A January Reuters Special Report examined the horrors of the “zombie title” coming back to “haunt” homeowners when they learn that the bank dismissed or stalled the foreclosure judgment. These clueless homeowners, trying to move on with their lives from the traumatic experience of home foreclosure, discover they are personally liable for years of property taxes, upkeep, and in many cases urban blight resulting from the home’s abandonment. The Reuters article zeroed in on the many perils of the zombie title by telling the story of a middle-aged man from Columbus, Ohio, who moved his family out of his home after receiving notice of a foreclosure judgment — only to have the home come back to “stalk” him several years later. Seemingly all at once, he was haunted by the walking dead- the County sued him for violating building codes, the tax collector started sending delinquent notices and city bills for property maintenance began to pile up.  Adding injury to insult, his bank’s debt collector started pushing him to pay his mortgage which had “swollen” more than $20,000 since he had moved out, and worse still, the Social Security Administration rejected his disability benefits due to the “asset” of his home. This story demonstrates the many potential pitfalls of banks “walking away” from a foreclosure without bothering to inform the owners. Victims of this “foreclosure horror show” also frequently face having their wages garnished, their tax refunds seized, and their credit demolished.

Following the release of the Reuters report and a reverberation of news coverage, RealtyTrac- a company that bills itself as “the leading online marketplace for foreclosure properties and real estate data”- crunched some numbers to find that there are currently 301,874 “zombie” properties in the U.S. In an interview with the Chicago Tribune, RealtyTrac president Daren Blomquist explains how the company came up with this number by cross-referencing the addresses of homes in the foreclosure process with Postal Service data on vacant property. The numbers show Florida taking the lead with 90,556 vacant homes in foreclosure, with Illinois and California coming in a remote second and third with 31,668 and 28,821 zombie properties on the list. Meanwhile, approximately 1,000 “zombie properties” in Kentucky give that state the dubious honor of having the highest percentage of zombies (54%) in its overall foreclosure inventory.

The relative vengeance of the zombie phenomenon, then, varies by state, and is likely partly tied to the lengthiness of the foreclosure process. In Florida, Blomquist suggests that the longer mean time to complete a foreclosure (853 days) likely causes a higher number of zombie properties as homeowners lose their hope and walk away.

But the likelihood of a foreclosure going “zombie” seems more directly related to the neighborhood and characteristics of the property. Banks tend to “walk away” from foreclosures of older, less valuable homes for which they might in fact lose money in the process. Thus, after initiating foreclosure proceedings against such a property, a bank might decide it is in its best interest to walk away to avoid holding costs: many cities impose fines on the bank if the homes aren’t properly maintained, a burden which then falls to the unbeknownst homeowner when the bank jumps ship. As the original Reuters report points out, there are no regulations which require that banks inform homeowners when they “change their mind” about a foreclosure. Further, the Reuters article cites a 2010 Federal Reserve paper which finds that by walking away banks can gain insurance, accounting, and tax benefits from documenting the loss of the home, while avoiding the responsibilities and costs of ownership.

Even though in the $25 billion settlement with state attorneys general last spring, the 5 largest mortgage lenders agreed they would give borrowers notice of a decision to halt or delay a foreclosure, banks have not been held to task on this. Michael De Los Santos of PolicyMic explains:

What was supposed to be a solution for this [zombie] issue was the AG Settlement. However, like most solutions to the crisis over the last four years, enforcement is an issue. The settlement monitor is reliant on information provided by the banks to provide any enforcement. It doesn’t take much thinking to realize that banks aren’t going to intentionally turn over information that can lead to enforcement action. Provisions in the settlement require bank servicers to notify borrowers and tax offices of any decision to delay foreclosure or forgive the lien in lieu of foreclosing. Banks found a workaround: drop significant servicing portfolios on sub-servicers that are not under the settlement.

De Los Santos rightly emphasizes that the many thousands – around 300,000, according to RealtyTrac –facing this foreclosure Catch-22 will undoubtedly impact tenuous economic recovery in communities across the nation. The rise in family debt, tanking credit scores, decreasing property values, and increase in community blight and vagrancy which can result from zombie foreclosures obviously work against such recovery.  To turn this around, he advocates for “real” regulation and enforcement. The tricky question seems to be, what would this “real” enforcement look like across a terrain of varying state and local responses to foreclosure?  Would this be better addressed on the state, county, or municipal level or through a federal enforcement scheme?

