Mortgage Mods - Where Did The Money Go?

My mortgage modification clients often ask about the class actions or Attorney Generals actions against mortgage companies, lenders, and servicers, when the newspapers/Internet proclaims "XYZ Bank settles with Massachusetts for $XXX Million". The biggest single question is "Where did the money go?" Unfortunately, the answer I give is "I don't know except that there was no fund set up for modifications". Then I get the BLANK STARES from my clients.

"How can that be?" they query, to which I reply, "I do not know - probably to offset the cost of the suit and to establish a new unit to investigate mortgage fraud AND to help balance the budget." To this date I have never received notification that the Commonwealth of MA is setting up a fund to help borrowers avoid foreclosures, or even to set up an agency to help homeowners apply for a loan modification.

At this juncture, homeowners are being cast adrift. The 50 States +/- CA & MA (depends on the day) have been arguing with the biggest lenders/servicers over a settlement for all of these institutions evil-doings; and they were indeed evil! The proposals are at $26Billion or $26,000,000,000 but no one is offering to pay. Instead the Banks et al want to promise they won't do it again and that they will make it easier for homeowners to get a modification. Making it more difficult would be to say "NO, WE WON'T DO MODS ANYMORE". No money will go to individual homeowners. No funds will be set up to help a borrower get caught up. As the title of the movie proclaimed "GONE IN 60 SECONDS" (so where is Nicholas Cage when we need him?).

Even if there is money made available, the selection/application process will be as difficult as getting the modification as evidenced by the recent Federal "EHLP" (Emergency Home Loan Program) program that only gave out 1/2 of the $1Billion allocated for it.

In fairness, because of the structure of the mortgages, now part of giant pools of loans called "Mortgage-Backed Securities" or "MBS" for short, no Bank owns the loan(s). They are collateral for a Bond, typically a fixed income security, pieces of which are bought and sold as part of mutual funds, retirement funds, and corporate investments. It's like GE borrowing money by issuing a bond - this means that GE is stating to the world that if it receives up to $XXXMillion from investors, GE will pay them interest at "X"% for "Y" years, and GE puts up its assets as collateral. With MBS, the underlying assets of the fund, home mortgages, are the collateral.

The refrain often heard when one is trying to get a modification is "The Investors do not allow modifications" or "This requested modification is outside investor guidelines". When the investor is the Federal Nation Mortgage Association (FannieMae) or the Federal Home Mortgage Corporation (FreddieMac) or the Federal Housing Administration (FHA) the formula used to determine "Yes" or "No" is at least obtainable. And, because these are either Government Agencies or quasi-government agencies, they do participate in the HAMP program. But, you deal not with Fannie or Freddie or the FHA but with the loan SERVICER. This is the company picked to run the pool of loans - to collect payments and send out bills, and to start foreclosures and to actually WORK ON MODIFICATIONS.

There is no rhyme or reason to the process. Each servicer has slightly different requirements, all allowed by the Making Home Affordable program which created HAMP. Paperwork must be submitted and often resubmitted again and again. This is the period that most borrowers give up or taking time from work to put documents together again and again, in the hope of getting an affordable payment now that there is no more overtime or even one less job for the borrower(s) to count-on for the money to meet the payments.

I often sit at my desk working on one project, while on hold different times with a servicer for an hour or sometimes two. I can keep working on my computer and have at least one other phone in use while I work with a servicer. So far, my results are good but my client has no money to pay for all of that time, even when I only count the time I am actually doing calculations and filling out forms or talking to a servicer's representative. Because, in addition, there are the hours spent with the client who has no money to pay for the time and the results.

The most frustrating part of this process is when I ask my client, "Okay, you are now 4 months behind because the payment went up. How much have you saved? Certainly if the payment was $700 per month and now it's $850, you have the $700 put aside for each of the four months the Bank returned your money!", and the client answers "Nothing - I paid other bills". At which point I ask "Well, how are you going to pay if you get a modification if you can't even save the money you had been paying?". Occasionally the client will say "I don't know". Most often I hear "Well, when I have the modification, I will be able to make the payments somehow". With trepidation I ask "How, if you can't make the payments now?".

This conversation takes place in my office or on my telephone at least twice every week and sometimes twice a day.

RULES FOR GETTING A MODIFICATION:

1. Call the Servicer and ask for modification or HAMP documents or go on their website and print them

2. Put all required documents together - fill them out completely and DATE THEM ALL and send them to the address stated on the website or the forms. Often they MUST be faxed.

3. Remember, if you are working with an attorney or any other third-party, that person/entity is going to have to have written permission from you to deal with the servicer/lender

4. Documents expire in 60 days. That means if you send in only some of the documents required, and then send in more, and then send in more because the servicer wants them, the first docs you submitted may be "stale dated" - just like bread - and need to be updated and resubmitted. This is where the process breaks down for most Homeowners.

