Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays
Sewin Chan Andrew Haughwout Andrew Hayashi Wilbert van der Klaauw
Staff Report No. 732
June 2015
This paper presents preliminary findings and is being distributed to economists and other interested readers solely to stimulate discussion and elicit comments. The views expressed in this paper are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.
Abstract
The mortgage default decision is part of a complex household credit management problem. We examine how factors affecting mortgage default spill over to other credit markets. As home equity turns negative, homeowners default on mortgages and HELOCs at higher rates, whereas they prioritize repaying credit cards and auto loans. Larger unused credit card limits intensify the preservation of credit cards over housing debt. Although mortgage non-recourse statutes increase default on all types of housing debt, they reduce credit card defaults. Foreclosure delays increase default rates for both housing and non-housing debts. Our analysis highlights the interconnectedness of debt repayment decisions.
Elizabeth Warren says it’s “too early to say” whether she’ll hit the campaign trail in support of her Senate colleague Bernie Sanders.
“Bernie’s out talking about the issues that the American people want to hear about,” the Massachusetts Democratic senator told the Boston Herald Monday.
She did not rule out the possibility of campaigning for the Vermont senator, nor would she comment on the prospect of supporting other Democratic candidates like former Maryland Gov. Martin O’Malley or presumptive front-runner Hillary Clinton.
“Bernie is there on the issues,” Warren said. “That’s what matters to a lot of people.”
After more than six years of struggle for justice for older Americans whose spouses borrowed money through HECM reverse mortgages, we have victory!
HECM surviving non-borrowing spouses will be able to stay in their homes if their borrowing spouses die without having to spend huge sums of money to pay down the mortgage loan balance, an obstacle to a humane resolution of the non-borrowing spouses’ displacement crisis.
A new policy released on Friday, June 12, 2015 removed two harsh conditions in a now revoked policy that we strongly objected to on this blog. We are grateful to God for this sweet victory!
On October 11, 2009, when Isaac Dieudonne was two years old, his family moved into a new home in Miramar, Florida. As they began to unpack, young Isaac bounded out the front door in search of fun. The parents found him several minutes later, floating dead in the fetid pool of a foreclosed house.
Since the financial crisis began in 2008, approximately 5.7 million properties have completed the foreclosure process, and stories like this begin to answer the critical question of what happens to all those homes. While many are resold, too often they fall into disrepair, creating blight that drags down property values and turns communities into potential deathtraps, attracting not just mosquitoes and mold, but crime and tragedy.
According to expert reports, this neglect occurs disproportionately in communities of color, part of a disturbing pattern. While the Supreme Court has reaffirmed the ability to use the Fair Housing Act to challenge discriminatory effects in neighborhoods, the nation’s neighborhood layout looks more segregated than ever, exacerbating the racial wealth gap. There’s no point in having an anti-housing discrimination law if it isn’t vigorously employed to prevent a real societal division that drags down minority families. The Justice Department, free of uncertainty about the Fair Housing Act’s future, needs to work to realize the law’s intended purpose.
Miami-Dade Circuit Court will stop dedicating three courtrooms to foreclosure cases as their backlog winds down.
Circuit Judge Jennifer Bailey, head of civil courts, ordered that trials and summary judgments involving foreclosures will be assigned to circuit judges rather than senior judges in the foreclosure-dedicated courtrooms.
The foreclosure courts in Miami-Dade will formally shut down on Tuesday, June 30, the last day of the state’s fiscal year.
At a Special Tenn of the Supreme Court of the State
ofNew York held in and for the Sixth Judicial
District at the Tioga County Courthouse, Owego,
New York, on the 27th day of April, 2015.
PRESENT: HON. EUGENE D. FAUGHNAN
Justice Presiding
ST A TE OF NEW YORK
SUPREME COURT: TIOGA COUNTY
Residential Funding Company, LLC,
Plaintiff,
-vs-
Christopher K. Lehman aka Chrisopher K. Lehman, Citifinancial Services, Inc., United States of America Acting through the IRS, John Doe (said name being fictitious, it being the intention of Plaintiff to designate any and all occupants of premises being foreclosed herein, and any parties, corporations or entities, if any having or claiming an interest or lien upon the mortgaged premises.)
Defendants.
Factual Background
The current action was commenced on September 23, 2011 by the filing of a summons
and complaint. Plaintiffs complaint contends that Defendant executed a Mortgage and Note on
September 15, 2006, and that he has defaulted in payments on the loan. Defendant served an
Answer on 10/14/11 and an Amended Answer on 10/28/11, raising affirmative defenses of
Plaintiffs unclean hands, and Plaintiffs failure to comply with Real Property Actions and
Proceedings Law (“RP APL”) § 1304. Defendant’s Answer requested dismissal of Plaintiffs
Complaint.
A foreclosure settlement conference was held, and Plaintiff did not appear. Therefore, a
second foreclosure settlement conference was held and at the conclusion, Plaintiff was allowed to
proceed in its action.
