So Who Benefits From Protracted Foreclosures? Servicers!

One of the many themes being used to cultivate class warfare in foreclosure-land is the idea that people who are losing their homes are getting an unfair break. Many of them have learned that banks are moving very slowly on foreclosures and so they stay put until the sheriff evicts them. One culprit is crowded court dockets, which are often blamed on borrowers who are gumming up the works by fighting foreclosures. But that’s an exaggeration; the vast majority of borrowers don’t contest foreclosure filings. And as we have heard at some length in Congressional testimony this week, borrowers that do seek to stay in the home typically fall into one of three categories. First is that they are in a mod program (and became delinquent at the urging of the bank) but find the foreclosure is moving apace, despite the bank saying otherwise. Second is that they believe that they are not in arrears, that the bank has been charging unwarranted fees. Third is that they filed for a Chapter 13 bankruptcy (meaning they are holding all their creditors at bay while working out a repayment plan) and the bank is still improperly trying to take their house.

So borrowers getting to live rent free until they are told to depart is hardly their fault; the timing is entirely under the bank’s control. And this extra time is no freebie: banks can and do seek deficiency judgments when the proceeds from the home sale fall short of the mortgage balance, so the borrower in many cases could be pursued for the mortgage payments due during the extra months, which would be added to the principal balance.

I had long thought that the big reason banks were moving slowly was that once they seized the property, they would be liable for real estate taxes and upkeep, which could be quite a cash flow drain if a local market already had too much housing inventory and the sales process could be expected to be slow. But there may be more obvious incentives.

Kate Berry, in an American Banker story, reports that servicer profits are very much correlated with how long a mortgage loan stays in the securitization trust. Industry experts contend that longer holding periods allow the servicer to tack on more fees, which is to the detriment of investors.

From American Banker:

“The property is never worth zero, but there were fees added to the loan balance that exceeded the amount invested by the trust,” said Ritu Chachra, a RangeMark managing director, who analyzed securitized loans in which the loss severity for investors exceeded 100%. “The longer a loan stays in a trust and is not liquidated, the longer the servicer has to tack on these miscellaneous fees.”…

Ultimately these expenses are paid by investors…Private investors in mortgage-backed securities complain that loan servicers’ incentives are not aligned with their own and that the servicers do not provide loan-level data or a breakdown of charges and fees that ultimately come out of bondholders’ cash flow….

Evidence in court cases also suggests that some servicers have padded fees or steered foreclosure-related business to in-house divisions or affiliates…

“Foreclosure costs should not be more than 3% to 5%, so if the losses are higher we think there is either appraisal fraud or losses the servicer has tacked on,” she [Chachra] said…

Many of the fees charged by servicers are relatively small. But with defaulted borrowers staying in their homes an average of 18 months before heading to foreclosure, according to Lender Processing Services, every $40 monthly late fee, processing charge or broker price opinion fee compounds total losses.

“The longer this drags on, the more fees are involved for the attorneys and the servicers themselves,” said Steven Gillan, the executive director of the American Alliance of Home Modification Professionals, an Astoria, N.Y., company that helps servicers with the government’s loan modification program. “The servicers always argue that they’re not making money on foreclosures, but all the late fees and penalties are tacked on to the final value of the property, which increases the losses.”..

O. Max Gardner, a North Carolina consumer bankruptcy lawyer, said servicers “double-dip, triple-dip and charge fees on things that aren’t even real.”

In a Nov. 12 speech, Sarah Raskin, a governor of the Federal Reserve Board, admonished servicers for padding late fees, BPO fees, property inspection and attorneys’ fees, and for inappropriately assessing force-placed insurance. “The servicer makes money, to oversimplify a bit, by maximizing fees earned and minimizing expenses,” Raskin said, adding that “a foreclosure almost always costs the investor money, but may actually earn money for the servicer in the form of fees.”

The more you look at the foreclosure crisis, the more it becomes obvious that servicers are the problem. Everyone but the servicer (and subordinated bond investors) benefits from mods to viable borrowers. Servicers are in the game of maximizing fees, and until a way is found to rein them in, the needs of a small group of business units will continue to have a greatly disproportionate impact on the economy as a whole.

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  1. attempter

    The servicer looks to me like a perfect distillation of rentier-based capitalism. I’m not sure how anyone who supports it can argue with what the servicer does (as long as it’s within the law, and aren’t these fees allowed within their rigged law?). He has the opportunity to maximize extractions, and as we’re reminded ad nauseum by corporate apologists, he has the obligation to seize every such opportunity.

    Given the premises, the servicers’ behavior is perfectly logical and predictable. I really can’t fathom what the “investor”, who’s normally in the position of glibly justifying his own crimes, could imagine he has the right to comaplin about here. (The failure to convey the title in to the trust, and fraud in depicting the soundness of the loans themselves, are a different matter. But here we’re talking about the servicers’ capitalistic right to impose each and every bogus delay and fee the “free market” will let him get away with.

    Hey investors – you don’t like your servicers? Get better servicers. Surely your market will provide. (It’s fun getting to play the libertarian for once.)

