Bank Of America Settlement Looks Impressive But Maybe It’s Time To Take One Of These Cases To Trial

I should be excited about the nearly $17 Billion Settlement agreement between Bank of America and the U.S. Department of Justice announced yesterday. I am happy for our clients here in Oregon facing foreclosure because according to initial press reports, the agreement, like previous agreements with Citibank ($7 Billion) and Chase ($13 Billion) contains language that allows Bank of America to liquidate part of its obligation under the agreement by reducing principal on mortgage loans fraudulently originated by BOA and its predecessor Countrywide in the alleged origination and securitization fraud scheme.

Anyone facing difficulty paying their Bank of America, Countrywide or America’s Wholesale Lender originated mortgage or who is in foreclosure currently, even though those companies are no longer involved as an investor or servicer of their loan should wait if possible until this new settlement agreement takes hold to see if there is an opportunity to negotiate a better outcome. If this agreement is anything like the National Mortgage Settlement it may require persistence and the assistance of a lawyer to access the benefits that the government has negotiated for you in this settlement.

My guess is that as in prior settlements DOJ left too much discretion in the hands of the Defendant in the case Bank of America to pick and choose who they will help.

But despite the good news, I have some serious concerns about these settlements. These pacts are about the origination and securitization of hundreds of thousand of fraudulent and unsuitable mortgages to American Consumers and their sale to unsuspecting investors throughout the world that nearly caused the collapse of the US economy in 2008. The illegal and possibly criminal conduct of these bad actors left millions of Americans financially insecure, caused a depression of the housing market that continues to this day and have cost investors and homeowners billions of their hard earned dollars.

What disturbs me the most is that theses settlements have been reached before a lawsuit was filed against the banks. If a complaint laying out the government’s case against Chase, and Citi and BOA had been filed before settlement, the public and future generations would have had a chance to see the unfiltered findings about the conduct of these bad actors by the Department of Justice and 5 State Attorneys General who participated in the settlement. If any of these cases had actually gone to trial, whether the government had won or lost, the adversary process would have revealed a much more realistic picture of what actually happened between 2001 and 2008 that caused the apocalyptic collapse in 2008.

For the agreements to come to fruition, a formal complaint and consent judgment entry will have to be filed but that complaint will be carefully drafted with the consent of Bank of America. Just as the complaints and agreements in the Chase and Citi cases were drafted jointly by lawyers for the DOJ and those banks. Historians, legal scholars and future market participants trying to determine the parameters of proper conduct will be left without the guidance that a contested trial, judgment and decision of a court of appeals could provide to how such market participants acted to incur such massive liability and how they should act in the future to avoid causing such pain and hardship to future consumers and investors. The New York Times addressed this risk of the Bank of America Settlement and other settlement on the eve of yesterday’s announcements.

In defending individual homeowners in foreclosure, bringing claims under state and federal consumer protection laws and civil tort claims we are taking cases to trial in Oregon every day setting standards for everything for who has standing to enforce a note and mortgage to what kind evidence a lender is required to proffer to establish a default on a mortgage or compliance with federal regulations that govern the enforcement of FHA or VA loans. These trials, decisions and appeals will provide a chronicle of the abuses of the past and a roadmap for proper conduct for mortgage lenders for the future.

We should expect no less from the United States Department of Justice and the State Attorney General Partners.

While the door is left open in the settlement agreement for the prosecution of criminal actions and Bloomberg Reports that a civil suit against Angelo Mozilo, former Chairman of Countrywide and one of the worst actors in the mortgage meltdown is imminent it might be best for the country and to prevent history from repeating itself if Eric Holder and the Justice Department court muster the courage to actually take one of these cases to trial.

 

Marc Dann

503-974-9777

marcdann@oregonconsumerlawcenter.com

Homeowners Mistreated By Banks Often Mistreated a Second Time By a Modification Mill or Out Of State Law Firm

It is bad enough that most people facing foreclosure who reach out to our law firm have been badly mistreated by their banks, but over the last few weeks it seems like almost every new client who has called us has also been victimized a second time by a predatory loan modification mill or out of state law firm making illusory promises to stop an Oregon foreclosure and obtain a loan modification.