In January, 2015, Plaintiff filed this motion. In support thereof, Plaintiff submitted an
Attorney Affirmation of Shan P. Massand dated January 23, 2015, regarding CPLR 3408
Settlement Conferences, a Certificate of Merit of Natalie Giraldo, Esq., dated January 23, 2015
and an Attorney Affirmation in Support from Shan P. Massand dated January 23, 2015 with
attached Exhibits. Plaintiff also included an Affidavit oflndebtedness from Thomas F. Kennedy,
dated July 17, 2013.
Defendant submitted an Affidavit of Charles Guttman, Esq., dated March 4, 2015, with
Exhibits, in opposition to the motion. Included in the opposing papers were a consent to
discontinue a prior foreclosure action on this property2
•
The matter was scheduled for oral argument on the motion on April 27, 2015. Plaintiff
did not appear, but Defendant was represented by Attorney Guttman. Following that argument,
the Court Reserved Decision on the motion
Discussion and Findings
Plaintiffs moving papers allege that Defendant has breached the terms of the Note and
Mortgage by failing to make required monthly payments from November, 2008 to the present. In
support of the motion, Plaintiff also submitted evidence that it had provided a 90 day notice to
Defendant, as required under RPAPL §1304. That notice was dated February 23, 2010.
However, Defendant argues that the February 23, 2010 notice was applicable to the earlier action,
which was ultimately discontinued, and that Plaintiff has not provided a new 90 days notice prior
to the commencement of the instant action on September 23, 2011.
RP APL § 1304 provides:
Notwithstanding any other provision of law, with regard to a home loan, at least ninety
days before a lender, an assignee or a mortgage loan servicer commences legal action
against the borrower, including mortgage foreclosure, such lender, assignee or mortgage
loan servicer shall give notice to the borrower in at least fourteen-point type which shall
include the following:
“YOU COULD LOSE YOUR HOME. PLEASE READ THE FOLLOWING NOTICE
CAREFULLY”
“As of …….. , your home loan is…….. days in default. Under New York State Law, we are
required to send you this notice to inform you that you are at risk of losing your home.
You can cure this default by making the payment of…….. dollars by …….. .
RPAPL §1304(1).
Defendant contends that the earlier 90 day notice became ineffective when that case
was discontinued, and that a new notice was required. Defendant did not provide any citations
on this exact question, and the Court’s independent research did not reveal any New York cases
dealing directly with the issue. However, the Court finds the case of Wells Fargo Bank, NA. v.
Spivak, 2014 PA Super 250, 104 A.3d 7 (Sup. Ct. 2014) to be instructive. At issue in that case
was a provision in Pennsylvania law regarding pre-foreclosure notice requirements, and whether
a separate notice was required in a second action. The Court in Spivak concluded that a new
notice was required. The Pennsylvania law requires that the lender provide notice and state what
sum of money must be tendered to cure the default and the time within which the debtor must
cure the default. This language is nearly identical to the New York language quoted above, and
requires that the notice must state how much is required to be paid and by when. As noted by the
Court in Spivak, a second notice would be required if a second action is commenced, so that the
debtor could potentially cure the default. Here, the notice upon which Plaintiff relies is dated
February 23, 2010 and advises the borrower that he “can cure this default by making the payment
of 18058.24 by 05/24/2010.” That was sufficient notice to permit the Plaintiff to file the earlier
action. But once that action was discontinued, the Defendant would have to be entitled, once
again, to a 90 day notice. That notice would inform him of the amount needed, and time
permitted to cure the default. Clearly, by the time the second action was commenced, the amount
owed would have changed, and Defendant could not cure the default by 05/24/10 as that date had
passed. A new notice would be required to provide him with the correct information that could
cure his default.
The notice requirement under RP APL § 1304 is a condition precedent to bringing a
foreclosure action, and the party seeking the foreclosure has the burden to show compliance with
the notice requirement. Pritchard v. Curtis, 101 AD3d 1502 (3rd Dept. 2012); see Aurora Loan
Services, LLC v. Weisblum, 85 AD3d 95 (2″d Dept. 2011 ); see TD Bank, NA. v Leroy, 121 AD3d
1256 (3rd Dept. 2014). The Plaintiff claims that it has complied with RPAPL §1304. “Thus, in
support of its motion for summary judgment on the complaint, [the lender] was required to prove
its allegations by tendering sufficient evidence demonstrating the absence of material issues as to
its strict compliance with RP APL 1304, and failure to make this showing requires denial of the
motion, regardless of the opposing papers” Aurora Loan Servs., LLC, 85 AD3d at 106 [citation
omitted] ; TD Bank, NA., supra. The Defendant’s papers and evidence submitted in opposition
to Plaintiffs motion have at least raised material issues as to whether Plaintiff has complied with
RP APL § 1304.
