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Housing in the New Millennium: A Home Without Equity is Just a Rental with Debt – JOSHUA ROSNER

Housing in the New Millennium: A Home Without Equity is Just a Rental with Debt – JOSHUA ROSNER


Housing in the New Millennium: A Home Without Equity is Just a Rental with Debt

Joshua Rosner
Graham Fisher & Co.

June 29, 2001

Abstract:     
This report assesses the prospects of the U.S. housing/mortgage sector over the next several years. Based on our analysis, we believe there are elements in place for the housing sector to continue to experience growth well above GDP. However, we believe there are risks that can materially distort the growth prospects of the sector. Specifically, it appears that a large portion of the housing sector’s growth in the 1990’s came from the easing of the credit underwriting process. Such easing includes:

* The drastic reduction of minimum down payment levels from 20% to 0%
* A focused effort to target the “low income” borrower
* The reduction in private mortgage insurance requirements on high loan to value mortgages
* The increasing use of software to streamline the origination process and modify/recast delinquent loans in order to keep them classified as “current”
* Changes in the appraisal process which has led to widespread overappraisal/over-valuation problems

If these trends remain in place, it is likely that the home purchase boom of the past decade will continue unabated. Despite the increasingly more difficult economic environment, it may be possible for lenders to further ease credit standards and more fully exploit less penetrated markets. Recently targeted populations that have historically been denied homeownership opportunities have offered the mortgage industry novel hurdles to overcome. Industry participants in combination with eased regulatory standards and the support of the GSEs (Government Sponsored Enterprises) have overcome many of them.

If there is an economic disruption that causes a marked rise in unemployment, the negative impact on the housing market could be quite large. These impacts come in several forms. They include a reduction in the demand for homeownership, a decline in real estate prices and increased foreclosure expenses.

These impacts would be exacerbated by the increasing debt burden of the U.S. consumer and the reduction of home equity available in the home. Although we have yet to see any materially negative consequences of the relaxation of credit standards, we believe the risk of credit relaxation and leverage can’t be ignored. Importantly, a relatively new method of loan forgiveness can temporarily alter the perception of credit health in the housing sector. In an effort to keep homeowners in the home and reduce foreclosure expenses, holders of mortgage assets are currently recasting or modifying troubled loans. Such policy initiatives may for a time distort the relevancy of delinquency and foreclosure statistics. However, a protracted housing slowdown could eventually cause modifications to become uneconomic and, thus, credit quality statistics would likely become relevant once again. The virtuous circle of increasing homeownership due to greater leverage has the potential to become a vicious cycle of lower home prices due to an accelerating rate of foreclosures.

Presented: 2002 Mid-Year Meeting American Real Estate and Urban Economics Association National Association of Home Builders Washington, DC May 28-29, 2002.

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Isaac & Kovacevich: Fannie and Freddie must go – here’s how

Isaac & Kovacevich: Fannie and Freddie must go – here’s how


CNN Money-

The recession of 2008, precipitated by the collapse of the subprime mortgage bubble, may be officially over, but economic growth remains anemic and is producing virtually no job growth. We must stimulate the moribund housing markets. Yet in the past three years, there has been no progress on the housing front, and Washington policymakers seem bereft of ideas for turning things around.

[CNN MONEY]

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ADAM LEVITIN: Before The Senate Banking Committee “Housing Finance Reform: Should There Be a Government Guarantee?”

ADAM LEVITIN: Before The Senate Banking Committee “Housing Finance Reform: Should There Be a Government Guarantee?”


Written Testimony of
Adam J. Levitin
Professor of Law
Georgetown University Law Center

Before the Senate Committee on Banking, Housing, and Urban Affairs

“Housing Finance Reform: Should There Be a Government Guarantee?”

September 13, 2011

[ipaper docId=64899731 access_key=key-2kpgybvq7hyggpqgt1l7 height=600 width=600 /]

Please visit CREDIT SLIPS for more information.

 

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VaCap Second Letter to Attorney General Cuccinelli Regarding UAD

VaCap Second Letter to Attorney General Cuccinelli Regarding UAD


08/29/2011

Kenneth T. Cuccinelli, II

Office of the Attorney General
900 East Main Street
Richmond, VA 23219
Re: September 1st Implementation by GSEs

Dear Sir:

In a letter dated July 19th, 2011, the Virginia Coalition of Appraiser Professionals (VaCAP) brought to your attention the serious concerns that we have about the impending implementation of new appraisal reporting requirements by the Government Sponsored Enterprises (GSEs), which are The Federal National Mortgage Association (FNMA) and The Federal Home Loan Mortgage Corporation (FHLMC). Since Fannie Mae and Freddie Mac control a very large percentage of the mortgage market, this requirement st will impact the majority of residential appraisal reports starting September 1st. In our July 19 letter, we provided specific information on how this proprietary code, which is called the Uniform Appraisal Dataset (UAD) and is specific to Fannie Mae and Freddie Mac, will result in incomplete and/or misleading information in appraisal reports.