The SunTrust settlement resolves the DOJ’s lawsuit against SunTrust Mortgage which alleged violations of the Fair Housing Act and Equal Credit Opportunity Act. The complaint, which was filed on behalf of over 20,000 borrowers, claimed that the mortgage lender had systematically discriminated against Hispanic and African-American borrowers in making home loans. The government asserted that SunTrust’s practice and policy incentivized loan officers and mortgage brokers to vary loan interest rates and fees above standard, qualified terms which resulted in across-the-board discriminatory lending patterns (especially in the Southeastern and mid-Atlantic states). A lending practice need not be intentionally discriminatory to violate federal law; it need only have a disparate impact.

According to the complaint filed by DOJ, the racial disparities resulted in African-American and Hispanic borrowers paying on average $1,265 and $665 more, respectively, for a residential, mortgage-lending product than non-Hispanic, white borrowers in Chicago for year 2007. Those numbers were $2,025 and $1,360 for customers in Dallas. The DOJ’s press release announcing the SunTrust settlement states that the DOJ found proof of these racially-discriminatory lending practices after reviewing the internal data of more than 850,000 SunTrust residential-mortgage loans originated between 2005 and 2009.

The SunTrust settlement comes on the heels of similar reverse-redlining lawsuits brought by a special division of the DOJ established by the Obama administration in response to proliferation of subprime-lending products disproportionately sold to Hispanic and African-American borrowers during the “subprime bubble years.” Since the creation of the division, DOJ has settled lawsuits for discriminatory lending against behemoths such as Wells Fargo ($125 million)and Countrywide ($335 million), and smaller banks like GFI Mortgage Bankers ($3.5 million) and PrimeLending ($2 million). It is clear that what was good for the goose was good for the gander. What these reverse-redlining settlements all have in common is that they do not provide a mechanism for borrowers to modify the terms of their loans, like the National Mortgage Settlement or IFR settlement aspire to. One-time, lump-sum payouts will be made to borrowers, but the subprime loan products (which are more likely than prime loans to result in foreclosure) will remain.

Were minority borrowers susceptible to subprime lending because they did not appreciate their creditworthiness and negotiate the best terms, or did/do they lack equal access to credit, and therefore, negotiating power? U.S. city, state, and federal governments have nodded to the latter with steadfast adoption of anti-predatory lending regulation over the last decade. The Obama Administration’s enforcement of the EOCA and FHA also speak to its belief in the power of regulation to bring banks in line via large payouts and forced adoption of policies that will (hopefully) curb disparate impact. The administration may put the burden on banks to prevent discriminatory lending, but these measures do not contemplate providing equal access to low-cost credit to members of such groups. Further, the DOJ settlements fail to remediate borrowers via loan modifications or direct, preventative, financial-literacy initiatives. Predatory lending will perpetuate itself (either legally or on the black market) regardless of multi-million dollar payouts as long as borrowers do not have equal access to low-cost credit and meaningful bargaining power to make knowledgeable financial decisions. A concerted, multi-prong approach is necessary to prevent wealth stripping in our minority communities; it is that simple.

As per the consent order, SunTrust must adopt policies to reduce its agents’ discretion and restrict yield-spread premiums, overages, and other compensation to officers and brokers for selling riskier (i.e. high interest and associated fees) mortgage products to qualified consumers. These new policies will also incorporate recent changes made to Reg Z, and they will remain in effect for at least three years. SunTrust must also implement an internal monitoring program and provide “equal credit” training to their employees.

Only Hispanic and African-American borrowers who took out a loan with SunTrust between 2005 and 2009 will be eligible for settlement monies.  These borrowers need not currently have a loan with SunTrust, nor do they have to have gone into default or foreclosure to qualify for the program. Borrowers will be informed of the amount of the settlement they are entitled to later this year, and will have to release SunTrust from liability in order to receive any money. SunTrust will have two years to distribute the $21 million to affected borrowers; any remaining money will be given to financial literacy, anti-discriminatory lending, and similar consumer-protection organizations.

The release of a long-anticipated Government Accountability Office (GAO) report this past week supports a consensus among critics within and outside the government that the Independent Foreclosure Review (IFR) failed on many fronts. The GAO report places a lot of the blame for the IFR’s shortcomings on the regulators themselves, who failed to provide clear guidelines to or adequately monitor the consultants, which led to inconsistent review procedures adopted across a multitude of consulting firms and banks. The report also alleges that regulators failed to present consultants with the most basic review rubric, such as directing to what level of detail and specificity they wanted the reviews to go.

