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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Borrowers Face Dubious Charges in Foreclosures
Published: November 6, 2007

As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosures may be taking advantage of imperiled borrowers.

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.

Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

“Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers’ calculation and collection practices leave families vulnerable to foreclosure,” said Katherine M. Porter, associate professor of law at the University of Iowa.

In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help troubled borrowers save their homes, Ms. Porter found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.

In one example, Ms. Porter found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower’s loan.

Ms. Porter’s analysis comes as more homeowners face foreclosure. Testifying before Congress on Tuesday, Mark Zandi, the chief economist at Moody’s Economy.com, estimated that two million families would lose their homes by the end of the current mortgage crisis.

Questionable practices by loan servicers appear to be enough of a problem that the Office of the United States Trustee, a division of the Justice Department that monitors the bankruptcy system, is getting involved. Last month, It announced plans to move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees or fail to account properly for loan payments after a bankruptcy has been discharged.

On Oct. 9, the Chapter 13 trustee in Pittsburgh asked the court to sanction Countrywide, the nation’s largest loan servicer, saying that the company had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007.

The trustee, Ronda J. Winnecour, said in court filings that she was concerned that even as Countrywide misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs.

“The integrity of the bankruptcy process is threatened when a single creditor dishonors its obligation to provide a truthful and accurate account of the funds it has received,” Ms. Winnecour said in requesting sanctions.

A Countrywide spokesman disputed the accusations about the lost checks, saying the company had no record of having received the payments the trustee said had been sent. It is Countrywide’s practice not to charge late fees to borrowers in bankruptcy, he said, adding that the company also does not charge fees or costs relating to its own mistakes.

Loan servicing is extremely lucrative. Servicers, which collect payments from borrowers and pass them on to investors who own the loans, generally receive a percentage of income from a loan, often 0.25 percent on a prime mortgage and 0.50 percent on a subprime loan. Servicers typically generate profit margins of about 20 percent.

Now that big lenders are originating fewer mortgages, servicing revenues make up a greater percentage of earnings. Because servicers typically keep late fees and certain other charges assessed on delinquent or defaulted loans, “a borrower’s default can present a servicer with an opportunity for additional profit,” Ms. Porter said.

The amounts can be significant. Late fees accounted for 11.5 percent of servicing revenues in 2006 at Ocwen Financial, a big servicing company. At Countrywide, $285 million came from late fees last year, up 20 percent from 2005. Late fees accounted for 7.5 percent of Countrywide’s servicing revenue last year.

But these are not the only charges borrowers face. Others include $145 in something called “demand fees,” $137 in overnight delivery fees, fax fees of $50 and payoff statement charges of $60. Property inspection fees can be levied every month or so, and fees can be imposed every two months to cover assessments of a home’s worth.

We’re talking about millions and millions of dollars that mortgage servicers are extracting from debtors that I think are totally unlawful and illegal,” said O. Max Gardner III, a lawyer in Shelby, N.C., specializing in consumer bankruptcies. “Somebody files a Chapter 13 bankruptcy, they make all their payments, get their discharge and then three months later, they get a statement from their servicer for $7,000 in fees and charges incurred in bankruptcy but that were never applied for in court and never approved.”

Some fees levied by loan servicers in foreclosure run afoul of state laws. In 2003, for example, a New York appeals court disallowed a $100 payoff statement fee sought by North Fork Bank.

Fees for legal services in foreclosure are also under scrutiny.

A class-action lawsuit filed in September in Federal District Court in Delaware accused the Mortgage Electronic Registration System, a home loan registration system owned by Fannie Mae, Countrywide Financial and other large lenders, of overcharging borrowers for legal services in foreclosures. The system, known as MERS, oversees more than 20 million mortgage loans.

The complaint was filed on behalf of Jose Trevino and Lorry S. Trevino of University City, Mo., whose Washington Mutual loan went into foreclosure in 2006 after the couple became ill and fell behind on payments.

Jeffrey M. Norton, a lawyer who represents the Trevinos, said that although MERS pays a flat rate of $400 or $500 to its lawyers during a foreclosure, the legal fees that it demands from borrowers are three or four times that.

A spokeswoman for MERS declined to comment.

Typically, consumers who are behind on their mortgages but hoping to stay in their homes invoke Chapter 13 bankruptcy because it puts creditors on hold, giving borrowers time to put together a repayment plan.

