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UPDATE-APRIL 18, 2012-
Mortgage Servicers Continue to Wrongfully Foreclose on Homeowners
According to a Recent National Survey of Consumer Attorneys
Washington, D.C. – Results of a new nationwide survey published today by the National Association of Consumer Advocates (NACA), the National Consumer Law Center (NCLC) and the National Association of Consumer Bankruptcy Attorneys (NACBA) show that mortgage servicers continue to initiate foreclosure proceedings improperly, either while a homeowner is awaiting a loan modification or due to improper fees or payment processing. “This survey provides yet more evidence that banks wrongfully foreclose on tens of thousands of homeowners every year,” said National Consumer Law Center Attorney Diane Thompson. “Until rigorous national mortgage servicing standards that are enforceable by homeowners are put in place by the federal government, banks will continue to seize homes illegally and routinely.”
The NACA/NCLC/NACBA survey of 260 consumer attorneys in 45 states reported that thousands of homeowners were improperly foreclosed on within the last year.
The survey found that foreclosure initiation and sale during the loan modification process is a substantial problem:
- Over 90% of the respondents report representing a homeowner placed in foreclosure while awaiting a loan modification in the last year.
- Homeowners were improperly foreclosed on while awaiting both HAMP and GSE loan modifications: of the survey respondents that represent homeowners placed in foreclosure while awaiting a loan modification in the last year, 85% represent homeowners awaiting a HAMP loan modification; 66% represent homeowners with a loan owned by Fannie Mae or Freddie Mac.
- Over 80% of the respondents represent homeowners where the actual foreclosure sale was attempted while awaiting a loan modification in the last year.
- In total, survey respondents reported representing over 3,700 homeowners placed in foreclosure while awaiting a loan modification in the last year.
In addition to abuses in the modification process, the survey also highlights abusive fees and improper payment processing in the past year:
- 80% of the respondents represent homeowners who were placed into foreclosure in the last year where there was a wrongful assessment of fees (e.g. late fees, broker-price opinions, inspection fees, attorney’s fees and other fees).
- 79% of the respondents represent homeowners who were placed into foreclosure in the last year where there was a misapplication of payments.
- In the last year alone, survey respondents reported representing over 700 homeowners with force-placed insurance; almost 2,500 homeowners with improper assessment of fees; and over 1,200 homeowners whose payments had been misapplied.
- Over 78% of the respondents represent homeowners who had been placed in foreclosure in the last year where the servicer did not properly accept the homeowner’s payments.
“Unfortunately it is not a surprise to learn that wrongful foreclosures continue to occur while applying for a loan modification under HAMP or for a GSE loan,” said Ira Rheingold, Executive Director of the National Association of Consumer Advocates. “The Administration made HAMP a voluntary program for servicers, then failed to enforce HAMP’s rules on the participating servicers and there has been little to no oversight over Fannie Mae and Freddie Mac loans.”
UPDATE- MARCH 19, 2012- Administration officials confirmed that HAMP modifications would count toward the settlement, and they stressed that servicers would not get incentive payments. That elides the issue. On principal reductions, the INVESTORS get the payments. And as Kiel writes, that means the banks in the case of bank-owned loans. So if a servicer does a HAMP mod on a bank-owned loan, the servicer gets to count that on the settlement, and the bank gets taxpayer money as a payment. I’d be happy to be wrong about this, but of course there are no settlement details so nobody can say anything with surety, and the holders of the information aren’t talking.
This merger of HAMP and the settlement is inexplicable for any reason other than to lighten the blow on the banks. If the settlement calls for mandated principal reductions, why should any entity get paid for them as an inducement? This nudge goes out the window when you’re talking about a mandatory program.
In addition, note the “at least $10 billion” worth of principal reduction. In fact, that’s what the official press statement says about the principal reduction, though many have taken Shaun Donovan’s belief that ultimately $32 billion in principal reduction will get done as gospel. That $17 billion in “credits” for anti-foreclosure operations includes not only principal reductions, but short sales, anti-blight operations, and “borrower transition” funding (like helping with moving costs). There’s been a characterization made to transform this into just a principal reduction fund. But it’s not.
UPDATE- OCT 27, 2011-
Homeowners File Class Action Lawsuit Against Bank Of America For Allegedly Failing To Modify Troubled Mortgages
A class action lawsuit was filed against Bank of America in U.S. District Court, Western District of Washington (Seattle), No. 10-00488, on behalf of homeowners alleging that Bank of America reneged on a promise to modify troubled mortgages as a condition to accepting twenty five billion dollars of federal bailout money, according to a class action news report.
