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

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

New York Sues 3 Big Banks Over Mortgage Database

By REUTERS

Attorney General Eric T. Schneiderman of New York sued three major banks on Friday, accusing them of fraud in their use of an electronic mortgage database that he said resulted in deceptive and illegal practices, including false documents in foreclosure proceedings.

Mr. Schneiderman, co-chairman of a new mortgage crisis unit under President Obama, filed a lawsuit against Bank of America, Wells Fargo and JPMorgan Chase in New York State Supreme Court in Brooklyn.

The database, called the Mortgage Electronic Registration System or MERS, was created in the mid-1990s for tracking mortgage ownership. It is a collaboration of top mortgage servicers, mortgage insurers and Fannie Mae and Freddie Mac, the government entities that hold many of the country’s mortgages.

“The mortgage industry created MERS to allow financial institutions to evade county recording fees, avoid the need to publicly record mortgage transfers and facilitate the rapid sale and securitization of mortgages en masse,” Mr. Schneiderman said.

“By creating this bizarre and complex end-around of the traditional public recording system,” Mr. Schneiderman’s lawsuit asserts, the banks saved $2 billion in recording fees.

More than 70 million mortgage loans, including millions of subprime loans, have been registered in the MERS system, rather than in local county clerks’ offices, according to the lawsuit.

The lawsuit asserts the database is inaccurate and seeks to stop the banks from filing foreclosure actions through MERS and executing false or defective mortgage assignments in New York foreclosure proceedings.

Mr. Schneiderman also is seeking all profits obtained through fraudulent and deceptive practices and other damages, including $5,000 for each violation of general business law.

Patrick Linehan, a JPMorgan spokesman, and Rick Simon, a Bank of America spokesman, declined to comment on the lawsuit. Ancel Martinez, a Wells Fargo spokesman, said the company was reviewing the lawsuit and did not have “anything to add at this time.” Janis L. Smith, a spokeswoman for Merscorp and its subsidiary, MERS, said in a statement that the firms complied with the law and mortgage regulations.

“Federal and state courts around the country have repeatedly upheld the MERS business model, and the validity of MERS as legal mortgagee and nominee for lenders,” the MERS statement said. “We refute the attorney general’s claims and will defend the case vigorously in court.”

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

Bankruptcy can stop collection and eliminate tax debt in many situations. For more details on tax discharge see the article I wrote about Bankruptcy Tax Discharge on my personal site. While bankruptcy can be a very useful tool in dealing with the Internal Revenue Service and state collectors, it will not solve all problems.  In many cases, a tax debt that would qualify for bankruptcy discharge is rendered non-dischargeable when the taxpayer fails to file a tax return and the IRS or state collection authority uses their statutory authority to assess.  Some types of tax, such as employment tax, are not subject to discharge.  Fortunately, there are other ways to stop or manage collection problems.

Some types of tax can not be discharged and can be collected by the IRS after the bankruptcy case is closed.  Bankruptcy may not be available or appropriate for some delinquent taxpayers.

The IRS allows properly authorized professionals to represent taxpayers and help them get relief from enforced collection such as bank account and wage levies.  Attorneys, CPAs, and Enrolled Agents are given special permission to represent taxpayers, can establish online electronic access to IRS taxpayer records, and can negotiate a resolution for a taxpayer with IRS collections.  Tax professionals can also be authorized to represent taxpayers before most state tax enforcement agencies.  Authorization is done with a power a power of attorney form 2848 for the IRS and similar documentation for state tax collectors.

While individual taxpayers can call the IRS directly and may be able to handle a tax problem themselves, tax practitioners are given access to a special telephone number to call the IRS and are assigned to specially trained personnel to help solve tax collection problems.  In addition, the tax professional usually has experience in calculating payment agreements and is familiar with the regulations governing the tax collection process.  If the collection officer oversteps or makes unreasonable demands, it is often difficult for an unassisted taxpayer to remedy the situation.

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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.

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