Lawyer US: foreclosure help

There is an amazing story in the August 2009 issue of the California Bar Journal about the growing number of complaints against lawyers and law firms offering mortgage help to homeowners. From investigating nine such complaints for all of 2008, the California State Bar is now investigating 391 complaints against 140 attorneys. What is causing this huge increase in the number of borrowers complaining about attorneys?

With the rise in the foreclosure rate over the past few years, it seems that many lawyers have gone into the foreclosure assistance business. Even in states like California, where loan mitigation companies are no longer allowed to charge an up-front fee from borrowers, attorneys can still charge a multiple-thousand dollar retainer fee before any work is done for a homeowner. This makes the foreclosure business very lucrative, and very attractive for the corrupt.

Also, what happened to all of the lawyers providing mortgage services during the boom for lenders, title companies, and home buyers? Many states require that borrowers and sellers both have an attorney at closing to represent them. With the falloff in new closings and refinances, these attorneys may have decided to enter the other side of the business — helping homeowners escape the predatory loans the lawyers should have warned about in the first place.

Many homeowners were given loans that were either misrepresented to them or were simply not explained at all. Too many lawyers hired to make sure the borrowers understood the terms of the contracts did very little other than collect several hundred dollars at the closing table. The law requiring legal counsel before a real estate closing had more to do with injecting unnecessary legal fees into the housing market than creating educated borrowers.

Some of the complaints against these lawyers now providing loan modification services are the same ones homeowners routinely file against loss mitigation companies. Some of the complaints involve no service being provided, up-front fees that are collected but no work is done, no refunds even though no work is done, instructing homeowners to stop contacting their lenders, even attempting to transfer money directly out of a borrower’s bank account.

This indicates that some lawyers have entered the loan modification business essentially just to steal money from desperate homeowners. Too many companies or law firms take payments from borrowers and then never provide any work — it is one of the most common foreclosure scams around, and one that homeowners keep becoming victims of as they try to save their homes.

But none of this really explains the shocking rise in complaints against attorneys offering foreclosure help. From nine in 2008 to close to 400 in the first seven months of 2009, it seems that more factors than just legal industry corruption are involved. Or, have attorneys in large numbers made the move from other less lucrative practices into the foreclosure business, where they can prey off the huge numbers of people struggling to keep their properties?

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“It is my opinion that what was planned was nationalization of housing in the hands of the concentrated banking industry. Mortgages henceforth were never intended to be paid off. Rather, they were written, and serviced so as to require refinancing every 2-3 years when the resets made them unaffordable. This enabled equity-stripping at each refi, via fees extracted. In effect, we are all meant to be merely renters, never able to ever pay off our mortgage, or become freeholders.”

This is exactly what was intended. The intention was to return to the pre New Deal structure of most home ownership, by eliminating the straight forward Mortgage Finance structures.

Pre 1929 crash, virtually all Mortgages were called “Contract for Deed” The terms were usually a five year note, directly negotiated with a banker, at the end of which was a balloon payment, and if the borrower did not have cash to pay out the balloon, The banker could write another Contract for Deed, with changed interest rates. The key was to allow the banker to move interest rates on property where the borrower had equity. If the borrower went into default, then the property was returned to the bank, which could of course resell the property with improvements, leaving the initial borrower stripped of his/her home.

Now move to the much more fancy present, and take a look at the ARM, the mortgage type that allows for automatic resetting of the interest rates, much like the Contract for Deed did back in 1929. The point of the ARM is just to detach the interest rate from the actual mortgage, though these days the Green Eyeshades Bankers are gone, and instead electronics have replaced him. Makes it much more easy to chop up mortgages into securities, and really obscure who the lender actually is, and at the same time totally dishonor the principle that Mortgage Lenders, Banks that operate as lenders, and certainly the County Property Records Offices, are dealt out of their traditional roles, Namely proper tracking of equity and ownership on the part of the individual citizen in real property.

In 1929, and a few years thereafter, the system fell apart because Banks had speculated with their own deposits, and by 1933, lost much of that wealth, and could no longer offer a new Contract for Deed no matter the quality of the original purchaser. Eer, the refinance option was off the table, as in today’s language. And of course today’s circumstances are more tangled, because of extra add on’s, such as home equity lines of credit and second and third mortgages, college loan financing, and all the rest — but the principle is exactly the same. Find a way to raise interest, fees, and above all new sorts of payments into the relationship when an actual mortgage is somewhat mature, and use that complexity to wipe out the equity of the initial borrower.

