Mortgage Settlement - Banks Get "Free Pass"

As the details of the Mortgage Settlement Agreement, the deal between 49 of 50 states and the U.S. on one side, and BanK of America, Wells Fargo, CitiBank, Ally Financial, and JP Morgan/Chase on the other, become analyzed, it a HUGE win for the Banks. The not only received a "Get Out Of Jail Free" card but are now assured that there will no jail and the cost will not hurt profits.

Quoting from the March 13, 2012 American Banker's article about the agreement

"The settlement includes releases from certain federal claims, including errors related to servicing conduct; origination; and errors specifically related to servicing loans for borrowers in bankruptcy

The claim "fully and finally" releases the company and any affiliated entities, from any civil or administrative claims and any civil or administrative penalties -- including punitive or exemplary damages--for:

Servicing claims under the: Financial Institutions Reform, Recovery, and Enforcement Act; False Claims Act; the Racketeer Influenced and Corrupt Organizations Act; the Real Estate Settlement Procedures Act; Fair Credit Reporting Act; Fair Debt Collection Practices Act; Truth in Lending Act; Interstate Land Sales Full Disclosure Act and certain sections of the Gramm-Leach-Bliley Act. Origination claims under RESPA, TILA, Fair Credit Reporting Act; and Interstate Land Sales Full Disclosure Act, and certain claims made under FIRREA.

The Consumer Financial Protection Bureau agreed to release servicers from any claims related to servicing or origination conduct that took place prior to July 21, 2011, when the bureau became an independent agency. But the agency reserved the right to obtain information related to conduct" (emphasis by this writer)

Perhaps the biggest issue for DEBTORS in the long term will be that Servicers and Lenders etc are released from any liability from servicing errors during a Bankruptcy. This is a huge WIN for the mortgage industry. Most servicers cannot keep track of payments for money owed before a bankruptcy and payments made AFTER the bankruptcy was filed. Pre and Post-petition debt transaction history is generally a nightmare. Even Gordion would not have a sword capable of solving his problem.

As with all such programs we will have to wait for the regulations. The settlement is one thing - the details of administration is another.

Author's Copyright by Richard I. Isacoff, Esq., March 2012

rii@isacofflaw.com

www.isacofflaw.com

No Money To File Bankruptcy!

Bankruptcy is rising but filings are falling! Why? Simple answer: People do not have money to file for protection under the Bankruptcy Code. That may sound/read like an "Of course they cannot afford bankruptcy, they don't have any money!" Unfortunately, this is a new phenomenon.

Until recently, people would call regularly to ask for a free consultation to discuss financial problems which could result in a Bankruptcy case. Generally, we are able to work out payment arrangements with almost anyone. ALMOST is the operative word. If the person has no money and no job, and no way to pay us, even on a $25 per week basis, there is little that we can do as an office.

Understand that every lawyer does a certain amount of INTENTIONAL pro-bono work, and I do not know of an attorney who would turn away a truly troubled indigent person who just lost the house, car, wife/husband etc. That stated, none of us in Private Practice can do everything for nothing - work for free all of the time!
Because of the downturn and especially the lack of employment people aren't even calling because they feel that they cannot afford the cost of getting "peace of mind". My view of the problem is slightly different. We have accepted payments every week for a year from clients, all the while giving them as much protection as we could from creditors. Most lawyers will do that for people really in need.

Some ground rules apply:

1. Don't come in with your partner and state that you cannot afford our fees because you can't cut back on smoking 2 packs a day each. At $9/pk, that's $36/day or more than $1,000 per month.

2. While I encourage people to come in, I do not expect them to ask me to help them with a bankruptcy THEY are going to file.

3. Some folks will have to file Bankruptcy but do not want to give up they "toys" - the snowmobile, PWC, 4-wheeler, or cut back on the $200 per month cable or satellite bill because of all of the special sports channels and events, or drop the $200/mo cell service and on and on...

Filing for Bankruptcy is to give someone(s) in debt a "FRESH START". It is written that way in the Code and is discussed in cases and in Court. No one expects someone looking for that second chance to sell their soul, but to cut back on smoking, or drop a few cable channels, or give up the "bike" would seem a fair trade. The reality is that in a bankruptcy, where no unsecured creditor is getting paid back anything, you are not allowed to keep the snowmobile and the bike and the...

If you have a house, we can help you find the funds to pay your mortgage by eliminating unsecured debt. You can keep almost all of your personal property, except for things like the PWC for which you are paying $300/month for the next 36 months etc. But clothing, regular furniture, tools, in most cases automobiles (not 4 or 5), RETIREMENT plans including IRAs, and if you are renting or have no equity in your house a reasonable amount of cash/money in the bank. Depending on the situation, maybe even $10,000.

If you have the $10,000 but your debt is $70,000 you cannot pay everyone back if you have $35,000 in income and a child. But, you can either pay a small portion back, and you can pay the legal fees to file the Bankruptcy. It could be a Chapter 7 (no payback) or a Chapter 13 (payback of what you have left as disposable income each month). Or, if you wish, you can give the Trustee the $10,000, less attorneys fees, and have the Trustee distribute what is left to creditors on a pro-rata basis. It is not required, but if you feel that you should pay back what you can afford, the Trustee will certainly oblige. Just be aware that it isn't necessary in most cases.

ADVICE: If you are in debt to a point where you know you cannot make any meaningful payments, call a Bankruptcy attorney. Payment plans can be worked-out, and the initial consultation to find out about YOUR RIGHTS is always "NO COST" here.

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

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

New Homeowner Protection - Neighborhood Stabilization Act

The new Neighborhood Stabilization Act, which was enacted with an Emergency Preamble, became effective, in part, upon signing by Governor Duval Patrick on Thursday, July 29, 2010. The new law gives meaningful additional protections to Homeowners facing foreclosure, and tenants living in houses that have gone to foreclosure sale. We will deal with the Ownership issues in this post and the Tenant issue in the next.)

