False Statements

50-State Investigation

Location: West Palm Beach, FL

Action Date: March 8, 2011
Location: West Palm Beach, FL

Despite the weaknesses of the settlement, it may not be worthless. Many states exclude banks from the groups that can be regulated under the state’s Unfair and Deceptive Trade Practices laws and there has been some significant argument that this exemption extends to servicers working on behalf of banks. So in that regard, the settlement is significant. Without any new legislation, the servicers agree, in effect, to be regulated by the Attorneys General – that is, they could be sued for violation of this agreement. Most significantly, the Attorneys General would not have to spend time and money to convince a court that certain conduct by the servicers is an unfair and deceptive act.

While other government agencies could have regulated mortgage servicers, they clearly failed to do so. Now the Attorneys General can act where other agencies have failed.

Nothing in the settlement ends the investigations by particular states of particular servicers and law firms. Those investigations and possible sanctions and relief for those harmed will likely continue. States that are serious about addressing past abuses will go forward with their investigations, sanctions and settlements.

What is missing from the settlement? It would be very useful to require employees of mortgage servicers to identify themselves as such on all documents. Identification as officers of MERS, banks or lenders should be prohibited.

Servicers have argued that their employees are allowed to represent themselves as MERS officers and bank officers because of corporate resolutions or powers of attorneys allowing this fiction. Some of these employees even use the address of the bank – and not their actual address – on Assignments, Releases and Affidavits. False titles and false addresses create confusion, difficulty and expense for homeowners in litigation who are trying to take a simple deposition of a document signer. Most judges give greater credibility to the sworn statement of a bank vice president than they would give to the sworn statement of an “authorized signer” for a mortgage servicing company. This is the very reason these titles were passed out to clerks and law office managers. Actual titles, actual employers and real addresses need to be used.

Who else needs to disclose their true employer? Again, while this seems like it should go without saying, lawyers working for banks and mortgage companies should not be allowed to represent that they are actual bank officers.

This practice has happened in tens of thousands of cases and already been condemned by many New York judges. Lawyers who hold themselves out to be bank vice presidents and MERS officers need to end this practice.

Servicers also need to stop acting as “Attorney-In-Fact” for banks, mortgage companies and even the FDIC. In many states, servicers do not meet the minimum qualifications to act as attorneys-in-fact and they need to end this practice as well.

The average citizen and the Attorneys General no doubt define “Information that is false and unsubstantiated” differently than most mortgage servicers.

Over 6 million mortgage assignments, affidavits and sworn statements have been filed in courts and country recorder’s offices with servicing company employees and lawyers signing using false titles as bank officers, mortgage company officers and MERS officers. The settlement should prohibit this widespread fundamental abuse.

Update: Comment by Anonymous

Scuttlebutt has it that this has been floated just to gauge the political response.

It is nada bupkis zilch for most everybody. Those who are truly suffering now will get less benefit than a 50-year-old smoker got out of the state AG-administered tobacco settlement.

HAMP lingerers will be tempted to make e-written inquiries and will shortly find themselves suckered in – and missing a few rights to recourse they might otherwise have retained.

The woman-journalist you quote expresses – inarticulately – a passionate, powerful truth… Millions who are still paying on fraudulently originated, fraudulently securitized mortgages – are doing so for 2 simple reasons: there is no access to justice for them and they are not willing to settle for anything less than a reasonable settlement for damages done, negotiated in good faith. They will not be forced to choose strategic default just to get the conversation going.

Ultimately, they will pull Obama down and the US economy further into its Greater Depression.

Via: American Banker

WASHINGTON — The 27-page term sheet handed to the five largest mortgage servicers last week is a detailed, dense list of requirements that, if implemented as proposed, would fundamentally change the relationship between servicers, investors and borrowers.

[ipaper docId=50237713 access_key=key-2oxldsv0dsjuj63e5vnf height=600 width=600 /]

American Banker  |  Friday, March 4, 2011

By Cheyenne Hopkins

WASHINGTON — Federal regulators issued a tough opening salvo in settlement talks with the largest servicers, presenting them with a 27-page term sheet that would force major changes to the industry and step up loan mitigation efforts.

Continue reading … AMERICAN BANKER

MARCH 3, 2011, 5:09 P.M. ET

By RUTH SIMON

Ocwen Financial Corp. said it is under investigation by the Federal Trade Commission, which has asked the mortgage-servicing company for information about its employee training, debt-collection practices, loan modifications and foreclosure procedures.

The Atlanta company, one of the largest home-loan servicers in the U.S., received a formal legal request from the FTC for documents in late November, Paul Koches, executive vice president and general counsel at Ocwen, said in an interview. Ocwen is “fully cooperating” and is “not accused anywhere of any wrongdoing,” he added.

“We are taking it as informational and are providing the [requested] information,” Mr. Koches said. In a securities filing Monday, Ocwen said it had received a “civil investigative demand” from the federal agency.

Continue reading … Wall Street Jounal

Via: Mandelman Matters

I have to tell you… I’ve been waiting for this to happen.

Ohio Judge Peter Sikora was looking to take advantage of the lowest mortgage interest rates in decades and refinance his eight-bedroom, lakefront Cleveland home, so he contacted his bank, JPMorgan Chase.  With property values in decline in Cleveland, Chase said no to refinancing but told the judge to apply for a loan modification instead.  The judge followed JPMorgan Chase’s advice to the letter and as a result has fallen a year behind on his nearly $1 million mortgage… hasn’t paid his property taxes… and now has ended up in foreclosure.

So, all I can think of to say is… don’t you just hate these irresponsible sub-prime borrowers who should never have been allowed to buy their homes in the first place and now think they’re entitled to loan modifications?  I know I sure do.  Maybe if the judge had called a scammer and paid an up front fee… he would have gotten his loan modified… no, wait… that’s not right… maybe if he had called a lawyer he would have… wait, no… he is a lawyer, right.  Well, maybe if he… oh wait, I know… MAYBE IF HE HAD NOT BELIEVED THE LIES TOLD BY JPMORGAN CHASE… yeah, that’s sure as shootin’ where he went wrong.

According to a story in the Cleveland Plain Dealer, that I’m betting mysteriously isn’t going to get a lot of national attention…

“The bank advised me that the only way they would consider a loan modification would be if I fell behind on my payments,” said Sikora, 59, a judge since 1989. “I took their advice and put the money aside.”

Congressional Oversight Panel Reviews Treasury’s Foreclosure Prevention Programs
HAMP On Track to Prevent Far Fewer Foreclosures Than Expected, but Treasury Can Still Take Steps to Help More Homeowners Avoid Foreclosure

WASHINGTON, D.C. — The Congressional Oversight Panel today released its December oversight report, “A Review of Treasury’s Foreclosure Prevention Programs.” In the eight months since the Panel’s last report on the Home Affordable Modification Program (HAMP), Treasury has made minor tweaks to the program, but the changes have not resolved the Panel’s core concerns. The Panel now estimates that, if current trends hold, HAMP will prevent only 700,000 foreclosures – far fewer than the three to four million foreclosures that Treasury initially aimed to stop, and vastly fewer than the eight to 13 million foreclosures expected by 2012.