The Bank of America class action lawsuit reportedly alleges that Bank of America agreed to take part in the U.S. Treasury Department’s $75 billion Home Affordable Modification Program (HAMP) since it accepted bailout funds from the Troubled Asset Relief Program (TARP), but allegedly had an incentive not to modify loans because doing so might cause it to repurchase more loans, collect lower servicing fees, or assess lower default charges because fewer payments would be deemed late.
We’ve all heard about HAMP, but why are very few people actually getting approved for Obama’s Housing Affordability Modification Program (HAMP)? Besides, it costs the “banks” nothing …so what’s the problem here?
Facts are, the HAMP program was born out of the good intentioned but ill-informed legislators. You see, Congress assumed that banks were actually doing the right thing…like actually owning the promissory note. As part of the HAMP requirement (to be able to collect the money that is set aside for distressed homeowners), all the bank has to do is to testify and prove that they own the debt/promissory note. Simple. Right?
Well, by now you should be aware that these “banks” are nothing more than servicers and do not own the debt/note. And if they don’t own the note, they can not participate in the HAMP program…and so when you try to apply for such a loan modification program to get relief, invariably, you will be denied or be told that participation in the HAMP program is optional…and the lender has decided not to participate in the program.
Lenders, who service loans they own as well as those owned by investors, tried to circumvent the time-intensive process by using “robo-signers” who mass-produced documents, many of which made inaccurate claims. When the bad practices were discovered last fall, the lenders were forced to revisit hundreds of thousands of cases.
Is this beginning to make sense now?
They don’t own the note! And if they don’t own the note, they can not modify the note, nor receive relief from HAMP.
We are Not in the Loan Modification Business
In a recent deposition by a Chase employee, he states that “they are in the foreclosure business…not the loan modification business.” It is enough to drive you crazy. Here they are representing that they not only have the authority but the ability to do a loan modification with you where in fact, all they are interested in doing is to lure you into foreclosure (by requiring that you are 60 to 90 days late before they can talk to you) and then require you to jump through as many hoops as possible. I have known people who have submitted their application 10+ times…and are told “you make not enough money” and then in the next response they say “you make too much money to qualify”.
It is utter nonsense.
It is all a scam.
There are these things called “Credit Default Swap”(CDS). You may have heard of them but don’t know what these are. A CDS is essentially an insurance policy to cover the “lender” in the event of a default by the borrow. When a borrower defaults, the lender gets paid…up to 30 times the face value of the loan. In the interest of brevity, we will not go into how this is possible. You can read about it in my next book.
So, for a CDS to trigger, the property must be be in default (ie. late 60-90 days). Once this is triggered, the investors are all paid.
This leaves the servicer in a lurch. You see, a servicer makes money in the fees they collect. They make fees when you are late. They make fees when they have to process your foreclosure, they make fees every time you submit a loan modification request, etc. The more they interact and “service” your account, the more fees they make. If your loan is modified, they don’t get paid.
Paid for Performance
Here’s where it gets really wild. A servicer is paid a fixed amount based on a bid process for a foreclosure. The faster they foreclose, the more they receive in bonuses. The trick here is, if they don’t or can not foreclose…they don’t get paid.
This really puts the incentive for these servicers to cut corners, do robo-signings, and anything and everything possible to churn through these foreclosures….and homeowner’s rights be damned.
So, ultimately, this is just a game for them. These people have no compassion for you, your family or your home. All it is is big business, and money.
• These are not “predatory lenders.”
These companies do not loan money. They operate in the lending industry after-the-fact. They take on a function that a lender doesn’t want – the backroom functions of handling payments, escrow accounts, annual statements, dealing with borrowers, collections, etc. The perpetrators of the loan servicing scam acquire the servicing rights to loans that other companies have already made. (Loans that were deliberately constructed by predatory lenders are ideal for processing through servicers that specialize in aggressive collections or rapid foreclosure processing, but the loan servicing scam can be operated against any mortgage loan if the servicer acquires the rights from the lender.)
• These scams are designed and deliberately operated.
These situations are not errors, mistakes or situations where a servicer’s managers or employees failed to do their job. Their systems are well-designed and state-of-the-art in terms of analytical technology that helps them choose and process their victims. These scams generate enormous profits from a business that is difficult to run, people and litigation intensive and normally only marginally profitable. Many have failed and been acquired (Fairbanks bought several).
• You, the borrower, are not their customer. Lending companies and investors are their customers. As a borrower being “serviced” in the scam, you are simply one of millions in an ever-growing pool of what the financial services industry deliberately labels as “sub-prime” borrowers waiting to be taken advantage of.