In order to foreclose on a property in the Commonwealth of Massachusetts a mortgagee/creditor MUST give the homeowner/mortgagor a 150 day Notice To Cure the default giving rise to the foreclosure threat. This "Cure Period" is subject to the following rules:

1. If the lender/servicer certifies that is has "engaged in a good faith effort to negotiate a commercially reasonable alternative to foreclosure..." (defined below) and

2. If this effort "has involved at least one meeting either in person or by telephone, between a creditor's representative and the borrower or borrower's attorney or the borrower's representative..." and

3. "After such meeting the creditor and the borrower were not successful in resolving their dispute, then the creditor may begin foreclosure proceedings after a right to cure period lasting 90 days..."

4. If the borrower does not respond to mail offering to negotiate within 30 days (does not state when the 30 days starts) then the borrower must live with the 90 day period allowed the creditor instead of the 150 days

KEY DEFINITION

"Creditor has made a good faith effort to negotiate and agree upon a commercially reasonable alternative to foreclosure shall mean that the creditor has considered"

a. "an assessment of borrower's current circumstances including without limitation (they can consider more, not less) income, debts, and obligations"

b. "the net present value ("NPV") of receiving payments pursuant to a modified mortgage loan as compared to the net recovery following foreclosure" -(this is a calculation taking into account the following factors to arrive at a value to compare to the value of the modified loan)

1. the current market value
2. the costs of foreclosure
3. foreclosure stigma discount to re-sell the house
4. the total unpaid balance
5. number of months expected before sale
6. taxes and insurance costs
7. the appreciation/depreciation forecast.

The creditor must use the Mass Housing Finance Agency formula, FDIC formula, or Treasury formula.

c. "...The creditor shall provide by first class mail and certified mail or private carrier to the borrower documentation of the good faith effort 10 days prior to meeting, telephone conversation specified..." (in paragraph 2. above)

The importance of this law cannot be overstated. While it grants an extra 60 days to the borrower, sixty days which did not exist until the Commonwealth passed an earlier law in 2009, it REQUIRES the creditor to assess the situation OR wait 150 days to BEGIN a foreclosure process. It is as far as the Commonwealth can go to try to force a creditor / mortgagee to negotiate a modification.

The notice that has to be given to the borrower/mortgagor before the creditor can start the foreclosure process, whether it is a 90 day notice or a notice after the 150 days, MUST contain the following information

1. Nature of the default and the amount of money needed to cure/fix the default
2. The date by which the default must be cured (stating "150 days after the date of this letter" or "90 days after the date of this letter" is not good enough. The creditor must give an actual DATE)
3. That is the borrower/mortgagor does not cure the default (pay the back amount owed) the creditor can take steps to foreclose on the house
4. The name and address of the creditor and the telephone number of a representative whom the borrower/mortgagor can contact if the borrower/mortgagor disagrees with the statements in the notice
5. Name of current and former mortgage broker or mortgage loan originator for the mortgage
6. Statement that the mortgagor/borrower may be eligible for help with the names and telephone number of the agencies
7. That the creditor may sell the property to pay off the mortgage
8. That the borrower/mortgagor may redeem the property anytime PRIOR to the sale by paying all amounts due
9. That the borrower/mortgagor may be evicted after the sale (this does not mean 5 minutes after the sale but after proper eviction proceedings in the Court)

NO PROPER NOTICE, NO FORECLOSURE

The Act gets technical - do not try to navigate it yourself. If you are behind and you receive a Notice to Cure, and you cannot PAY ALL ARREARS, contact a lawyer or Housing Agency immediately
Author's Copyright by Richard I. Isacoff, Esq, August 2010

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

Massachusetts Passes Homeowner Relief Bill

Yesterday, the Massachusetts legislature passed and Governor Duval Patrick (D) signed a bill that will grant additional safeguards to homeowners facing foreclosures.

In short, Lenders/servicers/anyone trying to foreclose on a 1-4 family residence will have to give the homeowner a 150 day notice that there is a default and that if it is not cured/paid within 150 days from the date of the notice, the foreclosing party will have the right to start a foreclosure proceeding.

The bill also makes lenders offer a modification or other workout plan unless a formula shows that to do so will net the foreclosing party less than a foreclosure sale (net present value test).

A full analysis will appear on Monday August 2, 1010

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

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/

"...And Winning, Winning, Winning' "

As a solo practitioner I must acknowledge my work limitations; I cannot compete against the 40th floor Boston or other big-city law firms.

In the Foreclosure Prevention work I have been doing, I have had to bring actions against players like HSBC (and its subsidiaries HFC, Beneficial, Household Finance), America Home Mortgage Servicing Inc ("AHMSI"), Wells Fargo, CitiMortgage, etc. In so doing I lost my ability to do any work other than fighting these lenders, which hire Big Firms, 40th Floor Boston, 50th Floor New York, water-front Rhode Island etc. offices. They have associates, attorneys trying to become partners, being paid to fight anyone who gets in the way of a foreclosure.

The fighting is "civil" - sort of. The filing of a claim brings a ream of paper filled with questions for my client (Interrogatories) meant to elicit the smallest details about the case, and pages of "Request for Production of Documents". These legal tactics are used in reality to flood a small office with paper and consume time. Well I just drowned in the latest flood and there was no one to perform CPR.

Make no mistake - these firms are within their legal rights to protect their clients through any legal means, but are they and their clients acting "morally" or, using the word in the common sense, ethically? In many cases I believe the Lenders/Servicers/Investors are not. They claim not to have any responsibility for the loans they made/service, regardless of how onerous, regardless of "bad faith", "bait and switch", unconscionable, and just plain improper and misleading. What's worse is that by the time the problem hits, most of the laws enacted to protect consumers have run their course - the "Statute of Limitations" has expired - it's too late to argue about the violations.

