Category Archives: Real estate

Washington AG Investigates New Foreclosure Abuse Front: Trustee Non-Compliance

LoanSafe reports that the Washington state attorney general, Rob McKenna, has uncovered a likely widespread violation of state law, that foreclosure trustees lack a physical presence as required and a means for borrowers to contact or visit them to submit last minute payments or present documentation. McKenna’s interest appears to result from the fact as with servicers, the foreclosure trustees are not accessible to borrowers and not responsive when there may be legitimate reasons to halt or delay a foreclosure. Note that Washington is a deed of trust state, and the foreclosure trustee handles certain tasks relative to the actual foreclosure. This is a different role than that of the securitization trustee, who is the agent of the securitization trust, the legal entity that holds the loans in the securitization.

ACLU Taking Aim at Florida’s Kangaroo Foreclosure Courts (Updated With Court Filing)

Per Lisa Epstein and April Charney, the ACLU has announced it is contesting the procedures used in Florida’s recently created foreclosure courts:

Banks Win Again: Weak Mortgage Settlement Proposal Undermined by Phony Consent Decrees

hink I’ve ever seen anything so craven heretofore.

As readers may recall, we weren’t terribly impressed with the so-called mortgage settlement talks. It started out as a 50 state action in the wake of the robosigning scandal, and was problematic from the outset. Some state AGs who were philosophically opposed to the entire exercise joined at the last minute, presumably to undermine it. Not that they needed to expend much effort in that direction, since plenty of Quislings have signed up for the job.

Cease and Desist Orders as Regulatory Theater in Mortgage Settlement Negotiations

I must confess to being puzzled last week by an American Banker article that claimed that Federal banking regulators were looking to send out cease and desist letters to serviers as a way to light a fire under banks who were dragging their feet at the now somewhat infamous so called settlement negotiations among 50 state attorneys general, various Federal regulators, the Department of Justice, and the major banks/servicers.

Now on the surface, this sounds sensible. The banks are not cooperating, so pull out a big gun and if needed, use it on them. But American Banker provided a link to the form of the cease and desist order and it looks remarkably weak. Its requirements are far less demanding than those set forth in the famed 27 page settlement draft that was presented by the AGs and the Federal authorities to the banks.

It’s important to stress that a threat of action that is weaker than what you are demanding in a settlement makes no sense in a negotiating context. It’s like offering to settle a lawsuit for $500,000 when the case only asks for $250,000 in damages. No one would accept the settlement, they’d either fight in court or accept a default judgment.

Judges in Florida Start Inflicting Pain on Foreclosure Mills and Trusts

Several readers pointed to an article in the Palm Beach Post, “Foreclosure crisis: Fed-up judges crack down disorder in the courts,” about how judges are having to resort to increasingly forceful measures to get foreclosure mill lawyers to comply with court orders. I had refrained from discussing it here because one aspect of the news story struck me as potential misreporting, so I wanted to verify it (and Lisa Epstein pointed to the transcript which enabled me to do so).

There have already been a number of reports of a marked shift in attitudes among judges in the wake of the robosigning scandal. In many courtrooms, the presumption that the bank is right has vanished. For instance, Mark Stopa reported late in March:

60 Minutes on Mortgage Securitization Document Lapses and Foreclosure Fraud

For readers of Naked Capitalism and any of the foreclosure-related blogs, this 60 Minutes report covers familiar ground. However, the fact that the story is coming now shows that even with bank efforts to pretend that there is nothing to see here, in fact the problems are widespread and difficult to solve. This segment, as highlighted in the text advanced release last Friday, includes a discussion of DocX and the practice of using “surrogate signers“, which are temps signing….in the name of robosigners! Having robosigners relying on corporate authorizations wasn’t low cost enough, apparently. Rather than take the time and effort to have more robosigners authorized (which is already not kosher, as we know, since the robosigners were attesting to have personal knowledge when they clearly didn’t), they went beyond providing bogus affidavits to having workers engage in forgery.

It also showed the work of NACA, but didn’t provide the most crisp description of the NACA process and how it addresses servicer bottlenecks (see here for more details). But it does feature Lynn Szymoniak and the procedures of the now-shuttered DocX, the infamous document fabricating subsidiary of LPS.

So consider this an interesting view of the state of play.

Magnetar Strikes Again: JP Morgan Negotiating Settlement with SEC on Toxic CDO

As longstanding readers of this blog presumably know, we broke the story of Magnetar, a Chicago-based hedge fund. Magnetar was arguably the biggest player in driving toxic subprime demand through its program of creating hybrid CDOs (largely consisting of credit default swaps, but also including cash bonds by design).

Magnetar constructed a strategy that was a trader’s wet dream, enabling it to show a thin profit even as it amassed ever larger short bets (the cost of maintaining the position was a vexing problem for all the other shorts, from John Paulson on down) and profit impressively when the market finally imploded. Both market participant estimates and repeated, conservative analyses indicate that Magnetar’s CDO program drove the demand for between 35% and 60% of toxic subprime bond demand. And this trade was lauded and copied by proprietary trading desks in 2006.

As a source who worked in the structured credit area of a firm that did Magnetar trades explained in ECONNED:

Alabama Judge Accepts New York Trust Theory, Dismisses Foreclosure Action for Failure to Comply With Pooling and Servicing Agreement (Updated)

Paul Jackson has been forced to eat a bit of crow. A judge in Alabama in a case called Horace v. LaSalle overturned a foreclosure action based on the failure of the trust to comply with the terms of the pooling & servicing agreement. As you see, the judge ruled that the borrower can assert rights under the Pooling and Servicing agreement as a third party beneficiary and that he was “surprised to the point of astonishment” that the trust had not complied with the terms of its PSA.