    You will the end, you will the means. America willed this ideological end, so implicitly it willed exactly these practical means, anywhere a parasite can grab this kind of stranglehold.

    Are people finally going to wise up, that the problem isn’t “abuses” in the means, but the ideological end itself?

    1. DownSouth

      kevin de bruxelles frames it as the many, the few and the one, “the one” being the state.

      I think a better framing, one that fits both the current and historical situation better, is the many, the few and the few, with all three competing to control “the one,” that is the state.

      An excellent historical example comes from the “industrious” Dutch. With the rise of the Dutch Republic in the first part of the 17th century, what we find is that in one corner of the triangle are “the many”—-the peasants and workers. In another corner are “the few”—-the landed aristocrats. And in the third corner are “the few”—-the newly emerged burgher-oligarchs and merchant-adventurers.

      The interests of the aristocrats were tied to the old form of government—-the monarchy. Those of the new business class were tied to the new form of government—-the republic. Though nominally democratic, the republic in practice failed to live up to its billing. “The many” thus had little actual say in this three-way competition for control of the government. So in reality it boiled down to a contest between “the few” and “the few”—-between the new business class and the old aristocracy.

      In Holland the new business class was to prevail in this contest. C.R. Boxer sets out in The Dutch Seaborne Empire: 1600-1800 how the business class consolidated its power over both the other “few” and the “many”:

      When the States of Holland informally renounced their allegiance to King Phillip II of Spain in 1581, they also enacted a law forbidding the town councilors to consult with the representatives of guilds (from whom they had originally sprung in the Middle Ages) or of the civic guards (as such) on any provincial matters. The regents thus took advantage of the struggle with Spain to consolidate their position as a self-perpetuating burgher-oligarchy and to exclude the ordinary citizens from any direct say in either the local or the provincial administration.

      The new nominally “democratic” republican form of government, though a boon for the new business class, produced few benefits for the “many.” As Boxer explains:

      Although adequate unemployment statistics and other relevant materials are lacking, it is clear from numerous contemporary accounts of the Dutch Republic in its ‘Golden Century’ that economic expansion and national prosperity were accompanied by great poverty among many groups of workers, as happened later in England during the Industrial Revolution.

      (By the advent of the Industrial Revolution, the political and economic ideology of the burgher-oligarchs and merchant-adventurers was to solidify into a well-rehearsed doctrine known as capitalism, whose greatest chronicler was Adam Smith.)

      The emergent burgher-oligarch and merchant-adventurer class was upon its inception quite “industrious.” As Boxer explains: “By 1648 the Dutch were indisputably the greatest trading nation in the world, with commercial outposts and fortified ‘factories’ scattered from Archangel to Recife and from New Amsterdam to Nagasaki.”

      But Holland’s place in the sun was ephemeral. Its demise was precipitated by, as Boxer documents in great detail, the transition of the ruling class from “a merchant oligarchy to a rentier oligarchy.”

      What the current situation has in common with the Dutch situation of the early 16th century is that it is a contest of “the few” vs. “the few.” The interests of “the many” really count for nothing.

      The differences between the current situation and the Dutch situation of the early 16th century I believe are twofold:

      1) The newly emergent business class in early 16th century Holland really was “industrious.” It actually produced something. The business class of today produces nothing, preferring instead to engage in zero sums games, not unlike what the Dutch business class degenerated into in the 17th century with its tulip manias and whatnot.

      2) Holland never went the fiat currency route. Throughout the 16th and 17th centuries the meaning of money was palpable—-gold and other commodities. I find no evidence in either Boxer’s book or Jonathan I. Israel’s The Dutch Republic: Its Rise, Greatness, and Fall 1477-1806 that the Dutch ever engaged in the sort of currency manipulation that Spain did beginning in 1599 or the United States does today. Here’s how Boxer describes the cultural and material forces that motivated the Dutch Empire:

      It was not Calvinism which was the driving force behind Dutch expansion overseas, but a combination of ‘love of gain’ among the merchants with the threat of unemployment and starvation for many of the seafaring community at home.

      ‘Gold is your god,’ said the West African negroes to the Dutch traders in Guinea early in the 17th century, thus anticipating King Charles X of Sweden, who pulled a rix-dollar out of his pocket and said, ‘Voilà votre religion’, to a Dutch envoy who was making some remark to him about liberty of religion.

      1. DownSouth


        “Early 16th century Holland” should read “Early 17th century Holland” and “Throughout the 16th and 17th centuries the meaning of money was palpable” should read “Throughout the 17th and 18th centuries the meaning of money was palpable…”

      2. Kevin de Bruxelles


        I think the distinction you are making is between a productive few and a parasitical few.

        Examples are legion, but just another to add to yours is from J.H. Elliot in Imperial Spain !469-1716 where describes the process of an elite turning from productive to parasitical occurring in Catalan in the 14th century:

        Increasingly afflicted by the insecurity of the times, the mercantile oligarchy began to lose its enterprise and its sense of direction. From about 1350 there are signs of a rapidly increasing investment in annuities and land at the expense of trade. The Catalan upper classes were pulling out of their great commercial undertakings, and turning themselves into a society of rentiers.

