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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Nye Lavalle
What's This Lenders Urged to Help Avoid Foreclosures
September 5, 2007; Page A2
WASHINGTON -- Federal and state banking regulators urged lenders and investors to restructure the loans of millions of borrowers at risk of losing their homes as their adjustable-rate mortgages reset to a higher rate.

Lenders should "review to determine the full extent of their authority to identify borrowers at risk of default" and find a way to keep the borrower in a home, the regulatory bodies said in a joint statement.

The statement is a direct effort to tackle an issue that has bedeviled efforts to restructure loans in the past: Many loans are no longer on the books of the original bank or lender; they have been bundled with others and sold off as securities in the secondary market in a process known as securitization. The originator often remains the loan servicer -- collecting payments on the loan in return for a fee.

The guidance doesn't compel lenders and the investors who buy loans to restructure the loans -- but it puts an added burden on them to try to do so, while clarifying that they shouldn't face negative tax or accounting implications from such restructuring. The statement was issued by the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union Administration and the Conference of State Banking Supervisors.

It is the latest in a series of initiatives by regulators and the Bush administration to soften the blow of the subprime crisis. But, as with earlier initiatives, leading Democrats in Congress said it didn't go far enough.

"We cannot tolerate short-term modifications that put off the day of reckoning," Senate Banking Committee chairman Chris Dodd (D., Conn.) said in a statement. "Lenders and servicers must modify loans for long-term affordability."

It is unclear how many borrowers would be helped. FDIC Chairwoman Sheila Bair said rates will reset on 1.3 million subprime mortgages this year and on 1.2 million next year. She said borrowers are still making payments on 85% of the "hybrid" ARMs -- mortgages with rates that remain low for two or three years before resetting sharply higher for the remainder of the 30-year term -- that were underwritten in 2005. But most are at risk of becoming delinquent once their rate resets.

"We think those are good candidates for restructuring or refinancing," she said. The risk of delinquency is even greater for mortgages issued in 2006 when lenders further loosened terms for borrowers.

In a March study, Christopher Cagan, research director for First American CoreLogic, a Santa Ana, Calif., mortgage-data company, projected 1.1 million homes would end up in foreclosure over the next six to seven years because of interest rates being reset higher.

The regulators urged lenders to consider several types of "loss mitigation" strategies, including modifying the terms of the loan, deferring payments or reducing the principal.

Margot Saunders, an attorney with the National Consumer Law Center, said in the past that a borrower seeking relief would often be told nothing could be done if the loan had been securitized. That has changed, she said, as industry, academic and Congressional statements indicated securitization doesn't bar loss mitigation. The new guidance "switches the burden to the investor and servicer" to explore loss-mitigation options before foreclosing, she said.

Industry officials had also worried that tax and accounting issues were barriers to loss mitigation. Yesterday's guidance argued they ought not to be.

George Miller, executive director of the American Securitization Forum, an industry group, said until recently it was rare to modify the terms of a securitized loan. But he said standard agreements permit the servicer to do so if it means the investor will get more of his money back than he otherwise would. The guidance, he said, helps by recognizing that consideration of loan modification should be "standard and customary servicing practice."

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Joe B

     I think it would be nice to start tracking how many people here actually get offered "help," and what that "help" looks like!

     Maybe we can track each servicing company and the assistance that is offered to see exactly how "customer" centric they are.


     Is there any way we can do this? I think it would be interesting to track this information...

     What do you all think? I know I will be sitting by my phone waiting anxiously for word from Fairbanks that they want to "help" me.

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