By Tom Adams, an attorney and former monoline executive
Back in 2003, Fairbanks Capital billed itself as the largest servicer of subprime mortgages. It was also a stand alone servicer, in that it was not in the business of lending.
In a high profile case within the mortgage industry, the Federal Trade Commission brought an action against Fairbanks for violating the FTC Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Real Estate Settlement Procedures Act (RESPA) . Fairbanks was accused of a host of improper servicing activities that will sound remarkably familiar to anyone following the foreclosure and servicing issues in today’s mortgage markets. Among the transgressions, Fairbanks was alleged to have:
-failed to post payments in a timely manner, resulting in additional late fees or interest,
-charging for forced place insurance,
-assessed improper fees, such as for attorneys, service, appraisals, FedEx,
-misrepresented the amounts owed by borrowers,
-submitted misleading or false information to credit reporting agencies,
-failed to report disputed charges to credit reporting agencies,
-failed to respond to borrowers written requests for information or investigation into charges, and
-failed to make timely payments of escrow funds for insurance and taxes.
The FTC intended the settlement with Fairbanks to provide guidance for the mortgage servicing industry for the boundaries of acceptable business practices for the treatment of borrowers, deadbeat or otherwise. The case introduced the notion of “predatory servicing” to an industry that had been previously more familiar with the notion of predatory lending. Following the settlement, mortgage servicers developed best practices based on the deal terms and, for a few years, it appeared that servicers generally followed them.
Roughly eight years later, the state Attorneys General are working on a settlement that covers remarkably similar ground as the Fairbanks settlement. In 2003, Fairbanks was enjoined from various activities, and the settlement terms included:
-requiring the servicer to accept partial payments,
-requiring the servicer to apply borrowers payments first to interest and principal (ie a provision against fee pyramiding),
-prohibiting forced place insurance when the borrower already has insurance,
-prohibiting unauthorized fees to be charged to the borrowers, including continuing to charge late fees after foreclosure has been commenced,
-requiring the servicer to acknowledge, investigate and resolve consumer disputes in a timely manner,
-requiring the servicer to provide timely billing including itemization of fees charged,
-prohibiting the servicer from initiating foreclosure unless they’ve confirmed the borrower’s delinquency and no disputes remain outstanding,
-prohibiting the servicer from piling on late fees,
-prohibiting the servicer from enforcing certain forbearance agreements,
-prohibiting the servicer from violating the Fair Debt Collection Practices Act, Fair Credit Reporting Act and RESPA,
-requiring the servicer to correct wrongly classified accounts and credit reports, and
-requiring the servicer to audit and monitor its practices to ensure compliance with the settlement
In addition, the servicer was fined $40 million, which was used to establish a fund for harmed borrowers, and Fairbanks’ CEO and founder was fined $400,000 (and he was fired from the company).
Despite the tough regulatory enforcement action taken by the FTC back in 2003, many of the same “predatory servicing” practices have made a comeback. How likely are they to return again after the settlement put together by the attorneys general, which is less punitive than the FTC were in 2003, goes through?
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How likely are they to return again after if settlement put together by the attorneys general, which is less punitive than Fairbanks was, goes through?
I know that’s a rhetorical question since we all know the answer is 100%. But I answered it anyway.
So we all intellectually understand that reform cannot work. Society cannot coexist with rackets. He who proposes such “reform” and such “coexistence” is really proposing at best a permanent war of attrition with endlessly reiterated crashes and convulsions. And in practice this can’t go on forever. Eventually the rackets will win total victory, a handful of gangsters will achieve total domination, and the rest of us will be reduced to servitude, probably in the form of permanent debt indenture enforced by police state terror.
We all intellectually understand this and know that we must reject reformism as a failed solution. But unfortunately many still labor under this or that emotional objection to this realization, and so still remain mired in reformism.
So the only question is whether this psychological lassitude will continue to prove greater than the instincts for freedom and for simple self-preservation.
“Less punitive…than in 2003”? The AG’s settlement is not punitive AT ALL, not in the least. It has no teeth or deterrence whatsoever, only suggestions and unspecified monetary (COB) fines. Woody Allen would call “a travesty of a mockery of a sham”. Its ‘ratification’ will be proof that capture is complete down to the local level. As you say:
“Eventually the rackets will win total victory, a handful of gangsters will achieve total domination, and the rest of us will be reduced to servitude, probably in the form of permanent debt indenture enforced by police state terror.”
But I hopefully disagree with a “permanent” blade-runner society. I believe this must be its terminal phase, the gutting of the golden goose, its fatal pyrrhic victory. As Leviathan implies, it is the blood-in-the-water depletion, phase, when “success” feeds on itself, eat its young (its intellectual enablers), and the predator population experiences rapid decline and collapse.
I thought Obama might be the leader to avert ecosystem collapse, but he turned out to be a Nero zero. But this is good because it now seems certain that only systemic collapse may save spaceship earth and allow regeneration of something sane, stable and sustainable. What a great time to be alive.
True, the intrinsic structural insanity of the Tower of Babel is one of the things we have going for us.
Except that the period after Tower of Babel wasn’t such a good times at all. There are better options than a total system collapse. The range between fake reforms and bloody revolution is vast.
Attempter,
Is the problem “psychological lassitude” or an inability/unwillingness of the majority to pay attention until shit happens to THEM?
