Quelle Surprise! Ginnie Mae Says Bank of America Has Lots of Servicing Documents Missing; MERS Also in Hot Water

An article by Kate Berry in American Banker earlier this week hasn’t gotten the attention it deserves. Anyone who was paying attention to the mortgage beat in 2010 through 2012 knew that mortgage securitization originators and servicers were playing fast and loose with critical documents like mortgage notes because they couldn’t be bothered to observe their own contracts and transfer them to the mortgage trust as stipulated.

But exposing that threatened to blow up the mortgage-industrial complex. So the Obama Administration and the major regulators labored mightily to engineer a cover-up settlement, which included all sorts of pious promises by servicers to Do Better.

Two years later, what do we find? Bank of America, one of the biggest miscreants, wants to exit servicing mortgages guaranteed by Ginnie Mae. One thing that may not be obvious to most readers is that servicing those mortgages should be a no-brainer. Unlike subprime mortgages, where each deal had slight (or sometimes not so slight) variations in terms, Ginnie Mae has a handbook that servicers are supposed to follow.

Yet with crystal-clear guidelines, plus two years post the state-national settlement to clean up its operations, Bank of America has so many important documents missing that Ginnie Mae won’t let them sell their servicing operations. From American Banker:

Ginnie Mae has halted the transfer of mortgage servicing rights from Bank of America (BAC) to a nonbank servicer because the bank is missing documents such as recorded mortgages and title policies on the underlying home loans.

Ted Tozer, the president of Ginnie Mae, says he has held up the transfer of servicing rights by B of A “for an extended period” because the bank is not complying with agency’s guidelines that require all mortgage documents be delivered to custodians in a timely manner..

Though Ginnie Mae has flagged problems with servicing transfers by Bank of America before, Tozer says, they were resolved quickly and did not affect the transfer dates. This is the first time a transfer has been delayed for an extended period.

“All we’re asking for them to do is to live up to the agreement from 10 years ago,” Tozer says.

The striking part of this is that as derelict at duty as Bank of America has proven to be, Tozer isn’t sure they are any worse than the other banks:

It is unclear how widespread the problem of missing documents is in the transfers of mortgage servicing, Tozer says, and he does not want to single out B of A.

“I don’t mean to sound like we’re picking on B of A,” he says. “I can’t say if it’s just B of A or not.”….

Ginnie’s “representations and warranties” program allows participating servicers to classify pools of loans as receiving “final certification” from Ginnie, even if there is no receipt of documents and no review by a trust’s custodian that the essential documents have been delivered to the trust.

Instead, the servicers in the program agree to send all the essential records of the mortgage, deed of trust, title policy and intervening mortgage assignments to the document custodian in the normal course of business, usually within a year, though there is no set time frame.

Some servicers have asked the agency to extend leniency or grant waivers under the program; Ginnie has refused to do so. The agency now is asking the largest mortgage servicers for an inventory of loans that may have missing documents that cannot be verified by trust custodians.

It’s going to be intriguing to see if Ginnie Mae wind up going where no financial services regulator has been willing to go before, namely, to get to the bottom of how severe the “bad records” problem is at the major mortgage servicers.

On a related front, Bloomberg described on how another fixture of the servicing industry, MERS, seems to be suffering a slow and well deserved decline, and perhaps demise, due its inability to meet the terms of a 2011 settlement agreement and contend with ongoing litigation. From the article (hat tip Lisa Epstein):

As the rest of the housing industry recovers, a little-known firm with a key role in U.S. mortgage finance remains stuck in limbo, wrestling with regulators, lawsuits and the departures of senior employees.

The turbulence feeds uncertainty about the fate of Mortgage Electronic Registrations Systems Inc., or MERS, which documents the ownership and resale of about half of U.S. home loans. A breakdown could force clients such as Fannie Mae (FNMA) and Bank of America Corp. to make costly changes to their loan businesses.

Management hasn’t completed fixes promised in a broad 2011 U.S. settlement designed to stop foreclosure abuses, according to two people briefed on MERS’ operations. Regulators rejected one of the firm’s consultants as unqualified and are examining why four employees hired to help with reforms — including the chief legal officer — recently quit, said the people, speaking on condition of anonymity because the matter is private.

