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I would also suggest that some of the crankiness of the federal judges comes from their dislike of having to handle cases of a more local nature and having these cases clogging up their docket. The foreclosures don't have to be filed in federal court; they can be filed in the local county court where the property is located. All I can think is that the foreclosure lawyers figure the more remote federal judge will have no problem ordering the sale, whereas the local judge might be disinclined to order a sale on his/her neighbor. (I don't think that's true, just that some of the lawyers or the banks think that.)
modifying only certain specififed terms of the original mortgage and note.
tybo.
ELS, I was given the impression that the benefit of going to Federal Court is just the same old "efficiency" thing: one attorney, one court, 26 filings involving several different counties and hence several different state court districts.
If this isn't true I've been misinformed, but that's what I'm told. So the Federal judges just aren't very happy about being one of the corners getting cut.
tybo
Yeah? How do you know "specififed" isn't a real mortgage term? The industry that brought you Moe, Curly, and Larry could very easily have named one of its practices for Barney.
(thanks for being my spell-checker)
What do you think the odds are that they purposely mis-matched the county foreclosures? That is, they could be doing 10-26 per county but instead are trying to batch produce them?
thanks for posting a new article, I was going through tanta withdrawal.
Yeah? How do you know "specififed" isn't a real mortgage term?
mortgage people don't come up with funny homages to Barney...they come up with "Hope Now" and such...
BDz- Did you ever watch the Andy Griffiths Show? Are you old enough to have seen it?
i've heard of it, so i get the barney fife reference, but no i've never seen it. hey, it took Tanta telling me about Blazing Saddles for me to see that.
I also have the strong impression that the state courts were the ones who let them get away with sloppy FC filings for so long that it became, in the attorneys' minds, "the way things are done." Read Boyko's order, and it sounds like he's saying that he doesn't care what kind of crap state courts let these people get away with, in his court they're going to follow the rules.
So I don't think they were jurisdiction shopping because they were looking for leniency in terms of thinking that a Federal judge would be more likely to rule in the plaintiff's favor. I think they were just trying to save time and effort by making all their filings in the same court. That backfired because Federal judges don't enjoy being treated like Costco.
Now Tanta,this business model worked SO WELL with appraisals they just decided to apply it to the legal process.I am sure the bean counters were humming happily as they plugged in the assumptions and saw those lovely numbers pop out.
Now that I think about it, the other Barney isn't a bad idea either.
I hate you, you hate me
Judge dismissed my last FC . . .
Some of us should go up to Ohio and start my own Foreclosure Mill...
...with hookers and blackjack.
...on second thought...forget the Foreclosure Mill.
...and the blackjack.
(maybe some who got the bacondreamz "Leroy Jenkins" reference will like this one.)
Re the state v. federal court question, I think it's some combination of the factors both Tanta and ELS discussed, though it really is all speculation from such a distance. It could well be that some local state judges are "slow-walking" foreclosure actions to help the locals. I can see the "efficiency" argument in filing in federal court as each federal district encompasses a whole bunch of counties. However, if I were the lender's lawyer (and thankfully I operate in a different part of the foodchain) I would not have filed in federal court out of fear of the very thing that happened here: federal courts generally hold the litigants to higher standards, they aren't crazy about doing mass formwork that in their eyes "should" be in state court (and foreclosure really is a classically "local" issue), and federal judges can be really cranky sometimes (lifetime appointment and all). My guess is that the real impact of the Ohio decision is that there won't be too many foreclosure actions filed in federal court anymore. Which may have been the judge's goal in cutting the lawyer a new ..uh...anatomical structure.
Oh, and Tanta, great post here and great comments over at Naked Capitalism.
Can someone explain why the judge doesn't just go through the list: "This one is a local jurisdiction, and this one, and this one..."? ISTM that going straight to Federal is going to run afoul of all the States new legislation requiring attempts at workouts and such.
ISTM that going straight to Federal is going to run afoul of all the States new legislation requiring attempts at workouts and such.
Robert Coté | Homepage | 12.01.07 - 12:17 pm | #
Such is my respect for you that it took me a while to realize that this is a typo,...right?
I bet you'll see the Bush Administration (if not Paulson) start backing off the mortgage modification plan soon, for reasons Tanta raised here. This plan has no teeth. It doesn't give homeowners rights to go into court and say: "My mortgage should have been modified under the guidelines, but wasn't."
But a lot of homeowners and their lawyers will argue that it does, at least morally. They'll petition the courts to grant moratoriums or modifications. The already harried courts will just become a mess. The publicity that makes lenders and servicers look like Simon LeGrees will intensify.
This was a good post, very insightful.
ahhh, It Seems To Me, sorry, I get it.
Robert:
If there is "diversity" and the amount in controversy exceeds a set amount, then you can bring the case in either federal or state court. "Diversity" basically means the dispute involves residents of different states (which I guess was the case with the lenders and borrowers in Ohio). The theory of diversity jurisdiction is that it prevents out of state litigants from being "home-towned" (at least that was the idea in the 19th century when it was cooked up). The law that governs is the law of the state (unless there is some federal law question, which would independently justify federal court jurisdiction) The federal court has to exercise jurisdiction if you file a diversity case, but they are often hostile to it, as they view their proper role to be deciding questions of federal law rather than just being turned into a super state court.
I know that this is primarily couched as clerical error or slovenliness, but it seems to me there's a good chance Judges will start giving only one bite at the proverbial apple (especially as the number of foreclosures escalates). Either come to Court prepared, or I'll throw your case out. Lack of due diligence on the part of one party is not the Court's business or concern. If opposing counsel is smart, they'll move for costs and sanctions.