        This can also happen to the many. A Lumpenproletariat is the classic example. But any criminal class or population sitting in prisons is parasitical and a drain on society. Unemployed are typically not considered parasitical since it is normally a temporary condition, the unemployable are since that is a lifelong condition.

        A successful society that wants to maintain its prosperity and independence will seek to minimize (it takes to much effort to completely wipe them out) the number of parasites in either class. For the many this has always been rather obvious, many societies literally make it part of their religious dogma for the many to be productive. But for the few the dangers of becoming parasitical is sometimes less clear since they are the class that normally controls the levers of propaganda. One small example is the whole idea of a “gentleman” led the few in many societies to not be engaged in productive work up until recent times.

        One other manifestation of parasitical activity was for a society to engage in military conquest and later colonialism. But this works only for the short term, and if this activity crowds out productive work, then as soon as the conquests and booty ends, the society goes into steep decline.

        It’s funny because I was just discussing this morning the question of where a real estate developer falls on the productive / rentier spectrum. We didn’t come up with a good answer

        1. attempter

          Real estate developer (part of the FIRE sector) as productive or rentier? I don’t know how it is in Europe, but let’s look at how it works in America:

          1. Base your entire business model on a command economy: Massive federal subsidies and propaganda for “home ownership”.

          2. Lobby to have most rational land use and local self-determination laws repealed, and sue to overcome the few that remain.

          3. Lobby also for all sorts of additional subsidies.

          4. Bribe local politicians (shades of neo-colonialism through globalization) to socialize all the costs of new housing (road wear, school capacity, new sewers, etc.).

          5. Build shoddy disposable houses which are grotesquely inefficient from any energy or economic point of view, and for which there’s no natural market.

          6. These houses are also environmentally unsustainable (for example, in NJ there’s not enough water for them), and will add burdens to the existing infrastructure. But like I said you lobbied and bribed to externalize all the costs.

          7. Collaborate with the banks and government to generate an artificial market for these surplus houses through predatory lending. That includes even so-called “prime” mortgages, since like I said these houses aren’t sustainable and will end up costing far more than their sticker price.

          8. Just like every other criminal, take the money and run. IBGYBG.

          So is that a rentier or a producer? Hmm…

          (The one thing I can’t figure out is when I read that they’re still building new houses, even in places like Las Vegas. How are they doing that? Is “stimulus” money subsidizing that or something?)

          1. readerOfTeaLeaves

            Your points about socializing all the costs of development onto local taxpayers is right on the money. Also, the inefficient and unsustainable building practices. Also, the power of housing and mortgage interests in controlling — adding loopholes to, eradicating, and litigating — environmental regulations.

            You are right on ‘the money’ as it were.
            Our environment, local governments, and financial security were sabotaged for McMansion subdivisions.
            Feckless madness, to say the least.

        2. karen1p

          What you both are affirming is we now have a society in America driven by parasites….and I would agree with that.

        3. DownSouth

          Kevin de Bruxelles said:

          This can also happen to the many. A Lumpenproletariat is the classic example…Unemployed are typically not considered parasitical since it is normally a temporary condition, the unemployable are since that is a lifelong condition.

          A successful society that wants to maintain its prosperity and independence will seek to minimize (it takes to much effort to completely wipe them out) the number of parasites in either class.

          How very true.

          There’s probably only one group that hates the lumpenproletariat more than the rich, and that is the proletariat. This inconvenient truth just drives the New Left up the wall. It’s a complex phenomenon, and in the U.S. is made even more complex by the fact that, because of centuries of discrimination and extant discrimination, certain racial and ethnic groups fall disproportionately into the lumpenproletariat. So class issues get inextricably intertwined with emotional race issues. I think Hannah Arendt must have earned the eternal enmity of the New Left when she was rude enough to mention these complex phenomena and their interaction in Crises of the Republic.

          But the phenomena are undeniably there, as is evidenced by this article, Low incomes make poor more conservative, study finds, that Yves linked here. And note on the thread the consternation it caused craazyman and attempter.

          The most compelling theoretical explanation for the phenomenon I believe can be found in the essay “Strong Reciprocity and the Welfare State” by Christina M. Fong, Samuel Bowles and Herbert Gintis, which can be found free of charge on the internet. As the authors note:

          Thus, while self-interest is an important human motive, and income does explain some of the variance in redistributive attitudes, other motives appear to be at work. Abundant evidence from across the social sciences—-much of it focusing on the United States with similar findings in small quantities from other countries around the world—-has shown that when people blame the poor for their poverty, they support less redistribution than when they believe that the poor are poor through no fault of their own. That is, generosity toward the poor is conditional on the belief that the poor work hard. For instance, in a 1972 sample of white women in Boston, the perceived work ethic of the poor was a far better predictor of support for aid to the poor than one’s family income, religion, education, and a host of other demographic and social background variables.

          But one of the most helpful studies I’ve read on the subject—-more reporting than theorizing—-was the book Code of the Street: Decency, Violence and the Moral Life of the Inner City by Elijah Anderson. Here’s how Anderson explains it:

          Almost everyone residing in poor inner-city neighborhoods is struggling financially and therefore feels a certain distance from the rest of America, but there are degrees of alienation, captured by the terms “decent” and “street” or “ghetto,” suggesting social types. The decent family and the street family in a real sense represent two poles of value orientation, two contrasting conceptual categories.