Conclusion
Based upon the foregoing discuss ion, the Court finds that the Plaintiff has failed to
establish an entitlement to summary judgment on this record. Therefore, Plaintiff’s motion is
DENIED.
This constitutes the Decision and Order of the Court.
Dated: June23_, 20 1s
Owego, New York
-5-
[* 5]
Decided on June 25, 2015
Supreme Court, Queens County
One West Bank, FSB, Plaintiff,
against
Pertab Choyling, MICHAEL PERTAB, ET AL., Defendants.
17488/10
RAS Boriskin, LLP.(Attorney for Plaintiff)900 Merchants ConcourseWestbury, NY 11590
Brian McCaffrey, Esq..(Attorney for Defendant)88-18 Sutphin BoulevardJamaica, NY 11435
Phyllis Orlikoff Flug, J.
The following papers numbered 1 to 4 read on this motion
Notice of Motion1 – 2
Affirmation in Opposition3
Reply Affirmation4
Defendants, Choyling Pertab s/h/a Pertab Choying and Michael Pertab, move inter alia to dismiss plaintiff’s complaint as asserted against them.
This is an action to foreclose a mortgage on the real property located at 90-01 209th Street, in the County of Queens, City and State of New York.
Pursuant to the affidavits of service filed by plaintiff, defendant Michael Pertab was personally served with the summons and complaint on July 16, 2010 and defendant Cholying Pertab was served with the summons and complaint via substitute service, with service being deemed complete, pursuant to CPLR 308[2], on August 2, 2010.
The subject application, filed on February 11, 2015, more than four and a half years after defendants were served, constitutes defendants first appearance in this action. Pursuant to CPLR 320[a], defendants have been in default since September 1, 2010.
CPLR § 3215[c] provides that “[i]f the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned . . . unless sufficient cause is shown why the complaint should not be dismissed.”
Plaintiff claims that the action should not be dismissed because the delay was attributable to the assignment of the mortgage to a new party. However, plaintiff’s own submissions admit that this assignment did not take place until October 24, 2013, more than a year after plaintiff was required to seek the entry of judgment. Under these circumstances, the subject assignment fails to provide a sufficient excuse for the delay.
As plaintiff’s change of attorney was not filed until more than a year and a half after plaintiff was required to seek entry of judgment, the change in attorney is likewise insufficient to excuse the delay.
Plaintiff also claims that the delay was caused by Administrative Order 431/11 which requires that an attorney for [*2]plaintiff in a residential foreclosure action certify the accuracy of the papers filed in support of the action.
Contrary to plaintiff’s contentions, as this Order merely requires that attorneys certify that they have met a minimum standard of diligence in prosecuting their cases, it should not cause any delay in the underlying action and it certainly does not excuse the extensive delay in this action.
Moreover, even if all of plaintiff’s excuses were accepted as valid, plaintiff has still failed to specifically account for the entirety of the delay (See Winfield v. Garenani, 246 AD2d 537 [2d Dept. 1998]; Grosso v. Hauck, 99 AD2d 750 [2d Dept. 1984]).
Notably, although plaintiff admits that counsel had all the documents necessary to proceed by May 13, 2014, plaintiff delayed an additional nine months before making an application for the entry of judgment.
Plaintiff’s claim that this nine month delay was caused by “various issues” needed to be discussed between counsel and client is unsubstantiated and far too vague to provide good cause for plaintiff’s delay.
Accordingly, the motion is granted, in its entirety, and plaintiff’s complaint is dismissed as asserted against defendants Choyling Pertab s/h/a Pertab Choyling and Michael Pertab.
Jason Jarvis, Natalie Jarvis, Mortgage Electronic Registration Systems, INC. As Nominee for American Mortgage Network, INC., GE Money Bank, and Saddle Creek Estates Homeowners Association, INC.
Appellee-Defendants
June 23, 2015
Court of Appeals Case No. 45A03-1501-MF-1
Appeal from the Lake Superior Court The Honorable Calvin D. Hawkins, Judge Cause No. 45D02-1107-MF-222
Bailey, Judge. Court of Appeals of Indiana | Memorandum Decision 45A03-1501-MF-1 | June 23, 2015
Case Summary
[1] OneWest Bank, FSB (“OneWest”) was twice found in contempt of court for its failure to comply with court orders arising from foreclosure proceedings against homeowners Jason and Natalie Jarvis (“the Jarvises”). OneWest was sanctioned and appealed. This Court reversed the appealed order and remanded the matter to the trial court with instructions. The trial court issued a revised order for sanctions following remand; from this order, OneWest appeals. We affirm.
