Archive for February, 2012

Top 12 Reasons to Hate the AG Mortgage Settlement

Before you listen to the propoganda being spewed by Florida Attorney General Pam Bondi, bankers, and media outlets about today’s settlement between 49 of the 50 Attorneys General and the big banks, here are 12 reasons to hate the deal, courtesy of Naked Capitalism:

1. We’ve now set a price for forgeries and fabricating documents. It’s $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It’s a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.

2. That $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.

3. That $5 billion divided among the big banks wouldn’t even represent a significant quarterly hit. Freddie and Fannie putbacks to the major banks have been running at that level each quarter.

4. That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.

5. The enforcement is a joke. The first layer of supervision is the banks reporting on themselves. The framework is similar to that of the OCC consent decrees implemented last year, which Adam Levitin and yours truly, among others, decried as regulatory theater.

6. The past history of servicer consent decrees shows the servicers all fail to comply. Why? Servicer records and systems are terrible in the best of times, and their systems and fee structures aren’t set up to handle much in the way of delinquencies. As Tom Adams has pointed out in earlier posts, servicer behavior is predictable when their portfolios are hit with a high level of delinquencies and defaults: they cheat in all sorts of ways to reduce their losses.

7. The cave-in Nevada and Arizona on the Countrywide settlement suit is a special gift for Bank of America, who is by far the worst offender in the chain of title disaster (since, according to sworn testimony of its own employee in Kemp v. Countrywide, Countrywide failed to comply with trust delivery requirements). This move proves that failing to comply with a consent degree has no consequences but will merely be rolled into a new consent degree which will also fail to be enforced. These cases also alleged HAMP violations as consumer fraud violations and could have gotten costly and emboldened other states to file similar suits not just against Countrywide but other servicers, so it was useful to the other banks as well.

8. If the new Federal task force were intended to be serious, this deal would have not have been settled. You never settle before investigating. It’s a bad idea to settle obvious, widespread wrongdoing on the cheap. You use the stuff that is easy to prove to gather information and secure cooperation on the stuff that is harder to prove. In Missouri and Nevada, the robosigning investigation led to criminal charges against agents of the servicers. But even though these companies were acting at the express direction and approval of the services, no individuals or entities higher up the food chain will face any sort of meaningful charges.

9. There is plenty of evidence of widespread abuses that appear not to be on the attorney generals’ or media’s radar, such as servicer driven foreclosures and looting of investors’ funds via impermissible and inflated charges. While no serious probe was undertaken, even the limited or peripheral investigations show massive failures (60% of documents had errors in AGs/Fed’s pathetically small sample). Similarly, the US Trustee’s office found widespread evidence of significant servicer errors in bankruptcy-related filings, such as inflated and bogus fees, and even substantial, completely made up charges. Yet the services and banks will suffer no real consequences for these abuses.

10. A deal on robosiginging serves to cover up the much deeper chain of title problem. And don’t get too excited about the New York, Massachusetts, and Delaware MERS suits. They put pressure on banks to clean up this monstrous mess only if the AGs go through to trial and get tough penalties. The banks will want to settle their way out of that too. And even if these cases do go to trial and produce significant victories for the AGs, they still do not address the problem of failures to transfer notes correctly.

11. Don’t bet on a deus ex machina in terms of the new Federal foreclosure task force to improve this picture much. If you think Schneiderman, as a co-chairman who already has a full time day job in New York, is going to outfox a bunch of DC insiders who are part of the problem, I have a bridge I’d like to sell to you.

12. We’ll now have to listen to banks and their sycophant defenders declaring victory despite being wrong on the law and the facts. They will proceed to marginalize and write off criticisms of the servicing practices that hurt homeowners and investors and are devastating communities. But the problems will fester and the housing market will continue to suffer. Investors in mortgage-backed securities, who know that services have been screwing them for years, will be hung out to dry and will likely never return to a private MBS market, since the problems won’t ever be fixed. This settlement has not only revealed the residential mortgage market to be too big to fail, but puts it on long term, perhaps permanent, government life support.

Mark Stopa

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Foreclosure … Why?

Take a look at this house, below (the one on the right).  A woman named Ora Albright purchased it in May, 2005 for $124,000.   This was her home.  Her homestead, actually (according to the Duval County Property Appraiser). 

I don’t know Ora.  She’s not my client, and I’ve never been to this home (located in Jacksonville, Florida).  So why am I showing you a picture of Ora’s house?  Frankly, it’s because I’m pissed off.  I’m pissed off because this house was sold today at a foreclosure sale to a third party (investor) for $12,100.  $12,100!  Apparently, rather than working something out with Ora, Deutsche Bank preferred to foreclose, and throw her on the street, for a measly $12,100.   (If you don’t know how foreclosure sales work, Deutsche Bank could have bid up to the amount of its judgment, more than $116,000, without taking a cent out of its pocket, but it preferred to sell the house, which has an assessed value of $68,000, for a stinkin’ $12,100.) 