          It is understandable that the traditional old heads and other decent people of the community should focus on the idea of individual responsibility. These people believe that whatever success they have achieved in their own lives has been the result of personal determination, and thus they are inclined to blame those who have not been successful for not having made enough of an effort. Not to blame the victim would be to make it too easy for those victims of inner-city problems. And it would give the decent people no way of distinguishing themselves from the street people. Therefore, even though the old heads are aware of the existence of discrimination and joblessness, their solution is to build up the grit of the community through the return of the decent daddy and the support of the grandmother.

    2. leroguetradeur

      attempter, what do you want instead? I think your argument is that there is no benign form of capitalism? That all forms of it, because of profit seeking, regardless of the nominal legal structure, in fact end up promoting criminal activity, theft, dishonesty, fraud.

      I don’t agree, I think modern markets with sensible regulation, if we can figure out how to stop regulation being captured by the regulatees, is probably the least bad way of organizing economic life.

      But what would your way be?

      1. attempter

        Maybe it would be, who knows. But we do know that you’ve had innumerable shots at doing that and they all failed. I’d say that by now regulated oligopoly capitalism has been empirically proven to fail, if the measure of failure is that it devolves into kleptocracy.

        I’ve said many times what I want, and what the end of the fossil fuel age will force anyway: Economic and political decentralization. Beyond that I want true federal democracy, since representative pseudo-democracy is also a proven failure, again by the measure of degradation into kleptocracy.

        Direct democracy and true federalism means all real power, political and economic, stays at its natural level, among the productive people themselves.

        This is the only way which any longer has any moral, rational, or practical validity.

        Now, within that framework there’s still lots of room for experimentation with various economic forms. “Market” is not necessarily synonymous with “rentier capitalist”.

        But I think one thing that’s proven NOT to work is proprietarianism over natural resources, the land, or the means of production. These are all clearly either the produce of the earth itself, and/or a cooperative endeavor. Anything other than cooperative management and usufruct over these has no moral or rational validity.

        And, not just in addition to, but precisely because it doesn’t work morally or rationally, it also doesn’t work on a practical level. That’s why it always degrades to oligopoly stagnation, bottlenecks, anti-innovation, inefficiency, strangulating rent extractions, kleptocracy. That’s what I call the Rule of Rackets – no one competes or innovates for one day longer than he has to. The second he can switch to rentier racketeering, he does. That’s why all the promises of the capitalist textbooks about how in a mature sector the profit rate would fall to a minimum have been proven false.

        Because capitalism doesn’t work.

        So the existing dispensation is not only immoral and irrational, but doesn’t even work, if the goal is to spread prosperity among all the productive people.

        In case people have forgotten, that was the point of civilization in the first place.

        But neoliberalism is an anti-civilization ideology, strategy, and set of tactics. It is post-civilizational barbarism. It wants to restore the worst of feudal enslavement and misery where even the consolations of medieval religion no longer exist. (But I do expect new cults to arise.)

        That’s what I want to prevent. That’s why I’m trying to oppose to it the idea of relocalization as the vehicle of redemption for economic prosperity, democracy, freedom, and human dignity.

        It’s the only way forward for civilization itself.

  2. R Foreman

    What happens those fees when mortgages are found that were never put into MBS trusts ? They should be eaten by the servicers who are playing the extend and pretend, hide the smelly sausage game which Bernanke, Geitner, and Paulson invented. The servicers, and their enablers at the central banks, are the problem. The politicians who want their gravy-train kickbacks of funny-money to resume, are also to blame.

    I can’t believe that reinflating a ponzi bubble has become our government’s policy agenda. From the executive to every member of congress, to large segments of the judiciary (and they don’t make or enforce law right?), they’re all supporting this policy, and they have for the past 15 years. Not one of them will stand up and fight for a return to sustainable levels of money supply and growth. If our system collapses, it couldn’t have happened to a nicer bunch of greed consumed idiots.

    They have these hearings, and act as if they’re trying to get to the bottom of it all, and all the while Ben is printing another $600 Billion so they can keep that gravy train rolling.. and they all know what that money is for, to keep the mostly-broken ponzi scheme limping along until Americans can be soaked for just a little bit more, and buy time so they can prepare their own golden parachute and fallout bunker.

    1. Matt

      The only money the FRB prints is FRB notes. With the US debt is money system doomed to bust the banks used to “print” most of the money as debt. They increased loans and deposits almost 2 trillion to ease the last 3 trillion in deficit, while the FRB has only printed a tenth as many new notes. The master of the debt is money system is not the FRB, it is the banks that own the FRB.

    2. karen1p

      My whole case revolves around one main point. The transfer was purportedly conveyed to the MBS pool, only after the title had been corrupted and the note had gone into default. I have been pushing this documentation in front of every legislator I can. Not even the attorney general quite “gets it.”

