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
OK, I have another question...

     I just read April's post about her situation (see thread, "I am Litton's last victim)." Very unfortunate, but all too familiar situation!

     My question concerns her comments that while in f/c, her note was sold. It wasn't the servicing rights, but the actual note. This seems highly unusual, especially if there exists potential liability by the owner/holder. Why on earth would a noteholder/bank/trust be willing to acquire a note that is in the middle of a foreclosure?

     I can think of a few reasons why this could happen.

1. Covering (or attempting to cover) origination or assignment issues.
2. Getting the note out from a trust to protect the investors.
3. Simply muddying the paper trail.


     Does anyone know how this works, and why a note in the middle of a f/c would be sold? It seems highly unusual to me, and I can't remember too many people here discussing this happening to them. It seems that once a f/c is initiated, that the ownership is put into a holding pattern until it is resolved one way or another (f/c consummated, homeowner gets current, or a new agreement is reached, etc).

     So, why would this happen, and is it unusual, or does this happen to more people than I realized? Sorry for asking for, rather than supplying assistance! Thanks everyone for their feedback.

JB
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I'm willing to bet, that CBASS computer system RADAR targeted April, they was probably some divorce, medical problem, law suit, or they Bankruptcy, (I think that was it)  CBASS uses this computer system to find mortgages of people in some "Distress" then they buy the mortgage, and steal their home, and equity! THIS IS A PRODUCT DEVELOPED BY BIG TONY ETTINGER!  This entire program is laid out in public filings! 
 
 
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~beenawhile
Gary,

Please explain what you mean by this:
"This entire program is laid out in public filings!  "

What does the "laid out" in "public filings" mean?

Is there a website to review for us to see what you are speaking of?
or explain ?
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Joe B.:

The SALE of a promissory note in foreclosure is NOT necessarily unusual and it may have been the foreclosure that precipitaed the sale of the note!

Virtually ALL mortgages sold to FNMA and FHLMC are sold pursuant to certain representations and warranties by the mortgage originator to the mortgage investor.  Similar representations and warranties are typically made with respect to who loan sales or trades by originators to private investors, "mortgage conduits" or investment banking aggregators setting up mortgage backed securities issues.

I am shooting from the hip on this because I haven't read the standard FNMA/FHLMC representations and warranties for two decades, but these used to include representations such as that all of the investor's underwriting guidelines had been followed, that the application and underwriting were free of fraud, that all consumer disclosures (TIL, RESPA, HUD-1 Settlement Statement) and and the loan instutments themselves were regular and free of material defect, etc.

The TERMS of the representations and warranties essentially give the mortgage investor a PUT option to RESELL the mortgage to the originator at PAR (100% of then face value/outstanding mortgage balance) OR the origianl transactional price.  It is also not unusual for the terms of the sale to allow for or provide for the SUBSTITUTION of another mortgage bearing similar terms as an alternative to required repurchase.

FNMA and FHLMC also had an additional blanket warranty that if a mortgage went into default during the first six months for ANY REASON WHATSOEVER.

One of the reasons for these representations and warranties is that FNMA and FHLMC use a procedure called delegated underwriting.  This means that the mortgage originator underwrites the loan to FNMA/FHLMC lending and underwriting standards.  In effect, FNMA/FHLMC buy these loans SIGHT UNSEAN on the strength of representations that the originators have complied with these guidelines.

It is when a loan goes into default that the investor actually pulls out the loan file and begins to go over all of the paperwork.  If in the process of doing this post-default underwriting serious defects are found in the original loan underwriting, disclosures, etc., the investor would REQUIRE the repurchase of the loan by the mortgage investors.

The mortgage investor also must make a calculated business decision when requiring repurchase.  Required repurchase by illiquid mortgage originators tends to poison the business relationship.  The originator may choose to sell its production to a DIFFERENT investor if these pprovisions are enforced aggressively.  So the investor must balance its ongoing business relationship with the cost of carrying the mortgage through the foreclosure.

For that matter, when the loan is well secured by collateral, the investor may be content to proceed to foreclosure without exercising the implicit PUT option forcing the repurchase of the loan by the originator reserving the exercise of the put to situations where the investor might be unlikely to fully recover at foreclosure.

You must also bear in mind that originators are NOT sufficiently well capitalized that they can typically carry a large inventory of defaulted loans in portfolio.  So insuch an instance of required repurchase, the originator to whom the investor has PUT the loan very well MIGHT sell the loan, now at a DISCOUNT reflecting its defaulted status to another investor more willing to own the loan through the completion of the foreclosure process.

