bubbleinfo.com

Excerpts from the nytimes.com:

Cutting to the chase: if you thought this was the deal that would hold banks accountable for filing phony documents in courts, foreclosing without showing they had the legal right to do so and generally running roughshod over anyone who opposed them, you are likely to be disappointed.

As things stand, the settlement, said to total about $25 billion, would cost banks very little in actual cash — $3.5 billion to $5 billion. A dozen or so financial companies would contribute that money.

The rest — an estimated $20 billion — would consist of credits to banks that agree to reduce a predetermined dollar amount of principal owed on mortgages that they own or service for private investors. How many credits would accrue to a bank is unclear, but the amount would be based on a formula agreed to by the negotiators. A bank that writes down a second lien, for example, would receive a different amount from one that writes down a first lien.

Sure, $5 billion in cash isn’t nada. But government officials have held out this deal as the penalty for years of what they saw as unlawful foreclosure practices. A few billion spread among a dozen or so institutions wouldn’t seem a heavy burden, especially when considering the harm that was done.

The banks contend that they have seen no evidence that they evicted homeowners who were paying their mortgages. Then again, state and federal officials conducted few, if any, in-depth investigations before sitting down to cut a deal.

Read the rest of this entry »

From HW:

The U.S. Supreme Court denied review of a case brought against Mortgage Electronic Registration Systems by a California man, the Court announced Tuesday.

Gomes v. Countrywide is the first major MERS case filed with the Supreme Court, according to Jose Gomes’ attorney, Ehud Gersten. The case centered on the issue of whether MERS had a right to foreclose on the homeowner without proving it had the noteholder’s authority to foreclose.

Gersten, a San Diego lawyer, filed the appeal with the nation’s highest court on Aug. 15 after California’s Supreme Court declined review of the Fourth Appellate District Court’s decision in favor of MERS.

That decision upheld the right of MERS to the home’s deed of trust, giving the company the right to foreclose.

The denied appeal by the U.S. Supreme Court wasn’t a surprise considering the low percentage of cases heard, Gersten said.

“It’s a very frustrating result and a disappointing result that the Supreme Court didn’t pick it up,” Gersten said. “It would’ve been a nice opportunity for the Supreme Court to put the issue of MERS to rest.”

An Arizona federal judge dismissed 72 lawsuits against MERS earlier this month. U.S. District Judge James Teilborg wrote in his decision that there was no legal support that MERS’s system “is so inherently defective so as to render every MERS deed of trust completely unenforceable and unassignable.”

Bank of America will likely now finish the foreclosure process on Gomes’ home, Gersten said. The process started in March 2009.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The plantiff lives in San Marcos – here is his foreclosure record: Jose Gomes

It looks like the loan in question was his original purchase loan from KB Home Mortgage, when he paid $466,500 and used a $135,200 down payment.  He refinanced out most of his initial investment, then it looks like he stopped paying on both loans towards the end of 2008.

It sounds like three years of free rent isn’t enough, he wants a free house too!

Lenders have lost an excuse for not foreclosing – from MND:

Hat tip to JimG for sending this along, from bloomberg.com:

Merscorp Inc., operator of the electronic-registration system that contains about half of all U.S. home mortgages, has no right to transfer the mortgages under its membership rules, a judge said.

U.S. Bankruptcy Judge Robert E. Grossman in Central Islip, New York, in a decision he said he knew would have a “significant impact,” wrote that the membership rules of the company’s Mortgage Electronic Registration Systems, or MERS, don’t make it an agent of the banks that own the mortgages.

“MERS’s theory that it can act as a ‘common agent’ for undisclosed principals is not supported by the law,” Grossman wrote in a Feb. 10 opinion. “MERS did not have authority, as ‘nominee’ or agent, to assign the mortgage absent a showing that it was given specific written directions by its principal.”

“An adverse ruling regarding MERS’s authority to assign mortgages or act on behalf of its member/lenders could have a significant impact on MERS and upon the lenders which do business with MERS throughout the United States,” Grossman wrote. “It is up to the legislative branch, if it chooses, to amend the current statutes to confer upon MERS the requisite authority to assign mortgages under its current business practices.”

