bubbleinfo.com

Hat tip to kwaping for sending this along, from the AP:

WASHINGTON – The federal government on Wednesday ordered 16 of the nation’s largest mortgage lenders and servicers to reimburse homeowners who were improperly foreclosed upon.

Government regulators also directed the financial firms to hire auditors to determine how many homeowners could have avoided foreclosure in 2009 and 2010.

Citibank, Bank of America, JPMorgan Chase and Wells Fargo, the nation’s four largest banks, were among the financial firms cited in the joint report by the Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency.

The Fed said it believed financial penalties were “appropriate” and that it planned to levy fines in the future. All three regulators said they would review the foreclosure audits. Under the agreements reached, the lenders and servicers have 45 days to hire an auditor and will “remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies.” There is no minimum or maximum dollar amount identified.

In the four years since the housing bust, about 5 million homes have been foreclosed upon. About 2.4 million primary mortgages were in foreclosure at the end of last year. Another 2 million were 90 days or more past due, putting them at serious risk of foreclosure.

Critics, including Democratic lawmakers in Congress, say the order is too lenient on the lenders. House Democrats introduced legislation Wednesday that would require lenders to perform a series of steps, including an appeals process, before starting foreclosures.

“I want to know what abuses (the government agencies) identified, which banks committed them and how their proposed consent agreement is going to fix these problems,” said Rep. Elijah Cummings, D-Md., the ranking member of the House Government and Oversight Committee. “Based on what I have read … I am not encouraged at all.”

Sen. Tim Johnson, D-S.D., chairman of the Senate Banking Committee, said the agreements struck were a “step towards addressing the improper and fraudulent practices to which many of the country’s largest mortgage servicers have admitted.”

The other lenders and service providers cited by the agencies include: Ally Financial Inc., Aurora Bank, EverBank, HSBC, MetLife Bank, OneWest Bank, PNC, Sovereign Bank, SunTrust Banks, U.S. Bank, Lender Processing Services and MERSCORP.

Citigroup said in a statement that it had “self-identified” needed changes in 2009 and that it has helped more than 1.1 million homeowners avoid foreclosure.

“We are committed to working with our regulators to further strengthen our programs in these areas and meeting these new requirements,” the company said.

Ally Financial, formerly known as GMAC, said it had not found “any instance where a homeowner was foreclosed upon without being in significant default.”

Without specifically identifying instances of bad foreclosures, the government agencies noted in its report that the “deficiencies in foreclosure processing observed among these major servicers may have widespread consequences for the housing market and borrowers.”

John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer housing watchdog, said the government’s action is a year too late. It does little to help those who are just now wrestling with a foreclosure and those who have already been displaced, he said. Rather than moving swiftly to seize people’s homes, the banks should have done a better job helping people lower their mortgage payments through modification programs, he said.

“This should have happened a long time ago,” he said. “There are so many people who, if they had received a meaningful modification, could have stayed in their homes.”

From HW:

Four Republican attorneys general participating in the investigation into mortgage servicing practices wrote a letter to Iowa AG Tom Miller stating that the proposed settlement is too strict.

Florida AG Pam Bondi, Texas AG Greg Abbott, Virginia AG Kenneth Cuccinelli and South Carolina AG Alan Wilson sent the letter Tuesday explaining among other claims that homeowners would strategically default on the mortgage in order to take advantage of the consumer-friendly terms.

The 50 state AG investigation came after the largest mortgage servicers were found last fall to be foreclosing on homeowners improperly through faulty affidavits. Lenders conducted reviews of their processes and have begun to correct the affidavits, but in February, Miller and several core offices participating in the investigation sent a proposal to the banks outlining a possible settlement.

The terms included an end to pursuing a foreclosure while borrower was being evaluated for a modification. Considering a borrower for a workout, including a principal reduction, would be mandatory before foreclosure as well, and a decision on modification must be made within 30 days of receiving documentation.