*

One final note is also in order.  If you carefully read the provisions of the Uniform Commercial Code, implemented in substantially identical form in most states, you will find that there is a disntinction between an ordinary "holder" and a "holder in due course".  Typically there are certain restrictions on the defenses that can be asserted against a holder in dur course.  But a purchaser AFTER default can usually never be a "holder in due course".  To put this another way, a purchaser taking the mortgage while in DEFAULT is essentially ON NOTICE that the borrower may have some objection or reason for not paying.

*

I think you can see where the representations and warranties will actually precipitate some occasional post-default sales and/or exchanges of mortgages. 

It occurs to me as I framed this reply that an investor would tend to be inherently LESS CONCERNED about preserving its business relationship where the originator has gone out of business.  On the one hand, this would tend to impell the investor to PUT the loans more aggressively to the originator.  But when the originator has also gone into bankruptcy, the PUT may also be subject to the Court supervised marshalling of the assets of the bankrupt estate.

I would tend to expect that as an originator becoes MORE DISTRESSED and facing likely bankruptcy that investors probably initially become MORE aggressive in seeking to PUT these defaulted loans back to the originator.  Whether they continue to put the loans AFTER bankruptcy would depend upon the extent to which the bankruptcy is precipitated by originator liquidity problems or originator capitalization problems.  In either case, I think you can see that things become complex very fast, assuring that good lawyers (and even some marginal ones) will continue to make money! 
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In previous analysts filings, they described exactly how "RADAR" worked for CBASS.  The founder of CBASS, Tony Ettinger, acquired the computer program that would "Data Mine" public records, news papers, Internet etc, and Identify individuals that have some problems, then "Target" their mortgages to be bought by CBASS, and Foreclosed on by Litton Loan, many of the victims first go through Ocwen Bank, then to Litton, they appear to try to get the mortgage to Litton Loan at or around 90 days after purchasing the mortgage, so they can start the process of foreclosing almost right away.  In most cases Litton Loan reports to the credit agencies right away, that the mortgage holder is 60-90 days behind, even if the mortgage holder had paid and was current.
 
I will look for the report that says this and attach it.
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The Role of C-BASS

First, I want to add that the "sub-prime" mortgage industry did NOT exist when I was in the mortgage business two decades ago, so in trying to fathom and understand the relationships as they pertain to subprime lenders and investors, I am still learning and hypothesizing.

But I would point out that C-BASS is a subsdiary of MGIC and Radian, which are in turn primary mortgage insurers.  The Mortgage Insurance companies sell both primary mortgage insurance, as well as "pool insurance" as credit enhancement to the trusts issuing mortgage backed securities.

Not unlike any ordinary casualty insurance company faced with a claim involving litigation, the provisions of the primary mortgage insurance policy provide that the insurer has the right to control the lititgation process to mitigate losses.  In mortgage insurance, the claims / litigation process typically involves mortgage foreclosure.

It is not difficult to surmise that at least a portion of the C-BASS business may very well involve the sale of a mortgage under a required repurchase as described above to an AFFILIATE of the the mortgage insurer -- C-BASS.  C-BASS then uses its captive servicer.

I am JUST SPECULATING HERE.  I have NOT bothered to read the registration statements or annual reports that OUGHT TO explain these relationships in more detail.

To this I would add that IF these companies were all operated by reputable people following both the rule of law and sound business ethics, there is nothing inherently WRONG with some amount of "vertical integration" of the mortgage business with insurers taking a more active roll as investors or servicers.

I have read a number of the horror stories at this web site and am deeply disturbed by what appears to be a downward spiral of ethics and criminality in the mortgage business in the two decades wince I was in the business! 
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Gary,

I would also like to read the info on Tony and the program he developed.
Can you point me to a source of info or post it here.  Sounds interesting.

Thanks

William,

Don't feel alone. 

I took out my first mortgage in 1987.

What a process I had to go through in order to be deemed acceptable to the loan originator.

It was work to qualify.

In 1998 I had the last mortgage I'll ever get.

It took me a long time to understand and believe  I was in danger of losing
my house to a scam.  I paid on time even early, I paid in full each month
and began sending extra principal payments.  It was a 10 year loan
that I paid off in 4 1/2 years. 

I never experienced any of this horrifying behavior like we seem from the servicers and the originators either for that  matterr.

