It take a fair degree of skill to pen a journalistic story that hews to the appearance of objectivity yet is out to sell a point of view.
The lead article in the Journal tonight, “Niche Lawyers Spawned Housing Fracas” telegraphs its bias in its headline: the foreclosure crisis is merely the creation of two bit lawyers who by implication don’t know what they are doing, and are pumping trivial issues up for their own enrichment, with the housing market as collateral damage.
Funny that anyone can think this spin is remotely true. The fact that solo practitioner lawyers could have such an impact on the system is not proof that they are miscreants, as the Journal implies. It is that the foundation of mortgage securitzations is rotten as a result of widespread abuses, first on the origination end, later in the foreclosure process. These small firm players are using the legal equivalent of toothpicks; the fact that their efforts have destablized the foundation of the residential mortgage backed securities market is tangible proof that they were imperiled to begin with.
Let’s parse some sections of the article, starting from the top:
The paperwork mess muddying home foreclosures erupted last month. But the legal strategy behind it traces to a lawyer’s gambit in 2006 that has helped keep one couple in their home six years beyond their last mortgage payment.
Not bad in the drive-by shooting category. The foreclosure crisis, which is the result of what increasingly appears to be a widespread failure to convey borrower promissory notes and related liens properly to the the securitization entity is reduced to a mere “paperwork mess”. So the idea that the shortcomings are serious is dismissed. Similarly, the efforts of various attorneys who have been chipping away as aspects of this problem are incorrectly lumped together, as if there was really only a single, simpleminded strategy, a mere “lawyer’s gambit” which by implication, was copied by other low life attorneys. And this effort was to keep a deadbeat borrower illegitimately housed.
Funny, this James Kowalski, the attorney behind this dastardly act, did what members of the bar normally do (at least if they are competent): they look for weaknesses in fact and law in the case presented by the other side. And part of the process involves, stunningly enough, depositions! Kowalski’s evil deed was that he was early, perhaps first, to find a robo signer, back in 2006.
But robo signers are an abuse of court process. You can’t have it one way, and say you believe in law and order and the sanctity of contract, and then say it’s just fine to abuse legal procedures if you are pretty sure you are right. Well you can’t unless you are the Journal, skilled in the art of defending plutocrats, no matter how much in the way of mental gymnastics that might require.
But this implicit focus on robo signers (which admittedly did bring the bigger issue of foreclosure abuses into the limelight) again is a convenient diversion, since the robo signer is far from the most serious problem now affecting the foreclosure process.
Back to the Journal’s account:
It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market. Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner’s legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn’t.
Huh? With all due respect, this is the first time I’ve heard of this “foreclosure defense” sub specialty. Please. These are consumer lawyers, and some of them have gotten good enough at fighting foreclosures that they do it full time. But “sub-speciality” implies a degree of fomalization and coordination of effort that isn’t there. Oh, and the Journal deems it to be bad form for mere consumer lawyers to use the techniques of decent trial lawyers (only corporations are supposed to have access to competent litigators, it seems).
But it gets even better. The Journal couldn’t be bothered letting facts get in the way of a tidy narrative. Kowalski weighed in in the comment section of the article:
Despite my best efforts to answer all of Mr. Whelan’s questions, the article contains a number of misstatements. First, Mr. and Mrs. Jackson did not face a foreclosure hearing after simply stopping payment – they paid the entire amount due per a statement sent to them by GMAC, and paid by certified check. GMAC mistakenly refused the check, alleging it was an NSF payment (not possible with certified funds), then placed the couple in foreclosure. I was simply trying to track the facts of the payment by deposing a witness who had sworn in court documents that she had reviewed the entire file and was familiar with the payment history, when, as it turned out, she was not only not familiar with the payment history, but the substance of her entire affidavit was false, including the allegation that the affidavit was sworn to in front of a notary. These were substantive questions I needed answers to – not an excuse for a delay. Further, the judge did not “throw out the case” – it is still pending, with GMAC still suing the Jacksons, years later.
I, and most of my fellow consumer attorneys who are members of the National Association of Consumer Advocates, do not raise these issues for delay – we raise them because we all have cases (this is the bulk of my foreclosure defense practice) where all or part of the foreclosure is purely the fault of the servicer or mill law firm – from homeowners whose payments were misrouted by the servicer, to servicers who simply changed the address of the property and then force-placed flood insurance, to servicers who ignore insurance plans the borrowers paid for (all examples from my cases) to servicers who refuse to even accept HAMP-type loan modification documents – all are substantive, real problems that were not the fault of the borrowers. The deposition was, in the Jackson case, merely an effort to get at the truth of the reversed payment – instead, GMAC admitted to wholesale manufacture of court documents, then promised to fix the practice, then continued that practice unabated for 4 more years.
Most of what we have uncovered are criminal violations – false testimony under oath, notary fraud, etc. These problems will continue until the attorneys general who have formed a task force recognize and confront the significant criminal violations, and will continue unless we have real reform of the servicing practices that emphasize speed over the truth.
Not a single one of my clients wants (or deserves) a free house. What they want (and deserve) is for their voices to be heard, and, for better or worse, consumer lawyers are the only ones capable of achieving this at the moment.
Oh, and it would have been nice if Mr. Whelan had taken the time to spell my name correctly throughout the article.
Yves here. Servicer abuses that result in foreclosures are simply not getting the media attention they deserve. The prevailing perception, and the party line from the banks, is that the borrowers are all deadbeats and therefore any efforts to aid them are simply an abuse of court processes.
But servicers are modern judges, juries, and to the extent they can railroad foreclosures through, executioners. When a payment arrives after the due date (and servicers have been found to hold checks to render payments late), under RESPA and the bank’s agreement with the borrower, the bank is supposed to apply payments to principal and interest first, then any late fees. But if you incur a late fee, they instead apply the payment to that first, which makes your regular monthly payment come up short. So then you get an insufficiency fee.