      What I have is evidence of securities fraud. And I know who is the investor into my pool. Not all of them, but a very big annuities trust would really like the info I have.

      1. Nathanael

        Have you phoned the lawyers for the annuities trust?

        If you can’t get hold of them, you could also file a friend-of-the-court brief in the case to drop a real bombshell, but most likely I’d think that law firm would answer the phone…

  3. Paul

    R Foreman

    What’s the alternative, restart the coal mines and steel mills? What modern American never did a honest days work, life long paper shuffling, graduate degree, law fictioned with a second marrige and two kids elite is suppose to do? Commercial fishing? Logging? Truck driving?

    What else is there but the looting of what wealth that hasn’t been shipped off into Chinese hands.

    This is no more then a Mafi style bustout of an entire country.

    Don’t be a putz. Grab what you can before nothing is left but punched out sheetrock and all the copper is gone from the old house. Last looter is a loser.

  4. dunnage

    Interestingly, nobody has ever liked labor, just manufacturing. Even today all were eager to jettison GM, the only damn company that made stuff.

    Unions were despised first because they provided representation — Pinkos. Now they are hated bacause they are the only wage earners with, those cheats, pensions and health care.

    Nobody paid a damn bit of attention to 40 years of no wage gains — none like in negative. Hell, nobody told these guy to feed the animals?

    So may we just get back to Social Security Cuts and Medicare Cuts — Feed the Stress Tested. The banks, actual like in the old time movies banks, fed to the STChosen by the Fed on Fridays is but a pittance.

    So let us now remember how much we appreciated the working person, being there are none,

    1. DownSouth

      Americans have pretty much hated democracy throughout their 234-year-long history as a republic. There was a little flickering of democracy inspired by Jefferson that followed the American Revolution, and another inspired by labor unions during the 1930s. But other than that the national ethos has been one of state capitalism.

      As to the urban proletariat—-the factory workers or the “industrial millions”—-it remained politically and economically helpless until the advent of the sit-down strike. As Lawrence Goodwyn explains in The Populist Moment:

      [N]one of the labor institutions had developed (or, in the case of the Knights, any longer possessed) an organizing tool that remotely matched the recruiting and educational power of the large-scale Alliance cooperative. Indeed, it would not be until the concept of the sit-down strike provided the C.I.O. with a similar self-describing value in the 1930’s that an American working class institution would be able to achieve an emotional drive comparable to the one that animated the Farmers Alliance during its great organizing sweep of 1887-92. Not until the labor movement developed a tactical solution to the problem of strikebreakers, a solution found only after three generations of experimentation, did effective organization come to a substantial part of the nation’s industrial work force.

      The American factory worker has once again been rendered helpless. His political innovations and hard-fought economic gains have been arbitraged away in the global marketplace. Here are some vivid images of what he’s up against.

      Unlike Jefferson, of course, labor organizers were not dedicated to small government because they believed such an entity could not cope with the power of concentrated capital. Rather, labor leaders sought democratic government, as Jefferson had.

      Labor theory poses the central twentieth- and twenty-first-century political question: can large government be democratic? The history of twentieth- and twenty-first-century industrial societies indicates not—-at least not within the prevailing conceptual limitations of traditional capitalism and traditional socialism. The planet is in dire need of not only innovative thinking, but structural changes to the economy and the polity. Unfortunately, the idea that workable small-unit democracy is possible within large-unit systems of economic production is alien to the shared presumption of “progress” that united capitalists and communists in a religious brotherhood.

      (Note: the last two paragraphs are paraphrased from Goodywn.)

  5. davidh

    My mortgage has been sold to FNM. Its a California mortgage and I know the sale was never registered at the courthouse because the letter from FNM said so. Its a very aged loan, and has a low LTV.

    The bank is now the just the servicer. They are in desperate straits according to a ratings companies.

    I used to mail in my payment, then they once claimed they didnt receive it in time. I protested, but to no avail. I just paid the fine.

    Since then, I’ve been making payments in person. Now I wonder if they were just trying to get more fees out of me by claiming the payment was late?

    1. Nathanael

      Yes, they were just trying to get more fees.

      MBNA’s credit card operation was notorious for phony late fees. They’d managed to set up their own branch of the post office so that they could lie about the dates they received payments.

      This is just part and parcel of banking practice since the 1990s as far as I can tell.

  6. Not an Attorney

    How can a servicer foreclose when a borrower is in Chapter 13?
    No, a 13 stops foreclosure sales. We are talking U.S. Court here, bankruptcy code and all that.

    Converting your 13 to a 7 stops all this potential shit:

    “banks can and do seek deficiency judgments when the proceeds from the home sale fall short of the mortgage balance, so the borrower in many cases could be pursued for the mortgage payments due during the extra months, which would be added to the principal balance.”

    1. Yves Smith Post author

      They file repeated motions for relief of bankruptcy stay, forcing the borrower’s attorney to waste time and money. Unsophisticated borrower’s attorneys (one who aren’t BK attorneys) often sign agreements to get rid of one of these stays cheaply that give the bank great leverage in breaking the stay later (I can get the details again if needed, this is a real ruse/abuse).