"Further, the attorney who filed the twenty-seventh foreclosure action is hereby put on notice that failure to comply with General Order 07-03 in the future may result in immediate dismissal of the foreclosure action."
Tanta,
That little bit of the judge's order is getting closer to a solution.. but I think they should go a little further and set up terms that would exclude lawyers and/or law firms from filing foreclosure actions if some percentage of their filings over a certain time period fail to comply with the requirements.
Then.. law firms might spend a little more time gathering documents and the banks would have to pay a little more per foreclosure. But, at least the court wouldn't be bogged down in bullshit.
It'll be hard enough processing all these different modifications and foreclosures over the next few years.
rich, I think you're right about the Paulson modification plan. Should be even less viable than MLEC.
[Asked about the proposal on Friday, presidential press secretary Dana Perino said, "The president has been clear that no taxpayer money should be used for any sort of bailout."]
Expired
Uncle festus has is right. Federal judges don't like to be bothered with stuff like this. Especially mass filings. Hence the hostility when one of the plantiffs pointed out no docs, no proof.
Kinda inconvenient, but matches up with what I personally witnessed in BK Court of Arizona in back in October.
Chief Judge Redfield T. Baum was unamused when the bank attorney could not produce proof of the lien after a month had passed, gave them 30 days to produce proof or the lien would be dismissed.
I would say the feds don't care about how the docs are currently traveling the usa in the back of a forty foot semitrailer looking for a servicer.
I think the mods are a desperation tactic that will backfire. On the other hand, nobody else seems to be stepping up with any suggestions that make sense in the public mainstream media realm.
Tanta, you can shape the argument, now what is your optimal solution to this entire mess?
Someday this war's gonna end...
Paulson - " We developed a great rather complex plan for a procedure to save the housing market. Unfortunately, when we arrived in the operating room to try our experimental plan on the patient, we discovered he was already dead."
Tanta, you can shape the argument, now what is your optimal solution to this entire mess?
A fairly simple one: the actual true cost of servicing loans needs to be loaded into the cost of servicing loans that we use for calculating "MSR" on balance sheets and pricing securities and all that shit.
The true costs involve: preparing and executing valid assignments at the time of the loan sale. Reviewing them before releasing funds. Holding them at a reputable custodian. Having a foreclosure process that involves pulling all the documents from the custodian first, and sending them to your local counsel first, before authorizing anyone to proceed with a filing. Entering into contracts with local attorneys based on quality work and performance, not "low bid."
In other words, all the shit we used to do ten years ago. Blindingly obvious elementary shit.
Nobody is puzzled about what to do. A whole bunch of people are puzzled about how to do it and how to keep the same valuation of servicing rights or trustee fees that we have here in the go-go world of "efficiency." Well, you can't do it right and claim that servicing rights have the same value they do if you can do it cheap and get away with it.
Valuation of servicing rights and recongition of servicing income is a complex subject, but at the end of it that's what it comes down to. All the costs that we "saved" by using FC mills have to get "added back," and once you do that, there isn't enough money on the table to make the wild securitization machine/mortgage mill/endless refi machine work out.
Also, I think the "we'll just toss out your case" method isn't necessarily as good an approach. Since, the lawyers should know how to comply.
It's not like the judge is making an arbitrary decision about whether the lawyer has filed the appropriate paperwork.
Either the lawyer is ignorant, lazy, both or a punk who won't follow the law.
So.. you could set up an incentive structure. Lawyers are rewarded for having a "very low" (whatever that means) percentage of their filings rejected.. and they are punished for having a "very high" percentage of their filings rejected.
If you just toss out the filings.. that doesn't necessarily encourage a lawyer not to be sloppy. It could just encourage them to make even more filings.
Marcus:
Just a guess, but I think that judges will be more inclined to sanction the lawyers than to dismiss the cases. I think dismissing the cases "with prejudice" (i.e., you can never file it again)would be too harsh and would not stand up on appeal (I mean, should the borrower get off the hook on the mortgage for this kind of snafu?). Dismissing them without prejudice just means they'll file it again when they have their ducks in a row. Sanctioning the lawyer really gets their attention, as it hits them where they live (
. It's like being financially tasered.
Poole is full of s*it -
1] If an insurance company provides a premium discount for a driver with a certain number of years without insurance claims and the discount in fact encourages safer driving, then that effect is not moral hazard.
He is comparing apples with oranges. What happens when you do get in an accident? Your car insurance premiums balloon over the next few years and at the end of the balloon period most of insurer's loss is negated. If you get into another accident during the same period, you can forget about any insurance company willing to work with you.
Insurance companies control moral hazard by hiking premiums and not by opening discount window.
2] He talks about maintaining "stable price levels" . What the he*ll were they doing from 2002 - till now??
So.. if a lawyer risks being locked out of filing foreclosures in the courts for some time period due to a high percentage of rejections, then they will spend more time collecting paperwork, and they will have to charge more to file foreclosures.
If 26 FC's show up in a court are there 26 'opposing' parties represented? How is that handled? Please enlighten my ignorance, never having imagined this situation before. I can't really imagine up to 26 opposing counsel at each hearing, but how else could it proceed?
Any suggestions on an alternative to mass mods (other than doing nothing?
I know this is all really mystifying if you don't work in the industry, but really. Cut through the legalistic concepts of recordation and standing and diversity and all that and it's a very simple thing:
I am a servicer. I have a loan that is now 3 months past due, and I need to start FC proceedings. I go into my database and find out who owns it, and therefore who is the custodian for that owner. I send a simple pre-printed request form to the custodian (in the mail or electronically) that lists the docs I want, the reason I want them (you check off the box that says "initiate FC process"), and the authorization (it used to take a signature). The custodian sends the original documents to you.