While HAMP’s most dramatic shortcoming has been its poor results in preventing foreclosures, the program has had other significant flaws. For example, despite repeated urgings from the Panel, Treasury has failed to collect and analyze data that would explain HAMP’s shortcomings, and it does not even have a way to collect data for many of HAMP’s add-on programs. Further, Treasury has refused to specify meaningful goals by which to measure HAMP’s progress, while the program’s sole initial goal – to prevent three to four million foreclosures – has been repeatedly redefined and watered down.

Treasury has failed to hold loan servicers accountable when they have repeatedly lost borrower paperwork or refused to perform loan modifications. Treasury has essentially outsourced the responsibility for overseeing servicers to Fannie Mae and Freddie Mac, but Freddie Mac in particular has hesitated to enforce some of its contractual rights related to the foreclosure process, arguing that doing so “may negatively impact our relationships with these seller/servicers, some of which are among our largest sources of mortgage loans.” Treasury bears the ultimate responsibility for preventing such conflicts of interest, and it should ensure that loan servicers are penalized when they fail to complete loan modifications appropriately.

It is too late for Treasury to revamp its foreclosure prevention strategy, but Treasury can still take steps to wring every possible benefit from its programs. Treasury should enable borrowers to apply for loan modifications more easily – for example, by allowing online applications. Treasury should also carefully monitor and, where appropriate, intervene in cases in which borrowers are falling behind on their HAMP-modified mortgages. Preventing redefaults is an extremely powerful way of magnifying HAMP’s impact, as each redefault prevented translates directly into a borrower keeping his home.

Treasury should acknowledge that HAMP will not reach the expected number of homeowners and should provide a meaningful framework for evaluating the program in the future. Treasury continues to state that HAMP will expend $30 billion in Troubled Asset Relief Program funding, yet the Panel’s estimate based on Congressional Budget Office figures is that HAMP will likely spend only around $4 billion. Had Treasury acknowledged this reality before its crisis authority expired, it could have reallocated the money to a more effective program. Now, that option is gone. Absent a dramatic and unexpected increase in HAMP enrollment, many billions of dollars set aside for foreclosure mitigation may well be left unused. As a result, an untold number of borrowers may go without help – all because Treasury failed to acknowledge HAMP’s shortcomings in time.

The full report is available at cop.senate.gov.

The Congressional Oversight Panel was created to oversee the expenditure of the Troubled Asset Relief Program (TARP) funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and to provide recommendations on regulatory reform. The Panel members are former Senator Ted Kaufman; J. Mark McWatters; Richard H. Neiman, Superintendent of Banks for the State of New York; Damon Silvers, Policy Director and Special Counsel for the AFL-CIO; and Kenneth Troske, William B. Sturgill Professor of Economics at the University of Kentucky.

###

by Jean Braucher

This Article examines in detail the disappointing first year of the Obama Administration’s foreclosure mitigation effort, the Home Affordable Modification Program (HAMP), including its premises, mechanics, slow start, and ultimately modest results. The Administration committed $75 billion to try to help three to four million struggling homeowners avoid foreclosure and reduce the spillover effects of the foreclosure crisis on the economy as a whole. After a year of operations, ending in March 2010, only about 230,000 borrowers had entered into permanent HAMP modifications, and even these were not necessarily truly permanent. Government agencies predicted a redefault rate of 40% or more because HAMP borrowers were typically left owing more on their homes than their value and with high and difficult-to-sustain debt burdens overall. HAMP is a compelling illustration that prevention is easier than cure; the challenges of getting relief to millions in a short period of time proved daunting. A partial front-end regulatory fix was adopted, applicable to future subprime home loans, but if policymakers and regulators are ever tempted again to ease up constraints on high-risk financial products such as subprime mortgages, they should remember the cautionary tale of HAMP.

Click on image below

By Lorraine Woellert and Clea Benson – Nov 18, 2010 7:26 PM ET

U.S. homeowners are dropping out of the Obama administration’s foreclosure prevention program at a faster rate than they are joining it, according to figures released today by the U.S. Treasury Department.

Borrowers aided by the Home Affordable Modification Program grew to nearly 520,000 in October, up 23,750 from a month earlier, the Treasury said in its monthly report. The increase was less than five percent. A total of 36,300 borrowers have dropped out of the plan for failing to make their payments, an increase of 24 percent from a month earlier.

At a congressional hearing earlier in the day, lawmakers said HAMP, which pays lenders to modify loans and reduce monthly payments for struggling borrowers, isn’t doing enough to help homeowners falling behind on their mortgages amid high unemployment and depressed real estate values.

“It’s safe to say that HAMP isn’t meeting its goal of preventing foreclosures,” Representative Maxine Waters, a California Democrat, said at a House Financial Services subcommittee hearing after the Treasury provided a preview of the report.

The Treasury and the Department of Housing and Urban Development issue monthly progress reports on HAMP, a $50 billion program authorized by Congress in 2009. The program was targeted to reach more than 3 million homeowners by paying mortgage servicers $1,000 to rewrite loan terms and $1,000 annually as long as the borrower participates, up to three years.

AMI has consistently supported federal remedial programs to offer eligible, distressed, homeowners relief from foreclosure through modifications through HAMP and 2MP. Additionally, we support principal forgiveness and total debt realignment. No first lien modification will be sustainable without properly addressing a borrower’s total mortgage debt. Regrettably, these programs have often proven unsuccessful due to the servicers, who invariably are the second lien holders, and who continue to inhibit sustainable modifications. Mortgage investors have no control over the modification process, and therefore share many of the frustrations that homeowners and state Attorneys General are experiencing when dealing with mortgage servicers.

“All too often, homeowners are being victimized by the servicers’ past and ongoing actions. The time is now for a permanent solution to America’s housing crisis,” continued Katopis.

[ipaper docId=43010181 access_key=key-s8nvqyfv3r1sacetcwf height=600 width=600 /]

When the Obama administration launched its flagship foreclosure prevention program in early 2009, it pledged to spend up to $50 billion helping struggling homeowners. But the government has so far only spent a tiny fraction of that.

A recent Treasury Department report summarizing TARP spending put the total at $600 million through October.

Although the Treasury Department posts the maximum amount that could go to each mortgage servicer on its website, it doesn’t report the details of the spending. So we filed a Freedom of Information request for the data, and can now show for the first time exactly how much money has gone to each servicer. (A Treasury Department spokeswoman said they’re considering regularly releasing the information going forward.)

The program, which uses TARP money, tries to prevent foreclosures by paying mortgages servicers incentives to make loan modifications. The largest payout, $79 million, has gone to JPMorgan Chase. Next on the list is Bank of America with $45.1 million. That’s a drop in the bucket for BofA, which reported net servicing income of $780 million in the third quarter. (You can use our bailout tracker to see how much money has gone to each mortgage servicer. The figures, which come from our FOIA request, only go through August.)

With the government’s program showing signs of slowing down, the small payout so far shows that Treasury won’t come close to using the full $50 billion, said Guy Cecala, publisher of Inside Mortgage Finance. “It’s a joke, because everyone’s asking ‘is [the program] really worth the $50 billion we’ve committed?’” he said. “We’ll never spend anywhere near that.”

There are two main reasons why so little money has been paid out. First, there have been few modifications done through the program. The government only pays incentives for finalized modifications, not trials. For instance, even though $8.3 billion has been set aside for Bank of America, it won’t get that money unless it provides modifications.