Given that a Chapter 13 bankruptcy involves the oversight of a court, the findings in Ms. Porter’s study are especially troubling. In July, she presented her paper to the United States trustee, and on Oct. 12 she outlined her data for the National Conference of Bankruptcy Judges in Orlando, Fla.

With Tara Twomey, who is a lecturer at Stanford Law School and a consultant for the National Association of Consumer Bankruptcy Attorneys, Ms. Porter analyzed 1,733 Chapter 13 filings made in April 2006. The data were drawn from public court records and include schedules filed under penalty of perjury by borrowers listing debts, assets and income.

Though bankruptcy laws require documentation that a creditor has a claim on the property, 4 out of 10 claims in Ms. Porter’s study did not attach such a promissory note. And one in six claims was not supported by the itemization of charges required by law.

Without proper documentation, families must choose between the costs of filing an objection or the risk of overpayment, Ms. Porter concluded.

She also found that some creditors ask for fees, like fax charges and payoff statement fees, that would probably be considered “unreasonable” by the courts.

Not surprisingly, these fees may contribute to the other problem identified by her study: a discrepancy between what debtors think they owe and what creditors say they are owed.

In 96 percent of the claims Ms. Porter studied, the borrower and the lender disagreed on the amount of the mortgage debt. In about a quarter of the cases, borrowers thought they owed more than the creditors claimed, but in about 70 percent, the creditors asserted that the debt owed was greater than the amounts specified by borrowers.

The median difference between the amounts the creditor and the borrower submitted was $1,366; the average was $3,533, Ms. Porter said. In 30 percent of the cases in which creditors’ claims were higher, the discrepancy was greater than 5 percent of the homeowners’ figure.

Based on the study, mortgage creditors in the 1,733 cases put in claims for almost $6 million more than the loan debts listed by borrowers in the bankruptcy filings. The discrepancies are too big, Ms. Porter said, to be simple record-keeping errors.

Michael L. Jones, a homeowner going through a Chapter 13 bankruptcy in Louisiana, experienced such a discrepancy with Wells Fargo Home Mortgage. After being told that he owed $231,463.97 on his mortgage, he disputed the amount and ultimately sued Wells Fargo.

In April, Elizabeth W. Magner, a federal bankruptcy judge in Louisiana, ruled that Wells Fargo overcharged Mr. Jones by $24,450.65, or 12 percent more than what the court said he actually owed. The court attributed some of that to arithmetic errors but found that Wells Fargo had improperly added charges, including $6,741.67 in commissions to the sheriff’s office that were not owed, almost $13,000 in additional interest and fees for 16 unnecessary inspections of the borrowers’ property in the 29 months the case was pending.

“Incredibly, Wells Fargo also argues that it was debtor’s burden to verify that its accounting was correct,” the judge wrote, “even though Wells Fargo failed to disclose the details of that accounting until it was sued.”

A Wells Fargo spokesman, Kevin Waetke, said the bank would not comment on the details of the case as the bank is appealing a motion by Mr. Jones for sanctions. “All of our practices and procedures in the handling of bankruptcy cases follow applicable laws, and we stand behind our actions in this case,” he said.

In Texas, a United States trustee has asked for sanctions against Barrett Burke Wilson Castle Daffin & Frappier, a Houston law firm that sues borrowers on behalf the lenders, for providing inaccurate information to the court about mortgage payments made by homeowners who sought refuge in Chapter 13.

Michael C. Barrett, a partner at the firm, said he did not expect the firm to be sanctioned.

“We certainly believe we have not misbehaved in any way,” he said, saying the trustee’s office became involved because it is trying to persuade Congress to increase its budget. “It is trying to portray itself as an organ to pursue mortgage bankers.”

Closing arguments in the case are scheduled for Dec. 12.

Update 9/1/11 contact information for Jeffrey Norton

Newman Ferrara LLP

1250 Broadway, 27th Fl.

New York, NY 10001

212.619.5400

212.619.3090 (fax)
jnorton@nfllp.com

http://www.nfllp.com
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Well now... I had received a phone call from Ms. Porter's office last week. After reading this, I'm looking forward to speaking with her even more....

I should probably touch base with Ms. Morgenson again as well...

Nice find B
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Nice.

She gets it.

Wonder if she needs any more people's loans to analyze the servicer's
whacko accounting practices.

If any of you went to the trouble to figure out just exactly how much
you have been overcharged and the proof to back it up...

this could get interesting. 

