Company Faces Forgery Charges in Missouri Foreclosures

By GRETCHEN MORGENSON

Published: February 6, 2012

A grand jury in Boone County, Mo., handed up an indictment Friday accusing DocX of 136 counts of forgery in the preparation of documents used to evict financially strained borrowers from their homes. Lorraine O. Brown, the company’s founder and former president, was indicted on the same charges.

Employees of DocX, a unit of Lender Processing Services of Jacksonville, Fla., executed and notarized millions of mortgage documents for big banks and loan servicers over the years. Lender Processing closed the company in April 2010, after evidence emerged of apparent forgeries in these documents, a practice now called robo-signing.

Chris Koster, the Missouri attorney general, will prosecute the case. “The grand jury indictment alleges that mass-produced fraudulent signatures on notarized real estate documents constitutes forgery,” Mr. Koster said in a statement. “Today’s indictment reflects our firm conviction that when you sign your name to a legal document, it matters.”

Mr. Koster said his office’s investigation was continuing. This suggests he may hope to persuade Ms. Brown to cooperate in his investigation of the parent company. If convicted, Ms. Brown could face up to seven years in prison for each forgery count. DocX could be fined up to $10,000 for each forgery conviction.

Chris Rosenblum, a lawyer at Rosenblum, Schwartz, Rogers & Glass who represents DocX said: “We have not had an opportunity to review the indictment at this point. The company intends to enter a plea of not guilty.”

According to the indictment, Ms. Brown acted “knowingly in concert with DocX and its employees” to mislead and defraud the Boone County recorder of deeds. The documents central to the indictments were deeds of release, which eliminate a previous claim on an asset. Such releases are typically issued when a mortgage has been paid off.

Phone messages left at Ms. Brown’s home and with her lawyer were not returned Monday evening.

Since evidence of pervasive foreclosure improprieties emerged, state officials have mostly brought civil suits against the institutions and law firms that filed the fraudulent documents. Individuals in Nevada, for example, have been charged with notary fraud, but beyond that matter, criminal cases arising from foreclosure practices have been uncommon.

The Missouri grand jury found that the person whose name appeared on 68 documents executed on behalf of a lender — someone named Linda Green — was not the person who had signed the papers. The documents were submitted to the Boone County recorder of deeds as though they were genuine, Mr. Koster said.

A recent civil lawsuit against Lender Processing by the attorney general of Nevada found that former workers at one of its divisions had described their work as “surrogate signers.” One worker who was quoted in the complaint said she had been paid $11 an hour and told that her job was “to sign somebody else’s signature on documents.” The person said she had signed roughly 2,000 documents a day for months, according to the lawsuit.

In addition to deed releases, DocX surrogate signers routinely executed assignments of mortgage, which reflect changes in ownership.

The indictment is only the latest legal assault on the company and its parent, Lender Processing. In August 2011, American Home Mortgage Servicing, a large loan servicer, sued Lender Processing contending that more than 30,000 residential mortgages that it had handled across the country contained “improper execution, notarization and recording of assignments of mortgage.” DocX executed such paperwork for American Home from April 2008 through November 2009, the lawsuit said.

Last April, Lender Processing signed a consent order with the nation’s top financial regulators, agreeing to remediate improperly executed mortgage documents and to correct its default business practices. Michelle Kersch, a Lender Processing spokeswoman, said recently that the company now executed documents “with stringent controls in place” to ensure compliance with all rules.

An Easier Path to Refinancing

Happy Groundhog Day!

Lately the same refrain keeps cropping up in my practice:  why did you wait so long?  I understand that very few people want to file bankruptcy, and I agree that the decision to file bankruptcy is an important one.  And while it is common to hear that bankruptcy should be a last resort, it is also true that you can wait too long.  So, in honor of Groundhog Day, while we wait to find out when spring will arrive, here are some problems that might crop up if you wait too long to file bankruptcy.

You exhaust your reserves.  This is probably the most common consequence of just hanging on too long, trying to avoid bankruptcy.  You are trying to keep up with mortgage payments or credit card payments after a job loss, illness, divorce, or the like, and you exhaust your savings, tap into your 401k or IRAs, incur taxes and penalties as a result, which makes the whole financial situation still worse.  You use up the resources that would make it easier to make a fresh start, and make it harder to recover financially.  It is easy, and probably natural, to just try to hang on and keep doing what you have always done.  It’s smarter to take an honest look at your situation and ask yourself whether you are going to be able to deal with your debt without some help.

