Subprime Borrowers With Best Credit Score Denied Help

Flipping unbelievable.. they create the mess, and we still are the ones paying for there mistakes. When does this abuse end?

Travis Armstrong, a long-haul trucker, has made his mortgage payments for six years and has a credit score of about 800 that would entice most lenders. Because he owes more than his home is worth and his debt lacks federal backing, he’s stuck paying 7.5 percent interest, almost twice the rate of new loans.
U.S. President Barack Obama has failed to win Congressional backing for his proposal to expand eligibility for government-backed refinancing nationally to include people with mortgages like Armstrong’s. The only inroad so far -- a $10 million pilot program that began last month in Oregon that will purchase mortgages out of bonds and refinance them -- won’t help Armstrong, though. He lives about 14 miles (23 kilometers) from the only county accepting applications.

 

As the U.S. real estate recovery accelerates into its second year, home prices are still 26 percent below the 2006 peak and almost 10 million people are underwater, or owe more than their houses are worth. Photographer: Jim R. Bounds/Bloomberg

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July 12 (Bloomberg) -- Timothy Sloan, chief financial officer of Wells Fargo & Co., talks about the company's second-quarter profit and outlook for the bank's mortgage business. Sloan talks with Trish Regan, Adam Johnson and Sanford C. Bernstein analyst Brad Hintz on Bloomberg Television's "Street Smart." (Source: Bloomberg)

 

Four years after the peak of the foreclosure crisis, Treasury has spent only a fifth of the $38.5 billion of funds from the Troubled Asset Relief Program, or Tarp, set aside for housing. Photographer: Joe Raedle/Getty Images

“It’s OK to skip payments and get help, or walk away and let the bank foreclose, but I’m stuck with no help ’cause I keep making my payments every month,” Armstrong said in a mobile phone interview from Interstate 64 in Illinois as he headed to Oregon. “It feels like the world has forgotten about people like me.”
As the U.S. real estate recovery accelerates into its second year, home prices are still 26 percent below the 2006 peak and almost 10 million people are underwater, or owe more than their houses are worth. While some of the hardest-hit regions such as Phoenix and Las Vegas are rebounding the fastest, cities like Cleveland are struggling to keep pace with national gains.

‘Uneven Healing’

Federal efforts to put the rebound on firmer footing and boost the economy by helping subprime borrowers like Armstrong so far have fallen short, said Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc.
“The housing market is healing, but it’s healing unevenly,” said Swonk. “Part of clearing out the bottom and keeping the momentum of the recovery going is putting underwater loans on firm ground.”
Expanding eligibility for the government’s Home Affordable Refinance Program, or Harp, is at the top of the White House’s agenda for housing. The effort is dubbed ‘Where’s my refi?’’ Treasury, which funds the nation’s anti-foreclosure efforts, supports the program, said Andrea Risotto, a spokeswoman. Four years after the peak of the foreclosure crisis, Treasury has spent only a fifth of the $38.5 billion of funds from the Troubled Asset Relief Program, or Tarp, set aside for housing.

‘Out There’

“This is where you get to the heart of the subprime lending problem -- these expensive private loans where people kept paying,” Swonk said. “It’s easy to forget they are still out there.”
Borrowers who refinanced through Harp in the first quarter had an average interest-rate reduction of 2.1 percentage points and will save about $4,300 in the first 12 months of the new loan, according to mortgage financier Freddie Mac. Much of that cash goes right into the economy, said Christopher Mayer, a professor at Columbia Business School in New York.
“There’s a real benefit to the overall economy when people refinance their mortgages and put money into their pockets to spend,” said Mayer. A refinancing “also puts household balance sheets on firmer ground,” he said.
The economy grew at a 1.8 percent pace in the first quarter, a number revised downward from the previous estimate of 2.4 percent, the Commerce Department said June 26. The rate in the second quarter probably slowed to 1.6 percent, according to the average estimate of about 86 economists in a Bloomberg poll.

Retail Spending

Commerce Department figures issued yesterday showed American consumers are also keeping their buying in check for goods other than automobiles. Sales at retailers climbed 0.4 percent last month, short of the 0.8 percent gain that was the median estimate of 82 economists surveyed by Bloomberg.
“Another expansion to Harp when rates were at rock bottom would have given a big boost to the economy,” Mayer said. “With higher rates, the economic benefit becomes smaller.”
The start of the Oregon program to refinance private-label loans, those not guaranteed by Fannie Mae or Freddie Mac, came two weeks after rates rose from a near-record low of 3.35 percent in early May. The average for a 30-year fixed mortgage reached a two-year high of 4.51 percent last week after the Federal Reserve said it may begin tapering its bond buying program later this year. Costs are still near historic lows with the rate down from 6.8 percent in 2006, more than 10 percent in 1990 and 18.6 percent in 1981.
“We once thought that mortgage rates could never go below 5 percent, and now we think a rate of four and a half is high,” said Mesirow’s Swonk. “People would still save money and stabilize their finances by going down to anything around the 5 percent level.”

