WEDNESDAY, APR 23, 2014
When financial crimes go unpunished, the root problem of fraud never gets fixed — and these are the consequences
Eric Holder (Credit: AP/J. Scott Applewhite)
Joseph and Mary Romero of Chimayo, N.M., found that their mortgage note was assigned to the Bank of New York three months after the same bank filed a foreclosure complaint against them; in other words, Bank of New York didn’t own the loan when they tried to foreclose on it.
Glenn and Ann Holden of Akron, Ohio, faced foreclosure from Deutsche Bank, but the company filed two different versions of the note at court, each bearing a stamp affirming it as the “true and accurate copy.”
Mary McCulley of Bozeman, Mont., had her loan changed by U.S. Bank without her knowledge, from a $300,000 30-year loan to a $200,000 loan due in 18 months, and in documents submitted to the court, U.S. Bank included four separate loan applications with different terms.
All of these examples, from actual court cases resolved over the last two months, rendered rare judgments in favor of homeowners over banks and mortgage lenders. But despite the fact that the nation’s courtrooms remain active crime scenes, with backdated, forged and fabricated documents still sloshing around them, state and federal regulators have not filed new charges of misconduct against Bank of New York, Deutsche Bank, U.S. Bank or any other mortgage industry participant, since the round of national settlements over foreclosure fraud effectively closed the issue.
Many focus on how the failure to prosecute financial crimes, by Attorney General Eric Holder and colleagues, create a lack of deterrent for the perpetrators, who will surely sin again. But there’s something else that happens when these crimes go unpunished; the root problem, the legacy of fraud, never gets fixed. In this instance, the underlying ownership on potentially millions of loans has been permanently confused, and the resulting disarray will cause chaos for decades into the future, harming homeowners, investors and the broader economy. Holder’s corrupt bargain, to let Wall Street walk, comes at the cost of permanent damage to the largest market in the world, the U.S. residential housing market.
By now we know the details: During the run-up to the housing bubble, banks bought up millions of mortgages, packaged them into securities and sold them around the world. Amid the frenzy, lenders failed to follow basic property laws, which ensure legitimate transfers of mortgages from one legal owner to another. When mass foreclosures resulted from the bubble’s collapse, banks who could not demonstrate they owned the loans got caught trying to cover up the irregularities with false documents. Federal authorities made the offenders pay fines, much of which banks paid with other people’s money. But the settlements put a Band-Aid over the misconduct. Nobody went in, loan by loan, to try to equitably confirm who owns what.
Now, the lid banks and the government tried to place on the situation has begun to boil over. For example, Bank of America really wants to exit the mortgage servicing business, because it now finds it unprofitable. The bank entered into a deal to sell off all the servicing for loans backed by the Government National Mortgage Association (often known as Ginnie Mae). But Ginnie Mae refused the sale, because the loans Bank of America serviced are missing critical documents, including the recorded mortgages themselves.
If you’re a mortgage servicer, and you don’t possess the recorded mortgage, you probably aren’t able to foreclose on that loan without fabricating the document. And Ginnie Mae made it clear that the problem could go beyond Bank of America. “I don’t mean to sound like we’re picking on BofA,” Ginnie Mae president Ted Tozer told trade publication National Mortgage News. “I can’t say if it’s just BofA or not.” Incredibly, this would represent the first time a government agency has actually examined loan files under its control to search for missing documents, seven years after the collapse of the housing bubble and four years after the recognition of mass document fabrication.
Any effort to fix the system would start by reforming MERS, the electronic database banks use to track mortgage trades (and avoid fees they would incur from county clerks with every transfer). MERS was part of a broad settlement in 2011 with federal regulators, and they promised to improve the quality control over their database to avoid errors and fraudulent assignments. Three years later, the fixes haven’t happened, and four senior officers brought in to comply with the settlement have left. MERS then tried to hire a consultant to manage the settlement terms whom U.S. regulators found unqualified for the job.
