A previously announced $25 billion settlement between five major banks accused of abusive mortgage practices and government officials will be filed in federal court on Monday, people familiar with the matter said late Friday.
The pact unveiled Feb. 9 is expected to result in payments and other mortgage relief for about one million borrowers, but must first be approved by a judge.
Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc agreed to the settlement after 16 months of negotiations with state attorneys general and federal agencies, including the U.S. Justice Department and the U.S. Department of Housing and Urban Development.
But the fine print took another month to finalize.
Negotiators had hoped to file a settlement on Friday, but the deal was held up at the last minute over a disagreement between Nevada and Bank of America, people familiar with the matter said.
Just when you’ve thought you’ve seen, read it all.
David Dayen-
I think my disgust over federal housing policy is just about complete. As you know, we’re still waiting for the actual terms of the foreclosure fraud settlement, more than one month after the announcement. But more information has dribbled out, not much of it to the good. Michael Hiltzik rounded up some of the more troubling issues. He mentions that OCC penalties will get folded into the settlement, basically charging $0 for their violations. The Federal Reserve did the same thing. He mentions the Ted Gayer study showing that only 500,000 borrowers will even be eligible for the principal reduction in the settlement, half of what HUD and other regulators promised. And he adds that the Treasury Department restored all HAMP incentive payments for servicers who failed to meet their obligations under the programs. As Hiltzik writes, “If the banks had shown as much forbearance toward their struggling borrowers as these three agencies have shown toward the banks, the foreclosure settlement wouldn’t have been necessary in the first place.”
After years of incompetence, intransigence, malevolence and whatever else may explain how mortgage companies have managed to screw over millions of troubled American homeowners, a fix is finally at hand.
Officials have presented the deal as justice for the so-called robo-signing scandal, whereby major mortgage companies improperly foreclosed on millions of properties. They have touted its centerpiece: a $20 billion fund stocked with fines paid by the mortgage companies, which will deliver relief to as many as 1 million troubled borrowers via lowered monthly payments, principal reduction and refinanced loan terms.
Someday the mortgage settlement will be filed in court and thus we will get to see its terms. Which day? Who knows—the latest deadline, the end of February, passed in silence, and annual reports filed at the end of the month with the SEC by Wells Fargo, JPMorgan Chase and Ally Bank, three putative deal signers, unequivocally stated there’s no final deal yet. As Wells put it, 19 days after the deal was announced:
“Furthermore, there can be no assurance as to when or whether a definitive agreement regarding the settlement will be reached and finalized or that it will be on terms consistent with the settlement in principle.”
Still, enough details of the agreement ‘in principle’ have been released, including by Wells in that annual report, for me to write this guide.
The settlement has four basic moving parts: money, lawsuit peace/liability release, mortgage servicing standards, and enforcement. I’m going to look at all four in three different posts. This one focuses on the money in the settlement.
Understanding the Money In the Mortgage Settlement
“It’s troubling to know that in each of our offices, are thousands — and I mean thousands — of fraudulent documents,” said Brown County Register of Deeds Cathy Williquette Lindsay
Madison-
It used to be that if you wanted to find out who owned your mortgage, you could go to the office of your local register of deeds, the final authority on questions of property ownership.
But when banks set up their own private registration system to help them bundle and resell mortgages in a whirlwind of securities exchanges, the land offices of record had no hope of keeping up.
And when some banks later foreclosed on many of those properties, often cutting corners or worse — creating phony documents — it left register of deeds offices across Wisconsin awash in forged and fraudulent documents.
That’s a “serious problem” for registrars charged with maintaining property records, said Brown County Register of Deeds Cathy Williquette Lindsay, who heads a committee studying foreclosure fraud on behalf of the Wisconsin Register of Deeds Association.
Nevada Attorney General Catherine Cortez Masto recently spoke with the Sun discussing Nevada’s participation in the national mortgage settlement as well as a separate agreement the state made with Bank of America. See here for a news story about the settlement. Here’s an edited transcript of the conversation.
Bankers, money changers, predatory lenders and financial criminals are jumping for joy after the United States government unveiled a plan that would allow each and every one of the crooks who conspired to steal trillions of dollars from innocent citizens to escape jail time.
Think about it. If your checking account is a penny overdrawn, you get punished but if you lie, cheat, falsify documents and take homes from everybody but the rich, you get bailed out by politicians.