Investor Objections

While expanding Harp would benefit homeowners, it wouldn’t benefit investors, said Walt Schmidt, a mortgage strategist at FTN Financial. Bondholders in private-label securities would lose a paying loan, and potential buyers of government-backed securities would fear another mid-stream change in eligibility standards, he said.
“The fact that Harp was changed” would concern investors, Schmidt said. “After all, what would stop another revision to Harp to prepay their new security at some point in the future?”
The government created Harp in 2009 to add to its housing programs. The Home Affordable Modification Program, known as Hamp, helps homeowners who have fallen behind on mortgage payments renegotiate loan terms. There’s also Home Affordable Foreclosure Alternatives, or Hafa, to help owners sell homes for less than they owe and escape the remaining debt.

Harp Extended

For Harp, borrowers have to be current on their mortgages. They aren’t required to have the 20 percent equity in their properties lenders typically stipulate for a refinancing. The program was expanded in 2011 to include all government-backed mortgages -- instead of the limit to mortgages 25 percent or less underwater in the first version -- and some fees were lowered. The new version is called Harp 2.0. In May, the deadline for Harp was extended to 2015.
Sen. Jeff Merkley, an Oregon Democrat, has proposed legislation to refinance mortgages held in private-label bonds by setting up a national trust to purchase and refinance loans similar to the Great Depression’s Home Owners’ Loan Corporation that returned a profit to the Treasury after helping 1 million homeowners. The Oregon pilot program, confined to the state’s Multnomah County that includes the state’s capital of Portland, is similar to that proposal though on a smaller scale.

Oregon Model

“There have been many different programs like this discussed at the federal level, but none of them has gotten any traction,” Columbia’s Mayer said. “Oregon may end up being a model for some other states, and Treasury has generally been supportive, but the odds of a program on a national level are fairly low.”
The Oregon refinancing program uses funds from the Hardest Hit Fund, established by Treasury in 2010 to give $7.6 billion to the nation’s capital and 18 states that had price declines of more than 20 percent during the housing bust or had high unemployment during the financial crisis, including California, Arizona, Nevada, Ohio, Illinois, and North and South Carolina.
So far, only about 20 percent has been spent, according to Treasury data. Other states with the funds have shown interest in the Oregon program, and are free to copy it if they wish, said Risotto, the Treasury spokeswoman.
“The terms of the Hardest Hit funds allow participating states to share promising ideas like the Oregon program with each other,” Risotto said. “We’ve helped facilitate some of those conversations.”

Underwater Borrowers

While the real-estate market is gaining at the fastest pace since the height of the boom, the share of borrowers who owe more than their homes are worth was about 20 percent in the first quarter, down from 23 percent at the end of 2011, according to CoreLogic Inc. There’s a larger group that lack the 20 percent equity needed for a traditional refinancing.
In the first-quarter, the median price for a single-family home in metropolitan Portland gained 22 percent, about twice the national pace, according to the National Association of Realtors. Still, values there remain more than 20 percent below a 2007 peak. Someone who bought a $350,000 home then could be about $77,000 underwater today.
Someone who got a $350,000 mortgage in Phoenix that year probably is now more than $150,000 underwater, despite this year’s surge in prices. A borrower would have to contribute that amount of cash plus the funds needed to get a 20 percent equity stake to qualify for a non-Harp refinance.

Not Everyone

“People seem to think that because prices have gained, it means everyone is above water now, or close to it,” said Matt McHugh, a mortgage broker at Alliance Capital Partners in Portland. “It shows an amazing lack of understanding of what happened in these hardest-hit markets.”
Travis, the 57-year-old trucker, who bought his home in St. Helens, Oregon, in 2006 for $138,500 using a subprime mortgage, said he has been trying to refinance for two years without success.
“I have a good income, and I have a good credit score, but that won’t do me any good because I’m still $27,000 underwater,” said Travis. “No one will talk to me.”

Boa desperate again

WHY ARE THE BANKS FIGHTING TO GET AS LITTLE AS POSSIBLE FROM EACH "FAILED" LOAN?

