Mortgage Servicing Update

Complaints about mortgage servicers are piling up almost as fast as foreclosures. Yesterday CNN reported that the GAO has concluded that the Obama Administration's HAMP and HARP programs to do loan modifications are off to a very, very slow start. The programs were announced in February, and to date we have 180,000 people in three-month trial modifications. That's a far cry from the 3-4 million people the Administration believed would be helped. Consumer advocates say that servicers remain unresponsive to requests for loan modifications, citing the same stories of incompetent or inadequate personnel, lack of follow-up, and refusal to modify unless a homeowner is in default.

At the same time, judicial criticism of mortgage servicing is picking up steam. A good example is Bankruptcy Judge Diane Weiss Sigmund's opinion, In re Taylor, released in April. The thoughtful opinion sheds light on the underbelly of mortgage servicing. She details the relationship between local and national counsel, Lender Processing Services (formerly d/b/a Fidelity National), and the mortgage servicer. Among other things, she finds that the attorney signing the proof of claim, a legal document filed with the court, reviewed a "sample" of 10% of the claims that his own signature was affixed to. In Taylor the proof of claim had the entirely wrong person's note attached to it (I wonder about a privacy violation here as bankruptcy documents are public), and an incorrect payment amount.

On a monthly basis, Tara Twomey and I post an updated version of our Mortgage Servicing Resources document to our Mortgage Study website, which also contains our papers on the subject. We are grateful to colleagues from around the country who forward us interesting cases that we collect in this document, but we wish studying mortgage servicing wasn't such a growth industry. We hope the Obama Administration can find a way to shape up mortgage servicers in time to help Americans keep their homes.

Comments

[Mike Dillon]

Thank you Prof. Porter. I knew I was missing something when I forgot to mention "In Re Taylor" in Prof. Levitin's FRBB paper threads...

Both you and Attorney Twomey keep up the great work! And please let Atty Twomey know that, last I looked, Harmon Law Offices has at least four cases as a **defendant** under the Joe Moakley roof. That may make her smile. ;)

[Dave Birkle]

I deal with short sales every day. Just recently, one of the servers is in another country. Do you think they care about our country? They are laughing at the stupid Americans.

[Spencer Edelman]

Thanks for keeping your mortgage servicers empirical study updated and for the posts. Although I'm studying for the bar it is always fun to follow up on my substantial paper topic. (Although I guess fun could easily be replaced with "sad" considering the state of servicers.)

[Arnie Wuhrman]

Does anyone have any insight into the statistics on homes being kept "out of" foreclosure? Here is Southern California, in my bankruptcy practice, it's not unusual for me to see 1-2 clients per week who have not made a payment in 12 months, but are still NOT in foreclosure. I suspect that lenders are trying to put a "floor" under prices with good old artificial restriction of supply (shades of OPEC?), but I wouldn't begin to know where to find hard data. Any suggestions?

[PSP]

Foreclosure in New Jersey takes about a year. The servicers hold out the possibility of a modification to property owners to prevent them from looking at more effective alternatives. I've had a number of clients come to me after spending months being told they could modifiy, submitting bundles of documents, and then being denied a modification less then a week before the sheriff's sale. Even after being denied, the borrowers are asked to call back every day, because "They might change their minds".

Modification is purely a charade for PR purposes.

[Patches]

Great to see this topic back up here and Nationally. I wish I could say that bankruptcy was an effective alternative but unfortunately it's not. Not without amending the BK law, BK will be relegated the debtors "last stand". Besides the backwardness of our current system of handling Mortgages in Bankruptcy another MAJOR problem is simple....Jobs! People are coming to us just receiving unemployment. We can skate by for a month maybe three but any longer especially after bk is filed is all but impossible. I'm seeing a lot of impossible right now..

Right now any kind of positive amendment to the BK code towards consumers would make a profound difference. In districts where forced "conduit"" payments are in place, the only hope is find something screwy with the Arrearage POC (and there almost always is) Payments always go up unless we can find room on a vehicle valuation... Help in bk on Credit card payments helps a bit but usually not enough.

got a client got to go...More later....