Issues
[2] OneWest presents two issues for review:
I. Whether the trial court’s authority on remand was limited to excision of preclusion language found in the contempt order appealed; and
II. Whether the award of $100,000.00 as a sanction is improper.
CFPB Publishes Over 7,700 Consumer Complaint Narratives About Financial Companies
Over Half of Consumers Filing Complaints Online Opt In to Share Their Experiences Via the CFPB’s Public Complaint Database
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) goes live with an enhanced public-facing consumer complaint database, which includes for the first time over 7,700 consumer accounts of problems they are facing with financial companies concerning mortgages, bank accounts, credit cards, debt collection, and more. The CFPB is also publishing a Request for Information today seeking input on whether there are ways to enable the public to more easily understand and make comparisons of the complaint information.
“The Bureau’s work improves as we hear directly from consumers,” said CFPB Director Richard Cordray. “Every complaint tells us what people are facing in the financial marketplace. Publishing these consumer stories today is a historic milestone that we believe will lead to better outcomes for everyone.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, established the handling of consumer complaints as an integral part of the CFPB’s work. The CFPB began accepting complaints as soon as it opened its doors nearly four years ago in July 2011. It currently accepts complaints on many consumer financial products, including: credit cards; mortgages; bank accounts; private student loans; vehicle and other consumer loans; credit reporting; money transfers; debt collection; and payday loans. As of June 1, 2015, the Bureau has handled more than 627,000 complaints, with mortgages and debt collection being the most frequent topics. Through the complaint handling process, the Bureau has helped consumers secure hundreds of thousands of responses from companies as well as millions of dollars in monetary relief.
In June 2012, the CFPB launched its Consumer Complaint Database, which is the nation’s largest public collection of consumer financial complaints. It includes basic, anonymous, individual-level information about the complaints received, including the date of submission, the consumer’s zip code, the relevant company, the product type, the issue the consumer is complaining about, and how the company handled the complaint.
In March 2015, the Bureau finalized a policy to empower consumers to publicly share their stories when they submit complaints to the Bureau. Since the Bureau launched this feature, more than half of consumers submitting complaints to the CFPB website have “opted in” to share their accounts of what happened. Starting today, consumer narratives that have been scrubbed of personal information will be added to the complaint database on a daily basis.
Consumer narratives provide a firsthand account of the consumer’s experience. The narratives provide context to complaints, are easily searchable, and help spotlight specific trends. The narratives can also help consumers to make more informed decisions, as well as encourage companies to improve the overall quality of their products and services and more vigorously compete over good customer service.
The CFPB Consumer Complaint Database is designed to allow users to explore the information, spotlight particular practices and problems, and gain valuable insights. Specifically, users can:
Search for specific product names or features: Users can now search consumer narratives for product names or features such as the brand name of a credit card or a mortgage feature.
Highlight specific company practices and problems: Users can search for terms in consumer accounts of what happened such as “lost paperwork,” “foreclosure scam,” or “robo-signing.”
Break down information by state: Users can sort complaints by state and zip code to spotlight local trends and information.
Consumer Complaint Narrative Policy
The CFPB consumer complaint narrative policy lays out the specific procedures and safeguards the Bureau has put in place to publish narratives in the database. The policy includes important safeguards for removing a consumer’s personal information and ensuring the informed consent of any consumer who participates. Under the CFPB policy, companies also have 180 days to select an optional public-facing response to be included in the public database. These company responses are included in the database for the first time today.
This policy builds on the safeguards the CFPB’s database already has in place. Complaints are listed in the database after the company responds to the complaint or after it has had the complaint for 15 days, whichever comes first. The CFPB will disclose the consumer narrative when the company provides its public-facing response, or after the company has had the complaint for 60 calendar days, whichever comes first.
Today, the Bureau is also issuing a Request for Information seeking public input on ways to make the data more useful to the public. Specifically, the Bureau is looking for ideas to enable the public to more easily understand information in the database and make comparisons of the complaints by normalizing, or adding additional context to, the complaint data.
In Jesinoski v. Countywide, 135 S.Ct. 790 (2015), the
Supreme Court clarified 2 important issues regarding a
borrower’s 3-year right of rescission under the Federal Truth
in Lending Act (“TILA”).
• Issue 1: To exercise the 3-year right of rescission, does
the borrower have to sue the lender? Or is sufficient for
the borrower to serve the lender with a rescission notice?
– The Supreme Court’s holding: Serving a notice is sufficient.
• Issue 2: Is returning the lender’s funds (“tender”) a strict
condition precedent to enforcing a rescission notice?
– The Supreme Court’s holding: No, tender is not a strict
condition precedent to enforcing a rescission notice.
Why Do We Care?
• Though not a perfect result, in past years most rescission
concerns were resolved by judicial interpretation.
– The requirement that a borrower return funds prior to the
rescission being effective provided useful leverage to the
lender or assignee.
• All components of the rescission process are now back
on the table.
– State and federal court decisions have to be homogenized
to the Jesinoski decision.
– State courts in particular are not familiar with the
complexities of TILA in general and rescission in particular.
– It will likely take time for appellate precedent to emerge to
provide guidance when responding to an alleged rescission
notice.
