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It's Easier to Shoot Roadkill than Big Game

posted by Katie Porter

I'm a little miffed about the recent FTC settlement with Bear Stearns and its subsidiary, EMC Mortgage Corporation. The complaint alleged that EMC engaged in unlawful practices in servicing consumers' home mortgage loans, including violating the Fair Debt Collections Practices Act, the Fair Credit Reporting Act, and the Truth in Lending Act. The FTC brought the complaint pursuant to its enforcement authority to regulate unfair and deceptive practices. A recently announced settlement requires Bear and EMC to pay $28 million to the FTC and enjoins the company from engaging in the alleged illegal practices. Given my concern about poor mortgage servicing, you might expect me to have nothing but praise for the FTC.

But my first reaction to the settlement was that the FTC is shooting roadkill. What do I mean? As Elizabeth Warren wrote back in May, "The Bear is Dead." It's easy to shoot a still target. Notably, the settlement order does not apply to JP Morgan, which purchased Bear Stearns. While EMC continues to function (even touting its "customer service" to borrowers on its webpage), the mortgage industry is reeling and I'm guessing the FTC won't be the only party standing in line with a judgment to collect.  The FTC may have the same concerns; the settlement obligates Bear/EMC to wire transfer the $28 million in cash to the FTC within a few days.

Even assuming that EMC or Bear pays the $28 million, why didn't the FTC take action sooner? Regulators have had deaf ears for years with regard to consumer complaints and allegations of mortgage servicing abuse. While the FTC may have been negotiating with EMC for some time before it filed the complaint and reached settlement, during that period EMC presumably continued its practices, allegedly lying to consumers, some of whom may have lost their homes as a result of EMC's poor recordkeeping. Since EMC services about half a million loans, the injunctive relief prohibiting EMC from initiating any foreclosure action or assessing any fee without making sure its records are accurate, correcting any prohibited practices, and investigating any consumer complaints could protect consumers from wrongful foreclosure or being overcharged.

But the bigger question is what influence, if any, will the settlement have on other servicers?  Will the remaining live targets of investment banks (a number that dwindles each day, it seems) fear that the FTC will reload its rifle and reform their servicing practices accordingly? 


Katie -- call me a cynic, but what if the FTC deal was designed to blunt later efforts to bring a class action against either EMC or JPMorgan?

You ask, "Why didn't the FTC take action sooner?"

Some explanations include:

1.Regulatory capture by the industry as well as regulatory capture by the 'free' market ideology of the past quarter century.

2. "All government is bad" ideology that stripped Government agencies of money and talent during same time that the much celebrated 'financial innovation' made the job of regulators far more complex.

3. Cronyism. During the past seven plus years, it has been more important to sign a loyalty oath to ideology and the pursuit/maintenance of power than to have any particular competence.

4. "Horse has left barn" journalism. In general, coverage only begins when the horse has left the barn and we're in a crisis. Blogs like Credit Slips and others have done a fantastic job of looking ahead -- of describing and warning where this whole thing was headed in advance; that is, several years before the crisis. The same cannot be said for mainstream media.

5. Shareholder value fundamentalism. I believe in shareholder value -- just not shareholder value fundamentalism; that is, turning shareholder value into a totem, an ideological idol that forever and always is the single answer to each and every question. Yet, at the servicers, at the banks and others that own the servicers, at the mortgage brokers, at the real estate brokers, at the rating agencies, at the insurers -- just like at the vast vast majority of all corporations and, yes, at the FTC itself, shareholder value fundamentalism is deep rooted. Customer service? Only if it serves shareholder value. Fairness for homeowners? Only if it serves shareholder value. Transparency -- let along orderliness and completeness of data -- only if it serves shareholder value.

And the tragedy, of course -- that we see on display with each morning's news -- is that shareholder value fundamentalism destroys shareholder value.

Going strictly from memory - because I refuse to waste yet another 15 minutes of my life reading FTC v. EMC/BS - this settlement is just as, if not more, egregious than USA/Curry v. Fairbanks was. The FTC has been "investigating" EMC since at LEAST 2005 and this is the best that they come up with. Likewise, I haven't bothered comparing USA/Curry side by side to FTC v. EMC/BS but I *believe* that FTC v. EMC/BS actually brings more charges than USA/Curry did.