The database still tracks roughly half of all U.S. home loans, and banks fear that without changes, they might have to – horrors – actually go back to recording mortgages individually with the county clerks! You know, the property law system that the nation somehow survived under for more than 200 years.
Link to full article here
March 30, 2014
This is one of the zombie house residents in Ormond Beach are trying to fight.
Florida leads the nation in zombie foreclosures.
ORMOND BEACH —
There’s a group of Ormond Beach homeowners battling a zombie home problem — homes that are standing dead and sucking the life out of entire neighborhoods.
The group is targeting homes that are abandoned and decaying, with so much overgrowth they are hard to look at.
“It is an eyesore and it is exactly a zombie home because we don’t even know at this point who owns the homes,” said Rita Press, president of Citizens for Ormond Beach.
“I think it’s gonna lower the property values if they see a rundown house,” said neighbor Joe Puccino.
The group has identified at least 300 foreclosed homes throughout the city, and numerous abandoned homes with no paper trail that homeowners simply walked away from. One house Press told us about is in the city’s exclusive, historic riverfront district.
The group contacts homeowners in foreclosure to help them through the process before a homes turns into a zombie home. They also want the city to prevent houses from turning into lifeless shells.
But the ultimate goal, Press said, is to get all those homes on the market so that new homeowners can breathe life back into a lifeless Zombie home.
FLORIDA AND ZOMBIE FORECLOSURES
Five of Florida’s housing markets are in the top 10 zombie foreclosures, according to RealtyTrac.
The foreclosure tracking group said there are more than 140,000 homes in Florida that are in zombie mode, or are bank-owned. And zombie homes in Florida are in foreclosure for about 1,095 days.
A South Florida woman succeeded with the unheard of
when she was able to get her mortgage wiped out by a lender.
In an effort to save her mother’s home, Idania Castro waged a two-year battle with the bank.
“The mortgage got wiped out, so I have no mortgage payment, everything was completely satisfied,” Castro said.
The woman, who took it upon herself to go through every document related to the mortgage, finally discovered robo-signing. She said the signatures on her foreclosure documents appeared to have been signed by different people.
“The signatures varied five times and it made me suspicious,” she said.
With the help of attorney Omar Arcia, she won her case. The lender decided to stop all legal proceedings against her because the documents were deemed fraudulent . Castro now owes nothing.
“The moment that we brought that information to light and we brought it to the judge, the parties resolved the case and in that particular case the bank agreed to forgive her entire mortgage debt,” Arcia said.
The attorney stressed the importance of investigating.
“You have to do your legwork and find out if there is anything wrong that was done in connection with your transaction,” Arcia said. “ You may have something that you can go back to the bank with and either negotiate better terms for your loan or sometimes get your mortgage wiped out altogether.”
Florida’s real estate market remains haunted by
decaying and abandoned properties
even as new foreclosures slow
and home values rise.
These so-called “zombie” foreclosures — properties forsaken by both the bank and borrower — number 54,900 statewide, including 14,600 in Palm Beach, Broward and Miami-Dade counties, according to a new report from RealtyTrac.
The concentration in Florida makes it tops in the nation for zombie foreclosures, with South Florida ranking first among large metro areas.
Illinois has the second highest number of vacant foreclosures by state at 15,510, followed by New York with 10,880. Among metro areas, Tampa-St. Petersburg ranks second nationally, with Chicago coming in third.
“The reality is that new foreclosure activity is no longer the biggest threat to the housing market,” said Daren Blomquist, RealtyTrac vice president. “The biggest threat from foreclosures going forward is properties that have been lingering in the process for years, many of them vacant with neither the homeowner nor the lender taking responsibility for maintenance and upkeep.”
Many of the homes are stuck in limbo because banks filed to foreclose on them years ago, but then walked away from the case after realizing it didn’t make financial sense to take the home back, said Nicole Clowers, director of the U.S. Government Accountability Office.
Clowers and Blomquist spoke Tuesdayduring a housing conference sponsored by the Federal Reserve Bank of Cleveland.