As we pointed out in previous posts, from its inception the Independent Foreclosure Review was clouded by doubts over how “independent” the process could be. The review lost even more credibility when it hastily ended in December on the heels of the announcement of a $9.3 billion settlement between thirteen mortgage servicers and banking regulators, including the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board.

The settlement was announced the night before the GAO was set to release its critical report of the IFR, which delayed the publishing of the GAO’s report by almost four months. According to the GAO report, reviewers had only waded through approximately 1/3 of the 3.8 million files and had already identified 654,000 potential problems in those files. These “problem files” consisted of 495,000 claims submitted by borrowers and 159,000 files flagged by the consultants.  Regulators initially announced fewer errors were uncovered than expected, but a closer inspection of the actual statistics suggest a much higher rate of error for Bank of America and Wells Fargo.

The settlement’s $3.6 billion in cash assistance is being spread out among all of the eligible borrowers, even those whose foreclosures may not have been erroneous. Yves Smith characterizes this helter-skelter payout as

 [A]n astonishing lapse that will almost certainly result in small payments being made to large numbers of borrowers, irrespective of whether they deserved vastly more or nothing at all.

The remaining $5.7 billion will be borne by the thirteen banks who will have to offer “foreclosure-prevention assistance” measures to distressed homeowners. It seems disingenuous to allow the bulk of the settlement to come from HAMP, HARP and similar programs, that have had little results and no oversight since the housing crisis began. Negotiators failed to publish any directives to banks telling them how to even reach the $5.7 billion threshold. Banks can also count the size of the outstanding loan balance against the debt, rather than the actual amount of assistance they provide to the homeowner. Take the example given here: if a bank cuts a borrower’s $100,000 mortgage debt by $10,000, it can reduce its monetary commitment to this portion of the settlement by $100,000. In the previous national mortgage settlement, banks more logically received credit only for the $10,000 assistance provided.

Was the Independent Foreclosure Review merely flawed in its execution – in its questionable choice of consulting firms like Promontory Financial Group with deep ties to the financial regulatory industry and unscrupulous actions by certain banks, who literally provided the answers for reviewers in some cases?  Or was the IFR “doomed to fail” from the get-go for its lack of legal process and subsequent lack of legitimacy, as Georgetown Law Professor Adam Levitin suggests? Critical investigative coverage -in particular Smith’s detailed analysis of Bank of America’s deeply flawed process through the lens of five whistleblower reviewers – suggests both broad systemic flaws in the structure of the review process and egregious errors in the execution of the IFR. Smith’s article also suggests that the abrupt end of the IFR and resulting settlement was “another significant bailout to predatory servicers” and also a save for the leading “independent” foreclosure reviewer, Promontory Financial Group.

Despite federal regulators’ insistence that they drove a “hard bargain” in negotiating the settlement, these regulators and the thirteen banks are not out of deep water just yet. Congressional members Elizabeth Warren and Elijah Cummings have launched an investigation into the abruptly halted Review process. Fed Reserve Chairman Ben Bernanke and OCC head Thomas Curry themselves have testified before Congress in recent months about the failure of the foreclosure reviews. And just this past week, the Washington law firm Williams & Connelly filed a FOIA lawsuit to force bank regulators to produce more details regarding the failed IFR.  In the meantime, as postcard notices of settlement payments begin popping up in the mail for the 4.2 million eligible borrowers, I am left with a basic question: how will the money be divided, and who will actually reap significant benefit from this settlement?

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).

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.

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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While the rest of the world is moving toward electronic submissions and streamlining processes — the feds, a “third party” contractor and loan servicers are kickin it old school regarding the recently announced Independing Foreclosure Review.  Paper and snail mail.

You cannot just download the official Independent Foreclosure Review application form off of the web if you are interested in applying — you have to call the contractor (Rust Consulting) and give them your name, contact info, the name of your servicer, the address of the property where the foreclosure activity occurred, and the loan number.  They will also confirm the date of the foreclosure activity began in the relevant time period (if it only just started in the last year and you are still living in the home, forget it — this process is not designed to really help anyone much).  More on the fatal flaws in the process here and here and here.  Then Rust Consulting sends you the application by mail so you can fill it out and return it to the administrator (I assume Rust Consulting) by mail, who will then forward it on to the consultant the servicer pays and has hand-picked to review their complaints.  (See earlier posts linked above.)  I’m betting at some point the application is input into a database but who knows.