But not a consensus among the AGs has been elusive. The four signing the letter this week complained Miller and the other offices overstep their bounds.

“Because of the term sheet’s vague principal reduction standards, some homeowners may simply default on their loan and use the States’ agreement to obtain a principal reduction— whether or not they actually made an effort to maintain their mortgage,” according to the letter.

The four AGs go further, saying the terms do not address the nature of the investigation. Modification proposals would not remedy the violations banks made, and while they admit the terms, many of which they do agree with, act as a starting point, some proposals should be scaled back, according to the letter.

“In our view, the fifty-state working group has a unique opportunity to address the mortgage servicers’ legal and financial malfeasance on a national scale—but we are concerned that expanding beyond the scope of our already expansive charge may ultimately undermine the effectiveness of our law enforcement efforts,” the letter reads.

From Businessweek.com:

More than one in five borrowers in the U.S. are underwater; collectively the shortfall is about $751 billion. Nationally, homeowners whose mortgages have been modified without a principal reduction are up to twice as likely to re-default as those with some forgiveness, according to Atlanta-based Ocwen Financial, a subprime servicer that reduced principal in almost 20 percent of its loan modifications in the last year. “The reason so many homeowners give up is because there is absolutely no hope,” says Brent T. White, a law professor at the University of Arizona who studies underwater borrowers. “They want someone to meet them halfway.”

Banks worry that if they reduce principal, the losses they’d have to take would erode capital cushions. Mortgage servicers don’t like principal reductions because they lower the fees they collect and cut into profits. Some Republican lawmakers call the idea a bailout that will encourage more borrowers to default. Mike Trailor, the director of Arizona’s housing finance agency, says that as he tried to get a write-down program going, most banks and servicers told him it would only encourage more defaults. “I learned a new word for ‘no,’ and it’s ‘moral hazard,’” Trailor says.

While House Republicans are moving to end the Home Affordable Modification Program, the Obama Administration’s flagship loan modification effort, the year-old Hardest Hit Fund would not be defunded under the GOP plan. So far the smaller program has awarded $7.6 billion to 18 states.

About 20 percent of the money is going to principal write-downs in nine states, with California, Nevada, and Arizona getting the bulk of it. Nevada and Arizona have signed up Bank of America, and California is in talks to do so.

Brian T. Moynihan, the BofA chief executive officer, told investors at a Mar. 8 conference that the bank resists calls by federal and state officials for nationwide principal write-downs, preferring more targeted efforts. “Our duty is to have a fair modification process,” Moynihan said. The bank was set to announce Mar. 10 a principal forgiveness program for military service members leaving active duty and behind on their mortgages. To have an impact, though, the states must attract other large mortgage servicers.

The three states are trying to avoid helping owners who used their homes as ATMs during the housing boom. All three held focus groups or public hearings to help them define what is a deserving borrower. The programs will only help lower- and middle-class homeowners who can document financial difficulties. They will not trim a loan’s balance all at once. Instead, they forgive some of the principal over three to five years, depending on the state.

Trailor says it took the better part of a year to address BofA’s procedural issues to win its participation. Lisa Joyce, policy and communications manager at Oregon Housing and Communication Services, which is starting one of the nine principal-reduction programs, says the states must take care to design plans so that participants pass “the front-page test.”

From propublica.org:

For the past year, we’ve been digging into the administration’s fumbling efforts. We’ve crunched a lot of numbers along the way, and now we’re sharing what we found – including loads of previously unreported data.

Using new Treasury Department figures, previously unreleased documents obtained through Freedom of Information Act requests, and new analyses of state and industry data, we have assembled the most detailed look yet at how the the mortgage industry and the government’s main effort, the Home Affordable Modification Program (HAMP), have failed homeowners. It provides crucial context to the ongoing government investigation into mortgage servicing practices, which might lead to reforms of how banks and servicers handle homeowner requests for modifications.