Servicers don’t send detailed monthly statements like credit card companies, telling you how your payments were applied. This process of misapplication of payment and failure to notify borrowers when fees have been incurred guarantees that the charges will balloon. It isn’t until months have passed and the extra balance become large, say $2000 or more, that the homeowner realizes they are under water according to their servicer, even though they have made all their regular payments. Many lack the extra money to clear out all these largely bogus fees; other have tried fighting, only to find the servicer won’t budge, and they rack up more charges, which forces them either to capitulate or lose their home.
Nevertheless, the Journal runs the party line that nothing is wrong with the foreclosure machinery, when the intense pushback suggests otherwise, and brandishes the usual financial services industry threat: hurt us, and it will hurt you even more:
“There is a movement afoot by [state attorneys general] and private lawyers to use technical problems to avoid foreclosures where the borrower is in default and the foreclosure is in all respects substantively appropriate. These are lawyers where the best job they can do for their clients is to keep them in their houses without paying the mortgage,” said Andrew L. Sandler, a Washington securities lawyer who represents banks and firms that service mortgages.
Mr. Sandler added: “The class-action lawyers are swarming around this issue right now, because they perceive that it can result in significant fees for them. But they’re not well-founded cases, and the banks will vigorously contest any class action around these issues.”
The big risk to banks and the housing market, indeed, is that more homeowners and lawyers come to see such cases as attractive to fight.
It’s certainly fair to say some legal actions are based on weak theories; we dissed the widely touted investor suit against Countrywide on mortgage putbacks yesterday, and have selectively argued against other legal theories. But some of these cases are based on careful study of real abuses and are attacking improper, potentially fraudulent actions. This is one of the few checks we have left on misuse of power, but the powers that be want the public to see these legal challenges as a threat to their financial security and accept compromises, just as we have been forced to accept diminished civil liberties and ever more intrusive surveillance in the name of personal security.
One encouraging sign: I didn’t take a careful tally, but despite the Journal’s heavy spin on this story, its comment section seemed to be running at only a 50% acceptance of its position. The more the banks try to press the merits of their case on dubious evidence, the more the public is coming to realize they are not to be believed.
Foreclosure Issues Pose Risks, Should Be Resolved With Time
Summary
Recently, some issues surrounding foreclosure sale proceedings have come to the forefront, leading several large banks to halt foreclosure sale proceedings in many states. The purpose of this note is twofold: to clear up some confusion on what exactly the issues at hand are and to bring some perspective to those issues. For instance, we note that the “foreclosure issue” that we are addressing here is separate from considerations surrounding potential bank loan repurchases. After the JPMorgan Chase earnings call, in which the company announced increased repurchase reserves, the two issues seem to have been muddied.
With respect to the issues surrounding foreclosure sales, while there are some outstanding risks, we think the issues that can be definitively addressed suggest a resolution could be possible over a matter of months. While that resolution should involve time, effort, and cost, we do not believe it will result in a major long–term disruption to the housing or mortgage markets.
Background
The issues surrounding foreclosure sale proceedings were initially brought to light on September 17, when GMAC/Ally halted evictions and REO sales in 23 judicial foreclosure states. Since that time, GMAC has extended their review to all 50 states, and four other large banks have halted foreclosure sales or launched internal reviews of their foreclosure processes: Bank of America has halted foreclosure sales in 50 states, JPMorgan Chase in 41 states, PNC in 23 states, and Litton is reviewing proceedings. Wells Fargo has stated that they are reviewing all pending foreclosures, but not halting the process and are confident their processes are robust. Attorneys General from all 50 states announced Wednesday that they have formed the Mortgage Foreclosure Multistate Group to review some of the practices around foreclosures proceedings.
The “foreclosure issues” being discussed at this point seem to encompass a few distinct problems, which we think it is useful to break down: robo-signers, MERS, and trust transfers.
The Robo-Signer Issue
While judicial foreclosure proceedings vary from state to state depending on different laws, many involve the presentation of an “affidavit of debt” before the court, which certifies that an employee of the mortgage servicer is familiar with the mortgage and borrower under question. Across several servicers burdened with an increasing number of foreclosures, there were employees who allegedly signed large numbers of affidavits without “personal knowledge” of the stated information. In addition, some affidavits were not notarized at the time of affidavit signing. These deficiencies created became a problem when brought before judges.
Importantly, however, although these deficiencies introduce risk, the issue does not seem to be insurmountable. We believe that the likelihood for widespread outright forgiveness of debt in cases where affidavits were signed or attested improperly is low. The details behind resolving cases such as these are not clear from a legal standpoint, but they seem likely to be, in part, a matter of rectifying the affidavit, issues of time, effort, and cost. Similar issues exist for fixing faulty foreclosure processes from the start; it may be possible to solve the robo-signer issue by staffing up teams or via other efforts. While more costly, and likely to delay foreclosure processes a few to several months, again, in our view, the issues do not seem to be insurmountable.
The MERS Issue
A second issue that has arisen questions the validity of MERS, an electronic registration system for mortgages meant to simplify the process of transferring mortgage ownership. In the past, there have been court rulings in support of the MERS model, e.g. that holding title for the benefit of another party was valid or that foreclosure initiation in the name of MERS was valid. There have also been cases in which the model was not supported (e.g. Landmark v. Kessler in Kansas), but in most instances it seems those efforts have failed or been overturned. In the event the matters challenging MERS succeed, resolution seems to be a practical issue; while the process is unclear at this point, it may simply be a matter of assigning the mortgage from MERS to the foreclosing party in cases where foreclosure in the name of MERS is ruled against or of simply foreclosing in the name of the bank instead of in the name of MERS. There has been at least one case (U.S. Bank v. Ibanez) in Massachusetts, which calls into question the separation of legal and beneficial title holding, similar to that used in the MERS model. That case is currently under appeal.
In addition, there also seems to be some misinformation about the MERS system itself and whether some banks are utilizing it or not. MERS put out a press release yesterday to address some of these concerns, citing the fact that Chase registers their correspondent loans in MERS, but does not register their retail loans.