You review them, assure yourself that you are proceeding correctly, then forward them to your local attorney (originals or certified copies, if you're allowed to file with copies). The attorney attaches them to the FC filing and Bob's your uncle. If it turns out one or more assignments need to be recorded first, you send the original executed assignments to the county yourself, or you just forward them to your local attorney with instructions to record first, then file the FC complaint.
Not. Anything. Close. To. Rocket. Science.
But it is, you see, a "redundant" expense, since you have an employee of the servicer reviewing the docs and touching them, instead of everything going straight to a local attorney from the custodian. That "redundant" expense looks, I posit, like a pretty damned good deal once your reputation has been dragged through the muck as a "predatory servicer."
I can not read the full WSJ article since I don't have a subscription. So I will just make some general comments.
Some Banks do specialize in purchasing problem loans, Beal Bank and Ocwen are two that come to mind. No, Banks don't start forclosures on notes and then buy the notes, but I don't think many people actually percieve it that way. Ok.. sure some people percieve it that way because they want to think the worst, I just don't think it that many people.
My reading indicates that law firms in OH have only recently started using the Federal Courts in OH because there is a huge backlog in some of the County Courts. It is not because it is more efficent to pool a group of foreclosures into one regional Federal Court. There is just no reason to believe it is motivated by economies of scale.
Many of the foreclosure mills will use the "1,000 per foreclosure fee" ($750 in my area) as a loss leader and make that up in garbage fees, eviction fees, Title Insurance kickbacks, reinstatement fees, etc...
Big Dysfunctional Buearcreacies using corner cutting law firms (officers of the Court) to conduct shotgun foreclosures and other actions without adequent research and documentation is a very serious problem. Most foreclosure mill law firms utilize green law school grads that are beholden to the BDBs and will sign any affidavit the BDBs ask them to sign. 98 times out of a 100 the affidavit is accurate and no harm no foul. But in the other 2% of cases, innocent parties are forced to spend time and money defending themselves in Court. Yes it is all reversable, but if you have ever been the victim of a wrongful forclosure or eviction by a BDB you will realize that Courts are reluctant to award legal fees to the wronged victim, and you have no chance of getting that time back. As an investor I have had to defend against seven such wrongful suits and have only been awarded attorney fees and damages in one.
If 26 FC's show up in a court are there 26 'opposing' parties represented?
OK, now I see what your question is. I didn't get it at first.
This is really 26 different cases. There are 26 different properties, and thus 26 different homeowners as the defendants. (There might only be three or four different lenders involved, but there could, theoretically, be 26 different lenders.)
It was just that there was one attorney that put 26 cases on Judge Rose's docket all at once, and all 26 of them were FU.
So it's not one case in which 26 properties are being foreclosed. It's 26 cases on one court docket.
sdtfs,
it is predicated on no opposing parties, just one can ruin the day and they quickly partition the case to remove the active party.
Easy.
Tanta,
While I agree with you in principle, the real question becomes funding again. I argue that there should be sufficient funding available from these loans, as costs of foreclosure are traditionally paid first. I think that the servicers should not front foreclosure costs to pools of investors, I notice that individual investors have to pay their servicers fees to start the foreclosure process, unless the title company is willing to front those costs.
Make the pools lower their returns to flush more money into foreclosures, or accept more mods. No matter what, these investments at the end of the housing boom were destined to be underwater, now Wall Street should recognize the danger in the age old problem of borrow short/ lend long.
Term and risk mismatches are what Wall Street has been lying about, and they should all pay the price.
We should do a national housing savings bank, and wall street get's nothing from it, and offer to pay the equivalent of cd's to the public and insurance companies who purchase directly.
Wall Street fubared this system, they shouldn't be rewarded, but instead punished.
Cut them out of the entire system, so the source of hot money is gone and it costs 1.5% more to finance a house, but it would be stable financing. A giant national housing S&L.
Someday this war's gonna end...
Chris Thornberg Bloomberg video on the Paulson plan. I don't think he's impressed. You need to scroll down a little...
Bloomberg.com:
Editors' Video Picks
LMC proposal is a DWTH.
think that the servicers should not front foreclosure costs to pools of investors
I think that's a complicated issue right there.
If servicers are always only spending OPM, they have little incentive to move quickly and get it done. They can drag on for months, collecting their servicing fees, while the thing languishes.
If you make servicers advance the costs, with the understanding that they don't get reimbursed until the property liquidates, they have skin in the game.
True, but is the amount the servicers are having to front growing faster than they can finance it?
Low fees means low cashflow and limited financial means.
Maybe a partial carry would be a better idea- they have to advance a percentage of the estimated costs for a simple fc and if actively opposed, more. I wonder if deed of trust states with courthouse steps are cheaper to deal with, since the process is nonjudicial in nature.
Someday this war's gonna end...
This post might well have been written by an attorney. Please accept my compliments.
Tanta, isn't the whole point that it's a little late to figure out the details after the fact? This isn't a lot different from setting out on a trip across the country from LA to NYC and after a few days of aimless travel, then looking at a map.
No, Banks don't start forclosures on notes and then buy the notes, but I don't think many people actually percieve it that way. Ok.. sure some people percieve it that way because they want to think the worst, I just don't think it that many people.
I don't know how many people in the whole USA perceive it that way, but the people who keep sending me emails referencing this blog post seem to believe it:
Then a stroke of luck: A Legal Aid lawyer, April Charney, got the foreclosure withdrawn after discovering that the company that filed to foreclose didnt own the Tuckers loan. The owner was actually a securitized pool of loans overseen by Deutsche Bank (nyse: DB - news - people ). And Charney has documents showing the pool bought the loan after the Tuckers defaultedan illegal purchase for most pools, including this one. That means a court might refuse to recognize it owns the loan. Charney is arguing it should do just that.