  7. Nota Bene

    Run away fast from lawyers who ask for upfront cash, run fast from those who spout unrealistic promises when you seek their assistance.

    Poor homeowners, they may have assumed that the realtor, mortgage broker, banker had a fiduciary responsibility to them – that brief period of ignorance must be long gone.

    Apparently, so is their responsibility for any of this mess.
    The entire foreclosure crisis that’s hitting News Inc presently isn’t even discussing the appraisers, the realtors, the brokers, the non-existant standards at enablers like Fannie Mae. No, like torture, our Government doesn’t seem to care. Millions do though, and it’s time to call authority illegitimate.

    1. karen1p

      Actually, perhaps not the MSM, but we have been screaming regarding the higher commission delivered to the mortgage broker to close a deal with a high YSP and therefore delivering a deficient loan to a borrower who is unsuspecting.

      We have also been screaming about the black out of honest appraisers. These poor sods were black listed if they did not cooperate with the banks to deliver dishonest appraisals.

      What I find interesting is the total lack of knowledge that most real estate agents have in this process. I stopped in to an open house just last month, when the title issues in the media were “hitting the fan”, and the agent was clueless regarding all these issues. There may have been a few agents on the inside of the dealings, but a lot just made their commissions and didn’t look at the overall consequences too much, IMHO.

      1. readerOfTeaLeaves

        We have also been screaming about the black out of honest appraisers. These poor sods were black listed if they did not cooperate with the banks to deliver dishonest appraisals.

        I know one of those ‘sods’.
        I’m in Washington State, where the Office of Sec of State is charged with business licenses, including appraisor licenses. In 2007 and 2008, the ‘sod’ in question was barely hanging on to his business, and ended up working with a credit union because he wasn’t willing to give the banks the assessments that they wanted (to jump up their own fees).

        Sometime late in 2008, I’m told that the Washington State Sec of State’s office went through lists of appraisors and matched those up with foreclosures; when they saw a pattern they yanked the appraisal licenses of those individuals.

        That meant that in the past 24 months, the ‘sod’ that I know has been overscheduled and basically had a little goldmine; because he was ethical, he had a horrid time back in the bubble. But he’s reaped nothing but money since then; the credit union he works for has a ton of good assets on their books, I gather.

        As for the realtor that you mention; a good realtor seeks information and tends to be very entreprenurial. But those that I’ve spoken with (and who I think are really, really good) have expressed a lot of frustration about how ‘anyone who can print a business card’ can set up shop as a realtor. One of the outcomes of this whole foreclosure fraud mess should be som ekind of professional standards for realtors; right now, the barriers to entry appear to be approximately ‘zero’. That makes the best realtors look like scrumbags, and those that I know resent that hard truth.

    1. kravitz

      Noted in Thursday’s House hearing, often, the Servicer is a division of the Bank.

      That’s the case with Bank of America, Chase, Citi, Wells Fargo.

  8. Leviathan

    I’m not arguing with the basic premise, but I’d like to point out from personal experience that not all servicers are the same.

    We were “serviced” by our lender as they went through an extended bankruptcy. Needless to say, they had zero incentive to work with us. They may even have been legally barred from doing very much while their assets were divvied up amongst their creditors.

    A new servicer came in post-bankruptcy and they were actually quite sharp and ready to deal. I have no idea what operating assumptions they were working on and we were still jerked around pretty hard. But if they had been our servicer from the beginning the process would have been much less stressful and easier to endure.

    There are some decent servicers out there. Maybe they are like reasonable prison guards who don’t beat inmates for fun. But I thought it was worth noting just the same.

  9. Valissa

    Judge wants answers to foreclosure document fees

    Pasco County Circuit Judge Susan Gardner decided to take a closer look at her foreclosure cases after law firms were accused recently of overbilling and forging documents. She doesn’t like what she’s finding – a mountain of fees to serve notice of foreclosure lawsuits to homeowners and to people who don’t exist. “Routinely, routinely, I’m seeing charges of $1,600, $1,800, $1,000, $800, any of those are ridiculous, and there had better be a good reason for it,” Gardner said, noting that these fees should typically be $45 to a couple hundred bucks. The judge chose 12 random files and said she found 11 of them had what she says appear to be inflated charges to serve homeowners with lawsuits. Some of the lawyers who submitted affidavits to the court saying the fees are “reasonable” often sign their names and bar numbers in an illegible scribble, court records show.

    1. Random Task

      I don’t get this. Susan Gardner decided to take a closer look only after the media pushes tales of malice? Slow afternoon and time permitting, and it’s raining outside so she’s not going out to eat, she then decides to take a closer look at random files concerning the folks who will soon be thrown upon the street? Otherwise a closer look never would have been taken?!

      I’m playing devil’s dramatic advocate here, but WTF?! What are normally Judges m.o.’s? ‘Borrower ain’t paid, out they go, paperwork looks ok’ ?

      1. lambert strether

        ‘Borrower ain’t paid, out they go, paperwork looks ok’ ?

        That’s how it works on Florida’s “rocket docket,” yes, as Matt Taibbi says.

