That’s the cry of the “debt settlement” industry.  They claim that they will help you rid yourself of debt without bankruptcy. If you avoid the out-right crooked companies, can they do it?  Sure…

But at what cost?

There are two types of these companies. One, simply takes a portion of your monthly income, negotiates with your credit card companies to stop or lower interest, and, in return, makes a monthly payment to each company.  After several years of those payments your debts will be gone.  Assuming, of course that you can make all the monthly payments to the credit negotiator and assuming you don’t incur any new debt. Oh yes, you’ll pay them a percentage of your income to do this – often several hundred dollars or more a year.

The other type of company takes a monthly payment from you and saves it.  They notify your creditors that they are working to get them paid.  Then, once they have 50% or more of the balance owed a credit card company; they negotiate to pay off the card in full for that percentage.  This usually works although it’s nothing you can’t do yourself; and you are paying a monthly fee to allow the company to do this for you.  Since it can take several years to raise enough money to do this and the negotiating company is being paid monthly this can be quite costly.  And, of course, if you miss a payment or two, you’ll still be liable for the credit card balances.

Meanwhile, whichever of the above programs you use, your credit score won’t improve until everything is paid off.

Don’t be fooled by the claims of “nonprofit” companies.  These credit negotiators may not be a “for profit company,” but you’ll still pay for the service at a hefty monthly amount.

Now let’s compare those programs with a simply bankruptcy.  You’ll pay your attorney a one-time fee – often less than $2,000 – and your debts will be gone in 3 to 4 months.

And you’ll start rebuilding your credit score right away.

Bank of America has started sending letters to thousands of homeowners in the United States, offering to forgive a portion of the principal balance on their mortgages by an average of $150,000 each.

The reduction for qualifying homeowners could amount to monthly savings of up to 35 percent on mortgage payments, Bank of America said in a news release on Monday evening.

The principal reduction offers from Bank of America Home Loans are the result of a $25 billion settlement agreement earlier this year with 49 state attorneys general as well as federal authorities who had been investigating allegations of abuses over the handling of foreclosures.

“To the extent principal reduction and other modification tools help us turn mortgages headed for possible foreclosure into long-term performing loans, it will be positive for homeowners, mortgage investors and communities,” Ron Sturzenegger, a legacy asset servicing executive, said in the statement.

The bank said it planned to contact more than 200,000 homeowners who could be candidates for the offers, sending letters to a majority of them by the third quarter of this year.

To be eligible for the principal reductions, however, homeowners will have to meet certain criteria, including: having a loan owned or serviced by Bank of America; owing more on the mortgage than their property is worth; and being at least 60 days behind on payments as of the end of January.

In the statement, the bank said it had started making such offers in March to a narrower group of homeowners — those who were already in the process of seeking mortgage modification. The bank estimated that the earlier wave of trial reduction offers to about 5,000 people could amount to more than $700 million in forgiven principal. But homeowners have to make at least three timely payments for the reductions to become permanent.

By Travis Waldron, Think Progress
Posted on April 20, 2012, Printed on April 21, 2012

http://www.alternet.org/newsandviews/907008/wells_fargo_insiders_detail_foreclosure_fraud_practices%3A_%E2%80%98it%E2%80%99s_exactly_like_an_assembly_line%E2%80%99

That Wells Fargo has fraudulently processed mortgage documents using a process called robo-signing has been evident for nearly two years, since scandal enveloped the mortgage industry in 2010. That it kept doing it even after the scandal broke has been known for months. The practice, at Wells Fargo and other Wall Street banks, has led to waves of improperforeclosures and a $25 billion settlement with the federal government and state attorneys general.

A new report from MSNBC, however, provided an inside account of how Wells Fargo’s robo-signing department works. Unqualified employees with salaries ranging from $30,000 to $50,000 are given titles like “vice president of loan documentation” so they can sign foreclosure documents. Actual supervisors institute quotas on employees, forcing them to sign a certain number of foreclosure files each day — sometimes telling them they can’t eat breakfast or take lunch until they’re done. Documents required for homeowners to avoid foreclosure were ignored, left sitting on an unattended fax machine.

The result: the nation’s largest mortgage servicer often improperly foreclosed on homeowners who weren’t past due or owed little interest while pushing the files out the door as fast as possible, as an insider told MSNBC:

Some families apparently were denied loan modifications after only cursory interviews, she said. Other borrowers applying for help sent comprehensive personal financial documents to a fax machine that she discovered had been unattended for weeks. Others landed in foreclosure after owing interest payments of as little as $1.18 a day, according to documents she said she reviewed. [...]

“There was one file where they weren’t even past due and they were in foreclosure status,” the loan processor said. “They’re pushing these files and pushing these files….”

The MSNBC report comes just a month after a similar report from the inspector general of the Department of Housing and Urban Development, which found many of the same occurrences at Wells Fargo. In that report, Wells Fargo allegedly put an employee who had previously sold pizza in charge of loan documentation. Worse yet, the report found that executives at the banks knew about the practices and refused to stop them.

Higher-ups at Wells Fargo, however, are still denying that these abuses take place. “No one here is asked to sign anything they don’t understand. Period. End of story,” Michael DeVito, executive vice president of Wells Fargo’s Home Mortgage Default Servicing, told MSNBC. “There’s no production quota and if a team member says, ‘I don’t understand this I’m not going to sign it,’ that’s fine.”

Another Wells Fargo employee had a different account. “It’s exactly like an assembly line,” a loan processor told MSNBC. “You sign it, you push it off to a notary, they stamp it, you put it in a box and it goes somewhere else.” The next step, unfortunately, is that someone loses their home.

© 2012 All rights reserved.
View this story online at: http://www.alternet.org/newsandviews//

WA State Supreme Court Hears Arguments in Case Against MERS

“May a party be a lawful ‘beneficiary’ under Washington’s Deed of Trust Act if it never held the promissory note secured by the Deed of Trust?”

That’s the key question the Washington State’s Supreme Court heard arguments in the potentially pivotal case, Bain v. Mortgage Electronic Registration Systems, et al and Selkowitz v. Little “Litton” Loan Servicing, LP, et al.  It’s also a form of the same question that’s been asked by countless homeowners and their lawyers as they’ve fought to prevent their homes from being lost to foreclosure over the last 3-4 years.

Go back in time fewer than five years and you’d be hard pressed to find anyone who had ever heard of Mortgage Electronic Registration Systems, but today the acronym “MERS,” is a household dirty word in American homes from coast-to-coast.

Although the mortgage banking industry would say that they created Mortgage Electronic Registration Systems for the benefit of mankind, there’s no question that its creation also provided the industry with a way to avoid having to pay the costs involved in recording mortgage transfers.  Lenders permanently list MERS as the “mortgagee of record,” and by doing so the avoid the expense of recording any subsequent transfers.

MERS makes the claim that it is both an “agent” of the lender and the “mortgagee,” but the practice has fueled a firestorm of debate over a wide range of legal issues, and although many courts seem to have accepted the MERS way… it’s often not clear whether such decisions were actually made in favor of MERS, or just against homeowners not making their mortgage payments.

What MERS does is operate a computer database that’s supposed to track mortgage servicing and the ownership rights of mortgage loans throughout the U.S.  And when I first heard that explanation, I thought… well, that sounds incredibly boring.

Frankly, as a layperson… the whole thing is kind of insane, especially when you stop to consider that although MERS would readily admit that it doesn’t own any mortgage loans… it is also the recorded owner of over half of the nation’s residential real estate.  At least I think that’s right… every time I try to understand it better, the whole thing confuses me and then I have to take a nap.

The best way to understand the issue I’ve seen…

The video below puts you in the courtroom to watch as both sides of the debate present oral arguments related to MERS’ involvement in the foreclosure process in front of the nine justices of the Washington State Supreme Court.

I found it fascinating to watch… almost as good as an episode of “Boston Legal,” in fact, the MERS lawyer kind of reminded me of Bill Shatner’s character on that show, Denny Crane.

You’ll watch the plaintiff’s attorneys who are representing homeowners at risk of foreclosure argue that MERS violates the state’s Deed of Trust Act, among other things… followed by the attorney flown in from Minnesota to appear “pro hac vice,” on behalf of defendant MERS, who basically argues that MERS isn’t the problem no matter what because no one ever needs to know who owns their loan.

I’m paraphrasing, of course, but you’ll see what I’m saying when you watch it.  It’s not quite 45 minutes long, but it feels shorter… and afterwards, I’ll pick up the discussion below and share my thoughts on the matter.

A simplified view of how we got here…

The foreclosure crisis put MERS in the national spotlight as it started filing foreclosure lawsuits on behalf of financiers and servicers against millions of American families.

These people losing homes to something using the name MERS had been told by President Obama that because of his new government program, Making Home Affordable, they would be able to get their loans modified and hence save their homes from foreclosure simply by calling their bank… assuming, of course, they weren’t “irresponsible borrowers.”

So, believing that he was both smart and “a man of the people,” they did what he said they should do… but he wasn’t, and it didn’t work.

But, more than just “didn’t work,” the experience was nothing short of torturous, and in fact, I’m quite certain that many who lived through it, would have jumped at waterboarding as an alternative.

Lawyers representing homeowners who had clearly been wronged tried turning to the courts to enforce the HAMP guidelines, but to no avail.  So, they went after anything and everything… TILA/RESPA… MERS and the failings of securitization… and most recently robo-signing related allegations are all the rage…

“I’ll take one securitization audit, and one forensic… oh… and give me one of those fraud reports too… to-go, please… how much?  Oh my.  Do you take Texaco cards?”

The thinking was obvious… judges and everyone else could see them coming a mile away… cause enough trouble for the servicers and they’d offer to modify loans and hence save homes.  And soon… when even that wasn’t working… well, then even just delaying the loss of a home was something of a win, right?

Right… wrong… it didn’t matter… homeowners not making their mortgage payments was the issue at hand, as far as the vast majority of judges went, and today, although the battle rages on fueled by words like “forgery and fraud,” the outcomes are fundamentally the same as far as homeowners at risk of foreclosure are concerned.