Here’s what we learned:

• Only a fraction of struggling homeowners are getting help.
• Mortgage servicers are only reaching a small fraction of struggling homeowners.
• The largest servicers, especially Bank of America, have left most struggling homeowners in limbo without either modifying or foreclosing.
• HAMP itself hasn’t made much difference: It hasn’t led to an increase in modifications.
• Just over one in five homeowners who applied for a HAMP mod have received a permanent modification.
• And in one quarter of rejections, mortgage servicers – notorious for losing documents – have cited missing documents as the reason.
• Here are your overall chances of getting a mod with each of the top servicers.
• Treasury claims servicers are improving, but its own data show otherwise.
• When servicers offer a mod, it’s generally more affordable than mods used to be.
• But instead of mods, servicers have recently been offering more repayment plans, which actually increase struggling homeowners’ payments.
• In the end, most government funds set aside to help homeowners are still unused.

The number of modifications each month has remained dramatically lower than the number of homeowners behind on their mortgages.

Although Treasury Department officials and mortgage servicers claim the industry has gotten better at handling modifications, the average rate of modifications in the past two years is not significantly different than the rate before HAMP launched.

The data for the total number of modifications provided by mortgage servicers comes from HOPE Now, an industry-headed coalition.

Ideally, servicers would be in contact with troubled borrowers, discussing possible alternatives to foreclosure. But servicers aren’t doing that with most homeowners at risk of foreclosure-and they haven’t improved much. Servicers generally have multiple alternatives to foreclosure, including modifications, short sales and deeds in lieu, all of which are generally better outcomes for both homeowners and investors.

“If you have names, addresses, and phone numbers for your customers, it seems like you ought to be able to do better than reaching one out of three,” said Mark Pearce, formerly North Carolina deputy commissioner of banks.

We did an analysis of Moody’s data on 300,000 subprime loans that had been more than three months behind in the last year or so. All had been packaged into mortgage-backed securities.

Moody’s reported that getting a modification takes several months at all of the servicers, though some were worse than others. The worst was JPMorgan Chase, where the average modification occurred 11 months after the borrower fell behind. At Ocwen, the fastest, it was seven months.

The vast majority of subprime delinquencies at Bank of America, the nation’s largest servicer, haven’t been resolved either way. About 41 percent of Bank of America’s loans in this analysis hadn’t even begun the foreclosure process, despite an average delinquency of 13 months. Another 27 percent of homeowners were in foreclosure but hadn’t yet lost their homes-the average delinquency there is two years.

About 1.3 million homeowners who have applied for a HAMP mod were denied without being placed in a trial, a three-month period that is supposed to give homeowners a chance to show they can afford the new payments.

Meanwhile, getting placed in a trial is just the beginning of a disappointing process for many homeowners: More than half of trials were canceled, most of the time despite the fact that the homeowner had made all of the payments. Trials have also frequently lasted far longer than the three months they are supposed to last. About six percent of those who’d applied were in a trial as of December.

From HW:

The relief distressed homeowners get from mortgage modifications is short-lived, with most of the loans falling into distress within a year after hitting the reset button,  Standard & Poor’s Ratings Services said in a new report Monday.

The New York-based rating agency said 80% of the loans cured by a modification in the time period stretching from 2007 to 2010 defaulted again within 24 months. S&P compiled its report by analyzing nonagency residential mortgage-backed securities data provided by CoreLogic.

The report titled “Loan Modifications Can Provide a Short-Term Cure, But Few Achieve Permanent Success” concluded that modifications are still acceptable market cures for lenders since they encourage more loan payments while keeping borrowers afloat.

Yet, the report says loan mods remain a short-term solution. In fact, principal reductions — which account for only 3% of loan modifications — have a better success rate in helping borrowers obtain a permanent solution, the report says.

More than 1 million nonagency loans were modified between 2007 and 2010, according to S&P. Of those loans, 19% of the outstanding accounts have already received at least one loan modification. After a modification is made on a loan delinquent for 60 days or more, borrowers generally make 7.8 additional payments before hitting a rough patch again, the S&P report says.