You may lose control of assets that might otherwise be used to help you make a fresh start.  That is often the case when creditors sue you and obtain judgments against you.  A judgment becomes a lien against real property, which can be especially significant if you have investment property, or have inherited property, or, God forbid, you are holding title to family property to “keep it safe.”  The effect of a judgment on property depends on several factors, including where the property is located, whether you are entitled to claim it as exempt, and even what state you are in, but you shouldn’t wait until its a done deal to figure out what the effect will be.  At that point it may be too late.

Other issues can be decided in a law suit that will affect your ability to make a fresh start.  The amount of a debt may be determined to be higher than you anticipate, for example, by the addition of attorney fees and expenses.  Or, the court may enter a finding a fraud against you that will allow a debt to survive bankruptcy.  Other findings may also impact your fresh start as well, and if you are already in financial distress, you may find that it is prohibitively expensive to fight a lawsuit, or worse, several lawsuits.

Don’t wait until the bitter end to consider bankruptcy, and seek out competent legal advice about your bankruptcy options.   You might think that if you go see a bankruptcy lawyer that lawyer is automatically going to recommend bankruptcy, but that is not the case.  Most reputable bankruptcy lawyers are also knowledgeable about alternatives, and will advise you about those options, as well as tell you what may happen if you do nothing.  I regularly advise clients against filing bankruptcy (and sometimes that advice is because there is nothing left to protect).  You have nothing to lose, and quite a bit to gain by talking to someone as soon as you recognize that there is a problem, rather than waiting until you have no options.

Thanks to Bankruptcy Law Network.

Top 15 Lies About Bankruptcy

by Brett Weiss, Maryland Bankruptcy Attorney

Treasury Investigates Freddie Mac Investment

By SHAILA DEWAN

Background

The Federal Reserve Board issued enforcement actions against four large mortgage servicers
–GMAC Mortgage, HSBC Finance Corporation, SunTrust Mortgage, and EMC Mortgage Corporation–in April 2011. Under those actions, the four servicers were required to retain independent consultants to review foreclosures that were initiated, pending, or completed during 2009 or 2010. The review is intended to determine if borrowers suffered financial harm directly resulting from errors, misrepresentations, or other deficiencies that may have occurred during the foreclosure process. The servicers are required to compensate borrowers for financial injury resulting from deficiencies in their foreclosure processes.

If you had a mortgage loan on your primary residence and believe you were financially harmed during the mortgage foreclosure process by any of the four servicers in 2009 or 2010, you can request an independent review and potentially receive compensation. The four servicers are required to make the independent reviews available to borrowers as part of their compliance with the April 2011 enforcement actions.

A number of servicers supervised by the Office of the Comptroller of the Currency (OCC) are also required to conduct independent reviews. (See below for the full list of servicers.)

Eligibility for Review

Borrowers are eligible for an independent foreclosure review if

• the property securing the loan was the borrower’s primary residence;
• the mortgage was in the foreclosure process (initiated, pending, or completed) at any time between January 1, 2009, and December 31, 2010; and
• the mortgage was serviced by one of the following mortgage servicers:

If you previously filed a complaint with these servicers about foreclosures pending during the review period, you may still seek an independent review of your foreclosure.

There are no costs associated with being included in the review; the review is a free program. Beware of anyone who wants payment to assist you in connection with the independent foreclosure review or any other foreclosure assistance program.

Click here to read the full article.

What is Net Present Value, the NPV we hear about so much? And what is NPV analysis?

NPV is what your mortgage is worth to the bank in today’s dollars. In deciding whether to foreclose or allow modification the lender compares the amount of money it will net if it forecloses versus the present value of the income stream it will receive over the years if the lender allows modification. Future payments are reduced to present value. The math is a bit complex, but you could learn how to do it if you set your mind to it.

To make it simple, I will give an extreme example. If your home is worth $300,000 even in this difficult market and you owe only $100,000, then the lender will recover its entire $100,000 if it forecloses. If the lender modifies your loan by lowering the interest rate, it will not recover as much money. People with lots of equity in their home certainly will not get a Making Home Affordable HAMP modification. The rules do not allow it. Maybe they will get an in-house modification, but the lender is not obligated to give one. Generally a lender will give a borrower a forbearance agreement – which actually raises your payments by requiring you to make your regular payment plus a portion of the arrearage until you catch up.

What if your home is worth only $250,000, and you owe $300,000 on your mortgage, then the analysis gets complicated. Off the top the lender is going to lose $50,000 plus the cost of foreclosure plus possible costs for repairing the property. If the lender gives you the 2% rate for five years, followed by 3% for a year, 4% for a year, and the Freddie rate for the balance of the loan, the lender is going to lose interest it might earn by lending out the money to someone else. The two different losses must be compared.