Oh sure, some states became better than others, and bankruptcy courts seemed to fare better than others, but homeowners became more and more confused as courts of appeals, in some cases, tooketh away, what lower courts had given.

The OCC turned out to be an acronym for the Office of Ceremonial Complacency.

Many states today have bills on their legislative calendars that could help in some ways, but banking lobbyists don’t give up a single yard without a fight.

And finally it was OCCUPY… the blunt force edition of the foreclosure defense game, but again, to most… sort of a delay with a side of pepper spray.

So… now what?  What’s next?  The UCC 9 v. UCC 3 argument?  Okay, fair enough.  Not as exciting as securitization fail and REMICs exploding all over the place, but I’m in… why not?

I don’t like it any more than anyone else, but the fact is that in 2011… a year during which in some states like New Jersey and Nevada, foreclosures were said to be down year over year by something like 80 percent, even with the servicers waiting for the settlement to be reached so they could pick up their “Get Out of Fail Free” card… even with all of the things that caused delays… foreclosures were essentially flat when compared with 2010.  Absent anything new that I’m not seeing… can you imagine how bad this year and next are going to be?

Well, of course, there is the $2,000 if you were foreclosed on in 2009-2011… do I have that right?  I think so, but every time I type that out my mind says… no, that can’t be right… and then it is.

So, in the Bain case you watched on the video… what happens if the court sides with the plaintiffs?  Says that MERS does violate the state’s Deed of Trust Act… does that save homes in a way that I’m not seeing.  Or, will the servicers just start foreclosing judicially, as they’ve done in response in Hawaii, for example.

So… I called a couple of lawyers licensed to practice in the State of Washington to ask if their views of the Bain case confirmed mine… and they did.

Please understand what I’m trying to say, because I’m not saying everyone shouldn’t fight this year and next and next and next… and harder than ever, for that matter.  I know I will…

BUT, WAIT A MINUTE… some changes have come to pass.

Like what?  Like, the new servicer standards, for one.

Remember… the servicers and their propensity to ignore the toothless HAMP guidelines is one of the main reasons we’re all here, right?  Well, now we have new servicer guidelines that are part of the settlement agreement between the 49 AGs and the five largest servicers that doesn’t quite exist as yet, but I’m willing to believe if you are.

Ever since the day that the Obama administration prematurely asseverated that the AG settlement had arrived, I’ve had only one thought on my mind… what happens if servicers don’t adhere to the new standards?

Is there a private right of action?  I don’t think so… they’re not even laws, right?  So what good are ANOTHER set of servicing guidelines related to loan modifications that no one can enforce when they’re ignored?  We’ve already got a perfectly good set of servicing guidelines related to loan modifications that no one can enforce when ignored… they’re called HAMP guidelines and they’re like new, hardly used at all.  If they were a car they might be a 2009, but they’d have no miles on them and still come with the full factory warranty and that new car smell.

Why are we troubling the servicers with having to come up with another set of guidelines they don’t have to follow?  Don’t they have enough on their plates already?  I mean… they’ve got all those foreclosures still to get handled… and without several of their biggest mills, like Stern and Baum.

Then there’s designing the next phase of document creation, that’s not going to be done in a day or two.  And I hear that some servicers may actually have to get things notarized… no, I mean for real… actually notarized.

I think we should just call the five servicers involved and tell them not to bother with the new guidelines… we don’t need them.

Either that, or we should put some pressure on our AGs and our state legislatures to give the new standards or guidelines the force of law… you know… including a private right of action for homeowners, and a provision for attorneys fees.

What are the banking lobbyists going to say in response to that?  There will never be lending again in this state?  No chance.  Plus, even if the new standards were made into state law, it would be very easy for the banks to not get sued and lose… just don’t break the new law and follow the standards you agreed to follow in the settlement, which you said you’d follow… so, what’s the problem?

To the AGs and state legislators, I would put forth that we don’t need new rules that lack teeth… that no one who agreed to them has to follow.  We’ve got plenty of those kinds of rules related to loan modifications already.  Why would the AGs oppose taking the terms and making them law?

I realize the states are gong to have “independent monitors,” but I’m not worried about the monitors getting screwed over and losing their homes… monitors aren’t being damaged by rules being broken, it’s the homeowners, silly.  They’re the ones that need to be able to assert their rights under the agreement.

And to the homeowners not at risk of foreclosures just yet…  forget about the deadbeat cracks, shouldn’t any rules of any federal program or settlement with our government be followed?  Period?  Of course they should.  So, since we KNOW the last set were ignored, let’s make these new standards into a law with a private right of action and a provision for attorneys fees and let’s see what happens from there.

Maybe with such a law and attorneys fees clause, the trial bar will get interested, and they’ve got a lobby in DC that’s pretty effective, I hear.

I know… there are allowable margins for error in the settlement agreement, and extended timeframes for compliance… but, so what?  Whatever we’ve got, make it a law… something that must be adhered to, or consequences might result.

Embrace incremental improvements…

If you’re waiting for a BIG BANG, you’re going to be waiting for a long time.  It’s become obvious that, as I’ve been saying for so long I’m tired of saying it… it’s a game of inches.

And it’s a simple game.  You hit the ball… you catch the ball.  Sometimes you win, sometimes you lose and sometimes it rains.

Well, some things are actually better.  Over 80 percent of trial modifications become permanent modifications today… that didn’t used to be true.  And I’ve checked with lawyers all over the country and they’re seeing what I’m seeing… better modifications… and principal reductions more and more.

Bank of America has started granting principal reductions as part of their loan mods.  I’ve seen eight in the last two weeks, and a dozen lawyers from around the country, including Bruce Levitt in New Jersey, have reported the same thing.  And how about BofA’s new rent-for-three-years-if-you-can’t-afford-it-any-more program?  I call it a soft landing.

And Ocwen is offering shared appreciation modifications (“SAM”) and they’re offering quite a few of them by the way.  But they are still awaiting approval from several states… it’s a requirement, I’m told.

And look… I’m not just saying this stuff to protect homeowners from bankers… I’m saying it to protect the bankers and our society too.  I just don’t believe many people can take another failed program that happened because no one followed the rules.  Last time, well… that’s one thing… it wasn’t pretty, but we made it through.

Not to put too fine a point on it but there are more than a few programs I could reference… like, dozens… that have failed so spectacularly that… and I do mean this literally… their reported outcomes would have been identical had they been administered by farm animals or house pets.  And that would be funny, were it not so entirely accurate.

Allow the same exact things to happen back-to-back and I’m not at all sure… all bets could be off.

Or… tell me I’m wrong.  I’m always willing to be wrong.  I actually like being wrong because I always learn something… and it happens so infrequently these days… lol.

Mandelman out.

Thanks to Martin Andelman.

Making Home Affordable Encourages But Does Not Require Principal Reductions

HAMP has increased financial incentives to servicers for principal reductions. However, servicers are not required to give principal reductions.

See HAMP Supplemental Directive 12-01, issued February 16, 2012.

• March 23, 2012 • 11:14am

Freddie Mac CEO Charles “Ed” Haldeman gave a strong signal Friday that new incentives from the Treasury Department may be enough to start principal reduction on mortgages backed by the government-sponsored enterprises.

In January, the Treasury said it would triple incentive payments to mortgage investors who allow principal reduction in Home Affordable Modification Program workouts. The payouts ranged between six and 21 cents to the investors for each dollar forgiven under HAMP, but that will grow to between 18 and 63 cents.

“I have to say recently the Treasury sweetened the program and tremendously increased the incentive payments in their offer to us,” Haldeman said at HousingWire’s REThink Symposium. “We will reevaluate that to see what may be in our economic best interest. If there are very large incentive payments — which could be 50% of what you could write down — it may be in our economic self-interest to participate in that.”

There are currently 11.1 million borrowers who owe more on their mortgage than the house is worth, according to CoreLogic ($16.63 0%). Of that, estimates show roughly 3.3 million of those mortgages belong to Fannie and Freddie.

The GSEs and their regulator, the Federal Housing Finance Agency, long shunned principal reduction. Their biggest fear is moral hazard — that borrowers who are still current on their underwater loan would strategically default in order to get principal written down.

“We thought principal reduction could have unintended, secondary consequences on other borrowers seeking the same kind of reduction,” Haldeman said.

One previous analysis showed the GSEs would take significant credit losses if a wide-scale program was put in place. A new analysis from the FHFA, which would cover the new HAMP incentives, is expected to be released in the coming weeks.

NPR and ProPublica reported Friday the analysis will show a reversal, that principal reduction will work for the GSEs under the new version of HAMP.

“As we complete the review, the public should understand that Fannie Mae and Freddie Mac continue to offer a broad array of assistance to troubled borrowers and have continued to implement HARP 2.0 to enhance refinancing opportunities for underwater borrowers,” FHFA said in a statement.

Treasury Secretary Timothy Geithner told a House panel this week he and FHFA Acting Director Edward DeMarco were working out their differences.

Haldeman, who announced in October he would leave his post at Freddie, said the principal reduction verdict will ultimately reside with DeMarco, but he isn’t operating on his own.

“At the end of the day, we are in conservatorship, and he is the conservator. But the way it works on a day-to-day basis is that it’s a very close collaboration. It is extremely rare that I had a different point of view than Ed DeMarco,” Haldeman said.

I’ve been meaning to tell you something for awhile now. It’s going to be a bitter pill to swallow, but it’s better that you know now rather than later.

Someone’s be spreading around this rumor, and it’s annoying as all get-out. Rather than buying a billboard in Times Square to tell you the truth, I figured I’d set it down here.

Spread it around – let’s try to kill this story for good.

File For Bankruptcy, Get A Free House!

You’re not getting a free house when you file for bankruptcy. No, I don’t care what your friend’s uncle’s brother told you – it ain’t gonna happen.