[nick]

Katie,

I'm not sure exactly what the 180,000 number represents, but one explanation may be that, although the program was announced in Feb, the modifications weren't allowed to start until March. If they need 3 months to call it a successful modification, that would mean that you'd only have just started completing modifications in June. In that case, we're really only 1 month into it. In any case, I agree that it's going to be very difficult to get to 3-4 million.

[Mike Dillon]

Mr. Arvielo,

To say that I am disgusted with your business promotional tactics would be an understatement. Then again, why should I expect different from someone in the modification industry who can honestly say, ""Finally, please remember that servicers are not the enemy. Many of them do want to help but are simply overwhelmed by the sheer volume of modification requests." with a straight face.

You wouldn't, by any chance, be the same Rick Arvielo of New American Financial infamy by any chance are you?

Mortgage swindler gets prison
http://www.ocregister.com/ocregister/homepage/abox/article_1751932.php

[lmclark]

In response to the posts regarding servicers/lenders delaying foreclosure, there's a recent article in the NYT suggesting a profit motive that I hadn't thought of before. In a nutshell, the article says that some lenders are adding additional fees to the loan by keeping it in distress for a long period of time (Ronald Mann, are you listening?), and recouping the additional fees out of the foreclosure proceeds. According to the article, its an additional reason why lenders are dragging their feet on loan modifications (or coming up with mods that are suboptimal, so that they are doomed to fail, but only after additional fees for doing the modification have been added to the loans).

In this brave new world, apparently some lenders don't make money lending. They make money making up fees and charges.

Here's the link to the article: http://www.nytimes.com/2009/07/30/business/30services.html?_r=1&ref=business

[Sinclair Noe]

Arnie, here is some info on SoCal: foreclosureradar.com reports that in California alone:

a total of 22,291 foreclosures were taken to sale at auction in June;

there were 45,691 Notices of Default (the first step in the foreclosure process);

there were 29,853 Notices of Trustee Sale(the second step), which sets the time and place of auction;
but postponements can delay a Trustee Sale for up to 12 months;

once delay tactics are exhausted the foreclosure date and time are reset and considered pending (meaning there are no more steps) there were 113,141 pending foreclosures in June. These are properties where the homeowner will be gone soon.

This is not necessarily the full picture on shadow inventory. It does not tell how many REO properties are not listed for sale. The best estimates I have heard are about 800k nationwide. With about 1mil pending foreclosures nationwide.

Meanwhile I am hearing more and more stories of servicers charging sellers between $4k to $25k to approve short sales. These charges are outside of escrow and are non-real estate fees. This sounds illegal as hell.
Sinclair
www.bank-o-meter.com

[Patches]

MIP "Mortgage Insurance Premiums" pay @ foreclosure, for those fees. That is one of the reasons why I believe POCs in Consumer 13s are all screwed up. The Servicers are used to getting those fees almost without question. When we stay a foreclosure in Bankruptcy, Servicers transfer those fees to the POC, obviously as we all know without lodestar workups on those "Attorneys Fees" and "Other" fees (I hate that designation on POCs). MIP pays a percentage of the loan in default AND foreclosure fees, the lender gets the home back and sells it and in "theory" they are made whole. I know Mike can tell us several different ways they profit from foreclosure and the point that lmclark made is one of them.

[Mike Dillon]

Sinclair brings up an interesting - but not at all surprising - twist with servicers "charging" for short sale approvals... To my legally uneducated mind that sounds like simple extortion. I wonder where the income generated by this ends up? Pure profit in the servicer's pocket out of sight of the note holders/investors?

To take things in a slightly different direction, though, how much of a stretch would it be to apply 8th Amendment violations to civil situations such as the one Sinclair describes?

[Mike Dillon]

Somewhere around here is my latest "potential profit for servicers" list. I think the last generation stopped at 6 or 7x the face value of the note by the time an auction is actually held. Of course, that was before Sinclair was able to explain CDS so that even *I* could understand it... Thanks for that btw, Sinclair.