And in 2008 it fell apart for the same reasons it did in the early 30’s. The credit markets froze up, and refinancing was off the table. The game cannot continue without constant credit refreshment.

So does HOLC offer a model for a way out — I think so. Can it be called Cramdown this time? You can call it what you want.

What HOLC did was offer 20 year, straight reduction, low interest permenant rate mortgages to home owners with orphan mortgages, meaning with banks that closed for good in the early 30’s and the bank inspections that came via the 1933 Bank Holiday. Others came into HOLC as Banks were reorganized. As banks and Savings and Loans were reorganized, (and came under deposit insurance rules) the new HOLC mortgages were assigned to both Banks and S&L’s as held Bank reserves, reserves that had to be serviced. The finance for the program came out of the Reconstruction Finance Corporation, which much like TARP, had been passed at the end of the Hoover Administration for the purpose of providing liquidity to the Banks. Roosevelt just repurposed the funds.

HOLC lasted less than two years — meaning, it only wrote new Mortgages between 1933 and 1935. In the mid 50’s when the last of the Mortgages were retired, default rate was less than one percent, and virtually everyone “made” money on the program. In 1935 it was replaced with the FHA Loan Systems, which put much more emphasis on new quality construction, and other matters — but the basics were in FHA, and subsequently would be the model for VA housing programs. It was a huge Middle Class Wealth Builder. I should add, when HOLC Loans were negotiated with borrowers, many modifications were made that accounted for matters such as Local Property Tax Rates, the impact on prices of the depression era, new zoning and the like, but that was done on the initial HOLC Loan by HOLC/RCF federal officers authorized to issue the mortgages. So yes, in today’s lingo, there was Cramdown in 1933. Cramdown is but one element in the general process.

My own interests here are pretty simple, I want to see re-regulation of the entire Mortgage Market so as to put all the parties to a housing transaction on a fair and equal footing. Get the Casino out of the system, and recognize that housing is a very special kind of purchase, and absolutely requires strong regulation. Purchasers should be able to comprehend the simple rules, and any private entitity working in the process ought to be subject to equally transparent rules. People in the industry ought to be licensed, with grave consequences for rules violations. And yes, Banks and S&L’s ought to have hard rules.

MORITORIUM YES.

During a Moritorium several things need to be accomplished.

First, all the non performing mortgages need study. The paperwork all needs to be collected, and the actual lenders reconnected with the borrowers. Where mortgages have been broken into securities, then need to be reconnected. Only then, and after necessary modifications that result from so much fraud in the system, (All sides, account for people walking away from Mortgages when they could afford to pay), Just begin to issue new clean Mortgages where property records are in order, and after cramdowns, tax modifications and all, for “owners” and purchasers who meet standards set in real regulations. Force Banks and S&L’s to establish human scale, dignified local offices where such transactions take place, and of course, any Insured Bank and S&L ought to be required to do this business.

Will such end all Foreclosures, No, but it will force modifications. The incentive should be such that new clean mortgages, simply written, emerge from the process. This must be done with State and Local Property Tax authorities involved, (probably zoning too), as all too much Public Services such as schools, police, fire, and all the rest, depend on the system. This is something for Elizabeth Warren to get cracking on in short order.

We will have to FORCE CONGRESS to pass legislation that takes this to the next step — simply because it must be national law. A simple menu of quality Mortgage Types with their rules need to be tabled, and the business of public education about the need for this needs to be done — nationally. If you want to see what was once required, go back and read the history of Robert Wagner’s Housing Fights in Congress in 1935-36, and you will get the idea. Those were the fights that produced more than a 50 year stable Mortgage Market, and the ability of the American Middle Class to become home owners, and directly benefit from the housing security it provided.

I still think “Man’s Home is his Castle” (as elaborated by old Sam Ervin on Watergate TV with all Jowels working) is the best sort of PR something like this needs. It has to be fundamental.

Sadly these days all too many folk don’t read History very deeply, nor do they make clean differences between their particular cases and circumstances so as to understand this as a SYSTEMS PROBLEM and not a personal or moral one. If we want to be effective advocates, we have to clarify that this has happened before in American History, that we did in fact find ways to fix the system, and it produced very good outcomes, and yes indeed it was a Program of the Federal Government. This is what people meant back in the 40’s and 50’s when they said Roosevelt saved the Family Home, or the Family Farm. But I suppose Grandpa is dead now, long gone, the story is vague, and maybe the home is just a browning in snapshot in an old photo book. But that is not the point — the point is we did fix the system once, and then the bastards came back and screwed it up again.