When you file for Chapter 7 bankruptcy, your personal liability for repayment of the mortgage is going to be discharged. That means you won’t be required to make payments to the mortgage company once your bankruptcy discharge is issued. You will, however, be required to make the payments if you want to keep the property.

The Truth

The mortgage company has what’s called a security interest in the property. That’s their legal way of making sure you pay the mortgage note; if you don’t pay, they get to foreclose and take back the house.

Once you file for bankruptcy and get a discharge, you get a choice – keep paying the mortgage or give back the property. The bank can get the property, but can’t collect against you. Attempting to do so is a violation of the bankruptcy discharge.

What You Need To Do

If you’re filing for Chapter 7 and the house is protected from the trustee, you need to keep making payments and keep your mortgage current. If you don’t, the bank is going to foreclose and take back the property. If that’s alright by you, just pack up your bags and move when the time comes.

If, however, you’re backed up on the mortgage or have too much equity to protect then file for Chapter 13. Under Chapter 13 you’ll be able to catch up the arrears. If you’ve got too much equity to protect in a Chapter 7 then you can structure a payment stream that will allow you to keep the house.

Either way, the house won’t be free. If it were, don’t you think everyone would be filing for bankruptcy if only for the free houses?

Thanks to Bankruptcy Law Network.

GUEST POST: Good for the Banks, Good for the Borrowers by Law Professor, Lauren E. Willis

Good for the Banks, Good for the Borrowers

By Lauren E. Willis, Professor of Law, Loyola Law School Los Angeles

February 17, 2012

Beginning in 2007, the federal government took drastic action to save the nation’s banks. The banks were underwater, with liabilities that exceeded assets by any honest accounting. In response, we committed to them not only $700 billion in much-ballyhooed TARP funds, but also, hidden from public view, trillions of dollars in loans at rates as low as .01 percent, far below what any private investor or bank would have given them.

Although the banks have made much of having paid back much (but not all) of the face value of TARP funds extended, they have not paid a market rate of interest on the money they borrowed. They have even kept what Bloomberg calculates to have been a neat $13 billion in profit from lending the money they borrowed back to American consumers and businesses at higher rates. The American people not only threw the banks a life raft, but pulled most of them ashore.

Yet over four years later, millions of American homeowners are still sinking. About twelve million homeowners are underwater, summing to the ironic number of about $700 billion. To avoid foreclosure, these homeowners will have to make, month after month, year after year, payments totaling far more than their homes are worth.

Many will not be successful. Best estimates are that if we stay on our present course, we are only half way through the foreclosures precipitated by dropping home values, and that the economy will remain in its feeble state for years. The social costs of foreclosure will roll on, increasing the tax burdens and decreasing the quality of life for all households, renter, former homeowner and current homeowner alike.

There is as yet no Troubled Asset Relief Program for homeowners, despite the Obama Administration’s many incarnations of its “Home Affordable” programs. Many Americans’ most troubled asset is their over-mortgaged home, and the government has neither committed $700 billion to help them, nor extended them .01 percent interest rate loans. The $17 billion in principal reductions just agreed to by the banks to settle charges that they lied to the courts in foreclosure documents and charged homeowners bogus fees is less than three percent of the total housing debt overhang.

But what was good for the banks would be good for homeowners, and for renters too.

How would a TARP for homeowners work? Through the power of eminent domain. Eminent domain allows the government to take private property for a public purpose, so long as the owner is paid just compensation. Eminent domain can be used to correct deficiencies in the market, particularly when they threaten public tranquility and welfare.

Homeowners trapped underwater threaten the welfare of our society. After sending inflated monthly payments off to banks, they have little left to spend each month in their communities. They cannot sell because they cannot afford to pay the mortgage balance that exceeds any price their houses could command. Stuck in place, they cannot move to cheaper housing, better jobs,
or training opportunities.

With so many Americans removed from the pool of potential buyers, those who own their homes with smaller mortgages or outright cannot sell their homes for decent prices, trapping them too in place and forcing some to delay retirement. The low house prices do not even benefit renters, who cannot easily buy – in communities that are not decimated by foreclosures, sellers cannot afford to sell, and in communities that are decimated by foreclosures, banks refuse to lend.

With everyone frozen where they were when the housing bubble burst, the workforce is not nimble enough to follow businesses that have quickly changing needs, and so American businesses outsource the work to companies in other countries – both to assemble products and to assemble the engineering teams to develop those products.

Eventually, underwater homeowners will have too little income to make their payments or will give up trying. Further foreclosures will not only drag housing prices down further, but lead to property hazards, fires, crime, and other social costs, threatening the nation’s tranquility.

The logistics of providing homeowners relief from their troubled assets are not particularly complex, and similar programs have been done before. Any jurisdiction with eminent domain authority – the federal government, state governments, or in some states, local government bodies – could do it.

Two general methods could be used, either triggered by a petition of the homeowner. One, which I first proposed in 2008, would allow the government to take primary residences at risk of foreclosure and then sell the homes back to the homeowners at current market prices, with new fixed rate mortgages that do not exceed the value of the home. Because just compensation in eminent domain is measured by the market value of the property, today’s fire-sale home prices would be a boon to this plan. Lenders and investors would receive the lesser of the mortgage balance or the amount paid by the government as just compensation.

A more elegant method, similar to one proposed by Professor Howell Jackson at Harvard Law School, would allow the government to take mortgages at risk of foreclosure, reduce the principal balances and renegotiate the terms with homeowners, without title to the home changing hands. The government would pay the lenders the market value of the mortgages, meaning what an investor today would pay for them; no investor would buy these mortgages for more than the value of the collateral securing them.

The government could sell the new or renegotiated mortgages to private investors directly or could sell bonds backed by the mortgages. So long as the government underwrites the mortgages well, with documentation of borrower income and assets, fair appraisals and monthly payments the borrowers can afford, banks and investors will buy the mortgages or bonds.
This plan is not entirely unprecedented; eminent domain has been used to boost homeownership in the U.S. before.

At one time in Hawaii, concentrated land ownership was injuring the public tranquility and welfare by preventing ordinary families from owning the property on which they lived. To fix this market failure, the state took land from large landowners and compensated them at fair market value. The state then sold the property to the families who had been living there and paying rent, offering them mortgages through the Hawaii Housing Authority. The Supreme Court had no trouble finding this to be constitutional.

Naysayers will predict that banks will never lend to homeowners again in any jurisdiction that implements this plan. But banks are not giving out many new mortgages now. A state or locality with homeowners that are no longer weighted down by excessive debt would be the best place in America to lend.

Others will say that forcing banks to realize the true deflated values of the mortgages on their books will send them back under. But history says otherwise. During the Great Depression, and against the strenuous objections and predictions of doom by creditors, the federal government nullified all clauses in contracts that pegged debt to the price of gold. By taking these contracts off the gold standard, debts were reduced by roughly 40 percent.

Economist and former Federal Reserve Board Governor Randall Kroszner examined the effects of this sweeping debt reduction and found that both stocks and bonds responded favorably. Despite their prior opposition, creditors decided that the elimination of debt overhang and the avoidance of threatened corporate bankruptcies more than offset the cost to creditors of receiving 60 cents on the dollar.

Like the abrogation of the gold standard clauses, eminent domain is a blunt instrument, one that inevitably will be more generous to some than others. Politicians may proclaim that irresponsible homeowners should not be given a helping hand. But in four years, underwater homeowners have already learned all they are going to learn, and to continue punishing them unfairly punishes the rest of us.

Now that we know the Wall Street bailout will not flow out to buoy up the rest of the country’s families and businesses, it is time to help ourselves.

# # #

Lauren E. Willis is a Professor of Law at Loyola Law School Los Angeles, and an expert on the regulation of consumer financial products, including home mortgages.

Professor Willis earned her BA with high honors in general scholarship from Wesleyan University, and her JD, with distinction and Order of the Coif, from Stanford Law School where she was on the senior staff of the Stanford Law Review, a co-founder of the Stanford Public Interest Law Students Association, and a Foreign Language and Area Studies (Russian) Fellow.  Lauren received the Block Civil Liberties Award, the Stanford Women Lawyers Scholarship, and the University Goldstein Award for Scholarship on Children at Risk. 

After law school, Lauren clerked for the Office of the Solicitor General of the United States and for Judge Francis D. Murnaghan, Jr. of the United States Court of Appeals for the Fourth Circuit.  Before coming to academia, Willis was a litigator in the Housing Section of the Civil Rights Division of the U.S. Department of Justice and worked with the U.S. Federal Trade Commission on predatory mortgage lending litigation.   She currently serves on the Research Advisory Council of the Center for Responsible Lending in Washington, D.C.

Lauren taught at Stanford Law School as a Fellow, joined the Loyola faculty in 2004, and spent the 2008 Spring semester as a Visiting Associate Professor at the University of Pennsylvania Law School.  She was honored by Loyola’s graduating day class with the 2008 Excellence in Teaching award.

In her lecture, panelist, and media appearances in the U.S., the E.U., Korea, and South Africa, Willis has discussed regulation of the U.S. home mortgage market, predatory lending, financial literacy education, behavioral decisionmaking, and a variety of consumer law topics.  She is a member of the State Bars of Maryland and Massachusetts.  Currently she teaches: Civil Procedure, Consumer Law, Contracts, and Problems and Reforms in the Home Mortgage Market.

Other papers written by Professor Willis I think you’ll find of interest…

FHA refinancing program means savings for those who can qualify

The Obama administration’s new plan to stimulate refinancings of FHA mortgages is likely to help large numbers of homeowners cut their monthly…

By Kenneth R. Harney

Syndicated columnist

WASHINGTON — The Obama administration’s new plan to stimulate refinancings of FHA mortgages is likely to help large numbers of homeowners cut their monthly costs — even those who are deeply underwater. But it’s also likely to disappoint many borrowers who aren’t aware of the program’s fine print and end up missing an opportunity to switch into a loan with a rate below 4 percent.

Ralph Nader: Minimum Wage Needs To Catch Up With 1968 – OpEd

Written by: Ralph Nader

March 1, 2012

How inert can the Democratic Party be? Do they really want to defeat the Congressional Republicans in the fall by doing the right thing?

