You simply must read this post if you care at all about the rule of law or can stand to see the gory mechanisms by which “regulation” has now become a fig leaf for criminal corporate conduct.
Reader Luxtexente submitted this comment yesterday, describing his experience as a Claim Reviewer for one of the 14 servicers, in theory working under the direction of Promontory Group and the OCC. He makes clear, contrary to other banks, which hired very junior people who had little understanding of real estate law and foreclosure procedures (see Adam Levitin and Abigail Field for examples) or foreclosure review firms who held themselves out as experts but have yawning gaps in their knowledge, that he and many of the other reviewers he worked with were very well qualified to screen servicer records. He describes how these reviews were systematically gutted.
Remember, the review firms were supposed to be independent, selected according to criteria set by the OCC and paid for by the banks, but supposedly not accountable to them. We had dismissed that idea early on as ridiculous. From a May 2011 post:
Let’s see…who chose these reviewers? The banks. Who is paying their bills? The banks. Who is a potential future client if all goes smoothly? The banks. And Walsh seriously expects us to believe the reviewers are independent, even before we get to the rampant conflicts?
But as Luxtexente tells us, it was much worse than that. It wasn’t simply that the consulting firms airbrushed out unflattering findings so as not to ruffle their current and hoped-for future meal tickets. The banks were actively involved in overseeing the project and the results were shameless rejection of any and every possible basis for borrowers getting recompense. He provides numerous examples of unquestionably abusive conduct, such as foreclosing on homeowners in non-judicial states without advertising the notice of sale as required by law, or failing to send a notice of acceleration. Enough of the reviewers understood state law requirements that they would find many, often over a dozen, violations on a single file. So how did the bank and the OCC conspire to solve this problem? They redefined the review process so as to omit matters of law. I am not making this up.
This is what corruption looks like at the operational level. I suggest you read this piece closely; it’s chock full of damning tidbits. For instance, Luxtexente gives us one reason why the cost of this process got to be so high: he and his colleagues were being paid early on to do nothing.
It is a first time one of a kind project. In theory those of us who joined were actually going to make a major financial debacle right again. We were going to examine 1.8 million mortgage foreclosures for technical error, misrepresentations, fraud, and failure to comply with Federal and state foreclosure laws or procedures.
Many of us are older and have been in the mortgage business in one way or another for 20 plus years. We came from every walk of the industry including Foreclosure Law Firms. So we should all have been skeptical, but the way we were selected for the job set aside our skepticism, we were hopeful that we might fix, at least for some people, this horrendous mortgage debacle all of us saw unfold for almost a decade.
I often refused to sign off on loans because of the complete lack of sense they made. I constantly warned superiors of the tremendous risk we ran by accepting Appraisals on properties that accelerated at 25, 30, and 50% annually or even semi-annually.
My wife ran a small mortgage business and she refused to sell the option payment arms, and the interest only 1.25% teaser rates that produced negative amortization. She would not and did not sell the ever increasing products that lacked any of the traditional restraints on credit risk, ability to pay and property review. She only sold the standard fixed rate and term products and warned hundreds of clients and potential clients of the dangers of what they were trying to do. Most would not listen. Some did. We slept at night when the debacle came crashing down.
However, this 25 billion dollar settlement with the banks seemed like a way to help fix the mess the Government, Banks, Realtors, and Appraisers got us into. Yes, some of it was just plain ignorance and greed on the part of consumers, but it was also sold as the American Dream, the chance of a life time to get ahead, to make a better life for our children, to achieve financial freedom, educate our children at schools we couldn’t even consider before this. It was a sold as a chance to move up to better, bigger, safer neighborhoods. It was sold as the chance of a lifetime. Many of us in the industry knew better, we tried to warn clients, bosses, banks, lenders, but who listens to the peons in the chairs drawing a paycheck.