“At 24 months following modification, the payment statuses of modified loans showed no significant improvement compared with the month before they were modified,” said Managing Director Diane Westerback, who worked on the S&P report.

Hat tip to KK for sending this along, from the Huffington Post – a story that follows people through the loan-mod maze, and highlights how the servicers are making the walk-away problem worse:

While walking away is a frightening and dangerous step into the unknown, millions have beaten the path in the past few years. To find out what it’s like to walk away, The Huffington Post asked readers who were considering making the move, or who had already done so, to write in and share their stories. That was in January 2010. A year later, we followed up with them to see how they reflected on the experience.

We initially heard from 58 people from all over the country who fit the criteria. Ten of them have become unreachable over the past year, but the remaining 48 were eager to share their stories. A year later, only eight of them are still paying their mortgage. Almost universally, the homeowners we spoke with took personal responsibility for their situations, declining to blame the banks or politicians. Yet nearly all of them faced similar struggles in their attempts to work with their banks: lost paperwork and little interest in finding a financial compromise.

The story is four pages, here are the best quotes:

1.  “There should be support groups for people who have to deal with these banks,” said Richmond Burton, 50, a soon-to-be-former resident of Long Island’s East Hampton. “It can drive you crazy. I’m very good at dealing with pressure, and they made it feel like you’re at their mercy.”

2.  “We get daily calls from creditors and banks that threaten this and that, and I just laugh knowing I am helping to bring down the system that has brought us all down and continues to reap giant profits at the expense of the little guy,” said one.

3.  Burton went more than a year without paying his mortgage before persuading the bank to accept a short sale. “The mortgage company was not wiling to work with me. The businesses that we have created to serve us are enslaving us. They’re not listening to us, they don’t even pretend to care about us. Really, our only option is to do what I’m doing, which is to fire them all. I’m doing everything I can to remove them from my life,” he said.

4.  Soto, a conservative Republican, said he has come to terms with his choice. “It was a tough decision. We thought about it and thought about it. I want to do the honorable thing, but wait a minute here — I didn’t get respect from the mortgage companies when I was asking for help. Now here we are, we bailed everybody out,” he said. “Am I just supposed to be the good Samaritan and just stay there? I asked the mortgage company, ‘What’s gonna keep me from giving you the keys?’”

5.  In July 2009, on the informal advice of a bank representative, the Kluzes stopped paying their mortgage to encourage their bank to approve a short sale. The bank initially accepted a short sale offer, but the couple was told that investors had later rejected it. The bank suggested Shelley Kluz apply for a modification, apparently unaware she’d been trying for the past year. She did so anyway and was rejected.  “We are in a weird limbo state of waiting. So, long story short, we are walking away. We are so fed up with this whole process,” she wrote at the time.  

Six months later, she and her family moved out, a year after they stopped paying. For $1,550, she said, they now rent a three-bedroom, two-bath home with a yard in the front and back — a feature their first home, with a monthly mortgage payment of $2,250, did not have. The new home is twice the size of the old one with twice as many bathrooms. Their old home was foreclosed upon a month after they left and, Shelley Kluz said, is still on the market for $142,000 (they paid $325,000 in 2004 for the house in Vacaville, CA).  They only moved five minutes away, and she still drives by it occasionally. Her 7-year-old has taken it the hardest, having known no other home, she said.

“It was the best thing we could have done. Since we walked away, our house has only dropped further and we had no hope of getting out from under it,” she said. Now, “We actually have available spending money to do fun things with our family, we pay less money for a completely finished house, my kids have a backyard with grass, and best of all, we can breathe.”

6.  ”I feel like we have a stigma on things like bankruptcy, but those people shouldn’t feel ashamed,” Phillips said. “Yes, some people abuse, like Teresa on ‘Real Housewives,’ but I’m hoping everyday people who are going through this can find some strength in what I’ve done and ask, ‘Why should I care about the bank if the bank doesn’t care about me?’”  Despite his bankruptcy, he said, he has more offers for credit cards than he can handle.

