Fixing Massachusetts Foreclosures Won’t Be Easy

Fixing Massachusetts Foreclosures Won’t Be Easy

As we know, the top court in Massachusetts handed down a chastising banks for their “carelessnessruling” during the securitization of Massachusetts mortgages. That carelessness has clouded the title of thousands of already-foreclosed properties and creates major problems for future foreclosures.

Not surprisingly, the interests on the banks’ side have put out messages trying to minimize the significance of the decision, messages that Adam Levitin, associate professor of law at Georgetown University, dismansetles in the blog Credit Slips. More recently, the law firm K&L Gates, a major, sophisticated firm that did securitization deals, sent out a reassuring newsletter that clients should look at skeptically.
K&L’s basic pro-bank spin is this:

• Completed Massachusetts foreclosures aren’t a big problem because they’re not “automatically” invalidated.
• A complete set of securitization documents successfully transfers mortgages, and perhaps blank assignments can just be filled in, so there’s no fundamental problem foreclosing in the future.

Those claims are misleading and wrong.

The “In Blank” Problem Isn’t Easy to Fix

In order to foreclose, the bank has to show it owns the mortgage or is acting for the entity that does. For securitized mortgages, that entity is supposed to be a trust.

The trust holds the mortgages and sells securities to investors, including pension funds. In exchange for the purchase price, the trust promises to pay the investors the mortgage payments it collects. (Note, if the trust didn’t get the mortgage in the initial securitization, then it’s not clear the trust can get the mortgage now under trust law or the securitization contracts themselves, as the blog Naked Capitalism has reported.)

The trusts in the Massachusetts case (Ibanez) didn’t get the two mortgages at issue when they were securitized — or any other Massachusetts mortgages, most likely. The way the banks tried to give the mortgages to the trusts was illegal under longstanding Massachusetts law.

In Massachusetts, a mortgage owner has to name the person he’s selling the mortgage to; assignments “in blank” — without naming the buyer — don’t cut it. But as the K&L newsletter acknowledges, “assignments in blank” were used in the “typical mortgage loan securitization process.”

Are Any Massachusetts Mortgages Successfully Securitized?

Although K&L trumpets the court’s statement that a complete set of securitization contracts could transfer the mortgages to the trust, the court’s statement should give little comfort for two reasons. First, if the”typical” assignment in blank occurred before the securitization process as it did in the case, the trust didn’t get the mortgages. Second, even if a deal was unusual and involved assignments in blank only during securitization, the contracts work only if the bank can produce all the papers.

In the Massachusetts case, neither US Bank (USB) or Wells Fargo (WFC) could, despite being given a special opportunity to do so. How likely is it that the banks will be able to produce the complete papers In future cases?

So many, conceivably all, of the Massachusetts mortgages that were ostensibly securitized weren’t transferred into their trusts — and now their trusts can’t foreclose.

So what still remains to be seen is how the trust can now get the mortgages, and thus the right to foreclose on the loans? That is, assuming trust law and the securitization contracts let the trusts get the mortgages now? The traditional way would be to bring the company that executed the assignments in blank to court. Unfortunately not all of those companies still exist — and in any case, that process would add time and cost to the already lengthy foreclosure process.

Can’t Fill In the Blanks

Theoretically, an easier way would be to have the owner that signed the blank documents just give the mortgages to the trust.But problems abound there, too. As a CNBC analyst detailed,the lack of a relationship between the trust and that owner leaves no free or easy path to an assignment. And when that owner has gone out of business, that route is a dead end.

K&L’s newsletter suggests a way forward for the banks that appears to be akin to theft: “It remains to be seen whether, pursuant to its express power of attorney [from the trust], a servicer can fill in the name of a trustee on an assignment of mortgage in blank.”

That’s right: K&L is suggesting that maybe their clients can just fill in the blanks, and make the problem go away. The idea, on its face, appears fraudulent.

To understand why, consider the facts of the Ibanez mortgage. Antonio Ibanez borrowed money from Rose Mortgage Inc. Rose sold the mortgage to Option One. Option One signed a blank assignment, essentially selling the mortgage to whomever was holding onto that piece of paper. US Bank presented the blank assignment, claiming Option One sold the mortgage to Lehman Brothers Bank, which sold it to Lehman Brothers Holding, which sold it to a “special-purpose vehicle,” which sold them to the trust, with US Bank acting as the trustee.