Note: Your lender does not consider the balance owing on your second mortgage in doing its NPV analysis.

The lender must also factor in how likely you are to default over again. If your expenses are very high, if your income is low, if you have a poor record for paying your debts, those are factors which weigh in favor of a foreclosure.

In Washington lenders are required to perform an NPV analysis under the new law passed July 22, 2011. A borrower who has been denied modification and is facing foreclosure can stop the foreclosure by demanding mediation. If the lender is going to lose less by modifying than by foreclosing, then the lender cannot foreclose. See the bill which enacted this law. The steps involved in mediation are set forth in RCW 6.24.163.

The cost of mediation is $200. The application for mediation must be filed through an attorney or a licensed non-profit foreclosure mediation group.

See this example of an NPV analysis done by Wachovia, which now is owned by Wells Fargo. This borrower was turned down because his debt load was too high and his income was too low.

The property is further underwater now than when he was previously considered. Further, the Borrower has been through Chapter 7 bankruptcy and has shed a lot of debt. Also there is more income in the family because we are counting the income of the Borrower’s children – which is allowed.

We are confident that we can succeed in getting a modification for this client.

Welcome to Freddie and Fannie’s Mortgage Shell Game

By Shawn Timothy Newman, J.D.

Adjunct Professor

Saint Martin’s University

In common parlance, a mortgage (or Deed of Trust) includes the underlying loan (promissory note) and the security on that loan (mortgage or Deed of Trust).  This ignores the fact that the note and mortgage (or DOT) are two separate contracts governed by some different laws and legal principals.

As noted in Powell on Real Property, sec. 37.27 [2] (Michael Allan Wolf ed., LexisNexis Matthew Bender 2010)

It must be remembered that the mortgagee has two interests: (1) the debt or obligation which is owned to him, and (2) the security interest in land represented by the mortgage…. In fact, the primary interest is the personalty debt obligation.  The interest in land which is available in case security is necessary because of the debtor’s default is considered as collateral interest.  Much trouble has been caused by mortgagees attempting to transfer only one of these two interests.  Where the mortgagee has “transferred” only the mortgage, the transaction is a nullity and his “assignee,” having received no interest in the underlying debt or obligation, has a worthless piece of paper.

Regarding #1, the debt is the loan contract (i.e. the promissory note).  Promissory notes are governed by the Uniform Commercial Code (UCC) Art. 3 (Negotiable Instruments).   The UCC is a uniform law adopted by every state.  In addition to promissory notes, negotiable instruments include checks.  Like a check, you must negotiate (deliver with proper endorsements) the promissory note to another for that person to claim ownership of the promissory note.  Absent proper negotiation of the note, another party cannot claim ownership.  So, for example, you find a check made payable to someone else and it is not endorsed to you; you cannot cash it because you are not the owner.

Regarding #2, the security on the debt (i.e. mortgage or deed of trust), is a contractual interest in land with the home buyer designated as the mortgagor and the lender/creditor as the mortgagee.  Because a mortgage/DOT is an interest in land, the Statute of Frauds requires such contracts to be in writing and signed to be enforceable.  Any assignment of a mortgage or deed of trust must be in writing and signed to be enforceable.  Agreements that violate the Statute of Frauds are void and unenforceable as contracts.  There are some exceptions to the Statue of Fraud’s writing requirement including an admission in court and under oath “by the party to be charged” that there is a contract (this can be done via discovery).  So, as is the case with most mortgages, they are sold by the originating bank (or mortgage company) to either Freddie Mac or Fannie Mae.  This is known as the “secondary mortgage market” (secondary, since Freddy and Fannie don’t originate the loans but buy them up from the banks and mortgage companies that do).  According to Freddie Mac’s website:

Every day, Freddie Mac provides a continuous flow of funds to mortgage lenders. We do so not by making individual mortgage loans to consumers; instead, we support the U.S. home mortgage market by providing money directly to lenders, ensuring that the system is liquid, stable and affordable.  To fulfill this vital mission, Freddie Mac buys residential mortgages and mortgage-related securities and guarantees mortgages made by lenders. We issue debt securities to the global capital markets to fund the purchase of mortgages and mortgage-related securities we hold as an investor. We also create and sell mortgage-related securities to the capital markets, providing a guarantee to investors on those securities.