A winning issue is to raise the federal minimum wage, stuck at $7.25 since 2007. If it was adjusted for inflation since 1968, not to mention other erosions of wage levels, the federal minimum would be around $10.

Here are some arguments for raising the minimum wage this year to catch up with 1968 when worker productivity was half of what it is today.

1. Pure fairness for millions of hard-pressed American workers and their families. Over 70 percent of Americans in national polls support a minimum wage that keeps up with inflation.

2. Already eighteen states have enacted higher minimum wages led by Washington state to $9.04 an hour. With the support of Mayor Michael Bloomberg and State Assembly Speaker Sheldon Silver, the New York State legislature is considering a bill to raise the state’s minimum wage. The legislature should pass the long-blocked farm workers wage bill at the same time.

3. Since at least 1968, businesses and their executives have been raising prices and their salaries (note: Walmart’s CEO making over $11,000 an hour!) while they have been getting a profitable windfall from their struggling workers, whose federal minimum is $2.75 lower in purchasing power than it was 44 years ago.

4. The tens of billions of dollars that a $10 minimum will provide to consumers’ buying power will create more sales and more jobs. Aren’t economists all saying the most important way out of the recession and the investment stall is to increase consumer spending?

5. Most independent studies collected by the Economic Policy Institute show no decrease in employment following a minimum wage increase. Most studies show job numbers overall go up. The landmark study rebutting claims of lost jobs was conducted by Professors David Card and Alan Krueger in 1994. Professor Krueger is now chairman of President Obama’s Council of Economic Advisers.

6. Many organizations with millions of members are on the record favoring an inflation-adjusted increase in the federal minimum wage. They include the AFL-CIO and member unions, the NAACP and La Raza, and hundreds of non-profit social service and religious organizations. They need to move from being on the record to being on the ramparts.

7. With many Republicans supporting a higher minimum wage and with Mitt Romney and Rick Santorum on their side, a push in Congress will split the iron unity of the Republicans under Senator Mitch McConnell and Speaker John Boehner and gain some Republican lawmakers for passage. This issue may also encourage some Republican voters to vote for Democrats this fall. A Republican worker in McDonalds or Walmart or a cleaning company still wants a living wage.

8. President Barack Obama declared in 2008 that he wanted a $9.50 federal minimum by year 2011. If lip-service is the first step toward action, he is on board too. There is no better time to enact a higher minimum wage than during an election year. Against millions of dollars in opposition ads in Florida in 2004, over 70 percent of the voters in a statewide referendum went for a minimum wage promoted by a penniless coalition of citizen groups.

9. The Occupy movement can supply the continuing civic jolts around the local offices of 535 members of Congress, a slim majority of whom are not opposed to raising the minimum wage but who need that high profile pressure back home. Winning this issue will give the Occupy activists many new recruits, and much more power for getting something done in an otherwise do-nothing or obstructionist corporate indentured Congress. About 80 percent of the workers affected by a minimum wage increase are over 20 years of age.

Remember there is no need to offset a higher minimum wage with lower taxes on small business a higher minimum wage. Since Obama took office there have already been 17 tax cuts for small business and no increase in the federal minimum wage.

At the University of Virginia, twelve students have begun a hunger strike to protest the low wages and other injustices inflicted on contract service-sector employees. Students at other universities are likely to follow with their Living Wage Campaigns in this American Spring. They are fed up with millions of dollars for such top administrators’ salaries or amenities as fancy practice facilities for athletes, while the blue collar workers can’t pay for the necessities of life.

Raising the federal wage to 1968 levels, inflation adjusted, is a winning issue. It just needs a few million Americans to rouse themselves for a few months as they do for their favorite sports team and connect with all those large concurring organizations and their powerful legislators, like Senate majority leader Harry Reid, a big supporter, to start the rumble that will make it a reality.

If you are interested in more information on the efforts to raise the minimum wage, send an email to info@nader.org.

Atty. Gen. Kamala Harris ASKS Fannie and Freddie to Stop Foreclosing

Did you hear about this?  California’s Attorney General, Kamala Harris has asked the Federal Housing Finance Agency, or FHFA, which is the government agency that is acting as conservator for failed mortgage behemoths Fannie Mae and Freddie Mac, to stop foreclosing in California until it has conducted a “thorough, transparent analysis of whether principal reduction is in the best interests of struggling homeowners as well as taxpayers.”

Well, damn woman… that’s the spirit.  I didn’t know you had it in you.  Bravo!

Can I just tell you something about this?  If this works… I am going to be so pissed off that I may have to be medicated.  We’ve already lost a bazillion homes to foreclosure in California, half the damn state is underwater and you know it’s higher than that if you add in real estate commissions and other miscellaneous costs associated with selling a home.  And there are about 2 million homes in foreclosure or very seriously delinquent right this moment in this state.

As a result of the foreclosure crisis, we’ve got headline unemployment around 12 percent, with the real number being over 16 percent, and some economists saying under-employment in the state is 22 percent, which isn’t at all hard to believe.

All of this has created a huge budget deficit of $9.2 billion through June 2013.  That’s after making significant cuts, raising taxes on the wealthy, adding a half-cent sales tax bump and assuming the Facebook IPO goes well.  And even with that, the nonpartisan Legislative Analyst’s Office has just released its study of Governor Brown’s numbers, saying…

“We can identify no strong rationale for the administration’s assumption that capital gains will grow very rapidly in 2012 and later years.”

I’m not even going to mention how much yours truly has watched evaporate since 2007.  It may not be as much as it cost for the Obamas to take their family ski vacation in Aspen recently, but it’s quite a bit more than it would cost to send SEVEN kids to Harvard for FOUR years.

A Mind of His Own…

The U.S. Congress, President Obama, and Secretary Geithner have all been leaning on acting director Edward DeMarco to allow Fannie and Freddie to do more to stop foreclosures, and specifically to start reducing principal for quite some time now, as in over a year, and DeMarco has said, “No.”  And when this man says “no” he means no, damn it.

Rep. Elijah Cummings (D-MD), who has also urged DeMarco to change his position, was quoted in the Huffington Post as having said in a recent interview…

“All the administration can do is keep pushing.   DeMarco has the power.”

I’ll say this… it’s fascinating to watch, that’s for sure.  I must have missed it, and I do apologize for that, but what’s this form of government we’re now using called?  I tried looking it up… is it an “Adhocracy?” Here are a few of the characteristics of an adhocracy according to Wikipedia:

• Little formalization of behavior.
• Job specialization based on formal training.
• A tendency to deploy specialists in small, market-based project teams to do their work.
• Low standardization of procedures.
• Roles not clearly defined.
• Work organization rests on specialized teams.
• Power-shifts to specialized teams.
• High cost of communication.
• Culture based on non-bureaucratic work.

That sounds close, doesn’t it?  It’s either that or “Chiefdom,” seems to fit as well.

Ed DeMarco is so lucky that Obama’s a wussy… wait, oh my God, did I just say that out loud?  I am so sorry; I can’t believe I did that.  But my point is the same.

I’d like to see DeMarco trying this sort of thing with Lyndon Johnson in the Oval Office.  Oh, ho, ho… Ed would kick some sand in Lyndon’s face and find himself being called “Stumpy” for the rest of his natural life, you dig what I’m saying here?

Actually, truth be told, I can’t even think of a President in my lifetime that would tolerate this nonsense from some econocrat hired to be a fancy-pants version of a bankruptcy trustee for a failed mortgage company.  Were it President Kennedy we were talking about, DeMarco might have climbed into the back of his limo to head home after a long day, only to find Sam Giancana had replaced his driver.

“Yeah, well Jerry wasn’t feeling so good, so I gave him the night off, Mr. DeMarco,” Mooney would have said… as the doors all locked at once.  “You just sit back and relax, we’ll be across the river and in Virginia in no time.”  And then he’d turn on the radio and start singing “That’s Amore,” along with Dino.

Buon’anima.

At least that’s how it would go in a Martin Scorsese picture about President Kennedy, which is how I like to think of JFK.  Either that, or DeMarco would have found himself on his way to Playa Girón in the Gulf of Cazones on the southern coast of Cuba.

So, Kamala says, “Boy, if you don’t… don’t make me come out there…”

I was about to jump into a Chris Rock routine there for a moment.  Actually, I don’t even know if she can pull off that angry black woman thing, but that’s exactly what we need at a time like this.  You think Weezy Jefferson would be putting up with some nerdy pasty white guy causing people to be thrown out of their homes?  I’d say not.  Isabel Sanford would have kicked DeMarco’s butt out into the street last summer before Labor Day.

But, so help me Lord… if Kamala’s “request” accomplishes anything close to what she’s asking for, I’ll probably pass out, hot the floor, and have to be hospitalized for weeks as I sit in the bed mumbling all sorts of strange things to myself.

I mean, people have been abused, tortured, taken years off their lives no doubt, and some even taken their own lives, and all we had to do was get Kamala to request that he cut it out?  And she’s only just thinking of this now?  She couldn’t have come up with the “maybe I could ask him” idea last year?  Just what was it that caused her to have this epiphany right now anyway, and does she THINK that it might work?

Or, is she treating me like I’m a toddler with a learning disability who’s going to give her credit for trying.  “It’s okay, at least you tried.  Let’s give her a hand everybody, at least Kamala tried.  She’s looking out for us all… she’s trying… can’t argue with that… thank you Kamala.”

And what do you suppose is next… I mean if her request happens to fall on Ed’s characteristically deaf ears?  Is she going to try again, but with “pretty please and sugar on top?”  And what if that doesn’t do the trick either… “Simon says?”

Oh hell… you know what?  The bar’s so damn low nowadays, I’m starting to think… well, at least she did ask, and that’s a damn sight more than Governor Brown has done… or at least most of the House of Representatives and the entire United States Senate.