The Lenders are about taking no losses, granting no relief to someone facing foreclosure, just WINNING! I concur that winning is nice but how about DOING WHAT IS RIGHT?

I have been generally successful in preventing foreclosures and reversing some that have occurred, and in getting modifications. I have been unsuccessful in making a living because I could spend every week, all week, working on foreclosure cases where the BIG FIRMS for the BIG LENDERS know how to kill a case - bury the other "guy" in paper.

The best and most apt summary of what it's like to work against the lenders is from lyrics of one of Don Henley's (formerly of the Eagles) songs

"Today I made and appearance downtown.

I am an expert witness, because I say I am.
And I said, 'Gentleman....and I use that word loosely...I will testify for you; I'm a gun for hire, I'm a saint, I'm a liar - Because there are no facts, no truth, just data to be manipulated.
I can get you any result you like....what's it worth to ya?
Because there is no wrong, there is no right; And I sleep very well at night; No shame, no solution No remorse, no retribution.
Just people selling t-shirts just opportunity to participate in this pathetic little circus

And winning, winning, winning' "

They have won...I have lost! So have my clients!!!!!!

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

rii@isacofflaw.com

http://www.isacofflaw.com/

One Bank's Lies, Another's Obfuscation?

The answer to the title question is a qualified MAYBE! (Obfuscate: to muddy the waters so no one has a clue about the real answer or even the question) Based on ever changing figures, the Wall Street Journal reported, in its December 11th edition, that there are nearly 5% of the homeowners in the Making Home Affordable Program ("MHAP")who have "permanent" mortgage modifications. If we go back to the beginning of the MHAP, it was estimated that there were 2,700,000 homeowners eligible. That figure did not include loans that did not fall within modification guidelines, even if they did come within the HARP (Home Affordable REFINANCE Program) structure.

The math on the 2.7 million figure equates to about 1.15% of those eligible have a permanent modification. That is substantially up from the numbers reported only 3 weeks ago but... The reality is that the Banks, including the biggest in the country (Bank of America, CitiBank, JPMorgan Chase) are not making loans or loan modifications without being forced to do so.

In my practice in western Western Massachusetts, I am dealing with a multitude of lenders, in every case, trying to save a home. While I have the occasional client who got into financial trouble of his/her own doing, the vast majority, 90-95%, find themselves facing foreclosure because of job loss, fewer hours available, ill health/death and the related medical bills, or family problems such as divorce, or some combination of these factors. ADDING TO THESE ISSUES IS THERE DEVASTATION OF BAD LOANS AND THE ECONOMIC COLLAPSE.

The only way I can get the attention of some of the lenders is to file suit. That is my last resort - whether the action is in a State court or in U S Bankruptcy Court. There is little interaction with loan workout specialists, now called Loss Mitigation Specialists, before documents, often obtained from the MHA.gov website, are sent to the lender. It is at this critical juncture that lenders or their servicing companies are lying or obfuscating.

All of the current articles quoting lenders as to the reason so few modifications are becoming permanent, cite the lenders as stating that only a small percentage complete all of the required paperwork, and of those, 1 out of 5 default on the "Trial Payment Period" payments. It is my personal experience that fully 50% of the submissions to the MHA program at any specific lender are LOST. I have sent 2,3 and sometimes 4 packages to the MHA department of a mortgagee/servicer before I get a set of documents that are not lost. Seldom will anyone in the servicing side say "I am sorry, we misplaced the documents we need." It is generally a form letter, received by me or my client, that states that the client did not qualify because inadequate information was provided, specifically that the package of forms was never received.

Even at that a new problem arises: after 45-60 days of waiting the documents sent are stale (outdated) or the foreclosure, which had been postponed due to the eligibility and contact under MHA, is re-scheduled. As for the default in payments - if someone receive a notice on Dec 4th that states the beginning payment under the trial period is due Dec. 1st, how can anyone comply? If I am lucky enough to get a lawyer for the lender involved, the process moves much more efficiently, as the lawyer knows the stakes for the lender.

In fairness (a phrase I am getting tired of having to use) to the mortgage folks, they are overwhelmed. No one could prepare for this number of "problem" mortgages. Okay, fine! Why then are modifications being refused by lenders? Has not the Treasury, FDIC, and the Federal Reserve, along with the "Administration" said they want the program to work, and NOW? Yes, but none of these folks tried to assist in getting a bill through the House of Representatives that would have put pressure on the Banks etc. to MAKE Homes affordable.

When the House debated a bill to allow Bankruptcy Judges to modify home mortgages, and it seemed like it would pass, but the Mortgage Backed Security holders and big investors said NO! and the spike in permanent modifications was announced to show that nothing else was needed.
On Monday the bill was defeated and I predict it will be back to business usual - just the endless loop of automated prompts from one department to another and the seemingly coordinated 45 minute wait for a representative.

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

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

Foreclosures Skyrocket - Help Doesn't

(NOTE: For reasons that are obvious to most of us, the majority of the financial information published, in print or by broadcast, has been about the economy in general, the mortgage crisis and the "fix" to it, the looming credit card disaster, or the stock market's on-going saga. Consequently, nearly all of the postings to deal with these issues. Other legal matters have not been forgotten)

We have all heard about the various federal plans to help homeowners keep their homes. Unfortunately, nearly all of the programs have had little impact to date, which has left borrowers who are in trouble at the mercy of the lenders/mortgage companies or the manager of the mortgage backed security ("MBS") that really owns the mortgage.

According to an article in the New York Times, published on May 14th, 55,000 homeowners have signed for assistance with one of the federal mortgage-relief programs. At first glance that may seem like a good response. Put into perspective though, in April there were 342,000 foreclosures. The point? The programs are not working. (see the chart from the New York Times above)

The Senate, without any support for the Senate Bill 61 from the White House to pass it, voted down legislation that would have made the mortgage lenders and the MBS managers pay attention and try to fix this country's biggest economic problem. The Bill would have given Bankruptcy judges the power to modify loans that were deemed unfair and predatory in nature. Lenders would have had to compromise or face the Courts. The Banking lobby killed it.