        I think it’s a natural human tendency to assume that those with whom one works with routinely aren’t criminals, con artists, and so forth, so it doesn’t surprise me to see that a judge works on the assumption that the process isn’t corrupt.

      2. karen1p

        Judges have been assuming, like the rest of society, that major multi-national corporations would not submit forged and fraudulent documentation.

        Just like the investors believe those same multi-national corporations are responsible for making sure the investment paperwork has been done properly and has transferred these loans into the pools with all the correct documentation. Alas, we now know these Mortgage-Backed Securities are “Nothing-Backed Securities.” And thus, these major multi-national corporations have all committed massive securities fraud.

        Who woulda thunk?

        1. kravitz

          Well, in Cook County, the problem is the Sheriff wants to halt incorrect or fraudulent foreclosure evictions, but judges have signed final papers and he has to act on their order. It’s too late to ‘call the process back,’ and he has to do as ordered.

          “Cook County Sheriff Thomas Dart will restart foreclosure evictions as early as next week after the Illinois state Attorney General’s office notified him he must enforce all evictions signed by a judge.”

          But at least he’s having each order checked for document accuracy (which the judge would have done had more people known how big a problem there was with the documents.) He’s not actually getting noise about double checking. The issue is following a judge’s order itself.

          I do wonder if it’s possible for someone who finds the case was processed with fraudulent or problem documents to sue the county for abetting theft or such.

          Hold on: Cook County restarting foreclosure evictions next week

          1. Random Task

            In Texas – Randy Kelton, who often repeats no public official is above the law, has said he’s tried to get judges arrested, and has apparently had success with keeping people in their homes. Bizzarre stuff, is the guy an attorney? He’s been talking to Alex Jones, the notorious conspiratorial blow hard and he has a website offering his explanation of the grand jury system.

  10. Throw Down

    What the hell does this mean, the “culprit”?

    “One culprit is crowded court dockets, which are often blamed on borrowers who are gumming up the works by fighting foreclosures”

    Oh those darned borrowers and their gumming! Hmmph!

    Every “deadbeat” should be challenging every questionable piece of shit the debt collector is bringing into their Circuit Court. Signatures, loss mitigation affidavits, everything!

  11. ftm

    The colossal foreclosure mess has reached a scale that could easily drag the economy back into recession. Who is going to spend freely or borrow when the value of their primary asset continues to shrink? Forget about deadbeat borrowers, if the economy re-tanks the second term is a no go.

    When will the deliberater-in-chief be dragged into action?

  12. Random Task

    Do any states have the balls to outlaw MERS? One bit of testimony on Thursday had a industry hooker saying that both the mortgage and note come back together upon foreclosure: “Abracadabra, viola!”

  13. Richard

    Why did you not mention the elephant in the living room for why servicers might not to speed up foreclosure?

    Perhaps I am missing something, but aren’t the servicers owned by the big banks?
    Aren’t the big banks holders of $400+ billion in second mortgages?
    If the house is foreclosed on, doesn’t this force the bank to write-down the value of the second mortgage it is holding?
    If the bank has to recognize the loss on the second mortgage, doesn’t this decrease its capital?
    If banks were to recognize all the losses in their second mortgage portfolio, would this cause them to show they are insolvent (pre-mark to myth valuation of their structured finance portfolios)?

    1. Yves Smith Post author

      I have remarked upon this repeatedly in other posts but wanted to focus on the expense issue here.

    2. curlydan

      aren’t there 2 elephants in the room? we keep talking about MBS, but what about all the mortgages owned by Fannie and Freddie (i.e. us)?

      Aren’t all these fees eventually being recouped by the servicers by Fannie and Freddie? Due to the relative size of Fannie/Freddie versus private MBS, it’s the taxpayer really getting hosed, right?

  14. Sandy

    The old saying, “Figures lie, and liars figure” has taken on new meaning. I’m trying to understand why BAC Home Loan Servicing identifies itself as a “debt collector” every time I called to discuss my account, yet it is suing me…and its buddy MERS. Why do I keep hearing the term servicers, yet BAC says it is a debt collector? As far as I know, a debt collector cannot foreclose.

    I have a question about a strange element of my foreclosure suit: Is it an egregious conflict of interest for MERS to assign the mortgage (assuming it can) to BAC so BAC can sue MERS?

    In one case in NY, the judge (I think Shack) made a distinct slam at Countrywide Home Loan Servicing trying to pass off the same as Countrywide Home Loans. He wasn’t pleased, nor amused.

    Also, I’m trying to understand why Bank of America told me, when I was making payments as agreed during a forbearance, that it “held” my “partial payment” (BoA set the amount) until I had accumulated a full payment to apply to the balance. Did that build its coffers too?

    It’s staggering to think of the amount of money these banks receive on millions of loans when even a $40 late charge is added to each, EVERY month. This is an obscene amount of money. So is the $3.95 MERS received at closing on each of the 35 million loans Arnold says are registered in its system.

    I would appreciate any input about these questions.