5. Put aside the mortgage payment you were making or that you hope to be making. If you cannot save the money, you cannot save your home. Put simply, If a borrower is not disciplined enough to save the money to pay the mortgage, then there is no ability to pay the modified payment - so what is the point of going through all of the aggravation. Sometimes Life Is Not Fair.

6. If you get a package sent to you from the lender/servicer open it immediately. If documents are due on Wednesday of next week Make sure they get there by then. A day late and you are disqualified. Fair? Probably not but read the last sentence of Item 5 above.

The people with whom you will speak are not bad people. They are doing a job, trying to avoid losing their house and are jsut asking the questions they must to avoid being fired. Don't rant at them - that assures NO COOPERATION. Remember that the folks at the top of the MBS pyramid are the folks "calling the shots" and they can't lose.

Author's Copyright by Richard I Isacoff, Esq October 2011

rii@isacofflaw.com

http://www.isacofflaw.com

Foreclosures Down? Not Really!

RealtyTrac, the company that tracks foreclosures (state by state) and gives national figures, reports that foreclosures, meaning homeowners getting a foreclosure notice, is at a 26 month low - ONLY 225,101, down nearly 14% (http://www.realtytrac.com/home/).
Reading and digesting the information further one discovers that the reduction is not due to fewer defaults by borrowers, or lenders/servicers having less work , but rather it is due to IMPROPER FORECLOSURE PROCEDURES.

For months it has been known that some of the largest servicers have been using so-called "robo-signers", unauthorized personnel signing assignments of mortgages and notes, and foreclosure documents. Also, as the suit by States' AGs shows, in their 27 page report, what has to be done to fix the problem. While the servicers have rebelled and are using all tools available to stop regulations, even BofA, the biggest, has made modest changes - like giving returning service members modifications and even PRINCIPAL REDUCTIONS.

The battle is getting so fierce that Sen. Richard Shelby (R), the senior Republican on the Senate Banking Committee has said that the report is a "regulatory shakedown" being conducted to "advance the administration's political agenda" (American Banker 3/9/11 )

Taking the battle over the "mortgage crisis" even further is a letter, being circulated by House Republicans to Treas. Sec'y Timothy Geithner, that calls into questions most of the report's/settlement proposal's recommendations (http://tinyurl.com/4byflk4).

So what is the "TRUTH"? Is the rate of foreclosures falling? Yes, in so far as the "foreclosers" have had to stop or be sued by all 50 states (again) and won't start again in earnerst until they get the paperwork and process straightened out. But, the rate of defaults and the "right to foreclose" have continued to climb. If RealtyTrac counted all of the refilings for corrected documentation, there would have been an increase of 30%!

The future looks bright for auctioneers, dim for homeowners with the current climate.

(Follow the link to RealtyTrac's 3 minute video report on foreclosure activity: http://www.youtube.com/watch?v=wqsyJNy9ppI

Author's Copyright by Richard I. Isacoff, Esq, March 2011
rii@isacofflaw.com
http://www.isacofflaw.com/

Class Actions for Modifications or Divine Intervention

There has been movement in some state courts to shore-up the failure of the legislation enacting the Making Home Affordable program initiatives to modify loans (HAMP etc); Federal Courts seem paralyzed.

As stated in an earlier post, there is no private right of action under the Home Affordable Modification Program ("HAMP") or any of its siblings. Congress, the Treasury, Federal Reserve, and all of the alphabet soup of regulators (FDIC, OCC, OTS, TARP Oversight, etc), evidently did not want (or caved-in to the mortgage investment community) homeowners to be able to sue mortgage servicers and actual lenders just because the servicers and lenders uniformly and regularly ignore the intent and actual RULES and REGULATIONS set out in the MHA/HAMP enacting legislation/rule-making.

The lack of this "private right of action" means that no matter how slip-shod, devious, lying, resistant, unethical, and immoral the servicers and lenders are in reviewing, analyzing, and denying modifications, homeowners/borrowers CANNOT sue in Federal Courts, and specifically Bankruptcy Courts, to force a modification OR sue because the servicer/lender has REFUSED to follow Federal regulation, rules, and guidelines. Even if the home is foreclosed and sold after the servicer/lender promised a modification, Congress and the White House, in their hurry to curry favor with the Banking interests (Goldman Sachs, Chase, Bank of America) and keep lobbyists happy, failed to put any teeth in its MHA/HAMP legislation.

Only the regulators like the Treasury, FDIC, Office of Thrift Supervision ("OTS"), Federal Reserve, can even recommend/urge/push the Banks and Investors in mortgages and Mortgage-Backed securities to follow the rules. There are no teeth in the rules and regulations.