Freddie Mac pools the mortgages it purchases from lenders across the country and packages them into securities that can be sold to investors. These investors include the lenders themselves, pension funds, insurance companies, securities dealers, commercial and central banks, and others. Freddie Mac also is one of the largest investors in mortgage-related securities, purchasing and holding in portfolio a portion of our own securities and those issued by others.

http://www.freddiemac.com/corporate/company_profile/our_business/securities.html

If Freddie or Fannie truly “own” your mortgage, they have “legal title” to the property and are the “real party in interest” to foreclose.

However, this brings me to an issue raised by Professor Dale Whitman in his article, “How Negotiability Has Fouled Up the Secondary Mortgage Market, and What To Do About It,” 37 Pepp. L. Rev 738, 757-758 (2010):

While delivery of the note might seem a simple matter of compliance, experience during the past several years has shown that, probably in countless thousands of cases, promissory notes were never delivered to secondary market investors or securitizers, and, in many cases, cannot presently be located at all.  The issue is extremely widespread, and, in many cases, appears to have been the result of a conscious policy on the part of mortgage sellers to retain, rather than transfer, the notes representing the loans they were selling.

This “policy” was created by Freddie and Fannie and clouds who actually has legal title to the property (i.e. mortgagee) and who “owns” the note.

First, as noted above, it is important to understand that a mortgage contract is an interest in land and, as such, must be in writing to be enforceable per the Statute of Frauds (or fall within one of the exceptions such as an admission in court).  Any “sale” or assignment to Freddy or Fannie must also be in writing per the Statute of Frauds.  Some states (like Ohio) require such transfers to be recorded.  If you are challenging a foreclosure action, the mortgagor (borrower) should ascertain if a servicer (loan originator or its successor) has sold the mortgage to Freddy or Fannie.  This can be done on line at either:

https://www.freddiemac.com/corporate/

http://www.fanniemae.com/loanlookup/

Chances are Fannie or Freddie “own your mortgage.”  If you are in litigation, you should follow up with targeted discovery requests to the servicer confirming the servicer does not “own” your mortgage.  Moreover, you should inquire and demand any records showing Freddie or Fannie assigned the mortgage to the servicer.  Servicers will point to Freddie or Fannie servicing guidelines which basically provide that the servicer forecloses in its (the servicer’s) own name.  Given a mortgage is an interest in land and the requirement under the statute of frauds that such contracts be in writing, the servicer’s standing to foreclose can be challenged absent some proof that the mortgage was specifically assigned by Freddie or Fannie to the servicer.  Legally, Freddie and Fannie must assign back the note to the servicer.  In fact, Freddie has a specific form 105 to do so.

See: http://www.allregs.com/tpl/Main.aspx [Sections 66.17 and 66.54].

However, Freddie and Fannie’s guidelines have evolved over time and you may find that there is no such assignment in most cases.   Unless there is a written assignment from the mortgage owner (Freddy or Fannie) to the servicer, the servicer cannot foreclose for the simple reason they are not part of the mortgage contract.   Simply put, only the mortgage owner can foreclose on the mortgage contract.  Moreover, if the assignment of the mortgage is invalid or fraudulent, then there is a “cloud on title” which should be identified by title and mortgage insurers.

Second, according to Powell on Real Property section 37.27 (quoted above),

It must be remembered that the mortgagee has two interests: (1) the debt or obligation which is owed to him, and (2) the security interest in land represented by the mortgage ….  In fact, the primary interest is the personalty debt obligation.  The interest in land which is available in case security is necessary because of the debtor’s default is considered a collateral interest.  Much trouble has been caused by mortgagees attempting to transfer only one of these two interests.  Where the mortgagee has “transferred” only the mortgage, the transaction is a nullity and his “assignee,” having received no interest in the underlying debt or obligation, has a worthless piece of paper.

Given what Professor Whitman describes as a “conscious policy on the part of mortgage sellers to retain, rather than transfer, the notes representing the loans they were selling,” it would appear that any alleged “sale” of the note or mortgage to Freddy and Fannie is a fraud.  By analogy, you cannot cash a check that is not in your possession or that is not made payable to or endorsed to you.  Not only is the sale of the note a sham where there is no delivery and/or endorsement of the underlying loan/note to Freddie or Fannie, if their records (per the website) “show that Freddie Mac is the owner of your mortgage”, then the unity of interest (i.e. loan/note and mortgage/security must be transferred together) is destroyed leaving Freddie and Fannie with nothing.[1]

This begs the question: why would Fannie and Freddy have such a policy given the laws governing mortgage contracts and promissory notes?  Consider the fact that Freddie and Fannie are Government Sponsored Entities [GSEs] albeit private corporations owned by the major banks.  It seems to me that Freddie and Fannie have been hijacked by the major banks and are being used to buy up bad mortgages and then seek a bailout from the taxpayers.[2]

