Shaterian v. Wells Fargo Bank, N.A. , (N.D.Cal.)
January 11, 2012

A borrower stated a claim against a lender for violations of TILA disclosure requirements by alleging that the lender had failed to clearly and conspicuously disclose that payment schedules for an option adjustable rate mortgage (Option ARM) on the borrower’s residence were not based on the actual interest rate, and that negative amortization would occur if the borrower followed the payment schedule provided. The court found that the borrower’s state law claims for aiding and abetting fraud, fraud through misrepresentation in an oral contract, and breach of contract were not preempted by Home Owners’ Loan Act (HOLA), but that HOLA preempted his claim for fraudulent omissions.

Oh how I do LOVE first tuesday. Here’s their latest take on Bank of America’s “new and improved” loan modification centers. (And, while they don’t use the word ‘bullshit’ – which I would – they come pretty darn close!)

“Six new Bank of America (BofA) mortgage help centers will be opened in Los Angeles, San Diego, Riverside/San Bernardino, Antelope Valley, Modesto and Bakersfield by early summer. These new mortgage help centers will provide homeowners in danger of foreclosure on a BofA loan the ability to discuss their individual loan situations with BofA staff in hopes of obtaining the near-mythical permanent loan modification.

This newly-announced move comes in response to a scathing critique (full of bark, but oddly bite-less) of the Big Banks’ loose lending and servicing procedures which precipitated the Great Recession.

The housing counselors staffing these new mortgage help centers will be comprised largely of existing BofA employees the Big Bank is looking to redistribute during the current slowdown in loan originations.

But will these six new mortgage help centers actually help? The critics are skeptical. Like many Americans, the pundits have taken a “we’ll-believe-it-when-we-see-it” attitude to the multitude of reform promises made by the Big Banks. These centers, after all, aren’t changing BofA’s modus operandi; they merely provide friendlier faces for their refusals.

first tuesday Take: Count us as one of the critics, but don’t believe the modifications will somehow magically flow forth. Viewed in the best light, BofA is 1) providing its homeowners with a more reliable way of reaching someone who will deny their loan modification requests, and 2) giving its under-employed employees something to do. But we are talking about a bank here, so the likelihood that this move will live up to the best possible interpretation is pretty darned miniscule.

It’s been clear for awhile that marking all these loans to market will hugely undermine (and that’s a nice way of saying “topple”) BofA’s claim to solvency. And even if you believe BofA cares for its customers, it doesn’t care enough for them to go out of business. [For more on mark-to-market vs. mark-to-management accounting, see the October 2010 first tuesday article, Deflation’s push on the real estate recovery.]

So, we’ll say this for BofA: they can be congratulated on their ability to get press coverage on their staffing acuity while they avoid increasing the swollen ranks of California’s unemployed. But mortgage assistance? Don’t count on it.”

From first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516

The Ney Work Times reported on teh story May 5. Some of its commentary:

“Just over two million homes are in foreclosure nationwide, according to LPS Mortgage Monitor, and another two million borrowers are severely delinquent.

Additional centers may open later this year, the bank said. Counselors fluent in languages including Spanish, Korean, Vietnamese and Russian will be available for non-English speaking customers.

‘There are some people that prefer a face-to-face experience,’ said Rebecca Mairone, national mortgage outreach executive for Bank of America. ‘They prefer telling their story face to face or need additional information about documents or other counseling. We’re committed to helping distressed customers.’

Most of the counselors in the new centers will be transferred from other areas of the mortgage business, like sales and originations, which have slowed with the decline in mortgage demand.

Bank of America officials said their internal foreclosure procedures had changed in the wake of public criticism, and that the centers were being opened partly in response to customer feedback.”

“THERE ARE SOME PEOPLE THAT PREFER THE FACE TO FACE EXPERIENCE”?

“WE’RE COMMITTED TO HELPING DISTRESSED CUSTOMERS”

“MOST OF THE COUNSELORS WILL BE TRANSFERRED FROM OTHER AREAS OF THE MORTGAGE BUSINESS”

What a crock.