And our state legislature… do we still even have a state legislature?  Someone should run over to our state capital and see if everyone’s okay in there.  You don’t know… maybe they’ve all been gassed or someone poisoned the water supply and bodies are strewn across the floors in there, dead for weeks or even months… you don’t know, how would you know?  It’s been so quiet, I’d forgotten they even exist… maybe they’re all gone?

Alright, so never mind, Kamala… good job, thanks for thinking of us, we do appreciate it… and you’ll let us know if DeMarco says yes, won’t you?  We’ll just be waiting over here someplace… you have my number, right?  I’ll email my contact information just so you have it.

Sorry everybody… false alarm… Kamala’s asked, and that’s really all anyone can do… so, we’ll let you go back to bed now.  Lo siento.  Que’ se mejore pronto!

It means… “I’m sorry.  And I hope you get better soon.”

Mandelman out.

HOW TO FIND YOUR POOLING AND SERVICING AGREEMENT

It may be very valuable to your case for you to have a certified copy of your Pooling and Servicing Agreement (“PSA”), your Prospectus and your Prospectus Supplement. The bank worked hard to hide it from you, and their attorney will probably stonewall you in discovery and argue every reason in the world why it either doesn’t exist, is irrelevant or why the dog ate it, in which case it’s still available, but not very pretty. Once you receive your PSA, you have to analyze it. A PSA is typically between 150 – 700 pages long. It takes us about one full day to completely analyze a PSA.

Finding a PSA and its related prospectus takes skill. You can do this yourself if you have the time and investigative skills to figure it out. Or, you can take the easy way out and do what we do – hire Mario Kenney to find it. He typically charges $850.00 for that service. If you are going to hire Mario Kenny, skip this and go to the bottom of the page to read something he wrote. Otherwise, here is how to find your PSA:

If the securitization of your mortgage loan was public, these documents must be filed with the Securities and Exchange Commission (SEC). They are available to the public at http://www.sec.gov (EDGAR ONLINE)

Get your copy of the promissory note and the deed of trust. Look at these documents and find the name of the original lender and the date the mortgage loan was made (the date you signed it). Write that information down.

You may get lucky and find your PSA the easy way – by placing in your internet search box the name of your original lender followed by “8-K”, or a variant, such as “8k” or “8K” and hitting the search button. It would look something like this “Wells Fargo 8-k”. You should get hits with the names of securitized pools (trusts) frequently in a form similar to this – “X Mortgage Security Asset Backed Pass-Through Certificates Series 200Y-Z”, where “X” is the name of the original lender, “Y” is the year you got your loan, and “Z” is the month you got your loan (“Z” may be up to four months after you got your loan as the trust closing date must be funded within 90 days of the trust’s “cut-off” date – not your closing date.)

If you get too many hits, narrow it down a bit by adding to your search terms different configurations of the year and month that the trust closed. The earliest the trust could have closed would be the year and month you got your loan. If you got your loan in January, 2006, you would write it like this: “2006-1”; or try this: “2006 1.” Because the trust could close up to 4 months later, also try it like this: “2006-2” or “2006 2” and “2006-3” or “2006 3” and “2006-4” or “2006 4.” The whole format would look something like this: “Wells Fargo 8-k 2006-2.” If the loan was taken out in December, 2006, you will search not only 2006, but 2007 as well.

If that’s not successful, go to http://www.sec.gov and click on “Search for Company Filings” under “Filing & Forms (EDGAR).” Under “General-Purpose Searches,” click on “Companies & other filers.” Then, in the “Enter your search information” box, type in the name of your original lender next to “Company name” and click on the “Find Companies” button. Companies’ names are often made up of more than one word, so you may have to try your search using the full name, as well as only part of the name. Try it every way you must to get a “hit.” Several companies may have similar names, so watch out for that.

You will see a long list of the names of securitized pools of loans. You will be looking for all the names that are similar to the name of your original lender. Once you find them, your next must narrow down the search to the right time period for your loan. If the trust “cut-off” date fell before your loan was signed, you’ve got the wrong trust. Because of this, you cannot rely simply on the “Y” and “Z” dates. You need to do a search within the PSA for the “cut-off” date to make sure you have the right trust. Your lender may have securitized several pools of loans within a short time frame, so the first one you find that seems like a match may not be correct.

Once you find a match – or matches – write down their names and the document numbers associated with them (called a CIK). Then click on the CIK. Click on that number. There will be a list of documents filed with the SEC that are related to this pool of loans. Search as you scroll down, looking for a document titled “Prospectus” and “Pooling and Servicing Agreement.” If you find them, save them to your computer and also bookmark the page you found them on. If you don’t see either of these, go to the Table of Contents and search again.

Once you find your PSA, you then need to contact the SEC and request a certified copy of it (along with a certified copy of your Prospectus and Prospectus Supplement (if a supplement exists)). You will need a certified copy because that certification makes it admissible into evidence if the document is relevant.

Mario Kenny
EMAIL: malibubooks@gmail.com

I am a homeowner and a consumer advocate – but I am not an attorney. I have developed a skill to look up and find the trust for “most” pools of mortgages that were originated between 2001 and 2009, whereas not all loans are found to have filings, most banks do file their loans with the SEC in a Special purpose vehicle (SPV), therefore most loans may have a Pooling and Servicing agreement, that is where I go to work for any homeowner. I work hard to find your trust and I will send you the printed PSA, sometimes I can get the pooling and Servicing Agreement certified by the regulator, thus making the disclosure an admissible document of evidence, in any court. I have seen many lawyers use these PSA’s I find to establish that the Plaintiff doesn’t have standing to sue a homeowner. Sometimes these lawyers may use it to describe how the Note and its related transactions were pooled into a Special Purpose Vehicle. I have found that the PSA is a very important part of a homeowners defense and the lawyer can use this information to help homeowners, reorganize their lives and the stay longer in their home. I find PSA’s, their Prospectus and Prospectus Supplement.

Call me if you need my service to help you to find your pooling and servicing agreement.

Thank you,

Mario Kenny
786 274 0527

PSA…ARE YOU PSA LITERATE? APRIL CHARNEY

If you are an attorney trying to help people save their homes, you had better be PSA literate or you won’t even begin to scratch the surface of all you can do to save their homes. This is an open letter to all attorneys who aren’t PSA literate but show up in court to protect their client’s homes.

First off, what is a PSA? After the original loans are pooled and sold, a trust hires a servicer to service the loans and make distributions to investors. The agreement between depositor and the trust and the truste and the servicer is called the Pooling and Servicing Agreement (PSA).

According to UCC § 3-301 a “person entitled to enforce” the promissory note, if negotiable, is limited to:

(1) The holder of the instrument;

(2) A nonholder in possession of the instrument who has the rights of a holder; or

(3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 3-309 or section 3-418(d).

A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

Although “holder” is not defined in UCC § 3-301, it is defined in § 1-201 for our purposes to mean a person in possession of a negotiable note payable to bearer or to the person in possession of the note.

So we now know who can enforce the obligation to pay a debt evidenced by a negotiable note. We can debate whether a note is negotiable or not, but I won’t make that debate here.

Under § 1-302 persons can agree “otherwise” that where an instrument is transferred for value and the transferee does not become a holder because of lack of indorsement by the transferor, that the transferee is granted a special right to enforce an “unqualified” indorsement by the transferor, but the code does not “create” negotiation until the indorsement is actually made.

So, that section allows a transferee to enforce a note without a qualifying endorsement only when the note is transferred for value.
 Then, under § 1-302 (a) the effect of provisions of the UCC may be varied by agreement. This provision includes the right and ability of persons to vary everything described above by agreement.

This is where you MUST get into the PSA. You cannot avoid it. You can get the judges to this point. I did it in an email. Show your judge this post.

If you can’t find the PSA for your case, use the PSA next door that you can find on at www.secinfo.com. The provisions of the PSA that concern transfer of loans (and servicing, good faith and almost everything else) are fairly boilerplate and so PSAs are fairly interchangeable for many purposes. You have to get the PSA and the mortgage loan purchase agreement and the hearsay bogus electronic list of loans before the court. You have to educate your judge about the lack of credibility or effect of the lifeless list of loans as the Uniform Electronic Transactions Act specifically exempts Residential Mortgage-Backed Securities from its application. Also, you have to get your judge to understand that the plaintiff has given up the power to accept the transfer of a note in default and under the conditions presented to the court (out of time, no delivery receipts, etc). Without the PSA you cannot do this.

Additionally the PSA becomes rich when you look at § 1-302 (b) which says that the obligations of good faith, diligence, reasonableness and care prescribed by the code may not be disclaimed by agreement, but may be enhanced or modified by an agreement which determine the standards by which the performance of the obligations of good faith, diligence reasonableness and care are to be measured. These agreed to standards of good faith, etc. are enforceable under the UCC if the standards are “not manifestly unreasonable.”

The PSA also has impact on when or what acts have to occur under the UCC because § 1-302 (c) allows parties to vary the “effect of other provisions” of the UCC by agreement.

Through the PSA, it is clear that the plaintiff cannot take an interest of any kind in the loan by way of an “A to D” assignment of a mortgage and certainly cannot take an interest in the note in this fashion.

Without the PSA and the limitations set up in it “by agreement of the parties”, there is no avoiding the mortgage following the note and where the UCC gives over the power to enforce the note, so goes the power to foreclose on the mortgage.

So, arguing that the Trustee could only sue on the note and not foreclose is not correct analysis without the PSA.
Likewise, you will not defeat the equitable interest “effective as of” assignment arguments without the PSA and the layering of the laws that control these securities (true sales required) and REMIC (no defaulted or nonconforming loans and must be timely bankruptcy remote transfers) and NY trust law and UCC law (as to no ultra vires acts allowed by trustee and no unaffixed allonges, etc.).

The PSA is part of the admissible evidence that the court MUST have under the exacting provisions of the summary judgment rule if the court is to accept any plaintiff affidavit or assignment.