7.  Having worked as a loan assistant, Andrea told HuffPost she initially thought she’d be able to navigate the system. “I figured I would be well-equipped in my knowledge from my previous job about how to figure it out,” she said, “and I was shocked honestly at their level of disinterest — it was either disinterest on their part in working it out, or lack a of just being organized. But to me, them not being organized to work it out was a symptom of there not being a financial incentive for them to work it out.”

Terence Edwards, a Fannie executive, said in a June statement. Edwards said homeowners who strategically default or fail to work “in good faith” to avert foreclosure would be ineligible for new Fannie Mae-backed mortgages for seven years. Freddie Mac, Fannie’s government-owned counterpart, has adopted the same policy.

Fannie, in its statement, also warned it would pursue “deficiency judgments” in court that would allow it to recoup from borrowers the difference between the value of a home in foreclosure and the outstanding loan a bank still has on its books. After inflating the bubble until it burst, banks essentially now want to be insulated from their mistakes by dunning borrowers for every last penny. Deficiency judgments are allowed in 39 states and were a nagging concern to many of the homeowners we spoke to.

The IRS may also loom over homeowners who walk away.  Under current law, thanks to a measure spearheaded by Rep. Brad Miller (D-N.C.) in 2007, the IRS cannot come after homeowners after they walk away. Before that law took effect, if a bank took, say, a $200,000 hit on a foreclosed home and “forgave” the debt, that forgiveness would be counted as taxable income for the former homeowner. A note to the fence-sitters: Miller’s law expires at the end of 2012.

From HW:

A California appeals court ruled that a former homeowner’s lawsuit against U.S. Bank for fraud may continue after the bank allegedly reneged on a promise to negotiate a mortgage modification, opening the door for claims from potentially thousands of similarly situated troubled borrowers in the Golden State.

While the court ruled that a case for fraud–which includes claims for damages–could proceed, it also ruled that the homeowner, Claudia Jacqueline Aceves, lacked sufficient cause to get her home back after the foreclosure sale.

What could become a landmark foreclosure ruling appears to be both a win and a loss, for mortgage servicers and foreclosure defense attorneys alike. Mortgage servicers prevailed on issues of alleged defects in the foreclosure process, with the court ruling that none of the Aceves allegations of irregularities “would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.” Aceves had claimed, for example, that the notice of default was defective and therefore void, a claim the court rejected outright. “Absent prejudice, the error does not warrant relief,” according to the ruling.

The court spent most of  its 15-page ruling, however, discussing how U.S. Bank had purportedly promised to negotiate a potential loan modification if the homeowner agreed to allow the bank to lift a bankruptcy stay, which had protected the home from seizure. Yet, when the homeowner agreed and attempted to begin negotiation on a loan modification, the bank allegedly opted to foreclose without negotiating.

For homeowners, the case affirms their ability to go after banks and mortgage lenders for monetary damages when lenders promise to negotiate mortgage modifications but fail to do so in good faith.

Read full details of story here.

She doesn’t say it specifically, but this should be the first step in resolving the MERS/robo-signing debacle with well-rounded settlements for all – from MND:

Federal Deposit Insurance Corporation (FDIC) Chairman Sheila C. Bair called today for a “foreclosure claims commission” to address complaints from homeowners who have been harmed by flaws in the foreclosure process.  This was one of several improvements suggested by Bair, an outspoken critic of the servicing industry, at a “summit” on Mortgage Servicing for the 21st Century sponsored by the Mortgage Bankers Association (MBA).

