On Thursday, the housing subcommittee of the House Financial Services Committee held hearings on robo signing, documentation, and servicing issues. This session wasa companion to the Senate Banking Committee hearings on the same topic earlier in the week.
There were some notable differences between the two forums. The House group overall was less well prepared; I’m told that’s due to the fact that Representatives have far fewer policy staffers than Senators. There was also a higher proportion of participating members predisposed towards banks in the House hearings. Nevertheless, the sessions made a major dent in some key bank talking points, the biggest being their assertion that all of the foreclosures made are warranted, and therefore the foreclosure problems are mere paperwork issues.
Some exchanges were effective. Maxine Waters, who chaired the session, grilled the regulators on whether they had fined or imposed sanctions on any banks. She was forced to become prosecutorial when every single regulator present refused to provide simple a simple yes/no answer as requested. One of the less evasive interactions was with OCC acting chairman John Walsh:
Waters: Has OCC taken any enforcement action?
Walsh: We have certainly issued supervisory requirements on matters requiring….
Waters: Have you levied any fines?
Walsh: I do not believe that we have.
Waters: Have you issued any .. orders?
Walsh: I don’t believe there have been any public actions.
Waters: Have you threatened to revoke any charters?
Walsh: No.
Waters: Do you think the servicers really believe you mean business if they don’t fear consequences?
Walsh: I think the consequences are clear and ….
Waters: But you haven’t done that. You haven’t done any of that. Why should they take you seriously?
The banks did not comport themselves terribly well in either hearing. It’s remarkable to see how they all tell the same lies hew to the same talking points: we do everything we can to avoid foreclosures, we don’t benefit from them (huh?), our second mortgage portfolios have no impact on our decisions (!?!), the only people we foreclose on are people who are delinquent. Chase adds some insulting-to-intelligence bromides about treating customers with respect. When told that there have been all sorts of people who have been foreclosed upon who don’t fit their tidy story (victims of compounding and often erroneous servicer junk fees, or told by the servicer not to pay so as to qualify for a mod), the next line of defense is to characterize them as errors, apologize, and profess that they fix mistakes as soon as they become aware of them.
Sadly, when Waters put up the notorious DocX document fabrication price list, all the bank representatives cheerfully piped up: “We don’t use DocX.” Of course they don’t now; DocX was shut down in early 2010. But she did score one when she asked banks to say which investors objected to mortgage modifications and the Bank of America witness ‘fessed up that it was very few.
It was also remarkable to how tightly the bank representatives had been scripted. They were utterly incapable of responding to unanticipated questions. Georgetown law professor Adam Levitin, who was extremely effective in both hearings, was stunned at how tongue-tied they were when Brad Miller asked about why big banks should be in the servicing business:
Rep. Brad Miller (D-NC) asked a panel with some 5 servicing executives on it why it makes sense for a servicer to be affiliated with either a loan originator, a loan securitizer, or a trustee. He might have been speaking Klingon to these executives. They stared blankly at him like he was asking them something that was far beyond their comprehension. None of them had a real answer for him.
This wasn’t a case of the servicers not wanting to speak an uncomfortable truth. There are perfectly legitimate reasons to bundle origination and servicing, for example–servicing is countercylical to origination (this is hardly news; banks’ 10-Ks state as much). Instead, this was a case of silence from ignorance.
As much as I respect Levitin (he was the standout of both hearings, as FireDogLake underscores), these business heads have clearly presented reams of PowerPoint presentations to senior executives that would from time to time discuss the strategic merits of the servicing operations. It’s more likely that they were put on a short leash by whoever prepped them for these meetings.
The problem with the industry defense that that delinquency = justified foreclosure is that they operate in a system where as far as the charges presented to homeowners are concerned, they are judge, jury, and executioner. Levitin debunked this stance in his written testimony (boldface ours):
A common response from banks about the problems in the securitization and foreclosure process is that it doesn’t matter as the borrower still owes on the loan and has defaulted. This “No Harm, No Foul” argument is that homeowners being foreclosed on are all a bunch of deadbeats, so who really cares about due process? As JPMorganChase’s CEO Jamie Dimon put it “for the most part by the time you get to the end of the process we’re not evicting people who deserve to stay in their house.”
