The Subprime Shakeout-

The Principal – Agent Problem: Part I – RMBS Data Integrity

Back near the dawn of time when I was in business school, and the faculty was hard-pressed to find topics to fill up the curriculum, they introduced the Principal – Agent Problem.  As future corporate managers and agents of the stockholders, I suppose they wanted to explain to us that our economic interests were not identical to those of the owners.  This wasn’t exactly the most shocking news we had ever received, but that was all that was said about the issue, back then.

Of course, there is considerably more to this multi-faceted problem. According to Wikipedia, “The principal–agent problem arises when a principal compensates an agent for performing certain acts that are useful to the principal and costly to the agent, and where there are elements of the performance that are costly to observe,” primarily due to asymmetric information, uncertainty and risk.

Let’s look at the relationship between the RMBS bondholder…

[THE SUBPRIME SHAKEOUT]

If anyone can set the record straight, Abigail is just the person to do it!

Naked Cap-

U.S. Housing Secretary Shaun Donovan has embarrassed himself yet again. This time, though, he’s gone in for total humiliation. See, he praised the bank-run Office of the Comptroller of the Currency’s (OCC) foreclosure reviews as an important part of the social justice delivered by the mortgage “settlement“. But thanks to an insider working on an OCC review, we know that process is a sham. Worse, the insider’s story shows that enforcement of the settlement is likely to be similar, which is to say, meaningless. Doesn’t matter how pretty the new servicing standards are if the bankers don’t have to follow them.

Let’s start with Donovan’s sales pitch for the OCC reviews:

“For families who suffered much deeper harm — who may have been improperly foreclosed on and lost their homes and could therefore be owed hundreds of thousands of dollars in damages — the settlement preserves their ability to get justice in two key ways.

First, it recognizes that the federal banking regulators have established a process through which these families can receive help by requesting a review of their file. [ACF: That’s the OCC process] If a borrower can document that they were improperly foreclosed on, they can receive every cent of the compensation they are entitled to through that process.

Second, the agreement preserves the right of homeowners to take their servicer to court. Indeed, if banks or other financial institutions broke the law or treated the families they served unfairly, they should pay the price — and with this settlement they will. [bold throughout mine]

Now, the justice of the settlement has been debunked many times over. And David Dayen debunks Donovan’s OCC pitch here. What’s important is that Bank Housing Secretary Donovan wants you to believe the Wells Fargo OCC process is a meaningful contribution to holding bankers accountable and compensating victims.

Wells Fargo’s Fraudulent OCC ‘Independent’ Foreclosure Reviews…

[NAKED CAPITALISM]

I got an email the other night from one of my readers.  It said…

“I was hired as one of those “Independent File Review Specialist” at a company called Promontory working on Wells Fargo Bank. I have 15 years industry experience in all facets of the mortgage & title industry, and just needed a job at the moment.  I must say the whole project is a mess, and a terrible joke on the victims of foreclosure and the American people. It’s a total sham.”

No kidding, I said to myself.  Or, as Yves Smith would say… “Quelle surprise.”  The email continued…

“I have found errors that should be moved up through the ranks, but am told “quit digging so deep”…”put your shovel away”…Focus on the questions “in scope”… The review forms are set up so no harm could ever be found. It’s equivalent of an attorney presenting his case to a judge with just 20% of the evidence.”

Well, that can’t be good, right?  He went on…

“I would also like to mention that I was brought in through a temp agency…..some of the people brought in with me do not know the difference between a truth in lending statement, and a note. It’s a shame, these are your reviewers!!! The supervisors don’t want any trouble…they are mostly temps too, just trying to get a promotion to full time. Does this sound like a fair and impartial review to you? Since we’re temps I suppose that’s impartial, not to mention they made us “affiant notaries” so we can so-called “notarize each others reviews.”

Doesn’t sound “fair and impartial” in the least, now does it?  But I do like the ability to notarize each other’s reviews.  That sounds handier than a pocket on a man’s shirt.  He closed by saying…

“The foreclosed victims don’t realize if they do not provide specific dates on the intake forms… their complaints are considered “general comments” out of scope. They should specifically ask for a “full file review” and hopefully their info has not been scrubbed or purged… I could go on and on, but I just felt I needed to share this.”

And in my opinion, you’ve done a very good thing.

