Foreclosure Buzz

There is much to talk about with the alleged settlement of the big five (BofA, Chase, Wells, Citi, Ally/GMAC) and the Attorneys General (AGs even though it is wrong to say Attorney Generals).  The deal is not final but there are a variety of documents describing the basics of the agreement.  See chart of anticipated money flows here for example.

Of course the focus of the inquiry and thus settlement is the servicers’ foreclosure processes.  As a result, the lenders at issue allegedly agreed to some new servicing standards.  (Note that Fannie and Freddie were involved in the negotiations and made sure the standards were not too tough because they knew that they would have to follow them too implicitly.  Kinda despicable.)

New Servicer Standards

Anyway, a PDF of the “new” standards is found on the settlement website (nationalforeclosuresettlement.com) is here. Of course it is hoped that servicers stop blatantly violating every known law in their quest for money. So in that vein the standards say in part that servicers are to really start following the law now.  See, before there were laws passed by Congress and signed by the President, or passed by the state legislatures, etc.  Yeah, the lenders ignored these in millions of cases for years and years.  Well this settlement says that lenders agree to follow standards written on a PDF on a website.  (It also requires additional checks to improve the fairness in the system.)  But who would doubt lenders would violate these new standards?  Come on, it is typed up, digitized, spell checked, on the web and everything.

One of the many laws that the servicers agreed to follow in the new standards was the Protecting Tenants at Foreclosure Act which is the very last paragraph of the new standards:

E. Tenants’ Rights
Servicer must comply with applicable state and federal laws governing the rights of tenants living in foreclosed residential properties; and, the servicer must develop and implement written policies and procedures to ensure compliance with those laws.

Settlement Servicer Standards, page 10, here.

Well maybe lenders will really start doing it now since it is a PDF.  Folks certainly should not look to the federal government to do anything to help.  The Treasury Department has long ago indicated that it will do anything possible to assist the industry.  With regard to the Protecting Tenants at Foreclosure Act, government controlled Fannie and Freddie have been the top violators of the Act themselves. Story here.

New AG Enforcement Changes Playing Field

But maybe some state AGs will actually be able to enforce the laws, even against the national banks whereas in the past only the industry-controlled Office of the Comptroller of Currency (part of Treasury) could take action against the biggies.  (Normally the big banks did not have to follow any of the laws because OCC was their regulator and in this scheme the state-chartered lenders and others wanted out of enforcement too otherwise the biggies had a competitive advantage.  So local political forces prevented AGs from doing anything even against smaller players.)   The settlement changes the playing field.  Another part of the site describes another feature of the settlement giving AGs new powers:

State AG oversight of national banks for the first time.  Something no court could award.

• National banks will be required to regularly report compliance with the settlement to an independent, outside monitor that reports to state Attorneys General.
• Servicers will have to pay heavy penalties for non-compliance with the settlement, including missed deadlines.

National Foreclosure Settlement website, About, Key Provisions of Settlement, here.

So maybe, just maybe somebody is serious about this law (and hopefully a few others).

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Mitt Romney’s position on foreclosures sounds similar to real estate brokers who think they stand to profit from more foreclosures (more sales, more commissions); nevermind how crazy it is:

ROMNEY: Are there things that you can do to encourage housing. One is, don’t try and stop the foreclosure process. Let it run its course and hit the bottom, allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up. The Obama Administration has slow-walked the foreclosure processes that have long existed, and as a result we still have a foreclosure overhang.

Mitt Romney, watch it yourself here.

I have heard this “let the market work” argument repeatedly after the banks got their bailouts and now are turning profits, giving bonuses and trying a variety of ways to increases their fees.  At a press event over the summer I took a preachy tone in frustration.

“[A]re we going to blame this whole mess on a guy who lied on his loan application? Really? Have you all been duped that much that you are going to continue to write that story, that that is what this is all about? That Wall Street didn’t invent mortgage-backed securities?

This stuff didn’t just happen overnight. The guy who lied on his loan app didn’t just get born these last four years. This thing was created by Wall Street and aided by the players. Everyone had their hand in it. The Realtor, and no offense to Mr. White, but the profession, what is their answer — sell, sell, sell! Absolutely. That’s what they want. That puts more money in their pockets.”

Robert W. Doggett, Texas RioGrande Legal Aid, more of that story here.

Romney obviously has been advised to sound tough during this primary season — let those liars suffer, they get what the deserve is the thought process.  It might sound tough but it is totally wrong.  A editorial published yesterday took a moment to explain why he is way off:

Efficiency. Mass foreclosures are a rotten way to stabilize the market. They impose huge costs on neighbors, communities and local governments, and on the broader economy, as falling prices erode equity, depress consumer spending and mire the housing market in a deep hole.

Logic. Who does Mr. Romney think will buy up millions of foreclosed properties? Borrowers who lose their homes to foreclosure or who sell their homes for less than the balance on their mortgages can be denied credit for years; many will never be homeowners again. … Investors are inclined to buy distressed properties only if they believe home values will rise, a confidence that is hard to come by in a market that is threatened by more foreclosures and renewed price declines.