Second, incentives are paid out over time. For instance, homeowners in the program receive a $1,000 reduction to their mortgage each year for five years if they stay current on the modified loan. The program is less than two years old, and few modifications were given during the first year.

Incentives are paid to three different groups: homeowners, investors, and banks and other companies who service the loans (The four biggest servicers of mortgages are also the U.S.’s largest banks: Bank of America, Wells Fargo, JPMorgan Chase and Citigroup.) So far, the servicers have kept most of the money paid out: $231.5 million all told. Investors (lenders and mortgage-backed securities investors) and homeowners have received $129.2 million and $34.7 million, respectively. Our database breaks those amounts down for each servicer.

It’s hard to estimate just how much Treasury will ultimately use of the $50 billion. One reason is that a portion of the modifications will default, so all the incentives for each modification will not be paid out. Of modifications completed a year ago, about 21 percent have already defaulted, according to Treasury data.

If a homeowner keeps up payments on a modified mortgage for the full five years, it could cost the government in the range of $20,000 over five years, according to a ballpark estimate provided by the Treasury spokeswoman. But many homeowners in the program are expected to default on their mortgages well before that.

The government has set aside billions of dollars from the TARP for other, related programs – but it also remains to be seen how much of that money will be spent. The government pays incentives for other ways of avoiding foreclosure, like short sales, but those programs started relatively recently. It’s also allocated $7.6 billion to 18 different states (plus Washington, D.C.) for local plans to avert foreclosure. Another $8.1 billion has been reserved for a plan to refinance homeowners in underwater mortgages into Federal Housing Agency loans.

Separate from the TARP, Fannie Mae and Freddie Mac, both under government control, also participate in the loan modification program. Administration officials have said Fannie and Freddie could pay up to $25 billion in incentives to their servicers and homeowners, but it’s also doubtful that whole amount will be spent. As the TARP inspector general recently noted, they’ve only paid out $451 million through September.

© Copyright 2010 ProPublica Inc. All rights reserved.

The States Take On Foreclosures

By JOE NOCERA
Published: October 29, 2010

Have you noticed that the lead dogs investigating the mortgage foreclosure mess are not any federal prosecutors or national bank regulators, but rather the state attorneys general? I sure have. I can’t think of a more encouraging development.

Yeah, yeah, a handful of federal investigations have also been announced, but we all know that they’re not going to amount to a hill of beans. Ever since the financial crisis began two years ago, the federal overseers of the banking industry have been consistently unwilling to take the rod to the institutions they regulate. The robo-signing scandal — and it is, unquestionably, a scandal — hasn’t changed that attitude one iota.

The Treasury Department and the Federal Reserve have made it clear that they are more concerned about keeping the foreclosure mill going full speed than they are about determining whether the banks broke the law. Somehow throwing people out of their homes quickly is supposed to help the economy. Or so they keep telling us.

Ah, but the states. They’re a different story. Soon after tales of robo-signing began making headlines, the state attorneys general, led by Tom Miller of Iowa, mobilized their forces. Practically overnight, all 50 of them agreed to conduct a joint investigation into the bank practices that led to the scandal.

Unlike the feds’ tepid efforts, this will be a serious investigation, led by a handful of assistant attorneys general who’ve worked together for years, and who see this as their chance to finally do something for beleaguered homeowners. They’ve got resources, subpoena power and a justifiable suspicion that the robo-signing shenanigans are just the tip of a very ugly iceberg.

And best of all, they have a very clear idea of what they are trying to accomplish. They don’t want to merely reform the foreclosure system (though that would be nice, wouldn’t it?). Nor do they particularly want a big financial settlement, which would be meaningless for a giant like Bank of America.

Rather, they hope to use their investigation as a cudgel to force the big banks and servicers to do something they’ve long resisted: institute widespread, systematic loan modifications. “Instead of paying a huge fine,” Mr. Miller posited to me the other day, on his way to an election rally, “maybe have the servicers adequately fund a serious modification process.” Getting the banks and servicers to take loan modification seriously is another in a series of areas where the Obama Treasury Department has failed miserably.

PLANTATION, Fla., Oct. 22, 2010 (GLOBE NEWSWIRE) — DJSP Enterprises, Inc. (Nasdaq: DJSP) (Nasdaq:DJSPW) (Nasdaq:DJSPU) today announced that it has instituted further staff reductions as a result of continued reduced file volumes. DJSP has reduced its staffing levels by an additional 198 employees, bringing the total number of layoffs to approximately 300 since the reduction in staff was initiated.

About DJSP Enterprises, Inc.

DJSP is the largest provider of processing services for the mortgage and real estate industries in Florida and one of the largest in the United States. We provide a wide range of processing services in connection with mortgages, mortgage defaults, title searches and abstracts, REO (bank-owned) properties, loan modifications, title insurance, loss mitigation, bankruptcy, related litigation and other services. Our principal customer is The Law Offices of David J. Stern, P.A. (“DJSPA”). We are headquartered in Plantation, Florida, with additional operations in Louisville, Kentucky and San Juan, Puerto Rico. Our U.S. operations are supported by a scalable, low-cost back office operation in Manila, the Philippines, that provides data entry and document preparation support for our U.S. operations.

Forward Looking Statements

This press release contains forward-looking statements about us within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), including but not limited to management’s expectations about the impact of our expense reduction efforts and recent developments in the residential mortgage foreclosure industry. Additionally, words such as “anticipate,” “believe,” “estimate,” “expect” and “intend” and other similar expressions are forward-looking statements within the meaning of the Act. Such forward-looking statements are based upon the current beliefs and expectations of our management and are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions, changing interpretations of generally accepted accounting principles; outcomes of government or other regulatory reviews, particularly those relating to the regulation of the practice of law; the impact of inquiries, investigations, litigation or other legal proceedings involving us or our affiliates, which, because of the nature of our business, have happened in the past to us and DJSPA; the impact and cost of continued compliance with government or state bar regulations or requirements; legislation or other changes in the regulatory environment, particularly those impacting the mortgage default industry; unexpected changes adversely affecting the businesses in which we are engaged; fluctuations in customer demand; our ability to manage growth and integrate acquisitions; intensity of competition from other providers in the industry; general economic conditions, including improvements in the economic environment that slows or reverses the growth in the number of mortgage defaults, particularly in the State of Florida; the ability to efficiently expand our operations to other states or to provide services we do not currently provide; the impact and cost of complying with applicable U.S. Securities and Exchange Commission (“SEC”) rules and regulations; geopolitical events and changes, as well as other relevant risks detailed in our filings with the SEC, including our Annual report on Form 20-F for the period ended December 31, 2009, which are available at the SEC’s internet site (http://www.sec.gov). Forward-looking statements in this press release speak only as of the date of the press release, and we assume no obligation to update forward-looking statements or the reasons why actual results could differ.

“JPMorgan CHASE is in the foreclosure business, not the modification business’.”  That, according to Jerad Bausch, who until quite recently was an employee of CHASE’s mortgage servicing division working in the foreclosure department in Rancho Bernardo, California.

