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Senate Investigates Mortgage Servicing

posted by Katie Porter

Last week, I testified before a subcomittee of the U.S. Senate Judiciary committee about mortgage servicing in bankruptcy. You can read the written testimony or watch a webcast. Both the Chair of the subcommittee, Senator Schumer, and the Ranking Member, Senator Sessions had some harsh words for the current state of mortgage servicing in bankruptcy. Apparently (and encouragingly, at least to me), charging people only what they owe is a bipartisan issue.

Robin Atchley, a former homeowner from Georgia, testified about how her "bankruptcy case was a tug of war with Countrywide over our house." It was a war that the Atchleys lost, deciding to throw in the towel when their son, Payden, insisted that the couple use his lunch money to help pay the mortgage payments. From her perspective, rather than giving them a fair chance to save their "dream home", the bankruptcy process gave Countrywide even more opportunities to profit. The Today show profiled the Atchleys, whose case is now the subject of a lawsuit by the U.S. Trustee's office.

In 2004, Robin and John Atchley put down $22,000 to buy their first home, moving out of a single-wide mobile home with their four children. After her sister died, Robin took some unpaid leave from her work. The family fell three months behind on their mortgage and filed bankruptcy to catch up on their house. At two points in the bankruptcy, Countrywide filed motions for relief from the bankruptcy stay to foreclose on the house. Each time, the Atchleys provided proof that the payments had been made and Countrywide withdrew its motions. But as Ms. Atchley explained the "legal papers became weapons. . . . No person with Countrywide or McCalla Raymer (Countrywide's attorneys) could ever give us clear information on what they claimed that we owed and why we owed it. It was as if all they wanted was to take our house."

Two years into their bankruptcy, the Atchleys told their children to pack everything in their bedrooms. With suitcases in hand, the family stuffed the car with their belongings and moved in with Ms. Atchley's parents. They sold the house but had to pay money out of their pocket. In the eighteen months between when Countrywide filed its claim in the bankruptcy and the sale of the house, the amount of debt had grown by $14,108--despite the Atchleys and their bankruptcy trustee making many post-bankruptcy mortgage payments. The payoff statement included a $2,793.00 charge for “fees due”--more than 10 times the fees owed by the Atchleys at the time of their bankruptcy filing! Far from being a tool for saving their home, bankruptcy was where the Atchleys lost their home.

The Atchleys' story is important. It demonstrates the human cost of the mortgage servicing industry's misbehavior--the psychological drain and disillusionment that comes from battling a large financial company. The Atchelys didn't lose their home because they truly couldn't pay. They lost their home because they truly couldn't fight anymore.

The hearing covered a lot of substantive ground as well, including the possible incentives of mortgage servicers to overcharge consumers in financial trouble and possible solutions to the problems with bankruptcy mortgage servicing. I'll post on these topics in the next few days.


Professor, thank you for your comment at roughly 26:10 stating that Mortgage Servicing Fraud occurs outside of bankruptcy as well.

Unfortunately, I don't remember any mention of Pooling & Servicing Agreements anywhere in the hearing. Did I miss something?

Professor, your work is going to be invaluable in dragging Mortgage Servicing Fraud out into the sunlight, and millions of home owners, including myself, will be forever grateful for your efforts, but one thing MUST be made absolutely crystal clear. Bankruptcy doesn't cause Mortgage Servicing Fraud - Mortgage Servicing Fraud causes bankruptcy.

As I'm sure the bankruptcy world is well aware, Mortgage Servicing Fraud has been occurring in the industry probably since shortly after Lewis Ranieri created the derivatives market. I've had Dime Savings Bank victims contact me and say that my story is virtually identical to their own - except their story occurred 15-20 years ago to my 7.

Where was the bankruptcy judge in all of this? Was there no referee for this kind of overt gamesmanship? Is there an argument to be made that the Atchley's lost their home because the court refused to take Countrywide to task after its SECOND failure to explain what was owed and why it was moving to foreclose?

THANK YOU KATIE! Finally! Again, In Re: William Allen Parsley 05-90374 “Memorandum Opinion on Show Cause Orders” this is an almost mirror image of your “Robin Atchley”. This also involves Countrywide and McCalla Raymer. Tried to find it on a public website so that I can link it but was unable to. The memorandum I have is via loislaw. The “memorandum” has a lot of testimony on how Countrywide and McCalla Raymer treat payments from the Trustee and shows how they form their proof of claims. It also shows how Countrywide thru McCalla Raymer “form or construct” pay histories”.

The Mem Op. states that it is Countrywide’s’ policy to only review the fees charged to the debtor during the Chapter 13 Plan but that review would not happen until discharge or the running of at least a 5 year post-confirmation period.

The following are direct quotes from the case IN RE: Parsley 05-90374 S.D. Tex. 3-5-2008:

“in most cases, under Countrywide’s present policy of deciding whether the fees and costs are recoverable only at the date of discharge, this decision will not be made until five years after the confirmation of the plan”.

“Schlotter testified that McCalla Raymer received similar complaints from various courts about the complexity of Countrywide’s loan histories. To use Schlotter’s own words, courts want to see a loan history “that somebody who doesn’t have an accounting background can read”. [March 5, 2007 Hr’g Tr. 81:7.]
“If courts throughout the country have complained that Countrywide’s original loan histories are too complex to decipher, then attorneys at McCalla Rymer should be reviewing the simplified payment histories that the legal assistants are constructing”.

Another interesting quote from the case:

“Thomas testified that McCalla Raymer made approximately 140,000 referrals under the Fannie Mae program (which included Countrywide, among other servicers) over the past ten years. [Aug. 7, Hr’g Tr. 43:5-11.] When one multiplies 140,000 times $200 (i.e. the net amount recived by McCalla Raymer), the result is $28 million – substantial revenues, particularly for a firm with relatively few partners. Aside from Thomas’ testimony, Smith testified that McCalla Raymer’s revenues from all Countrywide referrals (as opposed to just Fannie Mae files) on an annual basis total approximately $10,440,000.00. [Aug. 9, 2007 Hr’g Tr. 261: 19-24.’

Crazy Stuff…… another log for the fire for you Katie...

Not surprised it's Countrywide. Apparently their practices were even worse than some thought:


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