The ruling in favor of the borrower endorses an argument we have made since last year on this blog, that the pooling and servicing agreement stipulated a specific set of transfers be undertaken to convey the borrower note (the IOU) to the securitization trust within a specified time frame. New York trust law was chosen to govern the trusts precisely because it is unforgiving; any act not specifically stipulated by the governing documents is deemed to be a “void act” and has no legal force. So if a the parties to a securitization failed to convey a note to the trust within the stipulated timetable, retroactive fixes don’t work. In this case, the note had been endorsed by the originator, Encore, but not by the later parties in the securitization chain as required in the pooling and servicing agreement. See the order below:

Banksters’ Mortgage Counteroffer Makes a Further Mockery of Fraudclosure Settlement Negotiations

It should really be no surprise that the banksters have the temerity to take a weak mortgage fraud settlement proposal, advanced by the 50 state attorneys general and various Federal agencies, and water it down to drivel. Since March 2009, when the Obama administration cast its lot with them, major financial firms have become increasingly intransigent. And this has proven to be a winning strategy, since Obama’s pattern over his entire political career has been to offer proposals that don’t live up to their billing, then eagerly trade away what little substance was there in the interest of having bragging rights for yet another “achievement”. The degree of exaggeration involved is roughly equivalent to him claiming he’d bedded every woman he had ever met for coffee.

Matt Stoller: Comptroller of the Currency Orders National Banks to Cover Up Foreclosure Scandal

By Matt Stoller, a fellow at the Roosevelt Institute. His Twitter feed is:
http://www.twitter.com/matthewstoller. Cross posted from New Deal 2.0

Acting OCC head John Walsh is standing in the way of information that could help desperate homeowners.

I was rereading some testimony by Mark Kaufman, the Maryland Commissioner of Financial Regulation, on mortgage servicer behavior. He testified this month before the House Oversight Committee on something quite scandalous.

Lender Processing Services Behind More Record-Keeping Botches and Foreclosure Forgeries

Lender Processing Services has played a singularly destructive role in the mortgage servicing industry. The firm not only offered document fabrication services through DocX, a company it acquired and was forced to shut down after the Department of Justice started sniffing about, but is being revealed to be involved in more abuses as far as borrower records and legal process are concerned. Readers may recall that it is also the target of two national class action suits on illegal legal fee sharing which if successful will produce multi-billion-dollar damages.

This abuses matter due to the role that LPS has come to play. It is the biggest player in default services, meaning it acts as the de facto selector and supervisor of foreclosure mills via its system, LPS Desktop, which manages and oversees the work of local law firms on behalf of its bank servicer clients. It also provides the servicing platform for more than half of the servicing industry. And as our two latest examples show, the company clearly places its profits over integrity of records and due process.

Are Banks Scheming to Gut the Role of the Courts in Foreclosures?

I may be overreacting but given the sorry behavior of banks throughout the crisis and its aftermath, better to be vigilant than sorry.

The Wall Street Journal provided a very sketchy summary of the counterproposal that the banks will put on the table in the foreclosure fraud settlements this week:

The 15-page bank proposal, dubbed the Draft Alternative Uniform Servicing Standards, includes time lines for processing modifications, a third-party review of foreclosures and a single point of contact for financially troubled borrowers. It also outlines a so-called “borrower portal” that would allow customers to check the status of their loan modifications online.

But the document doesn’t include any discussion of principal reductions. Nor does it include a potential amount banks could pay for borrower relief or penalties.

This seems innocuous, right?

Think twice.

The Consumer Financial Protection Bureau’s Bogus Mortgage Settlement Math

Shahien Nasiripour of Huffington Post’s new article, “Big Banks Save Billions As Homeowners Suffer, Internal Federal Report By CFPB Finds,” includes a presentation from the Consumer Financial Protection Bureau dated February 14 prepared for Tom MIller, the Iowa Attorney who is leading the 50 state attorneys general foreclosure fraud settlement negotiations.

If I were a betting person, I’d wager this document was leaked to show that the Administration and the AGs did not just make up the $20 to $30 billion settlement figure that has been bandied about ask their ask, but have a sound, reasoned basis for their demand.

Unfortunately, the document simply proves that they did make up the $20 to $30 billion figure.Not only is the analysis effectively fabricated, it’s the wrong analysis. But I have to say, having been at McKinsey, it’s impressive the use of McKinsey firm format makes a story look much more credible than it really is.

The Sandbagging of Elizabeth Warren (and 49 State Attorneys General)

I don’t know who is pulling the strings, but any objective look at the so called mortgage settlement negotiations shows that a lot of people are being played for fools. Precisely because Elizabeth Warren is being attacked so forcefully by the Wall Street Journal and other banking industry loyalists, too many of her erstwhile defenders are giving a free pass to the fact that the Administration itself is undermining her, and with her, any attorneys general who sign up for the settlement, assuming it ever sees the light of day.

Recall the Team Obama modus operandi: getting something done, no matter how lame, compromised, or even counterproductive it is, is considered to progress because it presumably can be swaddled in enough propaganda to be made attractive to a presumed to be chump public. Never mind that Obama’s flagging poll ratings and the abysmal mid-term Congressional results, where the Blue Dogs, the Democrats philosophically most aligned with Obama, were mowed down, show that that strategy is becoming less and less effective. Recall in the runup to the mid-terms how many Democratic Congressional candidates were straining to distance themselves from Obama.

The Democratic state attorneys general have even less to gain by playing nice with this Administration. Some are from states that are solidly liberal and/or so hard hit by the mortgage meltdown that being seen to be soft on banks would be political suicide.