Investors In Countrywide MBS Cry Foul In Bank Of America $8.4B Loan Modification Settlement With State AGs

The Wall Street Journal reports:

• Bank of America Corp.'s decision to embark on an $8.4 billion home-loan-modification program to settle charges brought by state attorneys general against Countrywide Financial Corp. was hailed as a milestone when the deal was announced this fall. But apparently nobody talked to one group that will shoulder much of the settlement's costs: investors who hold securities backed by Countrywide mortgages.

***

• Bank of America didn't seek investor approval before agreeing to the settlement "because the design of the program was based in large part on the delegated authority" in the contracts, [a Bank of America spokesman said].

• But some investors believe they should have been contacted first. [...] Other investors said Bank of America is moving much of the cost of the settlement to investors when it should be paying those costs itself. [... T]hey said that many of these loans violated representations and warranties made when the mortgages were packaged into securities. As a result, they said, Bank of America should repurchase the loans before modifying them.

• "This is literally an attempt to settle a dispute with state attorneys general on predatory lending claims with someone else's money," said one money manager. "In 10-plus years in the market, I've never seen anything as outrageous as this."

For more, see Investors Hit BofA Loan Modifications.

Go here for other related posts on mortgage servicing issues. MortgageServicingIssuesAlpha

$8B+ Countrywide / B of A Loan Modification Lawsuit Settlement May Yield As Little As $1B, Complains Advocacy Group

Legal Newsline reports:

• Just a month ago, when the terms of the largest settlement in home mortgage history were announced, many hailed the settlement as the first significant step to providing needed relief to homeowners buried in rising interest rates and declining property value. But some [...] are now taking issue with the deal, claiming the Bank of America settlement will protect Wall Street investors more than it will Main Street customers.

For more, see Countrywide settlement may favor Wall Street over Main Street.

Fine Print In Loan Servicing Contracts Stalling Loan Mods?

The Washington Post reports:

• More than a year into the foreclosure crisis, whether a distressed homeowner is eligible for a more affordable mortgage can often come down to the fine print. That fine print in contracts that govern mortgages bundled into investment pools dominated a House Financial Services Committee hearing yesterday as lawmakers questioned whether lenders are doing enough to keep people in their homes.

• Millions of loans are held in these pools, called securitizations. They are governed by contracts that dictate what changes can be made to the loans. Lawmakers and industry officials debated yesterday the degree to which those agreements are making it difficult to modify a homeowner's loan and thus hampering foreclosure prevention efforts.

For more, see Foreclosure Relief Is Getting Lost In Fine Print of Loans.

Tanking Market Makes It Tougher To Split As Divorcing Spouses Now Fight Over Who "Doesn't" Get The House

In South Florida, The Miami Herald reports:

• During the real-estate boom, couples who divorced would fight over who got the house, betting that the winner could get rich from rapidly escalating prices. [...] Now, in a twist on the classic divorce dispute, houses have become hot potatoes for couples divorcing during the downturn. 'It's like, `You take the house!' 'No, You take the house.' 'I don't want it, you take it,' '' said Drew Sheridan, a veteran divorce lawyer in Kendall.

***

• ''Instead of an asset where they used to fight for occupancy, possession and ownership, they're now fighting to abandon their personal interest,'' said William Koreman, a divorce lawyer in Hollywood. "Neither of them wants the property because they would be accepting a huge liability.''

• In extreme cases, a homeowner has used the mortgage as a weapon of spite, deliberately sabotaging his or her own credit to destroy the credit of the former partner, said Adam Franzen, a Fort Lauderdale family lawyer. Even when couples try to play nice, their disintegrating financial condition turns an amicable split into a war of the roses.

For more, see When couples split, the home is a hot potato (In this period of a declining housing market and negative equity, there's a different kind of divorce battle for custody of the house -- neither spouse wants it).

St. Paul Man Pleads Guilty To Ripping Off His Blind Elderly Mother, Leaving Her Home Of 50 Years Facing Foreclosure

In St. Paul, Minnesota, the Pioneer Press reports:

• A St. Paul man reached a plea deal in court Wednesday on charges he stole tens of thousands of dollars from his blind, elderly mother while her health insurance and phone were cut off for nonpayment. Scott Douglas Clark, 53, pleaded to felony theft.

***

• The complaint [among other things] alleged that Clark persuaded his mother to sign a quitclaim deed on her St. Paul home and got a reverse mortgage, pulling $29,000 in equity from it and transferring it to his account.

