foreclosure law

Simply put, the problem with the housing market right now, not the problem for investors or banks but the problem for the people living in the homes, is that it has become more lucrative for many servicers to foreclose on the property than to work out a modification. That changes all of the incentives around housing, and makes fraud attractive. That the system was swamped with calls for modifications after pushing people into loans that they couldn’t afford when they recast makes fraud all the more attractive. Foreclosure pays in particular for servicers who don’t also own the loan: for them, they’d rather pay a foreclosure mill a flat rate to process the homes rather than pay more staff to do person-to-person modifications and all the things that go with that: verification of income, negotiation, etc. This happens to be, in most cases, the mega-servicers who are owned by the big banks.

And foreclosure not only pays for servicers, it really pays off for the foreclosure mill law firms, who can process this stuff at a rapid pace and, until the revelations, get judgments with virtually no opposition. And lo and behold, Wall Street private equity firms are behind the foreclosure mills in some cases. The lawsuit on behalf of homeowners claims that Great Hill Partners, a private equity firm, has benefited from what the lawsuit calls an illegal fee-splitting arrangement between Prommis Solutions and several of the busiest foreclosure law firms it controls. Great Hills is the biggest stakeholder in Prommis, a company that acts as a middleman between mortgage servicers and law firms. A lawyer for Prommis rejected that claim, and officials of Great Hill Partners did not respond to inquiries. But a review of public filings, company news releases and other public statements shows that several private equity firms or entities they control have stakes in the business operations of some of the busiest foreclosure law firms in New York, California, Connecticut, Florida, Georgia and Texas. Cue the line about Wall Street sticking its blood funnel into anything that makes money. Prommis Solutions adds nothing of value but is just a go-between for the servicers and the foreclosure mills. They just skim off the top. And their profit margins are likely pretty low, and so they encourage cost-cutting measures:

This is a difficult topic to write about because of all the hysteria, emotion and misinformation, but here goes ...



One of the interesting questions with "Foreclosure-Gate" is why several (but not all) mortgage servicers used "robo-signers". This includes GMAC, JPMorganChase, and several other servicers.



First, we have to remember that every foreclosure is a personal tragedy. I support alternatives to foreclosure including modifications, cram-downs, and even short sales. And before another person claims that I support the banks, I fully support fines, sanctions, disbarment, and the investigations by the 50 future governors (the state attorney generals) into "Foreclosure-Gate".



Second, "Foreclosure-Gate" is primarily about "robo-signers". Some people are trying to conflate other sloppy procedures, cost cutting and even MERS (Mortgage Electronic Registration Systems) into "Foreclosure-Gate". This is just confusing readers. All of the servicers who have put foreclosures on hold have done so either because they had "robo-signers" or because they wanted to verify that their processes did not use "robo-signers" (or anything similar). There are valid questions about MERS and other "cost cutting" measures - although most reports I've seen are grossly misinformed - but unfortunately it takes time to get that right (I'll write about that at a later date).



A review: "Robo-signers" are individuals who signed affidavits stating that they had "personal knowledge" of the facts in a foreclosure case, when in fact they did not.



JPM admitted as much this week: "We've identified issues relating to the mortgage foreclosure affidavits and those include signers not having personally reviewed the underlying loan files but instead having relied upon the work of others."



There were also situations of questionable notarization of the affidavits.



Here is an excerpt that I posted earlier from an affidavit signed by alleged "robo-signer" Jeffrey Stephen of GMAC:



Click on image for larger image in new window.



I've highlighted a couple of sentences in yellow. Source: Stopa Law Blog



According to the affidavit the affiant claims to have "examined" the details of the transactions in the complaint, and that he has "personal knowledge of the facts contained in the affidavit". In a deposition - according to media reports - the affiant admitted to just signing the documents without verifying the details.



So back to the original question: why did some servicers use "robo-signers"?



I think there are several reasons: the flood of foreclosures, the lack of experienced staff, cost cutting - and also because several of the servicers seemed to use the same service providers to set up their processes (probably the lowest bidder).



Way back in February 2007, Tanta wrote: Mortgage Servicing for UberNerds. Tanta made it clear there are times when servicers are really hurting:



1) When rates are falling and borrowers are refinancing. The servicers get paid a slice of each monthly payment, however their fixed costs are front-loaded. So if people are refinancing too quickly, the servicer doesn't receive enough payments to recoup their fixed costs, and ...