The housing rebound may have lifted home prices across much of the nation. But cities like Lithonia, Ga., are still waiting for the bounce.
Along with other communities in the Atlanta area, the small working-class suburb saw prices run up during the housing boom a decade ago, followed by an epic bust. While nearby wealthier areas are now rising, or even fully recovered, poorer towns such as Lithonia are stuck with a housing crisis that drags on.
Roughly 10,000 homeowners in Lithonia—or 54% of all families with a mortgage—owe more than their homes are worth, according to the online real-estate tracker Zillow. That is a stark difference from wealthy Atlanta neighborhoods like Buckhead, where about 12% of homes are underwater. House values in Lithonia at the end of the first quarter were still almost 35% off their peak, while in Buckhead they were off by only 12%.
HIDING IN PLAIN SIGHT: JESINOSKI AND THE CONSUMER’S RIGHT OF RESCISSION MILAN PRODANOVIC
INTRODUCTION
<EXCERPT>
The crux of litigation involving rescission under TILA centers on
what steps a borrower must take in order to properly rescind a loan.
Section 1635 requires that consumers notify the creditor of rescission
in accordance with regulations promulgated by the agency responsible
for implementing TILA.7 Regulation Z, which implements TILA,
allows for rescission through written notice.8 Yet, the majority of courts
have found that an additional step is required—the consumer must also
file suit.
This Commentary explores the reasoning behind those decisions in
addition to the arguments put forth by the Petitioners-borrowers (Jesinoskis)
and Respondents (Lenders) in Jesinoski v. Countrywide Home Loans, Inc.
Part II describes the factual background of the case. Part III explains the
legislative origins of TILA and subsequent amendments that affected
rescission. Part III also covers the circuit split that existed before the Supreme
Court’s decision and discusses the limitations on the right of rescission, its
scope, when and how it can be exercised, and the effect of exercising the right.
Part IV describes the Eighth Circuit’s holding in Jesinoski and Part V
summarizes the arguments put forth by the parties. Part VI outlines why the
Supreme Court, in the shortest opinion of the term so far, correctly
read § 1635 to mean what is says: rescission is exercised through
written notice, not by filing suit.
Court filings on alleged witness-coaching by an Ocwen Financial Corp. attorney in a foreclosure will not be sealed, a St. Lucie circuit judge ruled.
Court filings on alleged witness-coaching by an Ocwen Financial Corp. attorney in a foreclosure will not be sealed, a St. Lucie Circuit judge ruled.
Judge William L. Roby said the “horse has long left the barn” when it came to the four documents provided by the defense to the Daily Business Review and the New York Times.
An explosive confrontation between a judge and foreclosure lawyer led to a scuffle with bailiffs as attorney Stuart Golant was removed from the courtroom and charged with two felonies.
He was arrested Nov. 14 in Palm Beach Circuit Senior Judge Howard Harrison’s courtroom and jailed overnight. The incident came to light June 10 when Golant & Golant alleged in another case that the judge systematically discriminates against the law firm and its clients.
“It’s kind of a crazy mess,” said Golant’s wife and law partner, Margery. “This was an elderly man in a business suit arguing a case in court. There was no reason for anybody to touch him … and no reason for Judge Harrison to tell them to remove him.”
An attorney accused of spoon-feeding answers to unqualified robo-witnesses has failed to limit the scope of her deposition about her actions in a foreclosure case.
Erin Prete of Gasdick Stanton Early in Orlando is accused of improperly coaching employees of Atlanta-based mortgage servicer Ocwen Financial Corp. about their testimony against Florida homeowners.
“The who, what, where and when can be inquired into, but not the why,” Prete’s attorney, Michael Colgan of the Tampa office of Bradley Arant Boult Cummings, argued at a hearing Tuesday in Fort Pierce.
Prete’s accuser is foreclosure defense attorney Thomas Ice, representing homeowners Thomas and Jeanette Rolle in the foreclosure suit brought by Ocwen and lender Deutsche Bank National Trust Co.
Sen. Elizabeth Warren (D-Mass.) is privately urging New York Gov. Andrew Cuomo (D) to replace the head of the New York Department of Financial Services — Benjamin Lawsky, nicknamed the “Sheriff of Wall Street” for his tough enforcement approach — with Rohit Chopra, a top regulator at the Consumer Finance Protection Bureau, The Wall Street Journal reported on Wednesday.
On Thursday, a coalition of consumer advocates and progressive groups also voiced their support for Chopra, saying in a release that he has “a strong record of uncovering and addressing predatory behavior” in the financial industry.
Chopra is currently the CFPB’s student loan ombudsman and assistant director. He has testified before Congress on the growing evidence for a negative “student debt domino effect” on the economy, caused by the country’s more than $1.2 trillion in outstanding loans. He has also investigated student loan servicing companies and is credited with aiding a $96.6 million settlement between the Department of Justice and student lender Sallie Mae for improper conduct. In May, the CFPB signaled that it was developing its own rules to regulate student loan companies, which are currently subject to Department of Education regulations that many consider outdated and ineffective.