I was recently introduced to Jerad and he agreed to an interview.  (Christmas came early this year.)  His answers to my questions provided me with a window into how servicers think and operate.  And some of the things he said confirmed my fears about mortgage servicers… their interests and ours are anything but aligned.

Today, Jerad Bausch is 25 years old, but with a wife and two young children, he communicates like someone ten years older.  He had been selling cars for about three and a half years and was just 22 years old when he applied for a job at JPMorgan CHASE.  He ended up working in the mega-bank’s mortgage servicing area… the foreclosure department, to be precise.  He had absolutely no prior experience with mortgages or in real estate, but then… why would that be important?

“The car business is great in terms of bring home a good size paycheck, but to make the money you have to work all the time, 60-70 hours a week.  When our second child arrived, that schedule just wasn’t going to work.  I thought CHASE would be kind of a cushy office job that would offer some stability,” Jerad explained.

That didn’t exactly turn out to be the case.  Eighteen months after CHASE hired Jared, with numerous investors having filed for bankruptcy protection as a result of the housing meltdown, he was laid off.  The “investors” in this case are the entities that own the loans that Chase services.  When an investor files bankruptcy the loan files go to CHASE’S bankruptcy department, presumably to be liquidated by the trustee in order to satisfy the claims of creditors.

The interview process included a “panel” of CHASE executives asking Jared a variety of questions primarily in two areas.  They asked if he was the type of person that could handle working with people that were emotional and in foreclosure, and if his computer skills were up to snuff.  They asked him nothing about real estate or mortgages, or car sales for that matter.

The training program at CHASE turned out to be almost exclusively about the critical importance of documenting the files that he would be pushing through the foreclosure process and ultimately to the REO department, where they would be put back on the market and hopefully sold.  Documenting the files with everything that transpired was the single most important aspect of Jared’s job at CHASE, in fact, it was what his bonus was based on, along with the pace at which the foreclosures he processed were completed.

“A perfect foreclosure was supposed to take 120 days,” Jared explains, “and the closer you came to that benchmark, the better your numbers looked and higher your bonus would be.”

CHASE started Jared at an annual salary of $30,000, but he very quickly became a “Tier One” employee, so he earned a monthly bonus of $1,000 because he documented everything accurately and because he always processed foreclosures at as close to a “perfect” pace as possible.

“Bonuses were based on accurate and complete documentation, and on how quickly you were able to foreclosure on someone,” Jerad says.  “They rate you as Tier One, Two or Three… and if you’re Tier One, which is the top tier, then you’d get a thousand dollars a month bonus.  So, from $30,000 you went to $42,000.  Of course, if your documentation was off, or you took too long to foreclose, you wouldn’t get the bonus.”

Day-to-day, Jerad’s job was primarily to contact paralegals at the law firms used by CHASE to file foreclosures, publish sale dates, and myriad other tasks required to effectuate a foreclosure in a given state.

“It was our responsibility to stay on top of and when necessary push the lawyers to make sure things done in a timely fashion, so that foreclosures would move along in compliance with Fannie’s guidelines,” Jerad explained.  “And we documented what went on with each file so that if the investor came in to audit the files, everything would be accurate in terms of what had transpired and in what time frame.  It was all about being able to show that foreclosures were being processed as efficiently as possible.”

When a homeowner applies for a loan modification, Jerad would receive an email from the modification team telling him to put a file on hold awaiting decision on modification.  This wouldn’t count against his bonus, because Fannie Mae guidelines allow for modifications to be considered, but investors would see what was done as related to the modification, so everything had to be thoroughly documented.

“Seemed like more than 95% of the time, the instruction came back ‘proceed with foreclosure,’ according to Jerad.  “Files would be on hold pending modification, but still accruing fees and interest.  Any time a servicer does anything to a file, they’re charging people for it,” Jerad says.

I was fascinated to learn that investors do actually visit servicers and audit files to make sure things are being handled properly and homes are being foreclosed on efficiently, or modified, should that be in their best interest.  As Jerad explained, “Investors know that Polling & Servicing Agreements (“PSAs”) don’t protect them, they protect servicers, so they want to come in and audit files themselves.”

“Foreclosures are a no lose proposition for a servicer,” Jerad told me during the interview.  “The servicer gets paid more to service a delinquent loan, but they also get to tack on a whole bunch of extra fees and charges.  If the borrower reinstates the loan, which is rare, then the borrower pays those extra fees.  If the borrower loses the house, then the investor pays them.  Either way, the servicer gets their money.”

Jerad went on to say: “Our attitude at CHASE was to process everything as quickly as possible, so we can foreclose and take the house to sale.  That’s how we made our money.”

“Servicers want to show investors that they did their due diligence on a loan modification, but that in the end they just couldn’t find a way to modify.  They’re whole focus is to foreclose, not to modify.  They put the borrower through every hoop and obstacle they can, so that when something fails to get done on time, or whatever, they can deny it and proceed with the foreclosure.  Like, ‘Hey we tried, but the borrower didn’t get this one document in on time.’  That sure is what it seemed like to me, anyway.”

According to Jerad, JPMorgan CHASE in Rancho Bernardo, services foreclosures in all 50 states.  During the 18 months that he worked there, his foreclosure department of 15 people would receive 30-40 borrower files a day just from California, so each person would get two to three foreclosure a day to process just from California alone.  He also said that in Rancho Bernardo, there were no more than 5-7 people in the loan modification department, but in loss mitigation there were 30 people who processed forbearances, short sales, and other alternatives to foreclosure.  The REO department was made up of fewer than five people.

Jerad often took a smoke break with some of the guys handing loan modifications.  “They were always complaining that their supervisors weren’t approving modifications,” Jerad said.  “There was always something else they wanted that prevented the modification from being approved.  They got their bonus based on modifying loans, along with accurate documentation just like us, but it seemed like the supervisors got penalized for modifying loans, because they were all about finding a way to turn them down.”

“There’s no question about it,” Jerad said in closing, “CHASE is in the foreclosure business, not the modification business.”

Well, now… that certainly was satisfying for me.   Was it good for you too? I mean, since, as a taxpayer who bailed out CHASE and so many others, to know that they couldn’t care less about what it says in the HAMP guidelines, or what the President of the United States has said, or about our nation’s economy, or our communities… … or… well, about anything but “the perfect foreclosure,” I feel like I’ve been royally screwed, so it seemed like the appropriate question to ask.

Now I understand why servicers want foreclosures.  It’s the extra fees they can charge either the borrower or the investor related to foreclosure… it’s sort of license to steal, isn’t it?  I mean, no one questions those fees and charges, so I’m sure they’re not designed to be low margin fees and charges.  They’re certainly not subject to the forces of competition.  I wonder if they’re even regulated in any way… in fact, I’d bet they’re not.

And I also now understand why so many times it seems like they’re trying to come up with a reason to NOT modify, as opposed to modify and therefore stop a foreclosure. In fact, many of the modifications I’ve heard from homeowners about have requirements that sound like they’re straight off of “The Amazing Race” reality television show.

“You have exactly 11 hours to sign this form, have it notarized, and then deliver three copies of the document by hand to this address in one of three major U.S. cities.  The catch is you can’t drive or take a cab to get there… you must arrive by elephant.  When you arrive a small Asian man wearing one red shoe will give you your next clue.  You have exactly $265 to complete this leg of THE AMAZING CHASE!”