Similarly, how the hell can you really put an accurate number on a settlement amount when you have no idea how large the victim class is? I received a return phone call from FTC Attorney Lucy Morris' office a few days after this settlement was released and was told that the FTC had NO IDEA how many victims may ultimately be included in this settlement but they were "expecting tens of thousands." Hmmm... $28 million divided by even 10,000... Not even CLOSE to making some victims whole.

I am aware of one Fairbanks victim, in particular, who was sold to EMC, if you can imagine THAT horror story. But, yes, it gets even worse. Upon obtaining the servicing rights to her loan, among other things, EMC filed "retroactive" assignments attempting to effectively wipe out the ENTIRE SERVICING HISTORY that was covered by Fairbanks/SPS' servicing. I've seen the assignments themselves so I can make that statement with confidence...

And as far as THIS "settlement" acting as ANY kind of deterrent is concerned.. Well... THIS settlement comes more than four years after what some called the largest settlement involving a mortgage servicer - USA/Curry v. Fairbanks. USA/Curry had 281,100 class members. Of those 280,000 opted in. Fairbanks "voluntarily" put up $40 million (ok, it was REALLY the PMI Group's money but apparently no one cares about that now. Maybe that's how PMI weaseled out of being named as a defendant after the FTC put THEM on notice that they were going to be named) and went on to be sold to CSFB and receive more than $6 BILLION in servicing platforms. At least one Fairbanks/SPS victim hadn't received their "settlement" check as of April 2008, I believe. I've got that documentation somewhere around here as well.

If everyone (Plaintiff counsel, Defense counsel, FTC counsel) involved in FTC v. EMC/BS was as concerned about putting EMC and/or BS into bankruptcy as a result of this settlement as they were putting Fairbanks/SPS into bankruptcy it's no wonder why this settlement does nothing to actually make any victims whole OR deter EMC or future servicers. Ok, maybe that's a bit of an unfair statement given the fact that we don't know the size of the victim class yet. If 10 to 20 victims come forward and the money is spread out accordingly it may very well be a fair settlement - for the victims. Somehow I don't see that happening though...

Does ANYBODY really think that FTC v. EMC/BS is REALLY going to deter a servicer? The fact that FTC v. EMC had to happen at all after USA/Curry v. Fairbanks simply confirms that, at least until the phrase "without admitting any wrongdoing" is barred from any future servicer settlements, any FTC actions will simply be considered nothing more than the cost of doing business by servicers.

Ya....what Mike said! lmclark has a good point, avoid punitive damages by saying "my bad, we're taking steps to fix the problem not that we are admitting we have a problem"....."but ya, here is some money for your trouble anyway". BTW I have seen several news stories indicating that creditors are employing more debt collectors lately. I am sure Mortgage servicers would much rather sink their money into that than try to fix the problem. There is just way more money in it despite the risk of some other action or class action. Risk v. Reward. It’s like a high stakes game of poker. By stalling for so long they in effect double their winnings despite the loss.

Surprise surprise... What would anyone NOT involved in the mortgage originating/servicing industry expect when you've got an effort like "Hope Now" that has a member list that looks like THIS:
Servicers/Lenders/Mortgage Market Participants

* Acqura Loan Services
* American Home Mortgage Servicing Inc. (formerly Option One)
* Assurant, Inc.
* Aurora Loan Service
* Bank of America
* Carrington Mortgage Services
* Chase
* Citigroup, Inc.
* Countrywide Financial Corporation
* EMC Mortgage Corporation
* Fannie Mae
* First Horizon Home Loans and First Tennessee Home Loans
* Freddie Mac
* GMAC ResCap
* Home Loan Services, Inc. (d/b/a First Franklin Loan Services & NationPoint Loan Services)
* HomEq Servicing
* HSBC Finance
o HSBC Consumer Lending
o HSBC Consumer Lending II
o HSBC Mortgage Services
o HSBC Mortgage Corporation
* IndyMac Federal Bank
* LandAmerica Financial Group, Inc./LoanCare Servicing Center
* Litton Loan Servicing
* National City Mortgage Corporation
* Nationstar Mortgage, LLC.
* Ocwen Loan Servicing, LLC.
* PMI Mortgage Insurance Co.
* Radian Guaranty Inc.
* Saxon Mortgage Services
* Select Portfolio Servicing, Inc.
* State Farm Insurance Companies
* SunTrust Mortgage, Inc.
* Washington Mutual, Inc.
* Wells Fargo & Company
* Wilshire Credit Corporation

