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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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

Comments

This says it all.

Mr. Liput,

Settlement checks made to victims of mortgage servicing fraud have really important information in the notes. Follow the money and how things are charged to the trusts (in the case of loans pooled into mortgage backed securities) by the servicer. Suffice it to say, trustees and investors should do a little digging into who paid for fights between homeowners and servicers - particularly when an attempted foreclosure is thwarted.

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Ed (not Ed Cage)
And the answer is


(Not Ed Cage)



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I Love SubPrime

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O -

LOL that didn't take long...Great VID's!

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Deal May Bring Legal Troubles

By AMIR EFRATI, RUTH SIMON and MATTHEW KARNITSCHNIG
January 11, 2008; Page A8

If Bank of America Corp. ends up purchasing Countrywide Financial Corp., it could inherit a flood of legal trouble.

The Calabasas, Calif., mortgage lender is facing a barrage of borrower suits and investigations by federal and state agencies for alleged lending and loan-servicing abuses as well as shareholder suits stemming from its financial decline. Countrywide didn't return a request seeking comment. Bank of America declined to comment.

In the event of a takeover, an acquiring company typically assumes the responsibility to address pending litigation. It can take steps to limit the risks associated with litigation, although "it's very difficult to eliminate all risk," said Andrew Sandler, a partner with Skadden, Arps, Slate, Meagher & Flom LLP.

Halliburton Co. had to pay billions of dollars to settle asbestos-related claims at Dresser Industries, a company it acquired in 1998. Germany's Bertelsmann AG has paid tens of millions of dollars to settle copyright litigation in connection with its 2000 investment in Napster, the music file-sharing network.

An acquisition could make resolving the litigation even more difficult because plaintiffs in pending suits might try to take advantage of the Charlotte, N.C., bank's deep pockets. If Countrywide were instead to file for bankruptcy-court protection, the potential to collect damages would be considerably diminished.

Bank of America could take steps to reduce or manage the risk, including lowering the purchase price to account for the potential litigation costs or holding back a portion of the purchase price as a reserve that would cover any litigation-related expenses.

It is sometimes possible to structure a deal to leave the liabilities with the selling entity. When Citigroup Inc. bought portions of ACC Capital Holdings, the parent company of Ameriquest, it structured the deal as an asset purchase to limit any potential liabilities related to ACC. With an asset purchase, the acquirer may buy specific assets of the target company, such as its loans or mortgage-servicing platform, rather than buying the company itself.

If Bank of America bought Countrywide's assets, Countrywide would shoulder legal liabilities and could use proceeds from the asset sale to settle litigation. That approach could have unfavorable tax implications, however, and there is no guarantee that the threat of litigation for Bank of America would disappear.

The bulk of the actions against Countrywide are individual claims connected to foreclosure cases across the country, with assertions ranging from violations of federal lending laws during loan origination to duping elderly borrowers into taking out high-interest loans to mishandling loan payments, according to Ira Rheingold, executive director of the National Association for Consumer Advocates, whose members represent homeowners facing foreclosure lawsuits.

There are a number of other suits that could blossom into costly headaches for the company. In California, shareholders filed six suits this past fall against the company, Chief Executive Officer Angelo Mozilo and other executives in federal court, claiming they issued false and misleading statements about the company's health. The suits have been consolidated, and the company hasn't responded.

The attorneys general of Illinois and California have subpoenaed Countrywide as part of investigations of mortgage-lending practices. Countrywide says it is cooperating. The Florida attorney general is also investigating possible civil-fraud violations.

Attorneys from the U.S. Trustee Program, a division of the Justice Department that oversees the bankruptcy-court system, have taken aim at Countrywide in at least six states, including Florida and Pennsylvania. U.S. Trustee lawyers are probing alleged misrepresentations the company and its lawyers made to courts about what homeowners owed and the handling of their payments during bankruptcy, among other issues. The company has denied the allegations that it acted in bad faith.

The company is also defending against at least a dozen suits seeking class-action status that were filed by borrowers alleging abuses.

Write to Amir Efrati at amir.efrati@wsj.com, Ruth Simon at ruth.simon@wsj.com and Matthew Karnitschnig at matthew.karnitschnig@wsj.com

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Deal May Bring Legal Troubles - WSJ.com
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In doing alot of research I've found out a couple of things about these services. Something that isn't being recognized by the courts in bankruptcy is how far some of these banks could lose their profits even more so.

In a case I know of judge overlooked the fact that a homeowners loan was originated with Argent/Ameriquest. So banko judge should be put out of a job. Even if homeowner is behind wouldn't you think if all the Attorney Generals have sued them someone would look at this issue.

Then behind this is another issue where the attorneys are committing fraud in the factum hoping someone doesn't understand how much of a crime they've presented by producing false evidence into court.

In doing alot of research on different cases if one ends up filing bankrupcty especially chp 7 not sure about 13 if their lien isn't perfected with state it can be stripped from the consumers bankruptcy estate. In one such case I'm aware of if this debtor files chp 7 their home loans and vehicle loan can be stripped and the bank receives nothing.

I'm assuming the reason why they don't file the UCC LIEN is to avoid tax issues? Any input on this? If this case is this way I can't imagine how much they could really lose. But the homeowner does to. As when their represented by the bankruptcy  club their screwed!

So maybe one should make like a dummy corporation to perfect the liens the banks haven't? This may stop some foreclosures as the bankruptcy court would lose and so would the bank. But of course someone has to have the trust and financing statement. Maybe just make it one of the big wigs whose successfully lied all along!

So to make them pay dearly I'm also assuming one would have to overrule such court by the US Constitution under common law vs statutory law. As the bank can't prove they've brought value to the table by doing the fraud they did by any means  I wouldn't think.




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BA is already in trouble, and not from just the buyout of Countrywide, FED and IRS problems along with reporting problems!  No one is reporting on them, I don't understand why?  mmmmmm
 
As trustee for so many Litton Loan papers its finding itself ever closer to being attached to Litton Loan/CBASS.
 
Speaking of Litton Loan, how many are going to lose their jobs?  No one is talking about the coming shake up!
 
I suggest if your a LITTON LOAN EMPLOYEE, contact the local FBI office and become a witness as to what they were doing with documents, foreclosures, transfers of money, and assignments.  Many protections are afforded to government witness's! 
 
 
 
 
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Oh I forgot to mention, one of the Directors that unexpectedly resigned from the BOARD OF DIRECTORS Last year, I think in April was Former Jerry Brown's sister, who was the former Attorney General of CA.  When I looked into those resignations last year, I have often wondered what she may know!

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