Case in point, Dana Milbank’s “Whattha? Servicers are screwing ME??? ME???” moment last week.
It’s like a crime spree in which the victims cannot convince their neighbors that they were robbed/raped, and the only evidence that is accepted is having the crime committed against YOU. I swear, I cannot convince family or close friends (even those to whom the crime is HAPPENING) of the severity of the problem.
In short, this is nothing short of a mass psychosis. People simple will not believe what they see all around them. And so, the banks have opted to be brazen.
We’ll call it Sheening, in honor of the flavor of the month: don’t hide your crimes, in fact, wallow in them, with a smile, and the public will not only forgive–they will defend you against your enemies.
Perhaps lassitude is too gentle a term? This phenomenon makes me think of Nietzsche’s discussion of active, aggressive forgetting (Genealogy of Morals Essay II section 1). He could also have been speaking of psychological denial.
That’s an apropos recollection, since the reference is to Nietzsche’s discussion of promises to honor debts, as a basic milestone in the development of civilization. Today we face the same problem but in reverse: To preserve civilization we must liberate ourselves from a perverted indoctrination into what are by now fraudulent “debts”. More specifically, those with whom we supposedly had a contract, taking that word at every scale, from individual mortgage to the classical social contract, have unilaterally renounced all their debts and contractual obligations to us. Yet we’re still inertial enough to still be honoring our side of the deal.
This isn’t honoring promises as a civilizational building block, but a delusional fantasy which enables the criminals to abscond with everything they could carry, leaving nothing but the totalitarian police state husk behind.
Our human imperative is to break free of this post-civilization barbarism and start making new promises to one another, starting with our resolve to renounce the kleptocracy. Those are the only debts which can be real going forward.
Taking my cue from Nietzsche’s discussion, I once wrote a post on this.
http://attempter.wordpress.com/2009/10/14/cycles-part-2/
when are we going to see this co. if thats whet you call it,fairbanks capital,sps go under im sick of them getting off with a fine after FTC and hud settlement in 2003 they are comiting the same crimes they did in 2000 until now they are stll at it again,wake up america they need to go down and out never to return again.
Nice, Bank of America thinks we can’t remember Nov. 15, 2010 and the articles suggesting US Bank was buying its “corporate security trust” (i.e. assets, including RMBS/CDs). It’s not surprising the banks that didn’t respond or declined were not mentioned because U.S. BANK is poised to keep these “toxic assets” circulating as part of a securities that are bought and sold to unsuspecting investors who take on the risk, while the original lender keeps lucrative servicing rights (also servicers may be named anything, “nominee” “trustee” something vague that suggests you handle and control it but aren’t the responsible one).
BoA was the “winner” last cycle (2007 BoA was praised for its practices that kept it from fates such as Countrywide and BoA’s other acquisitions). Now, it will roll the dice with negotiating (see Countrywide’s avoiding liability in SC AG’s 2010 settlement). If it gets fined, the LACK of paper work and flexibility tolerated from banks lets it easily appear strong one day and insolvent the next, depending on the needs.
If it files bankruptcy, BoA knows to wait long enough and follow those rules needed to claim the transaction was legit.
After a name change, BoA opens up shop again but now has no debt and a bankruptcy bar or res judicata or estoppel defense against that “toxic asset” still getting propped up. US Bank also will claim it’s not responsible for the borrower’s damages caused by this scheme because it’s difficult to connect the dots or realize the banking system is still going because they convinced us to keep trusting this shady business.
It’s becoming clearer now that banks don’t pretend to be competing and even charge $35 fees in one state despite being told in 4 others via class action that is unconscionable.
Defaults on loans are needed for some profits to be realized (if banks packaged mortgages into credit swaps or want an excuse to add bogus servicing fees) but another bank will purchase and resell the assets if a bank hits the end of that cycle, then we saw government guaranteeing loans and buying bad debt (despite all the advisories/regs/laws), and when litigation threats were not disappearing White House even claimed it might have to create a fund to cover those costs!!! It’s insulting the way the pitch pretends no one recalls the previous day.
So, the junior senator who served 1/2 a term on the Hill was only qualified and good at spin, using new media, and making vague enough to avoid but convincingly sincere statements to appear concerned with your issue and ready to act on it after thoughtful study and the visual aid is built for the newly formed entity’s new website, which cost $millions even if it just links to those other agencies?
Color me shocked.
FTC did the same with EMC and BEARSTEARNS !!!
Well the push-back is officially on. JPM and BOA both came out against the AG proposal because they don’t want to contribute to moral hazard by principal forgiveness:
http://www.cnbc.com/id/41993215
http://www.nytimes.com/2011/03/09/business/09bank.html?ref=business
Here’s a classic in hypocrisy from BOA:
Writing down billions of principal now could actually retard the recovery by encouraging borrowers to default, they argue. “It’s not that we don’t want to help troubled borrowers,” Mr. Laughlin said. “It’s a moral hazard issue.”
Priceless! Banksters conerned about moral hazard. Such hypocrisy and arrogance from amoral sociopaths is truly galling, especially from BOA, which after all its fraud, bailouts and extend-and-pretend accounting, is finally forced to create a “bad bank” to hide all its toxic assets. Can’t someone please put these cretins out of our misery?