Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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William A. Roper, Jr.
Bloomberg is reporting this morning that Goldman has reached an agreement to sell Litton Loan to OCWEN:

 

Bloomberg: "Goldman to Sell Litton Loan Servicing to Ocwen Financial for $264 Million" (June 6, 2011)

http://www.bloomberg.com/news/2011-06-06/goldman-sachs-agrees-to-sell-litton-unit-to-ocwen-for-264-million-in-cash.html


Those litigating with Litton take note!
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Angelo
Here is a piece of the article that I find very interesting!!!

"....Advances include the principal, interest, taxes and insurance remittances that servicers must make to securities trusts even when homeowners fall behind on those payments."


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William A. Roper, Jr.

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Angelo said:

Here is a piece of the article that I find very interesting!!!

"....Advances include the principal, interest, taxes and insurance remittances that servicers must make to securities trusts even when homeowners fall behind on those payments."


Angelo:

You seem to be drifting off into wingnut land again.  Essentially ALL PSA and the servicing agreements of the GSEs -- Fannie Mae and Freddie Mac -- have provisions which REQUIRE the servicer to advance the principal and interest payments to the servicer, whether or not the borrower has made the contractual payments to the servicer.

This contractual provision between the servicer and the mortgage investor IN NO WAY ABSOLVES THE BORROWER FROM MAKING THE PAYMENTS AGREED TO WITHIN THE NOTE AND MORTGAGE.

The FACT that this provision is within the PSA is NOT some sort of secret nor is its mention any great revelation.  There is NOTHING OF VALUE FOR YOU in this fact.  If anything, it would be likely to engender SYMPATHY by the Court to the servicer.  WHY WOULD YOU WANT TO MAKE YOUR OPPONENT MORE SYMPATHETIC?

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Angelo
Bill

You must have been a mechanic in a prior life, because you love those wing nuts....haha

I just said it was interesting thats all, never going to put anything like that into a pleading, don't worry.  Thanks for the concern!
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William A. Roper, Jr.
Angelo:

Permit me to tip you off on the TRUE value of the sale for long haul foreclosure defense activists subject to a Litton foreclosure.

You may be relatively assured that mechanistically, OCWEN is going to want to extract the servicing rights while minimizing the exposure as to liabilities.  Ultimately, they will lift the servicing rights completely OUT of Litton.

But the transfer of the servicing, like the other transfers, to include the transfer of large blocks of Saxon servicing rights, leaves OCWEN seeking to prove a foreclosure in respect of business records for which it isn't the creator or archivist of the records.

Sticking with evidentiary fundamentals, a good OBJECTION may very well keep MOST of the plaintiff's evidence OUT of the record.  It will be very hard for OCWEN to prove up Littton records, particularly the records which were forged and perjured. 
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Angelo
Bill

Thank you for that, very good information for all.  If they do transfer servicing right doesn't the defendants need to be notified as per TILA?  If not, they will be in violation of the act?
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William A. Roper, Jr.

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Angelo said:

Thank you for that, very good information for all.  If they do transfer servicing right doesn't the defendants need to be notified as per TILA? If not, they will be in violation of the act?


Angelo:

My guess is that they will probably do the "hello-goodbye" letters properly.  But mergers can be messy.  One core purpose of consolidations is cost cutting.  There will be redundancies and OCWEN will cut some people loose.  Some employees will be asked to leave and others will pursue other alternatives voluntarily.

In putting on a witness for a real, live trial, the plaintiff now will probably need one witness to authenticate the Litton records and another to authenticate the OCWEN records.

They are MORE LIKELY to fly only ONE witness to New York for a trial.  If you get that witness disqualified, their case goes out the window.

Forum regulars with whom I have previously corresponded are welcome to contact me offline for a few private comments on evidentiary issues in respect of the sale of Litton to OCWEN.
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George Burns
Why should there be a merger or  a take over of servicing ?