Then came Fairbanks.  They were behaving like crazy people.  Like somebody overdosed on steroids.  Blood dripping from their teeth, card carrying
mortgage servicing companies from the netherworld.

The fraud in this industry is absolutely stunning.

Dee


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Gary Wait wrote:
I'm willing to bet, that CBASS computer system RADAR targeted April, they was probably some divorce, medical problem, law suit, or they Bankruptcy, (I think that was it)  CBASS uses this computer system to find mortgages of people in some "Distress" then they buy the mortgage, and steal their home, and equity! THIS IS A PRODUCT DEVELOPED BY BIG TONY ETTINGER!  This entire program is laid out in public filings! 
 
 

I can tell you EXACTLY the sequence of events....Countrywide KNEW we couldn't loose our home, while attempting to work out a repayment arrangement I pled with them that we were going to be adopting our daughter, she was moving into our home as a "foster-to-adopt" or pre-adoptive placement and that a foreclosure was going to be disasterous for us at that time.  It would've blown our pre-adoptive placement out of the water, I begged them to let us work something out.  They knew we were desperate.  So of course they foreclosed.  Then came the MEETING only with the Bankruptcy lawyer.  Then came Litton Loan Servicing on the scene, between meetings with our lawyer.  In fact, the paperwork for our Chapter 13 had to be changed before filing because Countrywide had to be replaced by Litton.  Then, the same WEEK our daughter moved in, we filed Chapter 13.  Saving our house (or so we thought), saving our adoption, and opening the door for Litton to rob us for another full year and a half. 

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April:

Depending upon your lawyer's sophistication and experience with mortgage foreclosure, he might or might NOT know how to spot document FABRICATION within the documents presented to the Bankruptcy Court by the Servicer or Mortgage Investor.  You should be aware that some bankruptcy trustees and judges ARE starting to catch on and (a) sanctions have been imposed by bankruptcy courts in several instances (most notably sanctions imposed upon law firms Barrett, Burke in Texas in several instances of misconduct), and (b) and investigation by the United States Trustee now underway in Florida.  This is separate and distinct from the recent line of Ohio Federal Court decisions showing the Federal Courts inOhio are catching on to wholesale document fabrication.

I am NOT a lawyer and CANNOT give you legal advice.  But if you e-mail me digital copies of the claim presented by the mortgage servicer and/or mortgage investor in bankruptcy court, I CAN take a look at these documents and possibly ascertain whether there is any readily conspicuous evidence of forgery and/or fabrication.  There is one document in particular that I have found to be ROUTINELY fabricated by investors in foreclosure.  Why don't you drop me an e-mail message or better yet have your ATTORNEY e-mail me.

BE ADVISED THAT ANY COMMUNICATIONS FROM YOU TO ME ARE NOT PRIVILEGED.  IT WOULD BE BETTER IF YORU ATTORNEY WAS THE PERSON CORRESPONDING WITH ME.  But there is probably very little harm in SHARING with me copies of public pleadings or discovery responses from teh mortgage investor or servicer.

I am totally unfamiliar with Federal discovery rules in a bankruptcy setting.  But, in general, it is VERY IMPORTANT to use discovery to obtain the true facts of your case.

If you can PROVE fraud on the bankruptcy court by the mortgage investor, your bargaining position may be vastly improved!
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~beenawhile
Gary,

thank you for explaining what you meant.

I am devesated, and blown away by what you have said, this is unreal.
Am i the only one that didnt know this was happening?

It's blood boiling.

Do all the Servicers use this Gary?

I'll look for you to post the info about it.
sounds very interesting, are there any ways to fight the "program" they created?

------ S. C. R. E. A. M.~~~~~~~~~~~


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Joe B
Everyone-

     Thanks for all your feedback and information. WAR, your detailed and precise information is especially helpful. Incidentally, I am going to reach out to you on a few issues that you raised on a few different posts. I will have my attorney contact you for your help so that it will remain protected. It must have taken a significant amount of time to provide this amount of detail, and I remain grateful for your insight!

     I also want to provide some more amplifying information based on the collective feedback. The data below is generally correct, but deliberately vague... My initial question was specifically general so that I could be more specific when I read the feedback. It just seems to make more sense that way; I don't want to steer the feedback by placing a bias from my initial question.