This 25 billion dollar settlement seemed like the chance to help make it right. The head hunters called us by the hundreds and thousands. It was going to be a program where people with our skills in underwriting, processing, title work, insurance, bankruptcy, foreclosure law, and credit counseling could help right this sinking Titanic. We were told we can make a difference and help make things right for millions of people, and it paid well.
I was with the second wave of “recruits”. I was impressed. In a training class of 70 people at the bank I was to work with most of us were underwriters and processors with a smattering of actual Bar registered lawyers. The amount of mortgage and foreclosure knowledge was tremendous. From what I could see and hear, it seemed we could fix this debacle pretty quick. Across the country and with the 14 major banks and lenders involved there would be thousands of us, all with years of experience and a determination to make this right. Our instructors were from the banks and lenders.
I didn’t like that idea. I had originally thought that I would be instructed on procedures and goals by a third party entity called Promontory and or the government agency OCC. That did not happen. However, the training was interesting, and seemed straight forward, review the file, find the problems, and report them so they could be fixed. The goal, make wronged borrowers whole again as nearly as possible or so we thought.
After the training we arrived on the “floor” to begin a more in-depth training. We learned at that point that there was nothing ready for us to work on, but this nothing paid well, we could wait. Things did progress though, and our review procedures began to develop. We began in January, by April there were 500 of us at the location I was in and it was projected to reach 750 by June. Forty of us were actually reviewing files.
This is where we began to see the sham of the project. By the time I began reviewing files there were on 57000 files to review. The trigger for a review was that a borrower had to file a written complaint with the OCC. The problem with getting people to write a complaint was that all the advertising was direct mail to their homes and only to people that had been foreclosed on between January 2009 and December 2010. At a meeting involving the entire staff across the country (by phone) the question was asked “why just direct mail”, the answer, “TV, Radio and Print Media would attract too many of the wrong people and the banks and lenders didn’t want that.” When it was mentioned that it was two to three years after the borrower had been evicted we were told that “they should have put in a forwarding address with us”. I was dumbfounded, how could they expect people who lost everything to the bank to keep updating their addresses with the bank? It made no sense. But we kept plugging away at our task knowing now the battle was going to be tougher than we thought.
There was another issue. We were supposedly independent contractors, but we worked directly under bank and lenders authority and supervision. Any findings we made were quality controlled by the bank. Any findings we made came directly under the scrutiny of the bank. Any arguments over our findings, and whether they should be changed or not could and often did result in termination from the program without cause or warning and we had no recourse because we were contractors.
Other issues began to come up. Many of the tests and procedures we used to test a particular loan for harm to the borrower were State Specific in regard to the foreclosure laws of that State. As we began to delve into the files we found sometimes a dozen or more violations of the foreclosure laws with a specific file. The situation was becoming heated as Claim Reviewers (as we were called) began finding more and more issues of law, not to mention, incompetence, and immorality and poor judgment. Often times it was just a lack of communications between departments within the bank that caused the problem. None the less, there were tensions building between Claim Reviewers and bank managers as the list of harm on borrowers grew. However, the bank and the OCC did find a solution. Take the questions out of the tests we were doing that asked about issues of law. So one test that had 2200 investigative questions (there are about a dozen tests for a file review) now became about 550 questions. Issues of law were removed. At another of our group meetings we were told that if a borrower did not specifically cite the law or statute that was violated in their complaint that we were not to address a violation of law found in the file as it was now irrelevant to the issues at hand. When the questions was asked “how is a borrower going to know if a specific law or statute was violated since they are not trained in the law” the answer was that we only address what the borrower specifically complained about. The problem was that usually a borrower only had a feeling they got shafted somehow, but did not specifically know how. The complaint form also didn’t mention to the borrower that they had to be specific about issues of law. The form only asked generic questions about what happened. Now it was very evident that we were there as window dressing and not the compassionate heroes we thought we were.