The feds refused to put the actual application online (or allowed for electronic submissions).  Of course the application is unnecessarily complicated and confusing, but there is no reason it should not be available online at least.  It only appears the feds are trying to prevent just anyone from applying — they want to prescreen a bit I suppose.  But it adds another barrier to the process.

Let’s talk about the specifics of the application.  The first page of the Independent Foreclosure Review application is the only one that has homeowner specific information preprinted on the form (the servicer, loan number, address of the property) — they merely took the information provided to them on the phone and preprinted these three things on it. Here [Removed per demand of Rust] is a sample of the first page of the application with the preprinted information and some bar coding scratched out so you can see for yourself.  The rest of the five page application has questions and blanks and a crazy acknowledgement at the end.

I took the first page of the application and typed it up and merely left blanks for the three things such that a homeowner could circle and fill those his or herself, then I attached the rest of the application as is.  Here is the complete application [Removed per demand of Rust.]  I also added a few lines to the beginning on the first page that simply ask that the name of the person who made the decision on the application be provided, along with all the information given to the decision-maker aka the “decider”.  (I sincerely doubt these requests will be honored because fairness is not a part of this process.)  Homeowners should definitely make a copy of the application and send it in by certified mail.

I intend to send a copy of this application to Rust Consulting and get their reaction.  If someone sends in this form completed, I would be interested in learning the result.  I think it likely that the homeowner will be sent Rust’s version of the form because efficiency is not the goal, but it at least will be easy to send back in because pages 2-5 are completely identical (and the first page should be filled in already by Rust Consulting).  I am assuming a homeowner will keep a copy of the application(s) they send in and any other documentation provided so it can be sent in over and over (just like homeowners are required to do under HAMP arguably).

After the Independent Foreclosure Review was announced, I was curious about whether it was truly independent, and I called Rust Consulting who operates the phone number for the program.    The Rust representative claimed to not know who selects the reviewer or who pays the reviewer.  See story here.  Another advocate called and spoke with another Rust representative with similar results.  Rust would only indicate that the feds (the agencies that protect the industry, not the Consumer Financial Protection Bureau) approve the reviewers but it refused to acknowledge or confirm that the reviewers are in fact selected by the servicer and paid by the servicer.  Story here.  Well the feds admitted otherwise:

Numerous readers asked for further information, and several questioned how in good conscience could consultants hired and paid for by the servicers they are examining be considered “independent?” In so many words, they asked: “Isn’t that akin to the wolf watching the hen house?”

Joe Evers, the deputy comptroller for large banks at the OCC, said independence is “a crucial component” of the consent orders against the servicers. “We’ve gone to a great deal of effort to ensure the consultants are truly independent,” he said during a telephone press briefing.

Indeed, according to Evers, some outfits that applied to be consultants, including a few law firms and subservicers, have been disqualified because the OCC did not believe they could be autonomous.

MarketWatch story here.

Wow — the servicer selects a consultant and pays them.  Refusing to allow some law firms and subservicers hardly means the reviews will be independent.  Does Evers or the other fed agencies truly believe that these reviews will be independent under these circumstances?  Let’s see, you are a servicer — are you going to select a consultant that is more friendly to you, that has treated you well in the past, maybe worked for you?  Maybe you have an ongoing business relationship with the consultant, or maybe you know the consultant would want to continue doing business with you in the future.  The power of selection alone will affect the process.

Let’s say you are a consultant — are you going to try to annoy the very large servicer who is paying you by finding lots of violations, or are you going to gloss over the violations and listen to every excuse by the servicer in hopes they continue to pay you, and give you more work in the future or a reference for more work in the future.

There is no downside for a servicer to select a consultant favorable to them, and there is no upshot for a consultant to find violations during their reviews.  Hacking off a homeowner (or former homeowner) costs the consultant nothing.  Hacking off a servicer will affect the consultant’s bottom line.  This process is by definition biased.

The feds I suppose will say “don’t worry, will be watching.”  That has worked so well in the past.  This scheme is not even as independent as the arbitration system set up to ripoff consumers because of the bias of the arbitrators. (Even the Wall Street Journal has found as much, story here.)

But if you want to apply for a review anyway, either call them and get the official application mailed to you, or fill out this unofficial version here.

