Accidentally Foreclosing on Veterans

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx is a former Chief Compliance Officer of two publicly traded financial institutions, and the President & Managing Director of Lenders Compliance Group, the nation’s first full-service, mortgage risk management firm in the country.

It seems the mantra of our times is "mistakes were made." In an era when lack of accountability in politics and finance has become all but forlornly accepted by many voters, and the word "blame" is banned from public discourse as being unproductive rhetoric, we find out within the last few days that J.P. Morgan Chase (JPM) "wrongly foreclosed on 14 active-service military families and overcharged thousands more on their mortgages."

Is this a symptom or an isolated incident?

Accidentally Foreclosing on Veterans

The findings come from a year long internal audit conducted by JPM of its accounting requirements involving active military service under the Service Members Civil Relief Act (SCRA).

Indeed, back in April 2008, Congress passed the Foreclosure Prevention Act, which aimed at protecting active duty service members and their families from foreclosure. In this legislation, John Kerry introduced the Military Family Homes Protection Act (MFHPA), thereby expanding the scope of the SCRA.

Salient provisions included the specific relief to active duty soldiers with, among other things, one year relief from increases in mortgage interest rates. Soldiers returning from war could expect that, under current law, those interest rates would be no more than 6%, and their mortgages are not subject to the delinquency process, let alone having their properties subject to foreclosure. In fact, another feature of the MFHPA was its extension of certain SCRA protections from 3 to 9 months, allowing a returning service member time to meet with the lender and take corrective action.

Mistakes Were Made

Still, mistakes were made. Foreclosures happened.

Veterans lost their homes and many were overcharged.

How many military families were overcharged in interest? 4,000.

Thus speaks JPM's Kristin Lamkau, Chief Communication Officer:

• We made mistakes here and we are fixing them. Any customer mistake is regrettable.

• We feel particularly badly about the mistakes we made here.

Let the Finger Pointing Begin

Now the finger pointing commences, as we have seen so many times over the last few years, with little or, at best, mixed results:

->Jonathan Rowles, Marine Captain and veteran, who sued JPM over this matter wants punitive damages in light of the alleged repeated violations of the law going back years,

->Class action certification (PDF) is being developed by Richard A. Harpootlian, Rowles's attorney,

->Federal prosecutors in South Carolina are possibly getting involved,

->Elizabeth Warren indicates that the situation "emphasizes" the need for the CFPB,

->Senator Reed (D-RI) wants US Attorney General Holder's DOJ to investigate,

->An inquiry from a congressional committee is supposedly underway, and

->Jamie Dimon, JPM's CEO, whose PR casts him as a friend to the veterans, probably has some relationship repair on his agenda, especially in light of all the touting he's done recently about JPM being so friendly to the military.

This often repeated ritual of unaccountable blame has an atavistic quality to it. And it lasts for a few news cycles and then fades away. Eventually, some resolution will appear on page 5 of the second section of the regional newspaper or make its way onto the 11 o'clock news broadcast.

Yet disrupted lives of those affected are not mere statistics.

Mistakes in foreclosure processing are inexcusable, and especially egregious when the lives at stake belong to members of the military - those particular Americans who have served our country valiantly through military service and sacrificed so much on our behalf!

Upon their return from action, should they be faced with such a situation?

Real Lives - Not Just Statistics

Sometimes it's a good idea to get out of the analysis itself and listen to people. Please read the following.

Here's what Julia Rowles, wife of the aforementioned Captain Rowles, stated about the way they were treated:

They would say, "We will take your house. We will report you to the credit agency. This is a bad situation that you don't want to be getting into. Pay us today." They were harassing us for money that we did not owe them.

And:

They kept still charging us 9 and 10 percent, and we were paying upwards to $2,000 when we should have only been paying $1,400.

This is just one voice, and she's speaking as the wife of a service member who had to litigate in order to save his home. But a "mistake" almost cost them their house!

How many more Jonathan and Julia Rowles are there out there these days, but do not have the benefit of counsel or proper assistance from representatives of the VA?

Veterans Administration - Complicity

Many people I have spoke with believe that the VA is affirmatively preventing this situation from getting worse for service members. If you think so, too, you would be wrong.

According to Torrey Shannon - activist wife and Executive Director of Cleaning for Heroes, whose veteran husband is on 100% total and permanent, yet ineligible for any special grants for an adapted home, and whose steady income that comes with 100% total and permanent disability is being delayed due to the usual bureaucratic gridlock:

It appears the Veteran's Administration has been flying under the radar when it comes to their contribution to the homeless veteran population. Due to a backlog in processing thousands of disability claims, military members and their families are forced to live on the streets because of foreclosures and are heading into bankruptcy courts at an alarming rate.