Mr. Dimon’s logic condones vigilante foreclosures: so long as the debtor is delinquent, it does not matter who evicts him or how. (And it doesn’t matter if there are some innocents who lose their homes in wrongful foreclosures as long as “for the most part” the borrowers are in default.) But that is not how the legal system works. A homeowner who defaults on a mortgage doesn’t have a right to stay in the home if the proper mortgagee forecloses, but any old stranger cannot take the law into his own hands and kick a family out of its home. That right is reserved solely for the proven mortgagee….
Ultimately the “No Harm, No Foul,” argument is a claim that rule of law should yield to banks’ convenience. To argue that problems in the foreclosure process are irrelevant because the homeowner owes someone a debt is to declare that the banks are above the law.
Levitn and Julia Gordon of the Center for Responsible Lending both argued, forcefully, that many foreclosures were the result of servicer abuses. Gordon, who has handled many cases in her own practice pointed out what I have heard from borrower attorneys: that it is difficult for counsel to obtain the needed information from the servicer as to how it came up with the charges it claims the borrowers owes. And even then, it it not a trivial analytical task to unravel their accounts.
Other commentators find that the evidence supports the contention that defaults are often servicer generated. As Alan White notes at Credit Slips:
Erroneous foreclosures thus come in two flavors. Foreclosing someone who is not actually behind, or whose default was precipitated by junk fees, unnecessary or overpriced forced-place insurance, or payment application errors (common in bankruptcy cases) is obviously wrong. Equally wrong, however, are foreclosures of homeowners who have sufficient income to fund a modified loan that will produce significantly higher investor returns than a distressed foreclosure sale. Contrary to the pronouncements of servicers and Treasury officials, modification and workout consideration is not happening before foreclosure starts, it runs on a parallel track with foreclosure processes. Frequently, the foreclosure train wins the …
The clearest evidence of widespread errors and poor performance in mortgage servicing comes from data on HAMP and other modification programs…A February 2010 HAMP Call Center report of complaints lists more than 36,000 complaints of lost documents, inability to get a servicer response to an application, inappropriate requests for modification fees, and similar problems. An October 2010 ProPublica survey of HAMP applicants found that the average length of time homeowners had been seeking a HAMP modification was 14 months. Treasury guidelines call for a response within 30 days. Given those delays, it is highly likely there are affidavits of default being filed that allege default while the servicer is considering pending trial modification of mortgage terms. In cases where payments are being made on a temporary modification agreement, there are good contracts-based arguments that there is no default.
The banks apparently believe that their numerous abuses are no big deal, and that they can brazen their way through any real problems with a combination of delaying tactics, prevarication and appeals to authority. But it also appears that we still have enough of a semblance of rule of law in this country so as to throw a wrench in their strategy. The longer they dig in their heels, the more the public will come to recognize that nothing they say should be believed.
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I wonder how banks make money off foreclosures in places such as Las Vegas where many thousands houses are left boarded up and cannot be sold any rime soon.
They all have Insurance to cover the servicing payments and derivatives to pay them the Orginal Loan value!
So they get the payments from the trusts for servicing and foreclosure and they keep the derivatives payoff which rightly belongs to the trusts. But the Trusts have to sue to get the Trust Administration to get accounting and force a takeback!
I surely hope you’re right about the remaining shreds of the rule of law being enough to throw a wrench in their strategy, but looking at stories about the Florida “rocket docket” proceedings I’m not convinced. Under the Bush administration we saw an incredible contempt for “the rule of law,” and, frankly, Obama hasn’t done one single thing to restore respect.
The banksters are probably confused about the technicalities of foreclosing on someone who’s in the HAMP pipeline because they know that was the real intent of the HAMP – to string people along who might otherwise walk away, squeeze a few more payments out of them, and then foreclose.
They knew the “Treasury guidelines” were meant to be bogus, and they never expected anyone from Congress to be shocked, shocked over any of this conduct, or that they might actually be subject to reformist critics accusing them of conduct that was technically illegal.
Banksters scripted? Well, yes. They are trying to avoid perjury while at the same time disclosing nothing on record about their practices that can be used for further litigtion which is certainly coming. These folks aren’t their to inform, their there to disinform within the margins of the law. I’d be a lot happier if they were playing their pattycake act before a grand jury. The banksters know that if it’s up to DoJ or any of their regulatory ‘subsidiaries,’ their made men, not to worry: it’s all those state and local courts which they haven’t got around to buying that are their present concern. Sez I.