Our insider says he was hired by Promontory Compliance Solutions, LLC to do work on the Independent Foreclosure Review for Wells Fargo Bank.  The company’s Website describes itself as follows:

Promontory excels at helping financial companies grapple with and resolve critical issues, particularly those with a regulatory dimension. Taken as a whole, Promontory professionals have unparalleled regulatory credibility and insight, and we provide our clients with frank, proactive advice informed by evolving best practices and regulatory expectations.

Promontory is a leading strategy, risk management and regulatory compliance consulting firm focusing primarily on the financial services industry. Led by our Founder and CEO, Eugene A. Ludwig, former U.S. Comptroller of the Currency, our professionals have deep and varied expertise gained through decades of experience as senior leaders of regulatory bodies, financial institutions and Fortune 100 corporations. 

 [Continue to Mandelman Matters] it gets much better!

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The U.S. Housing Market: Current Conditions and Policy Considerations

The ongoing problems in the U.S. housing market continue to impede the economic recovery.

House prices have fallen an average of about 33 percent from their 2006 peak, resulting in about $7 trillion in household wealth losses and an associated ratcheting down of aggregate consumption. At the same time, an unprecedented number of households have lost, or are on the verge of losing, their homes. The extraordinary problems plaguing the housing market reflect in part the effect of weak demand due to high unemployment and heightened uncertainty. But the problems also reflect three key forces originating from within the housing market itself: a persistent excess supply of vacant homes on the market, many of which stem from foreclosures; a marked and potentially long-term downshift in the supply of mortgage credit; and the costs that an often unwieldy and inefficient foreclosure process imposes on homeowners, lenders, and communities.

[…]

[ipaper docId=77283279 access_key=key-12cssfqb1xbg6ly4fahu height=600 width=600 /]

Helping Homeowners Harmed by Foreclosures:
Ensuring Accountability and Transparency in Foreclosure Reviews

Written Testimony
of
Alys Cohen

National Consumer Law Center
also on behalf of
Community Legal Services of Philadelphia, Connecticut Fair Housing Center, Consumer Action,
Consumers Union, Empire State Justice Center, Financial Protection Law Center, Housing and
Economic Rights Advocates, Legal Aid Center of Southern Nevada, Inc., Michigan Foreclosure
Task Force, National Association of Consumer Advocates, National Council of La Raza, National
Community Reinvestment Coalition, National Fair Housing Alliance, National People’s Action,
Neighborhood Economic Development Advocacy Project, North Carolina Justice Center

Before the United States Senate Subcommittee on
Housing, Transportation, and Community Development of the
United States Senate Committee on
Banking, Housing, & Urban Affairs

Dec. 13, 2011

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Absolutely do not miss this piece from Abigail Field – So head over and please absorb the information.

Abigail C. Field-

If you want to cut through some of the nonsense the banks have managed to sell as information about the housing situation, robosigning, mortgage modifications, check out this very accessible interview of attorney Talcott Franklin by Martin Andelman.

Tal represents the majority of investors hosed once by Wall Streeers selling AAA-rated mortgage backed junk, and constantly being hosed again by the big bank servicers of those mortgages. Interestingly, his perspective sounds very much like homeowners’. Yes, a couple of times it gets a little too legalistic, but only for about 5 minutes of the slightly longer than the hour chat—when you hit the overview of the contracts structuring securitization, or any other topic that is more in the weeds than you want to go, take a deep breath and keep going. Most of the interview is in a rhythm and a language that creates clarity I’ve not seen or heard elsewhere.

[REALITY CHECK]

Please find some time today or over the weekend to listen to this excellent podcast of Martin Andelman’s interview with Attorney Talcott Franklin, who represents more than half of all the investors in mortgage-backed securities on the planet.  Tal’s the co-author of the “Mortgage and Asset-backed Securities Litigation Handbook,” and he’s a very experienced and highly sophisticated litigator. You will learn a whole lot and many thanks to Martin for this super interview.

Please head over to Mandelman Matters for the full article.

The podcast is available in two versions… MP4 and MP3.  The MP4 version includes a couple of slides that show diagrams of the basic securitization process, but the MP4 format may not play on some computers.  The MP3 version is audio only, and should play on most any computer.  Most listeners will have no trouble following along either way.