• They have almost unlimited legal resources. If you had the financial resources to have effective legal representation and the documentation to challenge them, they would turn their attention to easier targets. Of course, because most sub-prime borrowers are not well off and don’t have an attorney, you’re a likely target.
• They have leverage and information and will prey on your fears. The fear of possibly losing your home is the key that unlocks your bank account for them. They know almost everything about you financially and even from an employment and income basis. They are made aware of your inquiries into other lenders about refinancing even without a request for a payoff and that shopping may lead them to target you before you can get out of the loan you’re in.
• They are experts with millions of successful cases behind them. The loan servicing industry, including those who founded and are running the servicing scam companies, helped craft the “standard” loan documents in widespread use. They are written entirely for the protection of the lending industry, not the consumer. That situation allows them to manipulate their processes and procedures to push you into a position where they can take funds from you or ultimately take your home, often within the terms and conditions of the loan. Some do go beyond the terms or even break the law and aren’t stopped because the borrower does not actually understand the agreement they signed or the laws and regulations.
The path toward losing your home to this scam is actually quite simple. The first phase is designed to fabricate the default, and typically begins with one, or a combination of ways to arm the servicer’s records with false data:
When the servicer decides to manipulate the date the payment is received in order to artificially create a late payment.
When the servicer applies part of the payment to something other than principal and interest and creates a partial late payment or deficiency.
When the servicer decides to “force place” an insurance policy on the property by claiming the Homeowner has not provided proof of insurance.
When the servicer pays your property taxes late, then adds their late penalty to your account without your knowledge.
Any or all of those processes result in at least one month of the account being past due and a negative note is made in the credit report (which effectively prevents the borrower from refinancing). It also helps the Private Mortgage Insurance carrier keep the policy in effect on the loan, which is why these insurance companies have investments in servicing companies in the first place – a late payment or two allows the lender to keep the insurance in force.
If the borrower has anything more than about 10-15% equity in the property, it is to the servicer’s advantage at this point to not aggressively attempt to collect. In fact, if the borrower makes contact, the servicer will engage in delay tactics to avoid resolving the problem in time to prevent default. If the equity position is considerably less than 10%, the servicer does not have as much leverage, nor is the opportunity as great and they will typically be more aggressive in collection efforts and more willing to keep the loan in force.
In the case of force-placed insurance, it is to the servicer’s advantage to ignore the borrower and any proof of insurance as long as possible; again, to keep the borrower’s credit status in a negative light and to maintain their relationship with the insurer they contract with. These policies are extremely profitable because they provide absolutely no coverage for the homeowner. They protect ONLY the value of the loan, including interest if the property is destroyed.
If the servicer has analyzed the opportunity and marked the property for default and recovery, the next payment received will be rejected as being insufficient. If it is accepted, the application of the funds leaves the loan sixty days past due. Typically, the scam now moves toward formal legal notice of acceleration in order to coerce the borrower into signing a highly-profitable forbearance agreement to somehow “save the home.” The servicer rolls thousands of dollars in penalties and an incomprehensible combination of legitimate and illegitimate fees into the agreement and the homeowner is left with no choice but to sign it or lose their home. The amount demanded will be calculated to take as much of the homeowner’s equity as possible.
If the homeowner decides to sell the property to get out of the situation and take their equity, they will find the payoff amount (which in the last month of the scam will take longer to get than the amount of time left before foreclosure) strips them of their equity. That combined with their artificially-damaged credit rating helps keep the victim a victim.
If the borrower cannot pay the amounts demanded in the forbearance agreement, the servicer will have one of their network of specialized attorney firms foreclose and the property will be sold, typically at a county auction or through their real-estate network.
If the borrower signs the agreement, they will soon be recycled through the process with yet more late payments and fees. But in the terms of the forbearance agreement, they may find they have signed away any legal protections they may have already had, including the right to sue the servicer for fraud or misrepresentation.
So, before you get scammed again. Next time you talk with your “lender”, be sure to ask them and require them to stipulate:
“Do you have the authority to modify my loan?”
“Who owns my note?”
“Do you have permission from the owner of the note to modify my loan?”
“Can I get it in writing?” ( Send a Qualified Written Request, get one free from http://www.foreclosureself-defense.com/company/free-stuff/ )
If you do this, you will be surprised at their reaction. All the sudden, they don’t want to talk to you any more. They know that you are onto their scam.
Don’t be fooled. Educate yourself!
Spread the Word
We need to let other homeowners who are trying to do loan modifications know about this scam. It’s just not right.
Please forward this post to your friends. Let them know. It’s time to get mad.