As long as the housing market continues to slide, and as long as foreclosures continue to climb, we will not see a major recovery in the general economy. One might argue that it is the 650,000 lost jobs last month that is the root cause of the recession (5,000,000+ jobs lost in the past 8 months). BUT, the crisis started when the mortgage market collapsed, loans that people could not afford adjusted, and the MBS that were being held nationally and internationally became worthless overnight. The MBS and CMBS (Commercial Mortgage Backed Securities), both of which are derivatives, represented trillions of dollars - yet the downfall of one "Bank", Lehman Brothers, began the chain reaction that has brought us to our knees.

There is little that can be done on the national political level, except for writing our elected representatives and asking that work for their constituents instead of the lobbyists. However, there are other steps that can be taken to help stricken borrowers.

The New York Federal Reserve Bank and the New York City Bar Assn. have set up a program to train lawyers to help victims of predatory lending practices, or the economy as it relates to home mortgages. The courses, offered at no cost to the participants provided each takes at least one pro bono (no fee based on the homeowners financial hardship) case in the next 12 months, will give the attorneys the knowledge to review all phases of the loan transaction to determine if the Lender/Broker/Originator took advantage of the Borrower, or if the Servicer is now committing violations of the Federal or State rules regarding collections, notices, foreclosure procedures, etc.

In Massachusetts, The Boston Bar Association has run similar type training, although not as comprehensive, as has The Mass Fair Housing Association in conjunction with the Hampden County Bar Assn ( western Mass) Foreclosure Task Force. Further, attorneys with experience in the field are handling those cases which come to them either on a pro bono basis, or if the borrower can pay, for a fee based on the ability to pay. The idea here is to do as much as we can to save houses.

At any given time, I have 5-8 predatory lending/hardship cases in process. The results are good so far, but each case takes a great deal of time, mainly on the telephone, on hold (listening to bad music). Each Lender and Servicer has different procedures that have to be followed; that is easy once you know what they are. The biggest issue is speaking to someone, on behalf of my client(s), who can make a decision or at least refer me to someone else who can do so. When I am doing a training course, I caution attorneys to just try to get their client(s) back to the place that the client really bargained for, and to have the attorney's fees paid by the Lender; not to try to get a big judgement against the Lender etc. The goal is to stop foreclosures and keep homes.

For example, I have a couple who Borrowed from Wells Fargo through a Broker, Direct Finance, whose representative (originator) promised a $1,200 per month payment, matching the existing loan. My clients were getting cash out of the closing to payoff credit card and medical debt. The closing where my clients actually signed all of the paperwork was a farce. The attorney that actually was the settlement agent (closing attorney - all of whom represent the Lender technically) was filling in for the Lender because the attorney that was supposed to do the work had a conflict in his schedule. The closing lasted 15-20 minutes. There was no way that the attorney could explain all of the documents and the terms of the loan to the borrowers in that time. In fact, the borrowers, my clients now, were just given paper after paper to sign - the attorney had another appointment.

When my clients finally received documents with the actual figures on them, the payment was $1,900 per month PLUS taxes and insurance, for a total of $2,200. This was $1,000 above what had been promised. My clients had been told that the rate would drop from the 7.75% they had, to 5.75 % which would make up the difference for the "cash out" portion of the refinance. Further, the Originator cannot be found - by me, the Broker, or the Lender. However he did the same thing, working for a different broker, to a couple to which he was referred by my clients. This indicates that there was a pattern and practice of fraud and deceit, at least by the originator and quite possibly by the Broker.

My sole job in the matter above is to make a deal so my clients can keep their home. We are not asking for punitive damages, or compensation for the stress, anxiety and "conscious suffering" my clients have been enduring since receiving a foreclosure notice. e simply want was my clients thought they were "buying", and my fees which a nominal in the context of the loan itself and the Lender's attorneys' fees.

If you are facing a foreclosure and the reason is not simply that you haven't paid the mortgage company, but could have, but is because of irregularities in the lending process or what you believe were problems, contact your State or local bar association for a referral to an attorney who is handling these type of cases. If you cannot find an attorney, feel free to contact us at the email address below, and we will try to get you a referral to competent counsel

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

rii@isacofflaw.com

http://www.isacofflaw.com/

Lessons Not Learned

The lessons our financial leaders should have learned from the "mortgage crisis" but did not, show how slow we are as an economic structure to react by anticipatory behavior. It does matter whether the financial markets overheated because of a giant Ponzi scheme hundreds of times the size of Madoff's, unknowingly and unwittingly perpetrated by its very victims, or due to a lack of regulation, or having as a cause the unbridled greed of the now oft ill thought of "Wallstreeters". Of course, one could also point to the failure of the economists to predict and discern the emerging pattern which ended in an implosion in the world of imaginary numbers - not the type to which mathematicians refer, but to the type hedge fund managers, speculative investors, commodities traders, bankers needing to satisfy stockholders, and just every day people with 401k plans, used as their calculus.

The concern we should all have is not only to identify when the recession began and when the regulators should have stepped-in, but rather how to see the next "black hole" which will threaten the fabric of our financial world. We have turned our telescopes on the past; we should also look at the present to see the future. Easy mortgages were the symptom of the securitization flu. The effect of the burst of mortgage-backed securities and credit default swaps et al has been a shut-down of credit: that will be the killer.

As the Wall Street Journal pointed out, the next credit crunch will be credit cards and similar smaller, but just as widely used lines of credit like over-draft lines, HELOCS (home equity lines), the ubiquitous 90 day note, etc. These means of keeping consumers and small businesses running when cash is tight, are being shut down. Jobs are being lost and housing defaults are rising which are causing more lines to be closed or limited as a pre-emptive strike against larger losses. Yet there is no regulatory concern about there being no credit available to "just ordinary people" and "just ordinary small business".