###

[1]http://stopforeclosurefraud.com/2011/08/17/complaint-knights-of-columbus-v-bank-of-new-york-mellon-did-not-acquire-residential-mortgage-backed-securities-but-instead-acquired-securities-backed-by-nothing-at-all/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ForeclosureFraudByDinsfla+%28FORECLOSURE+FRAUD+%7C+by+DinSFLA%29

[2] Note:  Freddie and Fannie are major stockholders in MERS which has some of the same legal problems regarding delivery and possession of the note.  http://www.mersinc.org/about/shareholders.aspx

Home-sale prices saw another double-digit drop in November, according to statistics released Monday by the Northwest Multiple Listing Service.

The median price of houses sold in King County last month was $321,700, nearly 11 percent less than in November 2010 and only a hair more than October’s post-boom low of $320,000.

The median King County condo price fell even more steeply, from $225,000 in November 2010 to $191,250 last month — a 15 percent decline.

Read the full article: http://seattletimes.nwsource.com/html/businesstechnology/2016942200_homesales06.html

A Banker Speaks, With Regret

By NICHOLAS D. KRISTOF

If you want to understand why the Occupy movement has found such traction, it helps to listen to a former banker like James Theckston. He fully acknowledges that he and other bankers are mostly responsible for the country’s housing mess.

As a regional vice president for Chase Home Finance in southern Florida, Theckston shoveled money at home borrowers. In 2007, his team wrote $2 billion in mortgages, he says. Sometimes those were “no documentation” mortgages.

“On the application, you don’t put down a job; you don’t show income; you don’t show assets,” he said. “But you still got a nod.”

“If you had some old bag lady walking down the street and she had a decent credit score, she got a loan,” he added.

Theckston says that borrowers made harebrained decisions and exaggerated their resources but that bankers were far more culpable — and that all this was driven by pressure from the top.

“You’ve got somebody making $20,000 buying a $500,000 home, thinking that she’d flip it,” he said. “That was crazy, but the banks put programs together to make those kinds of loans.”

Especially when mortgages were securitized and sold off to investors, he said, senior bankers turned a blind eye to shortcuts.

“The bigwigs of the corporations knew this, but they figured we’re going to make billions out of it, so who cares? The government is going to bail us out. And the problem loans will be out of here, maybe even overseas.”

One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans.

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended up paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.

Theckston, who has a shelf full of awards that he won from Chase, such as “sales manager of the year,” showed me his 2006 performance review. It indicates that 60 percent of his evaluation depended on him increasing high-risk loans.

In late 2008, when the mortgage market collapsed, Theckston and most of his colleagues were laid off. He says he bears no animus toward Chase, but he does think it is profoundly unfair that troubled banks have been rescued while troubled homeowners have been evicted.

When I called JPMorgan Chase for its side of the story, it didn’t deny the accounts of manic mortgage-writing. Its spokesmen acknowledge that banks had made huge mistakes and noted that Chase no longer writes subprime or no-document mortgages. It also said that it has offered homeowners four times as many mortgage modifications as homes it has foreclosed on.

Still, 28 percent of all American mortgages are “underwater,” according to Zillow, a real estate Web site. That means that more is owed than the home is worth, and the figure is up from 23 percent a year ago. That overhang stifles the economy, for it’s difficult to nurture a broad recovery unless real estate and construction revive.

All this came into sharper focus this week as Bloomberg Markets magazine published a terrific exposé based on lending records it pried out of the Federal Reserve in a lawsuit. It turns out that the Fed provided an astonishing sum to keep banks afloat — $7.8 trillion, equivalent to more than $25,000 per American.

The article estimated that banks earned up to $13 billion in profits by relending that money to businesses and consumers at higher rates.

The Federal Reserve action isn’t a scandal, and arguably it’s a triumph. The Fed did everything imaginable to avert a financial catastrophe — and succeeded. The money was repaid.

Yet what is scandalous is the basic unfairness of what has transpired. The federal government rescued highly paid bankers from their reckless decisions. It protected bank shareholders and creditors. But it mostly turned a cold shoulder to some of the most vulnerable and least sophisticated people in America. Last year alone, banks seized more than one million homes.

Sure, some programs exist to help borrowers in trouble, but not nearly enough. We still haven’t taken such basic steps as allowing bankruptcy judges to modify the terms of a mortgage on a primary home. Legislation to address that has gotten nowhere.

