Here the major bank servicers are about to get a screaming bargain via a hoped-for multi-state-Federal mortgage settlement, and what is number five service Ally doing, but threatening to thumb its nose at the deal as being to hard on them.
Per Housing Wire, Ally CEO Michael Carpenter made some pretty cheeky statements on an investor conference call today:
“If we think a settlement is not in the best interest of our shareholders, which is still the U.S. taxpayer, then we will not participate,” Carpenter said in a conference call with investors Wednesday. “The downside is long-term aggravation and legal fees. But if you think we have significant exposure from a financial implication, the answer is no.”…
Carpenter said Ally reviewed 25,000 foreclosure cases with potential evidence of forged documents and affidavits. The bank found each borrower reviewed had been delinquent on the loan at least one year, in some cases two, he said.
“We deeply regret the sloppy operational practices that led to this. But we have contractual obligations as a servicer to foreclose when we must,” Carpenter said.
He said the bank has corrected the mistakes and reiterated on the call that each servicer may have different exposures in their portfolios.
Notice the logic here. First, the assertion is that the law does not matter, all that matters is whether the servicer’s records say the borrower is current. But as we have discussed repeatedly, there is ample evidence of both error in servicer records and abusive and impermissible practices regarding servicer fees, such as junk fees, force placed insurance, double dipping (charing both the investor and the borrower the same fee), impermissibly (via contract and Federal law) applying borrower payments to fees first rather than principal and interest. The latter practice results in “pyramiding fees”, since charging fees first means a regular payment will be deemed short (or in many cases, will be placed in a suspense account and be treated as late), generating yet more fees. I had an attorney tell me that he had a client where a single disputed late fee led his client to declare bankruptcy to escape foreclosure (the fee and subsequent charges were proven to be unwarranted). And as readers know, the servicer is judge, jury, and too often, executioner. Any borrower who believes his servicer has made an error will find it well nigh impossible to pry the internal records out of his servicer, even with a lawyer’s assistance, and it then takes a forensic accountant to review and present them in court.
And notice Carpenter’s airy dismissal of near certain document forgeries and fabrication as mere “sloppiness”. I sat in on one foreclosure case where GMAC was the servicer. An allonge appeared magically at the 11th hour and included obvious forgeries (Photoshop shrunk to fit signatures and pixtilation on documents that by law had to have wet ink signatures). The GMAC representative also perjured himself, offering testimony with great confidence early on that he was forced to retreat from when presented with documentary evidence that contradicted his sworn statements.
I sincerely doubt these practices have stopped, since absent the invention of a time machine, it is impossible for a servicer to foreclose in the name of a trust legally, since the mortgages were not transferred to it in the manner necessary (and set forth in the governing document, the pooling & servicing agreement) for the trust to have ownership. Someone else in the securitization chain presumably does have the right to foreclose, but no one wants that to happen, since there is not kosher way to get the money from that party to the trust. In addition, no one wants to admit that mortgage backed securities might actually not be mortgage backed.
Carpenter also mischaracterizes the settlement as being limited to robosigning. Various leaked indicate the release will be broader, and the Ally CEO seems remarkably unaware of what his potential exposure is. But Lisa Epstein, via e-mail, reminds us that GMAC received the first robosigning sanction by a Florida judge (in 2006), was the first to threaten a foreclosure attorney (Tom Cox) for exposing fraud, and broke the robosigning scandal open by halting REO sales due to title defects.
Personally, I think it would be great if Ally rejected the settlement and later got raked over the coals, say if a bank friendly attorney general is replaced by one more interested in upholding the law. But it is more likely that this is yet another bank-side negotiating gambit, and Ally either volunteered or was volunteered to see how much the banks could improve the terms by yet another display of pique. That strategy has worked swimmingly so far, so why not keep at it?
I’d be delighted if it was the banks that derailed the settlement talks by overplaying their hand. The evidence piling up in courtrooms all over the US is too overwhelming for them to pretend they have clean hands. And that gridlock getting worse is what will finally force a resolution. Any real remedy of these problems is certain not to be to the banks’ liking.
31 comments
Comments are closed.
Woo-hoo! Get ’em Eve. Ally. Really. Whose?
Eve? Sorry, Yves. It’s late…
Right there with you Don! I suppose the 2009 MERS/GMAC Assignment of Mortgage I currently have in my hands to RFMSI 2006SA4 trust (3 years too late and the REMIC is or should be damaged) is just “sloppy”? I’d call it “sneaky”, fraudulent and insulting that they think they can get away with these. How stupid do they think the judges are? …wait, don’t answer that…
Gee, we should cut Carpenter some slack — after all, like Benmosche at AIG, he’s only a government employee and we all know how incompetent government employees are.
