Hoisted from comments:
I am a lawyer who has been involved in corporate finance for over 25 years. First, if you beleive that securitization offers benefits (cost reductions) to consumers then MERS is not per se a bad thing in that it reduces overall transation costs which should in part be passed on to the homeowner borrower. As you note, the problem is more a change in standards (perhaps ethics and morality) in the last ten years in the industry.
The problem is not MERs by itself but how the securitization industry has changed in recent years to the detriment of cosumers and investors in the banks and other companies that have blown up as a result of an important industry being turned into basically a circus. I can share my own expereince as a homeowner to demonstrate how crazy things have become.
I had a mortgage on my home that was originated over 15 years ago at a local bank. The mortgage had been sold (through five intervening transactions)over the years to Washington Mutual. Two years ago I decided to pay the loan off. At the end of a month, I sent in a check for the full balance of principal and interest on the loanand requested a deed release be filed. This was all in accordance with the terms of my promissory note and mortgage the legal agreement governing all parties.
Two weeks later I received my check back in the mail from WMU with a letter stating that the payoff was not in accordance with Washington Mutual policy. No one at Washington Mutual had bothered to read the mortgage agreement (the legal agreement binding the parties). Instead the letter stated that payoffs had to be preceeded by paying $75 for a “payoff quotation” and must be made by wire transfer and other terms which were obviously made to increase the profitablity to WMU which had no basis in the legal agreements.
Since WMU had no legal basis for its demands, I stopped paying my mortgage. Within three months my credit score had been lowered 300 points, all of my credit cards were canceled (I never kept a balance on any card) and I was receiving daily harrassing collection calls. Eventually, I sent a couple of letters to the WMU General Counsel’s office and began to work towards a class action lawsuit. Despite this, it took another three months to get someone’s attention at WMU who could put two and two together and I finally received a call and letter from a senior attorney who agreed to forgive thousands of dollars in interest, put a person full time on reestoring my FICO score etc etc. and fix the problems that never should have occured.
The point is that the securitization industry 5-10 years ago made a collective choice to ignore the terms of contracts, state and local laws and legal convesntions developed over hundreds of years. Why? Because they could. Our legal system and conventions were built on the assumption that most businesses would choose to follow them. Instead, the securitization industry simply developed a cost/benefit approach to following the law and adhering to contracts. It worked quite well becaseu most individuals just aren’t equipped to read and enforce their mortgage agreements or fully understand the law.
This is why the banks are fighting so hard against the Consumer Financil Protection Agency. The CFPA will have the ability to level the playig field and thus change the economics of banks simply ignoring laws, contracts and convention.
Note this mess got resolved only because the consumer in question was an attorney, and he still had to threaten a class action suit to get the servicer’s attention. And even then, it took months to clear matters up, and completely trashed his credit score in the meantime, resulting in the loss of ALL his credit cards.
How many people can afford that? Seriously. For instance, if you need to rent cars or stay in hotels in your line of work, and either your company does not provide you a corporate credit card, or you are self employed (business credit is based on your personal FICO), you’d be stuck. And if you were looking for a job, many employers pull a credit report and will not consider a candidate with a low FICO.
In other words, very few people are able to contest abusive behavior and overbilling by servicers due to the hard costs (attorney’s fees) and soft ones (damage to credit score).
Update 5:20 PM: Another sighting courtesy reader i on the ball patriot:
Bank of America and Countrywide Home Loans destroyed mortgage documents, and “recreate” them by “insert(ing) data as they see fit,” to cover up their own failure to keep records – or their fraud – according to a federal RICO class action.
Article continues here.
Update 9:30 PM: Further detail from the lawyer who provided the comment at the start of the post:
To clarify:
1. I sent WAMU a personal check for the full mortgage balance in accordance with the terms of my Promissory Note.
2. WAMU returned the check -not cashed- becasue I had not paid the additional fees that WAMU had unilaterally imposed as a precondition to paying off the mortgage. I stopped paying because I had a legal right to do so after tendering the correct payoff.
3. Yes, I was in a position that the vast majority of consumers are not – both as an attorney and being able to live without credit of any sort for an extended period. I’m old school and never borrowed except for home mortgages.
I beleive the fallout from the mass assignments (and re-assignments) is just starting from an administrative standpoint. I helped a friend this summer who had sold her house in Boston but was unable to close the sale because an earlier mortgage lender had failed to file a Deed of Release after being paid off with a refinancing a couple of years ago.