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Is the “Independent Foreclosure Review” a real help to borrowers, or the latest program announced by the feds in a long series of faux efforts to make it appear the government is responding to the misinformation (we used to call them lies in grade school) and forgeries committed by servicers in their handling of foreclosures across the country?  You decide.

HAMP was predicted by all but the administration to be a total failure and it did not even meet those expectations.  HARP was equally worthless.  The latest change to HARP announced by Obama was just more lip stick on that pig.  (Nice story summarizing them both here.)  For all these programs borrowers have no rights and the servicers operate in a black box.  These programs of course were written by the financial services industry in lieu of giving borrowers anything meaningful like the cramdown right in Chapter 13s.  While the 50 state attorneys general still debate remedies, the feds swooped in with the consent orders with the familiar refrain — servicers promise to follow the law and continue to operate in a black box.  Borrowers have no rights, again.  It was not just me complaining — about everyone that was not bought off by the industry has a problem with the feds’ consent orders.  Story here.

Now the feds announce the new “Independent Foreclosure Review”. The amount of detail in the program reminds me of the one page bailout bill the last administration tried to get Congress to approve.  (It might be two pages depending, copy here.)  But we can garner a few opinions from what little is there.  See FAQ here.  First, it does not apply to anyone having trouble now or in the last year.  Seriously.  It is for people that either got foreclosed on and evicted over a year ago (like they still have all their proof and haven’t moved on with their lives), or it is for people that worked it all out with the servicer already but they are still hacked off and willing to mess with the servicer afterwards.  This time period requirement alone is beyond troubling.  The feds would hate it if they got in the way of servicers trying to actually foreclose wrongfully.

I could go on about borrowers have no rights (again), and that the review is another black box for which there is no appeal, no rules, no guidelines (the lack of rights for borrowers is consistent with all the other government programs announced in the last three years) — here is my number one concern with this program at present — and its title is the tipoff.

If you have to put “Independent” in the title, then it probably isn’t.

So I called the Independent Foreclosure Review hotline (1-888-952-9105) and spoke to Tryka at ext. 7131.  I think she picked up on the first ring after pressing #3.  Amazing start.  Tryka wanted my full name but only gives out her first name.  She works for a company called Rust Consulting who is a “third party” she said, and who set up the website as well (http://independentforeclosurereview.com/).  Link to Whois here.  I asked who the independent reviewers would be.  She didn’t know, but they would be “approved” by the feds.  She listed the names of the federal agencies thinking that might impress me.  It only frightened me more (OCC, Federal Reserve, OTS — the usual suspects that consider financial institutions as their customers and borrowers as necessary evils).  Funny the CFPB was not in the list.  Who is paying the reviewers?  Yeah, she doesn’t know that either.

How can you say these are independent reviews if you don’t know who the reviewers are, who initially selects them, and who pays them?

But in the spirit of Fox News, let me be balanced here.  I do like that the definition of foreclosure that triggers a review is fairly broad enough to cover many situations:

• The property was sold due to a foreclosure judgment.
• The mortgage loan was referred into the foreclosure process but was removed from the process because payments were brought up-to-date or the borrower entered a payment plan or modification program.
• The mortgage loan was referred into the foreclosure process, but the home was sold or the borrower participated in a short sale or chose a deed-in-lieu or other program to avoid foreclosure.
• The mortgage loan was referred into the foreclosure process and remains delinquent but the foreclosure sale has not yet taken place.

And I also like some of the examples given that may have led to financial injury:

• The mortgage balance amount at the time of the foreclosure action was more than you actually owed.
• You were doing everything the modification agreement required, but the foreclosure sale still happened.
• The foreclosure action occurred while you were protected by bankruptcy.
• You requested assistance/modification, submitted complete documents on time, and were waiting for a decision when the foreclosure sale occurred.
• Fees charged or mortgage payments were inaccurately calculated, processed, or applied.
• The foreclosure action occurred on a mortgage that was obtained before active duty military service began and while on active duty, or within 9 months after the active duty ended and the servicemember did not waive his/her rights under the Servicemembers Civil Relief Act.

But given the holes already mentioned, and the consistent protection of the financial services industry to date — it smells to me like yet another smoke and mirror job.  But we won’t know for sure until borrowers apply.  There are no details about what will be done should the independent reviewer find a problem but who knows if they ever will.  But if you want to apply for a review anyway, either call them and get the official application mailed to you, or fill out this unofficial version here.

