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

     This is not an entirely new topic. Mike Dillon posted some time ago about the Ellington Vs. Fairbanks Capital case concerning the same thing. Here's another post about the idea that servicers are not only hosing us, but also the investors. Think about the big picture here for a second... The investors represent one side of the mortgage securitization issue, while we the other. Generally, the only thing in the middle will be the trustee and the servicer. If the servicer is cheating both the borrower and the investors, the only folks making any money (or at least far more than their fair share!) are the servicers at the expense of everyone else.

     I know this isn't really mortgage servicing fraud in its purest sense, and it is not the best written article. However, it gives some insight into just how greedy these servicers can be, and just how ruthless and greedy they are. You could almost make the case that the investors could be allies in this fight. I doubt we would ever be able to count them as allies, but, it is curious at worst...

The Hidden and Emerging Battle between Investors and Servicers


With the impact of foreclosures and defaults reverberating throughout the mortgage industry, a little-known but important battle is brewing that has major implications for lenders facing repurchases.  Sub-prime loan servicing agents are being criticized inside large investors for their inability to conduct impartial and effective loss mitigation to stem the tide of losses flowing from the glut of bad loans hitting the market. The failure of servicers to do their job well when it comes to defaults is having a significant impact on repurchase demands plaguing lenders today.


Servicers, the initial and most direct link to borrowers, are failing to take immediate, effective steps to control losses before they spiral out of control. Lenders are then facing repurchase demands where significant time has passed after a default, with little or no steps taken to control losses. 


Investors are then forced to look at their lender clients as an insurance policy rather than a partner in loss mitigation, as the lender-investor has traditionally been viewed and as anticipated in most Purchase and Sale Agreements.  Furthermore, the failure of servicers to act properly, or in concert with their investor clients, sometimes means that foreclosures occur before a notice of defect or default is even given to a lender. 


It is not unusual these days for an investor to send a repurchase demand over a year or more after a default has occurred, and months after a foreclosure sale, merely seeking a make whole amount.  The consequences are enormous as a lender then has no opportunity to investigate the alleged defect that caused the default, has no opportunity to conduct its own loss mitigation and control its losses, and has no chance to examine and challenge the investor’s actions to assure that they were completed within the good faith and fair dealing covenants inherent in the Purchase and Sale Agreement.


As those who specialize in loss mitigation in our industry are aware, timeliness is the key to loss control. Engaging in immediate and constant communication with brokers, borrowers, insurers, title underwriters, and others involved in the loan process is important because it normally provides sufficient time to either correct loan defects, recover losses, or control the property to the extent that it can be sold or refinanced to satisfy the existing lien and resolve a repurchase scenario.  With servicers controlling access to the borrowers, they are the first to learn of defaults, servicing errors that occur when payments are misapplied, as well as other important details about a property.  They are speaking to the borrower constantly; servicing notes are usually full of nuggets of important clues about a property and a borrower that, if interpreted properly and addressed quickly, could result in better loss management for investors, and ultimately lenders as well.


Lenders would be interested to know that typical servicing agreements executed by investors contain extremely detailed schedules of servicing tasks and time frames within which they are to be performed.  These include timely reporting of consumer servicing problems and disputes, defaults, escrow problems, insurance issues (such as cancellation), property issues (such as abandonment and damage), property valuation, foreclosure, REO acquisition, and the details of post foreclosure property listing and sales.


Left to their own devices, without proper reporting (or investor inquiry), some servicers are ignoring early warnings of borrower issues, failing to manage and control abandoned properties, failing to properly conduct market valuations to determine post REO sales, and most important to lenders, failing to provide timely notice to defaults so that loss mitigation can be conducted in a global manner, involving not only the servicer, but the investor and the lender as well.  Some investors have also claimed that servicers are literally stealing from them, failing to forward insurance proceeds, rents, and even post-default payments, all of which works to offset losses to the investor, and ultimately to the lender as well.


I have previously written about the necessity for a new “Wall Street-Main Street” partnership in loss mitigation.  This involves the tacit recognition by lenders and investors that only by working together, utilizing resources from the street, where the loans were originated, to the board rooms of the Wall Street giants, can the industry really get its arms around effective loss mitigation arising from the sub-prime meltdown.  Now it is clear another important link in the mortgage loan chain must also be on board: the servicers.  Investors, servicers and lenders all have a common interest in the defective mortgage loan.  All have benefited from loan origination, all have potential losses from loan defaults, and all have a stake in a coordinated effort to resolve loan problems to their mutual benefit.