My daughter and I are reading Steinbeck’s “Grapes of Wrath” aloud to each other, and those Depression-era injustices seem so familiar today. That’s why the Occupy movement resonates so deeply: When the federal government goes all-out to rescue errant bankers, and stiffs homeowners, that’s not just bad economics. It’s also wrong.

DRIVE through any number of outer-ring suburbs in America, and you’ll see boarded-up and vacant strip malls, surrounded by vast seas of empty parking spaces. These forlorn monuments to the real estate crash are not going to come back to life, even when the economy recovers. And that’s because the demand for the housing that once supported commercial activity in many exurbs isn’t coming back, either.

By now, nearly five years after the housing crash, most Americans understand that a mortgage meltdown was the catalyst for the Great Recession, facilitated by underregulation of finance and reckless risk-taking. Less understood is the divergence between center cities and inner-ring suburbs on one hand, and the suburban fringe on the other.

It was predominantly the collapse of the car-dependent suburban fringe that caused the mortgage collapse.

In the late 1990s, high-end outer suburbs contained most of the expensive housing in the United States, as measured by price per square foot, according to data I analyzed from the Zillow real estate database. Today, the most expensive housing is in the high-density, pedestrian-friendly neighborhoods of the center city and inner suburbs. Some of the most expensive neighborhoods in their metropolitan areas are Capitol Hill in Seattle; Virginia Highland in Atlanta; German Village in Columbus, Ohio, and Logan Circle in Washington. Considered slums as recently as 30 years ago, they have been transformed by gentrification.

Simply put, there has been a profound structural shift — a reversal of what took place in the 1950s, when drivable suburbs boomed and flourished as center cities emptied and withered.

The shift is durable and lasting because of a major demographic event: the convergence of the two largest generations in American history, the baby boomers (born between 1946 and 1964) and the millennials (born between 1979 and 1996), which today represent half of the total population.

Many boomers are now empty nesters and approaching retirement. Generally this means that they will downsize their housing in the near future. Boomers want to live in a walkable urban downtown, a suburban town center or a small town, according to a recent survey by the National Association of Realtors.

The millennials are just now beginning to emerge from the nest — at least those who can afford to live on their own. This coming-of-age cohort also favors urban downtowns and suburban town centers — for lifestyle reasons and the convenience of not having to own cars.

Over all, only 12 percent of future homebuyers want the drivable suburban-fringe houses that are in such oversupply, according to the Realtors survey. This lack of demand all but guarantees continued price declines. Boomers selling their fringe housing will only add to the glut. Nothing the federal government can do will reverse this.

Many drivable-fringe house prices are now below replacement value, meaning the land under the house has no value and the sticks and bricks are worth less than they would cost to replace. This means there is no financial incentive to maintain the house; the next dollar invested will not be recouped upon resale. Many of these houses will be converted to rentals, which are rarely as well maintained as owner-occupied housing. Add the fact that the houses were built with cheap materials and methods to begin with, and you see why many fringe suburbs are turning into slums, with abandoned housing and rising crime.

The good news is that there is great pent-up demand for walkable, centrally located neighborhoods in cities like Portland, Denver, Philadelphia and Chattanooga, Tenn. The transformation of suburbia can be seen in places like Arlington County, Va., Bellevue, Wash., and Pasadena, Calif., where strip malls have been bulldozed and replaced by higher-density mixed-use developments with good transit connections.

Reinvesting in America’s built environment — which makes up a third of the country’s assets — and reviving the construction trades are vital for lifting our economic growth rate. (Disclosure: I am the president of Locus, a coalition of real estate developers and investors and a project of Smart Growth America, which supports walkable neighborhoods and transit-oriented development.)

Some critics will say that investment in the built environment risks repeating the mistake that caused the recession in the first place. That reasoning is as faulty as saying that technology should have been neglected after the dot-com bust, which precipitated the 2001 recession.

The cities and inner-ring suburbs that will be the foundation of the recovery require significant investment at a time of government retrenchment. Bus and light-rail systems, bike lanes and pedestrian improvements — what traffic engineers dismissively call “alternative transportation” — are vital. So is the repair of infrastructure like roads and bridges. Places as diverse as Los Angeles, Phoenix, Salt Lake City, Dallas, Charlotte, Denver and Washington have recently voted to pay for “alternative transportation,” mindful of the dividends to be reaped. As Congress works to reauthorize highway and transit legislation, it must give metropolitan areas greater flexibility for financing transportation, rather than mandating that the vast bulk of the money can be used only for roads.