And, now we know why.  They’re not trying to figure out how to modify, they’re looking for a reason to foreclose and sell the house.

But, although I’m just learning how all this works, Treasury Secretary Geithner had to have known in advance what would go on inside a mortgage servicer.  And so must FDIC Chair Sheila Bair have known.  And so must a whole lot of others in Washington D.C. too, right?  After all, Jerad is a bright young man, to be sure, but if he came to understand how things worked inside a servicver in just 18 months, then I have to believe that many thousands of others know these things as well.

So, why do so many of our elected representatives continue to stand around looking surprised and even dumbfounded at HAMP not working as it was supposed to… as the president said it would?

Oh, wait a minute… that’s right… they don’t actually do that, do they?  In fact, our elected representatives don’t look surprised at all, come to think of it.  They’re not surprised because they knew about the problems.  It’s not often “in the news,” because it’s not “news” to them.

I think I’ve uncovered something, but really they already know, and they’re just having a little laugh at our collective expense… is that about right?  Is this funny to someone in Washington, or anyone anywhere for that matter?

Well, at least we found out before the elections in November.  There’s still time to send more than a few incumbents home for at least the next couple of years.

I’m not kidding about that.  Someone needs to be punished for this.  We need to send a message.

Mandelman out.

@ MANDELMAN MATTERS

LAW OFFICES OF MOSES S. HALL, APC
2651 East Chapman Avenue, Suite 110
Fullerton, California 92831
Telephone (714) 738-4830
Facsimile (714)992-7916

September 9, 2010

Attorney General’s Office
California Department of Justice
Attn:  Edmund G. Brown Jr.
1300 “I” Street
Sacramento, CA 95814

Benjamin G. Diehl
Office of the California Attorney General
300 S. Spring Street,. Ste 1702
Los Angeles, CA  90013

Kathrin Sears
Office of the California Attorney General
455 Golden Gate Ave., Ste 1702
San Francisco, CA  94102

Re: Civil Code §§ 2923.52 and 2923.53
The People of The State of California vs. Countrywide et. al. LC093076
Petition for Writ of Mandamus

Dear Colleagues and Attorney General Edmund G. Brown Jr:

As you are aware, my office represents homeowners caught up in the foreclosure crisis currently occurring in the California housing market.

You may recall that my office sought your assistance in the matter of Mabry vs. Aurora Loan Services. Wherein the 4^th Appellate District Division Three acknowledged a private right of action to prevent foreclosures on a citizen’s primary residence, when the bank and/or mortgage holder has not complied with Civil Code § 2923.5. However, your office opted not to participated in what I believe was a landmark decision for homeowners in the battle against foreclosure prevention here in California.

Notwithstanding the Stipulated Judgment and Injunction that your office had obtained against Countrywide/Bank of America in the above referenced case, Bank of America filed an Amicus Curia Brief in the Mabry action espousing no private right of action and no obligation to modify distressed loans.

I am fully aware, grateful and commend your office for its attempts to crackdown on loan modification schemes that have swindled millions of dollars out of frightened and frustrated homeowners. Some homeowners who were and still are willing to believe against all logic or reason that the companies, whom practiced such schemes, could actually get the mortgage holder to give them some sort of State or Federal assistance that could prevent the losing of their homes and becoming homeless.

I further commend your office for its 2008 lawsuit against then Countrywide Financial, Countrywide Home Loans, Inc., and Spectrum Lending, Inc., who are now commonly referred to as Bank of America N.A. and BAC Home Loans (BAC).  An action which ultimately resulted in the successful acquiring of a Stipulated Judgment and Injunction against (BAC) on October 14, 2008.

The BAC lawsuit’s primary focus was on the predatory lending practices of the Defendants. The Stipulated Judgment and Injunction provides a remedy that creates yet another avenue for BAC borrowers to find relief and even the possibility of preventing the loss of their homes. The loss of a home is a threat that is ever too common, albeit avoidable with help from BAC, for numerous California BAC borrowers in this foreclosure crisis.

I wish this letter could end here or at least continue to praise your efforts and accomplishments as the present Attorney General of California. However, unfortunately, it must now turn to the present state of affairs and your lack of aggressiveness in the pursuit against the foe you identified and successfully prosecuted in the People vs. Countrywide, et.al. action.

I believe judgment obtained against BAC was merely the tip of the iceberg.  You may or may not be aware that IndyMac Bank, now OneWest Bank, has been sued by their investors for providing false and misleading appraisals along with committing many underwriting violations, which gave thousands of Californians their present unconscionable loans [a copy of the court’s opinion is attached for your edification].

There are presently hearings scheduled on September 21, 2010 and September 22, 2010, that involve issues that would substantially curtail the foreclosures in California:

• September 22, 2010 at 9:00 a.m. in Department 68 of the Los Angeles Superior Court, Mabry vs. Preston Dufauchard, Commissioner For the California Dept of Corporations, Real Party in Interest Aurora Loan Services, LLC, Case No: BS 127903. Petition for Writ of Mandamus.
• • The issue: Whether possessing a HAMP program equates as compliance with California Civil Code § 2923.53.

• September 21, 2010 at 9:00 a.m. at the California 4^th Appellate Court Division Three Vuki vs. Superior Court of California, Orange County Case No: GO43533, Real Party in Interest HSBC. Oral Argument.
  • The issue: Whether a bad faith compliance with Civil Code § 2923.53 makes the foreclosing beneficiary (HSBC) a bona fide purchaser pursuant to Civil Code §2923.54.

• September 21, 2010 at 9:00 a.m. at the California 4^th Appellate Court Division Three Sanchez vs. Superior Court of California, Orange County Case No: G043300, Real Party in Interest Litton Loan Servicing LLC.. Oral Argument.
• • The issue: Whether a fully executed and performed loan modification is terminated by the lender’s inadvertent sale of the subject real property in lieu of Civil Code § 2923.54.

These decisions are being sought by my office to help clarify citizens’ rights under the present Foreclosure Prevention Statutes.

My office has been very instrumental in not only the prosecution of these issues, on behalf of my clients, but all citizens of the State of California.

Unfortunately, the BAC Stipulated Judgment and Injunction does not provide a component for a private right of enforcement.  Thus, with respect to possible violations by BAC, such Stipulated Judgment and Injunction can only be enforced by your office.

My office would love to step into your shoes and be granted permission and the rights to enforcement under the Stipulated Judgment and Injunctions. That way we may stop all the Countrywide loan foreclosures presently scheduled and being conducted in California until each

prior Countrywide and/or BAC California borrower is offered the benefits under the Stipulated Judgment and Injunction your office obtained.

I do not believe that you could or are able to assign such a right, but I make it as a gesture of sincerity as to my conviction and belief of the wrongdoings of BAC.

I ask that you immediately seek Court intervention enjoining all Countrywide and/or BAC foreclosures proceedings that fall within the auspices of the Stipulated Judgment/Injunction.

Alternatively, you leave my office no choice but to seek a Writ of Mandamus asking the Court to instruct you and your office on your obligations as Attorney General of our great State.  I realize your business and acknowledge that this may not be your primary priority, but if I do not receive a response indicating your intent by September 17, 2010, I will deem you have no intent to respond, investigate this matter, or take other appropriate action and at that time will seek the Writ of Mandamus.