If only Ally, the former GMAC, could be privatized and attract top talent like J. Ezra Merkin! Oh, wait…
;-)
Actually I agree with both you and Carpenter. If the borrower is not current on the loan and the paperwork is in order Ally does have a duty to foreclose on behalf of its shareholders or investors in the mortgage bonds. This doesn’t mean however they are excused from penalties associated with violations arising from robosigning or proven abusive servicing practices.
You are assuming the paperwork is in order. A small scale survey by Abigail Field in two New York counties showed it wasn’t in 100% of the Countrywide deals and 2/3 in deals from other banks. The 2/3 fails were failures to endorse the note. Those CANNOT BE REMEDIED NOW, legally. Capenter’s stance is inconsistent with obeying the law.
Corroborating evidence: newly introduced requirements in New York that make it easier to sanction attorneys for submitting unverified court documents and improper affidavits appear to be the cause of a dramatic fall in foreclosure filings. Per a tabulation made by April Charney, they averaged well over 100 (eyeballing the list, probably over 150) every day last year in September, the last day before the robosigning scandal broke. In October of this year, the filings though and including October 19 were five or less per day, save an odd 22 on October 22. The high for October of this year is lower than the low for all of September last year, 28 (the next lowest day was 89, and the next after that was 101).
“You are assuming the paperwork is in order.”
In all fairness he’s predicating his statement on that: “and the paperwork is in order”. I’d like to thank Conscience for reminding us that honest conservatives believe in the rule of law.
Why “or”? Lets give credit where credit is due, they appear to be both dishonest and incompetent.
But do you really think this guy would jeopardize the Admin’s gift and remain at the helm of Ally? Given how utterly lame the efforts by the AG’s and Treasury/Justice have been – no effort, really – perhaps this is a balloon to see if they can cut something even sweeter? After all, the broad public has no idea any of this is even happening – the deal was already obscene, why not more so?
And yet as others have pointed out, there is nobody with clean hands here. In most cases the borrower hasn’t been making the payments agreed to AND the lender hasn’t fulfilled the legal requirements to foreclose to attempt to satisfy that debt. Would it be possible to simply sue the borrower? If the lender can indemnify the borrower against the possibility that there is no “mystery party” somewhere along the broken chain of title that DOES have the right to foreclose, can they GET the court to give them a lien against the borrowers assets including the house? Convoluted and more expensive than a foreclosure action, but with the same result in the end. In the vast majority of cases, it’s not that the money isn’t owed, it’s that the banks have screwed up the paperwork in such a way as to preclude a simple foreclosure action. Which wouldn’t be SO bad except for their attempts to perjure their way out of their own mess.
In most of these cases, it isn’t that the lenders own the loan but don’t have the proper paperwork, the lenders don’t actually own the loan because the loans were never legally transferred to them. When the paperwork is produced, the actual notes and corresponding trust agreements, they demonstrate that the loans remain in the name of a prior party in the chain of title, most likely the depositor. Are you suggesting the courts enforce payments on a debt to a party that has never had a legal claim to the debt?
Sometimes GMAC completely makes up a trust and forecloses in its name. It’s not that the note didn’t make it into the trust, rather there’s no such trust in existence. Phantom trust cases should be thrown out of court, but some judges do.not.care.
My understanding is that it is the legal right to foreclose “The mortgage” that hasn’t properly been transferred to the trust. In most cases the servicer has been taking payments and forwarding them to the trust, and the trustee in turn has been forwarding those payments to the bondholder tranche by tranche correctly. The “problem” is that the right to foreclose is inherently a real property state law issue, and therefore very heterogeneous. Every state protects property owners from wrongful foreclosure in different ways, and has different procedures. The banks tried to ignore that by creating MERS. Now there’s nothing wrong in principle with creating a system to keep track of where the payments should go. That can all be done via contracts between the participants.
But the right to foreclose and take clear title to real property as a CANNOT simply be agreed upon between parties. Each individual state is the holder of real property records. There would be no deeds without those states. And so the state sets the rules for the transfer of real property, including the transfer of real property to a creditor in the case of real property that was pledged as security for a loan that wasn’t paid back.
