A DC contact warned me last week that the banks were readying a massive pushback on the foreclosure crisis. It went into full swing over the weekend.
Obama, admittedly through his proxy, David Axelrod, threw his weight in behind the banks on Face The Nation:
Q: I guess the first question I would have is does the administration favor some kind of national moratorium on these foreclosures to get this all sorted out?
A: First of all, Bob, it is a serious problem. It’s thrown a lot of uncertainty into the housing market that as you know is already fragile. It’s bad for the housing market and it’s bad for these institutions which is why they’re scrambling now to go back through their documentation for all of this as they should. The president was concerned enough to veto a bill that came to him last Thursday that would have unintentionally made it perhaps easier to make mistakes. so we are concerned. We’re working with these institutions. I’m not sure about a national moratorium because there are, in fact, valid foreclosures that probably should go forward and where the documentation and paperwork is proper. But we are working closely with these institutions to make sure that they expedite the process of going back and reconstructing these and throwing out those that don’t work.
Q: I mean, I guess people are worried about what do you think the impact this is going to have on an economy that’s pretty shaky right now?
A: Look, our hope is is that this moves rapidly and that this gets unwound very, very quickly and that if they can go back, reconstruct their paperwork and what we’ve stressed to them is that they need to expedite that process and work very, very quickly to get it done. we’re going to continue to push for that.
Yves here. The sense of priorities is astonishing. Axelrod repeatedly stresses the need to get “this” resolved quickly. Notice the refusal to use accurate and honest language: at best, these are improprieties, but the more accurate word is fraud.
The emphasis is NOT on doing things correctly but on the need for haste. Yes, there is what amounts to an aside on the need to have “proper” paperwork, but that is more an assertion that some foreclosures aren’t afflicted by doubts over the securitization trust that supposedly owns the note, the borrower IOU, actually having taken the steps to prefect its rights.
And this is simply a variant of the spin the banks have tried since the affidavit mess surfaced: that this is a mere “paperwork” problem. As we commented earlier in the weekend, that’s utter bunk. First, even the supposedly minor manifestation, that of “improper” affidavits, is a fraud on the court. And it hasn’t just been taking place in the 23 judicial foreclosure states; it has also taken place in non-judicial states every time a foreclosure is contested. Second, the banks and their mouthpieces are being disingenuous in implying that they merely need to find the right parties and redo the affidavits. Some states, like South Carolina, are very strict on procedures; they disbar lawyers who screw up residential real estate closings (the logic is if a lawyer can’t handle something that simple, he has no business practicing law). The lawyers involved in providing these bogus affidavits to the court ought to be subject to sanctions; some judges may require cases to be refiled. Not only is this a big operational hassle; there are judges who take the propriety of their court seriously and may not be terribly accommodating when banks try resubmitting affidavits.
And that’s before we get to elephant in the room, namely, the affidavit “improprieties” are a mere symptom of much deeper problems, namely, with the failure of the key parties in the original securitization (the originator, the investment bank packager, and the trustee/custodian) to make sure all the contractually-stipulated steps were taken to make sure the trust actually got possession of the properly-endorsed note and related documentation.
Another bit of bank-defending rubbish was in the Washington Post over the weekend (the intensity of coverage in the WaPo is a function of bank industry efforts to get its message out). Even though the headline wasn’t too awful (“Government had been warned for months about troubles in mortgage servicer industry“), it was a defense of the Administration’s failure to bring servicers to heel. The core argument is Treasury party line; Geithner took exactly the same position in the blogger meeting last August:
In an interview this week, a senior administration official confirmed that the White House and Treasury Department had received warnings that the mortgage industry employed inexperienced staffers to oversee foreclosures, had problems handling documents and communicating with borrowers, and often failed to comply with regulations.
But the government had struggled to address shortcomings in the industry, the official said, because the administration was also seeking the servicers’ help with modifying the home loans of millions of borrowers to help them avoid foreclosure.
In addition, a Treasury official said the federal government’s power to tackle problems in the servicer industry is limited because foreclosure law is largely the domain of states.
Yves here. We are supposed to take this seriously? Any regulator with guts could very quickly make life miserable for the servicers if it wanted to. If they were to threaten investigations on, say, issues where there is clear evidence of servicer problems that really ought to be cleaned up regardless (the gaming of HAMP and other mod programs, plus illegal application of payments to fees first rather than principal and interest, or servicing errors generally are all ripe targets), they would easily unearth a lot of poor practices that could be used to gain leverage over uncooperative banks. And the point would not be even to make the investigations, but to have a staredown with the banks and make it clear that if certain things didn’t happen that were in everyone’s best interest, there would be consequences. This isn’t about lack of leverage, as the Treasury falsely contends, it’s an unwillingness to inconvenience the industry.