The Trust Transfer Issue
A third issue that has arisen concerns the validity of the trust as the owner of the mortgage for loans that have been securitized. When the note is transferred to a trust, it is endorsed “in blank”, meaning that the owner of the note is not assigned. The note is only endorsed to the trustee or servicer on behalf of the trust if they need to institute foreclosure proceedings. Our understanding is that this is a common practice when notes are transferred to a trust. With respect to physical documents, those are delivered and held by the designated custodian for the trust. Both the seller and the custodian should have verified the existence and validity of the notes upon transfer. If there were any deficiencies, the custodian should have notified the seller to remedy any deficiencies or if they could not be remedied, put the loan back to the seller. The transfer of the notes is governed by the loan purchase agreement which also provides for evidence of ownership of the loans by the trust. Also, when the notes are transferred, the servicer records the ownership of the loans with MERS.
The Risks
The primary risk in our view is not that the affidavits issue remains unresolved, but how much time and effort the resolution will take and how far the scope of investigations expands beyond this issue. As mentioned, the Attorneys General from each state have formed a task force to look into the affidavit matter to determine if they were processed correctly under state laws. However, given that AGs from non-judicial states have joined the task force, the scope of their investigation may expand beyond this issue and lengthen the timeframe for resolution. Complicating matters is that servicers have to abide by individual state regulations with respect to foreclosure processing.
In the end, we believe that the vast majority of foreclosures will stand assuming that the actions were taken against borrowers who were delinquent. However, the end result will likely be a further extension of foreclosure timelines. We believe that the incremental increase in loss severity should be minimal if these issues can be resolved in the next 3-6 months. For servicers this means additional staffing requirements as well as increased costs. With respect to investors, headline risk will remain the predominant near term concern. Additionally, the allocation of additional costs due to advancing and legal fees will have to worked out. We do believe that the tenets of securitization, MERS, extensive legal foundation that has been established over the last 30 years, and REMIC eligibility will stand.
In other words: all shall be well, and all manner of thing shall be well.
eric seiger
Lujiazui Breakfast: <b>News</b> And Views About China Stocks (Nov. 5 <b>...</b>
Investors and traders in China's main financial district are talking about the following before the start of trade today: A belief that the latest round of quantitative easing will boost commodity prices higher helped to lead global ...
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On Tuesday Australian news site news.com.au (Australia's 3rd biggest news site) ran an article about the new Haynes Guide to the USS Enterprise (reviewed at TrekMovie on Monday). The news.com.au article contained this passage: ...
eric seiger
It take a fair degree of skill to pen a journalistic story that hews to the appearance of objectivity yet is out to sell a point of view.
The lead article in the Journal tonight, “Niche Lawyers Spawned Housing Fracas” telegraphs its bias in its headline: the foreclosure crisis is merely the creation of two bit lawyers who by implication don’t know what they are doing, and are pumping trivial issues up for their own enrichment, with the housing market as collateral damage.
Funny that anyone can think this spin is remotely true. The fact that solo practitioner lawyers could have such an impact on the system is not proof that they are miscreants, as the Journal implies. It is that the foundation of mortgage securitzations is rotten as a result of widespread abuses, first on the origination end, later in the foreclosure process. These small firm players are using the legal equivalent of toothpicks; the fact that their efforts have destablized the foundation of the residential mortgage backed securities market is tangible proof that they were imperiled to begin with.
Let’s parse some sections of the article, starting from the top:
The paperwork mess muddying home foreclosures erupted last month. But the legal strategy behind it traces to a lawyer’s gambit in 2006 that has helped keep one couple in their home six years beyond their last mortgage payment.
Not bad in the drive-by shooting category. The foreclosure crisis, which is the result of what increasingly appears to be a widespread failure to convey borrower promissory notes and related liens properly to the the securitization entity is reduced to a mere “paperwork mess”. So the idea that the shortcomings are serious is dismissed. Similarly, the efforts of various attorneys who have been chipping away as aspects of this problem are incorrectly lumped together, as if there was really only a single, simpleminded strategy, a mere “lawyer’s gambit” which by implication, was copied by other low life attorneys. And this effort was to keep a deadbeat borrower illegitimately housed.
Funny, this James Kowalski, the attorney behind this dastardly act, did what members of the bar normally do (at least if they are competent): they look for weaknesses in fact and law in the case presented by the other side. And part of the process involves, stunningly enough, depositions! Kowalski’s evil deed was that he was early, perhaps first, to find a robo signer, back in 2006.
But robo signers are an abuse of court process. You can’t have it one way, and say you believe in law and order and the sanctity of contract, and then say it’s just fine to abuse legal procedures if you are pretty sure you are right. Well you can’t unless you are the Journal, skilled in the art of defending plutocrats, no matter how much in the way of mental gymnastics that might require.
But this implicit focus on robo signers (which admittedly did bring the bigger issue of foreclosure abuses into the limelight) again is a convenient diversion, since the robo signer is far from the most serious problem now affecting the foreclosure process.
Back to the Journal’s account:
It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market. Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner’s legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn’t.
Huh? With all due respect, this is the first time I’ve heard of this “foreclosure defense” sub specialty. Please. These are consumer lawyers, and some of them have gotten good enough at fighting foreclosures that they do it full time. But “sub-speciality” implies a degree of fomalization and coordination of effort that isn’t there. Oh, and the Journal deems it to be bad form for mere consumer lawyers to use the techniques of decent trial lawyers (only corporations are supposed to have access to competent litigators, it seems).
But it gets even better. The Journal couldn’t be bothered letting facts get in the way of a tidy narrative. Kowalski weighed in in the comment section of the article:
Despite my best efforts to answer all of Mr. Whelan’s questions, the article contains a number of misstatements. First, Mr. and Mrs. Jackson did not face a foreclosure hearing after simply stopping payment – they paid the entire amount due per a statement sent to them by GMAC, and paid by certified check. GMAC mistakenly refused the check, alleging it was an NSF payment (not possible with certified funds), then placed the couple in foreclosure. I was simply trying to track the facts of the payment by deposing a witness who had sworn in court documents that she had reviewed the entire file and was familiar with the payment history, when, as it turned out, she was not only not familiar with the payment history, but the substance of her entire affidavit was false, including the allegation that the affidavit was sworn to in front of a notary. These were substantive questions I needed answers to – not an excuse for a delay. Further, the judge did not “throw out the case” – it is still pending, with GMAC still suing the Jacksons, years later.