For too long, we over-invested in the wrong places. Those retail centers and subdivisions will never be worth what they cost to build. We have to stop throwing good money after bad. It is time to instead build what the market wants: mixed-income, walkable cities and suburbs that will support the knowledge economy, promote environmental sustainability and create jobs.

Dodd-Frank did not correct the problem. Banks which enjoy deposit insurance are still free to gamble with securities.

A proposed bill:

112TH CONGRESS – 1ST SESSION H. R. 1489

To repeal certain provisions of the Gramm-Leach-Bliley Act and revive the separation between commercial banking and the securities business, in the manner provided in the Banking Act of 1933, the so-called ‘‘Glass-Steagall Act’’, and for other purposes.

Read the entire bill here.

The banks want California, and the Obama administration hopes they can get it.

In September, the attorney general of California, Kamala Harris, withdrew from settlement talks between the banks and federal and state officials over mortgage abuses. Ms. Harris said California was being asked to excuse bank conduct that has not been adequately investigated and to grant the banks an unacceptably broad release from legal liability for the mortgage mess.

Those grave reservations have also been raised by other state attorneys general — including Eric Schneiderman of New York and Joseph Beau Biden III of Delaware. The administration, however, wants a deal. As pressure builds to get on board, Ms. Harris and her like-minded peers should stand their ground and avoid letting the banks off easy.

The administration says a settlement today would quickly deliver relief to needy borrowers. That’s true as far as it goes, but it doesn’t go far enough. Early word of the proposed settlement indicates that banks would reduce the balances on a million or so underwater loans by $17 billion to $20 billion. They would put up $5 billion to $8 billion to help pay for refinancings, counseling, legal services and other aid to homeowners. And they would have to adhere to tougher standards for loan servicing and foreclosures. That would be better than now but paltry compared with the potential extent of bank misconduct and with the scale of the mortgage debacle. At present, 14.5 million borrowers — and the broader economy — are drowning in some $700 billion of negative equity.

The administration also believes federal and state officials could effectively pursue investigations of unexamined issues after a settlement. We doubt that. The government’s history on challenging banks and holding them accountable does not inspire confidence. And for banks — threatened by crushing legal challenges for their conduct — the whole point of settling is to restrict legal claims.

The proposed settlement reportedly would prevent the states from pursuing claims against banks relating to fraud or abuse in the origination of loans during the bubble. (In some states, the statute of limitations has expired for bringing challenges for faulty originations but not on all loans in all states.) It would also prevent states from pursuing claims for foreclosure abuses, like improper denial of loan modifications. And it would prevent them from pursuing banks’ misconduct in their dealings with the Mortgage Electronic Registration Systems database, or MERS, a land registry system implicated in bubble-era violations of tax, trust and property law.

The proposal would not preclude the states from pursuing the banks for wrongdoing in the repackaging and marketing of loans as mortgage-backed securities. But, as a practical matter, the ability to fully press such claims — and to achieve significant redress — could be impeded or blocked by the other constraints. Once one avenue of inquiry is closed off, it can be difficult to ascertain what happened along other points in the mortgage chain.

In effect, the legal waivers being contemplated would let the banks pay up to sweep wrongdoing under the rug.

For the settlement to be fair and meaningful, the redress from the banks must be far greater than the $25 billion that has been floated, or the release from legal liability far narrower. The best outcome would be for government officials to do what they should have done all along: develop the strongest possible legal case by fully investigating the banks’ conduct during the bubble and since the crash and then — and only then — talk settlement. In the meantime, the public is being well served by attorneys general who are willing to say that the deal currently on the table is not nearly good enough.

http://www.nytimes.com/2011/11/09/opinion/letting-the-banks-off-easy.html?_r=1&nl=todaysheadlines&emc=tha211

Disturbing News from Behind Closed Doors – Attorney Thomas Cox, A Mandelman Matters Podcast

WARNING: THIS IS GOING TO BE DISTURBING…

Thomas Cox is a retired banking lawyer from Portland Maine.  I spent a week with him at Max Gardner’s Book Camp last fall, and we became fast friends… he’s just a great guy and a real hero of the foreclosure crisis as he came out of retirement to volunteer to help homeowners at risk of foreclosure.  The last time he was involved in foreclosing, he was on the other side of the table as a result of the S&L crisis of the early 1990s.  Of course, things were sure a lot different then.

Click here to read more and hear what Tom Cox has to say.