The closely held Reston, Virginia-based firm, a unit of Merscorp Holdings Inc., is also facing scores of lawsuits and state probes that challenge its business model as well as the legality of its filings in hundreds of county courthouses.

Things at MERS are so bad that *gasp* observers as daring to suggest that banks might suddenly be forced to register mortgages the old-fashioned way, as in reliably:

“If the use of MERS is found not to be valid, we could be obligated to cure certain defects or in some circumstances be subject to additional costs and expenses,” Bank of America reported in a February filing. “Our use of MERS as nominee for the mortgage may also create reputational risks for us.”

Fannie Mae, in its annual financial report filed in February, also noted the potential effects if the lawsuits or regulatory pressures force changes in MERS.

“A large portion of the loans we own or guarantee are registered in MERS’s name and the related servicing rights are tracked in the MERS System,” Fannie Mae’s report said, adding that if the firm couldn’t function in the same way, lenders could be forced to go back to time-consuming and expensive methods of recording land transfers.

We have repeatedly flagged that the underlying problem with servicing is the state of the underlying records, yet the authorities keep pretending as if they can put Band-Aids over a gunshot wound. For instance, as we wrote in early 2013 during our Bank of America/Independent Foreclosure Review whistleblower series:

At Bank of America, the disorderliness of the project is only part of the story. Focusing on that aspect serves to exculpate OCC, the bank and Promontory. The dirty secret of these reviews is they could never have been done properly. There was no pre-existing, internally consistent, complete and provably correct account of a customer and his loan in the Bank of America systems. All the dysfunction of the reviews was inevitable given the state of the records. The only course of action possible was a cover-up; the only open question was how much effort would be expended to create the appearance a thorough investigation was made.

So here we are, years later, still seeing the same wound continuing to fester….and remarkably, people like Ted Tozer at Ginnie Mae are surprised to find how bad things are. It shows you how even people who really ought to know better have been taken in by bank and regulatory propaganda.

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  1. Mark P.

    Heh. This today regarding MERS, courtesy of Bloomberg —

    Note that halfway through the article comes the following hilarious circumlocution. Sure, Bloomberg editorial and legal staff are pretty much bound to tread lightly away whenever they get anywhere near possible use of the ‘F word.’ Still, get this …..

    “While the company didn’t admit wrongdoing, MERS agreed to an order from its bank members’ regulators — the Federal Reserve, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and the Federal Housing Finance Agency – – to fix faults that let it become a platform for robo-signing.”

    MERS didn’t ‘fix those faults,’ it turns out — as if one could fix years of massive, continent-wide fraud after the fact — and now TPTB seem to be aiming to euthanize the company as unobtrusively as possible.

    1. archer

      1. That’s the same article Yves linked to and discussed in her post.
      2. It’s not an editorial.
      3. That quote is not in that article.

      1. diptherio

        You’re a little off the mark there archer. While it is the same story that Yves quotes, and it is a news article–not an opinion piece–the quote does appear in the story. I find it at the head of page two. Methinks you missed half the article.

      2. Mark P.

        archer wrote: “It’s not an editorial.”

        I never said it was. I said that Bloomberg editors — I used the words “editorial staff” — would veer clear of anything remotely attributing fraud or similar malfeasance to some person or organization, unless those editors were advised by Bloomberg legal staff that they were on very secure ground.

        Perhaps the word ‘editorial’ is confusing? Professionals refer to all media content that isn’t advertising — news, features, columns (whether editorial or not) — as editorial content, and editors are in charge of it. Primarily, editors get to be editors by being, above all, the servants of the status quo and the bosses. This is, as you’d expect, particularly true of Bloomberg’s operation. (I’ve known people there.) Thus, the amusing circumlocution in the Bloomberg article.

        archer wrote: ‘That’s the same article Yves linked to and discussed in her post.’

        I never said she didn’t.

        archer wrote: ‘That quote is not in that article.’

        It is. I actually read it.