Bair said that throughout the mortgage crisis “the most persistent adversary has been inertia in the servicing and foreclosure practices applied to problem loans,” and that prompt action to modify unaffordable subprime loans in 2007 could have helped to limit the crisis in its early stages.   Still, 18 months into an economic recovery and with hundreds of thousands of mortgage modifications completed, “mortgage markets remain deeply mired in a cycle of credit distress, securitization markets remain frozen, and now chaos in mortgage servicing and foreclosure is introducing a dangerous new uncertainty into this fragile market.”

Bair spoke, as she has several times in recent months, of misaligned incentives in the servicing business model which she said drove the origination of trillions of dollars of unaffordable subprime and Alt-A mortgages that triggered the crisis.  Now, she said, the fixed fee structure based on volume does not provide sufficient incentives to effective manage large volume of problem loans during a period of crisis.  “Mortgage servicers have remained behind the curve as the problem has evolved to include underwater mortgages and, now, foreclosure practices that sow confusion and fear on the part of homeowners and fail to fully conform to state and local legal requirements.”

This compensation structure drove automation, cost cutting, and consolidation to the point where the market share of the top five servicers has gone from 32 percent to almost 60 percent since 2000.  “When mortgage defaults began to mount in 2007 and 2008, third-party servicers were left without the expertise, the contractual flexibility, the financial incentive, or the resources they needed to engage in effective loss-mitigation programs.”

Responding to the crisis, Bair said, requires all parties involved to recognize that loss mitigation is not just socially desirable, it is wholly consistent with safe and sound banking and has macroeconomic consequences.  “The bottom line is that we need more modifications and fewer foreclosures. When foreclosure is unavoidable, we need it to be done with all fairness to the borrower and in accordance with the law. Only by committing to these principles can we begin to move past the foreclosure crisis and rebuild confidence in our housing and mortgage markets.

The foreclosure claims commission envisioned by Bair would follow the model used to settle claims arising out of the BP oil spill and the events of 9/11.  It would be set up and funded by servicers to address claims submitted by homeowners who have wrongly suffered foreclosure through servicing errors.  Bair said that many in the servicing industry will resist such a settlement because of the immediate financial cost, “but every time servicers have delayed needed changes to minimize their short-term costs, they have seen a deepening of the crisis that has cost them – and the rest of us – even more.”

Hat tip to Trisha for sending along this article by Lynnley Browning in the nytimes.com:

Homeowners looking to lower their monthly mortgage payments and also save some on interest may be able to do so without all the hefty fees and daunting credit requirements of refinancing.

A little-known strategy, called “recasting,” or “re-amortization,” is available through some mortgage lenders and servicers.

It involves paying off a lump sum of the principal amount and asking to have the monthly payments reset according to the original interest rate and loan terms.

The lump sum reduces the principal, so your new monthly payments decrease slightly and you save on interest paid over the life of the loan.

Lenders typically charge an administrative fee of $150 or more for this service, though borrowers are not required to pay closing costs or submit to another credit check, because they are not asking for a new loan.

Recasting works well for those unable to qualify for refinancing amid the ever-toughening credit guidelines — perhaps because they are self-employed or have less-than-stellar credit — as well as for those with extra cash, like a year-end bonus.

“People don’t really know about it,” said Alan Rosenbaum, the founder and chief executive of the Guardhill Financial Corporation in New York, “but it’s become more common recently.”

Although the term “recasting” is often used by the mortgage industry to refer to interest-rate resets on adjustable-rate mortgages, here the interest rate and loan term stay the same.

Here’s how it might work. Let’s say that as of late December, you had just over $230,449 of principal left on a 30-year fixed-rate loan for $300,000 taken out at 7.93 percent in 1995. You have been paying just under $2,187 a month in principal and interest. But if you put in $20,000 toward that remaining principal and asked your lender to reamortize your payments over the remaining 15 years on the loan, your monthly payment would drop by $52, to around $2,135. Putting in $100,000 would save $730 a month and bring payments to $1,457.

Making extra payments toward the principal while not asking the bank to recast a loan keeps monthly payments the same and merely shortens the time it takes to pay off the loan.

From the Boston Globe: