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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Joe B


(with emphasis)












OCTOBER 24, 2007

Distinguished members of the Committee, allow me to introduce myself. My name is Maureen McGrath, and I submit this statement on behalf of the National Advocacy Against Mortgage Servicing Fraud. I wish to thank you for holding this important hearing to examine the proposed Escrow, Appraisal, And Mortgage Servicing Improvements Act. I would also like to extend a special thank you to Congressman Kanjorski for keeping this issue in the forefront of his thoughts, and in bringing this vital bill to life in an attempt to protect not only the rights of his constituents in the Poconos and nationwide, but the rights of investors in the mortgage securitization market.

What you have before you is a bill that places into effect safeguards that will protect not only the rights of homeowners, but the housing market, the ability of financial institutions to continue to offer financial assistance to homeowners and potential homeowners in the form of affordable mortgages, and the continued confidence of the investors in the various forms of securitization of the notes connected with the financing of homes.

In June, 2004, I and other interested citizens testified before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises field hearing on "Broken Dreams in the Poconos". At that point in time, mortgage servicing fraud was barely being recognized, and the Curry v. Fairbanks litigation was newly filed in Massachusetts. My testimony encompassed the illegal acts perpetrated by Fairbanks Capital on unsuspecting homeowners, and the drastic effects their illegal maneuverings were having on said homeowners. In that testimony, I warned of the potential dangers that mortgage servicing fraud could have on the real estate market as a whole, and the ability of financial institutions to continue to fund mortgages for people with less than perfect credit. Those dire warnings have now come to pass. We have seen the collapse of hedge funds which incorporated so-called "sub-prime" notes, and the effect the collapse of those funds have had on the stock market. What must be realized is that not all sub-prime loans are non-performing nor are all prime or "A paper" loans performing. Instead, it must be understood that what we are seeing is a combination of poor underwriting, inflated and fraudulent appraisals, mortgage servicing fraud, and deception.

As an example, I draw your attention to the much-heralded Curry v. Fairbanks Class Action. Although Fairbanks entered into an agreement for Best Practices with the FTC, what was hidden beneath the surface was the continued illegal acts of Fairbanks. Litigation, brought by investors of several REMIC’s, is now ongoing concerning practices that allowed Fairbanks to earn an improper windfall in various ways. First to the extent Fairbanks collected late and other fees from borrowers, Fairbanks kept them as part of its servicing compensation. Second, to the point that Fairbanks made servicing advances, Fairbanks was allowed to be reimbursed from "monthly excess cash flow" at the expense of the certificate holders. Third, Fairbanks was allowed to be reimbursed for "servicing advances" from the liquidation of said loans. This systematic bilking of borrowers led to a reduction of the liquidation of proceeds payable to the certificate holders, and inflation and overstatement of deficiency balances.

Advocates have also seen, and are following closely, the continued practice of one servicer, EMC Mortgage, a subsidiary of Bear Stearns, to create fraudulent documents in foreclosure actions. In one such case, Wright v. EMC, filed in Collin County, Texas, Wright successfully fought off foreclosure attempts by EMC for ten years, until EMC reached back in time, and discovered a note that was assumed by the RTC. Because of the confusion and various other issues of that time, many notes held by RTC were never marked "satisfied" when the properties were sold to new owners. Such was the case in Wright v. EMC. EMC reached back to the RTC Note, and through various fraudulent documents, convinced the court that the note they were foreclosing on was the note once held by the RTC in the developer's name, and not the Wright note. Mr. Wright was evicted from his home this summer. Other cases, still ongoing, reveal that EMC has consistently filed documents claiming ownership of notes prior to the entity from which EMC purchased the notes ever had legal title to either the notes or in certain cases, the REMICs.

In addition, we still have on-going litigation dealing with Fairbank’s placing of force-placed insurance on various residences prior to the Curry settlement. The placing of said force-placed insurance placed the homeowners in default, and today, years later, these innocent and harmed individuals still have not recaptured a normal life and are still fighting for their rights to stay in their homes.

The Committee must focus on the fact that investors have lost their confidence in residential mortgage securities and have reduced their participation in the secondary mortgage market. Such a loss of confidence has occurred because investors feel that disclosure has been inadequate, they have suffered losses from issuer or servicer fraud, and they may become subject to assignee liability for predatory lending practices. Of particular note, is the fact that some subprime lenders have committed servicing fraud to avoid repurchasing loans that suffered early payment defaults (i.e., the lenders made payments on behalf of the borrowers in order to avoid reporting the loan as delinquent). The bill you have before you contains safeguards that will restore the confidence of investors, and the required studies will be far reaching in determining if servicers are using any other illegal or subversive practices in order to achieve illegal windfalls.

I urge the Committee to recommend approval of this bill at the earliest possible opportunity. This concludes my statement. Thank you for your time and consideration.

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Securitization of loans (loan pooling)  and Yield Spread Premium's are beneficial to investors and lenders, but not to consumers.  How can a loan that continually gets transferred from one lender to another be beneficial to the consumer. 

A question was posed by Chairman Barney Frank and Congresswoman Maxine Waters of California on "Yield Spread premiums" as to the benefit to consumers to one of the representatives from the Mortgage Brokers Association. 