        1. just me

          Maybe it’s Bloomberg paraphrase…

          He [MERS CEO R.K. Arnold] said that he knows of no mortgages that have been invalidated because of MERS’ involvement.

          …and maybe what he really replied was “la la la la la la la la la la la la”


          (walks like a zombie, talks like a zombie?)

  2. diptherio

    Oooohhh, this is a doozy (from the Bloomberg article):

    He [MERS CEO R.K. Arnold] said that he knows of no mortgages that have been invalidated because of MERS’ involvement. The company still operates in every U.S. county, he said, “meeting a need that no one else does.”

    He must be making a point of not knowing about the numerous cases where MERS’ involvement has led judges to invalidate mortgages. Here’s one I came up with in just a few minutes on msfraud.org:

    In May 2012, Deutsche Bank filed a mortgage foreclosure suit against Elesh in this district. The case was assigned to Judge Ronald Guzman. Deutsche Bank Nat’l Trust Co. v. Elesh, Case No. 12 C 3644 (N.D. Ill.). In September 2012, Elesh filed a motion to dismiss in which he asserted that the assignment of mortgage from MERS to Deutsche Bank was not legal for various reasons. He also filed a counterclaim attacking the authenticity and validity of the assignment. […]

    Judge Guzman found that Deutsche Bank had “failed to establish that: (1) the
    purported original promissory note is authentic; (2) the note was properly indorsed by an agent of the obligee; or (3) that, when plaintiff filed this suit, it possessed or owned the original promissory note.” Deutsche Bank Nat’l Trust Co. v. Elesh, No. 12 C 3644, 2013 WL 2242452, at *1 (N.D. Ill. May 21, 2013). Based on these findings, Judge Guzman concluded that Deutsche Bank had failed to establish that it was injured by Elesh’s default on the note and thus lacked standing to sue.

    Deutsche Bank did not appeal the order of dismissal. The Court has no information indicating that Deutsche Bank or any other party has since attempted to pursue another foreclosure suit against Elesh.


  3. monday1929

    “Reputational Risk”!! If there is one thing the Insolvent Welfare Queen banks do not have, it

    is Reputational Risk. Once again proving their risk metrics are askew.

  4. Watt4Bob

    I ran into a friend/work acquaintance a while back who was working at the time for Wells Fargo.

    She told me that she worked in a very large office/warehouse with a lot of other women who searched through huge piles of mortgage documents delivered by the semi-truck load, looking for any that ‘might’ be relevant to Wells Fargo.

    The trucks are unloaded, the documents searched, and then the piles of paper are re-loaded and forwarded to other banks who have similar operations all over the country.

    It goes without saying that it was a miserable, low-paying job.

    It brought to mind the gigantic rotting pikes of legal paperwork portrayed in that old black and white movie of Kafka’s The Trial, by Orson Wells.

  5. Pwelder

    Yves had that missing documents/MERS story nailed years ago. It was a scoop – in its way far more striking and newsworthy than the HFT scalping discussed in Michael Lewis’ latest. And yet the mortgage story sank like a stone, while the Lewis book was all over the media to the point where it was inescapable.

    I know I know, life is unfair. But I’m still trying to get my head around how and why that could happen.

    1. 6th generation Texan

      It happened because the Squid wants to kill HFT now, and it had all its tentacles deep into the mortgage fraud then. There’s more to the Lewis book/media “outrage” now than meets the eye. Just as Yves exposed the mortgage fraud years ago, at the same time zerohedge.com was exposing the HFT fraud — and the lamestream media response was the same in both cases (crickets chirping…).

      As should be abundantly clear by now to anyone with a firing synapse, the lamestream media in the U.S. exists solely as the propaganda arm of the TPTB (also note the utterly outrageous lies and neocon war hysteria sewage spewed forth about the situation in Syria last fall and in Ukraine today). Thank goodness for the internet and sites like NC and zerohedge that strive to reveal stories that the Deep State would rather bury….

