee concerning the break-in and requested appellee to stop breaking into the home as well as to locate the two checks and to send a copy of a letter to a credit bureau; appellee did not respond; appellant Traversari then mailed a check from a separate account in the amount of the last payment demanded by appellee; appellee sent the $155,000 check back with a form letter to the address of the vacant property stating that personal checks were not accepted for payoff; appellee also rejected the $5,674.41 check; appellant Traversari then contacted appellee regarding the rejected checks; on January 11, 2007, appellant Traversari went to the home again, finding the kitchen door open, furnace running, new lock set taken out, garage door openers unplugged, and worse dings in the steel door; and appellant Traversari emailed appellee again, however, appellee indicated it could not give appellants any information because the case had been moved to foreclosure.

{¶5} Appellee filed a reply to appellants’ counterclaim on March 19, 2007, and an amended reply on September 6, 2007.

{¶6} According to the deposition of Maritza Torres (“Torres”), an employee of appellee in its senior asset recovery, loss prevention department, she was assigned to appellants’ case. Torres testified that appellee has no record of having received a check in the amount of $150,889.96 from appellant Traversari on September 25, 2006. However, she indicated that appellee received a check from appellant Traversari on September 30, 2006, in the amount of $102,538.74 (“Check #1?), which was returned to him due to appellee’s policy not to accept checks for early payoffs that are not certified funds.

{¶7} According to the deposition of Linda Rae Traversari (“Linda”), appellant Traversari’s wife, she is the handler of the family assets. Following the return of Check #1, appellee forwarded a delinquency letter to appellant Traversari in early November of 2006. Later that month, appellee sent a second default letter to him. Linda testified that on or around November 30, 2006, appellant Traversari sent another personal check for early payoff to appellee in the amount of $155,000 (“Check #2?). Appellee returned Check #2 with a letter explaining that noncertified funds are not accepted for early payoff. Linda stated that on January 2, 2007, appellant Traversari sent a third personal check via certified mail to appellee in the amount of $5,674.41 (“Check #3?). By the time appellee received Check #3, the loan had been referred to foreclosure. Check #3 was returned to appellant Traversari as “insufficient.”

{¶8} On March 14, 2008, appellee filed a motion for summary judgment pursuant to Civ.R. 56(b). Appellants filed a response on April 21, 2008.

{¶9} In its July 3, 2008 order, the trial court found, inter alia, that appellee was within its legal rights to reject the personal checks; appellee had the right to institute and maintain the foreclosure because appellants did not cure their default; and appellee had the right to enter the premises. Thus, the trial court indicated that appellee’s motion for summary judgment would be granted in its favor as to all issues and claims against appellants upon appellee’s presentation of an appropriate entry to be provided to the court.

{¶10} Appellee filed a “Motion For Submission Of Its Entry Granting Motion For Summary Judgment And Decree In Foreclosure” on July 11, 2008, and an amended entry on July 21, 2008. Appellants filed objections to appellee’s proposed amended entry the following day.

{¶11} Pursuant to its August 5, 2008 “Amended Entry Granting Summary Judgment And Decree In Foreclosure,” the trial court granted summary judgment in favor of appellee, entitling appellee to a judgment and decree in foreclosure. The trial court ordered, inter alia, that unless the sums found due to appellee are fully paid within 3 days from the date of the decree, the equity of redemption shall be foreclosed, the property sold, and an order of sale issued to the Sheriff directing him to appraise, advertise, and sell the property. The trial court further ordered that the proceeds of the sale follow the following order of priority: (1) to the Clerk of Courts, the costs of the action, including the fees of appraisers; (2) to the County Treasurer, the taxes and assessments, due and payable as of the date of transfer of the property after Sheriff’s Sale; (3) to appellee, the sum of $149,919.96, with interest at the rate of 7.75 percent per annum from September 1, 2006 to February 29, 2008, and 7.25 percent per annum from March 1, 2008 to present, together with advances for taxes, insurance, and costs; and (4) the balance of the sale proceeds, if any, shall be paid by the Sheriff to the Clerk of Court to await further orders. It is from that judgment that appellants filed the instant appeal, raising the following assignment of error for our review:


{¶13} In their sole assignment of error, appellants argue that the trial court erred by granting summary judgment in favor of appellee, and entitling appellee to a judgment and decree in foreclosure.

{¶14} “This court reviews de novo a trial court’s order granting summary judgment.” Hudspath v. Cafaro Co., 11th Dist. No. 2004-A-0073, 2005-Ohio-6911, at ¶8, citing Hapgood v. Conrad, 11th Dist. No. 2000-T-0058, 2002-Ohio-3363, at ¶13. “`A reviewing court will apply the same standard a trial court is required to apply, which is to determine whether any genuine issues of material fact exist and whether the moving party is entitled to judgment as a matter of law.’” Id.