So, turn up the volume on your speakers, and click the MP4 or MP3 version.  I loved recoding this podcast.  If you want to know more about the foreclosure crisis, you’re about to learn from an expert on the other side of the foreclosures, the investor side… it doesn’t get any better than this!

CLICK HERE TO PLAY THE ENHANCED MP4 VERSION

… INCLUDES SLIDES ON SECURITIZATION

 OR

CLICK HERE TO PLAY THE MP3 VERSION

Mandelman out.

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

DAVID A. HAWKINS, and TRACY J.
HAWKINS, on behalf of themselves
and all others similarly situated,
Plaintiffs

v.

WELLS FARGO BANK, N.A.,
Defendant

Excerpt:

Defendant made Texas home equity loan modifications that did one or
more of the following in violation of the Texas Constitution’s homestead protection
provisions: (1) turned past-due interest into new principal; (2) featured a loan-to-value
ratio to a figure above 80%; and (3) failed to include mandatory disclosures concerning
the protections afforded by the Texas Constitution concerning home equity loans. These
problems are unique to home equity loans, as opposed to original purchase-money
mortgage loans, which are not at issue in this case.

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Sierra Vista Herald-

As millions of Americans struggle in foreclosure with little hope of relief, big banks are going to borrowers who are not even in default and cutting their debt or easing the mortgage terms, sometimes with no questions asked.

Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.

Rula Giosmas is one of the beneficiaries. Last year she received a letter from Chase saying it was cutting in half the amount she owed on her condominium.

Continue reading [THE SIERRA VISTA HERALD]

WaPO-

Federal banking regulators have not officially imposed their new rules for the top mortgage servicers, but criticism is already being heard. A wide coalition of consumer and housing groups is denouncing the legal agreements, which are likely to be published within a few days. ?

[…]

The problem, said Alys Cohen of the National Consumer Law Center, is the agreements “do not in any way require the servicers to stop avoidable foreclosures, and that is what we need.”

More and more proof the whole Fraudclosure Settlement “leaders” are discombobulated.  Just last week, AG Tom Miller said “We have a long way to go.”

Now.. according to the Wall Street Journal …

Regulators including the Office of the Comptroller of the Currency, Federal Reserve and Office of Thrift Supervision could announce the agreements with the banks and thrifts as early as next week, though a date wasn’t final, according to people familiar with the matter.

The regulators are likely to act ahead of state attorneys general, who are also in talks with the banks. Those discussions are moving at a slower pace amid disputes among several state officials.

Seriously, why aren’t they all working together? Lefty doesn’t know what the right is doing.

Here’s the banks’ counterproposal for a servicing fraud settlement. I can sum it up in two words: drop dead.  Or two letters:  F.U. This proposals is so pathetically thin that it’s not a good faith counterproposal. This document only deals with servicing standards–nothing in it whatsoever about penalties, modification quotas, etc. But even on servicing standards it is a bunch of empty promises to have internal controls and try harder.

The first point about this counterproposal is simply to note what’s absent from it:

(1) nothing about principal reductions

(2) nothing about second liens and conflicts of interest

(3) nothing about MERS (reserved for later)

(4) nothing about in-sourced vendor fees or force-placed insurance to affiliates. This makes the fees and force-place insurance sections pretty meaningless.

(5) nothing about pyramiding of fees.

Read the excerpts below carefully… You’ll be screwed if you plan to wait on any reasonable settlement, just like “HAMP” left you waiting for your mod. Don’t expect miracles!

PERIOD. DONE.

From The New York Times

“We have a long way to go,” Iowa Attorney General Tom Miller, who is leading the effort from the states’ side, said after the afternoon session broke up.

[…]

Lengthy negotiations work to the banks’ advantage, critics say.

“The banks’ strategy is to run the clock,” a Georgetown University law professor, Adam Levitin, said. “The chances of a settlement that meaningfully reforms mortgage servicing and makes the banks pay an appropriate price for illegal conduct are rapidly slipping away.”

This was taken From Zack Carter’s Article on Huffington Post:

“I am incensed that the FBI has not filed one criminal case,” Rep. Marcy Kaptur (D-Ohio) said, referring to the lack of prosecutions against major banking executives. “And I’m very worried that the game that’s being played here is to run out the statute of limitations.”

#

Oh and AG’s make sure the banks get barred from Deficiency Judgments in your settlement!