“Avoidance of perjury”…It is those tiny sparks which keep me connected to this world. The fact that they bother to make the effort tells me that they know there are enough good people in the world to make them one day answer for their crimes.
By Mr. Dimon’s logic, it would be o.k. for a crowd to string him up for treason, because, after all, he and his cohorts are guilty of that crime.
No, we are better than that. Mr. Dimon and those of his fellow bankers who, if it is determined that they may have engaged in acts which have severely damaged this Nation’s security, deserve a trial and all of the rights afforded them as citizens.
As you know I have had propblems wth the wall street model of many hats in the same company. market maker needs to be seperate from trading other things, company building the bonds and sellers seperate, etc. I believe that for capitialism tof unction each activilty silo has to be checking the others work. by being in the same firm it is easy to engae in fraud and cover up. Note this is the reason the banks are the servicers of the loans. the same company covers up the fraud of the company. if the servicers is seperate there isn’t the incentive to cover up the fraud at the parent institution
this is what we saw with goldman at the hearings. they could do nothing wrong because they were “market makers”. in fact that allowed the to justify the fraud of selling crap.
the banks do the servicing because it enables the fraud.
look they owned the entire chain of fraud, they owned conmpanies that gave out fraud loans, the securitised the fraud, they market made the fraud, now they are servicing and foreclosing on the fruad. this is how you engage in a criminial activity, you conbtrol the entire value chain to engage in a cover up. this is why racketering (sp) charges are worthy. these are criminal enterprises and they have structured themselves as such. the entire chain has beeon o9ne of criminal behavior and cover up. but of course having problems at each and every stage the government doesn’t want to declare them criminal enterprises
The banks crashed the economy. There would be no foreclosures if the job and real estate market were not crashed. (People would be able to make payments or could just sell their houses).
Therefore homeowners are not solely responsible for defaults since the bigger events were beyond their control.
Also there was shared risk, borrower and lender both reckoned on a stable market (let’s say). Yet the banks are bailed out and the homeowners left hung out to dry. Go figure. Forced modifications and cramdowns were the only reasonable solution.
So-called “deadbeat borrowers” distract attention from the waste of economic resources and wealth due to incompetent banking. Loaning money that should have never been lent, Bankers pushed the supply of housing far above what could be sustained by homeowners collective income driving a knife into their wealth (chest). Instead of pulling the knife out the way it went in by providing modifications, Bankers will pull the knife on through and out of homeowners backs’ by running up fees that can only be recouped via foreclosure, clouding title via incompetent processing and neglecting to maintain REO’s. All of which will drive the price of housing below it’s long-term value.
Obama and company are just sitting by worried to do anything lest they be called “socialists” for seizing a bank or two and actually defending the rights and property values of homeowners. An idiot could frame bank seizures in politically favorable light but Mr. Hope and Change is busy going to the mat for a new arms treaty with a(nother)failed state.
Ugh, this is so not about deadbeat borrowers. This is about rule of law, fairness, transparency — serious American values at risk. I wish we could talk about that. Luckily some are — I suggest checking out this series on the values underlying the mess, I think it’s great: http://www.newdeal20.org/category/foreclosure-411/
Actually, if title is clouded I don’t see how short sales (or any sales) can clear the chain. Even if the house is sold before foreclosure, the upstream chain (if it was securitized) could still be unendorsed or in the limbo of the MERS Cloud. I’ve thought about this: I am one of the very fortunate people who read the right blogs and kept out of debt and homeownership in the Noughties. I now have a decent down-payment and (for now anyway) a stable, well-paying job. But I don’t dare buy any of these temptingly cheap houses in my area. Some of that is being overly-careful because there are no REALLY safe jobs, but a lot of it is fear that unforeseen problems from clouded title will endanger my purchase. Also, I cannot now make myself deal with a bank who no longer follows the law, and has powerful buddies that can cut off any legal recourse I may seek if they screw me.
So really if you think about it, they are cutting themselves off from future business from creditworthy people by dint of their misbehavior. If I was a good writer, I would compose an “Open Letter” to the Banksters and their political/judicial enablers to that effect. Like they would give two shakes . . . Sigh.