So the problem, unless you believe that “The mortgage follows the note” is that these loans have essentially become unsecured debts because of carelessness. Which should certainly preclude non-judicial foreclosure in states that have such a procedure. But I don’t think that they should preclude a borrower who was unable or unwilling to make agreed upon payments losing title to property that was pledged as security to that loan. But it should be subject to careful examination by courts and the giving up of said property by the borrower should indemnify him from any further action by any parties with an interest in said loan.
“If the borrower is not current on the loan and the paperwork is in order…”
Please try and keep up….there is OVERWHELMING, ABUNDANT evidence that the paperwork is NOT in order. The reality is that since these mortgages were NEVER properly transferred in the first place, they are in fact not mortgage-backed securities. The banks and their apologists, including the Treasury Dept, are intent on preserving the fiction that these are mere technicalities- of course, everyone along the chain has long ago extracted their profits and bonuses through fraud and are now simply trying to cover up that fact.
Great post Yves but it just has me wondering again where the legal world is in all this other that many with lots of complicity.
It would seem to me if any group can see the societal effects of the degradation of Rule of Law, they should be able to. I have and still know enough lawyers to know they are not all sociopaths, maybe not even any more than any other group…I’m hedging here a bit.
Anyway, the short version is that it is time for substantial portions of the moral and ethical of the legal world to come out of the closet and start returning us to a country with more than a fig leaf of judicial and ethical balance.
Robo-signing is GMAC’s business model, not “mere sloppiness”. It happens in too many cases with the same GMAC employees signing documents pretending to be representatives of other companies authorized to transfer mortgages–including companies that no longer exist. The only logical explanation is that GMAC employees are directed to robo-sign and fabricate documents by upper managment. Ask any consumer attorney representing a homeowner in foreclosure where GMAC is the servicer.
To me the inability of counsel representing homeowners to secure documents is appalling. We know proper procedure from our tv shows where there are no corrupt judges and everyone wants to follow the law. (sic) I have a friend who is involved in a contest with a title insurance company. It did not do due diligence in handling the mortgage in question, which was sold three times. My friend requests documents (in discovery) and hardly any documents are delivered. The omitted documents are likely to prove robo signing or other types of fraud. But the judge will not sanction the title insurance company for its evasion.
Judges are extremely reluctant to compel banks and title companies to turn over documents. The great irony is that these documents are necessary for banks and title companies to file suit in the first place (promissory note, allonges, accounting of application of funds, etc.) These glaring deficiencies are permitted because judges don’t trouble themselves to demand proper documentation when so few cases are contested, so who’s to know?. Judges are giving banks a free pass to prevail in litigation which they would never give an ordinary citizen who files suit. Words cannot convey how frustrating it is to experience this double standard up close.
PL says “double standard”. I say evil and corrupt. OWS is out there screaming at you all to see the corruption of government, courts, banks, lawyers, and whoever else allows this to stand. America is DEAD!
I sent a RESPA letter to GMAC (Ally)as they are the servicer on my mortgage. I particularly wanted to see the assignments. In their reply, they as much as said ” Your mortgage is registered with MERS, we don’t need to show you no stinking allonges.” Allonge, such a poetic word, and one I would never have heard of if I didn’t hang around NC.
Laws are meant for the lawless – Ally in point !!! Good Job Yves!! Power to the people!!!!!!!
I am no attorney, but what would prevent a quiet title class action suit by a large group of borrowers whose mortgages are current and collectively serviced by a given institution, making the claim that the servicer has willfully and negligently forwarded their monthly payments to parties who don’t own their note (the trusts), thus exposing them to prospective foreclosure action by an unknown party? To defend their position, wouldn’t discovery lead to the servicer having to disclose the facts, which servicers routinely refuse to do via a RESPA request? When borrowers and investors in MBS then see that a large % of their securities are not backed by legally enforceable mortgages, the investors would then likely be compelled to either sue the trustee banks responsible for the securitization fail or better yet, apply pressure to servicers to implement mortgage principal modifications down to near current market values, with loan documentation that in fact complies with the law? I suspect fear of something like that happening is what is driving the rush to settlement on the part of the bank friendly AG’s and current administration?
This is the only blog I read that requires a dictionary. Now I know what an allonge is.
Also thanks to Yves, I know what a complete sellout Tom Miller is, but I didn’t need a dictionary for that.
Ummm…criminally incompetent. Definitely.