      1. Lambert Strether

        I think it’s also happening because the administration needs to fake left for the mid-terms. “See! We put some fraudsters in jail!” Even better if the villians turn out to be Russian coders, eh? Putin probably put them up to it…

        1. Jockeyforth

          Your punch line eclipse any joke I have had the opportunity to hear in the recent past; should get a cartoonist to illustrate it. Could this be what’s called: “Mind over matter”

        2. Mark P.

          ‘I think it’s also happening because the administration needs to fake left for the mid-terms.’

          That’s definitely in there. But the administration is prepared to take this particular measure because the HFT sections of the big dogs’ proprietary trading desks have been drawn down. Why’s that happened?

          Well, firstly, as we all know, HFT is no longer sufficiently profitable for the banks in the big picture, especially when its defensibility is pretty much non-existent.

          Secondly, alongside its general indefensibility, I suspect that the banks want their fingerprints off HFT because someday someone is likely to get some basic analysis by the numbers of market trading in 2008 and (at least) part of 2009 out to some of the public. That basic analysis — look at the nanex charts for the period — pretty strongly indicates that for a time there existed, essentially, only a Potemkin stock market propped up by the TBTF’s HFT operations, with at least the tacit cooperation of Washington.

          A Potemkin stock market is nicer-sounding than an ‘entirely fraudulent stock market,’ isn’t it?

    2. readerOfTeaLeaves

      I’ve observed that some people find the whole thing so brazen that they’re like deer in headlights. The amorality, the scale of the looting, the levels of fraud, the obvious gaming the system (see also: Magnetar), — it’s overwhelming. It’s hard for people to admit how banal, how ‘normal’ all that fraud was made to appear. It had the patina of respectability.

      The TBTF banks have been gutting capitalism, one fraud closure at a time. Yet the political-legal authorities have let the TBTF bankers get away with it.

      Small wonder that we are seeing government delegitimized at all levels, but it’s playing out in slo-motion.

      There’s a lot of denial, and a lot of head-in-the-sand because people don’t know what comes next.

      1. FrenchToastPlease

        Maybe the political-legal authorities have allowed the TBTF to get away with it, because the political-legal authorities designed the whole thing in the first place. I’m still shrieking hysterically over BofA worrying about its reputation.

  6. flora

    Slightly off topic. When the IRS recently tried to grab citizens’ tax refunds without any documentation or proof of the citizens’ tax debt I wondered if the IRS was copying the big banks’ “missing documents” practices.

  7. susan the other

    Thanks for this followup – I wasn’t even going to bother with the Bloomberg article because we all know justice is dead. But then, the fact that this has hit the media is very interesting. BAC’s little obfuscation to insinuate that this mess is even “curable” is hilarious. They’ve all been trying to cure this massive fraud for at least 5 years now. They couldn’t possibly have hoped that the “Foreclosure Review” process had accomplished anything – even Janet Yellen in her press conference following the shut-down of the review by the Fed knew it was uncurable. The best the TBTFs could hope for was a quick end to the press coverage. Send those foreclosed wretches some checks for $5,000.00 to keep them quiet. So what is interesting now? The economy will not recover without either a housecleaning of the mortgage fraud industry so that everything can be accurately accounted for and good faith can return, or a bait cutting… cancel every mortgage that is uncurable due to simply having been shuffled thru the MERS data base without a trace of original paper.

    1. NotTimothyGeithner

      I think many policy makers were expecting fraud to be cleaned up by the banks and expected to run on their wise leadership of looking forward, and now the policymakers in danger in November need a list of accomplishments which they don’t have.

      I suspect there is an element who understands voters are angry and are trying to deflect their own malfeasance on banks who have behaved as one would expect given government activity to date.

      Take Holder, his utter inability to be anything other than a crony of oligarchs is well documented. Moving against Holder from the Democratic position raises the question of why they didn’t do it earlier. Why did Senator X sit on this? This story is about recognizing they have to look like they can govern without bringing attention to the last 5 years.

  8. kevinearick

    Wasting Assets in Zombieland

    That’s it, park the truck in the back forty, watch it rust, and book it as an inflating asset.

    Securitization is writing a bad check to cover the last bad check; that’s it.

    Does Putin have a 100% approval rating yet? Why can’t poor Mr. Lee seem to fix those elevators, no matter how much money he throws at them? Do you want to be the elderly and disabled?

