Category Archives: Real estate

Michael Olenick: Bank of America All In – Calling Moynihan’s Bluff to Bankrupt Countrywide

Yves here. As the headline indicates, the steps taken Bank of America that Michael Olenick describes in this article call into question the idea that Bank of America can shield itself by putting Countrywide into bankruptcy. Note that, some litigants, particularly AIG in its petition in opposition of the proposed $8.5 billion settlement of putback liability on 530 Countrywide trusts, made a persuasive case that Bank of America has operated Countrywide in such a way post acquisition so that it is no longer bankruptcy remote from BofA (that is, you can’t BK Countrywide and deny Countrywide creditors access to BofA assets).

Nevertheless, as attorney and former monoline executive Tom Adams noted by e-mail, the reason Bank of America might want the servicing at BofA rather than Countrywide if Countrywide is put into bankruptcy is probably to avoid a servicing termination event. If the servicer is bankrupt, the trustee or investors could, in theory, terminate them as servicer. This is really only theory, because almost no one (other than BofA) would want to be servicer for these loans, so it would be hard to see it as a driver of the changes Olenick describes.

An interesting related issue is that BofA, like other servicers in this new world of costly and lengthy foreclosures, is at risk of over advancing on mortgages. Servicers advance principal and interest even after a borrower has defaulted and reimburse themselves when the foreclosed property is sold. In theory, they can stop when a loan is clearly irrecoverable. In practice, historically many servicers have kept advancing up to the full principal balance of the loan. With loss severities rising and more borrowers fighting foreclosures, they can incur more costs than the house is worth, but on average, they still recover their advances. But with foreclosure timelines attenuating, legal costs escalating, and foreclosures grinding to a halt in states like Nevada, New York, and New Jersey, where they are now real sanctions for filing questionable foreclosure documentation, servicers face increasing doubts about their ability to recover advances from the proceeds of home sales. I hope the FDIC is watchful enough not to allow deposits to be used to fund servicer advances.

By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha)

NYT’s James Stewart Runs PR for Compromised SEC Chief Khuzami Against Judge Rakoff on Proposed $285 Million Citi CDO Settlement

Tom Adams, an attorney and former monoline executive, provided considerable input into this post.

There is nothing more useful to people in authority than when a writer with an established brand name does their propagandizing for them.

Harvard Law graduate and Pulitzer Prize winning author James B. Stewart penned a remarkable little piece in the New York Times over the weekend. Titled “Few Avenues for Justice in the Case Against Citi,” it contends that Judge Jed Rakoff’s ruling against a proposed $285 million SEC settlement with Citigroup over a $1 billion CDO (Class V Funding III) that delivered $700 million in losses to investors and $160 million in profits to Citi is misguided. Stewart argues, based on “some reporting,” that the SEC is unlikely to do better in the trial that Rakoff has forced on the agency by nixing the settlement.

We will look at the caliber of Stewart’s “reporting” in due course, since his article reads like dictation from the SEC’s head of enforcement Robert Khuzami (the SEC’s interests are aligned with Citi’s in wanting the settlement to go through). He either did not read or chose to ignore critical information in the underlying complaints, which the Rakoff ruling cites, and he also overlooked relevant cases.

GMAC Mugs Massachusetts for Insisting on the Rule of Law, Suspends Mortgage Lending in the State

This move by GMAC, now Ally, is remarkably brazen. GMAC has effectively said that Massachusetts must hew to its demands of how to deal with foreclosures. It announced it is withdrawing from mortgage lending in the state in an effort to bring it to heel.

GMAC may be in a better position to exercise this sort of threat than other banks, since with their broader business lines, government bodies in the state could retaliate by moving other business (pension funds, cash management, payment services) from them.

This is very similar to the retaliation described in Gretchen Morgenson and Josh Rosner’s Reckless Endangerment, when Georgia had the temerity to try to pass tough lending laws:

Massachusetts Announces First Comprehensive Lawsuit Against Major Banks

The Massachusetts Attorney General has announced a major lawsuit against the biggest banks in the foreclosure game, namely Bank of America, JP Morgan, Citigroup, Wells Fargo, GMAC (now Ally) as well as MERS and its parent MERSCorp.

It seeks accountability for violations in the foreclosure process, including robosiging, initiating foreclosures when they were not entitled to do so, the use of MERS (both a violation of land records requirements and what amounts to unjust enrichment via failure to pay local recording fees) and deceptive practices in foreclosure (as in failing to offer modifications as required by law and would be good for borrowers).

Former Award Winning Chase Banker Describes Predatory Mortgage Lending Practices

Readers need to read today’s op ed by Nicholas Kristof in the New York Times, and pronto. It is a former insider debunking of the idea that borrowers rather than bankers bear primary responsibility for the mortgage crisis.

Michael Olenick: Are Remotely-Processed Mortgage Assignments Another Smoking Gun?

By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha)

Assignments of mortgages are the legal instruments that transfers ownership of a mortgage from one party to another. In a securitized mortgage, a trust holds thousands of mortgages on behalf of investors. The investors in the various bonds that get cash flows from a single trust expect the trust to be in a position to take advantage of the rights conferred by the mortgages when certain events occur, usually payoff or default.

I used my crowd-sourced online software, www.findthefraud.com, to help categorize 2,500 assignments in Palm Beach County, FL, which were recorded in late 2008 and early 2009. Palm Beach County, like any Florida county, is a high foreclosure state and, thanks to strong public records laws in Florida, serves as a good bellwether about bank business practices both in Florida and around the country.

