Thursday, April 7, 2011

The Mortgage/Foreclosure Debacle and What You Can Do About It

As you may be aware, there is a mortgage/foreclosure crisis in the United States, caused by the greed of the Too-Big-to-Fail (tbtf) Banks and greedy Wall Street firms, who, at best, convinced average people they could afford to purchase homes that were really beyond their means, and, at worst, suckered innocent people with predatory lending schemes.

In the last 2 - 3 years, we've seen more and more of these loans go bad, resulting in people being foreclosed upon in numbers as extreme as the loans are toxic. And, although this problem has reached pandemic proportions in the last two years, the mainstream media has all but ignored it.

Those of us who have followed the story have read many of the thousands of online posts, written by desperate home-owners—some un- or under-employed, some who find themselves in homes worth much less than when they bought them (also due to the greed of the banks); the stories involve troubling circumstances in a lousy economy. These home owners are in dire need of relief in the form of loan modifications.

These are people who were told by the banks they couldn't be helped unless their mortgage payments were at least 3 months in arrears. So they stopped paying their loans, which had been current, later to find they were being strung along by the mortgage servicers, who, contrary to what they promised, were assessing them late fees and other undisclosed bank charges and reporting them delinquent to credit agencies. Some people (not many) were given trial loan modifications, only to be denied permanent loans, without stated reasons, months later. Those denied then discovered the lower monthly payments they made during the months they were kept in limbo weren't counted as payment in full. Their payments were always first applied to fees and penalties from past months, never toward the current cycle, so each month brought the accrual of more charges. Late fees and interest and penalties assessed on late fees and interest and penalties—every month they fell further behind, always adding to the total debt. Some might have been able to eventually save themselves and cut short their losses if they hadn't gone late in the first place; once they went late, as they were told was necessary to get relief, they got in deeper and deeper trouble. This, while the servicers of the loans got richer and greedier.

But wait, there's more!

The other, more insidious, and way, way more complicated and difficult-to-tell side of the story, is what happens to those loans as they get securitized and sold over and over and over again. I'm only going to get into a tiny bit of that. (Go get a drink. I'll wait.)

At the height of the housing bubble—mostly caused by low interest rates from the Fed and, by mortgage brokers who, like pushers selling drugs, hyped loans for which they required no documentation from the buyer or verification by the broker. These loans, which were even written by local banks and immediately (often the same day) sold to larger banks, were bundled, 2 - 5 thousand at a time. The bundle of mortgages and the set of rules governing them (400 pg. +/-) were placed into a trust governed by a Pooling and Servicing Agreement (PSA). The trusts were assigned to the Mortgage Electronic Registration System, MERS, a company formed by the big banks, where they were, according to the very stringent rules in that 400pg. document, converted into Mortgage-backed securities. MERS would track them as they were bought and sold. And bought and sold. And bought and sold. Oh, and each sale was being tracked by MERS, instead of being recorded with the Registry of Deeds. More on that later. (With me so far? Read it again. I'll wait.

The other important thing to know about the trust is its status with the IRS (no definition necessary). It is organized as a Real Estate Mortgage Investment Conduit (REMIC). The rules of a REMIC are very specific: the day the trust is formed is the "start date" (also called the closing date, as in when you buy a house you have a “closing”—how’s that for confusing? Took me a year and a half to figure that out!). There is then a period of three months during which documentation of the assets can be finalized. Ninety (90) days later is the "end date" after which (Are you paying attention? This is important!) the instrument is closed. It's a done deal. Not one more document. Nothing else. Finis!

Oh yeah, one more thing. These trusts were organized as REMICs, because a REMIC is not subject to federal taxes. That is, it isn’t taxed as long as the PSA rules are followed, the most important of which for our story being that 90 day rule.

OK. The stage is set. Remember what happens during the 90 days? Paperwork. The meticulous filing and transferring of paperwork.

The banks were peddling shitty mortgages by the truckload, but they didn't want to actually deal with them. So they hired servicers to manage them. Servicing companies do the billing and collecting and calling and accounting and, well, everything. Servicers don't make a lot on each mortgage—the money is in the volume. Specifically, they make money on each transaction; the more transactions, the more they make. When someone doesn't pay his mortgage, suddenly there are many, many more transactions. First there are the late fees and the phone calls, then the extra bills and the phone calls, then the penalties and the phone calls, mounting up over those three months the owner has been told he must be in arrears. During that time, the owner is calling, talking to a different person every time, trying to understand how to apply for a modification. Paperwork is sent in and lost. And sent and lost again. The servicer is raking in the bucks, nickle-by-nickle, dime-by-dime.

Oh, I forgot to mention double tracking (sorry, no acronym). Say the servicer has finally agreed to a temporary modification for 3 months or more. The owner believes he is finally working toward a solution, unaware that every month he pays an agreed upon modified amount, he goes deeper into debt. The servicers claim that debt is an automatic trigger (they can't control it) that starts foreclosure proceedings, which, they say, originates in another department. When the servicer offers you a trial modification while they're simultaneously preparing to foreclose, you're getting ...  (oops, sorry—got a little angry) double tracked.

Occasionally, the owner will get a foreclosure notice the week they're approved for the loan mod. This has really happened. Way more than once. Many more times than not, the permanent modification will be denied, even though the owner has kept up with the new payments and followed all the instructions that they were told would prove them worthy of one. Double tracking instantly turns the "hope now" dream into a "get out now" nightmare.