“By MERS’s own account, the note in this case was transferred among its members, while the mortgage remained in MERS’s name,” Grossman wrote. “MERS admits that the very foundation of its business model as described herein requires that the note and mortgage travel on divergent paths.”

The judge said that the membership agreement wasn’t enough to assign the mortgage and that to do so the lender would have to give power of attorney or similar authority to MERS.

Read the rest of this entry »

More evidence that corporate America is now all about making deals – from Housing Wire:

Iowa Attorney General Tom Miller told more than 200 homeowners and consumer advocates in a meeting Tuesday that the investigation into foreclosure practices at major lenders is drawing to a close, and that negotiations will begin soon.

Major lenders froze foreclosures in October when employees were found to be signing affidavits en masse and without a proper review of the files as required by law in some sates. Miller and the other 50 state AGs along with seven federal regulators launched an investigation into what is now known as the robo-signing scandal.

In December, Miller met with homeowners for the first time, revealing that a possible settlement with the banks could result in payouts to victims, requirements to write down the principal of the loan and even criminal charges for executives.

But in the January meeting, Miller avoided revealing any details of what the settlement could possibly hold, according to a transcript of the meeting Miller’s office released to HousingWire.

“Since we’re really getting close to negotiations, I’m not going to talk about, I don’t feel I should talk about, what’s going to be in the agreement, what isn’t going to be in the agreement,” Miller told homeowners. “That’s something that we have to hammer out with the Justice Department and the federal people, and with the banks in a negotiating session.”

Here’s my 2-part MERS settlement. 1. Have the banks fund Sheila’s “foreclosure claims commission” to dole out settlements to those who were harmed, and 2. Have the servicers pay all the back recording fees owed (or settlement).  MERS is then allowed to continue operations and be required to record all transfers/pay the fees.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

From HW:

If local governments succeed in the fight against how banks have recorded the transfer of mortgage notes through the Mortgage Electronic Registration Systems, home loans could become as expensive as credit cards, K&L Gates Partner Laurence Platt said Wednesday.

At the last panel of the Mortgage Bankers Association summit on the future of mortgage servicing, Platt and Adam Levitin, an associate professor at Georgetown University Law Center, discussed the validity of MERS. The company was created by major lenders to become the single title holder of a mortgage as the owners of the note made transfers back and forth through securitization.

This, Platt said, was a solution to “antiquated filing systems” at the local level. In Chicago’s Cook County, for example, it can take up to a year for a lender to receive a recorded mortgage back at the time of foreclosure, prepayments and other actions.

But local jurisdictions such as the states of California and Virginia are fighting to void foreclosures completed where the lender lays claim to the enforceability of the credit – meaning if the lender can use MERS to prove it has the right to foreclose – on two basis, Platt said.

One, MERS replaces the fees lenders used to pay to local governments for recording these notes, and these governments are claiming the banks still have to pay fees for the transfers. Second, Platt said, they are trying to score political points, which will only end up hurting borrowers in the future.

“My biggest concern is that local jurisdictions are enacting laws that change the centuries old law on recorded assignments in their locales, and that would void all mortgages in their jurisdiction,” Platt said. “But Virginia didn’t require assignments in the past. So, if that law passes, you will not be able to foreclose in the commonwealth in Virginia. It’s turning real property law on its head.”

But Levitin pointed out the inaccuracies and full-out holes in the MERS system. In cases he looked up, often the investor or the servicer on the MERS system did not match what was on the note.

“MERS ceases to track transfers once the loan is moved into another system,” Levitin explained.

Platt admitted there were issues with the system, but he warned that scoring short-term political points could be the end of affordable housing.

“They are making secured credit unenforceable,” Platt said. “If you think you’re going to get 4% mortgages on unsecured loans, you’re wrong. You’re going to get credit card rates. MERS was designed to make it easy to transfer assignments in modern economics.”