LPS Foreclosure Fraud Whistleblower Found Dead (Updated)

Nevada notary Tracy Lawrence, who was due to be sentenced today to up to a year in jail for a single count of misdemeanor fraud, went missing from her sentencing hearing today and was found dead.

Dylan Ratigan: To Eric Holder – A Simple Way To Prosecute Bank Crimes

By Dylan Ratigan, MSNBC host and author of the new book Greedy Bastards. Cross posted from DylanRatigan.com

Shahien Nasiripour has a great scoop in the FT – bank regulators have uncovered up to 5000 military families who were foreclosed on illegally by mortgage servicers.

Matt Stoller: Mortgage Servicers – Getting Away with the Perfect Crime?

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller. Cross posted from New Deal 2.0

Without prosecutions, there’s nothing keeping fraud from becoming a standard business practice.

Federal Judge Refuses to Dismiss Bank Break-In Case Against JP Morgan, Lender Processing Services

In the sordid underworld of foreclosure-related reporting, certain stories have started to develop a prototypical feel. Bank Forecloses on Wrong Home. Bank Forecloses on Home with No Mortgage. Bank Refuses Even to Talk About Short Sale. Bank Sends Borrower into HAMP-Created Hall of Mirrors and Forecloses Anyhow.

The problem with stories becoming cliched is that the force of the recognition of the injustice loses some of its punch with repetition. But one type of story still seems to trigger well warranted outrage in the public: Bank Breaks Into House.

Matt Stoller: Nevada Attorney General Catherine Cortez Masto Cracks Open the Financial Crisis

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller.

Learn the name Catherine Cortez Masto, because she just took a big leap in front of every public servant in the country in terms of restoring faith in government. As Nevada AG, she actually indicted someone for blowing up our housing system. Specifically, she handed down 606 counts of felony or gross misdemeanor indictments on robo-signing against two employees of big bank subcontractor Lender Processing Services.

It’s pretty clear from the indictment that these are mid-level employees, one level up supervisors of fraud rather than top CEOs. And yet, even if this were as far as it goes, it would still be a big deal. These would be the only charges served involving the housing crisis and its link with the structurally corrupt securitization chain so far. By itself, these indictments signify that the fraudulent foreclosure game is over for the big mortgage servicers in Nevada, which is the center of the foreclosure epidemic. It says the rule of law matters, in at least one corner of the country.

Michael Olenick: Don’t Buy Mortgage Industry Hype on Mortgage Modifications

By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha)

The Mortgage Bankers Association (MBA) boasts that its members have modified over five million mortgages over the past few years. As a data analyst focused on patterns of foreclosure fraud, I’ve analyzed tens of millions of pieces of information. I was willing to take the MBA’s claims at face value but, years ago, came to the conclusion that the MBA and their members have a severe credibility gap.

Remember, the reason for advocating mods is that, properly structured, they are a win-win: investors take a lower loss than they would in a foreclosure, the borrower stays in his house, and another real-estate-price-depressing sale is averted.

But this “everyone comes out ahead” is not what I’ve seen. I’ve been able to check modifications, since they are recorded in public records. It quickly became apparent that while theses modifications are, at best, worthless, and more often than not border on an extension of the same predatory practices that resulted in the original mortgages.

These modifications are to mortgages as vultures are to predators, another opportunity to take one last bite out of people trying to keep their homes. Banks are “modifying” lots of loans, but to terms even more favorable to banks.

Nevada Attorney General Masto Files 606 Count Criminal Indictment Against Two Title Officers (Updated: Lender Processing Services Employees)

The Nevada attorney general Catherine Cortez Masto has just filed a 606 count indictment against two title officers in a single county, Clark County, for supervising the filing of tens of thousands of fraudulent documents in a robo-signing scheme.

On the one hand, this indictment is not as gratifying, say, as busting Angelo Mozilo. On the other hand, if low level supervisors in bank frauds face the risk of serving time, you are going to find a ton fewer people willing to take that job. Those higher up on the food chain might also have to be a lot more careful and pay the people involved more money, which in turn undermines the basic logic of these abuses, which is cost savings.

More Evidence That Judges Have Had it With Banks

Today, we linked to an article in the New York Times that illustrates a considerable change in the attitude of some judges in the wake of the robosigning scandal. Before, the assumption was that of course, the bank was right and any borrower trying to block a foreclosure had better have an awfully compelling case. But a lot of judges were stunned by the level and institutionalization of bank abuses of procedure. And in a small, happy note, some of the employers of the worst foreclosure mills are finally cutting them lose. Per Michael Olenick, Fannie Mae has ceased doing business with the Baum law firm in New York (the one with the now notorious 2010 Halloween party that made fun of mortgage borrowers fighting foreclosures as future homeless people).

We first got wind of this decision below from Matt Weidner. Frankly, it reads like a parody, but we got it from April Charney, and it does have the stamps you’d see on the real deal. I’m sure you’ll enjoy it even if it is an artful fabrication, and even more if someone with access to Pacer can confirm that it is genuine.

Devastating Analysis of MERS

We’ve tended to think the securitization industry is in for a world of hurt even before you get to the legal and practical mess created by MERS. A national registry done correctly could have been a very useful, but “correct” was apparently too hard (as in costly) to be seen as attractive to the mortgage industrial complex. And the stripped down version is proving to be a disaster.

I’ve read a number of legal analyses of MERS, and this is one of the tidiest I’ve seen of what is so wrong headed about it.