Foreclosure Buzz

The Home Affordable Modification Program (HAMP) is a part of the U.S. Treasury’s Home Affordability and Stability Plan.  HAMP was supposed to help 3 to 4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments.  U.S. Dept. of the Treasury Statement of March 2009 here.  HAMP is failing miserably and has not resulted in a fraction of the modifications promised.  The government reports as of March 12, 2010 that a mere 170,000 homeowners have been approved for permanent modifications (borrowers have not necessarily accepted them).  See Treasury Release here.  There are a variety of reasons that the program is not working more than likely.  One reason is probably that the servicers are doing a poor job at implementation.  Borrowers consistently complain across the country that paperwork is lost, they cannot get through, they get misleading or conflicting information, and a host of other serious problems.  This is no accident and the government so far has done little to improve the program or take action against the servicers for their behavior.

In order to participate in the program (that they help design), servicers enter into an agreement with the federal government (using Fannie Mae as its agent).  What do these agreements promise?  You would not believe it:

Servicer covenants that it will: (i) perform the Services required under the Program Documentation and the Agreement in accordance with the practices, high professional standards of care, and degree of attention used in a well-managed operation, and no less than that which the Servicer exercises for itself under similar circumstances; and (ii) use qualified individuals with suitable training, education, experience and skills to perform the Services. Servicer acknowledges that Program participation may require changes to, or the augmentation of, its systems, staffing and procedures, and covenants and agrees to take all actions necessary to ensure it has the capacity to implement the Program in accordance with the Agreement.

Paragraph 5(d) of the Financial Instrument attached to the Servicer Participation Agreement.  Look at the agreements yourself.  Bank of America’s agreement is here.  JP Morgan Chase’s agreement is here.  CitiMortgage’s agreement is here.  Wells Fargo’s is here.  Others are here.

Does anyone think these servicers are doing this?  The servicers do a great job at foreclosing on people — they manage to get this done quite well, but modifying loans under HAMP is a different story.  See examples here.  So, what might happen if a servicer certifies the above is being done but that turns out to be false or misleading?  Let’s check the agreement:

Servicer acknowledges that the provision of false or misleading information to Fannie Mae or Freddie Mac in connection with the Program or pursuant to the Agreement may constitute a violation of: (a) Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code; or (b) the civil False Claims Act (31 U.S.C. §§ 3729-3733). Servicer covenants to disclose to Fannie Mae and Freddie Mac any credible evidence, in connection with the Services, that a management official, employee, or contractor of Servicer has committed, or may have committed, a violation of the referenced statutes. 

Paragraph 5(f) of the Financial Instrument attached to the Servicer Participation Agreement. 

So, I wonder if there is anything that could be done?  Hmmm, I wonder.

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It is hard to find Harry Truman's sign among the federal financial regulatory agencies.

 A complaint was filed against The Bank of New York Mellon in August 2009 regarding a post-foreclosure letter sent on its behalf by Barrett Daffin Frappier Turner & Engel LLP to a bonafide tenant in violation of PTAF.  The letter was quite deceptive as I explained here.  I filed the complaint with both the Federal Reserve and with the Office of the Comptroller of the Currency (OCC).  The OCC dismissed the complaint because it did not involve an entity that it regulates they explained. Copy here.  The Federal Reserve admitted they regulate The Bank of New York Mellon but at first directed me to complain to the law firm about the contents of the letter rather than the firm’s client (but we did sit down with the law firm and explain our concerns with their letters which resulted in nothing but a BBQ lunch with some friendly folks).

Of course blaming counsel was hardly an appropriate response so the Federal Reserve then found it had no jurisdiction over violations of PTAF (Protecting Tenants at Foreclosure Act).  See story here and the Fed’s letter here.  Of course this was quite surprising given the guidance the Federal Reserve has issued on the subject to its bank examiners and the entities it regulates so I requested another review of the complaint.

Today, I got a registered letter (never got one before by the way) from the Federal Reserve which states in part: 

Our response dated January 19, 2010 stated that the issue raised in your complaint is not addressed by Federal Reserve regulations and is not within the supervisory jurisdiction of the Reserve Bank.  This statement was incorrect.  The issue you raise is within the scope of the consumer protection laws and regulations under the oversight of this Reserve Bank.  Please accept our apologies for providing you with this incorrect information. 

Upon a further re-review of your complaint file, we have determined that the law office identified in the letter you provided us dated August 13, 2009, is an agent of Bank of America, the loan servicer in this foreclosure transaction.  All servicing decisions, including foreclosure actions, are the responsibility of Bank of America. 

James K. Hodgetts, Senior Vice President, Federal Reserve Bank of New York, letter dated February 24, 2010, copy here.  

Of course the letter from Barrett Daffin, on behalf of The Bank of New York Mellon, never references a servicer at all.  See letter again here.  The Bank of New York Mellon is a trustee of a trust which held the mortgage that was foreclosed, and that trustee/trust bought the property at the sale it appears.  The loan is no longer in issue.  So the Federal Reserve is now claiming that the loan servicer is at fault for the letter, not the lawyers, not the trustee of the trust that owns the property (to the extent there is any fault to assign).  And being the good government it is, the Federal Reserve investigated to determine who the servicer was for the loan that was foreclosed on and found that Bank of America is responsible for the servicer (my bet is that the servicer was BAC Home Loans Servicing LP which is a subsidiary of Bank of America).  But wouldn’t you know it, the Federal Reserve does not regulate national banks like Bank of America, so you guessed it, the Federal Reserve sent the complaint back to OCC for investigation per its letter.  Copy here. 

Of course this in an inappropriate response.  Principals are responsible for their agents.  Blaming attorneys is politically expedient, but hardly correct.  And blaming a loan servicer, where there is no loan to service is absurd.  A trust owns the property; a trustee acts for the trust; a law firm sends a letter expressly on behalf of the trustee to a tenant; the letter deceives tenants as to their rights under PTAF — it is the trustee that bears responsibility, not some loan servicer.  But do I care, as long as this problem is addressed?  Not really.  Some may feel I should be thankful for getting an apology from the Federal Reserve.  I guess I am appreciative that they were willing to admit they blew off the complaint for the wrong reason, but they merely inserted another.  We are already seven months into this complaint, and maybe by 2012 we will have some answers.  Clearly the Federal Reserve of New York is not interested in doing much about lenders ignoring a law that protects tenants.  It could have stated the concerns were well taken, anything.   

What do you bet OCC fails to review the complaint on the merits because the loan servicer is merely the agent, and there is no loan to service?  Or, maybe it will be because BAC Home Loans Servicing LP is a subsidiary of Bank of America and thus OCC has no authority over subsidiaries?  It is hard to believe that some propose yet another oversight agency that will be gutted and marginalized if it does anything helpful (e.g., OSHA, Consumer Product Safety Commission), but sometimes I feel like it could not hurt to try.

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