2) When the 90+ day delinquency bucket is increasing rapidly. Although the servicer will eventually recoup the costs for foreclosure, the servicers are usually required to pay property taxes, insurance and all the expenses of foreclosure until the REO is sold.



And right now mortgage rates are falling, and many borrowers are refinancing. And at the same time the 90+ day bucket is at record levels and the servicers are swamped with foreclosure activity. So these are the worst of economic times for servicers.



So, to cut costs and control cash flow, some servicers outsourced foreclosures to the lowest bidders. Here is a possible example from Barry Meir at the NY Times: Foreclosure Mess Draws in the Lawyers Who Handled Them.



And this brings us to another key point that Tanta made in 2007:

hen recovery values in a foreclosure are high (in an RE boom), servicers can noodle along and rack up expenses you didn’t know existed—i.e., shove as much of your “overhead” into FC expenses as you can get away with, since someone else will eventually pay the tab. That’s what we mean when we say that you used to be able to make money off a foreclosure. When the liquidation value starts to approach or drop under the loan amount, on the other hand, investors and insurers start going over those expense reports with a fine-toothed comb, and it can end up in “war”.

To no ones surprise, most liquidation values are far below the loan amounts, and investors and insurers are fighting over every servicer expense. This has pushed the servicers to do foreclosures as cheaply as possible (along with the cash flow reasons).



So my guess is a combination of getting swamped with foreclosures, lack of experienced staff, the poor economic environment for servicers, and outsourcing to the lowest bidder, all contributed to the servicers using "robo-signers". This doesn't excuse their behavior - I'm just trying to understand why this happened - and why it happened at more than one servicer.



Of course using the lowest bidders, and ending up with a flawed legal process, is going to lead to even larger battles over expenses between the investors and servicers. So instead of saving money, this is going to be far more expensive for certain servicers.

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Simply put, the problem with the housing market right now, not the problem for investors or banks but the problem for the people living in the homes, is that it has become more lucrative for many servicers to foreclose on the property than to work out a modification. That changes all of the incentives around housing, and makes fraud attractive. That the system was swamped with calls for modifications after pushing people into loans that they couldn’t afford when they recast makes fraud all the more attractive. Foreclosure pays in particular for servicers who don’t also own the loan: for them, they’d rather pay a foreclosure mill a flat rate to process the homes rather than pay more staff to do person-to-person modifications and all the things that go with that: verification of income, negotiation, etc. This happens to be, in most cases, the mega-servicers who are owned by the big banks.

And foreclosure not only pays for servicers, it really pays off for the foreclosure mill law firms, who can process this stuff at a rapid pace and, until the revelations, get judgments with virtually no opposition. And lo and behold, Wall Street private equity firms are behind the foreclosure mills in some cases. The lawsuit on behalf of homeowners claims that Great Hill Partners, a private equity firm, has benefited from what the lawsuit calls an illegal fee-splitting arrangement between Prommis Solutions and several of the busiest foreclosure law firms it controls. Great Hills is the biggest stakeholder in Prommis, a company that acts as a middleman between mortgage servicers and law firms. A lawyer for Prommis rejected that claim, and officials of Great Hill Partners did not respond to inquiries. But a review of public filings, company news releases and other public statements shows that several private equity firms or entities they control have stakes in the business operations of some of the busiest foreclosure law firms in New York, California, Connecticut, Florida, Georgia and Texas. Cue the line about Wall Street sticking its blood funnel into anything that makes money. Prommis Solutions adds nothing of value but is just a go-between for the servicers and the foreclosure mills. They just skim off the top. And their profit margins are likely pretty low, and so they encourage cost-cutting measures:

This is a difficult topic to write about because of all the hysteria, emotion and misinformation, but here goes ...



One of the interesting questions with "Foreclosure-Gate" is why several (but not all) mortgage servicers used "robo-signers". This includes GMAC, JPMorganChase, and several other servicers.



First, we have to remember that every foreclosure is a personal tragedy. I support alternatives to foreclosure including modifications, cram-downs, and even short sales. And before another person claims that I support the banks, I fully support fines, sanctions, disbarment, and the investigations by the 50 future governors (the state attorney generals) into "Foreclosure-Gate".