If you have been successful in your cases thus far without the PSA, then you have far to go with your litigation model. It is not just you that has “the more considerable task of proving that New York law applies to this trust and that the PSA does not allow the plaintiff to be a “nonholder in possession with the rights of a holder.”

And I am not impressed by the argument “This is clearly something that most foreclosure defense lawyers are not prepared to do.”
Get over that quick or get out of this work! Ask yourself, are you PSA adverse? If your answer is yes, please get out of this line of work. Please.

I am not worried about the minds of the Circuit Court Judges unless and until we provide them with the education they deserve and which is necessary to result in good decisions in these cases.

It is correct that the PSA does not allow the Trustee to foreclose on the Note. But you only get there after looking at the PSA in the context of who has the power to foreclose under applicable law.

It is not correct that the Trustee has the power or right to sue on the note and PSA literacy makes this abundantly clear.

Are you PSA literate? If not, don’t expect your judge to be. But if you want to become literate, a good place to start is by attending Max Gardner’s Mortgage Servicing and Securitization Seminar.

by April Carrie Charney

Arizona’s SB 1451 – Does Arizona Have the Right to Save Itself from Drowning in Underwater Loans?

Drowning in the desert.  The irony alone could kill you.

Arizona’s Senator Michele Reagan (R-Scottsdale) is a very courageous politician.  This year she has introduced SB 1451, the “Housing Finance Reform Act of 2012,” a bill that would solve the state’s negative equity problem by providing homeowners that are current on their mortgages, with a way to refinance their loans at or near current market value…. without costing the state a nickel.

If SB 1451 were to become state law, Arizona’s homeowners would no longer be dependent on the federal government, through Fannie Mae, Freddie Mac or FHA, to refinance their mortgages.  The bill would make it possible for up to 90 percent of Arizona’s homeowners to refinance their existing loans, lowering their current monthly payments by a third, and reducing their principal balances to amounts at or near today’s market value.

Can you imagine the immediate impact on Arizona’s economy, even if only if 50 percent of the state’s homeowners were paying a third less each month than they’re paying now, and were no longer hopelessly underwater?

Consumer spending in Arizona would increase almost overnight as homeowners once again would view their homes as valued assets, instead of as depreciating liabilities.  It’s not hard to imagine that the home improvement market would be among the first to spring to life as homeowners re-started projects delayed during the prolonged downturn in home prices and the broader economy, and that sort of spending means immediate jobs for tens of thousands of Arizonans.

What’s not to love?

As incredible as it may seem, there are a few in Arizona that oppose SB 1451.  Included in that group is well-known columnist at The Arizona Republic, Robert Robb, who wrote a piece about the bill this past week in which he claimed its consequences to be “devastating.”

Devastating?  Seriously?

Let’s just re-cap for a moment to make sure we’re all on the same page… SB 1451 allows for the refinancing of current mortgages at or near today’s market value, it reduces each homeowner’s monthly payment by at least one-third, it means that Arizona’s homeowners would no longer be dependent on the federal government every time they wanted a mortgage, it creates thousands of jobs faster than you can say… remodel my bathroom, and it doesn’t cost the state or its taxpayers a nickel.

Which part could possibly be thought of as devastating, do you suppose?  Would it be the prosperity breaking out all over the state like the desert in bloom that Robb finds objectionable?

Robb’s argument against SB 1451 begins with his claim that it violates the state’s constitution, which frankly I found quite amusing for several reasons.

For one thing, in his article, the words “Arizona Constitution,” appear in light blue, like it’s a link to a clause in the state’s constitution prohibiting something that the bill does, thus supporting his claim that the bill is unconstitutional.  But, when you click on the link you jump to a page of past stories ABOUT the Arizona constitution, only one of which has anything to do with SB 1451, and wouldn’t you know it… it’s Robb’s article… the same one you just clicked out of to begin your circular journey.  Robb claims the bill is unconstitutional and then he sources himself making the same claim about constitutionality.  So, very well done indeed.  Perhaps later he’ll quote himself.

The other reason the constitutionality argument seems frivolous to me is that Robb raises it as an issue at the beginning in his piece about the bill, and it just seems to me that if he actually thought his point was correct, he wouldn’t have needed to bother writing the rest of his article.  I mean… why worry about a bill passing if it’s only going to create an unconstitutional state law, right?  There’s no danger of devastation occurring there, is there?

Seems like, even if the bill passed, the Governor would take one look, say… “Sorry, can’t sign it … it’s unconstitutional,” and then we could all go back to contemplating the timing of our respective strategic defaults on our underwater mortgages.

As one might imagine, however, Senator Reagan, with ten years in the Arizona legislature, did consider the constitutionality issue during the 10 months she was working with her legislative team on the state program and the bill’s language… you know… before she presented it to Mr. Robb and he so cleverly raised it, and so she’s quite comfortable with her bill’s constitutionality… or would that be constitutional conformity?  Constitutionosity?

No matter, in my mind it’s really a question for the legal scholars anyway, isn’t it?  And Robb may think it going out on a limb, but I for one have complete confidence that the State of Arizona will be able to figure out what its own constitution does and does not allow.  And if it turns out that it’s okay with the state, well, then I’d have to say that it’s okay with me.

I did manage to check with two, by the way… legal scholars, I mean… unlike Reporter Robb I make it a rule never to source myself in public… and both said that it was constitutional and explained why they thought so.

(There was a third legal scholar that I’m pretty sure also agreed that it was constitutional, but honestly, I must have dozed off during his riveting 40-minute dissertation on all-things-constitutional that at one point was explaining something about due process originating with Egyptian kings.  Luckily, I woke up just in time to thank him for his very thorough response and say goodbye.)

Robb says, at least in part, that SB 1451 is unconstitutional because it breaks the terms of existing contracts.  But the first legal scholar responded to Robb’s claim by saying: “The law is clear: The right of the state to take private property supersedes private contracts.”  See West River Bridge v. Dix, 47 U.S.C. 507 (1848) and its progeny; see also Home Building & Loan Association v. Blaisdell 290 U.S. 398 (1934).  He also explained…

“Government taking of property has been part our laws for over 200 years.  The basic requirements for such a taking are a clear public policy and payment of just compensation.  In this case the public policy is undeniable – addressing the state’s economic and fiscal crises related to the collapse in housing market.  “Just compensation,” means payment of fair market value of the property being taken – the home.  SB 1451 requires payment of more than the fair market value of the home.”

And there you have it.

The second attorney I checked with was Associate Professor of Law at Loyola Law School in Los Angeles, Lauren Willis, who originally authored a paper back in 2008 that specifically examined the subject of a state taking property in order to satisfy the public good.  The latest version of that paper is titled: “Good for Banks, Good for Borrowers.”  According to Professor Willis’ paper…

“Eminent domain is the power of government to take private property for a public purpose, so long as the owner is paid just compensation. Eminent domain can be used to correct deficiencies in the market, particularly when they threaten public tranquility and welfare.

The property hazards, fires, crime, and other social costs imposed by foreclosures will threaten our nation’s tranquility and welfare until foreclosures are dramatically reduced. Families will continue to be uprooted and their children moved from school to school, disruptions that impose intangible and long-term costs on society. We cannot directly devalue loan contracts to reduce our excessive mortgage debt, but we can use eminent domain.

The thousands of families falling into foreclosure and bankruptcy each day will continue for years, with the limited capacity of loan servicers and courts prolonging the problem. The social costs of foreclosure will roll on, increasing the tax burdens and decreasing the quality of life for all households, renter, former homeowner and current homeowner alike.

This plan is not entirely unprecedented; eminent domain has been used to boost homeownership in the U.S. before. At one time in Hawaii, concentrated land ownership was injuring the public tranquility and welfare by preventing ordinary families from owning the property on which they lived. To fix this market failure, the state took land from large landowners and compensated them at fair market value. The state then sold the property to the families who had been living there and paying rent, offering them mortgages through the Hawaii Housing Authority. “

(I can also say that there have been other legal experts at the state capitol and elsewhere that have very carefully reviewed SB 1451 and they are in agreement that the State of Arizona does have the right to do what the bill describes.  And that’s all I have to say about that.)

No More Soup for You!

Robb’s next objection to SB 1451 would have been easily predicted by anyone familiar with the banking lobby’s legendary resistance to change.  According to Robb, “Once the legislature indicates a willingness to abrogate loan agreements, lending in Arizona will be more risky and borrowers will have to pay for that increased risk.”

This is the standard threat that the banking lobby uses when it wants to scare legislators into never voting for anything that would change the status quo as related to lending, because the threat implies that if you do anything the bankers don’t like, there will never be lending again in Arizona.

Well, I’m positively thrilled to have the opportunity reply to this assertion, because as assertions go, this one is absolutely preposterous.  What’s going to happen?  Are they going to blacklist the state?

It’s a bit like thinking that no one would ever want to own a commercial airline again because the federal government grounded the airlines for an entire week following 9-11.

Investors aren’t morons, Rob Robb, they can tell the difference between an extraordinary economic event and a communist regime out to seize private property at every turn.  Maybe Mr. Robb struggles with that distinction, but I’m fairly confident that any investor with more than say $200 to invest can.

What are you asking me to fear, Mr. Robb… that there’ll be no private lending in Arizona?  There’s no private lending in Arizona now.  And there’s not going to be any private lending in Arizona, or anywhere else for that matter, for a long time.  Banks have the same toxic assets clogging up their balance sheets that they had in 2008.  CDOs that have never been traded, valued using their own valuation models, seconds that are essentially worthless.  And off the balance sheet? Don’t even get me started.

In every single year since the financial crisis began, more than 90 percent of all loans have been government funded.  We haven’t had any meaningful private securitization of debt since the summer of 2007.  The securitization market is broken.  Investors lost trust, and once you lose trust you just don’t get it back… you just don’t.

Wake me up when a few of those problems go away and then we can chat about their lending.  Of course, you’ll probably need to call the nurse to wake me because I’ll probably be living in a SNF by then.

Robb also says that, “Arizonans trying to buy a home with a conventional mortgage that doesn’t have a federal guarantee would be out of luck.”