I, and most of my fellow consumer attorneys who are members of the National Association of Consumer Advocates, do not raise these issues for delay – we raise them because we all have cases (this is the bulk of my foreclosure defense practice) where all or part of the foreclosure is purely the fault of the servicer or mill law firm – from homeowners whose payments were misrouted by the servicer, to servicers who simply changed the address of the property and then force-placed flood insurance, to servicers who ignore insurance plans the borrowers paid for (all examples from my cases) to servicers who refuse to even accept HAMP-type loan modification documents – all are substantive, real problems that were not the fault of the borrowers. The deposition was, in the Jackson case, merely an effort to get at the truth of the reversed payment – instead, GMAC admitted to wholesale manufacture of court documents, then promised to fix the practice, then continued that practice unabated for 4 more years.
Most of what we have uncovered are criminal violations – false testimony under oath, notary fraud, etc. These problems will continue until the attorneys general who have formed a task force recognize and confront the significant criminal violations, and will continue unless we have real reform of the servicing practices that emphasize speed over the truth.
Not a single one of my clients wants (or deserves) a free house. What they want (and deserve) is for their voices to be heard, and, for better or worse, consumer lawyers are the only ones capable of achieving this at the moment.
Oh, and it would have been nice if Mr. Whelan had taken the time to spell my name correctly throughout the article.
Yves here. Servicer abuses that result in foreclosures are simply not getting the media attention they deserve. The prevailing perception, and the party line from the banks, is that the borrowers are all deadbeats and therefore any efforts to aid them are simply an abuse of court processes.
But servicers are modern judges, juries, and to the extent they can railroad foreclosures through, executioners. When a payment arrives after the due date (and servicers have been found to hold checks to render payments late), under RESPA and the bank’s agreement with the borrower, the bank is supposed to apply payments to principal and interest first, then any late fees. But if you incur a late fee, they instead apply the payment to that first, which makes your regular monthly payment come up short. So then you get an insufficiency fee.
Servicers don’t send detailed monthly statements like credit card companies, telling you how your payments were applied. This process of misapplication of payment and failure to notify borrowers when fees have been incurred guarantees that the charges will balloon. It isn’t until months have passed and the extra balance become large, say $2000 or more, that the homeowner realizes they are under water according to their servicer, even though they have made all their regular payments. Many lack the extra money to clear out all these largely bogus fees; other have tried fighting, only to find the servicer won’t budge, and they rack up more charges, which forces them either to capitulate or lose their home.
Nevertheless, the Journal runs the party line that nothing is wrong with the foreclosure machinery, when the intense pushback suggests otherwise, and brandishes the usual financial services industry threat: hurt us, and it will hurt you even more:
“There is a movement afoot by [state attorneys general] and private lawyers to use technical problems to avoid foreclosures where the borrower is in default and the foreclosure is in all respects substantively appropriate. These are lawyers where the best job they can do for their clients is to keep them in their houses without paying the mortgage,” said Andrew L. Sandler, a Washington securities lawyer who represents banks and firms that service mortgages.
Mr. Sandler added: “The class-action lawyers are swarming around this issue right now, because they perceive that it can result in significant fees for them. But they’re not well-founded cases, and the banks will vigorously contest any class action around these issues.”
The big risk to banks and the housing market, indeed, is that more homeowners and lawyers come to see such cases as attractive to fight.
It’s certainly fair to say some legal actions are based on weak theories; we dissed the widely touted investor suit against Countrywide on mortgage putbacks yesterday, and have selectively argued against other legal theories. But some of these cases are based on careful study of real abuses and are attacking improper, potentially fraudulent actions. This is one of the few checks we have left on misuse of power, but the powers that be want the public to see these legal challenges as a threat to their financial security and accept compromises, just as we have been forced to accept diminished civil liberties and ever more intrusive surveillance in the name of personal security.
One encouraging sign: I didn’t take a careful tally, but despite the Journal’s heavy spin on this story, its comment section seemed to be running at only a 50% acceptance of its position. The more the banks try to press the merits of their case on dubious evidence, the more the public is coming to realize they are not to be believed.
Foreclosure Issues Pose Risks, Should Be Resolved With Time
Summary
Recently, some issues surrounding foreclosure sale proceedings have come to the forefront, leading several large banks to halt foreclosure sale proceedings in many states. The purpose of this note is twofold: to clear up some confusion on what exactly the issues at hand are and to bring some perspective to those issues. For instance, we note that the “foreclosure issue” that we are addressing here is separate from considerations surrounding potential bank loan repurchases. After the JPMorgan Chase earnings call, in which the company announced increased repurchase reserves, the two issues seem to have been muddied.
With respect to the issues surrounding foreclosure sales, while there are some outstanding risks, we think the issues that can be definitively addressed suggest a resolution could be possible over a matter of months. While that resolution should involve time, effort, and cost, we do not believe it will result in a major long–term disruption to the housing or mortgage markets.
Background
The issues surrounding foreclosure sale proceedings were initially brought to light on September 17, when GMAC/Ally halted evictions and REO sales in 23 judicial foreclosure states. Since that time, GMAC has extended their review to all 50 states, and four other large banks have halted foreclosure sales or launched internal reviews of their foreclosure processes: Bank of America has halted foreclosure sales in 50 states, JPMorgan Chase in 41 states, PNC in 23 states, and Litton is reviewing proceedings. Wells Fargo has stated that they are reviewing all pending foreclosures, but not halting the process and are confident their processes are robust. Attorneys General from all 50 states announced Wednesday that they have formed the Mortgage Foreclosure Multistate Group to review some of the practices around foreclosures proceedings.
The “foreclosure issues” being discussed at this point seem to encompass a few distinct problems, which we think it is useful to break down: robo-signers, MERS, and trust transfers.
The Robo-Signer Issue
While judicial foreclosure proceedings vary from state to state depending on different laws, many involve the presentation of an “affidavit of debt” before the court, which certifies that an employee of the mortgage servicer is familiar with the mortgage and borrower under question. Across several servicers burdened with an increasing number of foreclosures, there were employees who allegedly signed large numbers of affidavits without “personal knowledge” of the stated information. In addition, some affidavits were not notarized at the time of affidavit signing. These deficiencies created became a problem when brought before judges.