And below is the text of a letter making the rounds on the Hill. This is simply dishonest. First, note the complete lack of mention of the foreclosure crisis; this is an effort to divert attention from the real issue, the mess the securitization industry has made of the housing market at pretty much every step of the process, from ginning up bad “spready” loans on purpose to feed demand for CDOs, to deciding to ignore the carefully-devised procedures to make sure the securitization trust complied with all the requirements needed for it to have ownership of the mortgages; to rampant document forgeries and fraud to remedy the procedural failings. Second, it implies that servicers are happy to mod mortgages. Huh? They’ve done it only under duress, and with bribes, um, fees. And even then, most of what they call “mods” are short-term payment catch-up plans which do the servicer more good than the borrower; even the so-called HAMP “permanent” mods are mislabeled; they are five year payment reduction plans; there is nothing “permanent” about them.
So get used to the barrage from the Ministry of Truth; you’ll be subjected to a lot more of the same over the next few weeks.
October 8, 2010
The Honorable XYZ
United States House of Representatives
Washington DC 20515
Dear Representative XYZ,
We are writing to set the record straight on the efforts mortgage servicers are making to assist
at-risk homeowners, as well as to address the issues that are being raised about the processing of documents for mortgages that are in foreclosure.
Foreclosure Document Reviews
As we have said consistently, foreclosure helps no one, and it is the last thing our mortgage servicing companies want to have happen. That is why our members work hard every day with their customers who are behind on their mortgage to try to find a solution that avoids a foreclosure. This effort has produced dramatic positive results for homeowners. Mortgage servicers have completed 1.3 million loan modifications for homeowners thus far in 2010 and more than 3.7 million since 2007.
Unfortunately, there are circumstances when a modification or other potential solution such as a short sale is not possible and foreclosure proceedings must be undertaken. As has always been the case, no change in the terms of the loan will help a homeowner if they don’t have adequate income to make even greatly reduced monthly payments, or if they have no desire to remain in the home. If that is the case, a foreclosure must be pursued by the servicer.
We want to assure you that foreclosure is not initiated by servicers until many months of delinquent payments, after repeated attempts to work with the homeowner, and only when all other foreclosure prevention efforts have failed.
In several states, some mortgage servicers have put final foreclosure sales on hold while they review their document procedures. It is important to note, however, that these are document process reviews; in almost all cases there are no factual disputes about whether the mortgage is delinquent, the amount of the arrears, or whether foreclosure is proper. Indeed, a substantial percentage of foreclosures are uncontested by borrowers. In the overwhelming majority of cases, we believe the facts presented to the courts in foreclosure proceedings about the debt amounts and delinquencies have been accurate.
Servicers should be permitted to complete the review of their document processes that they have already begun. Calls for a blanket national moratorium on all foreclosures are a bad idea and would cause significant harm to communities at risk, the unstable housing market and the fragile economy. A foreclosure moratorium would not change the ultimate outcome for borrowers impacted by this situation.
Distressed Homeowners Are Being Assisted
The foreclosure document and affidavit reviews servicers are conducting are only a part of the on-going efforts being made to help homeowners avoid foreclosure and stay in their homes. Servicers are also continuing to work to assist thousands of homeowners everyday who are behind on their mortgage payments.
These are the facts:
* Mortgage servicers completed 149,000* loan modifications for homeowners in August 2010, including 116,000 proprietary loan modifications and 33,000 Home Affordable Modifications (HAMP.) [*HOPE NOW Alliance October Data report]
* 91% of all proprietary loan modifications in August reduced homeowners’ monthly payments so that the modifications are affordable and sustainable.
* Through August, mortgage servicers completed 1.3 million loan modifications in 2010 and almost 3.7 million since 2007.
* There have been 775,000 completed foreclosure sales through August 2010, compared to 1.3 million loan modifications through August. 2010
* Short sales and deeds-in-lieu are being offered as a dignified alternative to foreclosure for homeowners who have exhausted all their foreclosure prevention options and cannot maintain their mortgage.
* Servicers continue to contact and assist at-risk homeowners in a wide variety of ways. Companies have individual customer assistance centers and participate in face to face outreach events across the nation individually and sponsored by Making Home Affordable and the HOPE NOW Alliance. More than 77,000 homeowners have received assistance at 87 HOPE NOW face-to-face events held all across the country since 2008.
* Homeowners can reach a non-profit counselor at a HUD-Certified counseling agency 24 hours a day, 7 days a week through the 888-995-HOPE Homeowners’ HOPE hotline operated by the Homeownership Preservation Foundation.
* Servicers and Counselors have worked to enhance electronic submission of documents for loan modifications through the new HOPE LoanPort system.
Mortgage servicers continue to help thousands of consumers avoid foreclosure every day. Real progress is being made. The foreclosure document and affidavit review process that servicers are undertaking will clarify the situation significantly.
Attached is a link to the resource sheet for Congressional staff to assist your constituents. We will continue to work with all Members of Congress on mortgage loan inquiries that you receive from your constituents.
President and CEO
The Financial Services Roundtable
Housing Policy Council
John A. Courson
President and Chief Executive Officer
Mortgage Bankers Association