The prior lender had flipped the mortgage and had gone bankrupt. The payoff went to a lender three links down the chain and the attorney handling the refi never obtained copies of assignements or the Deed of Release from the parties. The immediate resolution was to close the current sale (a neceesity given the market) and hold all of the sale proceeds in escrow until a Deed of Release could be obtained. I spent two months tracking down a senior executive fromn the bankrupt lender who after weeks of cajoling and ultimately legal threats agreed to sign a Deed of Release which we filed. The ironic part of it is that the executive actually had no legal right to sign the Deed of Release becasue the bankrupt lender had sold the loan and had no right to sign the release.
Sounds like a nightmare right? It was and would have cost my friend probably $25K to get it resolved. I know because I spoke with a couple of attorneys who are are speacilizing in this kind of thing – a very recent specialization caused by the increasing frequency of problems associated with the caviler treatment of assignments by the industry.
Lastly,I would add that the reason for MERs existence is transitory. Electronic signatures are now valid in every state I beleive and deed registrys across the country are adopting electronic filings and records. I estimate 3-5 years before all the filings are done online.
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This raises another “time bomb” question. Are people going to be able to get clear title to their homes when they pay their mortgages off?
Damn there’s been a lot of garbage about this stuff on the blogosphere today…
To Yves and the attorney who wrote this: How is this Mortgage fraud? Breach of contract perhaps…but mortgage fraud????
And this whole story…it’s inane. They don’t accept your payoff, so BAM, you quit paying on the mortgage, you trash your credit…did you hold your breath too?
This is a silly post.
I suggest you read more carefully.
Under the terms of the binding document, he had retired the mortgage. The dispute was over the $75 additional fee. See the reference to “call and letter from a senior attorney who agreed to forgive thousands of dollars in interest”? There is no reference to settlement negotiations, etc. which is what would have occurred if he had a mortgage balance and quit paying.
There was not mortgage left to pay under the law, yet WAMU continued to assert he owed on the mortgage due to his failure to pay a $75 fee they had no right to. I will write the author for details, but I read this as they both took his payoff yet refused to treat the mortgage as retired (ie treated him as if he had made no payoff) due to the failure to comply with their procedures, which have no legal standing.
Dan,
You cannot refuse payment if someone tenders it as contractually stipulated and then impose further charges based on your unilateral action. See further comments from attorney.
For instance, say I send my credit card payment in some way that I can establish that it arrived on time (Fedex). The bank cannot refuse payment and charge interest and late fees.
Same principle here, just bigger dollars. Curious that you can’t see the basic principle at work.
This is a silly post?
WAMU unilaterally impose non-existent fees (as per the contract) on someone who pays the balance of its mortgage in full, then refuse to cash the check, so they can keep charging interest, late fees and what have you…and you find this SILLY?
What was this lawyer supposed to do? Bend over and pay everything WAMU wanted because they said so? Since when can a lender or servicer refuse a payment that comply with the contract just because they think they can use extortion (you got another more polite term for this behavior, perhaps?) namely the threat of charging interest, late fees, FICO trashing and so on?
Do you work for the NAR? Or one of the banksters in NYC?
They DID cash his check.
Really? Then what did this sentence refer to:
Two weeks later I received my check back in the mail from WMU with a letter stating that the payoff was not in accordance with Washington Mutual policy.
Oldtimer,see the update to the post from the horse’s mouth, the lawyer had satisfied contractual terms, ergo WAMU had no grounds for asserting the right to further payment, irrespective of whether the check was cashed or not.
I do apologize for diverting attention to an irrelevant issue, and the bigger point holds. The lawyer was completely within his rights not to pay further at that juncture. See my further comment to Dan.
For reference, this was your original post to dan after admonishing him to “read more carefully”:
Yves: They DID cash his check. Under the terms of the binding document, he had retired the mortgage. The dispute was over the $75 additional fee. See the reference to “call and letter from a senior attorney who agreed to forgive thousands of dollars in interest”? If they had not cashed his check, he’d owe interest. There is no reference to settlement negotiations, etc. which is what would have occurred if he had a mortgage balance and quit paying.
So this is a message from a long-time reader: Slow down. This is the second time in two days you have unfairly admonished readers, and you are developing blind spots.