True. And most Americans still believe the government is still corrupt as shit!
WSJ-
Seven years after the worst of the foreclosure crisis, most Americans remain financially and psychologically scarred by the crisis and pessimistic about their prospects of affording a home, according to a survey commissioned by the John D. and Catherine T. MacArthur Foundation.
More than 40% of Americans surveyed believe that the country is still in the middle of the housing crisis, while one in five anticipate that the worst is yet to come, according to the report, titled the 2015 Housing Matters Survey.
That pessimism stands in contrast with improvements in the housing market over the last couple of years. Prices have been climbing for 35 consecutive quarters, according to the S&P/Case-Shiller Home Price Index for March. With interest rates near historic lows and prices still well below peak values in most markets, owning a home is also very affordable at the moment.
Abuton, then a single parent, declared bankruptcy and let the mortgage company repossess her Pasco County home. Once the company had the property, she figured, it would start paying the HOA fees.
Wrong.
Although Abuton had been locked out in 2008, the lender didn’t take title to the house until several years later. In the meantime, while the house remained in her name, she was responsible for all HOA fees that accrued.
In February, federal prosecutors began a 90-day examination to determine whether to bring cases against individuals for their role in the 2008 financial crisis.
The deadline for that inquiry passed last month, with the Justice Department failing to hold any individuals accountable for their crimes. Instead, the DOJ announced that it would allow five megabanks to plead guilty to felony fraud charges related to rigging of the foreign currency exchange market — but would not prosecute a single individual for wrongdoing.
I recently expressed frustration following this announcement against the five banks. Given that I’ve spent my career advocating against harsh penalties and mandatory minimums suffered by many in the African American and Latino communities, I find these sweetheart deals unjust and outrageous.
Nearly eight years after the start of the global financial crisis, hedge funds and private equity firms have found yet another way to make big profits: distressed housing assets. Often, the very same corporate actors that precipitated the housing crash in the first place are buying and selling off delinquent mortgages and vacant houses that are a product of the crash. Together, these Wall Street entities have raised over $20 billion to buy the notes for as many as 200,000 homes in the United States.1 The newly consolidated single-family rental market is a lucrative business. A 2014 study estimated that the four largest holders of these assets have seen as much as a 23 percent rate of return on the properties they purchased in the last three years.2
Meanwhile, low-income communities of color across the country have suffered. Millions of Americans lost all the equity in their homes or experienced the hardship of foreclosure during the housing crisis and have not recovered from losing their greatest source of wealth. During the financial crisis, the median net worth for African Americans fell 53 percent; for Latinos, it was a 66 percent decrease. In contrast, median net worth for whites fell only 16 percent. While white families have experienced a rebound in wealth since the crisis, African-American and Latino families have not.3
Between 2006 and 2015, rates of homeownership have fallen while the number of single-family homes that are currently occupied by renters instead of homeowners has skyrocketed, up 31 percent to nearly 15 million renters in 2013.4 In the aftermath of the financial crisis, Wall Street’s investment in single-family homes has burgeoned, often crowding out prospective homeowners. For instance, in April 2015, one-quarter of all home sales were to cash-carrying investors;5 in July 2013, cash-on-hand investors bought roughly 55 percent of the homes sold in Las Vegas, Nevada;6 and, in Richmond, California, between 2009 and 2012, about half of all home sales went to investors.7
Major government and government-backed entities are fueling Wall Street’s increased control or ownership of single-family homes. Both the Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, are auctioning off, often at a discount, tens of thousands of Non-Performing Loans that they want to get off their books. The vast majority of these loans have gone to hedge funds and private equity firms, and in many cases the properties then end up in their hands. Although Fannie Mae and Freddie Mac have been unwilling to offer principal reduction to struggling homeowners, they often offer steep discounts when they sell these mortgages to Wall Street speculators.
An initial examination of four of the largest purchasers of HUD and FHFA loans has unearthed an array of disturbing business practices, ranging from those that clearly run counter to the goals of homeownership preservation and neighborhood stability to those that break laws, deceive homeowners, and harm taxpayers more generally.
The troubling record of these four large buyers raises serious questions about the HUD and FHFA Non-Performing Loan sale programs–and argues for a very different approach. These institutions have an opportunity to sell their portfolios of distressed mortgages to purchasers that put the interests of occupants and neighborhoods first, instead of selling them to speculators.
Community Development Financial Institutions (CDFIs) have developed programs to buy very delinquent mortgages and offer a “restart” for struggling homeowners, by reducing principal down to current market value and otherwise modifying the loan. When these non-profits are not able to return homeowners back to good standing or they acquire vacant properties, CDFIs have a housing disposition plan based on the affordable housing needs of the communities.