VaCAP has presented this information to the Virginia Real Estate Appraisal Board (VREAB) in an effort to explain how the UAD will result in widespread violation of USPAP, which is the law for appraisals in The Commonwealth of Virginia. The VREAB has reviewed the information provided by state licensed and certified appraisers, the Association of Appraiser Regulatory Officials (AARO), and the Appraisal Standards Board (ASB). The VREAB agrees that the UAD is likely to cause significant harm to its licensees as well as to the homeowners who will rely on the misleading information that UAD requires. The VREAB has issued a letter to this effect to the Federal Housing Finance Agency, along with copies to Senator Mark Warner, Senator Jim Webb, and yourself. This letter from the VREAB affirms VaCAP’s strong belief that implementation of the UAD should be delayed until the potential harm can be more carefully studied and the unintended consequences corrected.

It should be noted that the UAD is NOT federal law, and does not take precedence over Virginia law. Rather, it is a reporting format that standardizes appraisal report fields. The published reason for this is to create more consistent data that can be easily filtered and interpreted, but the reality is exactly the opposite. The standardized fields for important items like quality of construction, condition, location, sales type, etc are given short codes or abbreviations (C1, Q4, ArmLth, etc) that are confusing to even the developers themselves, let alone the intended users or readers of the appraisal reports. Additionally, appraisers are not permitted to fill in certain lines of the appraisal report with anything except pre-programmed choices from drop-down boxes or numeric characters. If there are no correct options in the preset lists, the appraiser is forced to provide incorrect information because the appraisal cannot be uploaded until it meets the UAD requirements. This leaves the appraiser in the precarious position of either violating USPAP or going out of business for lack of work. If the Federal Housing Finance Agency fails to delay the implementation of the UAD as requested, the Attorney General may be put in an equally uncomfortable position of enforcing Virginia state law (USPAP) against its own regulates.

The effects of the UAD, however, will have much more far-reaching consequences than just killing the small businesses of appraisers. Since the vast majority of residential appraisals are done for either home purchases or refinances, the borrower will receive a copy of the appraisal report that they will not be able to understand and that may be very misleading. Forcing data to fit into very narrowly defined fields and then adjusting values based on these false categorizations will also result in incorrect value estimates. Homeowners and home buyers will be making one of the most important financial decisions of their lifetime based on information that is unreliable and misleading, and on estimated values that may be too high or too low. This will cause further decline in the already devastated housing market, undermine consumer confidence, and cause needless financial burden to the citizens of Virginia. Virginians have already suffered greatly from the ever-increasing government regulation that is crippling our economy. Fannie Mae and Freddie Mac have already taken hundreds of billions of dollars from taxpayers to cover the losses that their faulty policies have generated. There is considerable talk at the federal level of disbanding them altogether. Yet they are still pushing through another disastrous plan for which the public will have to pay the price.

VaCAP understands that there are numerous important issues with which the Attorney General is tasked. However, because time is so short before September 1st and because this matter will greatly impact such a large percentage of the public, we beg you to give it immediate priority. There are other state Attorneys General and Appraisal Boards who share these concerns, but many hesitate for want of a leader to take the first step. Virginia has a long and proud history of strength and leadership that has contributed to this great nation’s success, and all Americans need her to be that leader now. We urge you to prohibit the implementation of the UAD until its harmful consequences can be corrected and the format conforms to USPAP and state law. It is the sole responsibility and duty of each individual State, including The Commonwealth, to enforce the laws written to protect the citizens. There is no Federal Agency which has that jurisdiction or distinction. Send the message that we are a nation and a state of laws, and they cannot be trampled for the private interests of two companies that have become “too big to fail” on the backs of struggling taxpayers.