Attorney Talcott Franklin knows mortgage-backed securities inside and out.  He should… his firm, Talcott Franklin P.C.whose main offices are in Dallas, in dollar terms represents more than half of all the investors in mortgage-backed securities on the planet.  Tal’s the co-author of the “Mortgage and Asset-backed Securities Litigation Handbook,” and he’s a very experienced and highly sophisticated litigator.

What makes Tal a pleasure to talk to, however, is that he makes a very complex subject very easy to understand… in fact, every time I talk to him, I feel like come away smarter.  Actually, the very first time Tal and I spoke, it was very clear that we couldn’t be more in-sync as to our views on the economy… where it’s headed and why.

Listen to Talcott Franklin as interviewed by Martin Andelman:

Talcott Franklin Podcast

Donna bought her home in 2006. She owed $296,000 on her first mortgage and $71,000 on her second. She bought the home zero down. Her first mortgage was an ARM loan with a fixed 7.0% rate for the first five years. The index was the 6-month LIBOR and the margin was 2.25. Because the LIBOR is low right now, the interest rate is how. However, the maximum rate possible is 13.0%.

The loan started adjusting this year, and her rate and payment actually declined. However, she wanted a fixed rate loan. She also wondered what to do about her second mortgage and her $30,000 in credit cards.

She was approved for her loan on a stated income basis. Her first loan was with Midland Mortgage, and her second was with Citi.

The house is a cuplex. Donna was going to move her mother into the basement. However, there was mold in lower unit. The agents and sellers were all in on the cover-up. The selling agent even forged Donna’s name on the form 17 disclosure.

The estimated value of the property is $240, 000.  The investor is Freddie Mac.

Donna says in her hardship letter:

I bought this home with the expectation that I would have rental income out of it. It is an up-down duplex. There is a unit downstairs which we expected to rent out. As it turned out, the real estate agents, mortgage people, and the renters were in cahoots. They conspired not to tell me that the downstairs had water and mold problems. My signature was forged on documents. So I bought a home with a mold problem.  I spent a small fortune repairing the downstairs, however, it is still not rentable. It is probably mold free, but who knows?  However, it needs a lot more money to convert it from unfinished to rentable.  I have been struggling to make these payments. The interest rate will adjust, and I am afraid that it will go up after it goes down temporarily.  My income dropped off in 2009 and 2010. I cut my expenses as best I could. What I need now is a modification.  Also, the property needs a lot of repairs. I figure it is going to cost another $10,000 or more.  I have looked at home values in the neighborhood. Right now I am sorry to say that this house would sell for $240,000 and probably less.

Donna was married at the time she bought the property, however, she is the only one on the loan. This turned out to be a big help in obtaining her modification. If her husband’s income had been included, she would have had too much income.

Donna’s payment went from $2,011 per month to $1,187, including taxes and insurance.

Donna has stopped paying her second mortgage and her credit cards. I may be able to negotiate reduced payoffs on them. If creditors will not cooperate, then Donna and her husband will file Chapter 13 bankruptcy. Because there is no equity left to secure the second mortage, it can be stripped in Chapter 13.

Virtually all of my modification clients tried it on their own and were turned down. Servicers will turn a borrower down and not tell them why.

There are many tricks and techniques which we have learned with are not commonly known.

It is to the advantage of servicers for modification to fail. Servicers get paid more if there is a foreclosure, while the home owner and the investor are the losers.

Yes, many borrowers do succeed with their modifications, however, many just get the run around. The non-attorneys have for the most part been put out of the modification business because they cannot charge up-front fees, and that is good. Modifying a mortgage is the practice of law. Non-attorneys should never have been doing modifications in the first place.

If you hire an attorney, it should be an in-state attorney.

It is important to look at all sides of a borrower’s situation, including the first and second mortgages and other debt. Maybe the second can be discharged in a Chapter 13. Maybe it can be negotiated away for a greatly reduced payoff.

Bankruptcy attorneys are not always the best qualified to handle modifications. They often focus only on bankruptcy as an option, and maybe bankruptcy is not necessary.

The goal is to help the borrower get the 2% rate with a 40-year amortization. If that can be accomplished, it is worthwhile to keep the house even if it is underwater.

There are now numerous attorneys in Washington doing modifications, and the attorney fee is typically less than the cost of a refinance. Most borrowers do not have the time to figure out all the technical rules, so hiring legal counsel can be a wise move. Attorneys generally do not want to take on a modification unless the numbers look right and the modification can be done. Some people do not qualify because income is too high or too low, and these people should apply for short sale.

My point is that just because a lucky few can do their own modifications for free does not mean that everyone should avoid hiring an attorney who has worked on hundreds of these.

You get what you pay for.