Okay, so obviously Robb doesn’t know that the only lending that exists in this country, for all practical purposes, is government lending.  There are no “conventional mortgages” being offered today that aren’t funded by the federal government.  It’s Fannie, Freddie, or FHA and that’s that.  Well, there’s Ginnie Mae too, if you’re talking VA loans.

And please don’t tell me about the lending on $2 million homes for people with 50% down and 900 FICO scores.  Just say hi to all 11 of them for me, okay?

So, let’s imagine it’s ten years from now.  And because of SB 1451, Arizona’s homeowners are not loaded with debt, and have been current on their loans over the last ten years.  It’s an entire state of great credit risk with equity in their homes enjoying their serenity.

Are you seriously trying to tell me that, faced with that picture, no one will want to lend in Arizona because of something that the state did ten years ago during an economic catastrophe?  Would you care to bet on that, Rob Robb?  There are plenty of lenders that want to start extending credit to people a month after their bankruptcies have been discharged.

And did you know that during the 1930s the government FORCED creditors to take hair cuts of 40 percent, but investors didn’t stop investing as a result.  To the contrary, according to a study conducted by a former Federal Reserve Board Governor and Professor of Economics at the University of Chicago Graduate School of Business, they came out ahead.

Study Shows: “It’s better to forgive than receive.”

Economist Randall S. Kroszner is a former Federal Reserve Board Governor and an economics professor at the University of Chicago Graduate School of Business.

His study, which he describes as an, “Empirical Analysis of Large-Scale Debt Repudiation,” provides evidence of coordinated debt relief creating a win-win-win scenario, leaving all of the involved parties in better financial condition than would have otherwise occurred.  In other words, there are situations when investors, and the economy overall, are best served by forgiving debt.

Professor Kroszner’s paper begins by acquainting us with a clause that, up until 1933, appeared in essentially all long-term contracts, both public and private, known as the “gold clause.”  Its genesis was the inflation that followed the Civil War, and it protected creditors against devaluation of the dollar by indexing to gold the value of the payments they were owed under any given contract.  If the price of gold were to rise during the life of the contract, they could demand payment in gold instead of dollars.

During FDR’s first 100 days, he asked Congress to do away with the gold clause in all public and private contracts. 

Predictably, creditors screamed bloody murder, just as they undoubtedly would today, but the legislature passed a Joint Resolution on June 5, 1933, nullifying all such clauses and when the U.S devalued the dollar in 1934, and the price of gold jumped from $20 an ounce to $35 ounce as a result, the impact was akin to today’s banks granting principal reductions of 40 percent!

Next, creditors challenged the constitutionality of Congress’ Joint Resolution.  The stakes were astronomical for the times.  The U.S. GNP, between 1933 and 1935 was between $55 billion and $72 billion and there was a nominal $100 billion of debt with gold clauses outstanding.  If the court invalidated the resolution, debts would have increased by 69 percent¹ and mass bankruptcies would have followed, but in a landmark 5-4 decision, the court upheld the government’s right to repudiate the gold clause.

So, what happened?  Well, bond prices actually WENT UP following the court’s decision to uphold the government’s repudiation of the gold clause.  And Professor Kroszner’s paper presents a very technical examination of the financial impacts to both debt and equities, which also went up, by the way.  But, the details are not important here, because that was then and this is now, and because that was a national event and we’re only talking about the State of Arizona.

The important point to be made is that, based on this historical analysis, there are circumstances when engaging in coordinated forgiveness of debt benefits all parties, including the overall economy.

Read My Lips, No State Guarantee…

Sen. Reagan’s SB 1451 is an entirely new way to handle mortgage financing.  It’s “borrower-centric,” as opposed to being “lender-centric,” so no one gets to make zillions of dollars, as was the norm with the securitization schemes of 2003-2008.  And you’d think that if Robb was going to question the bill, he do it on the grounds of its newness.  But, no… his arguments just start attacking the bill on entirely irrational grounds.

For example he claims that even though the bond financing doesn’t put Arizona on the hook for the bonds… that it does.  According to Robb…

“But it doesn’t matter what she says, or what it says in her legislation, the bonds would sell with an implicit guarantee from the state.”

See what I mean?  How do you argue with someone like this?  I feel like I’m arguing with my wife when she doesn’t want to let me win regardless of whether she’s decided that I’m right.  It doesn’t matter what Sen. Reagan says or what is says in the legislation?  Is that how we assess things in Arizona now… it doesn’t matter what something says or anyone says… all that matters is what’s in Robert Robb’s beautiful mind?

Robb’s piece even goes so far as to describe the relationship between the State of Arizona and this program as being something along the lines of the federal government’s relationship to Fannie Mae and Freddie Mac and that’s just a ridiculous comparison.  Where does he get this stuff?  Does he think he’s writing a John Grisham novel, or covering an actual bill in the state senate?

Senate Bill 1451 only uses PRIVATE MONEY.  There is no government money involved, no subsidies, no guarantees, and no taxes.  This Program utilizes a completely different structure than any current mortgage program.  It includes a cash insurance fund, which won’t be less than 10% and possibly more than 20% of the amount of the bonds issued.  SB 1451 is not securitization and there are no derivatives involved.

In its simplest form, the program sells bonds and uses the money to make loans.  Local banks can participate by lending their money too through the purchase of what are called “Insured Home Certificates.”  Banks that purchase these certificates receive detailed payment history on the homes they are investing in and can therefore look to refinance as they see fit.

Other than all that, it’s still nothing like Fannie and the Fed.  Nothing is like Fannie and the Fed.  And this program’s oversight is a three-member appointed panel who oversee program suppliers, and who are damn near volunteers.

And Rob… There is no state guarantee implied or otherwise… period… and that’s that, okay?  I know you want there to be a guarantee, and I know you’re all worked up about it, but it doesn’t exist so why don’t you go be scared about some other fictional bogey man and leave this one be, you’re just confusing people.

Interestingly, Mr. Robb does say some very flattering things about the bill too.  His words, not mine…

“What Reagan proposes is a remarkably sweet deal. Any underwater homeowner who was current or becomes current could get interest-only refinancing for just the present market value of the home for up to ten years. Who wouldn’t sign up for that?”

Hey, he gets it!  In fact, he took the words right out of my mouth.  So, what’s the problem?

There isn’t one… so instead, Robb just keeps making them up as he goes along.  And don’t stop him cause he’s on a roll.  He just can’t stop talking about an implicit guarantee.  It’s like he recently read a book about Fannie and Freddie, now has “implicit guarantee” in his head and now it’s just rattling around, popping up intermittently.

Stopping the Wave…

Robb closes by showing that he does understand why the program was developed in the first place…

“Arizona is preventing an impending tidal wave of strategic defaults – in which underwater homeowners just walk away from their homes, with knock-on consequences for surrounding property owners.”

And then he says ominously, “Whether such a tidal wave is impending is uncertain. Experts disagree.”

Which experts disagree?  I mean, who specifically?  I’m going to need names and contact information here, because I’m an expert and I don’t disagree in the least. So, please… I want to talk to your “experts.”  Assuming when you use the term experts you don’t mean Realtors and mortgage bankers, because that would be like hearing from Big Tobacco executives about how second hand smoke isn’t nearly as bad for me as people say.

That notwithstanding, Mr. Robb is admitting that it’s “uncertain,” so I guess my question to him would be… What if there IS such an impending wave coming?  What then Mr. Robb?  Do you have a contingency plan for that becoming a reality?  Because I hope you realize that should today’s situation in Arizona worsen significantly, it’ll be nothing but desolation and wretchedness for at least hundreds of thousands of people.  And I can tell by your attitude about this bill that you have absolutely no idea of what it’s like for the majority of the state’s population even now.

I do though.  And I’ll be happy to take you on a tour of your own hometown anytime, just say the word and I’ll pick you up.

Sen. Reagan’s SB 1451 will provide up to 90 percent of Arizona’s homeowners with a choice… a safety net should things worsen.  And it doesn’t stop any of the mega-banks from lending or competing, for that matter.  They are all free to write down the principal balances of loans whenever they’d like to.

What they can’t do is continue to treat the people of Arizona like the people of Greece.  They aren’t going to sit back and say… “You’ll pay your debts and we’ll do nothing until you are experiencing such a level of pain and have made so many hard choices that many won’t even want to go on living.”  That the banks cannot do. The people of Arizona are not going to let that happen.

It looks like a states rights issue to me.  So, let the legislative debate begin.  Time to stand up and be counted.  If the people want it, then it’s up to the legislature to make it happen.

Breaking Points…

According to the Federal Reserve Bank of Atlanta’s December 2011 report, titled “Exploring Impediments to a Real Estate Recovery”…

Negative equity, meaning that a borrower owes more than the house is worth, continues to prevent any sort of recovery in Arizona’s housing market, because it’s the foremost contributor to the high rate of foreclosures.

In the white paper, Moral and Social Constraints to Strategic Default on Mortgages, published July 2009, by Professors Sapienza, Zingales and Guiso, survey data was used to study American households‘ propensity to default when the value of their mortgages exceeded the value of their homes… even if they can afford to pay their mortgage.

The study found that households wouldn’t default with an equity shortfall less than 10% of the value of the house. Yet, 17% of households WOULD default, even if they CAN afford to pay their mortgage, when the equity shortfall reached 50% of the value of their house.

According to a report issued late last year by JPMorgan Chase & Co, strategic defaults are now more likely among jumbo loan-holders than any other type of borrower; nearly 40 percent of jumbo loan delinquencies, are strategic defaults.

There have even been a record number of defaults in Beverly Hills, you know… 90210.  Many wealthy owners could clearly still pay but walked away anyway.  Also worth noting is the fact that only 12 of 180 distressed homes in Beverly Hills are currently up for sale.

Laurie Goodman of Amherst Securities is perhaps the preeminent analyst of the U.S. mortgage market and her data and analysis is relied upon extensively on Wall Street and in the housing industry at large.  According to Goodman…

The moral hazard… strategic default issue… must be addressed by first recognizing it as an economic issue, not a moral one. The point is that a borrower at a 150 CLTV is highly likely to default, regardless of whether or not he can pay.