The Massachusetts high court said no, that’s not what happened. Since assignments in blank are illegal in Massachusetts, Option One failed to transfer the mortgage into the securitization chain. Option One still owns the Ibanez mortgage.

So when K&L suggests that perhaps a servicer can just put the trust’s name on the blank assignment, in the Ibanez case it means maybe the trust can give itself Option One’s property. How can that be legal?

The reason Massachusetts says Option One owns the mortgage — the reason why the state cares whether the assignment’s blank is filled in or not — is it’s the only way to be sure who actually owns a Massachusetts home. Title to real estate in Massachusetts stays with the mortgage owner until the mortgage is paid off; the homebuyer just has use of the property. So somebody, not a blank line, has to be the identified as owner of the mortgage. It’s kind of like rent-to-own, but with much lower interest.

MFI-Miami To File Bar Complaint Against Orlans Associates For Conspiracy and Fraud

MFI-Miami To File Bar Complaint Against Orlans Associates For Conspiracy and Fraud

Traverse City, MI- MFI-Miami, LLC, a mortgage fraud investigation company, announced today that on Thursday, April 7, 2011, it will be filing a complaint for Attorney Misconduct with the Michigan Attorney Grievance Commission against three attorneys from the Troy, Michigan law firm of Orlans Associates.  Details of the complaint as follows: Marshall R. Isaacs for knowingly filing fraudulent documents into public record, Linda Orlans for allowing one of her Notaries to make false statements that they witnessed Marshall R. Isaacs sign an affidavit when he did not sign it, and Timothy Myers for perjury in the case of Lucas v. Orlans Associates and BAC Home Loan Servicing, LP (Case #10-113498-NO).

An MFI-Miami investigation concluded that BAC Home Loan Servicing did not own the Lucas loan when they initiated the foreclosure and at the time of the Sheriff’s sale as the three attorneys claim on public record and in public filings.  Orlans representing BAC Home Loan Servicing LP claim that they maintained the right to transfer ownership to Fannie Mae with a Sheriff’s Deed.  However, according to an Affidavit that was made public in February of 2011 by BAC Home Loan Servicing, LP, the Lucas mortgage was in fact assigned to Fannie Mae in 2005.

“The evidence suggests Orlans and Associates is using robo-signing to expedite the foreclosures for BAC Home Loan Servicing, LP,” said Steve Dibert, President of MFI-Miami.

MFI-Miami intends to request an investigation by the Michigan Judicial Tenure Commission into how Oakland County Circuit Judge Martha Anderson handled this case.  According to Steve Dibert, “She refused to hear key pieces of evidence of attorney misconduct committed by attorneys involved in the case.”

MFI-Miami is also be sending a copy of its investigation with a copy of the complaint to the offices of Michigan Attorney General Bill Schuette, Fannie Mae CEO Mike Williams and Acting Director of the Office of Thrift Supervision, John Bowman.   Copies will be sent to Barbara DeSoer, President of Bank of America Home Loans and Elizabeth Warren, Special Advisor for the Consumer Financial Protection Bureau. 

Survey: Cash More Popular Than Credit, Debit Card Use

Americans cut back on their use of credit cards and relied more on cash for routine purchases and bill payments in 2009, according to a recent study by the Federal Reserve Bank of Boston's Consumer Payments Research Center (CPRC).

In addition to the weak economy, new government policies and banking business practices, along with an environment of low interest rates, may also have influenced consumer payment preferences during that time period, according to a statement.

The average consumer made 64.5 payments per month in 2009, down slightly from the 67.4 monthly payments reported in the 2008 survey. Debit cards were still the most commonly used at 19 payments per month, with cash second at 18.4.

In 2008, consumers reported 21.2 debit card transactions per month and 14.5 cash transactions. The average consumer also kept more cash on hand in 2009: $291 per person compared with $230 in the 2008 survey.

"It appears that the business cycle and payments-related public policies had a notable impact on the composition of consumer payment use in 2009," said Scott Schuh, CPRC director. "For many years, consumers had been migrating away from paper instruments toward cards and electronics."