{¶15} “Since summary judgment denies the party his or her `day in court’ it is not to be viewed lightly as docket control or as a `little trial.’ The jurisprudence of summary judgment standards has placed burdens on both the moving and the nonmoving party. In Dresher v. Burt [(1996), 75 Ohio St.3d 280, 296,] the Supreme Court of Ohio held that the moving party seeking summary judgment bears the initial burden of informing the trial court of the basis for the motion and identifying those portions of the record before the trial court that demonstrate the absence of a genuine issue of fact on a material element of the nonmoving party’s claim. The evidence must be in the record or the motion cannot succeed. The moving party cannot discharge its initial burden under Civ.R. 56 simply by making a conclusory assertion that the nonmoving party has no evidence to prove its case but must be able to specifically point to some evidence of the type listed in Civ.R. 56(C) that affirmatively demonstrates that the nonmoving party has no evidence to support the nonmoving party’s claims. If the moving party fails to satisfy its initial burden, the motion for summary judgment must be denied. If the moving party has satisfied its initial burden, the nonmoving party has a reciprocal burden outlined in the last sentence of Civ.R. 56(E) to set forth specific facts showing there is a genuine issue for trial. If the nonmoving party fails to do so, summary judgment, if appropriate shall be entered against the nonmoving party based on the principles that have been firmly established in Ohio for quite some time in Mitseff v. Wheeler (1988), 38 Ohio St.3d 112 ***.” Welch v. Ziccarelli, 11th Dist. No. 2006-L-229, 2007-Ohio-4374, at ¶40.

{¶16} “The court in Dresher went on to say that paragraph three of the syllabus in Wing v. Anchor Media, Ltd. of Texas (1991), 59 Ohio St.3d 108 ***, is too broad and fails to account for the burden Civ.R. 56 places upon a moving party. The court, therefore, limited paragraph three of the syllabus in Wing to bring it into conformity with Mitseff. (Emphasis added.)” Id. at ¶41.

{¶17} “The Supreme Court in Dresher went on to hold that when neither the moving nor nonmoving party provides evidentiary materials demonstrating that there are no material facts in dispute, the moving party is not entitled a judgment as a matter of law as the moving party bears the initial responsibility of informing the trial court of the basis for the motion, `and identifying those portions of the record which demonstrate the absence of a genuine issue of fact on a material element of the nonmoving party’s claim.’ Id. at 276. (Emphasis added.)” Id. at ¶42.

{¶18} In the case at bar, the record establishes that appellant Traversari sent personal checks to appellee for payment on the loan at issue. However, appellee returned the checks with letters indicating they would not be accepted as payment because they were not certified, and foreclosure proceedings commenced.

{¶19} There is no genuine issue of material fact that appellants executed and delivered a note and mortgage to appellee. However, a genuine issue of material fact does exist with regard to the fact that appellant Traversari tendered the entire principal payment and appellee rejected it because the payment was made by personal check. See Chase Home Fin., LLC v. Smith, 11th Dist. No. 2007-P-0097, 2008-Ohio-5451, at ¶19. The dates and amounts of the personal checks are conflicting due to the testimony and/or evidence submitted by the parties.

{¶20} “A cause of action exists on behalf of a damaged mortgagor when, in conformity with the terms of his note, he offers to the mortgagee full payment of the balance of the principal and interest, and the mortgagee refuses to present the note and mortgage for payment and cancellation.” Cotofan v. Steiner (1959), 170 Ohio St. 163, paragraph one of the syllabus.

{¶21} Appellant Traversari did not place any conditions on the personal checks tendered to appellee. We note that “[t]he essential characteristics of a tender are an unconditional offer to perform, coupled with ability to carry out the offer and production of the subject matter of the tender.” Walton Commercial Enterprises, Inc. v. Assns. Conventions, Tradeshows, Inc. (June 11, 1992), 10th Dist. No. 91AP-1458, 1992 Ohio App. LEXIS 3081, at 5. (Emphasis sic.)

{¶22} “It is an implied condition of every contract that one party will not prevent or impede performance by the other. If he does prevent or impede performance, whether by his prior breach or other conduct, he may not then insist on performance by the affected party, and he cannot maintain an action for nonperformance if the promises are interdependent.” Fed. Natl. Mtge. Assns. v. Banks (Feb. 20, 1990), 2d Dist. No. 11667, 1990 Ohio App. LEXIS 638, at 8-9, citing 17 American Jurisprudence 2d, Contracts, Sections 425, 426.

{¶23} In the instant matter, paragraph 3 of the Open-End Mortgage provides:

{¶24} “3. Application of Payments. Unless applicable law provides otherwise, all payments received by Lender under paragraphs 1 and 2 shall be applied: first, to any prepayment charges due under the Note; second, to amounts payable under paragraph 2; third; to interest due; fourth, to principal due; and last, to any late charges due under the Note.”

{¶25} Here, there was no new note and mortgage, nor agreement for application of payments, when the mortgage at issue was subsequently assigned from Loan America Financial Corporation to appellee. Rather, it was the policy of appellee to require mortgagors to pay by certified check for any amounts over $5,000. According to appellee’s employee, Torres, she indicated that any amount over $5,000 not paid by certified funds puts the company at risk because it can take anywhere between 7 to 10 days for a personal check to clear. We note, however, that the mortgagee has up to 90 days to verify the sufficiency of the underlying funds before satisfying and releasing its recorded mortgage. R.C. 5301.36(B). In the instant case, it would have been reasonable for appellee to have either waited 7 to 10 days for appellant Traversari’s checks to clear or to have inquired with his bank, see, generally, Hunter Sav. Assn. v. Kasper (Sept. 25, 1979), 10th Dist. No. 78AP-774, 1979 Ohio App. LEXIS 11777, at 13, if there were sufficient funds before returning any of his 3 personal checks and commencing foreclosure proceedings.