Importantly, however, although these deficiencies introduce risk, the issue does not seem to be insurmountable. We believe that the likelihood for widespread outright forgiveness of debt in cases where affidavits were signed or attested improperly is low. The details behind resolving cases such as these are not clear from a legal standpoint, but they seem likely to be, in part, a matter of rectifying the affidavit, issues of time, effort, and cost. Similar issues exist for fixing faulty foreclosure processes from the start; it may be possible to solve the robo-signer issue by staffing up teams or via other efforts. While more costly, and likely to delay foreclosure processes a few to several months, again, in our view, the issues do not seem to be insurmountable.
The MERS Issue
A second issue that has arisen questions the validity of MERS, an electronic registration system for mortgages meant to simplify the process of transferring mortgage ownership. In the past, there have been court rulings in support of the MERS model, e.g. that holding title for the benefit of another party was valid or that foreclosure initiation in the name of MERS was valid. There have also been cases in which the model was not supported (e.g. Landmark v. Kessler in Kansas), but in most instances it seems those efforts have failed or been overturned. In the event the matters challenging MERS succeed, resolution seems to be a practical issue; while the process is unclear at this point, it may simply be a matter of assigning the mortgage from MERS to the foreclosing party in cases where foreclosure in the name of MERS is ruled against or of simply foreclosing in the name of the bank instead of in the name of MERS. There has been at least one case (U.S. Bank v. Ibanez) in Massachusetts, which calls into question the separation of legal and beneficial title holding, similar to that used in the MERS model. That case is currently under appeal.
In addition, there also seems to be some misinformation about the MERS system itself and whether some banks are utilizing it or not. MERS put out a press release yesterday to address some of these concerns, citing the fact that Chase registers their correspondent loans in MERS, but does not register their retail loans.
The Trust Transfer Issue
A third issue that has arisen concerns the validity of the trust as the owner of the mortgage for loans that have been securitized. When the note is transferred to a trust, it is endorsed “in blank”, meaning that the owner of the note is not assigned. The note is only endorsed to the trustee or servicer on behalf of the trust if they need to institute foreclosure proceedings. Our understanding is that this is a common practice when notes are transferred to a trust. With respect to physical documents, those are delivered and held by the designated custodian for the trust. Both the seller and the custodian should have verified the existence and validity of the notes upon transfer. If there were any deficiencies, the custodian should have notified the seller to remedy any deficiencies or if they could not be remedied, put the loan back to the seller. The transfer of the notes is governed by the loan purchase agreement which also provides for evidence of ownership of the loans by the trust. Also, when the notes are transferred, the servicer records the ownership of the loans with MERS.
The Risks
The primary risk in our view is not that the affidavits issue remains unresolved, but how much time and effort the resolution will take and how far the scope of investigations expands beyond this issue. As mentioned, the Attorneys General from each state have formed a task force to look into the affidavit matter to determine if they were processed correctly under state laws. However, given that AGs from non-judicial states have joined the task force, the scope of their investigation may expand beyond this issue and lengthen the timeframe for resolution. Complicating matters is that servicers have to abide by individual state regulations with respect to foreclosure processing.
In the end, we believe that the vast majority of foreclosures will stand assuming that the actions were taken against borrowers who were delinquent. However, the end result will likely be a further extension of foreclosure timelines. We believe that the incremental increase in loss severity should be minimal if these issues can be resolved in the next 3-6 months. For servicers this means additional staffing requirements as well as increased costs. With respect to investors, headline risk will remain the predominant near term concern. Additionally, the allocation of additional costs due to advancing and legal fees will have to worked out. We do believe that the tenets of securitization, MERS, extensive legal foundation that has been established over the last 30 years, and REMIC eligibility will stand.
In other words: all shall be well, and all manner of thing shall be well.
eric seiger
Lujiazui Breakfast: <b>News</b> And Views About China Stocks (Nov. 5 <b>...</b>
Investors and traders in China's main financial district are talking about the following before the start of trade today: A belief that the latest round of quantitative easing will boost commodity prices higher helped to lead global ...
Facebook Wins Another <b>News</b> Feed Patent
When Facebook originally filed for the patent in the fall of 2006, it was just a month before the company launched its news feed. It argued at the time that as more and more users joined the social network, the amount of information it ...
Australian <b>News</b> Site Issues Apology and Correction For Inaccurate <b>...</b>
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eric seiger
eric seiger
eric seiger
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On Tuesday Australian news site news.com.au (Australia's 3rd biggest news site) ran an article about the new Haynes Guide to the USS Enterprise (reviewed at TrekMovie on Monday). The news.com.au article contained this passage: ...
eric seiger
It take a fair degree of skill to pen a journalistic story that hews to the appearance of objectivity yet is out to sell a point of view.
The lead article in the Journal tonight, “Niche Lawyers Spawned Housing Fracas” telegraphs its bias in its headline: the foreclosure crisis is merely the creation of two bit lawyers who by implication don’t know what they are doing, and are pumping trivial issues up for their own enrichment, with the housing market as collateral damage.
Funny that anyone can think this spin is remotely true. The fact that solo practitioner lawyers could have such an impact on the system is not proof that they are miscreants, as the Journal implies. It is that the foundation of mortgage securitzations is rotten as a result of widespread abuses, first on the origination end, later in the foreclosure process. These small firm players are using the legal equivalent of toothpicks; the fact that their efforts have destablized the foundation of the residential mortgage backed securities market is tangible proof that they were imperiled to begin with.
Let’s parse some sections of the article, starting from the top:
The paperwork mess muddying home foreclosures erupted last month. But the legal strategy behind it traces to a lawyer’s gambit in 2006 that has helped keep one couple in their home six years beyond their last mortgage payment.
Not bad in the drive-by shooting category. The foreclosure crisis, which is the result of what increasingly appears to be a widespread failure to convey borrower promissory notes and related liens properly to the the securitization entity is reduced to a mere “paperwork mess”. So the idea that the shortcomings are serious is dismissed. Similarly, the efforts of various attorneys who have been chipping away as aspects of this problem are incorrectly lumped together, as if there was really only a single, simpleminded strategy, a mere “lawyer’s gambit” which by implication, was copied by other low life attorneys. And this effort was to keep a deadbeat borrower illegitimately housed.