Notwithstanding the aforementioned paragraph, I wish you well on your campaign to return to the position of Governor of our great State.

Sincerely
Moses S. Hall;
Msh:
Attachments.

[ipaper docId=37177918 access_key=key-1z4imv8h7qye94n6t6b7 height=600 width=600 /]

A few weeks ago, Fannie Mae issued an outright threat to homeowners in this country, creating a new rule that would punish anyone who stops paying their mortgage and walks away from their home, referred to as a “strategic default,” by not allowing those who choose that path to get a Fannie Mae loan for seven years.

They call it their “Seven-Year Lockout Policy for Strategic Defaulters,” and if you haven’t realized it already… look what’s been accomplished here: Homeowners have scared the heck out of industry giant, Fannie Mae.  I mean… these guys are shaking like leaves, absolutely running scared.  I know homeowners have been feeling like they have no power against the bankers, but this should prove otherwise.  It’s like we pushed the bully, and the bully ran home and got his Mom to come lay down a new rule in response.

On Fannie’s Website, Terence Edwards, Executive Vice President for Credit Portfolio Management has the following to say about the new rule:

“Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting.”

Bad for borrowers, Terrence?  Really, how so?  Are you trying to say that people who walk away from their underwater mortgages are doing it because it’s bad for them?  Because I don’t think they think that, Terence.  I’m pretty sure that those that choose to walk away from their mortgages do so because they’ve figured out that it’s better for them… in their own best interests, as they say.

Hey Terrence, you disingenuous prick, I understand that my walking away from my mortgage is bad for you, but that’s only because my house is now worth half of what I owe.  You wouldn’t mind if I walked away from my mortgage if I had equity, right?  So, in other words, you want me to lose the couple hundred grand instead of you, does that about sum up your position here?  Yeah, well… I’m sure you do.  But I, on the other hand, would prefer that you lose the money instead of me.  Sorry about that.

Terrence, last I checked you’re just a giant failed mortgage lender who is as much a part of why we’re in this mess as any, and you’re going to need $1.5 trillion in taxpayer dollars to bail you out.

I’m a taxpayer, Terrence… isn’t that enough of a loss for me to take on your behalf?  You want me to contribute my tax dollars and probably my child’s future tax dollars to your $1.5 trillion bailout.  And on top of that, you also want me to eat the loss of a couple hundred grand on my house?

Geeze… when are you guys planning to kick in on this?  Your CEO gets a $6 million a year salary, I looked it up, and best I can tell he gets paid to say “yes” to just about everything.  I don’t know, Terrence, but I’m pretty sure that I could have bankrupted Fannie Mae for a lot less than $1.5 trillion.

Walking away from a $500,000 mortgage on a house that’s now worth $250,000 isn’t bad for the borrower, it’s good for the borrower… it makes all the financial sense in the world, for the borrower.  I mean, would you recommend that someone hold onto a stock that’s lost half its value.

Continue reading…Mandleman Matters

Lets not act surprise…by now we all know ANYTHING the US GOVERNMENT touches turns to ___________!

Because these lying banksters get away with ________________! We should foreclose on their _____________and kick them to the curb! Get your stress out and fill in the blank!

WE are not fools and we do not believe one thing they say!

Shahien Nasiripour

Potentially “thousands” of troubled homeowners were denied opportunities to lower their monthly mortgage payments under the Obama administration’s signature foreclosure-prevention plan due to servicer errors and inadequate oversight by the Treasury Department, a government audit has found.

Mortgage servicers failed to comply with basic guidelines, used different criteria to evaluate borrowers, recorded error rates up to six times their established thresholds, and couldn’t provide evidence that potentially eligible homeowners had been solicited for the administration’s Home Affordable Modification Program, also known as HAMP.

The errors are partly due to Treasury’s failure to issue specific guidelines for servicers to follow, and the administration’s lack of quality-control standards. Because servicers aren’t required to adhere to the same set of standards, there’s a risk that firms aren’t identifying practices “that may lead to inequitable treatment of borrowers or harm taxpayers through greater potential for fraud or waste,” according to a Thursday report by the Government Accountability Office.

But even if servicers were fraudulently modifying loans or improperly denying modifications to distressed homeowners, Treasury “has yet to establish specific consequences or penalties for noncompliance,” the GAO notes. The department has yet to fine any servicers for noncompliance, according to the report.

Already, “Treasury specifically allows some differences in how servicers evaluate borrowers… that could result in inconsistent outcomes for borrowers,” the report found.

The end result could be the “inequitable treatment” of struggling homeowners who were looking to an administration for help during the worst economic downturn since the Great Depression. HAMP is the centerpiece of the administration’s $75 billion effort to stem the rising tide of foreclosures.

“I find it saddening and frustrating that none of these problems, which we among other people identified to Treasury over a year ago, have been meaningfully addressed,” said Diane E. Thompson, a lawyer with the National Consumer Law Center. “And as a result, we lost a major opportunity to stem the foreclosure crisis.”

Continue reading….here

By DAVID STREITFELD Published: June 24, 2010

Fannie Mae’s decision to begin punishing people who walk away from their unpaid mortgages could prove difficult to sell to the public and might be impossible to execute, housing and lending experts said Thursday.

The big mortgage financing company, which owns or guarantees millions of mortgages, announced on Wednesday that it would sue homeowners who have the capacity to pay but default anyway. It also said it would prevent these strategic defaulters from getting a new Fannie Mae-backed loan for seven years, which could potentially shut millions of buyers out of the market.

But it was unclear, the experts said, why Fannie Mae was threatening delinquent owners and what it hoped to achieve. The new direction seems to run counter to the Obama administration’s efforts to reinvigorate the housing market. And there were basic questions about how Fannie would be able to distinguish between those homeowners who defaulted intentionally and the unfortunate ones who had no choice.

“How are they going to do this, and for what result?” asked Grant Stern, president of the Morningside Mortgage Corporation on Bay Harbor Islands, Fla. “So they can find the people who have a little money left after their house crashed and take it away from them?”

A Fannie Mae spokeswoman said that the goal of the new punitive policies was to force defaulting homeowners to work with their servicers to surrender their houses through either a lender-approved short sale or by formally giving up the deed.

“We really want to encourage borrowers to pursue alternatives to foreclosure,” said the spokeswoman, Janis Smith.

Fannie’s newly aggressive stance comes as the debate is heating up over how much, if at all, borrowers should be held liable for their foreclosures.

Republicans recently added a measure to a Federal Housing Administration financing bill in the House of Representatives that would forbid strategic defaulters from getting an F.H.A.-insured loan.

The California Legislature is debating a proposed law that goes in the other direction, shielding many more delinquent borrowers from debt collectors.

Fannie and its sister company, Freddie Mac, control 30 million mortgages, providing liquidity to the housing market. They have been under government conservatorship since September 2008; the ultimate cost of the rescue to taxpayers might hit $400 billion.

Chris Dickerson of the Federal Housing Finance Agency, which regulates Fannie, said, “We support Fannie Mae taking a policy position that discourages borrowers who can afford to pay their mortgage from walking away.”

Fannie Mae will announce the details of its new program next month, when the servicers who collect mortgage payments on Fannie’s loans will get explicit instructions on how to make recommendations for lawsuits.