• His brother and sister-in-law, who were in the courtroom Wednesday, said after the hearing that Clark was clearly trying to hide a methamphetamine habit. They said the amount he bilked his mother out of was closer to $100,000. [...] Because of the financial mess created by Scott Clark, their mother is in an assisted-living facility, and her home — where she lived for 50 years — is in foreclosure, [the defendant's brother] Todd Clark said.

For more, see St. Paul man reaches plea deal in theft from 79-year-old mother (Man accused of stealing tens of thousands of dollars) (when link expires, try here).

Obtaining Deficiency Judgments Against Foreclosed Homeowners Not A Pratical Option for Big Lenders

In Lee County, Florida, The News Press reports:

• [T]he big news is that at present very few large institutional lenders are even bothering to seek deficiency judgments in foreclosure suits. The main reason is that lenders figure that if someone cannot pay his or her mortgage, then he or she probably cannot pay a deficiency judgment either, and the lender could waste money on an attorney chasing a deficiency judgment and not collect a dime. Instead, lenders focus on getting title to the real estate in a foreclosure suit so they can resell the property and recoup some of their losses. (Note though, that a few smaller banks and hard money lenders are regularly seeking deficiency judgments).(1)

For more, see Lenders don't seem to be pursuing deficiency judgments.

See also, Most lenders not seeking deficiency judgment (Florida often seen as 'debtor friendly').

(1) The article points out that, at least in Florida, deficiency judgments are only available if "personal service of process" has been made when serving the homeowner with notice of the foreclosure action. If the homeowner has already bolted from the home, can't be found, and thereby causes the lender to rely on "constructive service of process" (ie. taking a legal notice out in the local newspaper) to legally serve the homeowner with notice of the foreclosure, deficiency judgments are not available to foreclosing lenders in those cases.

Delay In Bringing Legal Action Sinks Predatory Lending Victims; Judge Allows Foreclosure Sale To Proceed

In Mendham, New Jersey, the Observer Tribune reports on a local homeowner facing foreclosure whose allegations of fraud against a mortgage lender were dismissed by a judge because she waited too long to raise the issues in court.

For the story, see Family under the foreclosure gun (Family says they’re subprime victims and will lose home without last-minute help).

Another "Rent-To-Own" Program, Another Horror Story For Tenants

In Killeen, Texas, the Killeen Daily Herald reports on two families who paid $2,500 and $5,000 upfront to enter into rent-to-own real estate purchase arrangements with Robert "Bob Buys Houses" Alford III, a local operator.

• In early 2007, two Killeen couples moved into homes they hoped to raise their families in. Now they are out thousands of dollars and desperately counting on people who were strangers just a few weeks ago to help save their dreams.

***

• Both families were satisfied with the experience until the original homeowners knocked on their doors. They say now that Alford scammed them out of thousands of dollars and their dream of owning a home.

According to the initial story, Alford originally acquired possession of the homes through agreements with the original owners in deals where, rather than pay off the existing mortgages, he agreed to continue making the payments. He then entered into the rent-to-own deals with the tenants. Now, the original owners are also complaining, saying that the mortgage payments are not being made. According to a subsequent story:

• Alford said he never intended to defraud anyone. However, his business model resembles scams documented by the FBI and mortgage lenders in the past. The scam operates by a person agreeing to take on mortgage payments on a property to sell. Instead of selling the property, they rent the property, ask for a large up-front down payment, stop paying the mortgage and leave the homeowner or lenders to clean up the mess.

For more, see:

• Real estate woes hit home,
• More residents worry about mortgage fraud.

For more on problems with "Rent To Own", "Lease / Option" and "Contract for Deed" real estate deals, go here and go here. rent to own lease purchase option scams yellowstone

Failed "Contract for Deed" Arrangements Leave Ozark Homeowners Facing The Boot

In Springfield, Missouri, KSPR-TV reports a story involving about a dozen families across the Ozarks who pay their mortgage on time but are losing their homes to foreclosure anyway.

The deals reportedly involved a sale to the families using a "contract for deed" arrangement, where the seller pockets an upfront downpayment, and the families agreed to pay the balance in periodic payments over time. As the seller collects these payments, the money is applied to the payments due on an existing mortgage which encumbers the subject home. When the agreed upon payment plan is completed, the homebuyers obtain the legal title to the home.

In this case, it is reported that, at some point, whoever was receiving the periodic payments made by the innocent homebuyers stopped applying the funds to the existing mortgage, triggering foreclosure, and leaving the homebuyers feeling like they just had the rug pulled out from under them.