Several of these well meaning clients find themselves on the brink of a Sheriff’s Sale only to learn that these firms they have been paying are not licensed to practice law in Oregon and therefore can do nothing to “Stop a Foreclosure” as they promise and do nothing more than pass the homeowner’s paperwork onto a loan servicer without providing any advice or expertise that adds any value whatsoever to likelihood of obtaining a loan modification.

Apparently this is happening all over the country. Last month Federal and State Regulators intiated “Operation Mis-Modification” cracking down on firms that took large upfront fees and guaranteed results. The Director of the Consumer Finance Protection Bureau Richard Cordray had this to say about these operations:

“These companies pocketed illegal fees, taking millions of hard-earned dollars from distressed consumers, and then left those consumers worse off than they began,” said Richard Cordray, the bureau’s director. “These practices are not only illegal, they are reprehensible.”

The CFPB issued an advisory with specific advice about what people looking for help when facing foreclosure should look for and look out for.

Just last week my friend Martin Andelman reported in his blog Mandleman Matters that several State Attorneys General took action against lawyers promotion “Mass Joinder” lawsuits taking millions from homeowners who they fooled into thinking were part of a class action.

We are doing our part. For our clients who have been scammed by modification mills or out of state lawyers we are bringing lawsuit under Oregon’s strong Consumer Protection Laws on their behalf and stepping into their Oregon state court proceedings raise issue when possible to slow or stop foreclosure efforts. We are counseling our clients on new Federal Law Protections that make loan servicers more accountable in the loan modification process and can work to keep homeowners in their homes.

Sadly once burned, homeowners who need legal representation the most are twice shy about retaining experienced aggressive local lawyers to bring the necessary motions and raise appropriate arguments in court and to create real leverage to get loans modified or who can counsel those homeowners about bankruptcy options that allow them to stay in their homes.

Marc Dann
marcdann@oregonconsumerlawcenter.com
503-374-9777

FHFA Decision May Signal Beginning of Principal Reductions For Fannie Mae and Freddie Mac Loans

             One of the most frustrating parts of representing homeowners facing foreclosure over the past six years has been the steadfast refusal of the two biggest players in the mortgage marketplace, Fannie Mae and Freddie Mac, to allow for the reduction of principal on mortgages under their ownership or control.

 

            Nearly 20% of American homeowners owe more to their mortgage holder than their home is worth. Underwater Loans, loans where the balance exceeds the value of the home, including loans that have been modified are at much greater risk of default than loans where the principal balance of the loan is less than the current market value of the home. This only makes sense. A homeowner with “skin in the game” is much more likely to make sacrifices necessary to make their mortgage payments under difficult circumstances than someone who has no realistic chance of ever recovering their investment.

 

            An underwater homeowner often finds themselves one roof replacement or furnace repair away from having no reasonable choice but to default on their loan.

 

            It has become clear to economists who have studied the matter and to those of us who work with distressed homeowners on the front lines that principal reduction loan modifications create outcomes with the best potential for success for both the homeowner and whoever is the ultimate recipient of the homeowner’s mortgage payments. There is clear empirical evidence that the “net present value” of a $100,000 loan modified to the present value of a $100,000 home is higher than the “net present value” of a $150,000 loan secured by a house worth $100,000 and far higher than the liquidation value of that $100,000 home through foreclosures.

 

            It is indisputable that the correct business decision for Fannie Mae and Freddie Mac to do as most other owners of distressed mortgage loans have done and negotiate principal reduction loan modification with borrowers who are able to pay and who want to remain in their home. But the agency that was created to over see Fannie Mae and Freddie Mac, The Federal Housing Finance Agency (the “FHFA”) has maintained a strict policy against such modifications from the beginning of the housing crisis until now.