Good luck with the book.
OK…who didn’t get the memo.
Company/Corporate policy has replaced State and Federal Law. To whit all decisions made by said Enterprise[s] and its nominee[s] are actionable upon date of board or executive order. Furthermore we the Enterprise[s]/Nominee[s] reserve the sole right to arbitrarily amend, revoke, drag our feet, obfuscate or what ever we can think up to screw your heads on back-wards, whilst we bleed you dry and have a laugh at your expense. Ignorance of policy is not an excuse and is punishable by seizure of all your worldly goods and trashing of your FICOS score.
Yours in perpetuity
First rule “Once you have their money, you never give it back,”.
Grand Nagus and Commerce Authority
PS For those that forgot the rules see link: The Rules of Acquisition http://www.sjtrek.com/trek/rules/
I personally recommend them for your profitability.
Sorry, if I had more time before I would have written less and been more clear. To clarify:
1. I sent WAMU a personal check for the full mortgage balance in accordance with the terms of my Promissory Note.
2. WAMU returned the check -not cashed- becasue I had not paid the additional fees that EAMU had unilaterally imposed as a precondition to paying off the mortgage. I stopped paying becasue I had a legal right to do so after tendering the correct payoff.
3. Yes, I was in a position that the vast majority of consumers are not – both as an attorney and being able to live without credit of any sort for an extended period. I’m old school and never borrowed except for home mortgages.
I beleive the fallout from the mass assignments (and re-assignments) is just starting from an administrative standpoint. I helped a friend this summer who had sold her house in Boston but was unable to close the sale because an earlier mortgage lender had failed to file a Deed of Release after being paid off with a refinancing a couple of years ago.
The prior lender had flipped the mortgage and had gone bankrupt. The payoff went to a lender three links down the chain and the attorney handling the refi never obtained copies of assignements or the Deed of Release from the parties. The immediate resolution was to close the current sale (a neceesity given the market) and hold all of the sale proceeds in escrow until a Deed of Release could be obtained. I spent two months tracking down a senior executive fromn the bankrupt lender who after weeks of cajoling and ultimately legal threats agreed to sign a Deed of Release which we filed. The ironic part of it is that the executive actually had no legal right to sign the Deed of Release becasue the bankrupt lender had sold the loan and had no right to sign the release.
Sounds like a nightmare right? It was and would have cost my friend probably $25K to get it resolved. I know because I spoke with a couple of attorneys who are are speacilizing in this kind of thing – a very recent specialization caused by the increasing frequency of problems associated with the caviler treatment of assignments by the industry.
Lastly,I would add that the reason for MERs existence is transitory. Electronic signatures are now valid in every state I beleive and deed registrys across the country are adopting electronic filings and records. I estimate 3-5 years before all the filings are done online.
Amplifying Ben’s points:
Title is now potentially cloudy on every mortgaged property in the US that has been securitized.
The key issue is that the beneficiary of the trust, not the originating lender, is the relevant party in interest in bankruptcy. And that beneficiary cannot prove its interest due to poor documentation practices.
Based on recent statistics, the Federal Reserve is now one of the largest single owners ($777 billion) of MBS, and plans to increase its exposure to $1.25 trillion by March 2010. Therefore, all of the behavior about which people are complaining can be influenced by the Treasury/Fed in two ways – as regulator and as beneficiary of the trust (or lender to the beneficiary in the case of Treasury)being serviced by the banks.
Unfortunately, it also means all the losses in these cases are being socialized and this public exposure will grow as the Fed buys more MBS.
That leads me to the following questions – perhaps best addressed to someone like Elizabeth Warren:
Should Treasury and/or the Fed immediately intervene in cases such as the one being appealed in NY to assert its standing as interested party?
Should Treasury and/or the Fed immediately intervene to address the shortcomings of the MERS program?
Should authorization for the Fed to continue purchasing MBS using funds provided by Treasury and as authorized by Congress be suspended until these questions are resolved?
Not doing so puts more public money (~$500 billion) at risk every day through March 2010, and may impair the effective transfer of properties in the US generally, to the extent mortgages cannot be released with certainty.
Man, what a nightmare! Let me tell ya, I sure am glad 3 years ago I sold all my properties in this country. I am a renter now and love it.