  15. Ron

    Here in Calif the number of NOD’s and shadow REO’s, (those bank owned not listed on the MLS yet) above 500K are quickly reaching epic numbers. There is no creditable market for these homes at the price range banks would need to recover losses whether its first or 2nd liens and cramdowns would mean the nationalization of several TBF banks and exactly how homeowners could sell those homes into the existing market structure without creating another foreclosure wave or bubble should make interesting reading. San Diego to Northern Calif is loaded with several million homes currently valued above 500K with stranded homeowners hoping to sell to anybody sooner or later but the merry runaround has stopped and the current crop of foreclosures will look tiny as the current market structure comes apart creating millions of new underwater homeowners. The discussions at this stage is how to save either the banks or keep the homeowner in the house but my guess is that its not a problem that can be solved in the conventional sense of using cramdowns or taking over the banks rather we are faced with longterm destructive case of RE deflation that will run its course in spite of our best efforts.

  16. AR

    Aren’t the majority of ripped-off investors (the senior tranche-holders) pension funds, meaning average people? Weren’t most of the junior tranche holders hedge funds with CDS protection, in on the scam? It’s my impression that the servicers’ position between the borrower victims and investor victims was a calculated part of the entire mortgage bubble swindle to siphon up as much equity as possible from the middle class, pension funds and government (via bailouts).

    In the Carrington case it’s quite clear what the game is. Carrington not only serviced, but also owned the junior tranches of its MBS clients. In this manner, the longer they could keep a borrower in default, but shy of foreclosure, the more money Carrington earned. By the time foreclosures proceeded, their junior tranches had already triggered their CDS payouts, and took no further loss from the junk fees tacked onto the principal.

    I can’t imagine that this scheme was not built into the entire mortgage securitization scam from the outset: making sure that the major banks, through their servicing arms, had all the control and free rein to tack on unsupportable fees; writing PSAs in such a manner as to prevent scrutiny by the investors, and selecting trustees who would not have the inclination or authority to demand to see the servicers’ accounts.

    Adam Levitin’s written testimony for Thursday’s House hearing provides an example of two fees claimed for brokers’ price opinions on a house in Jefferson Parish, LA in early September 2005 when it was evacuated due to Katrina.

  17. Borrowers are Haitians

    More cut n’ paste from Gretchen ‘Martha Stewart’ Morgensen of the New York Times!
    Is this infantile chicken scratch? I think so:t

    “And along with it, their faith in the government. ”

    One shouldn’t expect a mainstream rag to report with any degree how the ‘Murican people really feel about their Government. Wouldn’t it be nice though if someone came out and said that Industry and the Treasury Department and Regulators were all sleeping with one another, clinking drink glasses with one another, letting the children of the street carry on amongst themselves, doing God’s work and spreading financial ingenuity like Agent Orange onto South East Asia? I’m reading this palp and wondering when the hell the Marines are going to be sent in to secure the Treasury Department, “and rightly so” as Gretchen would say.
    HAMP is dead, it is a joke, a cruel sick joke played against victims.

  18. Jeff Ellis

    Writers suggest that the “wild rage” from the soon to be foreclosed upon members of steerage is counterproductive, and out of place, perhaps a flaw in their upbringing, or a clearer indication of their irresponsible nature, foolhardiness and lack of education. As ridiculous as that sounds, it’s still another product currently shipping forth from the media.
    Of course, all of it is pure horseshit, and the smarter peasants can clearly see how the law has been broken. Setting people up to fail has been guided by our Government this time. They won’t admit their mistakes, executives at Fannie Mae, ex-regulators, current Bankers continue to act like nothing was done wrong. We’re without guilt, without error, and the press never holds these people to task. Never! Is it really any surprise? George Bush just said no one cares about torture.

  19. Social Apocalypse

    Servicers should not be permitted to profit from foreclosure for the same reason that I cannot purchase homeowners insurance on my neighbors property: It incentive-izes me to burn their house down!

    1. kravitz

      since some banks who (see supreme court ruling) are also servicers are guaranteeing trusts that the bundled faulty piles of crap are any good, doesn’t that put them in the insurance business as well?

  20. Opinionated Bloviator

    The TBTF banks are looting organisations run by thieves and servants of the Golden Calf. Everything they touch, manage or promote is created with the sole purpose of directing the loot into thier pockets and out of yours.

  21. chris

    The banks and servicers would not being doing anything if they were not making money. They are cash machines. Anytime you can charge a million accounts 40 $ a month it can add up.

    I don’t think it is uncommon for large companies to try to hit customers with modest fees that often go unchallenged because of the time it takes to get through to complain or because these fees are seen more as a nuisance rather than actual steeling.

    Imagine a cell phone company adding .99 on every customer’s bill. Many people wouldn’t notice and those who did notice will often just let it go.

    This could generate 5 or 10 million extra dollars a month. I am sure the servicers have a similar tactic.

  22. c.

    Why are people not trotting down to their local land records office.. looking up the most recent mortgage holder transfer that is actually recorded and then making their payments to that bank? Maybe into escrow for that bank until someone else can come clear their mortgage transfer lineage and record it properly at the county land records office?

    It would certainly have the effect of the whole “stop paying” that so many are advocating but it would FORCE the players in the system to comply with the legal system as it’s supposed to be used. :D

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