Trade Associations

* American Bankers Association
* American Financial Services Association
* American Securitization Forum
* Consumer Bankers Association
* Consumer Mortgage Coalition
* The Financial Services Roundtable
* The Housing Policy Council
* Mortgage Bankers Association
* Securities Industry and Financial Markets Association

Granted, not ALL of these entities are horrific - but enough of them are that I know not to be surprised by a study like this:
"Mortgage modification programs have failed, lawmakers told
Look to new programs from FHA and FDIC to reduce foreclosures nationwide"
By Neil Roland
September 17, 2008

"...A study by Valparaiso University law professor Alan M. White, a member of the Federal Reserve Board’s consumer advisory council, found that banks working with distressed homeowners to modify their mortgages had failed to reduce the principal balance in 98% of the 4,300 cases studied. Nearly half the loan modifications did not even reduce the monthly payment amount.

The result was that thousands of the modifications made between July 2007 and June 2008 did not prevent foreclosures."

They never re-work the mortgage loans. They just work "Forbearance" agreements. That just ups the payments. There is absolutely no incentive to do so because they know they are not going to take the hit, “they are just too essential”. Everyone gets a bailout but the ones who really need it. Anyone think it will trickle up if we help the ones who really need it? Companies go under, “ordinary” people hurt, CEOs get rich and instead of the Companies getting "worked"(surfing term meaning "going over the falls", “eating a sand sandwich” aka "wiping out") we bail them out. We just keep adding more “icing” on an ole’ worm eaten cake.

To whom it may concern,

My name is Travis Bowers, I live in Camden, Delaware where I have had a mortgage for three years with American Home Mortgage, They went bankrupt and are now operating as American Home Mortgage Servicing, Inc. I have been a perfect customer, no issues.

In November 2008 I received a letter stating my payment was not received. My Bank shows different. It was paid on time and returned to the bank from AHM because they did not know what to do with the money. After contacting them they told me they changed my account number. Because I pay on-line through my bank automatically every month I do not look at my monthly statements because I know it's paid.

They refused to drop an $80 dollar late fee and restore my credit, in fact they demanded I pay it over the phone immediately for a $14.95 processing fee. I refused, set up the new account information through my bank and paid it on-line.

My concern is how many customers did they do this to? Theoretically if they have 30,000 customers and say half of them pay automatically as I do then they stand to make a nice bit of money from fraudulent late charges and phone processing fees.

This matter has been reported to the FTC ( FTC Ref. No. 21344046 ) and the FBI but it has now reached a new level and the FTC and FBI are aware of this too as of an hour ago.

January 23, 2009 I received a letter from AHM stating that I have not paid the mortgage for January. I paid it on January 2, 2009 and this time my account has not been changed nor have they returned the payment. They have it and it is paid but not according to them.

I have all records documented showing I am in the right.

I need someone with higher authority to show these people this is not how to do business, especially with a perfect paying customer. They need to answer for their actions or be prosecuted for fraud.

As of right now I am concerned what they have done to me and are doing to other customers . . . not to mention what this is doing to my personal credit.

I have tried to reason with them stating it was their mistake:
Drop the late charge!!! To be candid everyone I have spoke to at AHM has been an ass and refuse to right their wrong.

Thank you for your time,

Travis Bowers

Mortgage company contact info:

American Home Mortgage Servicing, Inc.
4600 regent Blvd. Suite 200
Irving TX 75063-1730

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