Second, "Foreclosure-Gate" is primarily about "robo-signers". Some people are trying to conflate other sloppy procedures, cost cutting and even MERS (Mortgage Electronic Registration Systems) into "Foreclosure-Gate". This is just confusing readers. All of the servicers who have put foreclosures on hold have done so either because they had "robo-signers" or because they wanted to verify that their processes did not use "robo-signers" (or anything similar). There are valid questions about MERS and other "cost cutting" measures - although most reports I've seen are grossly misinformed - but unfortunately it takes time to get that right (I'll write about that at a later date).



A review: "Robo-signers" are individuals who signed affidavits stating that they had "personal knowledge" of the facts in a foreclosure case, when in fact they did not.



JPM admitted as much this week: "We've identified issues relating to the mortgage foreclosure affidavits and those include signers not having personally reviewed the underlying loan files but instead having relied upon the work of others."



There were also situations of questionable notarization of the affidavits.



Here is an excerpt that I posted earlier from an affidavit signed by alleged "robo-signer" Jeffrey Stephen of GMAC:



Click on image for larger image in new window.



I've highlighted a couple of sentences in yellow. Source: Stopa Law Blog



According to the affidavit the affiant claims to have "examined" the details of the transactions in the complaint, and that he has "personal knowledge of the facts contained in the affidavit". In a deposition - according to media reports - the affiant admitted to just signing the documents without verifying the details.



So back to the original question: why did some servicers use "robo-signers"?



I think there are several reasons: the flood of foreclosures, the lack of experienced staff, cost cutting - and also because several of the servicers seemed to use the same service providers to set up their processes (probably the lowest bidder).



Way back in February 2007, Tanta wrote: Mortgage Servicing for UberNerds. Tanta made it clear there are times when servicers are really hurting:



1) When rates are falling and borrowers are refinancing. The servicers get paid a slice of each monthly payment, however their fixed costs are front-loaded. So if people are refinancing too quickly, the servicer doesn't receive enough payments to recoup their fixed costs, and ...



2) When the 90+ day delinquency bucket is increasing rapidly. Although the servicer will eventually recoup the costs for foreclosure, the servicers are usually required to pay property taxes, insurance and all the expenses of foreclosure until the REO is sold.



And right now mortgage rates are falling, and many borrowers are refinancing. And at the same time the 90+ day bucket is at record levels and the servicers are swamped with foreclosure activity. So these are the worst of economic times for servicers.



So, to cut costs and control cash flow, some servicers outsourced foreclosures to the lowest bidders. Here is a possible example from Barry Meir at the NY Times: Foreclosure Mess Draws in the Lawyers Who Handled Them.



And this brings us to another key point that Tanta made in 2007:

hen recovery values in a foreclosure are high (in an RE boom), servicers can noodle along and rack up expenses you didn’t know existed—i.e., shove as much of your “overhead” into FC expenses as you can get away with, since someone else will eventually pay the tab. That’s what we mean when we say that you used to be able to make money off a foreclosure. When the liquidation value starts to approach or drop under the loan amount, on the other hand, investors and insurers start going over those expense reports with a fine-toothed comb, and it can end up in “war”.

To no ones surprise, most liquidation values are far below the loan amounts, and investors and insurers are fighting over every servicer expense. This has pushed the servicers to do foreclosures as cheaply as possible (along with the cash flow reasons).



So my guess is a combination of getting swamped with foreclosures, lack of experienced staff, the poor economic environment for servicers, and outsourcing to the lowest bidder, all contributed to the servicers using "robo-signers". This doesn't excuse their behavior - I'm just trying to understand why this happened - and why it happened at more than one servicer.



Of course using the lowest bidders, and ending up with a flawed legal process, is going to lead to even larger battles over expenses between the investors and servicers. So instead of saving money, this is going to be far more expensive for certain servicers.

Nuclear submarine runs aground off Skye | Scotland | STV <b>News</b>

Royal Navy submarine HMS Astute stranded after accident near Skye Bridge.

Sharp to stop selling and manufacturing PCs from now on <b>...</b>

The good news however, is that Sharp will continue to provide ultra compact devices including their Netwalker series. Also, Sharp underline that this is just a “Strategic” move from now on and that the company may one day come back into ...

BillBoard - Blogs - The Buffalo <b>News</b>

The Buffalo News updated every day with news from Buffalo, New York. Links to national and business news, entertainment listings, recipes, sports teams, classified ads, death notices.

eric seiger eric seiger