{¶26} The lender in this case unilaterally refused the debtor’s payment by check due to itsinternal policy that an amount over $5,000 had to be made by certified check. The terms and conditions of the mortgage, however, do not impose such a requirement. Under paragraph 3 of the Open-End Mortgage, it appears the lender had an obligation to apply the payment tendered, by personal check or otherwise. Its refusal to present the check for clearance and apply the payment on the ground of internal policy appears to have violated the debtor’s rights.

{¶27} Construing the evidence submitted most strongly in favor of appellants, we must conclude that genuine issues of material fact remain. Again, a genuine issue of material fact exists with regard to the fact that appellant Traversari tendered the entire principal payment and appellee rejected it because the payment was made by personal check. Also, the dates and amounts of the personal checks are conflicting due to the testimony and/or evidence submitted by the parties. Thus, the trial court erred by granting appellee’s motion for summary judgment.

{¶28} For the foregoing reasons, appellants’ sole assignment of error is well-taken. The judgment of the Geauga County Court of Common Pleas is reversed and the matter is remanded for further proceedings consistent with this opinion. It is ordered that appellee is assessed costs herein taxed. The court finds there were reasonable grounds for this appeal.

Trapp, P.J., Rice, J., concur.

Defendants are not named parties to the instant appeal.

The matter was stayed. On November 26, 2008, the Federal Deposit Insurance Corporation was substituted for appellee Washington Mutual Bank. This court instructed the Clerk of Courts to correct the docket by removing “Washington Mutual Bank” and substituting “Federal Deposit Insurance Corporation, as Receiver of Washington Mutual Bank” as appellee in this appeal. The stay order automatically dissolved on August 29, 2009.

[ipaper docId=49949158 access_key=key-16gs2rj75pcangydg3mz height=600 width=600 /]

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The 25-Year ‘Foreclosure from Hell’

The 25-Year ‘Foreclosure from Hell’

DECEMBER 4, 2010


OKEECHOBEE COUNTY, Fla.—Patsy Campbell could tell you a thing or two about fighting foreclosure. She’s been fighting hers for 25 years.

The 71-year-old retired insurance saleswoman has been living in her house, a two-story on a half acre in a tidy middle-class neighborhood here in central Florida, since 1978. The last time she made a mortgage payment was October 1985.

And yet Ms. Campbell has been able to keep her house, protected by a 105-pound pit bull named Dodger and a locked, rusty gate advising visitors to beware of the dog.

“They’re not going to take this house,” says Ms. Campbell. “I intend to stay in this house and maintain it as my residence until I die.”

Ms. Campbell’s foreclosure case has outlasted two marriages, three recessions and four presidents. She has seen seven great-grandchildren born, plum real-estate markets come and go and the ownership of her mortgage change six times. Many Florida real-estate lawyers say it is the longest-lasting foreclosure case they have ever heard of.

The story of how Ms. Campbell has managed to avoid both paying her mortgage and losing her home, which is currently assessed at more than $203,000, is a cautionary tale for lenders that cut corners and followed sloppy practices when originating, processing and servicing mortgages. Lenders are especially vulnerable in the 23 states, including Florida, that require foreclosures to be approved by a judge.

Ms. Campbell has challenged her foreclosure on the grounds that her mortgage was improperly transferred between banks and federal agencies, that lawyers for the bank had waited too long to prosecute the case, that a Florida law shields her from all her creditors, and for dozens of other reasons. Once, she questioned whether there really was a debt at all, saying the lender improperly separated the note from the mortgage contract.

She has managed to stave off the banks partly because several courts have recognized that some of her legal arguments have some merit—however minor. Two foreclosure actions against her, for example, were thrown out because her lender sat on its hands too long after filing a case and lost its window to foreclose.

Ms. Campbell, who is handling her case these days without a lawyer, has learned how to work the ropes of the legal system so well that she has met every attempt by a lender to repossess her home with multiple appeals and counteractions, burying the plaintiffs facing her under piles of paperwork.

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Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on Problems in Mortgage Servicing from Modification to Foreclosure, Part II

Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on Problems in Mortgage Servicing from Modification to Foreclosure, Part II

Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on Problems in Mortgage Servicing from Modification to Foreclosure, Part II; Committee on Banking, Housing, and Urban Affairs, U.S. Senate; 538 Dirksen Senate Office Building
December 1, 2010

Chairman Dodd, Ranking Member Shelby and members of the Committee, thank you for requesting the views of the Federal Deposit Insurance Corporation on deficiencies in mortgage servicing and their broader potential impact on the financial system. It is unfortunate that problems in mortgage servicing and foreclosure prevention continue to require the scrutiny of this Committee. While “robo-signing” is the latest issue, this problem is symptomatic of persistent shortcomings in the foreclosure prevention efforts of our nation’s largest mortgage servicers. As such, I believe that major changes are required to stabilize our housing markets and prevent unnecessary foreclosures.

The FDIC continues to review the mortgage servicing operations at banks we supervise and also those institutions that have purchased failed-bank loans under loss-share agreements with the FDIC. To date, our review has revealed no evidence that FDIC-supervised state-chartered banks directly engage in robo-signing, and it also appears that they have limited indirect exposure through third-party relationships with servicers that have engaged in this practice. However, we remain concerned about the ramifications of deficiencies in foreclosure documentation among the largest servicers, most of which we insure. We will continue to work with the primary supervisors of these servicers through our backup examination authority. In addition, we are coordinating our work with the State Attorneys General (AG) and the Financial Fraud Enforcement Task Force – a broad coalition of federal, state, and local law enforcement, regulatory, and investigatory agencies led by the Department of Justice – to support efforts for broad-based and consistent resolution of servicing issues.