Sincerely,

Heather Fox
President-Elect
Virginia Coalition of Appraiser Professionals

~ Source VaCAP

Virginia Coalition of Professional Appraisers (VaCAP) is a coalition of individual appraisers working together to unite, promote and protect the collective interests of all appraisal professionals in Virginia; to promote needed changes in laws, rules, regulations, policies and standards affecting all appraisers in Virginia; to observe and report the actions of regulatory, legislative, oversight, and standards-setting entities of the Commonwealth. Please check out their website and consider becoming a member.

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The Fannie and Freddie Fallout – Gretchen Morgenson 2008

The Fannie and Freddie Fallout – Gretchen Morgenson 2008


This wasn’t the way the “ownership society” was supposed to work.

Fair Game-

IT’S dispiriting indeed to watch the United States financial system, supposedly the envy of the world, being taken to its knees. But that’s the show we’re watching, brought to you by somnambulant regulators, greedy bank executives and incompetent corporate directors.

This wasn’t the way the “ownership society” was supposed to work. Investors weren’t supposed to watch their financial stocks plummet more than 70 percent in less than a year. And taxpayers weren’t supposed to be left holding defaulted mortgages and abandoned homes while executives who presided over balance sheet implosions walked away with millions.

[NEW YORK TIMES]

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UNFREAKINGBELIEVABLE | Fannie Mae seeks $5.1 billion more from taxpayers

UNFREAKINGBELIEVABLE | Fannie Mae seeks $5.1 billion more from taxpayers


The gift that keeps on giving…perhaps they should get the fees from their very own MERS, which took away from the counties and taxpayers?

(Reuters) –

Mortgage finance giant Fannie Mae said it would ask for an additional $5.1 billion from taxpayers as it continues to suffer losses on loans made prior to 2009.

The largest U.S. residential mortgage funds provider on Friday also reported a second-quarter net loss attributable to common shareholders of $5.2 billion, or 90 cents per share.

Including the latest funding request, Fannie Mae has needed $104 billion in government capital injections since the U.S. Treasury seized control of it in 2008 during the financial crisis. Fannie Mae has paid back $14.7 billion in dividends.

[REUTERS]

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BAC Settlement and Fannie’s Recent Announcement Prohibiting Servicers From Settling with Mortgage Insurers

BAC Settlement and Fannie’s Recent Announcement Prohibiting Servicers From Settling with Mortgage Insurers


Question:

Did Fannie Mae issue the recent announcement [see below] prohibiting servicers from settling reps and warranties claims with Mortgage insurers specifically because BAC /Countrywide just settled with one of their big insurers AND took back 80% of the loss.

From SeekingAlpha-

The cash settlement of $1.1 billion will be paid in full by March 31, 2012. The initial payment of $850 million was paid on April 14, 2011. In addition, Bank of America and Countrywide have agreed to a reinsurance arrangement that will reimburse Assured Guaranty for 80% of all paid losses on the 21 first lien RMBS transactions until aggregate collateral losses in those transactions exceed $6.6 billion. Cumulative collateral losses on these transactions were approximately $1.3 billion with no paid losses by Assured Guaranty as of December 31, 2010. As of December 31, 2010, Assured Guaranty’s gross economic loss on these RMBS transactions, which assumes cumulative projected collateral losses of $4.6 billion, was $490 million. The total estimated value of the settlement is expected to be accretive to shareholders’ equity and adjusted book value, a non-GAAP financial measure.

Now lets see… Could BAC possibly pass the losses on to the govt. for the Fannie and Freddie guaranteed securities and is this why Fannie is trying to put her foot down with this letter below and say that the servicers do NOT have the authority to make such deals with the insurers, causing the GSE’s to eat the losses that the servicers are blithely bargaining away.

Meanwhile the deal has already been struck and partially paid. Will taxpayers be on the hook for yet another disastrous toxic originating love story?

Did BAC breach any fiduciary responsibilities with Fannie?

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Freddie Mac’s Chief Operating Officer Bruce Witherell Resigns

Freddie Mac’s Chief Operating Officer Bruce Witherell Resigns


According to a regulatory filing on February 9, 2011, Bruce M. Witherell resigned from his position and responsibilities as Chief Operating Officer of Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation) for personal reasons, effective immediately.

Mr. Witherell will not receive any termination benefits.

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`Twilight Zone’ Foreclosure Law Firm Draws Fine, Suits in New York Courts

`Twilight Zone’ Foreclosure Law Firm Draws Fine, Suits in New York Courts


By Thom Weidlich and Karen Freifeld – Dec 8, 2010 12:01 AM ET

Steven J. Baum’s New York foreclosure law firm has attracted lawsuits and fines for its actions during the housing crisis, with one judge likening its conduct to something out of the “Twilight Zone.”