Those were only the general issues that were causing friction. The sham was becoming more and more evident in the details. Some of the details involve foreclosure timelines, missing documents, misapplied funds, multiple modifications and similar programs at one time, it was amazing.
For example, in one case I reviewed the borrower paid approximately 25K to reinstate his mortgage. Then he began to make his mortgage payments as agreed. Each time he made a payment the payment was sent back stating he had to be current for the bank to accept a payment. He made three payments and each time the response was the same. Each time he wrote and called stating he had sent in the $25K to reinstate the loan and had the canceled check to prove it. After several months the bank realized that they had put the 25K in the wrong account. At that time that notified him that they were crediting his account, but because of the delay in receiving the reinstatement funds into the proper account he owed them more interest on the monies, late fees for the payments that had been returned and not credited and he was again in default for failing to continue making his payment. The bank foreclosed when he refused to pay additional interest and late fees for the banks error. I was told that I shouldn’t show that as harm because he did quit making his payments. I refused to do that.
There was another instance when there was no evidence that the bank had properly published the notice of sale in the newspaper as required by law. The argument the bank made when it was listed as harm to the borrower was “here is the foreclosure sale deed, obviously we followed proper procedure, and you should change your answer as to harm.”
Often there is no evidence of a borrower being sent a proper notice of intent to accelerate the mortgage. When these issues are noted in a file we are told to ignore them and transfer those files to a “special team” set up to handle that kind of situation. You choose whatever meaning you like for that scenario.
As far as modifications and forbearance go, I saw multiple cases in which a borrower would be given a forbearance agreement. It would be signed and properly executed and before the borrower could make the first payment the borrower would be offered a trial modification. Before that payment was due the borrower would be offered a permanent modification, but because there was already a forbearance and a trial modification offered and in place the borrower would be told that he/she must cancel the other offers in writing. Once that was done the modification offered would be denied for lack of performance on the other programs offered and then further assistance would be denied because of the borrower turning down assistance on the other programs. Then the argument was that we shouldn’t say the borrower was harmed financially because he turned down the help offered.
Time after time scenarios would go something like this. The borrower would call in and ask for help with a modification. Usually they called or were referred to the collections department. The bank employee would tell the borrower that in order to receive help they must bring the mortgage current. The borrower would send the money in, usually to the bank collection agent who gave the information and then the modification department would deny the borrower assistance because the mortgage was current and they had to be behind to receive assistance. Of course the bank argued that there was no harm because the borrower obviously could make the payment.
More often than not a borrower would be foreclosed on even though the bank had said they could apply for a modification if they would send in the financial paperwork required. The borrower would do this, 2, 3,4,5,6 or more times and the bank would “loose” the paperwork time and time again, until the house was finally foreclosed on. The borrowers would call, write, and call immediately after faxing the paperwork, be told it was received only to be denied later because they failed to send in any paperwork. The banks argument was that there was no harm to the borrower because they didn’t send in the paperwork, even though more often than not with a little searching the paperwork would be found in the system somewhere.
Often the paperwork would be sent in and not reviewed for four, five or six months and then the borrower would be sent a letter requesting they send it again because everything the bank had was too old to use. Many times this was done even after the home was already sold at foreclosure. The argument by the bank was no harm was done because they did not send the paperwork again.
The bottom line, agree or be fired. When the independent contractors who are there to independently judge the situation are ruled and judged by the very people that are responsible for the debacle in the first place is ludicrous. So many times I was told to not argue because I could be let go without notice or cause, it was difficult to hold my tongue. Most people would change the results and simply make notes in the system about being ordered by management to make the changes. But the banks and lenders control the notes. Others left the position. I actually thought there was hope when the OCC took the decision about financial harm to the borrower away from the banks and lenders and gave it to Promontory. It was called the H test. But that was short lived when we were told the banks and lenders were being allowed to form review teams to determine if Promontory made the right decision about financial harm. That was decided by the OCC. The joke is on the American people. Actually, the American people are being made the punch line.