A purchase does not mean a merger. Just as Litton was a subsidiary of Goldman (and  C BASS before that), it could continue as a subsidiiary of Ocwen.

Goldman did not take over servicing rights when it bought Litton, why would Ocwen?

There is no reason to speculate and I have  seen no reports or indication of intent to change the business model.
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William A. Roper, Jr.
George:

You are certainly correct to point out that no such restructuring has been announced and it certainly is NOT a legal requirement to extract the servicing rights and to separate them from the Litton corporate shell.

But if you examine the history of similar transactions throughout the subprime meltdown, you will find that this has been the typical model.  The servicing rights are teh only real asset of Litton.  Their furnishing, computers, software, etc. is of de minimus value.  The liabilities associated with Litton are HUGE.  Admittedly, extracting the assets and then immediately collapsing the Litton structure through Bankruptcy is problematic, as the servicing transfer could be set aside in Bankruptcy court as a fraud on the creditors.

But this is NOT how the restructuring typically works.  They will pluck the servcing out and then leave the bare corporate shell in place for a couple or several years.  Litton will simply disappear, while retaining its corporate charter.

Your observation about the approach taken when Goldman acquired Litton, while correct, misses a rather obvious point.  Goldman didn't already have a larger comparable servicing operation into which it might have merged Litton.

While my prediction as to what is to come certainly might not materialize and should be recognized as prediction rather than fact, Goldman does, within the announced details give us some indications as to the possibility that the transaction will play out as described.

Goldman seems to be assuming the liability associated with the fines, fees and charges associated with the U.S./AG settlement.  It is UNCLEAR who is to be responsible for other torts or damages which arose during Goldman's ownership of Litton.

It is rarely economic to operate two parallel servicing operations for any extended period of time.  Even before the subprime meltdown, economies of scale associated with operating a single, larger and unified servicing operation caused the concentration of servicing rights in several very large entities.  For more than two decades, servicing has been far more concentrated than mortgage origination and this is due to economies of operation of a single unified servicing entity.

Carefully check the history of the various larger subprime operators.  Look at what happened to the entities and their servicing rights.  And look particularly at how OCWEN has handled prior acquisitions.  While this transaction might be anomalous, my prediction is based upon established patterns and likelihood.

By the way, I am aware of a specific instane where OCWEN went to trial on a Saxon foreclosure and the Judge refused to allow the OCWEN witness to authenticate ANY of the documents from Saxon.  But the borrower and their attorney committed the unbelievable blunder of having the borrowers attend the trial.  So the borrower was called to the stand and authenticated pretty much ALL of the excluded exhibits.  Objecting and witness preclusion is only effective if you don't bring along a witness as spectator who will undermine the case! 
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arkygirl
Doesn't matter...two devils are marrying and any spawn of theirs will be straight from the bowels of "H-E-double hockey sticks". These two companies invented much of the fraud...what one couldn't imagine, the other did. Then they copied each others "business plans" which were further copied by others.

This is going to suck for borrowers any way you slice or dice it.

Won't matter what name this bad, base, corrupt, depraved, heinous, immoral, iniquitous, maleficent, malevolent, malicious, malignant, nefarious, reprobate
company chooses to operate under, whether they keep their current names or merge into a new corporation to service or whether they just leave each company to pursue its current loans, it is going to be bad.

Ocwen has huge liabilities of its own; why buy someone else's? There must be a plan afoot to beat the court systems and the borrowers. Has either of these companies ever paid any of the numerous court judgements levied against them (and some of them are huge!)? Has Ocwen consulted with anyone at Bank of America to check out what happens when you buy a crooked company's "assets"? Or maybe Goldman is paying Ocwen to take this mess off its hands, a back door deal?

I suggest "Evil Incarnate, Inc." for the demon spawns name. Other suggestions are welcome.


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George Burns
It could simply a case of playing the odds.

If between them they have $ 100 Billion in housing value and if that represents 1 million houses of which they foreclose on 70%, that would be $70 Billion.