As recently as last month, Baum’s firm, which one lawyer for homeowners said processes about half the foreclosures in New York state, was ordered to pay $14,532.50 in legal fees and costs and a $5,000 fine by Nassau County District Court Judge Scott Fairgrieve in Hempstead, New York.

The judge said that when Paul Raia refused to vacate a Garden City co-op after foreclosure, Baum’s firm filed an eviction petition that misidentified the lender.

“Falsities were contained in five paragraphs out of only ten paragraphs in the entire petition,” Fairgrieve wrote in his Nov. 23 decision.

All 50 U.S. state attorneys general are investigating whether banks, loan servicers and law firms properly prepared documents to justify hundreds of thousands of foreclosures. The probe came after JPMorgan Chase & Co. and Ally Financial Inc.’s GMAC mortgage unit said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze foreclosures nationwide.

Steven J. Baum PC, located in Amherst, New York, just north of Buffalo, has been accused of overcharging, filing false documents and representing parties on both sides of a mortgage transfer. Baum runs the firm his father founded in 1972, according to a fact-sheet provided by Earl V. Wells III, his spokesman.

Syracuse Grad

Baum is a graduate of Syracuse University, got his law degree from the State University of New York at Buffalo and was admitted to practice law in 1987, according to Martindale.com, a legal directory. Baum answered some questions via e-mails.

“Consumer activists and attorneys representing homeowners have their own agenda in this process, including degrading the legal work we conduct on behalf of our clients by using terms like ‘foreclosure mill’ which I find personally and professionally insulting,” he wrote.

At a continuing-education training session a couple of years ago, “Steven Baum himself said they did 49 percent of foreclosures” in the state, Rebecca Case-Grammatico, staff attorney at Rochester, New York-based Empire Justice Center, which represents poor people in foreclosures, said in a phone interview. A complaint in one lawsuit against Baum’s firm says it is “believed to be the largest foreclosure mill in the State of New York.”

Baum declined to comment on the size of his business.

Pillar Processing

A company that processes foreclosure documents shares an address with his law firm. That company, Pillar Processing LLC, is owned by Manhattan private-equity firm Tailwind Capital LLC, according to its website. Brooke Gordon, spokeswoman for Tailwind Capital, declined to comment.

“He’s opposing counsel for us on a huge percentage of our cases,” Meghan Faux, project director of the Foreclosure Prevention Project at South Brooklyn Legal Services, who represents homeowners in predatory-lending cases, said in a phone interview.

New York State Supreme Court Justice Arthur M. Schack in Brooklyn called the firm’s explanations in one case “so incredible, outrageous, ludicrous and disingenuous that they should have been authored by the late Rod Serling.”

Schack threw out the case in part because he said the assignment of the loan had been done improperly. The assignment was made by a Baum lawyer on behalf of Mortgage Electronic Registration Systems Inc. as the nominee for the mortgage bank, according to the judge’s opinion. The same day, the Baum firm represented the buyer of the loan by filing the foreclosure action, the judge said. Schack said it was a conflict for the firm to represent both sides.

‘Parallel Mortgage Universe’

“Steven J. Baum PC appears to be operating in a parallel mortgage universe, unrelated to the real universe,” the judge wrote in that May decision. “Next stop, the Twilight Zone,” he said, quoting from Serling’s TV series about science fiction and the supernatural.

Below you will find  an archive of these cases PLUS many more…

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Foreclosure Mills and The 4 Minute Foreclosure

Foreclosure Mills and The 4 Minute Foreclosure


For you to understand a little more about “the 4 minute foreclosure” you first have to know some key players in the controversy surrounding the foreclosure process today. I included a few excerpts from an article written by Gerlad B. Alt for DS News March of 2007 that you will find at the end. I only wish MERS was included in this article because without this device none of this would have been made possible.

The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government sponsored enterprise (GSE), headquartered in the Tyson’s Corner CDP in unincorporated Fairfax County, VirginiaFreddie Mac, one of America’s biggest buyers of home mortgages, is a stockholder-owned corporation chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of home-ownership and rental housing.

Freddie Mac was the first investor to improve on the so-called standard timeframes by tightening the noose and imposing what seemed at the time like draconian and arbitrary standards for completion of legal actions for foreclosure and bankruptcy. To reinforce its point, the Federal Home Loan Mortgage Corporation adopted a designated counsel program under which the attorneys chosen to participate were expected to meet and be graded against these more stringent dates.