The robo-signing and foreclosure documentation issues are the natural result of the misaligned incentives that pervade the entire mortgage process. For instance, the traditional, fixed level of compensation for loan servicing has been wholly inadequate to cover the expenses required to implement high-touch and specialized servicing on the scale needed in recent years. Misaligned incentives have led to significant underinvestment in the systems, processes, training, and staffing necessary to effectively implement foreclosure prevention programs. Similarly, many servicers have failed to update their foreclosure process to reflect the increased demand and need for loan modifications. As a result, some homeowners have received conflicting messages from their servicers and have missed opportunities to avoid foreclosure. The failure to effectively implement loan modification programs can not only harm individual homeowners, but the resulting unnecessary foreclosures put downward pressure on home prices.

As serious as these issues are, a complete foreclosure moratorium is ill-advised, as it would unduly prolong those foreclosures that are necessary and justified, and would slow the recovery of housing markets. The regrettable truth is that many of the properties currently in the foreclosure process are either vacant or occupied by borrowers who simply cannot make even a significantly reduced payment and have been in arrears for an extended time.

My hope is that the newly established Financial Stability Oversight Council (FSOC) will take the lead in addressing the latest issues of foreclosure documentation deficiencies and proposing a sensible and broad-based approach to reforming mortgage servicer processes, promoting sustainable loan modifications and restoring legal certainty to the foreclosure process where it is appropriate and necessary.

In my testimony, I will begin with some background on the robo-signing and related foreclosure documentation problems and connect theses issues to other deficiencies in the mortgage servicing process. Second, I will discuss the FDIC’s efforts to address identified servicing problems within our limited jurisdiction. Finally, I will discuss the central role that I believe the FSOC can play in facilitating broad agreements among major stakeholder groups that can help resolve some of these issues.

I. Robo-Signing and Foreclosure Documentation Problems and Shortfalls in Mortgage Servicing

The FDIC is concerned about two related, but separate, problems relating to foreclosure documentation. The first is referred to as “robo-signing,” or the use of highly-automated processes by some large servicers to generate affidavits in the foreclosure process without the affiant having reviewed facts contained in the affidavit or having the affiant’s signature witnessed in accordance with State laws. Recent depositions of individuals involved in robo-signing have led to allegations of fraud based on contentions that these individuals signed thousands of documents without knowledge or verification of the information contained in the filed affidavits.

The second problem involves demonstrating the chain of title required to foreclose. Some servicers have not been able to establish their legal standing to foreclose because, under current industry practices, they may not be in possession of the necessary documentation required under state law. In many cases, a servicer is acting on behalf of a trustee of a pool of mortgages that have been securitized and sold to investors in a mortgage-backed securities (MBS) transaction. In MBS transactions, the promissory note and mortgage signed by the borrowers are held by a custodian on behalf of the securitization investors.

In many cases today, however, the mortgage held by the custodian indicates that legal title to the mortgage has been assigned from the original lender to the Mortgage Electronic Registration System (MERS), a system encompassing some 31 million active mortgage loans that was designed to facilitate the transfer of mortgage claims in the securitization process. Securitization often led to multiple transfers of the mortgage through MERS. Many of the issues raised about the authority of servicers to foreclose are a product of potential defects in these transfers and the requirements for proof of the servicer’s authority. Where MERS is involved, foreclosures have been initiated either by MERS, as the legal holder of the lien, or by the servicer. In both cases, the foreclosing party must show that it has possession of the note and that its right to foreclose on the mortgage complies with state law.

Robo-signing and chain of title issues may create contingent liabilities for mortgage servicers. Investors who contend that servicers have not fulfilled their servicing responsibilities under the pooling and servicing agreements (PSAs) argue that they have grounds to reassign servicing rights. In addition, concerns have been raised by investors as to whether the transfer of loan documentation in some private MBS securitization trusts fully conform to the requirements established under applicable trust law and the PSAs governing these transactions. While the legal challenges under the representations and warranties trust requirements remain in their early stages, they could, if successful, result in the “putback” of large volumes of defaulted mortgages from securitization trusts to the originating institutions. The FDIC has been working with the FRB and the Comptroller of the Currency (OCC), in our backup capacity, to gather information from the large servicers to evaluate the potential financial impact of these adverse outcomes.

Long-Standing Weaknesses in Third-Party Mortgage Servicing

The weaknesses that have been identified in mortgage servicing practices during the mortgage crisis are a byproduct of both rapid growth in the number of problem loans and a compensation structure that is not well designed to deal with these loans. As recently as 2005, when average U.S. homes prices were still rising rapidly, fewer than 800,000 mortgage loans entered foreclosure on an annual basis.1 By 2009, the annual total had more than tripled to over 2.8 million, and foreclosures through the first three quarters of 2010 are running at an annualized pace of more than 2.5 million. Moreover, the proportion of foreclosure proceedings actually resulting in the repossession and sale of collateral appears to have increased even more rapidly over this period in some of the hardest-hit markets. Data published by the Federal Housing Finance Agency show that the percent of total homes sales in California resulting from foreclosure-related distressed sales increased more than eight-fold, to over 40 percent of all sales, between 2006 and 2008.2

The share of U.S. mortgage loans held or securitized by the government-sponsored enterprises (GSEs) and private issuers of asset-backed securities has doubled over the past 25 years to represent fully two-thirds of the value of all mortgages currently outstanding.3 One effect of this growth in securitization has been parallel growth in third-party mortgage servicing under PSA agreements. By definition, a large proportion of the mortgages sold or securitized end up serviced under PSAs.