If the servicer's whacko accounting practices are taken on by the bankruptcy trustees and they educate the judge's...oh I smell big sanctions
on the horizon.

I'd follow this one and keep it in a folder with other court cases.

Lawyers want to know if there is any money in these cases when you interview them.  This one sounds promising.

Dee
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~Beenawhile~
Yeah, I ditto that Mike, What a GREAT FIND!!

Hey Mike, I've got Chapter 13 Bankruptcy documents, where the mortgage company said we bought a home for $11,000.00 more than the actual price of the home.

When you call this lady, if she wants my documents too, let me know; or Better yet, ask her if you may divulge her telephone number to me or a point of contact, so that I can get in touch with her and send her my documents from the Chapter 13.

Much more story there, and much more fraud than just that, but its a long long long story with all the purposeful errors and fraud they caused while we were in the 13, and then the fees they still demanded from the Chpt. 13 filings 3 months after our discharge.

The Sh!t just never ends.

Anyway, my documents, specifically have PROVEN intentions of FRAUD visible to the NAKED EYE.......... Shame on them

I'll Check back later, and Good Luck





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disapointed

Quite disappointed though. NO MENTION OF EMC MORTGAGE in that story.

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Nye Lavalle
Like I said, all of us work in mysterious ways and more to come... Don't fret about EMC and Bear, truly, don't fret! Watch your back Carman, you may never know who may be tapping it! Same goes to Vella, Ace, Cayne and even Ruyle and Raice, even though long gone.
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Joe B
Well, maybe someone is beginning to get it!

She can look at my records too!! I have been fighting foreclosure for more than 17 months, and I STILL do not have a complete accurate accounting! I have been asking for it since before they started the f/c...hmmmm, maybe that's why they initiated f/c? Nah, they don't work like that do they?

Well, she is welcome to review my documents for her follow-on piece. Maybe she will do one on folks that haven't resorted to Bankruptcy but still have the same problem. If she wants another category of folks, she can look for people who have paid the extortion, just to save their homes and move on!! Is it any wonder why the servicers' profit margins are so high!!

Way to go Blossom! If anybody reaches out to the author, ask her to come to the board, and we can have a chat!!

JB
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Blog commentary on Gretchen Morgensen's piece today:
 
Gretchen Morgensen calls the beast by its name: predatory loan ... SERVICING

Tuesday, November 06, 2007

Borrowers Face Dubious Charges in Foreclosures - New York Times --This is what I've been waiting for. Justice is now about to be served. The plundering of the equity of the American neighborhood can now wind down.

Finally, here is the description of the crux of the foreclosure problem: predatory loan servicing. Gretchen Morgensen delivers just in time. The pacing and timing on this couldn't be better. Everything is coming into alignment. The problem is near solution. The true causes are beginning to be revealed.

The question is now, who will be the one who begins, and presides over, the Spitzerization of the lending/foreclosing industries, and the attorneys who serve them?

I have lots of other questions:

  1. Could this be the reason why the majority of foreclosures happened?
  2. Could it be the reason that so many could not escape the endless loop, even though they tried?
  3. Are these fees able to take the same position as the primary mortgage, and do they take priority over other, junior liens that were already in place at the time the servicer, the lender, and the attorneys who run the mills initiated foreclosure proceedings?
  4. What are the rules for handling the money?
  5. What are the fiduciary responsibilities?
  6. How can we get our money back?
  7. How can we begin to quantify the damages, as well?
  8. How can we recover damages?
  9. Who gets paid back first?
  10. How can we prevent this happening again, and who was asleep at the switch?

If you thought asbestos was big for the plaintiffs' bar, just stay tuned on this one.

Here are a few excerpts from Gretchen's article, but read the whole thing. This is huge. Seminal. Long overdue. Invigorating.

. . . Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures. . . .

. . . On Oct. 9, the Chapter 13 trustee in Pittsburgh asked the court to sanction Countrywide, the nation’s largest loan servicer, saying that the company had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007. The trustee, Ronda J. Winnecour, said in court filings that she was concerned that even as Countrywide misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs. . . .

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anon2

me too, almost three years in March. Love ya Gretchen

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Joe B

Here's someone with a serious axe to grind on Gretchen!! I like the fact that she calls out that Gretchen was missing some facts, but then fails to back up her own points with facts. If you want to follow the link, there's a place at the bottom of the site to post your own comments. I may have a few points to add to her diatribe!!