LOGS Network is a multi-state network of title companies and law firms and connecting them via a proprietary web-hosted software system. They developed a proprietary statistical program called ASAP (Attorney Scorecard and Performance) to help manage the more than 250 law firms its outsourcing division. By introducing , invented the field counsel industry that serves residential mortgage banking. LOGS Network was co-founded by Gerald M. Shapiro of Shapiro & Fishman PA a law firm who handles foreclosures for the financial industry. His network held a virtual monopoly on all foreclosure and bankruptcy work nationwide until the early 1990s. In addition, he preempted the entire industry by creating the “cradle to grave” concept through business developments in title, closing, document preparation, foreclosures, REO, outsourcing, collection, and debt acquisition businesses.

Fidelity National, a national default outsourcing and information provider, was one of the first in the industry to implement time-frames a high priority instead of a guideline standards. It instituted a policy recognizing and rewarding those attorneys who did work for its clients in a consistently shorter time than their competition. Fidelity mentality was the faster the better and by publicizing and comparing the time to completion of various legal tasks among the hundreds of law firms doing work for its client base. It created a demand for attorneys to keep up with their business practices in the same sequence that other industries have had to in the sense of “recreating the wheel” so to speak to keep up with growing competition.

By having a goal of recovering nonconforming assets for the servicers this put pressure on the time frames they had in order to recover title.

Of course, when the only acceptable
test for quality becomes a simple test
of speed, it is inevitable that some of
the participants will feel compelled
to cut corners to stay in the game.

Click Image For PDF

DSN_FORE2_March07

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SANCTIONS! STEVEN J. BAUM PC For Practice of Fraud, Deception, and Misrepresentation Upon the Court: FREDDIE MAC v. RAIA

SANCTIONS! STEVEN J. BAUM PC For Practice of Fraud, Deception, and Misrepresentation Upon the Court: FREDDIE MAC v. RAIA


GO HERE FOR PART 1:

NY Law Offices of Steven J. Baum P.C. may get sanctions for False Representations

Now the finale…

.

Federal Home Loan Mtge. Corp.v Raia

2010 NY Slip Op 52003(U)
Decided on November 23, 2010
District Court Of Nassau County, First District
Fairgrieve, J.

Steven J. Baum, P.C., Attorneys for Petitioner, 220 Northpointe Parkway, Suite G, Amherst, New York 14228, 716-204-2400;

Jeffrey A. Seigel, Esq., Volunteer Lawyers Project, Attorneys for Respondent, One Helen Keller Way, Hempstead, New York 11550, 516-292-8299.

Scott Fairgrieve, J.

On January 5, 2010, Wells Fargo Home Mortgage, Inc. (“Wells Fargo”) was the successful bidder at the foreclosure sale of the subject premises known as 360 Stewart Avenue, Unit 1E, Garden City, New York. Wells Fargo received 220 shares of Stewart Franklin Owners Corp., as well as the proprietary lease previously owned by the Respondent, Paul Raia.

On March 12, 2010, Wells Fargo purportedly assigned its January 5, 2010 bid to Petitioner Federal Home Loan Mortgage Corp. (“FHLMC”). However, the “Assignment of Bid” contains only the signature of Steven J. Baum, P.C., and there is no indication for which party the signature was made. Mr. Baum’s office claimed to have the authority to execute the document on behalf of FHLMC by way of a power of attorney attached to the petition. Baum’s office also claimed to have the same authority for Wells Fargo, although Baum’s office provides no evidence in support of that allegation.

EXCERPTS:

Baum has recently faced numerous standing issues concerning assignment, for which its cases were dismissed.

The opinion continues on to state that the “court’s inherent power to impose sanctions is particularly appropriate where fraud, deception, and misrepresentation has been practiced upon the Court.

The fraud perpetrated on the court here occurred when petitioner’s attorney swore that the petition had been read and that the contents of the petition were true to the deponent’s own knowledge. Sanctions may attach to attempts to deceive the court.

CONCLUSION

In view of the foregoing, Steven J. Baum, P.C. must compensate Volunteer Lawyers Project in the amount of $14,532.50 for reasonable attorney’s fees and disbursements within 30 days of the date of this order. Further, this court imposes monetary sanctions in the amount of $5,000.00 on Steven J. Baum, P.C. payable to “Lawyers’ Fund for Client Protection,” established pursuant to section 97-t of the State Finance Law, within 30 days of the date of this order. The clerk of the court is directed to give notice, pursuant to 130-1.3, to the Lawyers’ Fund for Client Protection concerning this award of sanctions.