Schuh added: "In 2009, consumers reversed that trend and moved back to more reliance on cash. The findings raise the important question of whether this move signals a permanent reversal or a transitory response to the severe recession."

The results from the 2010 survey are expected later this year.

Short-sale proposal with banks: Proposed settlement would force banks to allow short sales for delinquent homeowners

Short-sale proposal with banks: Proposed settlement would force banks to allow short sales for delinquent homeowners 

Major banks may be forced to let severely delinquent homeowners sell their houses for less than the loan amounts owed as part of a broad settlement of federal and state investigations into botched foreclosure paperwork, according to government officials involved in the negotiations.

The requirement to allow so-called short sales would be in addition to forcing mortgage servicers to reduce the amount some homeowners owe on their loans, said two officials, who spoke on the condition of anonymity because negotiations are ongoing.

The goal of short sales would be twofold: provide a quicker and more economical way for banks to dispose of distressed real estate and to help stabilize the real estate market by clearing out a backlog of defaulted mortgages that are poised for foreclosure.

They would be used in situations in which borrowers were so underwater that the more costly and time-consuming process of foreclosure would seem to be the only option.

"Short sales just command a better premium than foreclosures," said Glenn Kelman, chief executive for online brokerage Redfin. "It's like day-old bagels. They never sell for the same price. If they sit there for a while, nobody wants them because houses just break down when they are left alone."

Foreclosures continue to drive down housing values, with prices in 20 major U.S. cities down an average of 3.1% in January compared with the same month a year ago, according to new data from a Standard & Poor's/Case-Shiller index. Prices in Los Angeles were down 1.8%

Mass O'Brien Gets OK from Treasury to pull funds out of BofA

The Boston Business Journal reported today that John O'brien was given the ok by state treasury to pull millions out of Bank of America and deposit the funds into comminity banks. Story follows:

South Essex Register of Deeds John O'Brien said he has received a green light to withdraw what could be millions of dollars from accounts at Bank of America (NYSE: BAC).

O'Brien threatened to pull the money to protest the bank's participation in the Mortgage Electronic Registration System, or MERS — an organization set up by banks that lets them assign mortgages to new owners without filing related documents at registries of deeds. O'Brien argues banks have used MERS to deny the South Essex registry millions of dollars in fees to which it is entitled.

Senate committee clears bankruptcy courts to set up foreclosure mediation  S. 222

Thursday, March 31st, 2011

The Senate Judiciary Committee voted Thursday in favor of a bill that would give bankruptcy courts nationwide the authority to set up foreclosure mediation programs.
Voting on the Limiting Investor and Homeowner Loss in Foreclosure Act, or S. 222, was delayed earlier in March. The bill was sponsored by Sen. Sheldon Whitehouse (D-R.I.). Judges have set up mediation programs in several bankruptcy court districts in New York, Florida, Iowa, and Connecticut. But banks have contested such action in Whitehouse's own state, Rhode Island, where a program was set up in 2009.
The Rhode Island Bankruptcy Court ruled against Deutsche Bank, which challenged the program, in January. Whitehouse said the prospect of future appeals and litigation continue to threaten the program, thus his legislation.
"Too many families in Rhode Island and throughout the country have been hurt by a broken foreclosure system fraught with long waits on the phone, lost paperwork and an inability to speak with someone who’ll give their last name or make a decision," Whitehouse said. "By bringing together homeowners and mortgage servicers for a face-to-face negotiation, the Rhode Island bankruptcy court’s foreclosure mediation program helps streamline that process and has already saved at least 120 homes."
Republicans argue that the bill only prolongs foreclosure timelines and the housing recovery.
"I understand the problem," Sen. Jon Kyl (R-Ariz.) said in a previous hearing. "But the sooner we get the cases resolved, the sooner we get to the bottom of the real estate market, the sooner we get to recover."
Still, Whitehouse said the bill puts an end to the legal challenges and encourages districts to adopt a program.
"This program will not prevent all foreclosures, but it can at least ensure that the big banks and mortgage servicers, whose practices contributed so much to the nationwide housing crisis, are giving families a fair chance to stay in their homes," Whitehouse said.