But for some in the mortgage business, the new direction seemed little more than a cruel joke.

“Fannie wants to lock people up in a jail of negative net worth for much of the rest of their lives,” said Lou Barnes, a Colorado mortgage banker. “They’re bringing back the debtor’s prison.”

The plan poses some political problems as well as practical ones. Fannie Mae might be a ward of the government but its new policy is at distinct odds with the Obama administration, which has been trying to restart the fragile housing market by lowering interest rates, offering tax credits and insuring millions of new loans.

A Treasury Department spokesman said Fannie Mae’s plan did not represent official Obama administration policy. A spokesman for Freddie Mac said it was closely following Fannie’s moves but had not yet adopted them.

Strategic defaults have been a rising concern for years. Lenders first noticed people purposefully ditching their houses early in the financial crisis. In late 2007, Kenneth D. Lewis, then chief executive of Bank of America, said people were remaining current on their credit cards but defaulting on their home loans, a phenomenon that he said “astonished” him.

The lenders are less surprised now, but perhaps more worried. Bank of America said recently that it was putting owners in danger of foreclosure into payment plans that were supposed to be affordable — but that a third of the borrowers were failing to pay anyway.

“You could say the customer is choosing not to make those payments,” said Jack Schakett, credit loss mitigation executive for Bank of America Home Loans.

Borrowers who stop paying the mortgage can get a year of free rent, and sometimes two. “There is a huge incentive for customers to walk away,” Mr. Schakett said in a recent media briefing.

Fannie is not saying how many of its borrowers are strategically defaulting. The firm’s delinquency rate, traditionally about 0.5 percent of its portfolio, began sharply ascending in mid-2007. At the beginning of this year, it leveled off at 5.5 percent.

About a quarter of homeowners with mortgages, or about 11 million households, owe more than their home is worth, and are potentially vulnerable to a strategic default. A flat or rising real estate market could encourage many of them to hold on; a declining market would suggest it was time to go.

Fannie was established as a federal agency in 1938 but was chartered by Congress as a private company in 1968. For years it prospered by virtue of its special status as a government-sponsored entity charged with increasing the nation’s homeownership rate, enriching its shareholders and executives in the process.

During the housing boom Fannie overreached and bought many loans of buyers who were ill-equipped to pay them. Its fate is uncertain; it is not even clear it will be around in seven years to enforce any edicts.

Christopher F. Thornberg, a principal at Beacon Economics who correctly forecast that the housing boom would implode, said he understood what Fannie was trying to do, and even sympathized to a degree.

It is rational economics, he said, to assume that someone who walked away from an unpaid mortgage once might do so again. It also made sense, he said, for Fannie to try to limit strategic defaults from becoming an even bigger problem. And the new program also addresses the moral hazard question, Mr. Thornberg said: If borrowers are not punished for their missteps, they might not learn their lesson and might do it again.

And yet, he noted, the banks were bailed out, and their executives walked away rich. “Why should I pay my dues when they did not?” he said. “There is no clean answer on this.”

Once more they are going after the WRONG PARTY and they KNOW IT!

Fannie and Freddie were responsible for so much of this meltdown – and now we have to listen to their ranting and thuggery.  Is there a hole deep enough for these guys?

They are so angry because their precious RMBS trusts are being exposed as schemes to loot pension funds, and that will make it harder to sell the next batch of poison they are cooking up.

Taxpayer-Owned Fannie Mae Attacks Struggling Homeowners

Shahien Nasiripour

First Posted: 06-23-10 11:03 PM   |   Updated: 06-23-10 11:28 PM

Taxpayer-owned mortgage giant Fannie Mae is targeting families by going after struggling homeowners who strategically default on their mortgage, the firm announced Wednesday.

A default is considered strategic when homeowners have the capacity to pay, yet choose to walk away from their mortgage. The trigger, researchers say, is negative equity: When the value of a home is less than what the lender is owed on it, borrowers are more likely to strategically default.

About 11.3 million homeowners with a mortgage, or 24 percent, owe more on their mortgage than the home is worth, according to real estate research firm CoreLogic. Another 2.3 million have less than 5 percent equity in their homes. All told, about 29 percent of all homeowners with a mortgage are either underwater or very close to it. The firm estimates that the typical underwater homeowner won’t return to positive equity until late 2015 or early 2016.

And Fannie Mae, an arm of the federal government and a big part of the Obama administration’s housing policy, wants to make sure that if struggling families walk away, they suffer for it.

Homeowners who strategically default or did not work “in good faith” to avert foreclosure through other means will be ineligible for new Fannie Mae-backed mortgages for seven years. The firm said it will also pursue homeowners in court, seeking so-called “deficiency judgments” to recoup outstanding debt by seizing borrowers’ other assets. Thirty-nine states do not limit the ability of lenders to recover what they’re owed.

Fannie Mae said that next month the firm “will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.”

“Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting,” Terence Edwards, Fannie’s executive vice president for credit portfolio management, said in a statement.

Strategic defaults among homeowners have been on the rise. More than a million homeowners went that route last year, nearly double the amount in 2008 and more than four times the level in 2007, according to a recent analysis by the credit reporting company Experian and Oliver Wyman, a management consulting firm. A study by a team of academics from the University of Chicago and Northwestern University estimated that nearly a third of home mortgage defaults in March were strategic. The deeper underwater homeowners are, the more likely they are to walk away from their mortgage, the researchers noted.

Earlier this month, the House of Representatives passed a bill barring strategic defaulters from obtaining home mortgages backed by the Federal Housing Administration. The agency guarantees nearly one in four new mortgages.

“I can’t help but notice that every group now frantically calling for tough penalties for homeowners who walk away was virulently opposed to judicial modification of mortgages in bankruptcy,” Rep. Brad Miller, a North Carolina Democrat, told the Huffington Post.

Bank of America and Citigroup, the nation’s largest and third-largest banks by assets, respectively, support changing existing law to give federal judges the power to modify mortgages in bankruptcy, otherwise known as “cramdown.” Proponents argue that if homeowners were able to modify their mortgages in bankruptcy, the number of strategic defaults would substantially decrease, if not nosedive.

About 3 million homes will receive foreclosure notices this year, real estate research firm RealtyTrac estimates. More than 1 million will be repossessed by lenders, adding to the nearly 2.2 million homes that lenders took over from 2007 to 2009.

Fannie Mae and its sister firm Freddie Mac guarantee nearly three out of every four new mortgages, according to leading industry publication Inside Mortgage Finance. The two firms control about $5.5 trillion in home mortgages, according to their federal regulator. That’s nearly half of all outstanding mortgage debt in the U.S. Their share of the mortgage market is nearly double what it was 20 years ago.

Because Fannie controls such a large portion of new mortgage issuance, the freezing out of homeowners for seven years could prove devastating.

Brent T. White, a law professor at the University of Arizona, recently wrote in an academic paper that most homeowners can recover from a foreclosure within two years. In fact, defaulting on a mortgage is not as bad as most people think, White notes.

“Lenders are unlikely to pursue a deficiency judgment even in recourse states because it is economically inefficient to do so; there is no tax liability on ‘forgiven portions’ of home mortgages under current federal tax law in effect until 2012; defaulting on one’s mortgage does not mean that one’s other credit lines will be revoked; and most people can expect to recover from the negative impact of foreclosure on their credit score within two years (and, meanwhile, two years of poor credit need not seriously impact one’s life),” he writes.