It would, actually, be illegal for a static REMIC pool (which cannot buy or sell loans after the deal closes or else they lose their REMIC status) to "purchase" loans that are in default.
But of course I'm arguing that they didn't; they purchased the loan when the REMIC deal was put together. They just didn't file an assignment that showed that.
But there is never a shortage of sensationalists on the web, or defendant's counsel who like to believe they've stumbled on the next Enron instead of shoddy legal work.
Foreclosure Fighters – April Charney | LoanWorkout.org
That "redundant" expense looks, I posit, like a pretty damned good deal once your reputation has been dragged through the muck as a "predatory servicer."
Tanta,
I think that.. eventually a large bank might respond to that sort of incentive.. but I believe that one of the bigger issues with these large institutions is that... the decisions are made by relatively anonymous individuals within the organization. There is no Mr. (or Ms.) Bank of America who wakes up in the morning and frets about his/her reputation.
That's how you get goofy shit like what happened to dumb ole Bob Citron. It made no sense why any organization would let him enter into the derivatives contracts he did. But, some kid probably was getting good commission selling to him.
Same thing with cranking up the foreclosure machine. Some individual is sitting at a desk. They are reviewed using metrics like "What was the average foreclosure cost for this quarter?". There may be no metric for "By what percent did you increase our organizational integrity this quarter?".
So.. they just go cheap and close their eyes and hope for the best. (or, at least, this is my guess).
Now, a law firm or lawyer that stands to profit from every foreclosure they file, will have a direct incentive to make sure they keep the privilege of accessing the courts so they may continue to file foreclosures.
If better leadership existed within these banks and other organizations, it would make sense that "it" wanted to maintain integrity since there would be someone trying to run "it". But, I'm guessing we are where we are since there is no real, respectable leadership.
This is really 26 different cases.
Exactly. 26 local cases were filed in Federal court because it was convenient for the filing lawyer. Not coincidentally very, very inconvenient for anyone intending to oppose the action. Things like foreclosure should not be fast easy, and opaque. Sure, the loan lending process was fast, easy and opaque but two wrongs don't make a right.
A little OT:
Tanta:
What are the implications for MBS when a securitized loan gets a mod? Can they do that? Wouldn't this have HUGE reprocussions on the MBS/ABS/CDO markets?
I wouldn't worry about proper citation since your not discussing something that features the impact of case law.
I would put the name of the case first, then the name of the court.
So,
In re ______________, MDNC
"It's annoying when regular old newspapers don't get basic business practices. It's appalling when the WSJ doesn't."
I'm way, way, past the annoyed appalled stage. Welcome to the reality zone, otherwise known as, the dumbing down of America.
There may be no metric for "By what percent did you increase our organizational integrity this quarter?".
Bingo. There never is any such "metric." Headline risk is not an easily quantifiable thing.
And I say this as someone who used to get the "obstructionist" label at work all the time. The trouble was, I could never "quantify" the money I saved the company by "obstructing" bad decisions. I mean, if I put my little foot down and refused to authorize release of funds to buy a pool of loans because I didn't have the assignments in hand, and then I eventually got the assignments and I let the deal settle, the only thing the books showed was that the whole deal cost a few dollars more than it would have if I had caved in (because we didn't start earning interest on those loans until we bought them, and we had to keep proceeds in escrow (very low yield) while I bitched about assignments. The only thing I could offer as "offset" was a horrified "what if": "But what if we had gone ahead, and then had to FC on a couple of loans, and the assignment screwup got caught by a Federal judge with a cranky attitude, and it got blared all over the NYT and the WSJ that we're a bunch of incompetents, or worse?" I'd say. They'd say, oh, come on.
Tanta et al -
What WOULD be the incentive for a loan already in "default" or "non-performing" to be sold INTO a trust?
And one thing that really needs to be looked at is the relationships that foreclosure mills have with other entities in the process - for instance the auction houses that handle the FC sales. The owner of the mill (Mark Harmon) that I was up against (Harmon Law Offices) is also an owner of Commonwealth Auctions. I did a quick chec a few weeks ago by pulling 21 pending NH FC sales at Commonwealth Auctions . I then compared those sales to public notices being advertised - Public Notices . 17 of the 21 auctions being handled by Commonwealth were a result of FC actions being handled by HLO. I checked again yesterday and found another dozen. I've also found the same thing in MA FC situations as well.
Then you've got the USFN - United States Foreclosure Network. USFN | Home I believe. This entire network is devised to allow FC mills to share information and ideas about what works in each state for FC actions. While nothing inherently wrong may be taking place it DOES show a coordinated effort by the FC mill industry to streamline FC cases. I've got a copy of their NMSRD to prove it.
Thoughts?
True story: I actually was once involved in a situation sort of similar to this. Some borrower had asked for a modification to get back on track with a loan; some person at the company had indicated that this would be done; the proper notation in the system didn't get made; someone else started FC proceedings; the borrower's daughter called the company one day in a right state and demanded to speak to the President; the President wasn't available but the receptionist happened to see me standing outside my office door and said "Would a VP be OK?" and that's how I got sucked into it.
Anyway, the borrower in question had had a terrible accident and was in a wheelchair and was also a beloved nurse at the local hospital and volunteer in all sorts of good causes and basically the kind of individual whom the community loves. The daughter explained to me that either the FC filing would get withdrawn in 24 hours or her next call would be to the local paper. I am a former lit major, but it doesn't take my trained imagination to guess what the newspaper article would look like: SCROOGE FEDERAL THROWS INJURED ANGEL OUT IN SNOW.
I really admired the daughter's tactics, too.