New foreclosure filings nationwide were at their lowest level in February since December 2005, according to RealtyTrac. In Florida, new foreclosures were down 53 percent from the same time last year, while Palm Beach County’s clerk’s office recorded just 518 new cases in February_ a 49 percent drop from 2013.
It’s still unclear, however, whether the drop in Florida foreclosures is a permanent change or a temporary trend while banks catch up to a new law that went into effect in July.
U.S. Postal Service information on vacancies was used to study the issue of abandoned foreclosures. But the Government Accountability Office also had access to bank records, leading it to the conclusion that lenders will walk away from a foreclosure if it’s too costly to repossess.
“In some cases they initiate the foreclosure and then realize it’s going to be a money-losing venture and stop,” Clowers said.
Suburban Lake Worth resident Mike Herndon doesn’t know if that’s what happened to a moldering house in his neighborhood on Burlington Court, but he’s frustrated the home isn’t being maintained by the bank or owner.
JPMorgan Chase filed to foreclose on the home in 2010, according to Palm Beach County court records. Herndon said the owner left soon after. The most recent court action taken was in July 2013, but there is still no final judgment. A message to Chase was not returned by deadline.
The Burlington Court home has slowly deteriorated. A leak in the roof turned into a large hole that different property maintenance firms have repeatedly tried to cover with a tarp. Last Thursday’s heavy winds pulled the tarp off again, taking roof tiles with it.
Palm Beach County put a $50-a-day lien against the home in July.
“I have been writing letters and emails for the better part of three years trying to get this property taken care of,” Herndon said.
A whistleblower with a track record of wresting large settlements from banks is suing 22 companies for allegedly filing fraudulent mortgage documents with the Department of Housing and Urban Development.
Lynn E. Szymoniak, famous for her 2011 “60 Minutes” interview on the robo-signing scandal, filed a lawsuit late Monday against the companies, including Deutsche Bank, Wells Fargo, JPMorgan Chase and Bank of America. The Palm Beach, Fla., plaintiff’s lawyer alleges the 22 banks, mortgage servicers, trustees, custodians and default management companies created fraudulent mortgage assignments and submitted tens of thousands of false claims to HUD.
The lawsuit is a stark reminder that banks still face massive litigation and potential settlements for wrongdoing from the mortgage boom and financial crisis. On Wednesday, JPMorgan Chase acknowledged that it violated the False Claims Act and agreed to pay $614 million to settle claims that it improperly approved Federal Housing Administration and Veterans Affairs loans that did not meet underwriting standards.
HUD oversees the FHA, which reimburses servicers for losses and fees when government-guaranteed loans go into foreclosure.
Banks can be held liable for treble damages under the False Claims Act if they are found to have “falsely certified” that mortgages met all FHA requirements. The act also gives whistleblowers the right to file suit on behalf of the government.
“It’s been very difficult to uncover how fraudulent documents were created and spread through the system,” says Reuben Guttman, Szymoniak’s attorney at the firm of Grant & Eisenhofer. “Lynn Szymoniak did the original analysis, looked at documents and put the pieces together in a way that nobody else did.”
The new lawsuit was filed in the U.S. District Court in South Carolina. Several of the defendants, including Deutsche Bank and Wells Fargo, said they are reviewing the lawsuit and could not immediately comment.
In 2012, Szymoniak helped the government recover $95 million from the top five mortgage servicers, as part of the $25 billion national mortgage settlement. She personally received $18 million for providing information on the filing of false claims on FHA loans.
The suit also seeks to recover damages and penalties on behalf of the federal government, 16 states, the District of Columbia and the cities of Chicago and New York for the financial harm incurred in the purchase of private-label mortgage-backed securities that allegedly used fraudulent documents in foreclosure filings since 2008.
As investors in mortgage bonds, the government and others paid fees and expenses for services such as reviewing all mortgage documents put into trusts that were supposed to be performed by trustees. The federal government bought mortgage-backed securities with missing or forged documents through several avenues, including the Federal Reserve’s direct purchases and Maiden Lane vehicles, and the Treasury Department’s purchases through public-private partnership investment funds, the suit states.