Some State Courts have seen fit to force Lenders and servicers to show that they have acted in good faith when a Homeowner manages to get before a judge. The key here is "acting in good faith". If there has been no "good faith", or worse, demonstrated "bad faith", State Courts are allowing injunctions to stop foreclosures. No one expects there to be a modification when a homeowner is 30 months behind and cannot make a payment even if it based on 2% interest rate for 40 years, unless the problem was fraud in the origination of the loan. But most issues are regular people with regular problems in today's economy: job loss, reduced income, illness or death.

The exception may be CLASS ACTION SUITS. Simplifying a complicated legal issue, simply put, if there can be shown that as a pattern and practice a lender/servicer systematically and consistently rejects modifications, or acts so negligently as to de facto reject modifications (never gets paper processed etc), and there are enough diverse persons affected, then there may well be a "CLASS" of persons affected enough to demonstrate that all are "third-party beneficiaries" of the federal law.

Homeowners and their attorneys should begin to think about such Class Actions. Perhaps if there are enough suits against Lenders/servicers and the "investor-managers" of the Mortgage-Backed Securities, Congress may take action: Don't count on the mortgage industry or the Banks to help any more than they are forced to by some higher power (as morality is out, do not plan on Divine Intervention).

Author's Copyright by Richard I. Isacoff, Esq, July 2010

rii@isacofflaw.com

http://www.isacofflaw.com/

A Note About "Notes"

The Judge said if you can't prove you own the loan/mortgage, then you don't get any money! The October 25th edition of the New York Times reported on a very important legal case brought in the Bankruptcy Court for the Southern District of New York. Attorney David Shaev had filed a Chapter 13 bankruptcy (repayment plan) for clients facing imminent foreclosure. In the process he discovered that no entity could prove it owned the loan on his clients' home. Judge Robert D. Drain then determined that the lack of proof of ownership by anyone of the loan meant the homeowners did not have to pay "the mortgage" at all. He erased the debt!

The servicer of the loan, PHH Mortgage, was left without any defense. In theory, it was just sending statements and collecting checks for the owner, supposedly U S Bank. Unfortunately for the bank and PHH, there was no proof of who actually was entitled to the monthly payments. It was not a situation where the Promissory Note (the I.O.U. to the Bank) was presented with several parties claiming it was theirs. What is worse, the ownership had been transferred several times, but no one had the assignment (proof of the sale) showing that PHH or U S Bank was the owner - or any other party to the action. You can be certain that the case will be appealed.

THIS IS DIFFERENT from the current street wisdom of "Gee, if they don't have the ORIGINAL note, then I get my house for free". As is often the case, the street is not very wise. In the New York case, no proof of current ownership was provided. No one was questioning whether there was a loan, just the right of U S Bank or PHH to foreclose. Neither one could even show an assignment, the legal document that transfers ownership of a note from one party to another, to either PHH or U S Bank.

If there was an assignment, the issue of the Promissory/Mortgage Note itself would have become an issue. However, even if the original note was lost but a copy could be presented with the assignment, ultimately that would have been good enough , in most states. In litigation there is what is called the "best evidence rule". Simply put, a copy, if it can be authenticated, is acceptable. Authentication would happen in trial or deposition quite simply; the bank's lawyer would ask Mr. Jones, the owner:

"Mr. Jones, do you own the house located at 123 Elm Street, Blackacre, USA?" (in case Mr. Jones wants to lie, the attorney would have a certified copy of the deed and recording information to prove Mr. Jones "owns" the house).
"Mr. Jones, did you ever borrow money to purchase or refinance the house?"
"Mr. Jones, is this a copy of your current mortgage?" (again, the lawyer would have a certified copy, just in case).
"Now, Mr. Jones, would you examine the document I am handing to you and read the title." (unless he cannot read, or it really does state something different, Mr. Jones would answer "Promissory Note" or Mortgage Note" or something similar).
"Mr. Jones, please look at the signature line on the bottom of page 2. Please read aloud the name typed under the signature line" (it will be "Mr. Jones" in this example).
"Do you recognize the signature?"
" Is that your signature?" (meekly "Yes" says Mr. Jones)
"Thank you Mr. Jones" (unsaid, "you have just authenticated the copy as being the note that obligates you to make payments in order to keep you house in Blackacre")

The loss of an original is not the end of the world, or more importantly, the DEBT. The foreclosing Bank not having the right to claim that it owns the note is the end for that proceeding. The right is proven only with the note (or authenticated copy) AND an assignment to the current owner , if there was a sale of the mortgage.

Confusing? Not in principle. The Bank needs to PROVE it owns the mortgage or has been given the right to foreclose by the real owner, and has to PROVE who is the real owner. No proof, no foreclosure (but no free house)!

Author's Copyright by Richard I. Isacoff, Esq, November, 2009

Photo Credit: http://www.ebaumsworld.com/pictures/view/80793502/

rii@isacofflaw.com
http://www.isacofflaw.com/