And it worked: I hustled my skinny little butt over to the Servicing Department and started throwing people and furniture around and otherwise raising hell until someone straightened it out. (It was a big bureaucratic SNAFU that nobody wanted to own, or else it would have been straightened out sooner.)
I used that episode in training sessions for years: Things You Don't Want To Read in the Paper. The fact that we never had any intention of throwing a handicapped woman out on the street was and is, I told my trainees, immaterial. The issue is if you let bureaucratic screwups go uncorrected, the press may well correct them for you, and you'll be sorry you let that happen.
haha, i wish i worked at Tanta's office, i would give anything to see her throwing people and furniture around first hand! i picture everyone slinking down in their chairs, going silent, and burying their heads in files when she walks into the room.
What WOULD be the incentive for a loan already in "default" or "non-performing" to be sold INTO a trust?
Why do entities buy nonperforming loans? Because they can pay pennies on the dollar and have the chance to cure them. This goes on all the time, whether the loans are securitized or not.
It doesn't much matter whether the buyer is a trust or not. Technically, however, "nonperforming" or "reperforming" loans are securitized as such. In other words, it's just like a securitization of performing loans: you go buy a bunch of nonperforming loans (for pennies on the dollar), you put them into a newly-formed-for-the-purpose security that you sell to high-risk-appetite investors, and you go from there.
I have never heard or read of one documented case of a security trust that was formed to own performing loans going out after the deal closed and buying nonperforming loans. If that has ever happened, then the trust lost its REMIC status. That's kind of an expensive penalty to pay for whatever yield you think you can get on a couple of junk loans.
i picture everyone slinking down in their chairs, going silent, and burying their heads in files when she walks into the room.
I once got a very angry email from a trader who worked four floors up from me. He had heard that one of these kinds of problems had landed in my lap, and that I had stomped over to the funding department and "solved it." He was angry because I didn't tell him that I was going to do it so he could come down and watch. Tanta on a Tear was considered better than teevee up in Trading. (They should know; they often had had problems that I had "solved" for them.)
I actually never threw anything. But I became very good at standing in the middle of the department and yelling "NO ONE WILL LEAVE THIS AREA UNTIL I AM HAPPY. I CAN YELL LONGER THAN YOU CAN HIDE UNDER YOUR DESKS."
I did once threaten to chain myself to the Investor Accounting Supervisor's desk and sing "We Shall Overcome" until either a payment got reversed or they sent the National Guard in for me.
Tanta,
This situation is tailor-made for a strong executive branch focused on the welfare of the public and willing to champion them against big business.
FDR would grab this situation. So maybe JFK or LBJ.
But not Ronald Reagan or his pale imitation, George Bush. I listen to every word of the Republican debates, because it's interesting how they are running as fast as they can into the Reaganesque past, where so few U.S. voters live. There's a good editorial in today's New York Times about how violent and macho the Republican imagery has become.
Bush's administration has been about giving big biz as much rein as possible and otherwise neglecting consumers and their problems. He's gonna get behind this deal, with all the Iraq/Iran mess on his plate?? Don't think so.
I did once threaten to chain myself to the Investor Accounting Supervisor's desk and sing "We Shall Overcome" until either a payment got reversed or they sent the National Guard in for me.
Somehow I don't think that would have been enough soldiers regardless.
One heck of a service ribbon for the survivors however.
Maybe the msr assets need to be revalued to reflect the cost of actually properly servicing the mortgage.
From the wfc 10q:
"Under FAS 156, which we adopted January 1, 2006, we elected to use the fair value measurement method to initially measure and carry our residential MSRs, which represent substantially all of our MSRs. Under this method, the MSRs are recorded at fair value at the time we sell or securitize the related mortgage loans. The carrying value of MSRs reflects changes in fair value at the end of each quarter and changes are included in net servicing income, a component of mortgage banking noninterest income. If the fair value of the MSRs increases, income is recognized; if the fair value of the MSRs decreases, a loss is recognized. We use a dynamic and sophisticated model to estimate the fair value of our MSRs and periodically benchmark our estimates to independent appraisals. While the valuation of MSRs can be highly subjective and involve complex judgments by management about matters that are inherently unpredictable, changes in interest rates influence a variety of assumptions included in the periodic valuation of MSRs. Assumptions affected include prepayment speed, expected returns and potential risks on the servicing asset portfolio, the value of escrow balances and other servicing valuation elements impacted by interest rates"
I doubt if their dynamic and sophisticated model fully accounts for the impact of the costs discussed in this article.
WFC has $18 billion booked as the fair value of msr's. And about $50 billion in capital.
I like the stories better but I don't have any good stories, being a big picture person and all.
NO ONE WILL LEAVE THIS AREA UNTIL I AM HAPPY. I CAN YELL LONGER THAN YOU CAN HIDE UNDER YOUR DESKS.
if i worked for you, i would keep a copy of ulysses, a flashlight, a large bag of pistachios, and a week's supply of water under my desk.
I can think of a couple more reasons why a foreclosure attorney might file in federal court.
Robert is correct that many attorneys believe federal court gives them an advantage because it is more intimidating or inconvenient to individuals.
Federal court also has electronic filing throughout most (if not all) of the country now. It is very quick and easy, especially compared to sending a messenger to a county outside your metro area.
Crowded state dockets also seem like a plausible explanation, although I haven't seen that yet in Arizona.
Any suggestions on an alternative to mass mods (other than doing nothing?
Doing the old-fashioned case-by-case mods, with the benefit of the doubt given to the borrower if the servicer can't conclusively show which way (FC or mod) is best. This would be helped along with legislation giving servicers a "safe harbor" against litigation by investors, as long as the servicer proved they used good methods and had reason to believe the mod was in the best interests of the investor (the trust as a whole) or at least neutral.
