By a Solari Report Subscriber
There’s even more fraud than you guys discussed. I am an attorney in Ohio doing foreclosure defense work (mostly pro bono) and have handled foreclosures by all of the biggest banks: BoA, JPMC, Citigroup, GMAC, Wells Fargo. From this experience, here’s what I’ve learned:
There’s MERS (Mortgage Electronic Registration System), which is a private lender-created mortgage registration system created by banks that wanted to bypass local recording offices for the mortgages they put in mortgage backed securities trusts. MERS is a fraud on the recording offices in every county in the country, depriving local governments of millions and millions of dollars of recording fees and preventing the public and courts from being able to determine who owns mortgages on properties all over the nation. That is a fraud on the whole real estate ownership system across the country and makes title searches almost impossible in some cases.
There’s fraud on the courts — for example, most foreclosures on properties financed with FHA loans are fraudulent, because FHA regs require the lenders to have face to face interviews with borrowers before they foreclose, and the major banks refuse to obey the regs for the most part. Borrowers’ mortgages often are transferred from lender to lender and servicer to servicer to the point where it’s almost impossible to follow the documentation. More often than not, no mortgage and/or note assignments are executed when the mortgages change hands, so the foreclosing lender presents recently executed assignments from the original defunct lender to the alleged current owner, bypassing all of the intervening owners. They come from out of state, take the money in the form of refinancing fees, servicing fees, late fees, etc. and leave the state and communities with the mess.
When forced into court-mandated mediation of foreclosure cases, the big banks refuse to send representatives to negotiations, so the borrowers take off from work to attend a charade, everything is filtered through the bank attorneys and no progress is made. Promises are unkept, verbal agreements never make it to paper and you end up back in court, or with a draconian settlement agreement with all sorts of clauses to protect the banks, fleece the borrowers and prevent anyone from disclosing their terms to the public. I settled a case with a bank that was under a consent agreement with the Federal government after it foreclosed on my client for allegedly failing to pay $25 owed to the bank. The borrower had a floating-rate note whose rate allegedly went up, increasing the payment by $25, but the lender’s mortgage bill to the borrower didn’t reflect the increase. Instead of notifying the borrower of the deficiency, or making the required offer of a HAMP loan modification (for which the borrower qualified because the borrower had been struggling to make payments), the lender foreclosed. Seven months and $3,500 in legal fees later, the borrower got a HAMP loan modification. The borrower was a husband and wife real estate agent team who had fallen on hard times due to the housing crisis.
There’s fraud against Treasury/Fannie Mae, with whom ALL of the major banks have “participation agreements” by which they received TARP funds. These standardized participation agreements condition the banks’ receipt of billions of dollars of TARP funds and eligibility to have Treasury/Fed purchase their bad loans on outrageously favorable terms upon the lenders’ agreement to (1) offer “HAMP” loan modifications to all defaulted borrowers who qualify (i.e., have home mortgage payments higher than 30% of monthly gross income) BEFORE filing foreclosure actions and (2) maintain enough servicing staff to handle the servicing overload occasioned by the housing crisis and loan modifications. All of the major banks I’ve seen are in default of their participation agreements. The borrowers have no standing to enforce the participation agreements, however, and there is no one in government to whom borrowers can report lender defaults. That is fraud, fraud, fraud. As I stated above, consent orders with the government do no good. And it gets worse. In my experience, one major bank, in the case of borrowers who have significant equity in their homes, sends applications for loan modifications into a “black hole” (through a third party contractor, thereby insuring plausible deniability) and then tells the borrowers months later either that they have to update their files by resubmitting everything all over again or that the servicer never got the borrowers’ application documents. All this while the property is in foreclosure and the borrower expects to be told to move out at the drop of a hat. Another bank servicer told me it throws out loan modification applications if they aren’t complete when first received. Do some borrowers successfully get HAMP loan modifications? Yes, but sometimes it takes a year or more and without a lawyer many, if not most, borrowers give up in frustration.
The banks commit fraud when they take state and other housing assistance funds and don’t credit the funds promptly to the borrowers’ accounts. That happened in one of my cases. The lender charged the borrower $520 in late fees due to the fact that the first mortgage payment (for March) after the loan was brought current with Ohio Housing Finance Authority assistance was about 40 days late. But the fact is that the bank wouldn’t accept the borrower’s resumed mortgage payments because, by the second week in April, it still hadn’t credited the borrower’s account with the OHFA assistance that the bank received in early March. As everyone knows, with a loan still in default status, the lender won’t take a “partial” payment that is insufficient to bring the loan current! And how do you get $520 in late fees for one or two late payments of $1,300? To date, there is no one the borrower can call at the bank who knows anything about the OHFA borrower assistance program. The borrower has to deal directly with the Ohio Housing Finance Agency (which receives federal funds to offer this assistance). How insane is that?
Further, I consider it tantamount to fraud that the banks take TARP funds and say they are supporting communities, and then when they have a borrower whose property is in a bad neighborhood, they foreclose, so the borrower moves out, but they never take title to the property. They have committed fraud in the communities by “taking” the properties without assuming the responsibilities of home ownership. There are un-mowed lawns, rats and vermin, porches falling off and druggies taking over. With condos, the home owners’ associations go unpaid, leaving the remaining non-defaulting tenants to finance common area expenses. Local building inspectors issue citations for building code violations to people who no longer live in their homes, sometimes not knowing they still own them, who can’t afford to fix them. Sometimes the foreclosed borrowers face felony misdemeanor charges if they can’t afford to bring their former homes into building code compliance. This is, of course, great for the neighbors’ property values.
I could go on and on, but you get my drift. What I know will happen is that after more pension fund and other investor losses, bank profits and continued decimation of housing prices, the banking sector will be offered the opportunity to purchase the foreclosed houses at cents on the dollar and the pump and dump will be complete (or start all over again).