    Here in the hinterland, where best big city practice is most obvious, the real estate agency scoops up the property for next to nothing, kicks the tenants out, and brings in its contractors, who ‘work’ for six months doing 2 weeks of work, booking it as an asset draw on a wasting asset, which cannot be rented because the rent is now too high, unless it goes into the so-subsidized public housing stock, bad checks all around. Keep up the good work. Rental demand is high the slumlords say, as you walk by all their dead inventory.

    What did the Clintons actually accomplish with those free trade agreements, other than expensive make-work for themselves? What exactly are the critters in big cities, where all the votes are counted, accomplishing?

    Do you suppose there is some relationship between the behavior of Africans and the inability of empires to subdue them profitably?

    Your product is not as valuable as your skill, which is not as valuable as your talent, which is not as valuable as your DNA.

    Electricity is time, and time is electricity, heat transport between switches. The speed of light is a limit of the instrument, not of the universe.

    You might want to re-think a bait and swap war against the 1%, which does not book its gains in stupid bad checks. Build your army just as big as you like. Separation of power is and always has been a myth. A judge is a politician in a robe; that’s it.

    Keep writing bad checks, faster and faster, wondering why no one with any talent shows up for the game. Real Estate is like the Wheel of Fortune, in that the real value of the prize is not worth the arbitrary tax against it.

    NPV depends upon the ongoing assumption, which depends upon having children, productive children in particular. Wages at 2X rent works out great for single people parading around in civil marriages, until it doesn’t. The computers just make it easier to boil the frog.

    Manhattan is a government grant, something for nothing. Magicians.

    1. 6th generation Texan

      “A judge is a politician in a robe.”

      Correction: a judge is just a lawyer in a cheap black robe. Your confusion is understandable, as most politicians are lawyers. It’s no coincidence that the two “professions” most despised by the public are lawyers and politicians (just below pimps and slightly above child molesters).

      The surprising (and sad) thing is how people generally despise lawyers, but simply put a cheap black robe on one of them and suddenly he’s worshiped as a god. Brainwashing, Pavlovian conditioning, (mis)educational system to blame ??

      At least — and at last! — a good portion of the sheeple finally seem to be waking up to the reality of the fascist oligarchy that Amerika has now become. Throwing off the shackles of worship of the militaristic state, and hopefully the role that corrupt lawyers in cheap black robes plays in sustaining it, will soon happen also.

  9. change agent

    the one constant in life remains valid. Chickens always come home to roost. (Even if the home was foreclosed on)

  10. GuyFawkes

    MERS and the banking criminals have now mandated that any Deed of Trust (trust, really? *laugh*) signed in Oregon, Washington or Montana (all states whose Supreme Courts have said MERS is unlawful) must have a “MERS Rider” also signed by the borrower. Basically, a rider saying that the borrower knows full well that their state’s own Supreme Court has ruled the company that is still being used by the banking criminals is unlawful, but we want your signature so that you can’t sue when you figure this out. OMFG.

    BTW, just a side note, we, in Washington, have pointed out to our Attorney General, Bob Ferguson, that MERS is continued to be used as “sole beneficiary” even though our Washington State Supreme Court has said MERS is an unlawful beneficiary. Jesus.

  11. Sleeper

    The mortgage market is pretty much dead here in NC and the refinance market is long buried.
    The house of cards has fallen and the players are finally realizing that deck consists of playing cards mixed with go fish cards. But the game goes on because admitting that the game is over means al of those winnings are fake.

  12. Jim A

    Part of the cause of the MERS fiasco is that the big Wall Street bankers simply believed that if they didn’t like the law, (in this case mortgage recording requirements) they could simply ignore it and do what they wanted instead. In a real sense this is similar to certain ranchers, albeit without the standoffs between officials and gun-toting wackjobs…

    1. flora

      Ignoring the law is profitable with very little downside. For the past 20 years D.C. pols and regulators have shown more willingness to change those pesky regulatory laws instead of enforce them. See: the merger of Citigroup and Traveler co. in 1998 for example.

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