In other words, we don't need Hank the Buddy of Lenders helping them get through a spot of bother.
We need Hank the Treasury Secretary using the bully pulpit to 'splain to lenders that they either staff up and deal with the mess they made or they talk to the DoJ about it. The other side of "yeah but a lot of these loans were fraudulent" is yeah, a lot of them were. But it could take a lot of time and headlines for the DoJ to decide that it was the borrower's fault, not the lender's. You know. Do you want to go there, asks Hank?
I have said before that servicers aren't currently staffed up to do what needs to be done. I have never tried to justify it. I think you have to threaten them to get them to behave, and what the hell do we have a Treasury Secretary for if he won't throw people and furniture around from time to time?
WFC has $18 billion booked as the fair value of msr's. And about $50 billion in capital.
I don't even know if Wells was actually the owner of the MSR in the case cited.
I do know that in the Deutsche Bank case, it was the security trustee. I saw no evidence that it was also the servicer and so the MSR was also on its balance sheet.
WF is the Master Servicer/Trustee for a whole big bunch of securitizations, even though it does not own the MSR outright on most of those deals. But WFC is the name that got printed in the paper, not the owner of the MSR.
The issue is that securities with WFC, a very reputable bank, as Master Servicer or Trustee, trade better than securities with GMAC or some other outfit known to take the low road whenever it presents itself.
You can't tell me that hits to WFC's reputation don't end up costing someone money somewhere.
My biggest problem is that it costs all the rest of us money somewhere. More market panic; more runs on banks; more FDIC insurance depletions, etc. We all pay for "headline risk."
Hope Now has a web site that presumably will provide up-to-date status.
Web site up before the program exists? That must be the nimbleness the Fed guys were talking about.
I can't believe that the gov't is going to freeze the rates on the speculators and screw the people that were being fiscally responsible and actually saving money to buy a home they could afford.
"So.. you could set up an incentive structure. Lawyers are rewarded for having a "very low" (whatever that means) percentage of their filings rejected.. and they are punished for having a "very high" percentage of their filings rejected.
If you just toss out the filings.. that doesn't necessarily encourage a lawyer not to be sloppy. It could just encourage them to make even more filings."
Tossing the files definitely encourages a lawyer not to be sloppy. And an incentive structure already exists -- it's getting more work from your client. I suspect that the law firm involved in (mis)representing Wells Fargo won't be seeing many more files sent it's way...by Wells Fargo or any other lender.
The domain name comes back as Verio Inc, and Verio comes back as an IT company in Boca Raton FL.
Maybe the Fed is on vacation, eh?
Above in response to "albrt"
The government is going to create an underground economy. The government is going to disinscent saving. The government is going to experience tax avoidance of an unprecedented magnitude.
I looked at the participants of the Hope Now program and they all have two obvious goals; preserve the status quo and get as many payments out of borrowers before foreclosing.
If the teaser freezer goes through you are going to have cases where the prudent honest buyer sees his neighbor who lied and took out a toxic mortgage and overpaid now paying less and the lower payment is funded by the higher tax bill the prudent buyer is paying because of the bad neighbor's purchase price. It is exactly a situation like this that the Founding Fathers were so insistent upon a solid Second Amendment.
Independent of the details of these cases, the very existence of "foreclosure mills" is horrible P.R. at the minimum, and likely counterproductive, given that DB stands close the zero chance of reselling, for example, inner-city Cleveland homes in wrecked (or soon-to-be-wrecked) neighborhoods.
The whole process seems on auto-pilot, and likely to "efficiently" lead to huge balance sheets of barely-salable homes. Both public policy and private profit would seem aligned here: to find some way to slow this crazy machine while we find a better plan.
Slightly OT, looks like the builders are starting to do their own "workouts" with investors -- see "Lennar Forms Venture with Morgan Stanley Real Estate"
UPDATE 1-Lennar forms venture with Morgan Stanley Real Estate
| Reuters
Wouldn't the borrower have a right to a trial by jury in federal and most, if not all state courts, for an amount in the several $ 100k range? Seems the Constitution says so, doesn't it? Imagine if even 1 % demnded their rights, even on a pro se basis.
Does anyone see how HopeNow can actually work? So many questions.
How will it be measured against loan mods that might have occurred anyhow?
Will the unpaid interest accrue somewhere either on the loan principal or on some shadow book that can be used as a tax incentive for the lender? Who pays for that? Our fearless President said "no taxpayer subsidies".
Will there be a meaningful backlash by those not given the break?
In the end the question is - How long will a borrower with a suspect payment history go along with paying a mortgage for more than comparable rent?
There seem to be a lot of participants? What are the details?
"The Decider" has the right idea. What if some enterprising young gun started an anti-foreclosure mill. He'd collect a few hundred bucks from the borrower and just uniformly make any or all formal objections; venue, jurisdiction, request for postponement, whatever it is that obstruction legal eagles do (pardon the duplicity of obstructionist and lawyer in the same phrase). The FB gets another month at least, probably more and if the judge does kick the case to another court then several more months of free livin'. Hmmm, does anybody know of a "fast, cheap and easy" online law degree program? Who can object to "fast, cheap and easy" in this environment?
Unleash the lawyers - when pension funds attack.
"NY pension funds to lead Countrywide plaintiffs"
U.S. District Judge Mariana Pfaelzer in Los Angeles on Wednesday appointed New York State Comptroller Thomas DiNapoli, who oversees the New York State Common Retirement Fund, and the New York City Pension Funds as co-lead plaintiffs for the investor lawsuits.