The traditional structure of third-party mortgage servicing fees, put in place well before this crisis, has created perverse incentives to automate critical servicing activities and cut costs at the expense of the accuracy, reliability and currency of loan documents and information. Prior to the 1980s, the typical GSE mortgage pool paid a servicing fee of 37.5 basis points annually, or .375 percent of the outstanding principal balance of the mortgage pool. Since the 1980s, the typical servicing fee for prime loans has been 25 basis points. When Alt-A and subprime mortgages began to be securitized by private issuers in the late 1990s, the standard servicing fees for those loans were set higher, typically at 37.5 basis points for Alt-A loans and 50 basis points for subprime loans.

While this fee structure provided a steady profit stream for servicers when the number of defaulted loans remained low, costs rose dramatically with the rise in mortgage defaults in the latter half of the last decade. As a result, some mortgage servicers began running operating losses on their servicing portfolios. One result of a compensation structure that did not account for the rise in problem loans was a built-in financial incentive to minimize the investment in back office processes necessary to support both foreclosure and modification. The other result was consolidation in the servicing industry. The market share of the top 5 mortgage servicers has nearly doubled since 2000, from 32 percent to almost 60 percent.4 The purpose and effect of consolidation is to cut costs and achieve economies of scale, but also to increase automation.

Most PSAs allow for both foreclosure and modification as a remedy to default. But servicers have continuously been behind the curve in pursuing modification as an alternative to foreclosure. A survey of 13 mortgage servicers conducted by the State Foreclosure Prevention Working Group shows that the annual percent of all past due mortgages that are being modified has risen from just over 2 percent in late 2007 to a level just under 10 percent as of late 2009.5 At the same time, the percentage of past due loans entering foreclosure each year has also steadily risen over this same time period, from 21 percent to 32 percent.

One example of the lack of focus on loss mitigation strategies is the uncoordinated manner in which many servicers have pursued modification and foreclosure at the same time. Under such a “dual-track” process, borrowers may be attempting to file the documentation needed to establish their qualifications for modification and waiting for a favorable response from the servicer, even while that servicer is at the same time executing the paperwork necessary to foreclose on the property. While in some cases it may be reasonable to begin conducting preliminary filings for seriously past due loans in states with long foreclosure timelines, it is vitally important that the modification process be brought to conclusion before a foreclosure sale is scheduled. Failure to coordinate the foreclosure process with the modification process risks confusing and frustrating homeowners and could result in unnecessary foreclosures. As described in the concluding section, we recommend that servicers establish a single point of contact that can work with every distressed borrower and coordinate all activities taken by the servicer with regard to that particular case.

II. FDIC Efforts to Address Problems in Mortgage Servicing and Foreclosure Prevention

Since the early stages of the mortgage crisis, the FDIC has made a concerted effort to promote the early modification of problem mortgages as a first alternative that can spare investors the high losses associated with foreclosure, assist families experiencing acute financial distress, and help to stabilize housing markets where distressed sales have resulted in a lowering of home prices in a self-reinforcing cycle.

In 2007, when the dimensions of the subprime mortgage problem were just becoming widely known, I advocated in speeches, testimony and opinion articles that servicers not only had the right to carry out modifications that would protect subprime borrowers from unaffordable interest-rate resets, but that doing so would often benefit investors by enabling them to avoid foreclosure costs that could run as high as 40 percent or more of the value of the collateral. In addition, the FDIC, along with other federal regulators jointly hosted a series of roundtables on the issues surrounding subprime mortgage securitizations to facilitate a better understanding of problems and identify workable solutions for rising delinquencies and defaults, including alternatives to foreclosure.

More recently, the FDIC has been actively involved both in investigating and addressing robo-signing and documentation issues at insured depository institutions and their affiliates, ensuring that its own loss-share partners are employing best practices in their servicing operations, and implementing reforms that will better align the financial incentives of servicers in future securitization deals.

Supervisory Actions

The FDIC is exercising both its primary and backup authorities to actively address the issues that have emerged regarding banks’ foreclosure and “robo-signing” practices. The FDIC is the primary federal supervisor for nearly 5,000 state-chartered insured institutions, where we monitor compliance with safety and soundness and consumer protection requirements and pursue enforcement actions to address violations of law. While the FDIC is not the primary federal regulator for the major loan servicers, our examiners are working on-site under our backup authority as part of an interagency horizontal review team at 12 of the 14 major mortgage servicers along with their primary federal regulators. This interagency review is also evaluating the roles played by MERS and Lender Processing Services, a large data processor used by many mortgage servicers.

The FDIC is committed to active participation in horizontal reviews and other interagency efforts so we are able to have a comprehensive picture of the underlying causes of these problems and the lessons to be learned. The onsite reviews are finding that mortgage servicers display varying degrees of performance and quality controls. Program and operational deficiencies may be correctable in the normal course of business for some, while others may need more rigorous system changes. The level and adequacy of documentation also varies widely among servicers. Where chain of title is not sufficiently documented, servicers are being required to make changes to their processes and procedures. In addition, some servicers need to strengthen audit, third-party arrangements, and loss mitigation programs to cure lapses in operations. However, we do not believe that servicers should wait for the conclusion of the interagency effort to begin addressing known weaknesses in internal controls and risk management. Corrective actions on problems identified during a servicer’s own review or the examiners’ review should be addressed as soon as possible. We expect each servicer to properly review loan documents prior to initiating or conducting any foreclosure proceedings, to adhere to applicable laws and regulations, and to maintain appropriate policies, procedures and documentation. If necessary, the FDIC will encourage the use of formal or informal corrective programs to ensure timely action is taken.