Forget about sending the bastard bankers to jail — won’t help. You have to get out there on the hustings and demand the reforms, and help all sorts of people to comprehend the thinking that will support the reforms. Jail doesn’t get us to that very well. Many of those little bankers are just bright eyed hirlings, and while they need to be named, they fell for the Casino Morality, and it is for that they need heavy blame. But until recently, entry level Mortgage Banking was apparently a good career move.

Angeles Times Blowback article once took the paper to task

along the following lines:

“I’m sick of your paper whining about everything! Waahh,

unemployment is high, we have to do something for job seekers!

Waahh, unemployment is low, we have to help employers find skilled

laborers! Waahh, real estate is too expensive, the poor buyers!

Waahh, real estate is too cheap, the poor owners!”

And so on. I’m going from memory but I am sure about the

waahhs, the topics, and the series of disjunctions, all of

which were deemed too amateurish for posting by my esteemed fellow

Tribune paycheck collectors. But I still think it was a wonderful

critique of the do-something-do-ANYTHING-no-don’t-do-that school of

journalism.

Case in point: In 2008, 2009 and through this summer, only

locust-eating fanatics like me were saying the foreclosure crisis

was not a crisis at all. Many states, applauded by their local

media outlets, instituted foreclosure moratoriums.

Distinguished members of congress spent hundreds of billions of

dollars to mitigate the foreclosure epidemic. A large

and growing chunk of ARRA Stimulus debt was issued toward an

effort to keep people in their homes.

Then last month, the foreclosure epidemic went into remission.

The spasms were arrested not by any new regulations or toxic assets

purchases or taxpayer money for loan modifications. Instead the

temporary cure for the foreclosure epidemic took a form known only

to the few and happy band of sisters who had been following the

since 2009. ‘Twas paperwork killed the foreclosure beast.

Ally Financial (the witness-protection-program alias of GMAC)

suspended evictions because of the shadiness of thousands of

documents signed by an employee in the company’s GMAC mortgage

expanded its foreclosure moratorium to all 50 states, not just

the 23 where court approval is required for a foreclosure.

(Questionable affidavits are an issue in many of these cases.)

Chase Home Mortgage began a review of its own foreclosure

portfolio, and froze operations in the 23 court-approval states,

following a similar auto-signature scandal by one of its employees.

PNC Financial followed suit. Wells Fargo is doing a similar review,

Bank of America suspended foreclosures in all 50 states.

Mortgage Electronic Registration Systems (the Bebe Rebozo of

continues to get defensive about its role as a clearinghouse

for electronic changes of mortgages and MBS.

I’m sorry, I know this material is enough to give you heartburn

of the ass. How, for example, did GMAC, a company designed to

provide financing for Government Motors car purchases, end up being

the country’s fourth-largest mortgage lender? Why wasn’t Bank of

America allowed to fail two years ago, and have its mortgage

portfolio taken over by discount buyers with much higher incentives

to find the correct paperwork and renegotiate bad mortgages? These

stories are too grim for a family publication. The important thing

is that Foreclosuregate, though it may not roll off the tongue,

is in full swing in these here United States.

Should be good news, right? If anything will help bad borrowers

get back on their feet, it’s an indefinite reprieve during which

they won’t have to pay any money for their housing.

But think of the poor buyers! Or the poor sellers – we’re not

Streitfeld and Andrew Martin:

With home sales this past summer at the lowest level in more

than a decade, real estate is ill-prepared to suffer another

blow.

But as a scandal unfolds over mortgage lenders’ shoddy

preparation of foreclosure documents, the fallout is beginning to

hammer the housing market, especially in states like Florida where

distressed properties are abundant.

“This crisis takes a situation that’s already bad and kind of

cements it into place,” said Joshua Shapiro, chief United States

economist for MFR, an economic consulting firm.

Three major mortgage lenders — Bank of America, GMAC Mortgage

and JPMorgan Chase – have said they are suspending

They are also waving off Fannie Mae from selling any of the

foreclosed homes whose loans they sold to Fannie.

If only we could all wave off Fannie Mae.

It’s worth noting that this time the doomsayers are right,

broken-clock-style: The foreclosure paperwork problem is bad news.

But that’s because anything that delays the process of getting bad

borrowers out of their homes and cheaper houses back on the market

lengthens the time until real estate hits bottom. Unfortunately,

every newspaper, every politician, and every saltwater economist

has been telling us for about three years that we need to slow the

foreclosure avalanche. Now that that’s actually happening, of

course, it’s a new emergency. When will the government do

something about it?