For lenders, the immediate lesson is this: beware of repurchases that may be the result of the failure of your investor’s servicing agents to do their job effectively.  You have the right under your purchase and sale agreements to expect good faith and fair dealing in the investor-lender relationship.  When a servicer is negligent, that negligence should not, in good faith, be the basis for a lender’s demand that you insure for their failed contractual relationships.

Reprinted from the Mortgage Press, by Andrew L. Liput, Esq. ©2007
Perhaps this could be another arrow in your quiver... At the very least it should be something to talk to your attorney about.
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Nice find, JB.

Interesting the words that you chose to describe the opposite poles that investors and borrowers represent in cases like this. I've actually used the same analogy in conversations.

Keep digging everyone!
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I know this isn't really mortgage servicing fraud in its purest sense, and it is not the best written article.

Oh, yes it is precisely mortgage servicing fraud.

He's not quite there yet but he is on the right path. 

Somebody ought to explain to him in simple terms how it works.

For instance the Bear Stearns and EMC and then what the relationship
between them is.  Do they have an appraisal company in their group
that they use?  Lawyers to do forclosure?  Whatever other companys
that they might have to run the costs up on the borrower that deflect
any equity they might have and cause his clients to have a worthless loan?

Wonder who his clients are?  Who should send him an email to feel him
out and see if he is somebody we want to help or throw a body block.

I think the person that posted this article ought to contact him.  lol
You want to secure information about what he does not challenge
him as a fakir.  Can we help  each other or is this a one way deal?

Andrew L. Liput has been an attorney for 20 years and most recently was Senior Vice President and General Counsel to US Mortgage Corp. He is CEO of Ciercus Systems, Ltd., a mortgage industry fraud software company, and is also an owner of Repurchase Resolution Specialists in New Jersey. Andrew also writes a blog directly on Ciercus website:

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Ed Cage

A really excellent post Joe B!

One that I do not consider off topic (OT) at all..


Based on this, I may consider rounding up some disgruntled EMC/Bear

investors and explaining to them how blatant/fraudulent and illegal the

actions of EMC/Bear have really been.. Consider for a moment:


The investors look at the available recent history of artificial fraudulently

generated "profits" by the EMC-Bear scam machine.. Since Bear keeps

the weak (illegal) areas away from the investors, the investors become

victims themselves.. They pump more money into what they thought

was only an extra slimy scheme to exploit customers.. When much to 

their chagrin it turns out the driving theme behind their artificially

generated "profits" was illegal in nature rather than just somewhere

between unethical to “sleazy.”  .. A whole new ball game when people

get fined and even indicted!


More importantly a projected profit return of 22% suddenly becomes a

horror story of 40-80% losses in one year and in some cases entire funds

are wiped out completely.  


It’s not entirely vindictive.. I feel it is good ethical and moral business to

warn the investors and arm them with facts they didn’t have.  The “good

business” part comes in because it discourages future abuses by these

shameless mortgage servicing charlatans.


Ed Cage / / 972-596-4363

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Judge Roy Bean

OK, folks, let's look at the fundamentals.

Is there any rational reason to believe servicer executives and their subordinates who are more than willing to take advantage of borrowers wouldn't also take advantage of their equally unique fiduciary position in regard to their customers, the trustees?

In a word, "Duh."

Dishonesty isn't an event.  It's a condition.

I can see I'm going to have to hang around here a bit more.

The Honorable Judge Roy Bean

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Please do.

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Ed Cage
Judge Roy Bean wrote:
"Dishonesty isn't an event.  It's a condition.
I can see I'm going to have to hang around here a bit more.

The Honorable Judge Roy Bean"


Dear Judge:
I echo Ann's sentiments and I am very impressed
with your in depth knowledge.. Every day I realize
more and more just how many savvy expert posters
this forum is blessed with. 

Yes, please stay as long as you can.

Warm regards,
Ed Cage
1804 Cross Bend, Plano Texas 75023
972-596-4363 (Listed)
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Joe B
Judge Roy-

     I don't think anyone would suggest that the servicers wouldn't be willing to cheat anyone, if it meant a bigger bonus, or kept the gravy train rolling!

     I do however, believe that it takes a whole different level to go after the money from folks who individually and collectively wield tremendous power. In other words, I get (but don't agree with) why they would go after individual homeowners by the thousands. Let's face it, the reason it has gone on so long, is that they money they get through illegal fees, manufactured foreclosures, etc. far outweighs the few judgments that go against them.

     However, these investors, hedge funds, retirement funds, very wealthy individuals, mutual funds, etc. have the ability to bring some serious hurt to these guys. This is where the audacity comes in. I am not surprised they would do it given their brazenness. However, it is more like robbing a bank in daylight right next door to the police headquarters during a shift change; if you get my analogy...

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