Actions Taken as Receiver for Failed Institutions

In addition to our supervisory efforts, the FDIC is looking at the servicing practices of institutions acquiring failed institutions under loss-share agreements. To date there are $159.8 billion in loans and securities involved in FDIC loss share agreements, of which $56.7 billion (36 percent) are single family loans. However, the proportion of mortgage loans held by acquiring institutions that are covered by loss share agreements is in some cases very small. For example, at One West Bank, the successor to Indy Mac, only 8 percent of mortgages serviced fall under the FDIC loss share agreement.

An institution that acquires a single-family loss-share portfolio is required to implement a loan modification program, and also is required to consider borrowers for a loan modification and other loss mitigation alternatives prior to foreclosure. These requirements minimize the FDIC’s loss share costs. The FDIC monitors the loss-share agreements through monthly and quarterly reporting by the acquiring bank and semi-annual reviews of the acquiring bank. The FDIC has the right to deny or recover any loss share claim where the acquiring institution is unable to verify that a qualifying borrower was considered for loan modification and that the least costly loss mitigation alternative was pursued.

In connection with the recent foreclosure robo-signing revelations, the FDIC contacted all of its loss-share partners. All partners certified that they currently comply with all state and federal foreclosure requirements. We are in the process of conducting a Loan Servicing Oversight audit of all loss-share partners with high volumes of single-family residential mortgage loans and foreclosures. The FDIC will deny any loss-share payments or seek reimbursement for any foreclosures not compliant with state laws or not fully remediated, including noncompliance with the loss-share agreements and loan modification requirements.

Regulatory Actions to Reform Mortgage Securitization

We also are taking steps to restore market discipline to our mortgage finance system by doing what we can to reform the securitization process. In July of this year, the FDIC sponsored its own securitization of $471 million of single-family mortgages. In our transaction, we addressed many of the deficiencies in existing securitizations. First, we ensured that the servicer will make every effort to work with borrowers in default, or where default is reasonably foreseeable. Second, the servicing arrangements in these structured loan transactions have been designed to address shortcomings in the traditional flat-rate structures for mortgage servicing fees. Our securitization pays a base dollar amount per loan per year, regardless of changes in the outstanding balance of that loan. In addition, the servicing fee is increased in the event the loan becomes more complex to service by falling past due or entering modification or foreclosure. This fee structure is much less likely to create incentives to slash costs and rely excessively on automated or substandard processes to wring a profit out of a troubled servicing portfolio. Third, we provided for independent, third party oversight by a Master Servicer. The Master Servicer monitors the Servicer’s overall performance and evaluates the effectiveness of the Servicer’s modification and loss mitigation strategies. And, fourth, we provided for the ability of the FDIC, as transaction sponsor, the Servicer and the Master Servicer to agree on adapting the servicing guidelines and protocols to unanticipated and significant changes in future market conditions.

The FDIC has also recently taken the initiative to establish standards for risk retention and other securitization practices by updating its rules for safe harbor protection with regard to the sale treatment of securitized assets in failed bank receiverships. Our final rule, approved in September, establishes standards for disclosure, loan quality, loan documentation, and the oversight of servicers. It will create a comprehensive set of incentives to assure that loans are made and managed in a way that achieves sustainable lending and maximizes value for all investors. In addition, the rule is fully consistent with the mandate under the Dodd-Frank Act to apply a 5 percent risk-retention requirement on all but the most conservatively underwritten loans when they are securitized.

We are currently working on an interagency basis to develop the Dodd-Frank Act standards for risk retention across several asset classes, including requirements for low-risk “Qualifying Residential Mortgages,” or QRMs, that will be exempt from risk retention. These rules allow us to establish a gold standard for securitization to encourage high-quality mortgages that are sustainable for the long term. This rulemaking process also provides a unique opportunity to better align the incentives of servicers with those of mortgage pool investors.

We believe that the QRM rules should authorize servicers to use best practices in mitigating losses through modification, require compensation structures that promote modifications, and direct servicers to act for the benefit of all investors. We also believe that the QRM rules should require servicers to disclose any ownership interest in other whole loans secured by the same real property, and to have in place processes to deal with any potential conflicts. Some conflicts arise from so-called “tranche warfare” that reflects the differing financial interests among the holders of various mortgage bond tranches. For example, an investor holding the residual tranche typically stands to benefit from a loan modification that prevents default. Conversely, the higher rated tranches might be better off if a servicer foreclosed on the property forcing losses to be realized at the expense of the residual tranche. A second type of conflict potentially arises when a single company services a first mortgage for an investor pool and the second mortgage for a different party, or for itself. Serious conflicts such as this must be addressed if we are to achieve meaningful long-term reform of the securitization process.