The servicer prepares the foreclosure on behalf of whoever holds the mortgage at that point. You'll recall it is no longer owned by the originator; it's been sold and resold God knows how many times, each transaction tracked by MERS. But (here it comes), there's a teeny, tiny problem: remember that 90 days? The servicer was oh-so-busy closing on all those thousands of mortgages being fed to them by all those insatiable brokers... We've got time. Mañana. Later, ‘gator. OOPS! 90 days to clean up the paperwork? Gone in a flash. What are the consequences when the servicer has forgotten that little detail? The investor/bank/supposed current holder of the note for whom the servicer is foreclosing doesn't really own the note, because it was never assigned to the trust.

We're going to recap a little here. The original mortgage should have been assigned to the trust, which was placed under the umbrella of MERS, the entity tracking it as it was sold and sold and sold again. In order to foreclose, the owner must be in possession of the note (which follows the mortgage, supposedly with an endorsement each time it's sold). But there was a break in the chain of title, because the assignment into the trust was never made.

Time for dinner...

Back. OK. So the servicer, who, btw is probably owned by one of the tbtf banks that own MERS, is about to foreclose on the mortgagee on behalf of the supposed note holder, who has no idea there's a problem (even though whoever it is has been the servicer's my-boss-won't-let-me-do-mods excuse since day one). The original note holder, who was paid long ago and may even have gone out of business, is still the note holder of record, according to the unendorsed, never-left-the-servicer note. Uh, oh. The REMIC is closed. Nothing can be done. The servicer blew it, right? Right?

Sit back and think about this for a minute. The mortgagee has been making monthly payments for God-knows-how-long (and may still be if you remember our double-track tale) to an entity that doesn't own the note, while the still-owner of record was long ago paid in full and may no longer exist!

This gets better and better, doesn't it? Well, the story gets better and better. The situation gets oh-so-very-much-worse. And convoluted. And criminal.

This is where the robo-signers, about whom you've probably heard, appear in this story.

Remember that MERS is a corporation formed by the banks. MERS appoints an employee of the servicer a temporary officer of MERS (nice promotion). That now-officer of MERS, signs and backdates an endorsement, so the note appears to have been deposited into the trust within the REMIC's 90 day window all those years ago. Another servicer employee, not necessarily a notary, notarizes that signature. Then, the officer and the notary go back to their old jobs and put on their servicer employee hats, having never left their desks.


The servicers just shred the original notes and make new ones. That's when they need lots and lots of robo-signers with lots of easy-to-change hats to sign lots and lots of documents, every one of which is fraudulent.

Over the last six months, the shit has finally started to hit the fan. Honestly, I can think of no better way to say it.

In Florida and other states really hard-hit by the economic downturn, foreclosure "mills" were processing robo-signed documents in huge numbers. More and more lawyers began to understand the fraudulent underpinnings of these mortgages. The banks stopped doing foreclosures and claimed to be tidying up their act. And the mainstream media finally began to take notice.

Dawn is breaking over Marblehead.


Now for what has recently transpired in MA, all of which is precedent setting with national impact.

In the fall, when stories about robo-signing were finally being reported, Register of Deeds for Southern Essex County, John O'Brien, took notice and started to get really angry. He realized just how many assignments taking place under the MERS umbrella should have been recorded at the Registry of Deeds—and how much money that represented, given that for each assignment a fee should be charged.

In November, he wrote to MA A.G. Martha Coakley and asked her to investigate MERS for not paying the recording fees due each time a mortgage is re-assigned. In February, he announced he is seeking $22 million, which he believes is the bare minimum owed in fees for the 148,663 mortgages that had been recorded by MERS since 1998 (2 fees each).

Then, on April 4th, after watching a 60 Minutes exposé the evening before, John O'Brien announced something extraordinary: he was asking MA Treasurer Steve Grossman to pull all the funds the Registry deposits annually, $25 million, from Bank of America and transfer the money to a local, non-MERS bank.

You can go HERE to read copies of letters, press releases and articles published about John's efforts.

Honestly, I consider the man a hero. And so do others who, for so long, have hoped someone would do something!

Also recently, in a landmark decision, the MA SJC ruled two foreclosures invalid because the foreclosing banks couldn't prove chain of title and did not hold the note.

And now, continuing the trend to expose and correct the egregious fraud perpetrated by the big MERS banks and servicers on MA homeowners, there has been legislation introduced in the MA Legislature by State Rep. Tim Madden. Among the proposed amendments and new statutory sections are requirements that would order the servicer to provide all documents associated with the underlying loan to the borrower within 60 days of a written request, and obligate recordation of each mortgage assignment at the time of the transaction with the appropriate fee paid to the Registry of Deeds. Just those changes to MA law will revolutionize the way foreclosures are executed and challenged and level the playing field, giving homeowners the rights they deserve. You can find a summary of that legislation HERE. H2766 as proposed is HERE. [The number has been changed from HR 64, as originally published here]

Your help is needed to make sure this legislation gets out of committee.

Please email your support for H2766 [NOT HR62] to the Chairmen of the House and Senate Financial Services Committees:
Senator Anthony Petrucelli, Chairman, and
Representative Michael A. Costello, Chairman,
(LOCALS PLEASE TAKE NOTE AND CONTACT MIKE COSTELLO! He’ll be at the 3T&2C breakfast this weekend!)
Please CC your letter of support to Representative Timothy R. Madden,
Thank you! 

(for now)

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