The representative never answered the question.
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Thanks for this, Joe. And God bless Ms. McGrath who has been in the mortgage servicing fraud trenches for a long, long time.

  The sound you hear is me giving Ms. McGrath a big round of applause 

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That is really Great to read! Thumb's up to her.
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O -

The Mortgage Professor Loan Servicers, the Lesser-Known Predators
Washington Post - 4 hours ago
Aside from a few well-publicized lawsuits, predatory servicing has attracted little attention. In many respects, though, it is more vicious and the adverse consequences more far-ranging.

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Joe B

     Here is the full text and URL of the article for those of you that do not like leaving the site to follow linked articles. Dr. G has written some pretty good stuff on MSF, and this is no different. The only problem is that no one with the power and interest seem to be paying any attention.


Loan Servicers, the Lesser-Known Predators

By Jack Guttentag
Saturday, November 3, 2007; G04

In recent years, there has been a flurry of proposals and legislation directed against predatory mortgage lending. The focus, however, has been almost entirely on loan originations.

Aside from a few well-publicized lawsuits, predatory servicing has attracted little attention. In many respects, though, it is more vicious and the adverse consequences more far-ranging.

The loan-origination market is a minefield for borrowers, but they have choices. Exercising intelligence and care, and with a little homework, they can find loan providers that will treat them fairly. When a loan is closed and shifted to a servicing agent, however, the borrower's choices disappear.

Borrowers have no say in choosing the firms that service their loans. They cannot fire that firm for cause, no matter how wretched the service. The only way they can extricate themselves from predatory servicers is to refinance. That is costly, and there is no assurance that subsequent servicers will be better.

The financial incentives to provide good service to customers, which work in other sectors of our economy, work only selectively with loan servicing. Servicers that originate loans have an incentive to provide good service to borrowers they view as potential clients for new loans or other services. The incentive disappears, however, for borrowers with spotty payment records.

Absolutely no incentive for good service exists for specialized servicing firms that have nothing to sell. Such firms will not get more customers by improving service quality, only higher costs; nor will they lose customers if they provide poor service. Their incentive is to generate as much revenue as possible from borrowers. It is hardly surprising that such firms figure so prominently in discussions of predatory servicing.

Predatory servicing could be reduced or eliminated by legislation that restricts the sale of servicing contracts or gives borrowers the right to change servicers. Those would be drastic changes that would be difficult to enact. The alternative is to identify predatory practices and make them illegal. Here are some practices servicers should be required to follow, and why:

¿ Mandatory provision of complete and comprehensible monthly statements: The law should require servicers to provide easy-to-understand monthly statements showing everything that affects a borrower's account. They should include balance changes and their sources, payments, disbursements, rate adjustments and fees.

Rationale: In the absence of comprehensible monthly statements, predatory practices can go unnoticed by borrowers indefinitely.

¿ No suspension of payments because of escrow shortages: Servicers should be prohibited from placing scheduled payments of principal and interest in suspense accounts when only escrow payments are short.

Rationale: This pernicious practice results in unnecessary delinquencies and late payments and can lead to collections and foreclosure.

¿ No profits from loans in collection: On services purchased from third parties in connection with loans in collection, such as legal fees and property inspections, servicers should be barred from marking up third-party fees, receiving payments for referral of business or purchasing the services from affiliated entities.

Rationale: Profiting from loans in collection provides an incentive to move borrowers to that status unnecessarily. It also increases the cost to borrowers struggling to return to good standing by paying back arrears.

¿ Mandatory reporting to credit bureaus: Servicers should be required to report payment history on all their accounts.

Rationale: Servicers should not be able to cripple the ability of borrowers to refinance favorably by not reporting good payment records to the credit bureaus.

¿ No conversions to simple interest: On purchased servicing contracts, the servicers should not be permitted to convert mortgages to simple interest merely because notes do not explicitly prevent it.

Rationale: Simple-interest mortgages, which accrue interest daily, are problematic for many borrowers. If a borrower did not negotiate a simple-interest mortgage at origination, a later conversion to simple interest after the transfer of servicing is unconscionable.

¿ Mandatory disclosure of policy toward crediting extra payments: Servicers should disclose exactly what their procedures are for crediting extra payments to loan balances.

Rationale: Borrowers making extra payments of principal have the right to this information so that they can plan their schedule of extra payments in the most advantageous way.

¿ Mandatory retention of complete servicing files: Servicers should be required to retain complete files on all accounts until they are paid off. When servicing is transferred to new servicers, the purchasing firms should be required to obtain the complete files.

Rationale: Servicers should be prevented from covering up abusive practices by selling the servicing while leaving evidence of the abuses behind.

Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site,

Copyright 2007 Jack Guttentag

Distributed by Inman News Features

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Good job, Maureen.

I especially like the brass knuckles approach on pointing out Bear Stearns
and EMC.

Fraud on investors.

Fraud on borrowers.

It's all the same, really.

Perhaps investors will pay more attention to how they are making money
and will shun those that are fleecing borrowers.

If you make your money from lying, cheating, stealing and other disgusting
business practices, the lesson is clear, you will get some on you.

The links to these business practices will come to light eventually and the individuals running these scams ought to go to prison after being stripped of their assets.

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