Danger. With the economy still weak and vulnerable to shocks, more foreclosures and the resulting price declines would only weaken the economy further.

Fairness. The let-it-crash argument conveniently ignores that the housing bubble was the result not only of overborrowing but of reckless lending too. When the bubble burst, the banks were bailed out, while speculators and uncreditworthy borrowers — whom lenders had aggressively pursued during the boom — quickly began to lose their properties. But the economic damage went far beyond the “bad” borrowers, as evidenced by deep recession, ensuing slow growth, high unemployment and crashing home values — all of which has now harmed millions of homeowners who never went near a subprime mortgage. They are the collateral damage of the banks’ binge and bailout. They deserve help, not scorn.

NYT editorial, November 26, 2011 - here.

At a recent debate, Mr. Romney was asked why he was willing to risk further huge losses in home equity by pushing foreclosures. “What would you do instead?” he replied. “Have the federal government go out and buy all the homes in America?” Story here.

What is needed is a set of policies — rentals, forbearance, principal write-downs and refinancings — on a scale that tackles the problem.  So far nobody has successfully pushed forward such a plan so we all continue to suffer while to politicians wrangle on what sounds better to the voters and donors.  Romney painted the choices as: 1) tough it out and take our medicine or 2) let federal government take all our homes.  Seems fair.

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Today the federal Office of Comptroller of the Currency (OCC) released the latest update on the enforcement of its lame Consent Orders negotiated with the industry over the summer. Many were critical of those “orders” here.

The update aka Interim Status Report covers several topics which we’ll chew on later undoubtedly, but it does release some of the details on the federally created Independent Foreclosure Review which some have suspected will be whitewash job to help the industry cover its robo-signed tracks.  Story here and here.  The Independent Foreclosure Review is not going to be done by a judge, a neutral attorney familiar with the law, or governmental official — the reviewers are instead hand-picked accounting firms selected by the loan servicers and paid by the loan servicers.  Who are they?

[And the winning accountants especially selected and paid for by each servicer are]:

• AllonHill, LLC, for Aurora Bank;
• Clayton Services, LLC, for EverBank;
• Deloitte & Touche, LLP, for JPMorgan Chase;
• Ernst & Young, LLP, for HSBC and MetLife Bank;
• Navigant Consulting, Inc., for OneWest;
• PricewaterhouseCoopers, LLC, for Citibank and US Bank;
• Promontory Financial Group, LLC, for Bank of America, PNC, and Wells Fargo Bank; and
• Treliant Risk Advisors, LLC, for Sovereign Bank.

OCC Interim Status Report: Foreclosure-Related Consent Orders November 2011, at Page 5 here.

If you could, wouldn’t you want to hand pick the judge that decides your fate in loads of cases and be the one to pay him?  Would you want him to understand the law or just be able to count?  The feds decided to explain that the Independent Foreclosure Reviewers are really, really independent because they label them as independent repeatedly in their report and because they rejected some of the consultants initially recommended by the servicers.  Reminds me of the Herman Cain defense paraphrased: “Some will claim that I sexually harassed them but there are thousands that will say I didn’t.” (Actual quote here.)   Wow, OCC rejected some of the hand-picked people — that must mean they have approved ones that are truly independent.

On Page 6 of the report OCC explains all the requirements needed in order for the approved reviewers to maintain independence.  It is nice that they have something written down, after all, the financial services industry is well known for abiding by memos, guidances, and directive from regulators.  (See Jon Corzine, MF Global and the missing 1.2 billion here. Of course when the firm was borrowing at ratios close to 40 to 1, the regulators sent memos.  Yeah that worked well.  Now there is a “shortfall” that is growing.  Wallstreet even whitewashes the term for theft.)  Memos, directives and guidances on independence are not nearly as critical if servicers did not get to hand-pick and pay the reviewers directly.

But OCC did not just name the reviewers, it provided the letter agreements between the parties — redacted.  OCC link here.  Remember the OCC considers lenders and their cronies to be their customers.  I don’t know what term they give homeowners or the taxpayers.  Regardless, OCC’s customers would likely prefer that as little information gets out to the public as possible.  So naturally, OCC has blocked out entire pages of the letter agreements.  OCC says they blocked a little information that is personal and proprietary.

I counted over 22 pages were blocked out just in the agreement between the reviewer and Bank of America.  Many of the blocked out pages appear to describe the review process itself and possible conflicts of interest.

See the Letter Agreement for reviewer Promontory Financial Group, September 6, 2011 - here.

Of course there were block-outs scattered throughout the entire document as well.  I am still reviewing the agreements with the other reviewers.  OCC is leaking a little more information, but not enough for anyone to really believe the Independent Foreclosure Review process is fair.  If you feel differently, I’ve got some MF Global stock to sell you.

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