For the story, see Ozarks Homeowners Lose Homes They Never Really Owned.

For story update, see:

• Springfield Business Journal: Foreclosures prompt backlash from The Real Estate Co.,
• Springfield News-Leader: Homeowners hurt by Greenleaf have option (One resident bypasses company, pays straight to titleholders).

For more on problems with "Contract for Deed," "Rent To Own", and "Lease / Option" real estate deals, go here and go here. rent to own lease purchase option scams yellowstone

Sloppy Foreclosures Continue As Florida Homeowner Faces Actions From Two Different Plaintiffs Each Claiming To Own The Same Note & Mortgage

The Law Blog at The Wall Street Journal reports:

• [F]or the legal beagles at so-called foreclosure “mills,” which do assembly-line lawyering for lenders and other mortgage owners, the crisis has meant lots of work but also woes, including sanctions and stern lectures from judges (examples here, here and here). Why are judges so frustrated? The increased volume is leading to mistakes and irregularities, which we’ve chronicled before.

• Now comes the foreclosure case of Joanne Fredenburg, a widowed homeowner in Lehigh Acres, Fla., where real estate prices have plummeted. Last month Ms. Fredenburg was served with not one but two foreclosure lawsuits from two different plaintiffs that both claimed to own her promissory note and mortgage and said she owed them each more than $276,000. That, of course, is impossible. (Click here and here for the two complaints.)

For more, see Foreclosure Mess: Two Different Plaintiffs Claim to Own Same Mortgage.

Go here for other posts on sloppy foreclosures and assembly line lawyering. SloppyForeclosuresAlpha

Judge Freezes "Presumptively Unfair" Option One / H&R Block Mortgages From Foreclosure Throughout Massachusetts In Discrimination Suit

From the Office of the Massachusetts Attorney General:

• Attorney General Martha Coakley’s Office has obtained a preliminary injunction against Option One Mortgage Corp. and H&R Block Mortgage Corp., subprime lenders that originated thousands of loans in Massachusetts. The order, granted Monday [...], prohibits Option One and American Home Mortgage Servicing, Inc. (“AHMSI”), which currently services 9,700 active Massachusetts Option One loans, from initiating or advancing foreclosures on mortgage loans that are considered “presumptively unfair” under the court order.(1)

• Under the order, AHMSI must give the Attorney General’s Office at least 30 days notice before it intends to foreclose on any such loan, and if the Attorney General objects, obtain approval from the Court before foreclosing on a loan.

For the Massachusetts AG's press release, see AG Martha Coakley Obtains Preliminary Injunction Against Option One and H&R Block, Accused of Deceptive and Discriminatory Lending Practices.

For the original lawsuit filed in this case, see Commonwealth of Massachusetts v. H&R Block, Inc., et al.

(1) In teeing off on the mortgage lenders, the Court stated that, "[a]nyone with any understanding of home foreclosure recognizes how much injury it causes to the families who resided in foreclosed homes. Consequently, any lender with even a modicum of business morality should recognize that it is immoral, unethical, and unscrupulous to issue a home loan with reckless disregard of the risk of foreclosure.” The Court also rejected the defendants’ attempt to make the Attorney General arbitrate these claims under federal arbitration law.

NYC Jury Convicts Foreclosure Rescue Operators In Sale Leaseback, Equity Stripping Scam

In New York City, Newsday reports:

• The owners of a foreclosure rescue company that promised to save struggling homeowners but swindled them out of their houses were convicted Thursday of bank fraud conspiracy charges. Andrea Moore and Michael Irving, who ran a Brooklyn-based company called Homes R Us USA, were part of a group of unscrupulous entrepreneurs who came up with a scheme to profit from the subprime mortgage crisis as it unfolded, prosecutors said.

• The company told desperate owners that if they temporarily signed over the deeds to their homes, they could have their mortgages paid for 12 months while they got their finances in order. After a year, they were told, they would get their homes back. In reality, the rescue company immediately saddled the homes with big new mortgages taken out in the names of buyers who never intended to pay them off.

• When those bogus buyers failed to make payments, the mortgages went into default, the banks lost the money and in some cases the original owners lost their houses for good. Meanwhile, Homes R Us and a group of affiliated companies pocketed millions of dollars in fees.

***

• Several people associated with the scheme previously pleaded guilty. One, Maurice McDowall, described in court papers as a leader of the conspiracy, was sentenced in October to a 10-year prison term.