Therefore, the FDIC believes it would be extremely helpful if the definition of a QRM include servicing requirements that, among other things:

  • grant servicers the authority and provide servicers compensation incentives to mitigate losses on residential mortgages by taking appropriate action to maximize the net present value of the mortgages for the benefit of all investors rather than the benefit of any particular class of investors;
  • establish a pre-defined process to address any subordinate lien owned by the servicer or any affiliate of the servicers; and
  • require disclosure by the servicer of any ownership interest of the servicer or any affiliate of the servicer in other whole loans secured by the same real property that secures a loan included in the pool.

Risk retention rules under the Dodd-Frank Act should also create financial incentives that promote effective loan servicing. The best way to accomplish this is to require issuers – particularly those who also are servicers – to retain an interest in the mortgage pool that is directly proportional to the value of the pool as a whole. Frequently referred to as a “vertical slice,” this form of risk retention would take the form of a small, proportional share of every senior and subordinate tranche in the securitization, creating a combined financial interest that is not unduly tilted toward either senior or subordinate bondholders.

III. The FSOC Should Play a Central Role in Developing Solutions

What started a few months ago as technical documentation issues in the foreclosure process has grown into something more serious and potentially damaging to the nation’s housing recovery and to some of our largest institutions. First, a transparent, functioning foreclosure process is unfortunately necessary to the recovery of our housing market and our economy. Second, the mortgage documentation problems cast a cloud of uncertainty over the ownership rights and obligations of mortgage borrowers and investors. Further, there are numerous private parties and government entities that may have significant claims against firms central to the mortgage markets.

While we do not see immediate systemic risk, the clear potential is there. The FSOC was established under the Dodd-Frank Act to deal with just this type of emerging risk. Its mandate includes identifying risks to financial stability and potential gaps in regulation and making recommendations for primary regulators and other policymakers to take action to mitigate those risks. As such, these issues represent just the type of problem the FSOC was designed to address. In addition, the difficulties that have been experienced to date in coordinating a government policy response speak to the need for central role by the FSOC in negotiating workable solutions with the major parties that have a stake in the outcome.

The FSOC is in a unique position to provide needed clarity to the market by coordinating consistent interpretations of what standards should be applied to establishing the chain of title for mortgage loans and recognizing the true sale of mortgage loans in establishing private securitization trusts. The constituent agencies that make up the FSOC also have their own authorities that can be used to provide clarity of this type. Examples include rulings on standards that determine the tax-exempt status of mortgage trusts and standards for the recognition of true sale in a failed bank receivership, which the FDIC recently updated in its safe harbor regulation.

We need broad agreements between representatives of the major stakeholders affected by this issue so that the uncertainties associated with this issue can be resolved as quickly as possible. Outlined below are some of the principles I believe should be part of any broad agreement among the stakeholders to this issue.

  1. Establish a single point of contact for struggling homeowners. Servicers should identify a single person to work with homeowners once it becomes evident the homeowner is in distress. This single point of contact must be appropriately authorized to provide current, accurate information about the status of the borrower’s loan or loan modification application, as well as provide a sign-off that all loan modification efforts have failed before a foreclosure sale. This will go a long way towards eliminating the conflicts and miscommunications between loan modifications and foreclosures in today’s dual-track system and will provide borrowers assurance that their application for modification is being considered in good faith.
  2. Expand and streamline private loan modification efforts to increase the number of successful modifications. To accomplish this end, servicers should be required to intervene with troubled borrowers from the earliest stages of delinquency to increase the likelihood of success in foreclosure mitigation. Modifications under such programs should significantly reduce the monthly payment through reductions in the interest rate and principal balance, as needed, to make the mortgage affordable over the long term. Analysis of modifications undertaken in the FDIC program at Indy Mac Federal Bank has shown that modifying loans when they are in the early stages of delinquency and significantly reducing the monthly payment are both factors that promote sustainable modifications that perform well over time. In exchange for the creation of highly-simplified modification programs, mortgage servicers should have a “safe harbor” that would give them assurance that their claims will be recognized if foreclosure becomes unavoidable. In addition, streamlined modification programs should be recognized as a best practice in adjudicating disputes with mortgage investors.
  3. Invest appropriate resources to maintain adequate numbers of well-trained staff. Broad agreements should require servicers to hire and train sufficient numbers of staff to professionally process applications for loan modifications. Further, servicers should be required to improve information systems to help manage and support the workload associated with loan modifications.
  4. Strengthen quality control processes related to foreclosure and loan servicing activities. Some servicers need to make fundamental changes to their practices and programs to fulfill their responsibilities and satisfy their legal obligations. Lax standards of care and failure to follow longstanding legal requirements cannot be tolerated. Regulators must vigorously exercise their supervisory tools to ensure that mortgage servicers operate to high standards. Servicers need to institute strong controls to address defective practices and enhance programs to regain integrity of their operations. Where severe deficiencies are found, the servicers should be required to have independent third-party monitors evaluate their activities to ensure that process changes are fully implemented and effective. Servicers must also fully evaluate and account for their risks relating to their servicing activities, including any costs stemming from weaknesses in their operations.
  5. Resolve the challenges created by second liens. Since the early stages of the mortgage crisis, second liens have been an obstacle to effective alternatives to foreclosure, including loan modification and short sales. We must tackle the second lien issue head on. One option is to require servicers to take a meaningful write-down of any second lien if a first mortgage loan is modified or approved for a short sale. All of the stakeholders must be willing to compromise if we are to find solutions to the foreclosure problem and lay the foundation for a recovery in our housing markets.