William C. Dudley, the president of the Federal Reserve Bank of New York, laid out a housing agenda when he spoke at West Point last month. He brought up an idea that the Fed knows will probably become necessary: “reduction of the amount that many borrowers owe while they keep their homes.”

HUD Secretary Shaun Donovan called FHFA’s reluctance to engage in principal reduction, “quasi-religious,” and the moment I read it, I realized he was right… I knew exactly what he meant.

According to Goodman’s latest research, “Borrowers with more severe negative equity and perfect payment histories are defaulting at ~20% per year, nearly as fast as borrowers with equity are refinancing.  We believe the government needs a mandatory program that forgives principal on the 1st lien and substantially eliminates the 2nd lien. Voluntary programs won’t work.”

Even though, in most instances in Arizona, mortgage servicers could maximize their return by writing down the principal on loans, some in the industry say they won’t do it, “because of their inability to distinguish borrowers’ breaking points.”

So, I wonder if Mr. Robb thinks he can distinguish borrowers’ breaking points… is that the plan?  Catch it just in time? Right before Arizona’s economy does an imitation of the final scene in the movie “Thelma & Louise,” and drives right off the edge of the Grand Canyon.

So, it looks like it’s either that, or we get an answer to the question… DOES ARIZONA HAVE THE RIGHT TO SAVE ITSELF?

Mandelman out.

S.O.S.

Save Our State!

Want out of the RED? Tell these senators and your elected representatives in both the House and Senate that you’re watching and you want them to VOTE YES on SB 1451.

Don Shooter dshooter@azleg.gov 602-926-4139           

Steve Pierce spierce@azleg.gov 602-926-5584

Find your state assembly and senate representatives CLICK HERE.

~~~~~~

Want to hear more?

Listen to Senator Reagan and her legislative team talk about her groundbreaking bill.

On a Mandelman Matters Podcast

CLICK HERE & SCROLL DOWN TO CLICK PLAY

# # #

*1 Prof. Kroszner’s paper states that the gold standard would have increased the contract value by 69% over the nominal value of the contract (that is, to 169% of the nominal contract amount).  When you reduce 169% down to 100% you have reduced the figure by 40%.  So if a house today is 69% underwater, that means the face value of the loan is 169% of full market value, and if that loan is reduced to 100% of full market value, this means the loan has been reduced by 41% (69/169 = .408.)

Americans, especially generations X and Y, want shorter commutes, walkability and a car-free existence. Which means that around 40 million large-lot exurban McMansions, built primarily during the housing boom, might never find occupants.

Only 43 percent of Americans prefer big suburban homes, says Chris Nelson, head of the Metropolitan Research Center at the University of Utah. That mean demand for “large-lot” homes is currently 40 million short of the available stock — and not only that, but the U.S. is short 10 million attached homes and 30 million small homes, which are what people really want.

“If we are optimistic that the world is not coming to an end and we’re going to get out of this economic trough, it’s a good time to consider, when production does ramp up, how we will be building as a country,” [says Joe Molinaro head of the National Association of Realtors' smart growth program.]

Christopher Mims’s dystopian non-fiction is sought after by an ever-growing roster of publications.

Thanks to www.Grist.org.

One of the major benefits of Chapter 13 Bankruptcy is the ability to avoid second mortgages that are not secured by any value in your home.  By following standards outlined in the Banrkuptcy Code, you can reclassify that loan on your home into the same category as credit cards or other ordinary bills and discharge them at the end of your Chapter 13 payment plan.  This is called lien stripping. You cannot do this to a mortgage in a Chapter 7 case.

However, if there is even a penny of value in the home that would go to a second mortgage when the property was sold, the loan cannot be valued as unsecured.  That means it must be paid during the Chapter 13 case and it also survives the Chapter 13 as a lien on the property until it s paid off.

So where’s the Time Bomb?  Let’s assume that you’ve been dealing with your lender trying to work out a modification of your first mortgage.  Well, what if your lender were to give you a modification that reduces your principal balance?  That modification now results in a little equity in your home.  Sounds like good news, right?  Nope.  With the reduction in the principal balance gives your second mortgage a toe-hold onto your home. Once that happens, the Bankruptcy Code will not allow you to avoid that second mortgage and gain the benefit of a Chapter 13 case.

In a New York Times article, reporter Gretchen Morgenson criticized the terms of the “Great Mortgage Deal” with five major banks,  Once of the points she brings out is that this “settlement” enhances the value of the second mortgage market.  By creating equity in homes, the value is now exposed to claims by second mortgage holders in a Chapter 13 thus weighing down homeowners with yet another obligation that survives a bankruptcy.  Once your first mortgage is reduced below the value of your home, the second mortgage will sink its claws into that home.  KABOOM!  Mortgage time bomb.

If there is any doubt that you should file a Chapter 13 Bankruptcy before you work our a debt reduction deal with your first mortgage, this should do it.  File first, work out the modification later, before that second mortgage gets you.

Thanks to Bankruptcy Law Network.

Ocwen Backs Principal Reductions, Mandatory Outsourcing to Improve HAMP

By: Carrie Bay 03/03/2010

Ocwen Financial Corporation has one of the industry’s most impressive track records when it comes to restructuring loans under the federal guidelines of the Home Affordable Modification Program (HAMP). Thecompany is converting trial mods to permanent status at a rate that is 10 to 20 times higher than some of the biggest banks. And the Florida-based servicer is ensuring borrowers are given sustainable solutions. Ocwen says its three-month re-default rate on HAMP modifications is under 5 percent – well below the industry’s average range of 19 to 34 percent.

Based on his company’s experience and success with the federal program, Ocwen President Ronald M. Faris proposed enhancements to HAMP in testimony before Congress. Ocwen believes these enhancements – which include principal writedowns and requiring underperforming servicers to outsource their HAMP processes – would make the program more effective and provide relief to a wider scope of distressed homeowners.

Testifying before a House Oversight subcommittee, Faris said HAMP is a “well designed response to the mortgage crisis” and commended “the Treasury Department for its aggressive implementation of the program.” But he also offered up several recommendations to improve the program.

Faris urged the administration to make principal reductions a bigger part of the modification equation. “Principal reduction modifications are needed to overcome the ‘negative equity’ problem,” Faris testified. “This is a primary driver of defaults on mortgages and re-defaults on modified mortgages.”

He explained that in Ocwen’s experience, negative equity increases the chance of a re-default by 1.5 to 2 times, and noted that approximately 15 percent of all Ocwen’s loan modifications involve some element of principal reduction.

Faris also told lawmakers, “Almost a year into HAMP, too many homeowners facing foreclosure are having difficulty getting their loans modified. In our view, this is due mainly to a lack of sufficient capacity and expertise in the industry to handle the volume.”

Faris argued that too many servicers are not producing the results needed to achieve the program goals. He said the Treasury should be empowered to redirect servicing for loans held by companies that aren’t performing up to par, and outsource their HAMP initiatives to those companies that have the capacity to execute trial mods and convert them to permanent solutions.

Ocwen’s president also petitioned for the administration to drop the debt-to-income (DTI) ratio used in HAMP configurations below 31 percent. Faris says one out of every four HAMP applicants is rejected for failing to meet this standard.

“HAMP should instead use a flexible ‘residual income approach’ to determine a payment that the homeowner can actually afford,” Faris told the subcommittee. “Alternatively, there should be either an across-the-board DTI of 28 percent or a sliding-scale DTI that varies based on the number of dependents.”

Faris also suggested that additional funding be made available to housing counseling groups. “Grass-roots organizations… are providing much needed homeowner outreach and counseling. We urge financial support for any HUD-certified counseling organization assisting homeowners through a successful permanent modification under HAMP,” he said.

According to Faris, Ocwen’s success in modifying mortgages for distressed homeowners lies in offering affordable and sustainable loans, which in turn results in more cash flow for investors than they would get from a foreclosure.

He pointed out that Ocwen has invested over $100 million in research and development to build loan servicing technology that incorporates behavioral science for effective customer communication and is also scalable for high volumes.

Thanks to DS News

A largely forgotten form of Consumer bankruptcy is Chapter 12.  Although geared for a family farmer or fisherman, they are designed to be filed by consumers rather than companies.

A Chapter 12 can be filed by a family farmer or fishermen. To qualify, more than 50% of your income must be derived from a farming or fishing enterprise. Fortunately, our courts have given pretty wide latitude to what constitutes a farming enterprise. Even if you are simply using your property to raise horses, you probably qualify.

These cases are similar to chapter 13 bankruptcies. They allow you to “reorganize” your debts. You can change the terms of some secured debts, pay only that portion of unsecured non-priority debts as you can afford to pay, and spread out payments on priority obligations over several years.

There are significant advantages to a chapter 12 bankruptcy compared to a chapter 13 bankruptcy. Here are three of my favorites:

1.     The debtor doesn’t  have to undergo the means test to do a chapter 12;

2.    The limitation on the amount of debt you are allowed is much  greater in chapter 13 (although at least 50% of it must be from the farming or fishing operation); and

3.    You can actually modify the amount you pay back on the first mortgage of your home. The law prevents you from doing that in a chapter 13 bankruptcy, but if your house is underwater in a chapter 12, you can change the terms. Simply put: you can force the mortgage company to lower the interest, take less towards the principal, and even extend the term of the loan!

Chapter 12’s aren’t for everyone. As noted above, you have to qualify. And they can be complex and therefore expensive. But if you’re operating some form of agriculture or fishing business, you should seek a qualified bankruptcy attorney to determine if this kind of bankruptcy might be a good approach for you.

Thanks to BankruptcyLawNetwork.com

http://www.bankruptcylawnetwork.com/chapter-12-bankruptcy/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BankruptcyLawNetwork+%28Bankruptcy+Law+Network%29

Mortgage Settlement Reached: A Beginning, Not an End