 

            This has been a huge source of frustration for many clients of our firm. Too many of our clients have walked away from homes they loved, and could afford at market value because of this arbitrary policy that is as bad for Fannie Mae and Freddie Mac Shareholders and Bondholders as it is for the homeowners who have lost their homes.

 

            There may be a small glimmer of hope on the horizon for homeowners who have underwater loans owned by Fannie Mae and Freddie Mac. Mel Watt, a former Congressman who was sworn in as the Director of the FHFA in January was an advocate of principal reduction as a Member of Congress and he has promised to take another look at the issue in his new role. This weekend the Washington Post reported that at least one family is being permitted to buy their home back after foreclosure at market value, and says that despite the delays that the policy remains under review.

 

            This development makes it more important than ever for homeowners with Fannie Mae and Freddie Mac loans to fight to slow down foreclosure proceedings. There are often significant legal defenses that can be raised to both defeat and slow down foreclosure efforts that might put borrowers currently facing foreclosure in position to be among the first to negotiate a principal reduction loan modification with Fannie Mae and Freddie Mac.

 

Marc Dann

marcdann@oregonconsumerlawcenter.com

503-374-9777

Allowing The Rationalization of Home Mortgages in Bankruptcy Court: An Idea who’s time should have come

Searchable CFPB Regulations Available

The Consumer Finance Protection Bureau has published a searchable version of the rules surrounding loan servicing and loss mitigation including loan modification applications and short sales.  There is significant new protection under federal law for homeowners seeking to correct accounting on their home mortgage accounts or a loan modification, including the right to sue for failure to follow the CFPB regulations.

The Searchable database is here:

http://www.consumerfinance.gov/eregulations/

Marc Dann

marcdann@oregonconsumerlawcenter.com

503-374-9777

Debt Buyer Cases Should be Defended

Just as we’ve begun to catch our breath from revelations of the predatory and fraudulent tactics of mortgage loan servicers who filed robo-signed and false affidavits, mortgage assignments and other documents in an attempt to defraud courts in Oregon and across the country to foreclose on homeowners, the national media and the Consumer Finance Protection Bureau have started to investigate the even bolder and more egregious tactics of firms that specialize in buying credit card debt.

 

            Yesterday’s Washington Post details one consumer’s fight against one of the nation’s largest and least ethical debt buying operations, Midland Mortgage.

 

            The Post reports:

 

“One Midland employee, Ivan Jimenez, testified in a 2009 civil lawsuit against the firm that he signed 200 to 400 affidavits a day. He said that “very few” documents were checked for accuracy, a claim that mirrors accusations of mortgage servicers “robo-signing” foreclosure documents.”

 

But unlike the evolving case law on foreclosures Oregon Courts have held debt buyers like Midland to a minimal standard of proving that they are actually entitle to enforce the debts that they are collecting and that those debts alleged are accurate.

 

We have had success in defending debt buyer claims in courts throughout Oregon and then pursuing claims against the debt buyers under the Fair Debt Collection Practices Act, and The Telephone Consumer Protection Act and other consumer statutes. 

 

Despite theses defenses and potential claims against the debt buyers the vast majority of debt buyer lawsuits in Oregon go undefended.

 

If a debt buyer has sued you please call for a free evaluation of your claim.

 

 

Marc Dann

marcdann@oregonconsumerlawcenter.com

503-374-9777

 

www.dannlaw.com

Bankruptcy Is Not Always A Good Way to Deal With Mortgage Foreclosure.

A recent law review article Saving Homes? Bankruptcies and Loan Modifications in the Foreclosure Crisis provides evidence that Bankruptcy may not be the best route for homeowners facing imminent foreclosure, especially in Judicial Foreclosure states like Oregon. Raising defenses in state court foreclosure proceedings and using that legal leverage to negotiate a smart settlement agreement for homeowners remains the best chance for homeowners to save their homes. Many bankruptcy lawyers try to push struggling homeowners into Bankruptcy too soon.  While Bankruptcy remains a valuable tool for lawyers representing homeowners facing foreclosure, its best value may very well be after state court proceedings are close to a finish.