The complaint does not specify damages but Szymoniak says she expects them to total around $10 billion.
The fraudulent mortgage documents were created because the original loans documents either were never delivered to the securitization trusts, or they were lost or destroyed, the lawsuit states. Many of the documents were created years after the trusts’ closing dates and showed the trusts acquired the loans only after they were in default.
Servicers “devised and operated a scheme to replace the missing documents,” the lawsuit states, and to conceal the fact that the trusts and servicers never actually held the mortgage notes and assignments, which are needed to initiate a foreclosure.
Szymoniak was also instrumental in uncovering fraud and forged documents at DocX, a now-defunct subsidiary of Lender Processing Services. She worked with the Federal Bureau of Investigations and U.S. Attorney’s office in Jacksonville, Fla., that ultimately led to the conviction of an LPS executive, the closure of DocX, firm, and various settlements by LPS, which is now owned by Black Knight Financial Services.
By Michael Gerrity | January 30, 2014
The securitization market involving debt tied to single-family homes is reemerging as a hot topic in Wall Street, but the source for the debt is different this time around.
A Wall Street estimate says potential financing opportunities for the new securitization market are as high as $1.5 trillion. The new industry would sell bonds to investors all over the world from debt tied to a growing single-family rental market. A growing number of large and private investors are purchasing single-family homes in bulk and renting them. This is creating an opportunity for banks and investors to buy into the market.
American Homes 4 Rent is the latest company making a move in the emerging market. The company announced at a conference its plan to sell securities tied to $500 million of debt, according to The New York Times. “The investment and lending opportunities are immense and perhaps just beginning,” Jade Rahmani, a real estate analyst with Keefe, Bruyette & Woods, wrote in a recent report.
Private equity giant Blackstone Group, the largest owner of single-family homes in the U.S., became the first to sell single-family rental securitization last fall. The REO-to-rental business has attracted institutional investors in the wake of the market collapse, with funds and REITs spending more than $20 billion to purchase as many as 200,000 homes.
Blackstone has set up its own lending arm to lend to other buy-to-rent landlords, as small investors may not be able to acquire credit. Last November, Starwood Property Trust announced it would spin-off its single-family business into a separate REIT to become one of the largest publicly-traded single-family property owners.
This new Wall Street market is creating concern among economist and members of congress members, who worry of another credit bubble.
“Proper oversight of new financial innovation is key to ensuring we don’t go down the same road of the unchecked mortgage-backed security and create an unsustainable bubble that will wreak havoc when it bursts,” Representative Mark Takano, Democrat of California, said in a letter to the House Financial Services Committee last week.
The previous credit bubble burst included defaults and failures from mortgage holders, lenders, loan insurers and hedge funds in a system dubbed “financial weapons of mass destruction” by business magnet Warren Buffet.
Before the market collapse, almost anyone could get a mortgage from a bank with little to no credit. The bank would then sell the mortgage-backed securities to pension funds, which felt safe with the loans because of the backing of insurance companies like AIG with a product called the ‘Credit Default Swap’, which in effect was a form of insurance on the invest itself. That is how many Wall Street banks were able to sell hundreds of billions of dollars’ worth of high-risk investments to usually risk-adverse institutional investors worldwide. And the entire deal structure was based on the premise that housing values would always go up, and homebuyers would continue to pay their mortgages.
When the economy turned sour in 2008 and mortgage payments stopped, what ensued was a snowball-effect collapse resulting in the recession. Many years later, the economy is recovering, the housing market is rebounding, but lending remains tight. This has led to the rental market growth and a new way for Wall Street to make money.
With the foreclosure industry dropping nationwide, investors are rushing to get into the business.
“We have been very pleased with how this turned out,” American Homes 4 Rent executive director, Michael J. Burns, told The New York Times, while acknowledging it’s sometimes “heart wrenching” to acquire homes that families have lost to the bank.
“Some other family is going to move in and make it their home,” he said. – Click here for link to the full article.