The plaintiffs accused Countrywide of misleading investors about its lending practices, saying it could easily weather the housing downturn, and artificially boosting income by understating loan loss reserves."
Business & Financial News, Breaking US & International News | Reuters.com
What a trainwreck this all is and will remain for a good while. Heads will roll, but mostly scapegoats as per usual. Good luck getting any money from any of those guys (pilfered FHLB money at that), it'll be back to the Alpo meals for retiree's time again.
LEN & MS Joint venture.
LEN "sold the venture $525 million in properties... Lennar acquired a 20 percent ownership interest...As of Sept. 30, the acquired properties had a net book value of $1.3 billion."
Another big writedown for LEN.
Although the media is prone to seize upon and sensationalize one or a few instances of a lender being caught with its pants down in a foreclosure action, how prevalent are such occurrences in general? Is it not the case that the overwhelming majority of foreclosure suits successfully are prosecuted? If so, what percentage of foreclosure actions actually are sidetracked/derailed by circumstances similar to those refefenced? To the extent that it's a very small number, then might it even be immaterial in the grand scheme of things? I'm not suggesting that there's any excuse for the handling of the particular sampling of the foreclosure actions referenced. I do think it would be helpful, however, to gain some perspective on the magnitude, or lack thereof, of such problems.
The Lennar deal with Morgan Stanley is a template for HBs to survive as property management companies, even if they can't survive as builders.
A lot of details aren't clear from the press release. But you have to believe Lennar's creditors would have had to approve (or will have to approve) this deal. It takes off balance sheet the collateral behind Lennar debt (homesites), while giving Lennar some cash to survive and make debt service payments for awhile.
It's a desperation step for a homebuilder. It does nothing to help position Lennar for an upturn in building. Whether these sites will ever be worth what the venture paid for them, plus the cost of maintaining them, is unknown.
Perhaps there is a foreign investor or vulture hedge fund behind it, but it doesn't seem to make much sense economically, except to bail out Lennar. Morgan Stanley is probably acting as middleman collecting fees.
If FC practices (not having proper documentation f'instance) are lax when FC requires a judge's blessing...one wonders what they're like in states like Virginia, where the foreclosure process does not require appearance before a judge, just posting requisite notices and heading for the courthouse steps for the auction.
If there are lapses in the chain, does this harm the high bidders claim to title?
And even if it does, who could gain by pursuing it? Not the mortgage company, they got paid. Not the folks who lost the house, they have their hands full starting over. So in real life, it doesn't matter anyway.
Hmmm, does anybody know of a "fast, cheap and easy" online law degree program? Who can object to "fast, cheap and easy" in this environment?
| 12.01.07 - 3:43 pm | #
Robert Coté | Homepage
Velvet Jones School of Technology
Tossing the files definitely encourages a lawyer not to be sloppy. And an incentive structure already exists -- it's getting more work from your client.
Mystique,
Maybe.. I suppose it is possible that the lawyer involved in this story did not believe that the case would be tossed.
And, now that judges are starting to make it clear that improperly documented cases will be dismissed, maybe that will be enough.
I would say that.. there could be so many foreclosures and so many banks needing to have them processed.. that it may not matter to a lawyer if one bank (or financial entity) does not want to hire them again to process more foreclosures.
Anyhoo, that's all speculation. I have no idea what the exact situation is.
Perhaps someone could come up with a way to expedite the foreclosure process and worry about getting the paperwork straightened out after the Trustee's Deed is filed, perhaps with assignment "to come". You know, fight fire with fire. It's such a silly waste of time to worry about crossing i's and dotting t's.
how prevalent are such occurrences in general?
That would certainly be some useful reporting. Don't hold your breath, of course.
My guess is that this kind of thing has been pretty common. Again, if you read the Boyko order, you get the impression that what counsel argued in court was "we've always done it this way." The problem was Boyko didn't give a shit that they'd been doing it that way.
One reason I care about this so much is that it is absolutely vital, in my view, that foreclosures be expensive and dangerous for lenders. They have always been expensive and dangerous. However, the long boom left a lot of market participants with the idea that HPA would always bail you out. In that sense, there was a widespread belief that FC isn't expensive and dangerous.
Once you no longer fear FC, you make stupid loans. It's like BK "reform." Making BK less of a threat to credit card lenders didn't do much for cc lenders' prudence. Believing that FC could be quick and easy made a lot of lenders act like hard money types. It worked out so very well.
So I think the real news here is that a handful of judges are putting the fear of FC back into lenders and servicers. If that makes people go back to saner lending standards and operations, then it's a good thing.
My guess is that the same (or probably worse) goes on in the DOT states (non-judicial power-of-sale FCs). Like CA. But hey! People want DOTs in good times, because it keeps mortgage financing "cheaper." (Or at least people swallow the spin that it does.) Only during the bust do people look at those "backwards" states like OH (all FCs in OH are judicial) and realize why it's important for a borrower losing his home to get his day in court.
If attorney's file FC without ALL the paperwork in order and judge dismisses with prejudice wouldn't the noteholders have a malpractice claim against their attorney?
Don't attorney's have malpractice insurance?
Won't the insurance companies start to police this even if the servicing companies don't?
I did once threaten to chain myself to the Investor Accounting Supervisor's desk and sing "We Shall Overcome" until either a payment got reversed or they sent the National Guard in for me.
Completely different subject. My father and I go to the NCAA hockey final four every year, and my plane ticket is usually bought by my parents. For reasons they claim are for security, but really aren't, the airlines insist (and did even before 9/11) that the name on the ticket match the name on your ID.