JB

http://calculatedrisk.blogspot.com/2007/11/gm-watch-again-foreclosures-and-fees.html

Tuesday, November 06, 2007

GM Watch, Again: Foreclosures and Fees

I know how disappointed everyone would be if I passed on an opportunity to publically describe Gretchen Morgenson as a tendentious writer with only a marginal grasp of her subject matter and what appears to be an insatiable desire to make uncontroversial facts sound sinister. So here we go again.

Obligatory declamation: I hate sloppy mortgage servicers, I think fee gouging is criminal, and nothing would make me happier than to see bankruptcy judges slapping some servicers around a little. Morgenson's article, "Borrowers Face Dubious Charges in Foreclosures," brings up one particular thing, payoff fees, that I have been bitching about for fifteen years and that I'd be happy to see outlawed. (News flash: those fees are charged by servicers to everyone who requests a payoff quote, including everyone who has ever refinanced a mortgage. This isn't just something that happens in bankruptcy or foreclosure. If there is a more normal course of business process than calculating what one is owed, which should therefore be a matter of general servicing fee compensation, I can't think of one. Total Ick.)

As usual, though, Morgenson's valid points are drowning in a sea of sensational swill:

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.
The article presents exactly zero evidence, anecdotal or otherwise, that any of the foreclosures or bankruptcies in question were "unnecessary." There is certainly the implication here that servicers profit more from a foreclosure than from simply servicing a performing loan. That idea could use some evidence. It may be true that once a loan defaults, the servicer loses less by foreclosing (where its costs are reimbursed by the noteholder out of the liquidation proceeds) than by working the loan out; this is a big problem with the modification thing, in which servicers generally have to absorb the costs of the modification. But if the accusation here is that servicers drive borrowers into default in order to foreclose, I'd like to see some evidence for that. (Really, I would. That would be a serious indictment of the servicing industry.)
Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.
Perhaps our attorney friends will tell me how it is that servicers have to prove that they are noteholders in a bankruptcy. I suspect that's news to all investors in mortgage bonds, who think they are the noteholders. Are we talking about sloppy filings, in which the servicer failed to include a copy of the note? Or are we really talking about servicers who cannot cough up an assignment of mortgage or deed of trust to show standing to foreclose? Is this predation by servicers who don't even have the right to collect on the debt, trying to worm their way into BK court, or botched paperwork?
In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help troubled borrowers save their homes, Ms. Porter found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.

In one example, Ms. Porter found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower’s loan.
These are not impressive examples of servicer competence, and I don't object to public humiliation of any servicer who can make errors like that. But does anyone seriously think that these were attempts to "raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered"? (Keep reading to get to the details of the Wells Fargo case, and notice that the inappropriate charges were overwhelmingly fees or charges that would not be payable to Wells as servicer but would be passed through to the investor or someone else.)

But that's the thing: once again, Morgenson displays her profound ignorance of the industry she spends so much time writing about:
Loan servicing is extremely lucrative. Servicers, which collect payments from borrowers and pass them on to investors who own the loans, generally receive a percentage of income from a loan, often 0.25 percent on a prime mortgage and 0.50 percent on a subprime loan. Servicers typically generate profit margins of about 20 percent.
I have no idea where the 20 percent "profit margin" comes from or what it means in this context. I also do not know what "extremely lucrative" means in the context of a 25 bps servicing fee. But here's the kicker:
Now that big lenders are originating fewer mortgages, servicing revenues make up a greater percentage of earnings. Because servicers typically keep late fees and certain other charges assessed on delinquent or defaulted loans, “a borrower’s default can present a servicer with an opportunity for additional profit,” Ms. Porter said.

The amounts can be significant. Late fees accounted for 11.5 percent of servicing revenues in 2006 at Ocwen Financial, a big servicing company. At Countrywide, $285 million came from late fees last year, up 20 percent from 2005. Late fees accounted for 7.5 percent of Countrywide’s servicing revenue last year.

But these are not the only charges borrowers face. Others include $145 in something called “demand fees,” $137 in overnight delivery fees, fax fees of $50 and payoff statement charges of $60. Property inspection fees can be levied every month or so, and fees can be imposed every two months to cover assessments of a home’s worth.
When other sources of revenue go down, servicing revenue does, in fact, make up a larger percentage of total revenue even if servicing revenues are unchanged. Remember that you get that lordly 0.25-0.50% in servicing fees only as long as you have a loan to service. No new originations, no new servicing fees.