#

Question: Why don’t the AG’s just FORCE-PLACE a settlement and be done with it?

via: The Wall Street Journal

The document, reviewed by The Wall Street Journal, is a response to a 27-page term sheet banks received earlier this month from state attorneys general that would require the servicers to consider reducing principal for troubled borrowers. The 15-page bank proposal, dubbed the Draft Alternative Uniform Servicing Standards, includes time lines for processing modifications, a third-party review of foreclosures and a single point of contact for financially troubled borrowers. It also outlines a so-called “borrower portal” that would allow customers to check the status of their loan modifications online.

But the document doesn’t include any discussion of principal reductions. Nor does it include a potential amount banks could pay for borrower relief or penalties. Government officials have discussed a settlement sum of more than $20 billion.

© 2010-18 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

by Jesse Eisinger
ProPublica, March 16, 2011, 3:13 p.m.

Shahien Nasiripour
HuffPost Reporting shahien@huffingtonpost.com

NEW YORK — The Obama administration is seeking to force the nation’s five largest mortgage firms to reduce monthly payments for as many as three million distressed homeowners in as little as six months as part of an agreement to settle accusations of improper foreclosures and violations of consumer protection laws, six people familiar with the matter said.

Described as a “shock and awe” approach, the deal would accomplish the four goals set out by state and federal policy makers and regulators as part of their multi-agency investigations into abusive mortgage practices by the nation’s largest financial firms: punish banks for violations of state law and federal regulations; provide much-needed assistance to distressed borrowers; stabilize a deteriorating housing market; and dissuade firms from abusing homeowners in the future.

By PAUL KRUGMAN

Published: March 13, 2011

Count me among those who were glad to see the documentary “Inside Job” win an Oscar. The film reminded us that the financial crisis of 2008, whose aftereffects are still blighting the lives of millions of Americans, didn’t just happen — it was made possible by bad behavior on the part of bankers, regulators and, yes, economists.

What the film didn’t point out, however, is that the crisis has spawned a whole new set of abuses, many of them illegal as well as immoral. And leading political figures are, at long last, showing some outrage. Unfortunately, this outrage is directed, not at banking abuses, but at those trying to hold banks accountable for these abuses.

By Scot J. Paltrow

WASHINGTON | Fri Mar 11, 2011 1:10pm EST

WASHINGTON (Reuters) – A settlement proposal by state attorneys general with the five biggest U.S. mortgage servicers stands out less for what it contains than for what it omits — terms for resolving the most difficult issues dividing regulators and the big banks.

The proposal, which calls for a dramatic increase in loan modifications, is intended as the basis for settling allegations of widespread wrongdoing by the big loan servicers in handling millions of foreclosures.

By David McLaughlin – Mar 11, 2011 3:05 PM ET

Virginia is among “at least a dozen” U.S. states that don’t back a proposal submitted last week to resolve a nationwide probe of foreclosure and mortgage- servicing practices, Virginia Attorney General Kenneth Cuccinelli said.

There isn’t consensus among all 50 state attorneys general about the terms of the settlement proposed to U.S. banks, Cuccinelli, a Republican, said today in a telephone interview.

“When some attorneys general found out what was being agreed to, they had a great degree of unease over it,” Cuccinelli said. He declined to name which states, aside from his own, were opposed to parts of the plan.

Washington Post Staff Writer
Wednesday, March 9, 2011; 8:55 PM

Republican lawmakers on Wednesday accused the Obama administration of trying to make an end run around Congress as it negotiates a large settlement with banks involved in shoddy foreclosure practices.

In a letter to Treasury Secretary Timothy F. Geithner, Republicans criticized the scope of a 27-page draft term sheet that was recently submitted to five of the nation’s largest banks by state attorneys general and a handful of federal agencies, including the Justice Department and the new Consumer Financial Protection Bureau.

“The settlement agreement not only legislates new standards and practices for the servicing industry, it also resuscitates programs and policies that have not worked or that Congress has explicitly rejected,” the letter said. It was signed by nearly half a dozen Republicans, including Rep. Scott Garrett (N.J.), the lead sponsor.

“The settlement agreement not only legislates new standards and practices for the servicing industry, it also resuscitates programs and policies that have not worked or that Congress has explicitly rejected”

Speaking of reviving the FAILED HAMP PROGRAM…

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