 

Marc Dann

Oregon Consumer Law Center

marcdann@oregonconsumerlawcenter.com

503-374-9777

Distressed Homeowners Now Have Legal Protection Against Lenders Who Fail to Assist With Loan Modifications, Short Sales, Forbearance Agreements or other Remedies.

            Homeowners who have been abused or ignored in the process of seeking a Loan Modification, Short Sale or other loss mitigation remedy now have the right to take their loan servicer to court under regulations that took effect on January 10, 2014.  Regulations X and Z promulgated by the new Consumer Finance Protection Bureau, created under the Dodd-Frank Act in 2010 establishes standards by which requires lenders to review home owners facing financial difficulty in good faith for modifications of their home loans BEFORE they are allowed to file for foreclosure.

 

            Anyone who has suffered temporary unemployment, or a medical catastrophe or other financial problem and has sought temporary or permanent relief from their home lender can tell you horror stories about being ignored or abused by their loan servicer like being asked for the same documents and forms dozens of times or being forced to deal with a different person every time they call.

 

            The new rules create a private right of action when a lender fails to invite distressed homeowners into the process of being reviewed for a modification of their loan or fails to review documents and forms that are submitted by homeowners in an timely fashion.  It also requires that all loan servicers establish a single point of contact for distressed homeowners and creates a right to appeal an unfavorable decision, to a separate team of underwriters when a homeowner is turned down for a loan modification or a short sale.

 

            If the loan servicer fails to approach a loan modification of short sale in good faith, then a homeowner has a right to sue to recover actual damages, statutory penalties and their attorney’s fees.

 

            The rules also require loan servicers, most of whom do not own the loans they service to share information with homeowners and their lawyers about who the actual owner of their loan is, information about how payments are (or are not being applied), copies of inspection reports and appraisals of a property that will give a homeowner and their lawyers much more of the information necessary.

 

            And, if they don’t give a homeowner the information requested, once again the new rules allow that homeowner the right to sue the loan servicer to force them to do so.

 

            This information will allow lawyers for distressed homeowners to negotiate much better solutions.

 

            The rules also prohibit a foreclosure filing until a homeowner is more than 120 days in default and prevents “dual tracking” a practice by which lenders promise to consider a loan modification while moving forward to takes someone’s home by foreclosure at the same time.  This will allow much more time before a foreclosure is filed to work out a solution.

 

            What this means for homeowners who are in financial distress or who anticipate that they might be is that they should retain a lawyer as soon as possible in the process.

 

            While the new regulations are extremely consumer friendly, they are also fairly complicated and require that the requests for modification or information being put forward in a highly technical and specific way to make sure that one’s right to sue and seek injunctions are protected.

 

            Because of the new protections a homeowner facing a possible foreclosure should retain a lawyer who understands the new regulations as early as possible in the process.

 

            Scott Malbasa a colleague from the Oregon Consumer Law Center and I attended a seminar this weekend that brought together some of the best minds in the country on these new regulations including Max Gardner, who is the nation’s preeminent expert in defending homeowners facing foreclosure, a lawyer from the Consumer Finance Protection Bureau, a former General Counsel for a Large Loan Servicer, and Jay Patterson who is a recognized expert in abuses in the loan servicing industry. 

 

            We have returned enthusiastic about putting these new rules to work to protect homeowners and consumers in Ohio.

 

Marc Dann

marcdann@oregonconsumerlawcenter.com

503-374-9777

Mortgages in the hand of specialty servicers means trouble for homeowners and investors

               Homeowners and investors in mortgage backed securities and mortgage servicing companies need to be wary of a new development in the Mortgage Meltdown that has now plagued this nation for nearly 6 years.  This new development comes in the wake of the 2007 mortgage crisis and has perpetuated risk and uncertainty for the housing market as a whole, including homeowners facing foreclosure, investors, banks, and these servicers. 