     My loan is not a FNMA and FHLMC issue, as it ended up in a trust through securitization (more below). The loan was closed in 1997. The note was sold quickly thereafter to a large American bank that is now headquartered in NC. Sometime early on in the new millennium, it was then sold to a large Bank in NY to be further securitized; it has been in this trust since that time. Our good friends at Fairbanks began servicing this note around the same time of the sale and securitization.

     We were a victim of a manufactured default in early 2006, and we have some pretty good data that should resolve the issue in our favor. We were successful in getting a temporary restraining order, and have always been current. We have been in litigation over the f/c action since that time, and probably unsurprising to most, they have been extraordinarily uncooperative during the entire process.

     So, just last month, much more than a year after the f/c started, the loan was sold back to that large American bank headquartered in NC. I did not receive any notice of this transaction, but became aware through another method. So, this is the nature of my question. The servicer has not changed, but the ownership of the note has happened.

     I don't think that the f/c initiated the sale, or it would have happened several months ago, I would think...

     It seems odd that it would go back to the folks that had it before being placed in the trust; and then while it is in the middle of a f/c suit. It certainly suggests an attempt to cover-up! Perhaps the transfer/sale to the NY Bank was problematic, and by transferring back, this is an attempt to insulate the trust. I just need to understand why this transaction might have happened, especially at this late date in the process.

     The note was not sold back to the originator, as the originator is two (or three) transactions removed at this point. It is also well into the aging process, as it was closed on more than 10 years ago. I suppose it also could be a "buy-back" forced on the large NC bank because of various deficiencies now uncovered by the trust. The question is, how do I uncover these deficiencies through discovery: There is no way they are going to admit to any defects, and the truth will be in short supply as it has been so far.

     It also smacks of an attempt to simply muddy the water in the process, and force us to work harder to get to the real issues. I could be overly paranoid, but it sure seems odd to have happened at this late date in the f/c process.

     Anyone's insight would be awesome!! Thanks y'all.

JB
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Moose
Gary, and April - the analysis and targeting of potentiallly troubled mortgages is a routine business practice for most subprime servicers and has been for some time.  The data gathering industry is totally out of control and anyone can buy anything about anyone, especially if they are willing to share information.

The practice of data mining and forecasting potential defaults is commonplace, and they even tout their capabilities in their promotions to their customers.

I hate to keep pointing back to something as old as the "Owl Hunting Guide," but there are reasons I said then what I'll repeat now:

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2. Get off the damn phone – do everything in writing.

All joking aside - there is absolutely no advantage to you in talking to a loan servicer on the phone. Zero. Nada. Some of them even use sophisticated analytical tools to help them predict whether or not you’ll default or pay based on what you say. The fact is, conversations you have with them have NO LEGAL STANDING, so wean yourself from the phone and get used to writing letters. Time consuming, tedious, irritating and especially slow, yes. But if you want a legally defined course of events, writing is what counts. That’s why attorneys charge for letters!

 

If the loan servicer fails to respond to you and you have evidence (see 3.), it can be a significant part of the legal grounds to put a halt to their foreclosure schemes. This will provide an attorney with what they need to take effective action. Without it, they’re really wasting their time and your money.

 

Change your phone number, make it unlisted and don’t give it to anyone. Don’t print it on your checks. If they have your number and you can’t change it, learn to live behind an answering machine - they do!

 

If you just can’t resist falling into this trap, make sure you record the calls (be sure to

check your state laws on recording telephone conversations)

 

 

10. Never reveal personal financial or health information.

Some predatory servicing situations could be prevented if people would not reveal to the servicer that they are having temporary financial or health problems. You are under no obligation whatsoever to tell them anything, let alone why the payment was late or if you’re out of work or in bad health. (Again, you can avoid these traps by staying off the phone!)

 

Of course, when you miss a payment or you can’t make the next one, you may think you should tell them why. You probably think they will be sympathetic. Yes, with a responsible servicer it could be a step toward working something out, but with the serious predators all it does is trigger or speed up the process.

 

The other thing it does is come back to haunt you in the future when and if you have to challenge their view of something in court. They will drag out their notes and explain to the judge how you told them you were having financial difficulty at the time, etc., etc. The negative labels will be brought out and applied at every opportunity.


http://www.msfraud.org/mooseguide/hunterguide.pdf

I realize it's too late in many cases, because as the old saying goes, you can't un-ring a bell.  But you can stop pulling on the rope.

I've seen some of the "hardship questionnaires" being sent to borrowers who are hoping to get assistance with their ARM ratchet-loans. Frankly, none of the information put on those forms means a hill of beans. The ONLY thing that matters is whether or not, and how much, you can and will pay.