In this paper, we review the track record, to date, of the HUD and FHFA single-family loan sale programs. We, then, explore the troubling record of four of the top buyers of these loans, who are benefitting from the way these loan sales are currently conducted.
We recommend that both HUD and FHFA take immediate action to prevent the on-going sale of distressed housing assets to companies that have misled and cheated taxpayers and companies whose practices are harmful to homeowners, tenants and communities. Specifically, HUD and FHFA should:
1) Establish much higher standards and criteria for the kind of companies that are
eligible to purchase delinquent mortgages.
2) Prioritize companies that have a clearly defined program to offer permanent modifications with principal reduction and to create affordable housing with
vacant properties.
Additionally, FHFA should themselves immediately begin to offer principal reduction in their own modification process.
OCC to Escheat Funds from the Foreclosure Review, Terminates Orders Against Three Mortgage Servicers, Imposes Restrictions on Six Others
WASHINGTON — The Office of the Comptroller of the Currency (OCC) today announced it will escheat at the end of 2015 any remaining uncashed payments made pursuant to the Independent Foreclosure Review (IFR) Payment Agreement so eligible borrowers and their heirs may claim the funds through their states’ escheatment processes. The agency also terminated foreclosure-related consent orders against three national bank mortgage servicers that have met the consent order requirements, and imposed business restrictions on six banks that have not completed the required corrective actions.
To date, the IFR Payment Agreement resulted in the distribution of more than $2.7 billion to more than 3.2 million eligible borrowers from OCC-supervised institutions. This amount represents more than 90 percent of the total amount available for distribution. Despite that high cash rate compared to many other payment distributions, the OCC anticipates that approximately $280 million from OCC-supervised institutions will remain unclaimed at the end of the year after considerable efforts to locate eligible borrowers have been exhausted. The decision to escheat all funds available from uncashed checks provides the remaining eligible borrowers and their heirs the additional opportunity to claim the funds through their states’ escheatment claims processes. The OCC’s decision only affects funds attributable to the orders issued to institutions it regulates.
The decision to escheat uncashed payments was included in the termination documents and amended consent orders released today.
The OCC terminated orders against Bank of America, N.A.; Citibank, N.A.; and PNC Bank, N.A., because it determined that these institutions have complied with the orders issued in April 2011 and amendments issued in February 2013.
The OCC also has determined that EverBank; HSBC Bank USA, N.A.; JPMorgan Chase Bank, N.A.; Santander Bank, National Association; U.S. Bank National Association; and Wells Fargo Bank, N.A., have not met all of the requirements of the consent orders. As a result, the amended orders issued today to these banks restrict certain business activities that they conduct. The restrictions include limitations on:
acquisition of residential mortgage servicing or residential mortgage servicing rights (does not apply to servicing associated with new originations or refinancings by the banks or contracts for new originations by the banks);
new contracts for the bank to perform residential mortgage servicing for other parties;
outsourcing or sub-servicing of new residential mortgage servicing activities to other parties;
off-shoring new residential mortgage servicing activities; and
new appointments of senior officers responsible for residential mortgage servicing or residential mortgage servicing risk management and compliance.
These restrictions vary based on the particular circumstance of each bank.
In all cases, OCC examiners will continue to oversee these institutions’ corrective actions and mortgage servicing activities as part of the agency’s ongoing supervision.
Foreclosure-related consent orders against Aurora Bank, FSB, and MetLife Bank, N.A., were terminated previously by operation of law after these institutions ceased to operate as regulated, insured depository institutions. Separately, OneWest Bank completed the IFR and remediation to borrowers as required under its original order issued in April 2011 and did not enter into a payment agreement with federal regulators. Final determination of OneWest Bank’s compliance with the corrective actions required in its April 2011 order is being considered in conjunction with its application to merge with CIT Bank, and separately from other banks that entered into IFR payment agreements in 2013.
EXECUTIVE SUMMARY: MARY JO WHITE, THE SEC, AND THE REVOLVING DOOR
The core purpose of the U.S. Securities and Exchange Commission (hereinafter “the SEC”) is to protect outsiders from insiders. Founded in the wake of the Great Depression in response to “a consensus that for the economy to recover, the public’s faith in the capital markets needed to be restored,” the SEC is intended to ensure that corporations and the financial sector treat everyone else honestly.1 As the SEC’s website summarizes the laws that gave it life,
The main purposes of these laws can be reduced to two common-sense notions: ???? Companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing. ???? People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors’ interests first.2
The SEC’s role is thus necessarily antagonistic to the interests of those entrenched insiders who choose to seek the easiest and least ethical path toward profit. And the SEC’s critical mission means that few if any regulators (other than the Chair of the Federal Reserve) have more influence on financial regulation than Mary Jo White, the Chair of the SEC.