 

                During the past 12 months, the rights to service millions of home loans have been shifted from large banks like Bank of America, Wells Fargo, Citigroup and Chase to specialty loan servicers like Ocwen Home Loan Servicing, Nationstar and SPS.  The shift creates great risk and uncertainty for homeowners facing foreclosure, the housing market generally and for investors in mortgage backed securities and mortgage servicing companies. 

 

            This shift has great consequences for homeowners facing foreclosure and those who have invested in mortgage backed securities, including U.S. taxpayers who hold the majority ownership in the two largest investment vehicles – Freddie Mac and Fannie Mae.  This shift is already shaping up to undermine the unlikely mutual interest that exists between homeowners facing foreclosure and investors in bonds and other investment vehicles backed by their mortgage payments. Modifications benefit the at-risk homeowner because he or she stays in his or her home. They benefit the investor in bonds and other investment vehicles backed by mortgage payments because the modified loan holds a much higher value than the same property liquidated through foreclosure. Therefore, with a well-reasoned modification of a home loan both the homeowner and the investor win.

 

            Unfortunately, because of the perverse system of compensation and incentives created during the housing boom, most loan servicers, like Ocwen and Nationstar do not have the same incentive to make sure that loans are properly modified. To understand why, it is important to understand how the loan servicing relationship was initiated in most cases. 

 

                During the housing and refinancing boom that preceded the crash, there was huge demand on Wall Street for loans that could be quickly packaged and resold to investors. Aggressive mortgage originators like Countrywide Home Loans, ABM Ambro and Washington Mutual, as well as the big banks themselves had tremendous leverage with the investment banks that were packaging the pools of mortgages into bonds.  In almost all cases, the originating lender retained the right to service the loan sold to investors and virtually complete control over the collection and right to modify or liquidate those loans.  Many of the servicing agreements allowed for enhanced fees to servicers when loans were in default. Most servicing agreements allowed servicers to charge homeowners and mark up fees for ancillary services like inspections, appraisals, forced place insurance premiums, title work and legal fees.  Also, because most  servicing agreements require that the servicing fees and advanced costs, whether necessary or not, be paid first out of a liquidation, the servicers have the financial incentive to keep loans in default as long as possible and are ambivalent as to whether the loans are modified or liquidated.

 

            This puts the servicers’ financial incentives in direct conflict with the interest of homeowners and investors. Compounding the problem is the fact that unlike many of their big bank predecessors, these specialty servicers do not originate new loans or have other business relationships with homeowners like checking accounts or credit cards. Thus specialty servicers have much less fear of public relations damage or offending future borrowers or investors.

 

            When the bottom fell out of the housing market in 2008, the default rate for home loans dramatically increased from  .02% to over 20%. More than 20% of home mortgages in the United States remain either underwater (the home value is less than the amount owed) or in default.  Immediately following the housing crisis, five large banks were responsible for servicing the vast majority of those loans and the result was chaos. 

 

              In the midst of the chaos a great deal of the work was outsourced to vendors like the criminally convicted Lender Processing Services and foreclosure mill lawyers who were caught forging documents and presenting false evidence in court. The servicers responded by staffing the servicing of the defaulted loans with poorly trained and paid workers who testified that they were rewarded with restaurant gift cards for turning down loan modification .

              A concerted action by the State Attorneys General and the U.S. Justice Department, the Federal Housing Finance Agency and the Office of the Controller of the Currency to threaten action against the Big 5 Bank Servicers resulted in the National Mortgage Settlement, and its extensive consent orders, requiring loan servicers to improve the speed, efficiency and honesty of the loan modification process. Servicers were required to establish a single point of contact for homeowners, required to stop foreclosure actions if a loan modification was being sought and considered and to increase staffing levels to make sure that loan modification applications were processed quickly and effectively.

 

 Just as the terms of the settlement were being fully implemented by the signatories to the National Mortgage Settlement, the servicers began the massive sell off of mortgage servicing rights to the specialty servicers.