But of course, we are talking revenue here. For instance, those late fees are revenue: they aren't "income" until you back out the expenses of collecting on late loans and the carrying costs of the payments servicers have to advance to the noteholders on time regardless of whether they're collected or not. Do servicers actually make a profit, at the end of the day, on late fees? I suspect most do. Is it less than 100% of revenue? Yes. How much less? Pity Morgenson didn't ask.

You get no argument from me that junk fees like payoff fees, fax fees, demand fees, and unnecessary overnight charges are a horror. I am less convinced that doing away with periodic property inspections for a home in the foreclosure or bankruptcy process is such a great idea: you need to know that the home is still occupied and that it hasn't been vandalized. There's surely a reasonable argument that inspection costs should come out of general servicing revenue, not pass-through fees to the borrower. If you did that, of course, I'd guess that servicing fees would probably go up, so you'd pay it anyway. However, unless the servicer owns the inspection company and makes a big markup (which is possible, although no evidence is presented here), then it's "revenue" with a matched expense. Mortgage servicers can be amazingly dumb at times, but if they're beefing up income with that strategy, you can rest assured it won't last long.

Here's the part of the article based on actual data from a researcher:
In 96 percent of the claims Ms. Porter studied, the borrower and the lender disagreed on the amount of the mortgage debt. In about a quarter of the cases, borrowers thought they owed more than the creditors claimed, but in about 70 percent, the creditors asserted that the debt owed was greater than the amounts specified by borrowers.

The median difference between the amounts the creditor and the borrower submitted was $1,366; the average was $3,533, Ms. Porter said. In 30 percent of the cases in which creditors’ claims were higher, the discrepancy was greater than 5 percent of the homeowners’ figure.

Based on the study, mortgage creditors in the 1,733 cases put in claims for almost $6 million more than the loan debts listed by borrowers in the bankruptcy filings. The discrepancies are too big, Ms. Porter said, to be simple record-keeping errors.
Well, we don't know what the total amount of the loan debts listed is. Let's assume an average loan debt of $200,000. That gives us $346,600,000 in debts. A $6 million discrepancy is 1.7%. You have to assume that at least some of these are "discrepancies" because the borrowers simply have no idea how much back interest they owe (like all those folks who thought the accrual rate on their OA was 1.00%). There certainly seem to be some big outliers there, given a median of $1,366 and a mean of $3,533. I'm guessing that the one loan of $60,000 with a servicer balance of $1MM is probably throwing that off. End of the day, the discrepancy due to intentional servicer padding of fees has to be less than 1.0%.

Is that an impressive track record for the servicing industry? No. Are we relieved that bankruptcy judges are challenging these charges? Yes, we are: $1,366 might be small beer for a trillion-dollar servicer, but it's money no one needs to squeeze out of a bankrupt consumer. Does it support the contention that servicers are making up for a drop in origination income by loading up on inflated revenues that have no offsetting expenses? Not as far as I can see.

I realize that this will hurt the feelings of the conspiracy-minded, but I do believe that high rates of foreclosure and bankruptcy are money-losers for mortgage servicers, not profit centers. This is not a plea for sympathy for the servicing industry: I have wasted eleventy-jillion of your pixels on the subject of how the industry created this mess with ridiculous lending standards and dereliction of risk management duty. No one is happier than I am to see the little punks take it in the bottom line, and my enthusiasm for things like cram-downs and workouts--the cost of which is borne by the parties who got us into this mess--is an example of that.

It strikes me as quite plausible that some servicers are trying to make some lemonade by charging every fee they can think of. In a foreclosure of an upside down loan, of course, those fees come out of the investor's or insurer's pockets, not the consumer's. In a Chapter 13, these are fees borrowers are expected to repay, and with the cram-down prohibition, there's little incentive for servicers to control costs. So cram the damned things down.

The sad fact of the matter is that there are many businesses and industries that "profit off misfortune." There's money to be made in divorce lawyering, funeral parloring, and broken bone-setting, as well as default mortgage servicing. When profiting becomes profiteering, then yes, that should be punished to the fullest extent of the law. I suggest it also helps to create legal and regulatory structures that remove as many incentives for profiteering as possible in the first place. In order to do that, we have to understand how the business works. Nerdiness matters.