So Ordered:

/s/ Hon. Scott Fairgrieve

DISTRICT COURT JUDGE

Continue reading below…

Federal Home Loan Mtge. Corp v RAIA

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LOAN DOCUMENT CUSTODIAN TRAINING MANUAL

LOAN DOCUMENT CUSTODIAN TRAINING MANUAL


  • Initial Certification
  • Recertification
  • Transfer Requirements
  • Refreshment break
  • Q & A
  • Annual or Recurring Reporting Requirements
  • Custodial Responsibilities
  • Audit Tips and Most Common Findings
  • Q & A

[ipaper docId=42544365 access_key=key-19jcnws60d9x2vd8wysh height=600 width=600 /]

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FANNIE MAE goes after Servicers for Foreclosure Delays

FANNIE MAE goes after Servicers for Foreclosure Delays


“A compensatory fee not only compensates Fannie Mae for damages but also emphasizes the importance placed on a particular aspect of the servicer’s performance,” the GSE stated in its servicing guide.

Fannie also updated the allowable foreclosure time frames for four states: Florida – 185 days; Maryland – 90 days; Nevada – 150 days; New York (upstate) – 300 days; and New York (downstate) – 420 days.

To remediate a specific problem affecting a loan or correct the servicer’s overall performance, Fannie Mae reserves the right to impose a compensatory fee as provided in the Servicing Guide, Part I, Section 207: Imposition of Compensatory Fees.

  • With this Announcement, Fannie Mae:
  • has updated the allowable foreclosure time frames for four states;
  • is monitoring all delinquent loans in Fannie Mae’s portfolio or MBS pools, and will begin notifying servicers of delays in processing delinquent loans;
  • may begin conducting reviews of servicer loan files, processes, or procedures;
  • requires accurate and timely reporting on the delinquency status of mortgage loans; and,
  • will exercise its remedy to assess compensatory fees as deemed necessary.

Effective with the date of this Announcement, any mortgage loan referred to an attorney (or trustee) to initiate foreclosure proceedings with properties located in the States of Florida, Maryland, Nevada, and New York must meet the new foreclosure time frames noted below:

  • Florida – 185 days

This timeline has an additional 35 days added to allow for a mediation referral prior to a foreclosure suit being commenced.

  • Maryland – 90 days

This timeline begins when the case is referred to an attorney to file suit together with a Loss Mitigation Affidavit. The servicer must execute a Final Loss Mitigation Affidavit at the commencement of the case, if appropriate. If a Preliminary Loss Mitigation Affidavit is required, then the time frame allowed will be extended to 120 days.

  • Nevada – 150 days
  • New York (Upstate) – 300 days
  • New York (Downstate) – 420 days

    In the State of New York, a timeline of 300 days applies to all localities except for New York City and Long Island.

    A timeline of 420 days applies for foreclosures conducted in the five boroughs of New York City — Bronx, Brooklyn (Kings County), Manhattan (New York County), Queens, and Staten Island (Richmond County) — and on Long Island (Nassau and Suffolk Counties).

[ipaper docId=36845401 access_key=key-1o91n5c6j5fr6ksfn3ft height=600 width=600 /]

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FINREG Rule-Making the Next battle?

FINREG Rule-Making the Next battle?


Hat Tip to a viewer for this…

There are numerous complaints from conservatives, political and economic, as to the continuation of the federal GSEs and guarantee programs that dominate the market place. These matters now are coming to the forefront of Congressional consideration in the wake of passage of FINREG. The bifurcated approach was practically driven: one bite was too much to swallow, and the methods of solution are dramatically different.

FINREG has been described as a broad general outline for actions yet to be taken by as many as 16 federal agencies through rule-making processes. One of the most potentially significant pieces of this regulatory maze is supposed to be the Consumer Protection Agency tucked away in Federal Reserve. The rule-making process will be long and tortured. Agency lawyers basically offer up drafts for comment by the public. The “public” translates into “special interests”. These are generally consumer protection groups, or industry groups. Legions of industry specialized lawyer-lobbyists comment in technical terms that are incomprehensible to 99% of the lawyers in the country. The complexity tends to make it an insider ball game. Industry lawyer-lobbyists that worked the bills know where the choke points are—where the skeletons are hidden. Consumer advocates are few and far between—generally outgunned– certainly underpaid in comparison to the well-financed industry groups. Disinformation is industry’s stock in trade. Confusion is its currency. By the end of the process even the most well-meaning regulators are overwhelmed. What to believe? Who to believe? Much like the judiciary, the rule-makers receive comments from the industry side, and wait to hear the consumer rebuttals. If the rebuttals are poorly framed, the consumer comments are placed in the shadows. Even when the most aggressive rule-making process generates in a proposed rule, the rule-regulation may be held in suspense for decades. The existing agencies will be best able to engage in rule-making quickly. No doubt industry-originated drafts are already circulating in at least some instances.

