Here the major bank servicers are about to get a screaming bargain via a hoped-for multi-state-Federal mortgage settlement, and what is number five service Ally doing, but threatening to thumb its nose at the deal as being to hard on them.
Per Housing Wire, Ally CEO Michael Carpenter made some pretty cheeky statements on an investor conference call today:
“If we think a settlement is not in the best interest of our shareholders, which is still the U.S. taxpayer, then we will not participate,” Carpenter said in a conference call with investors Wednesday. “The downside is long-term aggravation and legal fees. But if you think we have significant exposure from a financial implication, the answer is no.”…
Carpenter said Ally reviewed 25,000 foreclosure cases with potential evidence of forged documents and affidavits. The bank found each borrower reviewed had been delinquent on the loan at least one year, in some cases two, he said.
“We deeply regret the sloppy operational practices that led to this. But we have contractual obligations as a servicer to foreclose when we must,” Carpenter said.
He said the bank has corrected the mistakes and reiterated on the call that each servicer may have different exposures in their portfolios.
Notice the logic here. First, the assertion is that the law does not matter, all that matters is whether the servicer’s records say the borrower is current. But as we have discussed repeatedly, there is ample evidence of both error in servicer records and abusive and impermissible practices regarding servicer fees, such as junk fees, force placed insurance, double dipping (charing both the investor and the borrower the same fee), impermissibly (via contract and Federal law) applying borrower payments to fees first rather than principal and interest. The latter practice results in “pyramiding fees”, since charging fees first means a regular payment will be deemed short (or in many cases, will be placed in a suspense account and be treated as late), generating yet more fees. I had an attorney tell me that he had a client where a single disputed late fee led his client to declare bankruptcy to escape foreclosure (the fee and subsequent charges were proven to be unwarranted). And as readers know, the servicer is judge, jury, and too often, executioner. Any borrower who believes his servicer has made an error will find it well nigh impossible to pry the internal records out of his servicer, even with a lawyer’s assistance, and it then takes a forensic accountant to review and present them in court.
And notice Carpenter’s airy dismissal of near certain document forgeries and fabrication as mere “sloppiness”. I sat in on one foreclosure case where GMAC was the servicer. An allonge appeared magically at the 11th hour and included obvious forgeries (Photoshop shrunk to fit signatures and pixtilation on documents that by law had to have wet ink signatures). The GMAC representative also perjured himself, offering testimony with great confidence early on that he was forced to retreat from when presented with documentary evidence that contradicted his sworn statements.
I sincerely doubt these practices have stopped, since absent the invention of a time machine, it is impossible for a servicer to foreclose in the name of a trust legally, since the mortgages were not transferred to it in the manner necessary (and set forth in the governing document, the pooling & servicing agreement) for the trust to have ownership. Someone else in the securitization chain presumably does have the right to foreclose, but no one wants that to happen, since there is not kosher way to get the money from that party to the trust. In addition, no one wants to admit that mortgage backed securities might actually not be mortgage backed.
Carpenter also mischaracterizes the settlement as being limited to robosigning. Various leaked indicate the release will be broader, and the Ally CEO seems remarkably unaware of what his potential exposure is. But Lisa Epstein, via e-mail, reminds us that GMAC received the first robosigning sanction by a Florida judge (in 2006), was the first to threaten a foreclosure attorney (Tom Cox) for exposing fraud, and broke the robosigning scandal open by halting REO sales due to title defects.
Personally, I think it would be great if Ally rejected the settlement and later got raked over the coals, say if a bank friendly attorney general is replaced by one more interested in upholding the law. But it is more likely that this is yet another bank-side negotiating gambit, and Ally either volunteered or was volunteered to see how much the banks could improve the terms by yet another display of pique. That strategy has worked swimmingly so far, so why not keep at it?
I’d be delighted if it was the banks that derailed the settlement talks by overplaying their hand. The evidence piling up in courtrooms all over the US is too overwhelming for them to pretend they have clean hands. And that gridlock getting worse is what will finally force a resolution. Any real remedy of these problems is certain not to be to the banks’ liking.