A drama is playing out in the state of Massachusetts. Bank of America is pretending to be the lender or the authorized servicer or both. But it outsourced the task of dealing with borrowers seeking modification. The company that was used is Urban Lending Solutions (ULS).  A deposition was taken from a knowledgeable source from within ULS.  The attorney  taking the deposition was merely looking for evidence of a script prepared by Bank of America that ULS employees were to follow. Not only was the script uncovered but considerable other evidence suggested institutional policies at Bank of America that were in direct conflict with the requirements of law, and in direct violation of the settlements with the Department of Justice and the banking regulators.

The transcript of the deposition was sealed at the request of Bank of America, which the borrower did not interpose any objection. Now there are a lot of people who want to see that deposition and who want to take the deposition of the same witness and other witnesses at ULS who might reveal the real intent of Bank of America. The question which is sought to be answered is why the mega banks are fighting so hard to take less money in a foreclosure sale then they would get in a modification or even a short sale. The policy is obvious. Borrowers are lured into a hole that gets deeper and deeper so that foreclosure seems inevitable and indefensible. Even after a successful trial modification the banks are turning down the permanent modification, as though they had the power to do so.

Now a number of attorneys are preparing motions to the trial court in Massachusetts to unseal the transcript of the ULS employee. Bank of America is opposing these efforts on the grounds of "confidentiality" which from my perspective makes absolutely no sense. Why would Bank of America share confidential information or trade secrets with a vendor whose only purpose was to interfere with the modification process? My opinion is that the only information that Bank of America wishes to keep secret is that the instructions they gave to ULS clearly show that Bank of America was not interested in anything other than achieving a foreclosure sale in as many cases as possible.

In nearly all cases the modification of the loan more than doubles the prospect of proceeds from the loan and in some cases approaches 100%. Thus the full-court press from the megabanks to go to foreclosure is a mystery that will be solved. My sources from inside the industry together with my own analysis indicates that the reason is very simple. The banks took in money from investors, insurers, counterparties in credit default swaps, the Federal Reserve, the Department of the Treasury and other parties based on the representation of the banks that (A) the banks owned the mortgage bonds and therefore on the loans and (B) there was a loss resulting from widespread defaults on mortgages. Under the terms of the various contracts within the false chain of securitization and the Master servicer had sole discretion as to whether or not the value of the mortgage bonds and the asset pools had declined and had sole discretion as to the amount of the loss caused by the defaults.

As a general rule of thumb, the banks computed value of the collateral at around 25% and therefore received payment to compensate the banks for a 75% loss. They received the payment several times over and then sold the mortgage bonds to the Federal Reserve for 100% of the face value of the bonds. It can be fairly estimated that they received no less than 250% of the principal amount due on each of the loans contained within the asset pool that had issued each mortgage bond. While they had to create the appearance of objectivity by showing a number of the loans as performing, they intentionally overestimated the number of loans that were in default or were in the process of going into default.

Let us not forget that while nobody was looking the Federal Reserve has been "purchasing" the worthless mortgage bonds at the rate of $85 billion per month for a long time and doesn't appear to have any intention of stopping that flow of money to banks that have already received more than 100% of the principal due on the notes. And lest you be confused, the money the banks received should have gone to the investors and should never have been by the banks.

Since the banks received 250% of the principal amount due on the loan, and actual recovery from the borrower of 100% on the loan would leave the banks with a liability to all of the third parties that paid the banks. The refund liability would obviously be 150% of the principal amount due on the loan and the banks would be required to turn over the hundred percent recovery from the borrower to the investors adding to their liability.

But if the case goes through a foreclosure sale, the banks can take a comfortable position that the number of defaults and the depth of the loss was as great as they represented when they took payment from insurers and other third parties. The liability of 250% is completely eliminated. Thus while it might appear to be in the bank's interest to take a 60% recovery from the borrower instead of a 25% recovery from a foreclosure sale, the liability that would be created each time alone was modified or settled would dwarf the apparent savings to the pretender lender or actual creditor.

The mere fact that they went to great lengths to seal the transcript indicates how vulnerable they feel.

PRACTICE MEMO TO FORECLOSURE DEFENSE LAWYERS

As a condition precedent I would suggest that in all cases where we feel the deposition transcript would be helpful I think it would create more credibility if you issued a subpoena duces tecum directed at Urban to produce the witness whose deposition was sealed in the existing case and to bring those records that were requested or demanded at that deposition. One of the questions that needs to be answered is whether the witness witness is still working for Urban, whether the witness has "disappeared", and whether his testimony has changed --- thus we would need the other deposition to test credibility and perhaps get exhibits that BANA either didn't object to, which means they waived confidentiality. If they do not move to quash the subpoena then they might also be arguably waiving the confidentiality objection.