Are we to believe that payoff quote fees were OK until now? That late fees have never until the bust been a money-maker for servicers? That favorable bankruptcy treatment for mortage lenders was fine until 2007? That sloppy business practices have nothing to do with outsourcing, temping, mass layoffs, misguided technology projects, and any of the other myriad forces that corporate America has unleashed in its endless quest to enrich CEOs and keep you on hold for ten hours as you struggle to understand all that crap on your phone bill or locate your lost luggage? Mortgage servicing isn't any better or any worse than the rest of corporate America when it comes to half-assed business practices. It is, however, beginning to suffer the consequences of a huge boom, and I for one predict that we will get to see just how poorly managed a lot of these operations really were: there will be more than a few lost copies of promissory notes and misapplied payments. I'm sure it's too much to hope that everyone who bought shares of these outfits based on their impressive "cost management" will have to pay for it all.

Until justice does finally arrive, I guess we'll have to remember these words of wisdom:
No one likes to face ugly realities like financially ailing borrowers who are so strapped that nothing can save them. Not the lenders, not the Wall Street firms that sell the securities, not even the holders. But experienced investors know that a reliance on fantasy will only prolong the pain that is racking the huge and important mortgage market.

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anon2

methinks the lady doth protest too much

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MSFraud.org

Quote:
In Texas, a United States trustee has asked for sanctions against Barrett Burke Wilson Castle Daffin & Frappier, a Houston law firm that sues borrowers on behalf the lenders, for providing inaccurate information to the court about mortgage payments made by homeowners who sought refuge in Chapter 13.
  

MEMORANDUM OPINION

CONCERNING NATURE AND AMOUNT OF SANCTIONS

On January 9, 2007, the Court issued a memorandum concluding that Barrett Burke Wilson Castle Daffin & Frappier, L.L.P. (“Barrett Burke”) had violated rule 9011 of the Federal Rules of Bankruptcy Procedure (FRBP) in this case.

http://www.msfraud.org/law/lounge/Barrett%20Burke.pdf


NOTE: We have a section in the Legal Lounge titled: Lawyers & Judges, which contains cases against them. 
 
If you have any others you wish to see listed, please send them to contact@msfraud.org
 
We anticipate this list of legal criminals to expand as this issue slowly comes out and will include other big name firms such as Fulbright & Jaworski, Jones Day and a host of judges as well.
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Ran across this in Calculated Risk comments to Tanta's post on GM.  Haven't been able to turn up anything on AHM v. TRIAD case yet.  Has anyone seen anything on it?  Could be real interesting.

Bloomberg has a piece up this morning (the service, not the website) about AHM suing Triad (a mortgage insurer) because Triad is refusing to cover claims on mortgages it says AHM screwed up. This is a very real risk a servicer faces. Thing is, outfits like Triad don't just shrug and write checks to these servicers. In order to believe in a massive forced-FC conspiracy, you have to believe that the real bagholders--investors and insurers--are paying no attention.

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Mortgage servicers raking in millions from homeowners in trouble
BloggingStocks

Loan servicing can be extremely lucrative. The companies collect payments from borrowers and pass them on to the investors who own the loans. I'm sure you've experienced changes in whom you pay your mortgage to. In many cases it's just a change in servicing company and not necessarily a change in who owns the loan. Loan servicers usually get 0.25% on a prime mortgage and 0.50% on a subprime mortgage. The profit margins for servicers is about 20 percent according to the Times.

But even bigger than late fees are the fees the loan servicing companies tack on if a loan defaults. These include $145 in demand fees, $137 in overnight delivery fees (wow is that a personal door to door trip?), fax fees of $50 and payoff statement charges of $60, according to research done by Katherine Porter who is quoted in the Times story. In addition they can add on charges for monthly property inspection. All of these fees add to the profits of the loan servicing company.

Porter analyzed 1,733 Chapter 13 filings to come to her conclusion that some creditors ask for fees that would probably be considered "unreasonable" by the courts. In 96% of the cases she looked at there was disagreement between the lender and borrower about what was owed. The average difference was $3,533. The Times goes on to list some big differences that ended up in court:

*On October 9, the Chapter 13 bankruptcy trustee in Pittsburgh asked the court to sanction Countrywide for losing or destroying more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007.

* A bankruptcy judge in Louisiana ruled that Wells Fargo overcharged a homeowner by $24,450.65 or 12% more than what the court said he actually owed. In this case the homeowner took Wells Fargo to court, but many in bankruptcy can't afford to do so.