It would have been more honest to say: “We don’t want any more bad press so we’re not going to announce layoffs of our mortgage staff, and it’s better public relations to give our customers a face to face denial.”

Strictly speaking…

Defining the qualified residential mortgage (QRM) is testing the mettle of the government’s commitment to stability in the real estate market.

QRMs, established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), are loans meeting low-risk standards which exempt lenders from having to retain any part of these loans in their portfolios.

New proposals by federal agencies and the administration restrict the designation of QRM to loans in which homebuyers put down at least 20% of the purchase price of a home as down payment, colloquialized as “having skin in the game.”

The proposed down payment requirement alone has sparked fierce debate in real estate circles and the media, but it’s far from the only proposed restriction on what qualifies as a QRM. The designation of QRM is restricted to:

. first-lien mortgages to purchase or refinance a one-to-four unit principal residence;
. mortgages amortizing over 30 years or less;
. borrowers who are not currently 30 or more days past due on any debt;
. borrowers who have not been 60 or more days past due on any debt within the last 24 months;
. borrowers who have not, in the past 36 months:
– filed for bankruptcy;
– had property repossessed or foreclosed on;
– engaged in a short sale or deed-in-lieu of foreclosure; or
– been subject to a federal or state judgment for the collection of a debt;
. loans with interest rates adjusting no more than two percent in any 12-month period, and no more than six percent over the life of the loan, if the loan is an adjustable rate mortgage (ARM);
. mortgages which do not contain prepayment penalties;
. loan-to-value ratios of 70% for rate-and-term refinances and 75% for cash-out refinances;
. debt-to-income ratios of 28% for all mortgage debt, called the front-end ratio, and 36% for all debt, called back-end ratio;
. standard documentation loans;
. loans with points and fees of 3% of the loan amount or less; and
. non-assumable loans.

Any loans not meeting all the above requirements would require lenders and securitizers to hold in reserve an amount equal to 5% of the loan balance in their portfolios, as recovery funds in case of default. This means any borrower who does not qualify for a QRM — i.e., the vast majority of borrowers — would be subject to higher interest rates to cover the increased risk a non-QRM would pose to lenders.

Federal Housing Administration (FHA)- and Veterans Administration (VA)-insured loans, as well as loans sold to Fannie Mae or Freddie Mac (while they remain under government control) are not subject to the QRM requirements under the proposal.

If passed, the rules outlined in the proposal will not be implemented until mid-2012.

The zero-sum game lenders will play.

Ah, lenders. The idea of retaining any risk for the loans they originate has them running a bit scared. At this point, we can only speculate on what tricks lenders will devise to get around the rules that borrowers and the rest of the consuming public have to play by — and make no mistake, lenders will do so.

Many of the proposed QRM requirements would set groundwork for a stable housing policy (down payment requirements, strict DTI ratios), separating those who are truly financially able to take on the burden of homeownership from those who are tenants-by-nature. However, it’s important to note the distinction between QRM and a non-QRM are not prohibitive; lenders can still lend to non-QRM-eligible borrowers.

And Americans still have a huge appetite for homeownership in spite of the unmanageable financial risks it poses to most homeowners. A recent study shows Americans are still very willing to glut themselves on housing and mortgage debt, regardless of the financial malaise which follows. Thus, the strict definition of the QRM will only lead to more marginalized types of borrowing — the non-QRM-eligible borrowers will almost certainly be charged higher interest rates, thus perpetuating the cycle of non-QRM-eligible borrowers being more likely to default.

Likewise, the three-year restriction against borrowers who participated in a short sale or deed-in-lieu of foreclosure carries the weight of punitiveness by classification, not ability to pay. Borrowers may have taken it upon themselves to buy (or refinance) when the market value of their properties were worth more than fundamentals dictated, but lenders had no qualms about originating these loans at the time, knowing quite well their conduct was a financial accelerator recklessly driving home prices up. Will restricting short-sale participants from being eligible for a QRM really lead to fewer people overpaying for their homes or defaulting?