If they do object, you have two bites of the apple --- if they move to quash they must state the grounds other than than it will damage their chances in litigation. The trial court would then hear the objections and of course each if the cases that could benefit from unsealing the deposition results in a hearing, then several judges would hear the same objection. The likelihood is that the objection would attempt to bootstrap the order sealing the deposition as reason enough to quash the subpoena. That in turn puts pressure on the Massachusetts judge to release the transcript.

The more Motions filed the better. So I would suggest that we reach out through media to get as many people as possible with separate motions saying that sealing the deposition is causing a disruption in due process. Since Urban reached out on behalf of BANA --- an allegation that should be made in opposition test the motion to quash the subpoena in each case --- exactly what confidential information needs to be protected? Has the Massachusetts court heard a motion in liming preventing the use of the deposition at trial? If not, then the objection is waived since the Plaintiff will clearly use the deposition at trial, if there is one.

The other issue is that BOA can't simply allege confidentiality rather than strategy in litigation. They must state with particularity what could be possibly confidential. There is no attorney-client privilege, there is no attorney work product privilege.  At first Bank of America disclaimed any knowledge or relationship with ULS.  When it became obvious that the relationship existed and that ULS was using Bank of America letterhead to communicate with borrowers they finally admitted that the relationship existed and then went one step further by alleging confidentiality and trade secrets so that the contract and instructions between Bank of America and ULS would never see the light of day., For a company that BOA disclaimed any knowledge but who used BOA stationery they were clearly an agent of BANA. What exactly could Urban have other than information about modification and foreclosure? I would also notice or subpoena BANA to produce the person who signed the contract with Urban and to bring the contract with him or her. Who received instructions from BOA? Where are those instructions? Were they produced at the sealed deposition.

 If the Massachusetts court does not unseal the transcript, doesn't this give BOA an opportunity for a do-over where they fabricate documents that are different from those produced in the sealed deposition?

What were the instructions to Urban? What was the goal of the relationship between BOA and URban? Where are the scripts now that we're produced in the sealed deposition?

Were the instructions to Urban the same as the instructions to all vendors assisting in the foreclosure process? Why did BOA even need Urban if it had proof of payment, proof of loss,  proof of ownership of the loan? We want to know what scripts were used by Urban and whether the same scripts were distributed to other vendors whose behavior could be plausibly denied. Discovery is a process by which the party seeking it must only show that it might lead to the discovery of admissible evidence. THE POINT MUST BE MADE THAT THE DEFENSE FOR WHICH WE ARE LOOKING FOR SUPPORT AND CORROBORATION IS THAT THE POLICY AND PRACTICE OF BOA WAS TO MOVE PEOPLE INTO DEFAULT BY TELLING THEM TO STOP MAKING PAYMENTS. WE WANT TO SHOW THAT THEIR GOAL WAS FORECLOSURE NOT MODIFICATION CONTRARY TO THE REQUIREMENTS UNDER HAMP AND HARP AND THAT RATHER THAN PROCESS MODIFICATION OR SETTLEMENTS THE POLICY WAS TO DERAIL AS MANY AS POSSIBLE TO GET THE FORECLOSURE EVEN IF IT MEANT THAT THE INVESTORS WOULD GET LESS MONEY? Why?

The instruction was to use the promise or carrot of modification to trick the homeowner into (a) acknowledging BOA as the right party (b) stop making payments causing an apparent default and causing an escrow shortage (c) thus assuring the foreclosure sale despite the fact that BOA never acquired and (d) thus assuring that claims against them from investors (see dozens of law suits against BOA) and from insurers and counter parties on credit default swaps and payments from co-obligors based on the "default" that BOA fabricated --- payments that involved more than the loan itself in multiples of the supposed loan balance.

This is an important battle. Let's win it. There is strength in numbers. We might find the scripts were prepared by someone who used scripts from other banks and that the banks were in agreement that despite the obligations under HAMP and HARP and despite their ,rinses in the AG and OCC settlement, their goal is to foreclose at all costs because if the general pattern of conduct is to settle these loans and make them "performing" loans again it is highly probable that for each dollar of principal that gets taken of the table there is a liability or claim for $10. This would establish that the requirements of HAMP and HARP has resulted in negotiating with the fox while the fox is in the henhouse getting fat.