Max Gardner, a lawyer in Shelby, N.C., told the Times, "We're talking about millions and millions of dollars that mortgage services are extracting from debtors that I think are totally unlawful and illegal. Somebody files a Chapter 13 bankruptcy, makes all their payments, gets their discharge and then three months later, they get a statement from their servicer for $7,000 in fees and charges incurred in bankruptcy but that were never applied for in court and never approved."

These practices finally are getting some attention from the Office of the United States Trustee, which is the Justice Department division that monitors the bankruptcy system. The office announced plans to move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees or fail to account properly for loan payments after a bankruptcy has been discharged, according to the Times.

Congress granted credit companies their wish to make it harder for consumers to file for bankruptcy. It's time for Congress to look at the other side and be sure people in trouble are protected as well during the bankruptcy process.

Lita Epstein has authored more than 20 books including "The 250 Questions You Should Ask to Avoid Foreclosure" and "Complete Idiot's Guide to the Federal Reserve."

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Americans Face Serious Foreclosure Problems…and They’re Probably ...Not What You Think
7 Nov 2007 by Mark Avera

Somebody should have seen this coming.

It was just months ago that people, in large numbers, begain calling for changes in mortgage practices.  Allegations flew of companies using deceptive and misleading practices to place people in loans they could never afford.  The emphasis was on how these people got into their mortgages; the outcry was that they should have never qualified.  The argument can be condensed down to something like the following:  if lenders had more closely scrutinized borrowers and applied stricter lending standards, the country would not be experiencing a “sub-prime mortgage meltdown”.

Yesterday, Katherine M. Porter of the University of Iowa’s College of Law published a paper titled “Misbehavior and Mistake in Bankruptcy Mortgage Claims,” based on her research of over 1,730 different Chapter 13 bankruptcy cases recently filed by homeowners (find the abstract and paper here).  In it, she suggested a departure from the outrage expressed towards the narrow part of mortgage-lending outlined above.  “Instead of focusing exclusively on loan origination,” says Porter, “these data suggest that regulators and policymakers should broaden their vision to consider how poor mortgage servicing can threaten families’ efforts at homeownership throughout the country.”

Some of the results are astounding:

–  In 96% of the claims Ms. Porter studied, the borrower and the lender disagreed on the size of the mortgage debt.  In fact, she says, “Each year, mortgage creditors assert that bankrupt families owe them an aggregate of at least one billion dollars more than the families themselves believe are their outstanding mortgage debts.”

–  “The median difference between the amounts the creditor and the borrower submitted was $1,366; the average was $3,533, Ms. Porter said. In 30 percent of the cases in which creditors’ claims were higher, the discrepancy was greater than 5 percent of the homeowners’ figure.” (NYT)

–  “A majority of mortgage companies’ proofs of claim lack the required documentation necessary to establish a valid debt.”

–  “Fees and charges on bankruptcy claims often are identified poorly and sometimes do not appear to be reasonable.”  Some of the fees are unquestionably illegal, others for unwanted, unsolicited, and unnecessary services.

The study uncovered the “specter of poor recordkeeping, failure to comply with consumer protection laws, and massive, consistent overcharging.”  In light of this, Katherine Porter concludes, quite seriously, that “On a system level, mistakes or misbehavior by mortgage servicers undermine America’s homeownership policies for all families trying to buy a home.”

This is the most important fact to homebuilders and construction companies.  It seems that mortgage lenders and servicers could be significantly adding to the problems of supply and demand.  Because Chapter 13 Bankruptcy offers homeowners a chance to delay foreclosure, settle their debts, and stay in their homes, practices that disrupt this procedure can cost homebuilders.

First, homeowners that loose their home and hurt their credit due to practices like this are unlikely to be purchasing a new home anytime soon.  Furthermore, the ‘domino affect’ comes into play, making quality mortgages harder to find for everyone, and discouraging fiscally secure Americans from looking for or selling their home.  Demand for new homes will inevitably decrease as more and more people default, making the overall American home buying environment unpalatable. 

Second, increased foreclosures lead to increased supply in the used home market…as if there are not already enough homes for sale.  Reselling these foreclosed homes at steep discounts is common, and puts downward pressure on already deflated home prices. 

Again, click to read Misbehavior and Mistake in Bankruptcy Mortgage Claims.

 
"Misbehavior and Mistake in Bankruptcy Mortgage Claims" by Katherine M. Porter is the research analysis referenced in Gretchen Morgenson's piece at start of this thread, a must read for MSF victims in bankruptcy or facing it.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1027961#PaperDownload

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