The first year after my legal name change, my mother forgot, and purchased my ticket in my old name. I arrived at the airport, and the gate agent wasn't going to let me on the plane. I cut to the chase. My immediate response was to calmly explain that there were only to possible endings to this situation. Either she let me on the plane, or she was going to have to call the cops and have me forcibly removed. I suggested that it would save us both a lot of time if she would choose which option she preferred right then.
She let me on the plane.
if i worked for you, i would keep a copy of ulysses, a flashlight, a large bag of pistachios, and a week's supply of water under my desk.
Ulysses, wow, you must really be afraid. I always thought Joyce wrote to revenge himself on the English by torturing the language.
Will anyone be worried about paperwork after the inevitable fires have been extinguished and all that remains in the neighborhood are a few piles of charred rubbish? Helpful hint: Wood ash is a strong alkalinizing agent when used in compost.
Don't attorney's have malpractice insurance?
The fence separating Heaven and Hell fell down on the Hell side. After a few Eons of chaos God called over to the Devil insisting he put the fence back up. The Devil sneered; "Or you'll do what?" God darkened, thunderclouds formed lightening flash and he boomed; "Why, why I'll SUE!!!!" The Devil chuckled and replied quietly; "And just where do You think You'll find a lawyer?"
Read carefully, I answered your question.
I met a judge from an antique land
Who said: Vast and forked-up assignments
Wont stand in Ohio! Near by, on the sand,
Half sunk, a shatterd visage lies, whose tan
And wrinkled skin and sneer of cold command,
My name is Angelo, King of Kings:
Look on my works, Bernanke, and despair!
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level bonds stretch far away.
u bn pwmd.
bdz,
Just playing catchup on this thread, YES oh the guilty schadenfreude of seeing the feathers fly when the peeps were scrambling to flee the steel toed bunny slippers..."oh geez, oh geez SHE is on a tear!"
barely,
re: meaningful backlash
Just my WAG, but I think so - my instinct is that the most dependable voters will correlate with savers (I know for a fact it correlates with older) - in general, the folks who will get the short end of the stick from this or something like it.
Robert Coté | Homepage | 12.01.07 - 3:18 pm
Mr. Coté
I cannot remember, in over two years that I've 'followed you', that you've written much if anything that I don't agree with. The 'teaser freezer' comment is beyond brilliant.
Thank you Mr. Dreamz
"The lone and level bonds stretch far away"
Thank you Mr. Dreamz
"The lone and level bonds stretch far away"
Peanut Butter and jelly Shelley has a tear in his eye,...
Speaking of which, here's some hysterics on the judgement I just came across on Kitco:
"We see new housing loan problems as a Federal judge this past week in Ohio determined the giant Deutchbank could not foreclose on 14 failed house loans they held in derivatives. This occurred as they could not prove they held actual real estate title but rather held a lending interest in related derivatives. This is very dangerous as trillions in mortgages are now at risk on this court precedent. If holders of this paper cannot foreclose, they have no collateral and are basically destroyed."
I'm sure "giant Deutchbank" is surprised to hear it will be "basically destroyed" by this ruling.
thanks CR for the explanation about assignments...but really it much more easy to understand the complexity of assignments and SIVs and CDOs if you remember "who's on first"
YouTube - Who's On First
Foreclosure law firm fees are set by Fannie, Freddie, FHA & VA. $1000 is standard for Fannie & Freddie, VA is about $800 IIRC.
Tanta,
"The issue is if you let bureaucratic screwups go uncorrected, the press may well correct them for you, and you'll be sorry you let that happen."
Slightly related, but OT:
Wachovia Bank Tells Man He Owes $211 Trillion - News Story - WSB Atlanta
"Wachovia Bank Tells Man He Owes $211 Trillion"
'He said Wachovia had made mistakes on his accounts before so he called Channel 2 first. Wachovia blamed the letter on a word processing error and the office of the president is sending a letter of apology.'
This bank customer didn't want to speak to anyone at the bank (fuggeddabbout Tanta), he called the press (TV station) FIRST!
I guess Wachovia was attempting to get this customer to singlehandedly pay for all the bad debts ever originated in the history of mankind!
Tanta -
That "defaulted" note scenario - Cut off and closing on the REMIC was in Q1 '02. The "defaulted" note wasn't sold into the REMIC until Q1 '03. The REMIC was a well-established MLMI trust.
"Forging a new assignment because you can do that in twenty minutes, while just breaking down and requesting the originals from the custodian might take several days, is bad lawyering."
If the lawyering is bad enough, won't the principle of res judicata apply? Just exactly how much does a lawyer have to screw up in order to lose the case permanently?
Maybe "the way things are done" in state court is different because in state court there is no General Order 07-03.
So in state court they were required to allege all the facts that gave them standing -- but not to prove them at the outset.
Maybe?
"One of the most reliable and predictable features of the Feds monetary policy is action to prevent systemic financial collapse."
Is there such a thing as systemic financial collapse?
Don't worry - out here in ground zero(Inland Empire)- plenty of parkig at the mall and no waiting in lines.
Merry Xmas
"Foreclosure law firm fees are set by Fannie, Freddie, FHA & VA. $1000 is standard for Fannie & Freddie, VA is about $800 IIRC."
I got it! We can secruitize the FC cashflows into new mortgage formerly backed securities. We can call them Default Underwritten Deals (DUDs). Since the FC law firm is already on the case, we can shave enough cashflow to monetize the inherent interest rates into collateralized tranches which for sure when marked to the model would earn the DUDs a AAA rating from the agencies. The returns based on the DUD model would be significantly above the risk free modeled paradigm.
There has got to be a a local warlord in Somalia or the Sudan that doesn't read Calculated Risk and has a boatload of short term cash from the UN. We can sell these and even get them trade these DUDs on margin just like those great Norwegian city managers! This could be bigger than oil for food!
Cool, huh?