Understandably, the emphasis is on saving the patient - the hell with a few limbs: perhaps a more cogent analogy however would be that the sacrifice of the few to save the many is okay, not necessary but OKAY. It's great if you are not one of the few. The "few" here are consumers - both businesses and individuals. If there is no credit, and jobs are being lost, people will horde. If there is hoarding, small businesses will fail, which will cause larger businesses to fail...

The same Banks that are taking billions to "stimulate" the economy are limiting credit to people and small businesses. In fact, they are withdrawing credit and calling loans, reminiscent of the late 80s & early 90s. Further, interest rates are sky-rocketing creating spreads that loan sharks would pay ½ of their "vig" to get. Borrow from the Fed/Treasury at 0% or maybe 0% plus 25 basis points and lend it out at prime plus 18.99%. Default rates are still up into the 30% range. Worse is that people will use every last dollar of credit, creating huge defaults, which the industry can predict but "Who cares? We'll just securitize it and sell 'em"

[NOTE: The following link will bring the reader to Wharton School of Business' website where a recap of Federal Reserve Chairman Ben Bernecke's recent speech is contained] http://knowledgetoday.wharton.upenn.edu/2009/03/changing-the-rules-.html

Mortgages, Mortgages, Everywhere, Yet Not A Drop For Me

We finally have the basics of the Mortgage Bailout for Homeowners -at least for some homeowners. The Administration crafted a plan, touted in the mainstream media as "Plan Could Aid 1 in 9 Homeowners". This program is designed to help people who might face foreclosure, keep their homes. This is great news! With inertia being the strongest force in the universe (at least ours), a step forward is truly a huge one. There is at least one significant gap however. BUT FIRST, the good news -PLAN BASICS:

1. Plan applies ONLY to primary residence
2. Mortgage balances cannot exceed $ 729, 750.00 - (this doesn't affect my clients)
3. You will only qualify if your total monthly mortgage payment (principal, interest, taxes, insurance) is more than 31% of your PRE-TAX monthly income. Example - you (and spouse if married) take home $750 every week, but your wages BEFORE TAXES are $900 every week, Using the BEFORE TAX figure of $900-

a. multiply it by 52 (number of pays in the year), which equals $46,800 (yearly PRE-TAX income;
b. divide that by 12 (months in the year) to get the monthly PRE-TAX income amount, here equaling $3,900;
c. multiply that figure, $3,900 by 31% (.31) = $1,209

If your total monthly mortgage payment is more than $1,209 , you would be eligible for the program. It does not matter if you are current in payments or behind, but you cannot have a large stash of cash in the bank or under the mattress.

Income WILL BE VERIFIED - Borrowers will have to sign a form allowing the Servicer/Lender to get a copy of the Borrower(s)' federal tax transcript (Form 4506-T) AND, if you are employed you will need 2 months of pay stubs; If self-employed then third-party proof of earnings in addition to the tax information. Everyone will be on the lookout for fake income figures and other FRAUD.

The concept behind this approach is to have the Lender reduce the monthly payment to an amount of not more than 38% of BEFORE TAX income, with the Treasury sharing the cost of reducing the payments to not more than 31% of BEFORE TAX monthly income.

Here is the bad news: While Borrowers with loans through FHA, VA or owned by FannieMae (FNMA) or FreddieMac (FHMC), will have no problem if the otherwise qualify (above guidelines), IF YOUR LOAN IS IN A MORTGAGE-BACKED SECURITY, and if there is a Servicer, the modification can be done only if the agreement( called the Pooling and Servicing Agreement or "PSA") among the investors, lenders, servicers, trustees, etc. allows the changes. Keep in mind, that as explained in earlier posts, no one expected this collapse, so most of the PSAs are not written to allow much in the way of modifications. Also, participation is voluntary. The majority of the Adjustable Rate Mortgages made to so-called sub-prime borrowers are in this category.

The full details of the plan, the "HOME AFFORDABLE MODIFICATION PROGRAM GUIDELINES", are available at http://www.financialstability.gov/ which is the official Treasury website. It is 19 pages, most of which gets fairly technical. At the same site there is a Summary of Guidelines called "MAKING HOME AFFORDABLE".

If you are in trouble with your loan, or soon will be, call the company that sends you the monthly statements. If they are of no help, call the "Hope Hotline" at 1-888-995-4673, or contact my office.

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

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

Stop the Foreclosure: How?

Since the last posting, very little has come of the stories about bailout money being available to stop foreclosures. Loan modifications are obtainable, but, without patience and a knowledge of the process, the task is nearly insurmountable. What is worse is not just that the pace of foreclosures is increasing, but that the moritoriums are over and all of the borrowers who thought that a solution would be reached, before the sale date, are being rudely surprised.

The argument that the President Obama will institute programs that will be the lifesaver for which everyone is waiting has merit; but what do we do about all of those homeowners who lose their homes in the meantime? If you have any concern about a soon-to-happen foreclosure, please read the post of December 22, 2008, which deals with stopping the process.

If there is any question about whether a property will be sold at a foreclosure action, contact an attorney or a legal aid organization. If there is no time left, and if there is a sale tomorrow, file a Chapter 13 Bankruptcy. The Clerks at every Bankruptcy Court can help an individual file the basic documents to get the Bankruptcy started, thereby STOPPING the sale.