Solution or punishment?

The importance of a stable housing policy promoting stable homeownership is paramount, but the strictness of the QRM may be based on reactions to the most recent housing crisis rather than truly crafting a stable housing policy. The strict differentiation between QRMs and non-QRMs merely gives lenders the ability to pawn off their 5% risk-retention onto underqualified homebuyers and homeowners; it’s a zero-sum risk reduction for lenders.

Brokers and agents would do well to be aware of how this proposal fares in the coming months. The proposal is open for comment through June 10, 2011. Comment can be submitted to any of the participating agencies via methods outlined on pages two and three of the proposal, which can be read in its entirety on the Federal Deposit Insurance Corporation (FDIC)’s website.

From: the first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

Big words – pure Bullshit.

Here’s what one lawyer is peddeling in Southern Califirnia.

“Here is some info that we send out to brokers. Our fundamental principal under which we work is the “educated supposition” that a preponderance of real estate loans having been originated by the banking industry in the last several years were, at least in part, predatory in nature and fraught with myriad blatant illegalities, errors and omissions in their construction and execution. We find as well that many of the documents which purport to secure these alleged loans with ownership in your real estate, have been lost or destroyed in favor of creating the more convenient and legally protective electronic mortgage recording system (MERS): thereby rending certain of the documents largely unavailable and unenforceable under the law. Our primary contention is that a copy of a negotiable instrument is not a valid instrument. Irrespective of the production of such items as “Certified Copies” or “Affidavits of Lost Document”, a certified copy of a dollar-bill will obviously not buy you a dollar’s worth of anything: as well, an affidavit saying your dog ate your dollar-bill won’t buy anything either.
During the examination (forensic auditing) phase of your transaction, we generally discover that your “lender” never made you a “loan.” We find instead that your signature and averred obligation to pay was in fact sold for a large profit well before your “loan” documents were presented to you. We find that in fact no money was ever expended by your “lender” on your behalf: thereby inferring that your negotiable and highly valued signature did in effect retire your so-called mortgage obligation well before your payment-stream was established.

Since its inception, your alleged loan has most likely been sold and re-sold several times before it was purchase by a Wall Street stock brokerage and fractionalized to securitize international stock market purchases (mostly by foreign investors, who, at the time, had an exaggerated faith in the US tock and real estate market, but who long-since have accepted their losses). For the most part, these unfortunate folks have moved on and have no expectation of recompense of any kind. Ergo, one might ask: “So where does all the money go when I am evicted for non-payment and my bank sells the property for top dollar?” The answer lies with each party in the line succession: i.e., those who purchased, re-sold and fractionated your loan by including it in a multi-million (or billion) dollar bundle of other mortgages. Each party in the queue have long since been paid far more from their acquisition of your loan than they paid for it, and in effect will have lost virtually nothing as a result of a homeowner’s inability to pay.”

Ya just gotta wonder where teh State Bar is in shutting these types down. They are as bad as the banks that started this in the first place.

April 11, 2011 … Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corp (FDIC), Office of Thrift Supervision (OTS) and Federal Housing Finance Agency (FHFA) all ganged up on Mortgage Electronic Registration System MERS. And I mean ganged up on it.

A consent decree was issued this Tuesday telling MERS it had 30, 60 and 90 days (respectively) to get all kinds of things done – all boiling down to:

GET YOUR ACT TOGETHER!

Seems the Government doesn’t like the way the foreclosure process is working out. Oh, and it’s costing everyone a LOT of money to clean up.

It appears that the nutty court cases across the country – and maybe the recent 60 Minutes segment – all have gotten the attention of our “leaders” in Washington.

But Wait; There’s More!

April 13, 2011 … In the ever increasing number of cases impacting MERS, the Federal Bankruptcy Court (Southern District – California) came out roaring – again. The case: In re Salazar . The holding: A MERS membership agreement is not the same as an assignment of the Deed of Trust. So, bye, bye, US Bank. It didn’t get the right to foreclose on Ms. Salavar. Why? Because no assignment of the beneficial interest in the Deed of Trust was recorded to US Bank before the foreclosure.