The servicers rely on the fact the owners are delinquent to justify their illegal practice issues. The two situations are somewhat unrelated. The delinquency only serves to put a point on the practices, nothing more. Without the notices of default and subsequent foreclosures, the lenders would not have to prove ownership. The ball took a bad bounce for lenders, which is not to say they can disregard the law. The idea a homeowner defaults results in the lenders being allowed to operate in a lawless manner is absurd. The lenders pay the price for not following their own guidelines and state laws. Yves is absolutely correct; these problems cannot be easily fixed in the present. The damage has been done; they can’t put water back in a hose.
My broader concern is the Federal Reserve continues to buy the mortgage backed securities which are probably not entirely mortgage backed. If these securities are such a good deal for taxpayers, they would be a good deal for investors and the private market would be buying them. Most people understand the MBSs are trash. The everyman comparison would be to have Geithner, Bernanke et. al. purchasing our 401k plans, underwater homes, HELOCs and any other worthless/devalued asset for face value based on the 2006-07 market value and allowing us to go about our business. Where do we sign up? Just yesterday Chairman Bernanke began lubing up the taxpayers for more MBS purchases.
I have a stupid question:
“Someone else in the securitization chain presumably does have the right to foreclose, but no one wants that to happen, since there is [no] kosher way to get the money from that party to the trust.”
Well, yee-ha, right? Wouldn’t that be a nice business to get into, tracking down the entity in the securitization chain that has that right to foreclose? Who might that be? And why wouldn’t they have an incentive to yank that right away from the servicer and the trust?
Then you’ve got a whole new bunch of people threatening to foreclose, which they might not even do. After all, they bought this mortgage for the price of filing some papers in court, right?
Or am I fantasizing here? Maybe that’s not what you said, or it’s not that simple.
It’s complicated.
Did trusts buy promissory notes in true sales but drop the ball supervising delivery of all promissory notes to its trustee? If yes, then someone may be able to foreclose on some mortgages.
Or was the “true sale” a farce, intended for purposes of achieving bankruptcy remoteness, with the trust never expecting the promissory note to be delivered to its trustee? If yes, then there’s no one with standing to foreclose. Perhaps this is the reason why servicers prevent others from tracing the chain of title and finding out.
Great post Yves but it just has me wondering again where the legal world is in all this other that many with lots of complicity.
It would seem to me if any group can see the societal effects of the degradation of Rule of Law, they should be able to. I have and still know enough lawyers to know they are not all sociopaths, maybe not even any more than any other group…I’m hedging here a bit.
Anyway, the short version is that it is time for substantial portions of the moral and ethical of the legal world to come out of the closet and start returning us to a country with more than a fig leaf of judicial and ethical balance.
There’s a lot of “But but but they’re behind on their loan!” justification, even here. The question is: Who should you pay _TO_? There’s ample evidence that the company servicing your mortgage has zero legal basis to do so, and therefore you’re just gifting them money. When the REAL noteholder comes forward you go back to owing 100%.
Why should it be the homeowner’s job to untangle the spaghetti and try to find the appropriate person to send the check to?
I’ll pay my mortgage once the banks figure out who is entitled to it. I’m not in the business of gifting cayman island companies thousands of dollars a month.
Thank whoever but the mortgage process in Ontario is not fraught with the lawlessness of USA. The current state of USA on all fronts may implode from the sheer contradictions inherent in the American brand of capitalism.
“[A]bsent the invention of a time machine, it is impossible for a servicer to foreclose in the name of a trust legally, since the mortgages were not transferred to it in the manner necessary (and set forth in the governing document, the pooling & servicing agreement) for the trust to have ownership.”
Anyone have any thoughts on the servicers foreclosing in their own names (via “Limited Power of Attorney” agreements) on behalf of the trusts? They do not actually indicate anywhere in the foreclosure docs that they are acting on the trusts’ behalf, mind you. The only way one would be able to figure this out would be to find one’s particular loan in an SEC filing, perhaps, and then match the particular mbs with one listed in the MANY Limited POA agreements recorded over the past year or so across the country. Here’s an example that lists SEVENTEEN pages of trusts that are ostensibly giving the okay to “JPMorgan Chase Bank, NA” to proceed in its own name: http://oris.co.palm-beach.fl.us/or_web1/details.asp?doc_id=18422363&index=12&file_num=20110087085
(Florida, Palm Beach County Records, Book/Page: 24407/502)
Curious to hear any comments. My concern (well, one of them anyway) is that this is a deliberate attempt to bypass the standing issue by concealing the identity of the plaintiff (whoever that may be, the banks obviously don’t know) through the use of a POA “umbrella.”