For the story, see NY jury convicts foreclosure rescue pair.

See also, U.S. Attorney (Southern District, New York) press release: Members Of Foreclosure Rescue Scheme Found Guilty Of Engaging In Multi Million Dollar Mortgage Fraud.

For the original indictment, see U.S. vs. McDowall, et al.

Go here for earlier posts on this story.

Go here for other criminal prosecutions of foreclosure rescue operators.

For more on equity stripping scams, generally, see DREAMS FORECLOSED: The Rampant Theft of Americans' Homes Through Equity-stripping Foreclosure 'Rescue' Scams (4.61 MB approx.).

Another Defendant In Alleged "Bait & Switch" Predatory Loan Scam Takes Plea, 3 Year Prison Sentence

In San Bernardino, California, the San Bernardino Sun reports:

• Eli Hassine, one of seven defendants in [one of the county's biggest predatory mortgage lending cases], pleaded guilty to four counts and accepted a sentence enhancement [...] in San Bernardino Superior Court.

• Hassine, 25, was originally charged with 47 counts, including conspiracy, grand theft, forgery and filing false documents. As part of the plea bargain, Hassine wrote a four-page letter to the court and admitted that $2.5 million was taken from victims.

• Hassine is the fourth defendant to plead guilty in the case, leaving as remaining defendants Tarzana-based Lifetime Financial owner Eric Pony, 26, his sister Paulette Pony, 24, and Jacob Shawn Franco.

***

• The investigation is ongoing, prosecutors have said, and there could be hundreds of other homeowners who have fallen victim to a bait-and-switch scheme by operators of Lifetime Financial.

For the story, see Defendant in predatory mortgage case takes plea bargain.

The California Attorney General has filed a parallel civil lawsuit against this alleged mortgage fraud operation:

• For the AG's civil lawsuit, see People v. Lifetime Financial Inc., et al.,
• AG's press release announcing the civil lawsuit - Attorney General Brown Shuts Down Mortgage Scam Artists,

Go here for earlier posts & any updates on this story.

Mortgage Servicers Fearing On Oncoming Foreclosure Moratorium?

An article from American Banker makes the following observation on the trouble mortgage servicing companies may face if a 90-day federal moratorium is imposed on foreclosures:

• With pressure mounting for Congress to enact a 90-day moratorium on home foreclosures, mortgage servicers are warning that the move could have the perverse effect of prolonging the housing downturn.

***

• Pooling and servicing agreements typically require that servicers advance all the principal and interest payments, as well as tax, insurance, maintenance, and foreclosure costs, to investors regardless of whether the borrower is paying. Servicers get reimbursed for expenses incurred while a loan is delinquent but only after the property goes into foreclosure, so getting repaid can take nine months to a year.

• A foreclosure moratorium would indefinitely extend the advances that servicers pay to investors and come as borrowing facilities that servicers rely on to make advance payments are strained by the liquidity crunch.(1)

For more, see Why Foreclosure Relief Worries Many Servicers.

Go here for other related posts on mortgage servicing issues.

(1) According to the story, the chief financial officer of a New York buyer and servicer of distressed loans likened the state of the servicing industry to the "I Love Lucy" episode in which Lucy is furiously grabbing chocolates off a fast-moving conveyor belt. "The borrowers are just piling up, and servicers are inundated and overwhelmed with calls they can't answer, short sales they can't complete, and not enough staff," he said. "They need more manpower." MortgageServicingIssuesAlpha

Cash-Hemorrhaging Bond Insurers Drag Lenders Into Court For Mortgage Underwriting Shenanigans

Forbes reports:

• The housing crisis is not over for bond insurer MBIA. The company is still losing money on dodgy mortgage-backed securities that it insured at the height of the U.S. housing bubble. [...] The bond insurance industry has been hemorrhaging losses as the credit crunch worsens and the financial products the companies insured have plunged in value.

***

• MBIA has taken legal action against two loan sellers and servicers, and filed a claim against a third, regarding certain defaulting bundles of second-lien mortgages. The insurer is alleging that certain past loans do not meet eligibility requirements for its protection and that it should therefore not be liable for losses.

• [Bond insurer Ambac Financial Group], which was also forced to fortify its reserves against bad residential mortgage loans, said it expects to pull in at least $500.0 million in legal damages related to underwriting shenanigans such as this.

For the story, see Second Mortgages Sting MBIA.