Rather than merely defend frivolous eviction cases — loan servicers such as AHMSI should be sued for damages and for orders to require them to comply with the law.

Here are just some of the allegations in Davis v. AHMSI et al., Civil Action No. 1:11-cv-219, US District Court, S.D. Tex., Brownsville Division:

On or about April 29, 2010 [a few weeks after the foreclosure sale], Plaintiff Davis received a letter dated April 26, 2010 from Defendant AHMS through Defendant’s counsel. The letter was titled “Notice of Foreclosure & Tenant’s Rights Under the Federal Law.” This letter gave Plaintiff Davis three days’ notice to vacate if he was not a tenant of the former owner of the home and ninety days’ notice to vacate if he was a tenant of the former owner of the home. The letter demanded that Plaintiff Davis provide a written lease or proof of payment, a telephone number and proof of six months of rent payments within three days of receipt of the letter if he was a tenant. The letter misrepresented that Plaintiff Davis must comply with this demand to qualify for the rights and protections of the PTAF. The letter also presented Plaintiff Davis with an agreed judgment. The agreed judgment provided for a justice of the peace to issue a writ of possession as early as May 17, 2010. The letter instructed Plaintiff Davis not to be concerned about receiving a citation and not to attend the eviction hearing set by the justice of the peace after he submitted the signed agreed judgment to Defendant.

By the express terms of the letter, Defendant AHMS intended to advise Plaintiff Davis of his “legal rights under federal law.” Plaintiffs attach a true and correct copy of the letter as Exhibit 2.

On or about April 30, 2010, Plaintiff Davis sent an e-mail to Defendant AHMS through Defendant’s counsel that informed Defendant AHMS that Plaintiff Davis had paid his rent for April and May to his former landlord. Plaintiff Davis included a copy of the written lease and images of rent checks for payments he had made to his former landlord with his e-mail. Plaintiff Davis also provided his telephone number and informed Defendant AHMS that he only receives visitors at his home by appointment. On or about May 14, 2010, Plaintiff Davis received a letter from Defendant AHMS dated May 5, 2010. The letter demanded that Plaintiff Davis provide the following documentation to Defendant AHMS: a complete copy of the signed lease, a completed tenant questionnaire that was attached to the letter, front and back of cancelled checks for rent paid for the last six months, front and back of the cancelled check for the security deposit paid and copies of utility bills for the property addressed to Plaintiff Davis. The letter informed Plaintiff Davis that Defendant AHMS would commence eviction proceedings against Plaintiff Davis if he failed to provide Defendant AHMS with these documents within three days of receipt of the letter. The letter also asked Plaintiff Davis to contact an agent of Defendant AHMS to confirm that his identity is the one on the lease. Plaintiffs attach a true and correct copy of the letter as Exhibit 3.

On or about May 17, 2010, Plaintiff Davis sent Defendant AHMS a letter dated May 17, 2010. In this letter, Plaintiff Davis confirmed that he had met with the agent on May 14, 2010. He also attached another copy of his lease along with proof of payment. In the letter Plaintiff Davis inquired as to whom he could pay his rent for June 2010. On or about May 26, 2010, a representative of Defendant AHMS entered the grounds of the home without Plaintiff Davis’s permission. At or about 6:40 pm the representative came to Plaintiff Davis’s front door and demanded access to Plaintiff Davis’s home. Plaintiff Davis asked the representative to leave immediately. The representative returned to his vehicle, but then walked back to Plaintiff Davis’s home and affixed a notice to the brick veneer of the home with chewing gum. During this time Plaintiff Davis had a sign prominently displayed on the grounds of his home that states that entering the grounds is forbidden.

On or about May 27, 2010, Plaintiff Davis spoke with Defendant AHMS’s representative Joe John Watson. Plaintiff Davis informed Mr. Watson of what Defendant AHMS’s other representative had done at Plaintiff’s home on May 26, 2010. Mr. Watson told Plaintiff Davis that Defendant AHMS wanted to deliver an information package to him using a different representative who would also inspect the property. Plaintiff Davis asked that he be sent the package by mail to his P.O. Box and that no more representatives of Defendant AHMS visit his home. Mr. Watson agreed.

On or about June 10, 2010 Mr. Watson called Plaintiff Davis and rescinded his agreement to communicate by mail.

Original Complaint and Exhibits here.