Ah, those pesky little details. They’ll getcha every time.

The Federal Reserve Board has amended Regulation Z, which implements the Truth in Lending Act and Home Ownership Equity Protection Act, with new policies for how loan originators may be compensated.
Effective April 1, 2011, all loan originators will no longer be able to receive compensation based on the interest rate or other loan terms, but instead be compensated based on a percentage of the loan amount.
The final rules protect mortgage borrowers from unfair, abusive, or deceptive lending practices that can arise from loan originator compensation practices.
The final rules, which apply to closed-end loans secured by a borrower’s home, will:
·Prohibit payments to the loan originator that are based on the loan’s interest rate or other terms. Compensation that is based on a fixed percentage of the loan amount is permitted;
·Prohibit a mortgage broker or loan officer from receiving payments directly from a consumer while also receiving compensation from the creditor or another person;
·Prohibit a mortgage broker or loan officer from “steering” a consumer to a lender offering less favorable terms in order to increase the broker’s or loan officer’s compensation; and
·Provide a safe harbor to facilitate compliance with the anti-steering rule.
This policy eliminates yield spread premium as of April 2011, and will be a very significant change to the lending business. There will be a drastic reduction in mortgage broker profitability unless they increase their loan origination fees to cover the change.

The National Association of Mortgage Brokers (NAMB) has sent an alert to its members urging them to urge their congressional representatives to oppose the national financial overhaul legislation that is scheduled for a vote in mid-July.

NAMB president Roy DeLoach told his membership that the new legislation would hurt competition in the mortgage market and put smaller mortgage brokers out of business.

The NAMB’s main bones of contention center around the cap on fees and the elimination of yield-spread premiums, which are deal payments mortgage brokers receive for steering borrowers to a certain type of loan product or rate.

Unsurprisingly, NAMB is getting push-back from consumer groups, who blame mortgage brokers in part for the subprime lending mess. However, DeLoach says that brokers are not to blame; in a Wall Street Journal article he noted, “Brokers did not invent these products. We didn’t underwrite these products. And we didn’t fund these products.”

The Mortgage Bankers Association said it is not actively opposing the legislation.

Part of the financial overhaul legislation package requires lenders to retain 5% of the credit risk on loans that carry fees higher than 3% in an effort to make it more difficult for brokers to load up loans with extra fees.

Attorney General Eric Holder, FBI Director Robert Mueller and HUD Inspector General Kenneth Donohue held a news conference on June 17 to announce that the agencies’ three-month “Operation Stolen Dreams” sting has already netted 485 arrests for mortgage fraud nationwide.

They also said that mortgage fraud has resulted in losses of about $2.3 billion to date. More arrests are expected as the FBI pursues more than 3,000 mortgage fraud claims.

According to the FBI’s Mortgage Fraud Report, the most prevalent schemes include:

Loan Origination Schemes

Loan origination fraud schemes involve falsifying a borrower’s financial information—such as income, assets, liabilities, employment, rent, and occupancy status—to qualify the buyer, who otherwise would be ineligible, for a mortgage loan. This is done by supplying fictitious bank statements, W-2 forms, and tax return documents to the borrower’s favor. Perpetrators also employ the use of stolen identities. Specific schemes used to falsify information include asset rental, backwards application, and credit enhancement schemes.

Foreclosure Rescue Schemes—The Use of Bankruptcy Petitions

The use of bankruptcy petitions to stall the foreclosure process continues to be a prevalent threat to delinquent homeowners looking for assistance.⁴⁷ Mortgage fraud perpetrators are exploiting the U.S. bankruptcy system by filing fraudulent bankruptcy petitions to delay the foreclosure process and extract the maximum profit from victims during the commission of advance fee, fractional transfer, and sale-leaseback-repurchase foreclosure rescue schemes. This type of fraudulent activity is increasing as perpetrators seize opportunities created by the current housing crisis and the more than 2.1 million properties in foreclosure.