Government talks about the great proposed settlement deal with Ally Financial, Bank of America, Citibank, JP Morgan Chase and Wells Fargo whereby the banks agreed to pay $5 billion in cash to try to remedy complaints about dubious mortgage practices and foreclosure abuses. But even if you settle with Ali Baba and four other crooks, there are still 35 thieves left to continue to rob you blind.
As much as state and federal officials want to describe the foreclosure fraud settlement as a beginning, in many respects it was most certainly an ending. Analysts invested in the meme that “uncertainty” was crippling the housing market now are heavily invested in saying that the clearing of this uncertainty through the settlement will speed up the foreclosure machine. Diana Olick gives a version of that today which makes absolutely no sense, because all the data comes from the fourth quarter of 2011.
But nevertheless, she’s on to something. With state AGs releasing liability for foreclosure fraud, legislators in some key states are picking up where they left off, removing additional barriers to foreclosure, shutting down due process and subverting the implications of judicial rulings.
For example, in Massachusetts, lawmakers have introduced a bill to indemnify buyers of foreclosed properties from title defects that have been exposed by the Ibanez case.
The bill, if approved, will amend the state foreclosure laws to validate a foreclosure, even if it’s technically deficient under the Ibanez ruling, so long as the previously foreclosed owner does not file a legal challenge to the validity of the foreclosure within 90 days of the foreclosure auction.
The bill has support from both the community/housing sector and the real estate industry. Indeed, the left-leaning Citizens’ Housing and Planning Association (CHAPA), non-profit umbrella organization for affordable housing and community development activities in Massachusetts, has filed written testimony in support of the bill.
Properties afflicted with Ibanez title defects, in worst cases, cannot be sold or refinanced. Homeowners without title insurance are compelled to spend thousands in legal fees to clear their titles. Allowing such foreclosed properties to sit and languish in title purgatory is a huge drain on individual, innocent home purchasers and the housing market itself.
Since the DOJ failed miserably with mountains of evidence of fraud throughout the loans, lets see what the SEC will do.
CBS-
The SEC appears to be on the verge of doing what the Justice Department has yet to attempt — prosecuting the biggest players responsible for the mortgage securities fiasco that trashed the U.S. economy.
The securities watchdog has sent so-called Wells notices to Goldman Sachs (GS), JPMorgan Chase (JPM), and Wells Fargo (WFC), indicating that the agency may recommend enforcement proceedings against the banking firms. The investigation seems to focus on whether the companies misrepresented the quality of securities based on subprime mortgages that they bundled and sold to investors in the years leading up to the 2008 financial crisis.
It’s embarrassing that the most information we’ve yet received about the foreclosure fraud settlement comes from an annual report to stockholders by Wells Fargo. In other words, we had to wait for the banks to tell us what was in the settlement, I guess because the regulatory officials who negotiated it weren’t entirely proud of their work.
The Wells notice (it begins on page 74) isn’t legal language, and it states clearly that “the terms… do not become final until approval of the settlement agreement by the U.S. District Court and execution of a consent order.” But it provides some more detailed information than the broad sketch that has been released. For example, we have the first breakdown that I’ve seen of the credit system for principal reductions.
first lien principal forgiveness for LTV less than or equal to 175%: 100% credit (must constitute at least 30% of the Consumer Relief Program credits);
first lien principal forgiveness for LTV greater than 175%: 50% credit for portion forgiven over 175% LTV;
forgiveness of forbearance amounts on existing loan modifications – 40% credit;
earned forgiveness over no more than a 3 year period: 85% credit for LTV less than or equal to 175%; 45% credit for forgiveness over 175% LTV;
second lien principal forgiveness: 90% credit for loans 90 days or less delinquent; 50% credit for loans greater than 90 but less than 180 days delinquent; 10% credit for loans 180 days more delinquent. Subject to a number of requirements, servicers participating in the settlement will be obligated to implement second lien principal forgiveness on second mortgages it owns when another participating servicer reduces principal on a first mortgage via its proprietary non-HAMP modification programs (must constitute at least 60% of the Consumer Relief Program credits when combined with the first lien principal forgiveness credits);
deficiency balance waivers on first and second lien loans: 10% credit;
short sale deficiency balance waivers on first and second lien loans: 20% to 100% credit depending on whether the servicer, servicer/lien holder or investor incurs the loss;
payment arrearages forgiveness for unemployed borrowers: 100% credit;
transitional funds paid to homeowners in connection with a short sale or deed-in-lieu of foreclosure for payments in excess of $1,500: 45% credit if a non-GSE investor bears the cost or 100% if the servicer bears the cost;
anti-blight – forgiveness of principal associated with properties where foreclosure is not pursued: 50% credit;
anti-blight – cash costs paid by servicer for property demolition – 100% credit; and
anti-blight – donation of real estate owned properties to qualifying recipients such as non-profit organizations: 100% credit.