I realize this home isn’t lavish or extravagant.  It’s not a palace.  But it was Ora’s home.  I don’t know her, but I’d have to imagine she’d have found a way to pay more than $12,100 to keep her home (if given the chance).  But there’s the rub – rather than trying to work something out with Dora, Deutsche Bank preferred to foreclose and sell the house to a stranger.  For $12,100.   Subtract out the attorneys’ fees it paid, and the costs of conducting the sale, and what did Deutsche Bank make here?  Ten grand? 

What are we doing here, folks?  Is this what things have come to in our country?  When did it become okay for banks to refuse settlements with homeowners so they could sell houses worth $68,000 for 10-12 grand?  Does anyone care?

There has to be a better way, and for all of you who agree, let’s keep fighting until it happens.

Mark Stopa

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If Life Were Like Monopoly

I played a game of Monopoly with my kids tonight, and it occurred to me … America would be better if it functioned like Monopoly.  Think about it …

The rules are the same for everyone;

Everyone can buy houses;

The banker doesn’t get to steal your houses;

Property values don’t decrease, and if take out a mortgage, your property values are still the same even after you pay it;

There’s a luxury tax;

If the banker goes bankrupt, nobody will bail him out;

No matter how much money you have, you can still go to jail.

Mark Stopa

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Can You Find the Fraud, Part II

I recently posted this blog illustrating a Tampa judge’s frustration with a bank’s indorsement fraud in one of my cases.  I just received the transcript of the hearing, so let’s revisit this issue. 

Here is a copy of the indorsements which were affixed to the Note that was attached to the Complaint in a mortgage foreclosure case I’m defending. 

Here is a copy of the indorsements which were affixed to the original Note, which the Plaintiff, Citimortgage, Inc., filed after filing suit. 

The notes themselves were identical, but notice any differences in the indorsements?   

Upon close inspection, it’s clear that the Note attached to the Complaint contains a blank indorsement, whereas on the “original” Note, the blank indorsement is filled in with the stamp of “Citimortgage, Inc.” 

At my motion to dismiss hearing, the judge jumped all over this discrepancy, and here’s the transcript setting forth his concerns.

As you can see, the judge was troubled at how the original Note was specifically indorsed to Citimortgage when the Note attached to the Complaint was indorsed in blank. 

The bank’s lawyer argued “maybe the Note that was stored electronically was different than the hard copy.”  But the judge wasn’t buying that argument, especially since it was prefaced with “maybe.”  The judge granted the motion to dismiss and directed that Citimortgage, Inc. explain, in its Amended Complaint, how Citimortgage’s stamp appeared on the original Note when it wasn’t on the Note attached to the Complaint. 

The lawyer’s explanation, in my view, is hogwash.  I suppose I could see this argument if there was no indorsement at all on the Note attached to the Complaint.  In that event, it might be possible that the specific indorsement was done later.  However, I see no innocent explanation for how there was a blank indorsement on the Note attached to the Complaint, and that very indorsement had the name “Citimortgage, Inc.” on the blank when the original Note was filed.  In my view, there’s only one explanation here – Citimortgage had a Note, indorsed in blank, and said “We don’t want this indorsed in blank, let’s put our stamp on it.”  Maybe I’m wrong, but let’s put it this way – I can’t wait to hear their explanation.  (Of course, it’s been two months and I’m still waiting.)

Mark Stopa

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Career Day

It’s Career Day for my kids at school, so it seems like an appropriate time to share this …

This kid should obviously choose “government” – those guys never go to jail.

Mark Stopa

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Synovus Ousts Senior V.P. of Asset Management; Shady Foreclosure Deals to Blame?

Have you ever wondered what happens to houses when the banks foreclose?  The Fort Myers News Press recently wondered just that, and its findings may have prompted the termination of a high-ranking bank officer. 