Flopping, Short Sales, and Broker Price Opinions

Perpetrators are conducting short sale property flipping schemes using distressed properties of homeowners who are unemployed or facing foreclosure. The perpetrators collude with appraisers or real estate agents to undervalue the property using an appraisal or a broker price opinion to further manipulate the price down (the flop) to increase their profit margin when they later flip the property.⁶⁸ They negotiate a short sale with the bank or lender, purchase the property at the reduced price and flip it to a pre-selected buyer at a much higher price.

Commercial Real Estate Loan Fraud

Open sources and FBI analysis indicate that the $6.4 trillion commercial real estate (CRE) market is experiencing a high incidence of loan origination fraud similar to that seen during the last few years in the residential real estate market. Perpetrators, including loan officers, real estate developers, appraisers, and apartment management companies, are increasingly submitting fraudulent documents that misrepresent their assets and property values to qualify for loans to buy or retain property. When the loans are funded, the perpetrators often cease payment of their mortgages, resulting in foreclosure. According to open-source reporting, CRE loans are expected to produce more than $100 billion in losses by the end of 2010.

Preliminary analysis indicates that the commercial markets exhibiting the most significant signs of distress are in areas where there is also a significant mortgage fraud problem. These areas include the New York metropolitan area, Miami, Los Angeles and Orange County, Chicago, Boston, Dallas, Fort Worth, Houston, the District of Columbia, Atlanta, and Baltimore.

…and it’s a good thing.

HUD has flipped the Anti-Flipping rule on its head – temporarily — in an effort to make foreclosures more attractive to investors. On Jan. 15, HUD announced that FHA mortgage insurance will now be allowed on foreclosed houses that are quickly resold – “flipped” – which will also free up the supply of foreclosed home for first-time buyers.

The temporary waiver on purchasing a flipped house with an FHA mortgage went into effect on Feb. 1 and runs for one year, unless it’s extended. There are conditions attached to help HUD do what it sought to do by invoking the Anti-Flipping rule in the first place: prevent “predatory practices” by investors:

• The transaction has to be at arms-length;
• If the sale price is +20% more than the acquisition cost, the lender has to meet certain appraisal and property inspection conditions;
• The waiver cannot be applied to Home Equity Conversion Mortgages; it is limited to forward mortgages.

The waiver helps investors sell flipped properties quickly at a fair market price, which helps the home occupancy rate and also helps to stabilize values.

The waiver makes FHA-insured mortgage financing available for a growing percentage of the available homes for sale.

The waiver could potentially diminish FHA mortgage fund losses by increasing what buyers can pay for distressed properties.

More buyers. More sellers. More fair market prices.

Hey, it’s all good.

There’s a proposed Federal Program to assist Banks and borrowers (one of hundreds) by paying Banks $1 for every $2 a Bank writes off on a loan. Why ‘write off’ any part in the first place? Because many of these homes are worth less than the debt; they’re underwater (banks call this “negative equity”).

Sounds great, right? $75 Billion has been allocated. That’s the equivalent of a $150 Billion write-down on mortgage balances. Nobody knows how, when, or if such a program will ever get off the ground, or who will be “eligible.”

It is supposed to help those who were victims of “predatory lending practices.” In other words, you’ll have to prove you weren’t lying when you filled out that loan application. (Weren’t they called “Liars’ Loans?”) So, there goes 75% of the potential pool of borrowers. (Come on people, does anybody really believe that a nail salon worker could afford a $750,000 house? Or that the worker had a good faith belief they could? What turnip truck did we just fall off of?)

And, just because the government is what the government is, the bailout won’t wipe away all the “negative equity.” No sir. The government wants to eliminate as little negative equity as possible – just enough to “hope to get [borrowers] committed again.” “Committed” to what? To staying in the house and not walking away from the mortgage, and renting the identical place just down the street for about half the cost?

I sure hope this program works. (Hey, I can dream, can’t I?)