Hit the wrong reply link. Oh well.
The solution to all this foreclosure robo signing mess is for lenders to focus on short sales and get them processed. This will stop home owners from incurring a foreclosure and it also establishes the proper chain of title since the SELLER will be signing off on all the documents not robo signers.
Just my 2 cents…
Wow. That’s some compelling nonsense. Congratulations. (Getting any business by the way?)
“The longer they dig in their heels, the more the public will come to recognize that nothing they say should be believed.”
I couldn’t agree more. Usually I roll my eyes at these legislative grilling sessions because they are a flash in the pan event, but consistent face time could have an exponentially bigger impact.
I really think the Bankers are screwed this time because they ate the amoral investor’s lunch. Those amoral investors simply won’t let this problem go away, and they won’t bat an eyelash in risking the hypothetical implosion of the american economy to extract their pound of flesh from the TBTF Banks.
I’m stocking up on popcorn. The fireworks show is coming soon.
The banks take their cues from a corrupt goverment. From Fannie and Freddie becoming goverment entities in the middle of the night with no debate, to MBS being marked to whatever.
In the name of national security the middle class and their children are getting screwed by paying for every pseudo crisis that “must” have a bailout. The banks are TBTF because the goverment is To Corrupt To Care (TCTC) about Its middle class.
It would not be a crisis for me if a number of big banks were allowed to fail, or at least get prosecuted like they should.
it strikes me that the “no harm, no foul” approach could be used the other way as well. if a potential borrower comes into a bank, applies for a loan, fails to fill out the form, or sign their name to the application, does that mean, “no harm, no foul” that the bank is required to give the borrower a loan?
This might be an interesting way to do business.
Whatever you think, don’t forget that had Glass-Steagall not been eliminated through criminal collaboration in all the applicable high places, this mess you’re seeing today wouldn’t have happened.
Restoring confidence in our financial system no matter who or what is hung today cannot be restored without Glass-Steagall being reinstated.
RH
Affordable housing, has been, and is a problem. There are many many people who struggle with housing for most of their lives. For some reason, these facts, this reality, doesn’t seem to be actualized by society at large. The housing bubble was even more vicious to those that didn’t take their housing for granted, for they had thought, and many times beleived, that the Bank in their commmunities, that upstanding, trustworthy citizen was going to help them own their own home. After all, the Bank said they “qualified”, they were verified, and even though it seemed expensive, surely the Bank was ready to “loan the money” because it had confidence in the borrower. Finally, the rube comes to the realization that the bank was just a predator, something right out of Upton Sinclair’s ‘The Jungle’ and they continue to get away with it, and nothing is stopping them.
The past 10 years saw price manipulation that was unprecedented. Just another example of people getting shit dead wrong, preying on one another, and fucking up everything in the name of greed. These “hearings” are disgusting because this crap has been going on for years. It’s an invisible war, with massive casualties and the stooges are just now considering the fact that the victims, were in fact, victims.
Just want to tell how I went into foreclosure, the mortgage company allowed me to pay my bills as late as 3mths behind. When I became three months and two days behind the mortgage company put my home into foreclosure, They charge a large amount of fee’s, and then I had to pay the three months late, The total cost of having to save my home was over 13,000.
Now the company calls me everyday, sometimes three to four times a day. With threats of taking my home. The agression will start at (9 in the morning and will not stop until 9pm). I have received letters telling me that I can not be 31 days late. That they will start foreclosure on my home. I just feel that this is unfair treatment, hasrasment. And a form to bully a person out of the home. More needs to be done to help stop the mortgage company, they try to foreclosure on the late fee’s even when I have over paid my mortgage. To bring my mortgage up todate, they will try to foreclosure on the late fee’s.
How long will this bogus (no pun intended!) story about the “notorious DocX document fabrication price list” keep getting peddled? It’s been thoroughly debunked and yet people (s’mon Yves! surely you know better) keep throwing it out there.
See this very clear cut investigation of the document that Waters was waving around: http://www.housingwire.com/2010/11/22/a-crime-of-omission-the-case-of-the-docx-pricing-sheet
If you live in Georgia & Bank of America is your servicer & if they are giving you problems then contact me. I might can help you. Sonya sonya36767@yahoo.com