The offer is open and will remain so - contact me through my website or directly by e-mail and I will try to assist through a referral to an attorney, or by "walking you through" the filing process.
Author's Copyright by Richard I. Isacoff, Esq, January, 2009
http://www.isacofflaw.com/

rii@isacofflaw.com

Why Loans Cannot Be Modified

MORTGAGES - FORECLOSURES- BAILOUT - MODIFICATIONS

The last posting discussed the problem with ARMs, and why a great number of borrowers are finding it impossible to make payments. The simple answer is to have the lender change the terms of the loan, MODIFY the agreement, so the Borrower does not end up facing a foreclosure. Houses generally sell for a maximum of 1/2 to 2/3 of their value at a foreclosure auction. The Lender wants money, not a house. The Lender especially does not want to own a house, waiting for the right buyer. During that period the house is a non-earning asset for the Lender, and the Lender has to pay for heat, upkeep, etc. Regulators, like the FDIC, do not like non-earning assets.

As was posted earlier (9/30, 10/25, 12/3) the Lender of the money no longer owns the loan. No ONE does. Loans are now packaged and sold $500,000,000.00 at a time. Investors bought little pieces of the who group of mortgages; they bought a tiny piece of each mortgage. The Lender hires a Servicer, a company to send bills and receive payments. The entities lawyers, government officials, and Borrowers talk to when trying to modify a mortgage, is the Servicer. This entity has very little authority to alter the terms of the contract with the Borrower (see last post). Even if the request from the Borrower to help him/her keep the home is to cut the interest rate to a more reasonable rate, and to allow all back payments, if any, to be paid after the regular term of the loan is over, Servicers DO NOT have the authority to make those deals.

The words I hate from a Servicer or its attorney, when I am trying to get a modification for a client facing foreclosure, are "I will have to check with my investor". The chart shows who does what, and who owns the Loan. Like I stated -NO ONE - it has become part of a security, a bond; it has been sliced and diced and cut into a million tiny pieces, owned by hundreds of investors. If you have Mutual Funds in a 401K, or IRA, or just held in your name, which own(ed) Mortgage Backed Securities ("MBS"), you owned a teeny tiny piece of many mortgages. You might have need an electron microscope to see how much of a loan you owned, but own it you did.

An explanation of the Chart from the top:

1. The Originator/Seller is the Lender with whom you dealt and from whom "bought" your loan.

2. The Special Purpose Entity ("SPE") is just a corporation set up to own the mortgages until they are sold. The SPE pays the Lender for the loans. The only assets in the SPE are the mortgages the Lender has made/originated.

3. The QSPE/Trust is the entity that ultimately puts the $500,000,000.00 of mortgages together and gets them ready to sell to investors; big investors like mutual fund managers, or little investors like you and me.

4. The Trust/QSPE (the "Q" is for "Qualified") is responsible for managing the assets through a Trustee, typically a bank like Wells Fargo or Deutsche Bank.

5.The Trustee has a duty to the investors who buy the pieces of this big pool of mortgages, which is now called a "Mortgage Backed Security". The Trustee has no duty to any Borrower, unless the Servicer, hired by the Trustee, really makes a mess of things. It is at this stage that the Mortgage Backed Securities are sold; sold in tiny pieces of the whole pool

6. The Servicer is the company/bank that actually sends payment notices to Borrowers, collects payments from borrowers, keeps track of real estate taxes and insurance on each property securing the mortgage note (the I.O.U. you sign to get the money to buy the house), and hires the law firm to foreclose if payments are not made. The Servicer has a duty only to its boss, the Trustee. It has very little authority to do any modification. THIS IS WHERE THE PROBLEM LIES.

7. The investors buy pieces of the MBS put together by the Trustee of the QSPE itself. They demand payment in full of both interest and principal. They do not care about a homeowner because they don't own a mortgage from the homeowner. They own a piece of paper that states they own $25,000,000.00 of this MBS. If it is a mutual fund, then thousands of people own the teeny tiny portions I mentioned above, because they invested in the Mutual Fund. Most people still have no idea of what a mortgage-backed security is, or how it works. The Mutual Fund that does know all about them, however, has no idea, and never had any idea, of the quality of the MBS. By quality I mean the probability that the investment will not lose value and will pay interest as promised.

The Borrower and owners of the loan are so far removed from each other that it is literally impossible for a Borrower to talk to the real owners of the mortgage, because there are thousands of them for each loan. Remember, 1000, 2,500, 5,000 or more loans get mashed together to make the MBS.

IN ORDER TO MODIFY LOANS IN ANY CONSTRUCTIVE WAY, IN A MANNER THAT WILL HELP STOP THE FORECLOSURE PROBLEM, THE SERVICERS HAVE TO BE GIVEN THE AUTHORITY TO MODIFY LOANS ON BEHALF OF THE INVESTORS. WITHOUT FEAR OF BEING SUED. This will take a Federal law.

The alternative, which is being hotly debated in Congress, is to give Bankruptcy Judges the right to modify loan terms which can be shown to be too harsh; or where the value of the property has gone down so far that there is a huge gap between the amount of the loan ($125,000 for example) and the value of the property ($90,000), or $400,000 loan and a current value of the house of $300,000. This issue, coupled with the kinds of loan discussed in prior posts and set out in detail in the post from earlier today, can be fixed by a law that allows Federal Judges to keep people in their homes by making the mortgages more realistic and not fraudulent or misrepresentative.

There is no answer that will make everyone happy. Our economy, in fact the world's economy depends on stability. We do not need the MBS to pay out 100% of what was invested, but rather to know what the value is and to know that there is a mechanism to stop the foreclosure debacle.

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

http://www.isacofflaw.com/

The New Villian? C.R.A.?

FORECLOSURE - MORTGAGE CRISIS - BAILOUT - HOUSING - MORTGAGE

Surprisingly, or maybe not, there was an Op-Ed Opinion in the December 11, 2008 edition of the New York Times, blaming, to a large part the CRA (Community Reinvestment Act) for the current mortgage crisis. In fairness, in the 7th paragraph, the author states "One cannot say with any certainty whether the more important cause of the current housing crisis was affordable-housing mandates or the actions of investment banks and rating agencies."