Funny, this James Kowalski, the attorney behind this dastardly act, did what members of the bar normally do (at least if they are competent): they look for weaknesses in fact and law in the case presented by the other side. And part of the process involves, stunningly enough, depositions! Kowalski’s evil deed was that he was early, perhaps first, to find a robo signer, back in 2006.
But robo signers are an abuse of court process. You can’t have it one way, and say you believe in law and order and the sanctity of contract, and then say it’s just fine to abuse legal procedures if you are pretty sure you are right. Well you can’t unless you are the Journal, skilled in the art of defending plutocrats, no matter how much in the way of mental gymnastics that might require.
But this implicit focus on robo signers (which admittedly did bring the bigger issue of foreclosure abuses into the limelight) again is a convenient diversion, since the robo signer is far from the most serious problem now affecting the foreclosure process.
Back to the Journal’s account:
It was a first step in the growth of a legal sub-specialty called foreclosure defense that has sown confusion and turmoil in the housing market. Lawyers in the field now commonly use a technique more identified with corporate litigation: probing depositions, designed to uncover any lapses in judgment, flaws in a process or wrongdoing. In the 23 states where foreclosures entail a court hearing, the bank may be ordered to pay the homeowner’s legal bill if a lawyer can convince a judge that the bank has submitted false documents, such as affidavits saying employees personally reviewed the details of loans when they didn’t.
Huh? With all due respect, this is the first time I’ve heard of this “foreclosure defense” sub specialty. Please. These are consumer lawyers, and some of them have gotten good enough at fighting foreclosures that they do it full time. But “sub-speciality” implies a degree of fomalization and coordination of effort that isn’t there. Oh, and the Journal deems it to be bad form for mere consumer lawyers to use the techniques of decent trial lawyers (only corporations are supposed to have access to competent litigators, it seems).
But it gets even better. The Journal couldn’t be bothered letting facts get in the way of a tidy narrative. Kowalski weighed in in the comment section of the article:
Despite my best efforts to answer all of Mr. Whelan’s questions, the article contains a number of misstatements. First, Mr. and Mrs. Jackson did not face a foreclosure hearing after simply stopping payment – they paid the entire amount due per a statement sent to them by GMAC, and paid by certified check. GMAC mistakenly refused the check, alleging it was an NSF payment (not possible with certified funds), then placed the couple in foreclosure. I was simply trying to track the facts of the payment by deposing a witness who had sworn in court documents that she had reviewed the entire file and was familiar with the payment history, when, as it turned out, she was not only not familiar with the payment history, but the substance of her entire affidavit was false, including the allegation that the affidavit was sworn to in front of a notary. These were substantive questions I needed answers to – not an excuse for a delay. Further, the judge did not “throw out the case” – it is still pending, with GMAC still suing the Jacksons, years later.
I, and most of my fellow consumer attorneys who are members of the National Association of Consumer Advocates, do not raise these issues for delay – we raise them because we all have cases (this is the bulk of my foreclosure defense practice) where all or part of the foreclosure is purely the fault of the servicer or mill law firm – from homeowners whose payments were misrouted by the servicer, to servicers who simply changed the address of the property and then force-placed flood insurance, to servicers who ignore insurance plans the borrowers paid for (all examples from my cases) to servicers who refuse to even accept HAMP-type loan modification documents – all are substantive, real problems that were not the fault of the borrowers. The deposition was, in the Jackson case, merely an effort to get at the truth of the reversed payment – instead, GMAC admitted to wholesale manufacture of court documents, then promised to fix the practice, then continued that practice unabated for 4 more years.
Most of what we have uncovered are criminal violations – false testimony under oath, notary fraud, etc. These problems will continue until the attorneys general who have formed a task force recognize and confront the significant criminal violations, and will continue unless we have real reform of the servicing practices that emphasize speed over the truth.
Not a single one of my clients wants (or deserves) a free house. What they want (and deserve) is for their voices to be heard, and, for better or worse, consumer lawyers are the only ones capable of achieving this at the moment.
Oh, and it would have been nice if Mr. Whelan had taken the time to spell my name correctly throughout the article.
Yves here. Servicer abuses that result in foreclosures are simply not getting the media attention they deserve. The prevailing perception, and the party line from the banks, is that the borrowers are all deadbeats and therefore any efforts to aid them are simply an abuse of court processes.
But servicers are modern judges, juries, and to the extent they can railroad foreclosures through, executioners. When a payment arrives after the due date (and servicers have been found to hold checks to render payments late), under RESPA and the bank’s agreement with the borrower, the bank is supposed to apply payments to principal and interest first, then any late fees. But if you incur a late fee, they instead apply the payment to that first, which makes your regular monthly payment come up short. So then you get an insufficiency fee.
Servicers don’t send detailed monthly statements like credit card companies, telling you how your payments were applied. This process of misapplication of payment and failure to notify borrowers when fees have been incurred guarantees that the charges will balloon. It isn’t until months have passed and the extra balance become large, say $2000 or more, that the homeowner realizes they are under water according to their servicer, even though they have made all their regular payments. Many lack the extra money to clear out all these largely bogus fees; other have tried fighting, only to find the servicer won’t budge, and they rack up more charges, which forces them either to capitulate or lose their home.
Nevertheless, the Journal runs the party line that nothing is wrong with the foreclosure machinery, when the intense pushback suggests otherwise, and brandishes the usual financial services industry threat: hurt us, and it will hurt you even more:
“There is a movement afoot by [state attorneys general] and private lawyers to use technical problems to avoid foreclosures where the borrower is in default and the foreclosure is in all respects substantively appropriate. These are lawyers where the best job they can do for their clients is to keep them in their houses without paying the mortgage,” said Andrew L. Sandler, a Washington securities lawyer who represents banks and firms that service mortgages.
