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.
Articles |The FORUM |Law Library |Videos | Fraudsters & Co. |File Complaints |How they STEAL |Search MSFraud |Contact Us

By Eoin Callan in Washington

Published: September 7 2007 03:00 | Last updated: September 7 2007 03:00

The fate of the US housing market is increasingly in the hands of an opaque part of the financial system normally associated with moves to evict families from their homes.

Mortgage service companies, which are responsible for calling on Americans to keep up with their loan payments, have assumed a pivotal role in President George W. Bush's market-oriented strategy for dealing with the pending wave of foreclosures in the subprime mortgage sector.

An estimated 6m high-risk subprime loans, worth a total of more than $1,000bn, are outstanding, which will in many cases reset to higher interest rates in the next 18 months, putting more than 2.5m Americans at risk of foreclosure.

"It is sort of like being in New Orleans a month before Hurricane Katrina hit when you know there is a storm coming," said Guy Cecala, of Inside Mortgage Finance.

Economists fear that a wave of evictions of borrowers unable to afford the higher payments will blight neighbourhoods, hit home prices, deepen the worst housing downturn in 16 years, and harm the wider economy.

The response to this crisis outlined by the president places considerable faith in the ability of mortgage servicers to mitigate this blow by helping distressed borrowers to stay in their homes.

Edward Lazear, chairman of the Council of Economic Advisers, said: "I believe, and I think the president believes, that markets are very good at finding ways to solve problems."

But many experts claim that the mortgage service sector is not fit for this purpose.

They argue it does not have the capacity to perform this role, and lacks the personnel, financial resources, technical tools, experience, incentives and oversight to deal with an economic crisis of this scale.

"Theoretically, it makes sense, but not in the real world," said Scott Syphax,a director at the Federal Home Loan Bank of San Francisco.

"These institutions are not built to handle this scale and volume of problems."

"The notion that federal regulators can urge services to reach out and contact borrowers who may face distress is unrealistic," said Mr Cecala.

The mortgage markets' success rate where it does modify loans is also poor. About half of loans that are modified still wind up in foreclosure a year later.

In past housing downturns, large banks have been able to retool their mortgage servicing operations to adapt to conditions.

But shifts in mortgage finance and innovations in the financial sector mean that most subprime loans are no longer handled by federally regulated banks.

Most have been issued by specialist lenders that have sold the mortgages on to secondary markets through complex financial instruments.

The job of servicing many of these loans has also fallen to myriad smaller companies that have no contact with the ultimate owners of the loans and are themselves coming under stress.

American Home Mortgage services about $50bn of loans and filed for bankruptcy last month.

A court order has given the subprime lender until October 31 to sell its mortgage servicing operation.

But as more service companies fall into the hands of vulture investors, the task of co-ordinating a national response is likely to become complicated.

"The fixes being proposed by the president are not going to result in Americans being rescued from their homes, quite the opposite," said Richard E. Gottlieb, a lawyer who specialises in mortgage servicing.

Additional reporting by Krishna Guha

Quote 0 0

Kathy wrote:
"The fixes being proposed by the president are not going to result in Americans being rescued from their homes, quite the opposite," said Richard E. Gottlieb, a lawyer who specialises in mortgage servicing.

Interesting that, assuming that I have the correct Richard Gottlieb, an attorney specializing in banking defense and "Best Practices" work would make this type of comment.
Quote 0 0
If foreclosures are profitable how can market forces correct foreclosures?

That's just plain stupid.

We have already outlined  the ways lenders and servicers, investors, lawyers and others make money off of foreclosures.

Money stolen from foreclosures was Bushes largest campaign donation source via Roland Arnall.

The lending system needs to be restructured from the bottom up where lenders have to risk and lend their own money instead of getting rewarded for finding as many ways as possible to creatively leverage our equity they borrow against.

Many propose regulation and certainly the fraud needs to be stopped, but regulation often creates loopholes that facilitate even more fraud. The way to have a self regulating system where fraud is automatically minimized and market forces do work is to create a system where making loans that benefit the borrower benefit the lenders, servicers, real estate and related industries.

Foreclosures are hugely profitable and market as well as criminal forces will try to find a way to foreclose.
Quote 0 0
srsd

You are so right Greg.  If these companies are not profitting from foreclosures...why bother.  It looks like they would refinance and make the rate at the rock bottom price that they could if they wanted to avoid foreclosing. This is all a big scam about not making money off from foreclosures and I hope nobody ever falls for that lie.  What do they do with the houses they foreclose on?  Don`t they sell it and get the money back plus the money that has already been paid from the person that has been foreclosed on?  Someone is making a lot of money somewhere. Maybe we are all in the wrong profession.  We need to buy everyones houses that have been involved in this mess, let them pay us payments for a few years,(make sure we have an ARM hidden somewhere in the contract) throw them out and then sell the house.  We would make a tidy profit.

Quote 0 0

OK this may be silly---but--- Why not stop the Mortgage people from increasing intrest rates.  I would suspect that all the ARM's out there that are getting ready to adjust are already set at a rate considerably higher than prime rate.  Stop the ARMS increases, that would solve a lot of problems.

Quote 0 0
srsd

That would be great but ours has already adjusted 2 times.  Every 6 months it will go up again.

Quote 0 0
Moose
Trish wrote:

OK this may be silly---but--- Why not stop the Mortgage people from increasing interest rates.  I would suspect that all the ARM's out there that are getting ready to adjust are already set at a rate considerably higher than prime rate.  Stop the ARMS increases, that would solve a lot of problems.


It would be a great idea, and if you could get all of the parties still involved (servicer, trustee, insurer, bondholder, CDO investor, raters, etc.) to agree and you could modify all the legal documents involved it could even work.

The hang up will most likely be the trustees, bondholders and down-stream investors. Not having an upward change in interest payment could significantly affect the value of their investment and the cashflows from it. Trying to get them all singing out of the same book is unlikely, particularly getting a modification on a single loan.

One might ask "isn't something better than nothing?" in terms of keeping a borrower in a home and making payments, but the answer in some cases is going to be "no" if there are financial advantages to foreclosure.

Keep in mind the bond investors have had a fairly stable market in which the behavior of the loan pools and the income from them was predictable. So predictable that other investors gambled on leveraging those debts. If you go into a pool and modify some number of loans, things become highly unpredictable - something bond investors hate and thus, those holding the bonds find the market for them diminishes and they can't be sold for what they expected to get for them if they decided to trade them.

We have to remember that this business is made up of companies looking out for THEIR individual interests, not the borrowers'.

ONLY if they start thinking in terms of stability again will they consider getting together on trying to sustain certain borrowers who are experiencing difficulty.  Otherwise, as I've already said, a foreclosure is going to generate another new loan.

The industry likes new loans. Originators make money generating a loan. The people who set up the REMIC make money pooling new loans. Servicers get a percentage of the unpaid principal balance each month, so the older the loan is, the less income they get from it. Raters get to rate pools and servicers. Gamblers behind the bond market get to play with CDO's.  The number of people that new loans touch is far greater than most people realize.

So the answer is, from the industry at least, refinance. If the borrower can't qualify, the industry that helped doom them will find someone who can.

Moose





Quote 0 0
Write a reply...