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 everyone who sent in the MA court ruling on foreclosures, which should expedite settlement talks – here’s an excerpt from cnbc.com:

95 percent of troubled borrowers currently do not contest their foreclosures, Paul Miller of FBR tells me. He sees this less about the specific case as the perception of this case:

“If you see more and more of these headlines, many people might look at this and say ‘I can get my house free and clear if I just contest the foreclosure and get a favorable judge that sides on my side. All of the sudden I have a free mortgage.’ That’s not what’s going to happen in this case,” Miller said in an interview. He believes these two homes will eventually go to foreclosure.

In fact, this Massachusetts case may not be exactly as the headlines are screaming.

The American Securitization Forum, immediately after the ruling, put out a statement saying, “The ASF is pleased the Court validated the use of the conveyance language in securitization documents as being sufficient to prove transfers of mortgages under unique aspects of Massachusetts law.

Importantly, unlike the lower court, tithe Court also said assignments of mortgage can be executed in blank, as long as a complete chain of transfers can be shown through the applicable deal documents.” ASF says those documents were not introduced in the lower court and that the lower court would have ruled otherwise if they had.

“The ASF is confident securitization transfers are valid and fully enforceable,” concludes the ASF’s Executive Director, Tom Deutsch.

Hat tip to David for sending this along, from USA Today:

Steven and Tamara Gewecke are three years behind on their mortgage payments, but they’ve fought off foreclosure.  The Minnesota couple refinanced in 2006 to start a business. It failed. Debts mounted. The Geweckes went bankrupt and failed to win a loan modification. But they bought time.

In 2009, the Geweckes filed a lawsuit to block their foreclosure. At the heart of their case is this question: Who owns their mortgage?

They allege the investor trust that claims to doesn’t because there’s no proper record of the mortgage’s transfer to the trust. Their complaint also alleges that the mortgage didn’t get to the trust until 18 months after the trust closed to new loans. If US Bank, the trustee, can’t prove ownership, it can’t foreclose, the Geweckes say.

The Geweckes want a loan modification so they can stay in their home of 16 years. Their current loan has an adjustable 9.25% interest rate. They owe more on the house than it’s worth.

They’re not looking for a “free ride,” says Steven, 40, who works in marketing. Neither do they want to pay off one firm and then face a future claim by another.  They also hope their case will send a message to mortgage companies that they must obey rules, too.

“I understand that if you don’t make your payments, you’ll lose your home,” says Tamara Gewecke, 41. “But make sure you do it right. Make sure you’ve got your paperwork done.”

This is brilliant – rather than regulate or bailout MERS, these three are pushing to cut them off.  If lenders want to sell loans to Fannie/Freddie/FHA, they’ll have to find another way to track them other than MERS, and pay recording fees every time they sell or transfer the loan.  From HW:

Three congressional representatives recently introduced a bill into the House that would gradually phase out the use of Mortgage Electronic Registration Systems, commonly called MERS, within the government-sponsored enterprises as well as Ginnie Mae.

The Transparency and Security in Mortgage Registration Act of 2010, also known as H.R. 6460, would prohibit Fannie Mae and Freddie Mac from purchasing or acquiring any new MERS mortgage deal of six months after its enactment.

MERS allows lenders to track individual mortgages through an electronic tracking and holding system. According to MERS, the firm holds legal title to a mortgage as the loan owner’s agent and is sometimes granted the authority to enforce foreclosure. The firm has been at the epicenter of foreclosure-gate and under scrutiny for wrongful foreclosure.

Under the bill, Fannie and Freddie would also be prohibited from new lending or investing in securities consisting of MERS mortgages for six months.

After the six-month time period expires, “MERS shall not be the named mortgagee or mortgagee of record on any mortgage owned, guaranteed, or securitized” by the GSEs. If at the six-month deadline, Fannie and Freddie still hold loans with a connection to MERS, the agencies will assign those loans to a servicer or holder, the bill states.

Ginnie Mae would be subject to the same timelines and similar terms as Fannie and Freddie under Transparency and Security in Mortgage Registration Act of 2010.

“[T]he association may not newly guarantee the payment of principal of or interest on any trust certificate or other security based or back by a trust or pool that contains, or purchase or acquire, any MERS mortgage,” the bill states.

Read the rest of this entry »