What they get out of finding out all the minutia of your personal life is ammunition to justify the decision of when to pull the trigger.  The people manning the phones are trained in persuasion, persistence, pretense, posturing and power and skillful prevarication, NOT in helping you stay in your home. They aren't sociologists.  They're not counselors.  They're not financial consultants. They aren't attorneys.  They are debt collectors. Most of them have only a little more than a high school education. They won't admit they made an error.  They will see only what the computer tells them. They won't go hunting for mistakes and make corrections.  They'll use anything you tell them to justify their position and any action they take.  They will have records of their version of any communication. They will have notations, shorthand, codes, comments, etc., in the record placed by people you speak with, including outright guesses, opinions and erroneous conclusions.

Joe B - as to your question.  Notes can and are routinely sold individually and within pools while a foreclosure is underway.  In fact, there are companies that specialize in them.  Conversely, some loans are discovered to be so toxic that they violate the terms and conditions of the offering and must be bought back by the originator.

Hope that helps.

Moose







 

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Joe B.:

Without seeing the underlying transactional documentation, which OUGHT TO BE AVAILABLE TO YOU THROUGH DISCOVERY, all we can really do is SPECULATE.  Unless you have seen the ASSIGNMENT and accounting records reflecting the compensation and consideration for such assignment, I would NOT assume that the transactions occured on the dates that you believe they did OR that they have repreesnted to you that they did.

Nor would I find it particularly surprising that a required repurchase might occur with some significant LAG after the asserted events of default and acceleraton.

The set of facts you relate seem to be quite consistent with a required repurchase PUTTING the mortgage back to a seller.

While my discussion generally described the originator as the one making the representations and warranties, this is actually a bit of an oversimplification.  First, bear in mind that in many instances small mortgage lenders have corresponding relationships and a "captive warehousing line of credit" with a larger mortgage banking entity.  In these instances, the loan may be CLOSED in the name of the smaller mortgage lending entity, though actually FUNDED at the closing by the larger entity which has agreed in advance to puchase the loan.

The larger entity then is often the FNMA/FHLMC Seller/Servicer.  The smaller entity has no direct relationship with FNMA or FHLMC.  The smaller entity is technically the originator and is shown on the promissory note and mortgage or deed of trust as the "Lender".  But it is the larger entity that makes the representations and warranties to FNMA/FHLMC.

The smaller mortgage lender MAY make similar representations and warranties to the larger lender within the contractural context of the corresponding bankng agreement.  But the smaller lender's warranty is usually LESS enforcable because the small lender is likely to be VERY THINLY CAPITALIZED.

There is also an inherent difference between the corresponding relationship and the delegrated underwriting  relationship between a FNMA/FHLMC Seller/Servicer.  In the former, the corresponding lender typically does the loan processing, including employment/income verification, debt verification, asset verification and appraisal.  The correspondent lender also UNDERWRITES the loan and then shops the loan to one or more larger corresponding institutions.  The smaller correspondent lender typically would send a COMPLETE COPY of the loan files to the larger lender and the larger lender will do a complete REVIEW of the documentation before making a written commitment to buy the loan.  The larger corresponding institution which is a FNMA/FHLMC Seller/Servicer knows PRECISELY what it is getting.  And it even has an opportunity to REVERIFY any details if in doubt.

By contrast, the delegated underwriting relationship the FNMA/FHLMC has with its Sellers/Servicers provides that FNMA and FHLMC will PURCHASE (or swap for MBS) mortgage loans meeting the lending and underwiting criteria.  But FNMA/FHLMC does NOT ever SEE the loan files prior to purchase!  Even post-purchase, it is the Seller/Servicer that keeps the loan files subject to FNMA/FHLMC AUDIT.  So FNMA/FHLMC are RELYING UPON the representations and warranties in purchasing these loans.

Also unmentioned in my post is the fact that aggregators of whole loans typically make these SAME or similar representations and warranties to the trustee of the mortgage backed securities (MBS) trust.  Accordingly, the large NC financial institution you mention would have made such warranties to the MBS trust and the trustee may have ultimately required either the repurchase or the SUBSTITUTION of another mortgage when YOUR mortgage seemed to be in default.

DO have your attorney e-mail me.  I suspect that there is a better than even money chance that your investor has made FALSE representations within the foreclosure proceedings.     
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Moose:

EXCELLENT and informative post!!
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