For an entirely new rule-making authority, it may take a year or more simply to find the writers, employ them, then map a strategy and initiate the formal rule-making process. Years pass—other agencies with a head start fill the void. Conflicting rules are inevitable—the new agency may be consumed initially simply by attempting to stake out its jurisdiction by submitting comments to other agencies rule-making either directly in the public record or through back-room confrontations. What is the effect?

Generally, regulations emerging from a rule-making procedure are either or “interpretative” or “legislative” rules.  Interpretative regulations cite to various legislative provisions to clarify already reasonably definitive statutory mandates. The interpretative rules are promulgated by the agency charged with jurisdiction over the subject matter. The responsible agency writes rules to clarify broader statutory language, or conflicting statutory language. Sometimes this type of rule-making will parrot statutory language in order to provide the agency with a statement of internal policy upon which specific case determinations may be based. These latter agency decisions may be referred to as rulings but more correctly are described in administrative law as “orders”. The agency that promulgates interpretative regulations is bound by and must follow those regulations in its individual case decisions/orders. Interpretative regulations may be applied retroactively in the reasonable discretion of the agency. The retroactive application is often challenged by industry members subject to orders based on the regulation. Generally the industry will argue that the interpretation conflicted with underlying statutory intent as reflected by committee reports, floor speeches by sponsors etc. The industry may also argue that the orders pursuant to interpretative regulations may not issue for retroactive application in event that they conflict with long-standing administrative practice by that agency, and may even go so far as to state that the longstanding practice was implicitly incorporated by statute even if not specifically referenced. The theory is that the legislature is all-knowing, and adopts administrative rules implicitly when legislating in that area because the legislature would have specifically altered the treatment if it had so intended. These fears tend to make retroactive application difficult and contentious.

A legislative body may also authorize legislative rule-making. Generally, this will be done by language such as the “agency shall write rules to implement the purposes” of the general legislative mandate. Other times, there will be a more ambiguous direction: “this section shall be effective upon adoption of regulations”. In the latter case, the agency is basically vested with authority to decide for itself if and when it needs the rules to be created and applied. Agency discretion in the context of legislative rule-making is tantamount to a punt by Congress to the agency of matters too complex for legislation. These matters are supposedly within the special expertise of the agency and its word is law virtually equivalent to Congress’. Legislative regulations are drafted by persons appointed or supervised by the then-current Administration.

The regulatory path generally follows the following course: Congress passes a statute with Committee Reports. The agency determines the priority of required or permitted action. The Agency publishes intent to engage in rule-making in a described area. Sometimes this is described as “Advance Notice of proposed Rule-Making” or ANPRM. Sometimes it is simply notice of Proposed Rule-Making. In any event, the notice generally constitutes the beginning of agency hearings and/or opening of a comment period during which the agency is accessible to introduction of information, supposedly on the record.

The agency takes comments, hears testimony and investigates facts. It makes determinations of fact and law and writes regulations accordingly. The agency will typically publish “proposed rules” incorporating and addressing the comments made during the open hearing process. The notice of associated with published proposed rules should invite further comment—but on a more limited basis. The proposed rules may stand in place for years, while under attack from all sides. Eventually—as much as 20 years later—the proposed rules tested by time may become “final”.

What does this mean to the community of mortgagors—subjects of predatory loans and predatory collection practices?

To bring it home dramatically to relate to current discussions, the decision by Bankruptcy Court Judge Federman, in B.R. Western District Missouri Case # 10-20086; In re: Box stated at page 8, “The fact that the February 18, 2010 assignment [typical MERS as nominee of a bankrupt originator] was made after the bankruptcy case was filed does not render it per se invalid in that there is no rule prohibiting a creditor from assigning its claim postpetition.”   [Emphasis Added]. This has implications with respect to tracking custody, obtaining discovery, simply unraveling the transactions. It touches upon the after-acquired note issues, and generally invites frauders and their successors to carry on in good stead.