The Community Reinvestment Act was passed in 1977 to stop banks from continuing a lending practice called "redlining". Simply put, this was a practice where lenders (almost all Banks at that time) would take maps of their marketplace(s) and draw a red line around the less desirable areas, predominately minority neighborhoods, and NOT grant loans to people in them. Was this aimed at minorities? In some cases yes; in many it was aimed at an economic issue. The fact that a disproportionate number of the people affected were minorities did not seem to matter.

The CRA did not mandate bad loans, but rather is forced Banks to go out into the community and figure out a way to make good loans more available to anyone in these "redlined" (circled) parts of town. Later, FannieMae and FreddieMac were supposed to grant a large percentage (approx. 25%-33%) of their loans to low and middle income potential homeowners. It DID NOT require that loans should be made to people who could not afford the monthly payments. Innovative lending programs and grant programs were encouraged. That DID NOT mean ARMs with initially artificially low (teaser) interest rates, but low fixed rates mortgages coupled with grants for long-term home ownership; and the use of available federal housing funds along with good lending policy to assist lower-income people to buy a home that they COULD AFFORD, basically substituting a mortgage payment, and insurance and tax payments, for paying a landlord rent.

There was nothing radical about the CRA except that it recognized that low and moderate income people, often minorities, were purposely or inadvertently excluded from home ownership. For 25 years all went well. The line of demarcation, when the mortgage business fell off of a cliff, was the point when mortgages were securitized. People and institutions buying these securities, backed by mortgages, relied on rating agencies to state whether there was risk, and if there was, how much. These companies that placed a grade on the securities backed by mortgages (MBSs), did fine at the start. HOWEVER, once the players, mortgage originators, mortgage brokers, mortgage lenders, and all of the others in the chain, realized that if the mortgages were sold to investors packaged in bundles of $300 million or $500million ... or more, and no one lender owned a mortgage, no one could lose if a mortgage failed and the property was sold at foreclosure. No one but the holder of the security - and, of course, the individual homeowner

Was this the fault of the CRA? NO!!! It was a failure of the rating agencies and others to recognize that once no one making the loans would lose anything, so that they would make any loan possible. REVERSE RED-LINING BEGAN. Rather than avoid certain areas, lenders, now primarily NOT banks, purposely went after people in those neighborhoods promising the American dream - Owning your own HOME. The practice of enticing people to buy a loan at a low initial rate, hiding the fact that the rate would JUMP, became commonplace. This practice WAS NOT confined to low and moderate income people. It became pervasive in the mortgage industry. Buy NOW, Pay later - or never if you can keep refinancing your home as values increase.

There are plenty of people and organizations and laws to blame. Most just didn't get it - many loved the big paychecks they received. People forgot the principle that whatever goes up, will and must come down. And yes, that applies to home prices. Further, once the teaser rate of 3% or 4% went away/expired and the real rate, of 8%,10%, or even 11% set in, the monthly payments WERE NOT affordable.

I have case after case where I am trying to save homes because of that very scenario. Do the buyers and mortgaged owners want to give up their homes? Did those folks know they wouldn't be able to pay? Do the majority of them not care and just give up the house and move-on? NO to all the the posed questions.

We all need a CRA, but a much broader one now - a National Reinvestment Act - programs to save housing and allow new buyers to do so.

Author's Copyright by Richard I Isacoff, Esq - December 2008

http://www.isacoffflaw.com/

How Long Can You Tread Water?

FORECLOSURE CRISIS - CREDIT CRISIS - BAILOUT - MORTGAGE ISSUES

Those of you who are fans of William Cosby, EdD, a/k/a Bill Cosby comedian, might remember the line from his "Noah and the Lord" routine. That is the position we are in now with regard to the mortgage crisis (ongoing). The wild swings in the stock markets have grabbed the headlines on nights that the 3 automakers have not. Guess what? It all seemed to start with the mortgage mess. If you have not already done so, I suggest that you read my previous posts that have dealt with the credit and mortgage crunch. In reality, the mortgage difficulties are really securities markets problems, as I have explained before.

Below is my contribution to a discussion which is taking place on Wharton School of Business's online Journal Knowledge@Wharton. The article in its entirety can be read by using the link immediately following the text of this post. While it is written in a more technical fashion that I post, a careful reading will put many issues into perspective; at least into some perspective (although not all of them).

Since my submission to "Knowledge", there has been a flurry of activity of Sheila Bair's (head of FDIC) proposals to help stop the foreclosure slaughter. I will be posting my analysis of the criticism to the idea that mortgages be modified with the Federal Government underwriting part of the losses incurred by lenders and loan servicers, within a day or two - I am just waiting for some dust to settle, or more in keeping with the title above, until the flood waters recede.

(see link at end of this posting for full article entitled):

The Fairness Issue: How to Cope with the Flood of Foreclosures
Published: November 26, 2008 in Knowledge@Wharton


(my commentary) In "The Fairness Issue" article an excellent job was done in presenting nearly all views of the mortgage scene. As with views of anything however, the viewer's perspective determines what is seen, and what is not seen. The problems are set out well, but if one relies on the economists' and bankers' views, one will get only the macro financial picture.

There is no taking into account the effect on actual homeowners and their effect on the economy as a whole. One could argue that the micro analysis, the review of individual mortgagors, does not really matter, because no one of them matters in the scheme of the economy, ours or global. The argument would miss the point while being correct a the same time; it was this logic that gave us "toxic assets", mortgage-Backed Securities.(To me, the concept of an asset being "toxic" is an oxymoron and would only apply to enriched uranium and the like anyway). William Frey's comment that no one anticipated a catastrophic meltdown is exactly on point, but we had such a crash. If millions of individual mortgages created the problem, then why would there be a global solution?