 

            To paraphrase the immortal Yogi Berra, it is déjà vu all over again for homeowners in default and investors who own mortgage backed securities as the new mortgage servicers have taken on far more work than they have the capacity to process. Homeowners are once again facing massive challenges in being able to reach any consistent person at their loan servicers. Trial modification plans initiated by the original servicer are disregarded by the acquiring servicer.  Homeowners are forced to start over again with the submission of paperwork like tax returns and paystubs which are frequently lost by the servicer.  Homeowners who call are once again connected to badly trained, overwhelmed call center personnel who have no authority to do anything.

 

            The New York Times detailed the problem in a front-page story showing that the approval rate for loan modifications processed by Ocwen and Nationstar is literally half the rate for industry leader Bank of America. Benjamin Lawsky, the superintendent of New York’s Department of Financial Services halted a $2.7 Billion acquisition of additional servicing rights by Ocwen.  This is no accident.  All the financial incentives for the specialty servicers are to cut costs and hold homeowners in default as long as possible, breaching their fiduciary duty to investors and promises made by the government and previous servicers to homeowners.

 

            New regulations issued under the Dodd-Frank Act by the Federal Consumer Finance Protection Bureau on January 10^th of this year establish some of the standards espoused in the National Mortgage Settlement. Ocwen, Nationstar and others are required under these regulations to cease foreclosure activity when a loan modification is being considered and to establish a single point of contact for a homeowner in distress.  Unfortunately, it has been my experience representing homeowners in Ohio, Illinois and Oregon that these servicers have simply ignored the new regulations so far.  The Dodd-Frank regulations establish a private right of action so, unfortunately, it may take another set of lawsuits by consumers and enforcement actions to bring these servicers into compliance.

 

             This litigation and regulatory risk should make those considering investing in specialty loan servicers or bonds backed by mortgage servicing revenue, such as those offered by Ocwen recently, think twice about such investments.  The pressure must be on Director Richard Cordray and the Consumer Finance Protection Bureau (CFPB) to move swiftly and aggressively to enforce compliance with their reasonable and sensible regulations in order to protect homeowners.  In a speech to the Mortgage Bankers Association on February 18, 2014, the Director of Enforcement  for the CFPB promised exactly such vigorous enforcement by saying, “…Its about recognizing that your must treat Americans who are struggling to pay their mortgages fairly before exercising your right to foreclose.”

 

                But if history is a guide, aggressive enforcement is easier said than done. It took 5 years from the initiation of the Attorney General’s Mortgage Task Force until the National Mortgage Settlement. Even with aggressive efforts from the CFPB and consumers pursing the new private right of action, too many more Americans will lose their home and their investment before a remedy can be fashioned.  

 

www.oregonconsumerlawcenter.com

marc@orgeonconsumerlawcenter.com

Dark Cloud in Silver Lining of Declining Foreclosure Rate

            There is good news over the past few days that the number of foreclosures nationally have declined, but that does not provide much consolation to the thousands of homeowners who remain in the foreclosure process. Even more disturbing for homeowners who have been sued is the news from the Washington Post  that in at least two of the states where our affiliated firms represent homeowners, Ohio and Illinois that those facing foreclosure are deeply under water.

 

            Creating legal leverage to push servicers and investors to to rationalize predatory mortgage loans by reducing principal and interest is more important than ever for homeowners facing foreclosure.

 

            Servicers and Lenders are becoming bolder in try to foreclose on houses where they have a tenuous legal claim based on the failures in the origination, securitization and servicing processes.  This makes it even more critical to at least consult a lawyer before a court can issue a default judgment.  Too often clients come to us with a case that reveals significant legal issues that could be offered in defense of foreclosure, but after a court has issued a default judgment or summary judgment against them.  The barriers remain high to getting a court to look at those legal issues.

 

            At this stage in the foreclosure crisis it is more critical than every to consult with a lawyer experienced in defending foreclosures and suing banks and servicers than ever. The courts operate on strict timelines and a failure to answer could be the difference between keeping a house and losing it.

 

http://www.oregonconsumerlawcenter.com