President Obama’s 2013 nomination of Mary Jo White to this high profile position was well received, and White was confirmed by the Senate by voice vote, viewed as uncontroversial and well qualified.3 White’s voice vote (4/8/13) was merely two months and one day after her nomination was formally sent to Congress (2/7/13),4 a rapid confirmation unusual for a presidency that had been obstructed at historic rates.5 Mary Jo White’s quick confirmation seems to reflect the effectiveness of the framing of White as a law enforcer. President Obama’s reference to White’s past service as US Attorney for the Southern District of New York—“You don’t want to mess with Mary Jo.”—has become iconic. The press reaction to the White nomination was filled with expectations that White would serve as “Wall Street’s sheriff:”6 indeed, a Google search for “‘Mary Jo White’ Wall Street sheriff” produces more than 26,000 hits.7 The New York Times timeline on her career is entitled “Mary Jo White — From Prosecutor to Regulator: Before President Obama named Mary Jo White to run the Securities and Exchange Commission, she was the top federal prosecutor in New York,”9 despite the fact that White spent more time at a Wall Street law firm than as a prosecutor.
Thus, when on June 2nd Senator Elizabeth Warren sent a 13 page open letter to Chair White cataloguing why the Senator found the Chair’s time at the SEC thus far to have been “extremely disappointing,”10 it sent shockwaves. This summary from Politico accurately characterizes the reaction to Warren’s letter: Wall Street and the White House had a swift and furious reaction to Elizabeth Warren’s blazing attack on Securities and Exchange Commission Chair Mary Jo White: Senator, you’ve gone too far. Defenders of White’s tenure at the regulatory agency said Warren’s 13-page letter attacking the SEC chair raised highly questionable points and badly mischaracterized the actions of a widely respected former federal prosecutor.11
As this quote suggests, White’s reputation continues to play an outsized role in defenses of White, even as observers at Bloomberg note that her “two-year tenure heading the securities regulator has been marked largely by discord and paralysis rather than accomplishments.”12 For instance, the June 8th Washington Post Editorial Board defense of White’s time at SEC led by invoking White’s career in a way that gave the reader no indication that White had ever worked for Wall Street:
MARY JO White is a rarity in Washington — a seasoned federal prosecutor, an expert on securities law and a true independent, in both party registration and attitude. Those attributes made her President Obama’s choice to chair the Securities and Exchange Commission (SEC), the independent agency that makes and enforces regulations for the financial industry.13
A deeper dig into White’s career indicates that not only has White’s tenure at the SEC been troubling, it has been a disappointment very much in keeping with her professional track record. Her defenders are right in one very important regard: White has in fact led the SEC exactly as one might expect she would based on her career. White’s career serves as an emblematic example of what is problematic about the revolving door; indeed, she is also a proponent of the revolving door in her hiring and in her personal statements. Her position on the SEC leads to an insolvable dilemma: her lengthy and lucrative ties to Wall Street (Section A below) lead to justifiable calls for frequent recusal, and her frequent recusals (see Section F) lead to frequent deadlock in the commission, preventing adequate enforcement. White’s tendency to hire people for high ranking jobs at the SEC who are likely to avoid stringently enforcing laws protecting society from the dangers of the insiders and large banks for whom they will go to work for next (see Section E) is emblematic of her ideology opposing strong white collar criminal enforcement (see Sections (C) and (D)).
And perhaps nothing better illustrates the crisis of the revolving door at the SEC than “The Pequot Affair,” (Section B) in which White played an important, albeit supporting role. There, as throughout this report, White’s behavior fits the Washington DC adage, “The scandal isn’t what’s illegal, the scandal is what’s legal.”14
As Chair of an Independent Agency that has both rulemaking power and ruleenforcing responsibility, White has the opportunity to secure and deepen improvements in financial regulation, or to scuttle much of the significant but imperfect progress that has been made. An effective Chair of the SEC must have a mindset that is of, by, and for the outsiders whom our laws seek to protect. Instead, White both embodies and promotes the revolving door between government regulator and regulated industry that empowers Wall Street insiders at the expense of investors and society writ large. Society has an interest in an SEC that really plays the thus far mythical role of “Sheriff of Wall Street” that President Obama promised White would create. We need Commissioners of the SEC who do not embody the revolving door, who do not represent insolvable recusal dilemmas, and who are not already eyeing a postgovernment job working on or for Wall Street.
The false promise of the White era at the SEC can and should serve as a teachable moment. Instead of returning again and again to the revolving door, pending and future SEC Commissioner openings should be an opportunity to empower leaders from more diverse backgrounds, such as public service, think tanks, or academia.
![Residential Funding Co., LLC v Lehman | NYSC – “[the lender] was required to prove its allegations by tendering sufficient evidence demonstrating the absence of material issues as to its strict compliance with RP APL 1304, and failure to make this showing requires denial of the motion, regardless of the opposing papers”](https://stopforeclosurefraud.com/wp-content/themes/gazette/thumb.php?src=wp-content/uploads/2015/06/Legal_Court1.jpg&w=100&h=57&zc=1&q=90)
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