Professors Guttentag and Wachter are correct in the assessment that the housing market should be the primary concern. If so, a semblance of normalcy can be restored; then maybe confidence can also recover. I have seen this with my clients. At the present, most of my time is spent trying to save homes, not just houses-- but homes. The fear, anxiety, and recriminations created by a foreclosure destroy families. Working with mortgagees, and their appointed servicers empowered by PSAs has proven to be a challenge. There are no rules; the government has let the servicers determine what happens in our economic life. Ms. Bair's [Chair of the FDIC] proposal through the FDIC, flawed as it may be, at least gives a ray of hope and a view towards Main Street rather than Wall Street.

Mr. Smetters' sentiment is a valid position, but begs the question: We cannot fix the housing markets, determine the value of mortgage-backeds, and effectively put in place long-term solutions by taking a broad brush approach. The Federal Government, has to back-stop the losses; it has to allow the MBSs to be taken apart, if necessary, to modify loans through write-downs of principal, interest, or both. The regulators are in place. FDIC, OCC, and the Treasury just to start; and we could always resurrect the RTC (Resolution Trust Corporation). I make no claims of originality in my ideas, but I ran failed S&Ls in the mid-80s, for the State of Maryland and with FSLIC, where there were depositors who could not get their money for months, and where loans were just as volatile as the ones in the MBSs. There was no "one size fits all" solution then, and there is not one now.

Last, if we are concerned about cost, we have already given the markets many times more than it would take to shore-up the MBSs by underwriting a portion of the losses an investor might realize. As Bill Cosby, certainly not an economist, so aptly stated in a routine, "Noah, how long can you tread water?"(asked the Lord). We had better ask ourselves that before the flood of foreclosures drown us all in unquenchable debt. The fire would be easier to handle.

full article at http://knowledge.wharton.upenn.edu/article.cfm?articleID=2104&post

Author's Copyright by Richard I. Isacoff, Esq., December, 2008

http://www.isacofflaw.com/

Tinkerbell, Where Are You?

CREDIT CRISIS - MORTGAGE BAILOUT - TOXIC ASSETS - CREDIT CARDS


I had planned to move full force into the new tactics by the Credit Card Industry to help it even out its, and its parent companies', losses. Unfortunately, we are coming face to face with the reality of the current crisis, and why it just will not stop generating scary headlines; the kind that send financial markets, stocks, bonds, entire businesses, and through job losses the public in general into a tailspin.

This weekend CitiCorp, the parent of CitiBank, CitiResidential Mortgage, and Citi this and Citi that, (when combined they do business in 100 countries, and employ 375,000 worldwide), was deemed to be on the edge and in need of a massive infusion of government money or some other type of intervention. It seems that what was touted as a failure of the residential mortgage backed securities ("MBS") market, has been disclosed to be a breakdown of all types of Pooled Loans. You may read about derivatives such as CDOs (Collateralized Debt Obligations), and Credit Default Swaps. (Derivatives are just a name for products that allow investments in loans and other types of financial transactions, by buying not the loan, but the right to share in the profits from the interest earned. Of course the idea is that the loan or transaction is secured by collateral, not unlike the arrangement in a simple home mortgage.)

With the second or third largest banking organization in the country in trouble, everyone who already hasn't, loses faith in the underlying assumption that his/her investment, assets, have any value: THERE IS A FURTHER EROSION OF CONFIDENCE. Once the spiral downward began, and the Government did not prevent it from accelerating (by saving Lehman Bros. with their portfolio of MBS and other derivatives), we had the IndyMacBank takeover by FDIC, because of a run on the bank (see earlier posts), and here we are.

What we have found out about the CitiCorp fall is that through its multiple entities, the organization had, at risk, $2 trillion, much of it being "off the books". The risk was partially in MBS but only t relatively small percentage when looking at the entire picture. A view develops that might explain why the Mortgage Backed Securities issue created an immediate firestorm. Financial institutions like Citi, JPMorganChase, and Bank of America had invested enormous sums in high yield, high risk investments. Not only did they have MBS, but they were holding all nature of derivatives, especially credit default swaps.

This was essentially a bet that there would be defaults in loans, and therefore the bank had to hedge its bets. In essence, bet against itself, with other institutions buying the investments derived from the loans made by the bank. It was selling part of each loan in a portfolio, with the Seller protecting itself by sharing the risk, and the buyer trying to out-guess the Seller, paying a discounted price for what might turn out to be a perfectly solid loan. This was not done loan by loan, but by billions of dollars worth of pieces of loans, all at once.

As it turned out, when the spiral down began, even good loans turned bad because businesses, which had been solid, began losing orders, and as credit became almost non-existent with no one knowing who would be available tomorrow to pay back a loan taken today, the speed increased until it over-powered all reason. Panic set in, and while the panic has subsided, the anxiety has not. Just as the run on the bank (see earlier posts) was and remains due to a lack of confidence in the system rather than a failure of the system, the market plunge was due to everyone trying to sell "bad" stocks all at the same time. Was there a reason for concern? YES. Panic? NO.

WE NEED THE TINKERBELL PROJECT. Remember in Peter Pan, when Tinkerbell was weak and in danger of dying, and Peter asked everyone to believe in Tink, and to say so out loud so Tink would know that everyone believed, and she would live? Well, we need to believe in the system. Is it flawed? YES. Dead? NO. Will we recover- certainly, but the price will have been steep. Tens of thousands of jobs lost, companies forced into liquidation because no one wanted its stock, pension and other retirement plans devastated by securities losses (remember the MBS issue).

Interestingly, those who were the first to stop believing were the biggest losers (financially), including many of the largest investment houses and banks in the Country. The rest of us were dragged along for the ride.

When the system stops believing in itself, when the so-called market makers and money brokers lose confidence and bet against themselves and others of their kind, panic will inevitably start. This has been the worst realization of that fact since the Depression. Perhaps, and hopefully, the worst is over. Just keep repeating "I DO BELIEVE, I DO BELIEVE, I DO BELIEVE..."


Author's Copyright by Richard I. Isacoff, Esq., November 2008

http://www.isacofflaw.com/