Mr. Sandler added: “The class-action lawyers are swarming around this issue right now, because they perceive that it can result in significant fees for them. But they’re not well-founded cases, and the banks will vigorously contest any class action around these issues.”
The big risk to banks and the housing market, indeed, is that more homeowners and lawyers come to see such cases as attractive to fight.
It’s certainly fair to say some legal actions are based on weak theories; we dissed the widely touted investor suit against Countrywide on mortgage putbacks yesterday, and have selectively argued against other legal theories. But some of these cases are based on careful study of real abuses and are attacking improper, potentially fraudulent actions. This is one of the few checks we have left on misuse of power, but the powers that be want the public to see these legal challenges as a threat to their financial security and accept compromises, just as we have been forced to accept diminished civil liberties and ever more intrusive surveillance in the name of personal security.
One encouraging sign: I didn’t take a careful tally, but despite the Journal’s heavy spin on this story, its comment section seemed to be running at only a 50% acceptance of its position. The more the banks try to press the merits of their case on dubious evidence, the more the public is coming to realize they are not to be believed.
Foreclosure Issues Pose Risks, Should Be Resolved With Time
Summary
Recently, some issues surrounding foreclosure sale proceedings have come to the forefront, leading several large banks to halt foreclosure sale proceedings in many states. The purpose of this note is twofold: to clear up some confusion on what exactly the issues at hand are and to bring some perspective to those issues. For instance, we note that the “foreclosure issue” that we are addressing here is separate from considerations surrounding potential bank loan repurchases. After the JPMorgan Chase earnings call, in which the company announced increased repurchase reserves, the two issues seem to have been muddied.
With respect to the issues surrounding foreclosure sales, while there are some outstanding risks, we think the issues that can be definitively addressed suggest a resolution could be possible over a matter of months. While that resolution should involve time, effort, and cost, we do not believe it will result in a major long–term disruption to the housing or mortgage markets.
Background
The issues surrounding foreclosure sale proceedings were initially brought to light on September 17, when GMAC/Ally halted evictions and REO sales in 23 judicial foreclosure states. Since that time, GMAC has extended their review to all 50 states, and four other large banks have halted foreclosure sales or launched internal reviews of their foreclosure processes: Bank of America has halted foreclosure sales in 50 states, JPMorgan Chase in 41 states, PNC in 23 states, and Litton is reviewing proceedings. Wells Fargo has stated that they are reviewing all pending foreclosures, but not halting the process and are confident their processes are robust. Attorneys General from all 50 states announced Wednesday that they have formed the Mortgage Foreclosure Multistate Group to review some of the practices around foreclosures proceedings.
The “foreclosure issues” being discussed at this point seem to encompass a few distinct problems, which we think it is useful to break down: robo-signers, MERS, and trust transfers.
The Robo-Signer Issue
While judicial foreclosure proceedings vary from state to state depending on different laws, many involve the presentation of an “affidavit of debt” before the court, which certifies that an employee of the mortgage servicer is familiar with the mortgage and borrower under question. Across several servicers burdened with an increasing number of foreclosures, there were employees who allegedly signed large numbers of affidavits without “personal knowledge” of the stated information. In addition, some affidavits were not notarized at the time of affidavit signing. These deficiencies created became a problem when brought before judges.
Importantly, however, although these deficiencies introduce risk, the issue does not seem to be insurmountable. We believe that the likelihood for widespread outright forgiveness of debt in cases where affidavits were signed or attested improperly is low. The details behind resolving cases such as these are not clear from a legal standpoint, but they seem likely to be, in part, a matter of rectifying the affidavit, issues of time, effort, and cost. Similar issues exist for fixing faulty foreclosure processes from the start; it may be possible to solve the robo-signer issue by staffing up teams or via other efforts. While more costly, and likely to delay foreclosure processes a few to several months, again, in our view, the issues do not seem to be insurmountable.
The MERS Issue
A second issue that has arisen questions the validity of MERS, an electronic registration system for mortgages meant to simplify the process of transferring mortgage ownership. In the past, there have been court rulings in support of the MERS model, e.g. that holding title for the benefit of another party was valid or that foreclosure initiation in the name of MERS was valid. There have also been cases in which the model was not supported (e.g. Landmark v. Kessler in Kansas), but in most instances it seems those efforts have failed or been overturned. In the event the matters challenging MERS succeed, resolution seems to be a practical issue; while the process is unclear at this point, it may simply be a matter of assigning the mortgage from MERS to the foreclosing party in cases where foreclosure in the name of MERS is ruled against or of simply foreclosing in the name of the bank instead of in the name of MERS. There has been at least one case (U.S. Bank v. Ibanez) in Massachusetts, which calls into question the separation of legal and beneficial title holding, similar to that used in the MERS model. That case is currently under appeal.
In addition, there also seems to be some misinformation about the MERS system itself and whether some banks are utilizing it or not. MERS put out a press release yesterday to address some of these concerns, citing the fact that Chase registers their correspondent loans in MERS, but does not register their retail loans.
The Trust Transfer Issue
A third issue that has arisen concerns the validity of the trust as the owner of the mortgage for loans that have been securitized. When the note is transferred to a trust, it is endorsed “in blank”, meaning that the owner of the note is not assigned. The note is only endorsed to the trustee or servicer on behalf of the trust if they need to institute foreclosure proceedings. Our understanding is that this is a common practice when notes are transferred to a trust. With respect to physical documents, those are delivered and held by the designated custodian for the trust. Both the seller and the custodian should have verified the existence and validity of the notes upon transfer. If there were any deficiencies, the custodian should have notified the seller to remedy any deficiencies or if they could not be remedied, put the loan back to the seller. The transfer of the notes is governed by the loan purchase agreement which also provides for evidence of ownership of the loans by the trust. Also, when the notes are transferred, the servicer records the ownership of the loans with MERS.
The Risks
The primary risk in our view is not that the affidavits issue remains unresolved, but how much time and effort the resolution will take and how far the scope of investigations expands beyond this issue. As mentioned, the Attorneys General from each state have formed a task force to look into the affidavit matter to determine if they were processed correctly under state laws. However, given that AGs from non-judicial states have joined the task force, the scope of their investigation may expand beyond this issue and lengthen the timeframe for resolution. Complicating matters is that servicers have to abide by individual state regulations with respect to foreclosure processing.