Update: My original headline said “Sold Out” where it now says failed. I think it’s more accurate.
Dear State Attorneys General:
Rumor has it that this week we will learn precisely how you failed us all regarding the criminal enterprise that is mortgage servicing and foreclosure in America. That is, rumor has it that more than two weeks after you announced a deal with five bailed-out banks, we’ll all get to see the deal. Well, precisely speaking, we’ll all see the court filing containing the settlement.
Why the Secrecy?
Why aren’t you releasing the deal before filing it? I realize that you’re not officially rulemaking regulators who must seek public comment before finalizing rules. But much of your agreement functions like a regulator’s rule making. So why wouldn’t you, as a matter of good public policy practice, make the deal public for comment before seeking to finalize it with the judge? …
“If you’re going to take someone’s home away, you’ve got to prove you have the right to do it, and you have to follow the law when you do it,” Atty Glenn Russell said.
Busines Week-
The highest court in Massachusetts is poised to rule as soon as this month on a foreclosure case that could lead to a surge in claims from home owners seeking to overturn seizures.
The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued in front of the nation’s oldest appellate court that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving she was obliged to pay the mortgage.
“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.
The $26 billion settlement between government officials and the five largest mortgage servicers will exacerbate servicer conflict of interest by allowing the banks to use investor dollars to foot the bill, according to Amherst Securities Group.
The analysis comes as representatives from mortgage banks, trade groups and organizations expressed relief as the settlement with state attorneys general and federal prosecutors finally arrived.
By receiving credit for principal write-downs on the loans owned by investors, servicers can settle their liability claims with private investor money, Laurie Goodman and her team of analysts at Amherst noted.
_Who are you going to put in jail? They all work for the government. Do you think “O” is going to lock any of his administration up? Goldman, Citi, JP, are all run DC…LPS is just getting started.
Barry Ritholtz-
After many months of wrangling, a foreclosure settlement has been reached between 49 state attorneys general and a consortium of banks.
It is an epic failure of law and a triumph for bank attorneys.
It will accomplish little of value, as I’ll explain. First, let’s recall what the “robosigning” foreclosure scandal was all about.
Foreclosure is an extremely serious issue in American jurisprudence. As a nation of laws with strong respect for property rights, we have always treated this process appropriately. After all, having a sheriff forcibly evict a family that typically made a down payment, moved into a home, lived there for some years, made payments, etc., is disruptive — for the family, the lender and the neighborhood.
Foreclosure laws vary from state to state. However, all are specific and precise as to the legal steps that must be followed, from the homeowner’s initial delinquency onward. There are benefits to giving the homeowner a chance to “cure their default.” It is in everyone’s interest for the homeowner to catch up if possible.
Homeowners best interest was never a priority in the settlement discussions… If it was, do you think any of this would be happening? Would this even be legal?
Too bad you can’t question authority because there is none.
HuffPO-
The ink wasn’t even dry on a settlement with the nation’s top mortgage lenders when Missouri Gov. Jay Nixon laid claim to a chunk of the money to avert a huge budget cut for public colleges and universities.
He’s not the only politician eyeing the cash for purposes that have nothing to do with foreclosure. Like a pot of gold in a barren field, the $25 billion deal offers a tempting and timely source of funding for state governments with multimillion-dollar budget gaps.
Although most of the money goes directly to homeowners affected by the mortgage crisis, the settlement announced this month by attorneys general in 49 states includes nearly $2.7 billion for state governments to spend as they wish.
MERS et al. are probably going after the states that might appear easy.
Ledger-
Every time a mortgage changes hands in Kentucky, the transaction is to be registered at the county clerk’s office and a fee is to be paid.
On Thursday, Mason County joined with several other counties, including Franklin and Warren counties, across the state in a class action lawsuit against a mortgage registration company which has failed to comply with the law, which is regulated under KRS 382.110(1).
Mortgage Electronic Registration Systems, also known as MERS, is comprised of shareholders of some of the largest mortgage lending institutions in the nation.