In another hot recent case, Cleveland vs Ameriquest et al, U.S.C.A. 6th Cir. No. 09-3608, the Court responded to Clevelands’ assertions of injury by underwriters that “began to direct lenders on the types of loans to meet the [underwriters’] securitization needs….and turned a blind eye even when the loans made no economic sense.” The District Court below had decided that the city had no claim that the defendants had abetted a nuisance, ”because subprime lending…is legal”. Interestingly, the facts pled suggested that the city asserted not just subprime, but predatory, subprime lending.  References to official sources bear out this connection between predatory and un-economic loans. Quoting from a well-done brief on the topic;

Specifically, in the matter of Associates Home Equity Services v. Troup, 343 N.J.Super. 254, 267 (App. Div. 2001) the Appellate Division opined:

Predatory lending as been described as: a mismatch between the needs and capacity of the borrower… In essence, the loan does not fit the borrower, either because the borrower’s underlying needs for the loan are not being met or the terms of the loan are so disadvantageous to that particular borrower that there is little likelihood that the borrower has the capacity to repay the loan. (citations omitted).

This definition set forth by the Appellate Division is entirely consistent with Federal guidance on the topic.  Specifically, by “Advisory Letter” AL 2003-2 from the Office of the Comptroller of the Currency (“OCC”) to the Chief Executive Officers of All National Banks…, the OCC stated:

The terms “abusive lending” or “predatory lending” are most frequently defined by reference to a variety of lending practices.  Although it is generally necessary to consider the totality of the circumstances to assess whether a loan is predatory, a fundamental characteristic of predatory lending is the aggressive marketing of credit to prospective borrowers who simply cannot afford the credit on the terms being offered.  Typically, such credit is underwritten predominantly on the basis of the liquidation value of the collateral, without regard to the borrower’s ability to service and repay the loan according to its terms absent resort to that collateral. (emphasis provided).

Furthermore, Section 39 of the Federal Deposit Insurance Act generally requires Federally Chartered banks to establish “safety and soundness” standards for underwriting loans.  At 12 C.F.R. Part 30—Appendix A, “Interagency Guidelines Establishing Standards for Safety and Soundness,” the various federal agencies who regulate banking institutions were directed to consider a number of factors in implementing loan underwriting guidelines.

At subpart “C.” lenders are directed to “…establish and maintain loan documentation practices that:

***

2.  Identify the purpose of a loan and the source of repayment, and assess the ability of a borrower to repay the indebtedness in a timely manner.

At subpart “D” lending institutions are directed to “establish and maintain prudent credit underwriting practices that:

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3.  Provide for consideration, prior to credit commitment, of the borrower’s overall financial condition and resources, the financial responsibility of any guarantor, the nature and value of any underlying collateral, and the borrower’s character and willingness to repay as agreed.’”

So the question now is whether the City of Cleveland failed to properly assert that subprime predatory lending was the subject of the complaint—or the Court has ruled that “predatory lending” is legal?

Much if not most of the mortgage crisis arose as a result of predatory lending on steroids. The reasons were varied: 1) to generate fees all around by refinancing loans and originating new ones, 2) to obtain products to sell to investors as a steep markup—more fees/profits and last but not to be over-looked in respect of predatory loans, the servicer is entitled to hold the proceeds of foreclosure until the tranche MBS are “called” bought out and the trust is closed—or investor payout as prescribed in the MBS themselves whichever comes 1st. the main driver for “designed to fail” or predatory loans was the probability that the loans would default and the originator’s servicing rights’ foreclosure pool would grow as the foreclosures went on according to plan.

Now clearly the above 2 issues among many are critical to the continuation or termination  of the practices which have crushed the entire home-owning population of America, along with the economy, the future of our children, and destroyed the prospect of comfortable retirements for even the most diligent workers. The length and breadth of the damages from this obscene—but not illegal?—behavior is without parallel.

The last hope for correction in the future if not the past is the orderly and honest establishment of a keen regulatory system that directly addresses these and related issues. This will occur in Agency hearing rooms, in Comments and testimony before the agency staffs. A coordinated effort by advocates is necessary to identify cases of abuse, why they happened and what would prevent the same thing occurring again.

If I have misstated, understated or need to identify further stark examples of judicial distress due to confusion of the law, please post your suggestions. We need to identify corrections before the industry glosses over them. Do not play defense—play offense.

© 2010-15 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



Posted in fdic, federal reserve board, MERS, mortgage, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS INC., OCCComments (1)


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