In the end, we believe that the vast majority of foreclosures will stand assuming that the actions were taken against borrowers who were delinquent. However, the end result will likely be a further extension of foreclosure timelines. We believe that the incremental increase in loss severity should be minimal if these issues can be resolved in the next 3-6 months. For servicers this means additional staffing requirements as well as increased costs. With respect to investors, headline risk will remain the predominant near term concern. Additionally, the allocation of additional costs due to advancing and legal fees will have to worked out. We do believe that the tenets of securitization, MERS, extensive legal foundation that has been established over the last 30 years, and REMIC eligibility will stand.
In other words: all shall be well, and all manner of thing shall be well.
eric seiger
eric seiger
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eric seiger
eric seiger
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eric seiger
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eric seiger
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eric seiger eric seiger
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eric seiger
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big seminar 14
You had enough money when you bought the place. In fact you had more than enough. You calculated it out yourself. You didn't want to go any more than one fifth of your income. So, you found a house and a loan package that you could support and afford and yet stay well within your budget.
It's a beautiful home. There are plenty of options for growth and a great neighborhood to raise your children in. Just enough land, ten acres, to allow for a garage some time in the future and not so much that you will be burdened with excessive upkeep. Though yours is not waterfront, on a good day, you can see the neighboring inland lake. Simply ideal you think. You are feeling a bit proud of yourself at having made such a great selection.
Your wife and you have worked hard for the past five years and have saved everything you possibly could just to get your piece of the earth. You've both worked two jobs while still trying to take care of your newest addition to the family, your now, two year old son. Your savings continued to grow and tempted you the full time but you withstood the urge to spend and you successfully saved it all for this moment.
Fortunately for you, your home based business turned out very successful. Who would have thought a business consultant could support a family, buy two new cars and even get a mortgage on a new home while doing something he loved so much. But, the means justifies the end, and here you are, sitting on the porch of your new piece of Americana, your family home.
Suddenly, the climate chills and your brightening glow darkens. Your customers begin to cancel appointments. Some of them close their doors, others move out of the state or even out of the country. You frantically call them day after day only to hear things like "I can't even afford to buy raw material, how can I afford to bring you in." Your monthly activity falls from a lucrative 20 days a month to an existing 10 days a month, to a "get behind" 5 days. Now you find it difficult to schedule even one or two days a month.
You sell your second vehicle, stop several services, and cancel all magazines and newspapers and professional organization memberships. You and wife quit going out, no more lunches, no more weekend movies, and no more client entertainment evenings. You find yourself drawing on what is left of your now meager savings just to keep the mortgage and utilities paid. Soon, you find yourself prioritizing between the mortgage and the light bill; which one gets paid first?
This month you miss the mortgage payment and wait with bated breath to hear what the bank has to say. You are scolded and reminded of your responsibilities. You go to Mom and Dad and borrow the next month mortgage payment. Now you are already one month behind and will stay that way until something turns around.
You finally face the inevitable and put your life's dream up for sale. Your real estate agent suggests you drop your asking price even before they ever advertise your home for sale. You follow their direction and drop it just low enough to pay off your loan. You won't make any money but you will get the loan paid off.
You patiently await the surge of business you expect to come in from your customers but it never materializes. You sell your lawn tractor and the last of your "special" toys, you and your wife's matching golf clubs. You clean your two car garage out of all the tools, toys and implements that compliment a gentleman farmer's estate and park your one lonely family vehicle in the middle of it. You have long since traded in your second new car and settled for a nice looking, though eight year used, sedan.
One day you find yourself in the food stamp line. What happened? The next day you are applying for assistance? How could this be? You owned my own business. You were on top of the world. Now all that is left is your beautiful home; with three late payments to its credit and a letter from the bank threatening foreclosure. It is listed for sale but even if it sold it would be a "short sale." That's where the property sells for less than what it is worth. The bank has assured you that you would not owe anything extra but neither would you recoup your 20% down payment.
Facing foreclosure? Facing foreclosure you sit down with your wife across the table from you. You hold hands; you look each other in the eyes, watery, reddened eyes, and breathe a heavy sigh. You have each other, still. Now, more than ever you need each other. You are facing the greatest loss of your short life together. You pray your losses never get any worse than this but to lose your home was going to be a major blow, a numbing blow.
You can do no more. You have no more resources. There is nothing more you can turn off, or reduce, or quit or sell; you have done it all. You had the letter in hand and the regret in heart. You tried and you lost. Nothing more can save you.
This is all too familiar a scenario in America today. For awhile, everybody was willing to get as creative as they had to, simply to get you to take out a loan and buy a house. It didn't matter if you really had the wherewithal to eventually pay the loan back or not. The objective was to get the financing secured. Then, on top of that, our economy falls apart. Companies close, layoffs sky rocket, people quit buying, banks go belly-up, and people lose their savings and retirements. Financially, everybody's broke.
Facing foreclosure you will find yourself mysteriously alone. This is one of the greatest American tragedies yet, where is all the help? We pay 9/11 survivors almost 2 million dollars a family, we buy Katrina victims homes and give them jobs, America is on site at almost every disaster there is, except this one. Everybody turns their backs on the wretch who has allowed himself to be foreclosed upon.
Facing foreclosure? You will face it by yourself. Nobody will be by your side. You will go through the downsizing, the shame of poverty and the pain of loss by yourself. Your one best defense during this entire time is to keep your spouse close to you, stay close to your spouse, depend entirely upon one another and make it work! Whatever becomes of you and your situation - make it work! I did, my wife did, and today we are a fraction of what we once were but we are happy and we still have one another. It can happen.
eric seiger
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eric seiger
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Investors and traders in China's main financial district are talking about the following before the start of trade today: A belief that the latest round of quantitative easing will boost commodity prices higher helped to lead global ...
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On Tuesday Australian news site news.com.au (Australia's 3rd biggest news site) ran an article about the new Haynes Guide to the USS Enterprise (reviewed at TrekMovie on Monday). The news.com.au article contained this passage: ...
eric seiger
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