Regarding FICO scores, they are completely irrelevant at this point. As this evil system of financial enslavement of the masses is collapsing, this whole idea of credit ratings will go down the drain in no time at all.
Somebody can just open a checking account at one of the many smaller banks that do it without checking your credit, you get a Visa/MC debit card in the mail, and use that to rent cars, buy plane tickets online, and such. You don’t need a credit card. For everything else you just pay with cold, hard cash. Nothing wrong with that.
Vinny G.
Unfortunately, the FICO score is permeating into other areas of life, not just when you want to borrow money. Employers are using low FICO scores to reject job seekers. Insurers are using the FICO score to set rates. God knows where else the number is impacting the opportunities and freedoms in your life.
At some point, access to and use of FICO information for decision making purposes must be regulated.
Oh! It will be regulated, most certainly not in Washington DC, but in the Courts.
The more I read about the mortgage debacle, the more I believe the courts are the last bastion of sanity and common sense.
When the cramdown bill couldn’t pass in the Senate (Dick Durbin’s famous “The banks own the place”) the mortgage bankers celebrated the very same afternoon in a fancy hotel in DC.
The saying “Be careful what you wish for” fully applies here. Because if the Courts continue on their present trajectory, bankers could find themselves in a bind they never dreamed of.
As this mortgage Charlie-Fox evolves within the context of this great recession, it’ll become increasingly difficult for judges and lawmakers to ignore the perverse effects of the FICO phenomenon.
If you want to know more about bad mortgage lending practices at Washington Mutual, read the two part series over the weekend published in the Seattle Times.
Part 1: Reckless strategies doomed WaMu
Part 2: Hometown Bank Turned Predatory
Some great insights into terrible management by Killinger and his knuckleheads who made very bad decisions.
Seattle Times business reporter
http://seattletimes.nwsource.com/html/businesstechnology/2010131911_wamu25.html
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Then-Washington Mutual CEO Kerry Killinger appears at a housing forum in December 2007. Earlier that year, even as the company grappled with rising loan defaults, he told analysts it was a great time for WaMu to take on new loans.
Enlarge this photo
MANUEL BALCE CENETA / ASSOCIATED PRESS
Then-Washington Mutual CEO Kerry Killinger appears at a housing forum in December 2007. Earlier that year, even as the company grappled with rising loan defaults, he told analysts it was a great time for WaMu to take on new loans.
Kerry Killinger, right, rang the bell at the New York Stock Exchange in 2002. “Kerry’s view of himself was tied to a constant increase in the stock price,” said Fay Chapman, a former WaMu chief legal officer. “He was fixated on it.”
Enlarge this photo
VIA BLOOMBERG NEWS
Kerry Killinger, right, rang the bell at the New York Stock Exchange in 2002. “Kerry’s view of himself was tied to a constant increase in the stock price,” said Fay Chapman, a former WaMu chief legal officer. “He was fixated on it.”
WaMu opened its new headquarters building above the Seattle Art Museum in 2006. Two years later, the bank was seized by federal regulators.
Enlarge this photo
LARA SWIMMER / VIA BLOOMBERG
WaMu opened its new headquarters building above the Seattle Art Museum in 2006. Two years later, the bank was seized by federal regulators.
CEO Kerry Killinger shows off a new financial store in Las Vegas in 2000, after the company launched its push to become a nationwide player in the mortgage-banking business.
Enlarge this photo
SAM MORRIS / BLOOMBERG NEWS
CEO Kerry Killinger shows off a new financial store in Las Vegas in 2000, after the company launched its push to become a nationwide player in the mortgage-banking business.
Pedestrians pass a WaMu branch in New York on Sept. 26, 2008, the morning after federal regulators seized the bank.
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JB REED / BLOOMBERG NEWS
Pedestrians pass a WaMu branch in New York on Sept. 26, 2008, the morning after federal regulators seized the bank.
Related
* The fallout of WaMu’s failure
* Archive | Collapse still haunts former WaMu workers
* Archive | Killinger “exceedingly sorrowful” over toll on employees
* Archive | Jon Talton: WaMu’s demise was lesson in regulatory failure
* Archive | WaMu conspiracy theories abound, but there’s no smoking gun
* Archive | WaMu’s desperate last days
Coming Monday | Inside the WaMu collapse
The first of two part
Something this lawyer wrote attracted my attention:
He He! Wonder if Prof. Elizabeth Warren could chime in on that?