Since it seems that more than 95% of the homeowners do not contest, they would reap, by default, more than $65 Billion after expenses. Even half it to $33 Billion.

I do not know what their share would be, but it seems enough to pay the sort of penalties that are usually meted (look at Countrywide etc).

Plus Ocwen likes to flip houses and seem willing to hold properties until there is a turnaround. Free properties could be the attraction.

It could all be a numbers game, while they collect service fees.
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William A. Roper, Jr.
George:

The servicers typically receive a servicing fee of about 0.5% of the declining loan balance.  They are also usually entitled to retain the late fees.

The servicers also control the escrow accounts and this is often a source of large deposit balances.

But by contrast, they are also required to advance the full principal and interest payments due to the trust or other institutional mortgage investor. 

The subprime servicers also had made various other "trash fees", often amounts wholly unjustified by the note or mortgage security instrument, a source of revenue and pure profit.  Servicers also profited by kickbacks and commissions earned by placing the borrower into force placed insurance.  But with increased scrutiny by the Feds, state AGs, bankruptcy courts and borrowers, the opportunity to give these extra haircuts is evaporating.

*

But you are quite mistaken about the magnitudes involved.  The servicers do NOT usually have a position in the principal EXCEPT that they are now BLEEDING serious cash flow from advances on the past due amounts as foreclosure timelines become more extended.

Historically, the value of servicing contracts ranged from about 150 basis points to about 325 basis points, depending upon the richness of the servicing spread as well as the characteristics of the underlying mortgage pool.  When the loan is prepaid through payoff OR when the loan is finally extinguished through foreclosure, the servicing rights for that loan are then worth essentially ZERO.

It IS also true that the servicer can also profit on the foreclosure and sale through self-dealing and skimming value that ought to be realized by the mortgage investors (e.g. selling the foreclosed property to a related entitiy for less than fair value, giving the investor the proceeds and then profiting on the resale).  But while this was a pretty good scam when housing values were RISING, against the backdrop of FALLING PRICES and soft markets, even the opportunities for the servicers to defraud the mortgage investors are somewhat more limited.
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Bill

From past mergers, how long does it usually take to get a deal like this done?  Is this something that could be completed in the next quarter or is the sale something that could run into mid 2012?

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William A. Roper, Jr.
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Bill said:
From past mergers, how long does it usually take to get a deal like this done?  Is this something that could be completed in the next quarter or is the sale something that could run into mid 2012?


Bill:

The agreement contemplates a closing Not Later Than November 1, 2011.  It is clearly the intention of the parties to conclude the agreement sooner and you may be assured that Goldman will endeavor to offload the company and complete the closing as quickly as possible.

But George's point about the speculative nature of my suggestions that OCWEN will raid the servicing rights and then collapse Litton is also well taken.

What seems to be contemplated at the closing is the sale of Litton to OCWEN as an entity.  Any subsequent reorganization, as suggested in my post would necessarily take place AFTER the closing when OCWEN is actually IN CONTROL.

The agreement is posted together with the announcement at the SEC EDGAR website:

http://www.sec.gov/Archives/edgar/data/873860/000101905611000617/0001019056-11-000617-index.htm


I would expect that the reorganization would be completed some months after the closing of the sale.

Such a sale can cause some chaos in other ways.  For example, some employees might voluntarily leave even PRIOR to closing, though I would doubt that there would be a very high volume of voluntary departures in this economy.

But disruption can happen in other ways, too.  For example, while in transition, the firm is unlikely to be undertaking much new hiring.  And so even routine departures are unlikely to be filled.

It is axiomatic that the foreclosure fraud meltdown has slowed foreclosures in process and resulted in delays in the initiation of new foreclosures.  There is a significant overhang of foreclosures to be initiated when the servicers find ways to overcome their problems.  In my view, the servicers are already in chaos.  A change in ownership and management will ADD to this chaos.
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