There is a “huge financial upside” for seriously underwater homeowners to strategically default on their mortgages, White said.

While it’s still taboo among most homeowners, it’s common behavior among corporations.

In December, Morgan Stanley, the nation’s sixth-biggest bank by assets, walked away from five San Francisco office buildings the $820-billion firm purchased as part of a landmark $2.43-billion deal near the height of the real estate boom. A group led by Tishman Speyer Properties gave up a 56-building apartment complex in Manhattan in January after defaulting on some $4.4 billion in debt. A spokesman for the California Public Employees’ Retirement System, the nation’s biggest municipal pension fund and one of several investors in the venture, told the Huffington Post that they “basically walked away from it.”

Fannie was effectively nationalized in September 2008. Taxpayers own 79.9 percent of Fannie and Freddie. The Obama administration announced on Christmas Eve that it would provide unlimited financial assistance to the firms, disregarding what was a $400 billion cap on taxpayer bailouts. Their debt is backed by the U.S. government.

The two firms, facing growing losses on sour mortgages in perhaps a worsening housing market, have already taken $145 billion from taxpayers. Fannie Mae is responsible for $83.6 billion of that bailout.

Freddie Mac did not say it would take a similar position on strategic defaulters.

“Such so-called strategic defaults, once rare, are now common enough to jeopardize the already-weak housing and mortgage markets,” wrote economists Celia Chen and Cristian deRitis of Moody’s Economy.com in an April 13 note. “If the trend continues, strategic defaults could both accelerate the pace of home foreclosures and also make it harder for new borrowers to obtain mortgages. Both factors would in turn worsen the decline in house prices.”

JPMorgan Chase, the nation’s second-largest bank by assets with more than $2.1 trillion, warmed investors last month that underwater homeowners may not continue to make their payments even when they’re able to, according to a May 10 filing with the Securities and Exchange Commission.

A top executive at Freddie Mac posted a note on the firm’s website pleading with homeowners to not intentionally walk away from their homes.

“Knowing the costs and factoring in the time horizon, some borrowers have made the calculation that it is better to purposely default on the mortgage. While I understand how that might well be a good decision for certain borrowers, that doesn’t make it good social policy,” Freddie Executive Vice President Don Bisenius argued in a May 3 note.

The firm warned investors and analysts about the risk of increased strategic defaults in March 2008. Referring to it as “ruthlessness,” Dick Syron, Freddie’s former chairman and CEO, said the firm was “seeing an increase in ruthlessness” that had “the potential for changing consumer behavior.”

Fannie Mae said Wednesday that borrowers who have “extenuating circumstances may be eligible for new loan in a shorter timeframe” than the seven-year period it’s warning about.

Republicans in the House recently tried to rein in the twin mortgage giants. Rep. Darrell Issa, the top Republican on the House Committee on Oversight and Government Reform, attempted Wednesday to amend the financial reform bill under consideration by the House and Senate to mandate that the federal government appoint an inspector general to oversee Fannie and Freddie. The mortgage behemoths’ federal regulator has been operating without an independent watchdog looking over it and Fannie and Freddie since 2008.

Republicans have also tried to amend the bill to subject Fannie and Freddie to the Freedom of Information Act so members of the public can keep tabs on the firms by compelling the disclosure of documents and records.

Both efforts were thwarted by House Financial Services Committee Chairman Barney Frank (D-Mass.), who ruled that they were not “germane” to the legislation under consideration.

Emails sent after normal business hours to spokesmen for the White House and Treasury Department requesting comment were not returned.

Ryan Grim contributed reporting. THE HUFFINGTON POST

This is why you need a FORENSIC AUDIT…Find the missing pieces of possible violations! DEMAND IT!

By Tami Luhby, senior writer May 14, 2010: 3:58 AM ET

NEW YORK (CNNMoney.com) — Pressure is mounting on loan servicers and investors to reduce troubled homeowners’ loan balances…but the two largest owners of mortgages aren’t getting the message.

Fannie Mae and Freddie Mac, which are controlled by the federal government, do not lower the principal on the loans they back, instead opting for interest rate reductions and term extensions when modifying loans.

But their stance is out of synch with the Obama administration, which is seeking to expand the use of principal writedowns. In late March, it announced servicers will be required to consider lowering balances in loan modifications.

And just who would tell Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) to start allowing principal reductions? The Obama administration.

Asked whether they will implement balance reductions, the companies and their regulator declined to comment. The Treasury Department also declined to comment.

What’s holding them back is the companies’ mandate to conserve their assets and limit their need for taxpayer-funded cash infusions, experts said. If Fannie and Freddie lower homeowners’ loan balances, they are locking in losses because they have to write down the value of those mortgages. Essentially, that means using tax dollars to pay people’s mortgages.

The housing crisis has already wreaked havoc on the pair’s balance sheets. Between them, they have received $127 billion — and recently requested another $19 billion — from the Treasury Department since they were placed into conservatorship in September 2008, at the height of the financial crisis.

Housing experts, however, say it’s time for Fannie and Freddie to start reducing principal. Treasury and the companies have already set aside $75 billion for foreclosure prevention, which can be spent on interest-rate reductions or principal write downs.

“Treasury has to bite the bullet and get Fannie and Freddie to participate,” said Alan White, a law professor at Valparaiso University. “It’s all Treasury money one way or the other.”

Though servicers are loathe to lower loan balances, a growing chorus of experts and advocates say it’s the best way to stem the foreclosure crisis. Homeowners are more likely to walk away if they owe far more than the home is worth, regardless of whether the monthly payment is affordable. Nearly one in four borrowers in the U.S. are currently underwater.

“Principal reduction in the long run will lower the risk of redefault,” said Vishwanath Tirupattur, a Morgan Stanley managing director and co-author of the firm’s monthly report on the U.S. housing market. “It’s the right thing to do.”

On top of that, the redefault rates on their modified loans are far worse than on those held by banks, according to federal regulators.

Some 59.5% of Fannie’s loans and 57.3% of Freddie’s loans were in default a year after modification, compared to 40% of bank-portfolio mortgages, according to a joint report from the Office of Thrift Supervision and Office of the Comptroller of the Currency. This is part because banks are reducing the principal on their own loans, experts said.

So, advocates argue, lowering loan balances now can actually save the companies — and taxpayers — money later.

“It can be a financial benefit to Fannie Mae and Freddie Mac and the taxpayer,” said Edward Pinto, who was chief credit officer for Fannie in the late 1980s.

What might force the companies’ hand is another Obama administration foreclosure prevention plan called the Hardest Hit Fund, which has charged 10 states to come up with innovative ways to help the unemployed and underwater.

Four states have proposed using their share of the $2.1 billion fund to pay off up to $50,000 of underwater homeowners’ balances, but only if loan servicers and investors — including Fannie and Freddie — agree to match the writedowns. State officials are currently in negotiations with the pair.

“We remain optimistic that we can get a commitment from Fannie, Freddie and the banks to contribute to this strategy,” said David Westcott, director of homeownership programs for the Florida Housing Finance Corp., which is spearheading the state’s proposal.