House Votes to Scrap Foreclosure Program 

Republicans, ignoring a veto threat from the White House, pushed a bill through the House on Tuesday that would eliminate a foreclosure prevention program that provides financial incentives to mortgage servicers who modify loans for homeowners who are behind on their payments.

The House voted 252-170, mostly along party lines, to terminate the $30 billion Home Affordable Modification Program and redirect unspent funds toward reducing the deficit. Republicans argue that the program forces taxpayers to bail out banks at a time when budget cuts are needed to strengthen the economy. The lawmakers also say the program has failed to prevent many foreclosures and has left some homeowners worse off.

Representative Judy Biggert, a Republican from Illinois, described the program as one that was “set up in haste” and had “done little to restore stability in the market.”

“We need to stop funding programs that don’t work with money we don’t have,” she added, repeating a refrain Republicans have used often in the budget debate.

Republicans introduced an identical bill last week in the Senate, although the Democrats who control the chamber have so far shown no inclination to follow the House’s lead. The White House has said the measure will be vetoed if it reaches President Obama’s desk. Democrats, who acknowledge the program’s shortcomings, say repealing the program would eliminate a viable alternative to foreclosure and further undermine the housing market recovery.

“Yes, the HAMP program has a lot of problems,” said Representative Barney Frank, a Massachusetts Democrat, on the House floor. “But, the absence of any program leaves homeowners worse off.”

The vote is the fourth time this month that House Republicans have approved eliminating government assistance for homeowners and neighborhoods that have seen property values fall since the housing bubble burst.

Bank Bailouts in the Black, Watchdog Asks "And the Toxic Mortgages?"

03/31/2011

The bailout programs that propped up the nation’s banking system are now said to be in the black.  According to the U.S. Treasury, the investments it made in banks, beginning in 2008, to prevent the sector from folding under the weight of the nationwide financial crisis have now turned a profit.

Recently, three more financial institutions repaid a combined total of $7.4 billion in Troubled Asset Relief Program (TARP) funds Wednesday. With these proceeds, taxpayers have now recovered $251 billion from TARP’s bank programs through repayments, dividends, interest payments, and other income.

That exceeds the original investment Treasury made through those programs ($245 billion) by nearly $6 billion.

“While our overriding objective with TARP was to break the back of the financial crisis and save American jobs, the fact that our investment in banks has also delivered a significant profit for taxpayers is a welcome development,” said Treasury Secretary Tim Geithner.

Treasury says the only outlay which it doesn’t expect to be recovered is funds disbursed for foreclosure prevention programs.

One of Treasury’s harshest critics, TARP Special Inspector General Neil Barofsky, cast his own dark cloud over the program’s proclaimed success, even as his final day in office approached.

Barofsky officially stepped down from his post Wednesday. Inan op-ed piece in the New York Times Tuesday, he wrote that while TARP has pushed Wall Street to profitability again, it has done little to honor the promises made to Main Street.. 

Barofsky reminded readers of the original intent of TARP, the intent that was put to lawmakers when they voted on the controversial $700 billion program – to buy up toxic mortgages.

“Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the [legislation] expressly directs the department to do just that,” Barofsky wrote.

But, “almost immediately,” Barofsky said, “Treasury’s plan forTARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending.

“Treasury, however, provided the money to banks with no effective policy or effort to compel the extension of credit,” He said. “There were no strings attached: no requirement or even incentive to increase lending to homebuyers, and…not even a request that banks report how they used TARP funds.”

Barofsky continued, “Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals…may have so damaged the credibility of the government as a whole that future policy makers may be politically unableto take the necessary steps to save the system the next time a crisis arises.”

Treasury officials say they believe the bank bailouts will ultimately provide a lifetime profit of approximately $20 billion to taxpayers. And with the profit reaped from the banks, TARPas a whole – including foreclosure programs, support for AIG, and the auto industry bailout – will result “in little or no cost to taxpayers,” Treasury said.

Critics of the program, though, aren’t putting much faith in Treasury’s claims. Rep. Patrick McHenry (R-North Carolina) is chairman of the House’s oversight subcommittee on TARP and bailouts.

He told the New York Times, “The estimates have been consistently off and Treasury has consistently changed the metric for success. In the beginning, they weren’t touting payback – they touted effectiveness. Now, they are touting payback but ignoring the moral hazard this program has created.”