We must restore integrity to the mortgage servicing system. We need a mandate for dramatically simplified loan modifications so that unnecessary foreclosures can be avoided. Servicers need to establish a single point of contact to coordinate their communication with distressed borrowers. They also need to invest appropriate resources and strengthen quality control processes related to loan modification and foreclosure. We must finally tackle the second liens head on, by requiring servicers to impose meaningful write-downs on second lien holders when a first mortgage is modified or approved for a short sale.

This is the time for all parties to come together and arrive at broad agreements that will reduce uncertainty and lay the foundation for long-term stability in our mortgage and housing markets. The FSOC has a unique role to play in addressing the situation and can provide needed clarity on issues such as standards for recognizing true sale in securitization trusts.

Again, thank you for the opportunity to testify on this important issue. I look forward to your questions.

1 FDIC estimate based on data from the Mortgage Bankers Association data and the American Housing Survey.

2 “The Impact of Distressed Sales on Repeat-Transactions House Price Indexes,” FHFA, May 27, 2009, http://www.fhfa.gov/webfiles/2916/researchpaper_distress%5B1%5D.pdf

3 Source: Federal Reserve Board, Flow of Funds, Table L.218.

4 Source: Inside Mortgage Finance.

5 Analysis of Mortgage Servicing Performance,” Data Report No. 4, January 2010, State Foreclosure Prevention Working Group, http://www.ohioattorneygeneral.gov/ForeclosureReportJan2010.

Last Updated 12/1/2010 communications@fdic.gov

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Posted in STOP FORECLOSURE FRAUDComments (1)



before the
of the
November 18, 2010


Chairwoman Waters, Ranking Member Capito, and members of the Subcommittee, I appreciate this opportunity to discuss recently reported improprieties in the foreclosure processes used by several large mortgage servicers and actions that the Office of the Comptroller of the Currency (OCC) is taking to address these issues where they involve national banks. The occurrences of improperly executed documents and attestations raise concerns about the overall integrity of the foreclosure process and whether foreclosures may be inappropriately taking homes from their owners. These are serious matters that warrant the thorough investigation that is now underway by the OCC, other federal bank regulators, and other agencies.


A key objective of theMERS examination is to assess MERS corporate governance, control systems,
and accuracy and timeliness of information maintained in the MERS system. Examiners assigned to MERS
will also visit on-site foreclosure examinations in process at the largest mortgage servicers to
determine how servicers are fulfilling their roles and responsibilities relative to MERS.

We are also participating in an examination being led by the FRB of Lender
Processing Services, Inc., which provides third-party foreclosure services to banks.
We expect to have most of our on-site examination work completed by mid to late
December. We then plan to aggregate and analyze the data and information from each of
these examinations to determine whether or what additional supervisory and regulatory
actions may be needed. We are targeting to have our analysis completed by the end of

We recognize that the problems associated with foreclosure processes and
documentation have raised broader questions about the potential effect on the mortgage
market in general and the financial impact on individual institutions that may result from
litigation or other actions by borrowers and investors.

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© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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US Regulators Set To Investigate MERS, LPS Over Foreclosures

US Regulators Set To Investigate MERS, LPS Over Foreclosures

US Regulators Examining Two Mortgage Processing Firms


WASHINGTON -(Dow Jones)- Federal bank regulators are conducting examinations of two companies that banks use to process foreclosures, amid concerns that banks cut corners on thousands of foreclosure documents, Acting Comptroller of the Currency John Walsh said Wednesday.

Walsh, in remarks prepared for delivery Thursday, said his agency is examining Reston, Va.-based Mortgage Electronic Registration Systems in conjunction with the Federal Reserve, the Federal Deposit Insurance Corp. and the Federal Housing Finance Agency.

That company, known as MERS, lets lenders package and sell mortgages without recording each transaction with county property offices.

It has come under fire from critics, who say MERS doesn’t have the right to act as the legal representative of the mortgage owner in foreclosure cases.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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Mortgage Fraud

Bryan Bly
Nationwide Title Clearing

Action Date: November 8, 2010
Location: Palm Harbor, FL

The video-taped depositions of employees of Nationwide Title Clearing in Palm Harbor, Florida, were made available on the website Stop Foreclosure Fraud.

The deposition of Bryan Bly is particularly startling and straightforward. Bryan Bly signed documents and witnessed or notarized other documents. Bly testified that he did not witness the signatures he notarized. Bly signed in batches of 200. Bly signed approximately 5,000 mortgage assignments each day. Bly also signed as an officer of many lenders. Bly signed as an officer of over 20 banks and mortgage companies. His supervisors told him there were corporate resolutions authorizing him to sign using these titles. Bly had no knowledge of the information on the documents. Bly did not know what was meant by a mortgage assignment or an attorney-in-fact although he signed mortgage assignments as an officer of Citi Financial as attorney-in-fact for Argent Mortgage. He did not verify any information other than to make sure co-employees had signed their names so there were no blank lines on the documents. He has done this work for approximately 10 years.

One of the titles not discussed in the deposition, but used on tens of thousands of mortgage assignments signed by Bly was Attorney-In-Fact, Federal Deposit Insurance Corporation, as Receiver for IndyMac Federal Bank FSB, successor to IndyMac Mortgage Holdings, Inc. Bly continued to sign as Attorney-In-Fact for the FDIC as recently as June 25, 2010. A copy of an assignment signed by Bly as Attorney-In-Fact for the FDIC is available in the “Pleadings” section of Fraud Digest.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

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