To those in the foreclosure industry in the Tampa area, Michael E. Johnson was fairly well-known.  He was the Senior Vice President of Asset Management for Synovus Bank.  This was no phony title, like the “Assistant Secretary” designations we see given to robo-signers; Mike Johnson was the decision-maker on foreclosure cases for Synovus in the Tampa area.  To illustrate, here was the signature on his emails (copied and pasted from an email he sent me):

Michael E. Johnson
Senior Vice President
Asset Management
12450 Roosevelt Boulevard
St. Petersburg, FL 33716
727.568.6521 – Direct
727.568.6532 – Fax

I personally dealt with Mike Johnson on several occasions in recent years, and it was clear to me that if a settlement agreement was going to be reached in a case involving Synovus, he would be the one approving it.  This dynamic was both good and bad.  It was good because, unlike many foreclosure cases, at least there was a person at the bank with settlement authority with whom communication was possible.  It was bad because, frankly, he and I butted heads frequently and, in my view, he was rather stubborn in negotiating.  (Of course, I’m confident he thought the same things about me.)  That was his reputation, at least as I knew it – difficult to deal with, but Synovus liked him because he got a lot of deals done for the bank. 

Anyway, with that backdrop in place, I find this article from the Fort Myers News Press particularly interesting.  Essentially, this journalist studied the Public Records in Lee County to investigate what happened to properties after being foreclosed, or after they went to the bank.  According to the article, there was a disturbing trend of properties being sold by Synovus to third-party investment companies, then flipped soon thereafter for a significant profit. 

In my view, the information contained in the article forces some tough questions:

1.  Why would Synovus sell a house for $53,000 to an investment company when said company was able to sell the house two months later for $78,000?  Or a duplex in Lehigh Acres for $30,000 that was re-sold 15 days later for $79,000?  Seriously, think about those numbers for a minute.  More than doubling the sale price?  Merely by doing a flip?  15 days later?  For a bank that was so stubborn in negotiating with homeowners, why not insist on a higher sale price (to the investor)? 

I suppose it’s possible the investment company did significant repairs to improve the value of the property.  However, as the article notes, how much work can really be done when no building permits were obtained? 

2.  Doesn’t this have the feel of a shady, back-room deal?  After all, why would a bank sell a house for $30,000 if it was possible to sell it 15 days later for $79,000?  We may never know for sure, but it sure is interesting that Synovus had numerous deals like this with the same investor, and Mike Johnson was the one approving most of these deals. 

Think about that for a minute.  One man approving multiple sales of properties to the same investor, which investor was flipping those properties for a profit.

When you put it like that, it’s not hard to wonder whether this banker had a had a personal stake in these transactions.  To be clear,  I don’t know this to be the case, and I’m not saying that was the case, but when the same bank is selling multiple properties to the same investor, at prices like this, it’s not hard to wonder whether that banker was getting a kickback on the re-sale.  It sure wouldn’t have been difficult – investor simply tells banker “sell this to me for $30,000, and I’ll give you $5,000 on the re-sale.”

You may think I’m reaching or just plain wrong, and maybe so.  However, it sure is interesting that Mike Johnson no longer works for Synovus, having been let go (after what had apparently been a distinguished career with the bank) shortly after this article came out.  In fact, according to my sources, he now works with investment companies who buy houses from banks! 

The point here isn’t to talk about this one banker, of course.  My point is that it’s terribly, indescribably sad to know that Florida homeowners are being foreclosed and this is what’s happening with their homes.  Even if there was nothing shady going on with Synovus, it’s awful to know that banks are so willing to foreclose on homeowners yet so willing to sell properties for a fraction of their actual value.  Anything shady, of course, only increases the level of misery. 

3.  I’m also troubled at what may be attempts to increase the extent of the homeowner’s liability.  Using the example from the article, should the prior homeowner be liable to Synovus for $275,000, i.e. $328,000 (the judgment amount) minus $53,000 (the alleged value of the house)?  Apparently, by my read of the article, that’s what the court ruled, as that $53,000 sale price is how the fair market value was determined.  The fact that the house sold for $78,000 sale price two months later (and that the deficiency amount probably should have been $23,000 lower?  The court may not even have known about that re-sale.  Heck, the homeowner may not even have known. 

This prompts a serious question … Are banks selling properties at reduced values to increase the amounts of their deficiency judgments against homeowners? 

You might think that makes no sense.  After all, why would a bank sell a house for less than its maximum sale price?  That said, do we really know what, if any, back-room deals are going on here?  For instance, is this deal an arms-length transaction when Synovus is selling many such properties to the same investor?  Who’s to say there weren’t other, under-the table monies changing hands? 

It’s not hard to envision ways Synovus could artificially increase the liability of homeowners … ”you give me a better deal on this one; I’ll give you a better deal on that one,” or “give me a deal for $30,000 on this one, and I’ll give you half of the profits on the resale.”   

I don’t think I’m the type of person who espouses conspiracy theories.  However, I just can’t help but wonder, given what I’ve read, seen, and know, if homeowners are getting screwed on a routine and systematic basis by bankers who aren’t looking out for anyone except themselves.  And when a high-ranking banker is suddenly ousted after an article like this, it really raises some difficult questions.

Mark Stopa

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