The Massachusetts Supreme Judicial Court justices signaled last month they may rule in favor of Eaton when they asked parties in the case to submit briefs arguing whether such a decision should be applied retroactively or only to future lending. If retroactive, it would cloud the titles of the 40,000 Massachusetts properties seized in the last five years and while the ruling only applies to the state, it could serve as a model for homeowners trying to overturn foreclosures in other states.
Bloomberg-
The highest court in Massachusetts is poised to rule as soon as this month on a foreclosure case that could lead to a surge in claims from home owners seeking to overturn seizures.
The justices are deciding whether to uphold a lower court ruling that gave a Boston home back to Henrietta Eaton after Sam Levine, a 25-year-old Harvard Law School student, argued in front of the nation’s oldest appellate court that the loan servicer made mistakes when it foreclosed because it didn’t hold the note proving she was obliged to pay the mortgage.
“If the Massachusetts court says this defense works, that would have a huge ripple effect across the country,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.
Someone obviously didn’t do their homework! Perhaps reading MERS 101 might help.
WSJ-
New York Attorney General Eric Schneiderman seems to think his job is to sift through the wreckage of the housing market and shoot the wounded. His latest target is electronic mortgage record-keeping, which he calls a scandal, perhaps because he doesn’t understand it.
Mr. Schneiderman is following Delaware’s Beau Biden, who sued the Mortgage Electronic Registration Systems in October, and Massachusetts’s Martha Coakley, who added banks to her suit in December. The New York complaint names many of the same institutions and alleges that MERS, as the database is known, has harmed homeowners by undermining judicial foreclosure and creating “confusion and uncertainty” about property ownership interests.
I know, I understand…we’re not surprised. They were dangling carrots in front of the banks for better checks.
Republic Report-
This is interesting. In December, 2011, the month before signing on to the mortgage fraud settlement, the entity charged with electing Republican Attorneys General called the Republican State Leadership Committee collected a bunch of large checks from big banks.
As this IRS disclosure form shows, on December 19, 2011, it received a $10,000 donation from Wells Fargo. On December 30, 2011, JP Morgan Chase PAC made a $15,000 donation to the committee.
Even as government officials prepare to unveil new standards this week for how banks treat millions of Americans facing foreclosure, housing advocates and homeowners are skeptical the rules will be able to do something past efforts have not: provide a beleaguered borrower with one individual to help them navigate the mortgage maze.
While the entire process of seeking a mortgage modification is complicated and time-consuming, few elements are as maddening as the inability to get through to a representative at the bank, or being asked for the same documents again and again.
Just wait until they finally figure it out “It’s The Title Stupid”…the banks will get a pardon for this too, just wait and see.
Chaos will break and title companies will go after the banks for all the lemons.
FORBES-
After over a year of wrangling, last week the Obama Administration and 49 state attorneys general announced that they had reached a comprehensive settlement with five large mortgage servicers over claims related to their infamous “robo-signing” foreclosure practices.
The settlement provides $25 billion to state governments and homeowners in the form of principal reductions and cash payments, a figure that would rise if other banks sign on. In addition to imposing punishment and providing recompense for alleged past misbehaviors, the settlement provides much-needed relief and a path to recovery for a housing market paralyzed by the continued uncertainty concerning the ability of lenders to foreclose on nonperforming loans.
U.S. Housing Secretary Shaun Donovan is playing Julie the Cruise Director on the Titanic, telling everyone ‘Don’t worry, there’s no icebergs in these waters. Really, if you see any floating ice in front of us, it’s not the visible tenth of a catastrophe to come.’ Unfortunately ice is visible, it is an iceberg, and the leading edge of the submerged ice is already ripping into our democracy and our economy, leaving deep damage.
The happy talk to distract attention from the iceberg comes from two camps and has two synergistic messages.
Secretary Donovan is trying convince the American public that the what the Obama administration is doing is all that can be done to address our housing and foreclosure crisis. That’s farcically false. Other people are pushing the related message that fraud and forgery by foreclosing bankers isn’t important; the only thing that matters is whether homeowners are in default. Both groups want you to believe that the foreclosure fraud “settlement” is a good and just. Except the “settlement” isn’t. The “settlement” is just the latest in a long line of decisions not to enforce the law and further reinforces the idea that gold-collar criminals are above the law. (I put “settlement” in quotes because we’re now double digit days past the February 9 announcement, and still, there’s no deal submitted to a court for approval. And that means there’s no deal.)
So let’s take a good look at the foreclosure fraud iceberg.
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