Mrs. Shannon further states that "most of the wounded veterans I know have waited more than six months to get their first disability check from the VA after leaving the military. By the time they got their first payment from the VA, they were bankrupt or had lost their home to foreclosure." What she would like to see happen immediately is a moratorium on veterans foreclosures for at least nine months.

Her view is valid, and it's a start.

Of course, this assumes that some problems veterans tend to have emerge within 9 months of discharge. Some may take years to develop, and, once incurred, can have a catastrophic impact on health and financial stability.

There are organizations that will help veterans who face foreclosure, if at times even belatedly, such as the National Association of Consumer Advocates (NACA).

REOs and the Veterans Administration

The VA has a robust REO pool.

A whole segment of the real estate industry is now devoted to the acquisition and marketing of veterans' homes that have become REOs.

But was the way that these properties became REOs a result of prompt claims processing, accurate charging of mortgage interest, proper application of the protections provided by the aforementioned laws, providing foreclosure prevention remedies, mediation, and assistance to veterans?

When it comes to REOs, maybe the VA bureaucrats want to run the Veterans Administration like any other business. But evicting veterans, often with just a couple of weeks notice or even less, and as a result of those VA bureaucrats' own dereliction of duty in processing veterans claims or neglect to scrupulously implement the law itself, is surely contrary to the spirit and strengths of our obligations to members of our military service.

We can do better - and we must do much more for our veterans.

What do you think? I would welcome your comments. Please feel free to email me at any time.

Are Foreclosures Good For The Economy?

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

The foreclosure crisis has taken on new dimensions with the Obama Administration's apparent view that accepting the huge wave of foreclosures may be necessary and inevitable.

But have the borrowers who face foreclosure really been given every opportunity to save their homes?

Failed government programs, overwhelmed servicers and lenders, lack of systemic alternatives, and the absence of a coherent national plan or specially empowered agencies to stabilize the pandemic of foreclosures are depriving borrowers of ways and means to recover from this crisis.

"I've proposed a new Home Owners' Loan Corporation (HOLC), to launch a national effort to help homeowners refinance their mortgages. The original HOLC, launched in 1933, bought mortgages from failed banks and modified the terms so families could make affordable payments while keeping their homes. The original HOLC returned a profit to the Treasury and saved one million homes.

We can save roughly three times that many today. We should also put in place a temporary moratorium on foreclosures and freeze rate hikes in adjustable-rate mortgages. We've got to stem the tide of failing mortgages and give the markets time to recover." Hillary Clinton - September 25, 2008

The most recent report of foreclosures from RealtyTrac provides the following schematic.

Just this past Friday, the New York Times put the Obama administration's non-response to the foreclosure crisis in bold relief:

"In the most recent mortgage mess, the Obama administration has - oddly and disturbingly - been arguing that foreclosures are, in effect, good for the economy and should proceed apace as banks get their snarled paperwork in order."

However the foreclosure debacle does play itself out - and, let's be clear, there is no truly satisfactory outcome for lenders, borrowers, or the overall economy - it is important to identify who these defaulted borrowers really are: our neighbors, our co-workers, our professional class, our close friends and family, our most educated and least educated, our peers who have been downsized out of jobs, laid off, and whose jobs have been outsourced, our small business owners and self-employed.

For the most part, the foreclosed upon properties have not been demised by deadbeats - or "losers" (Rick Santelli) - or scammers or ignoramuses who would sign anything to own a house. That canard is the main stream media narrative, and it is not true at all. Statistic after statistic support the fact that most loans were underwritten pursuant to agency and investor guidelines, along with proper borrower verification.

Yet now, those same agencies and investors seem to be changing the rules. For instance, HUD is reevaluating the approval authority granted to FHA DE-mortgagees whose defaults are considered excessive, even though those mortgagees' FHA loans were underwritten to FHA guidelines.

And, since the foreclosure tsunami hit, millions of borrowers have endeavored in vain to save their homes through loss mitigation methods and loan modifications, only to find themselves, usually without the benefit of legal counsel, navigating the blizzard of new paperwork requirements in an often futile engagement with unresponsive servicers and intransigent lenders.

In some cases, borrowers in default are taking out second mortgages in order to save their homes - with payment of the proceeds going to their lawyer if the foreclosure is dismissed and the debt is reduced.

Is the appropriate response to foreclosure in this current economic environment to blame the victim?

Government assistance programs, such as HAMP, have been failures. Our servicer and investor clients are particularly frustrated by the enormous task they face to offer alternative loan terms, respond to thousands of inquiries, implement new mortgage instruments, properly execute all legal documents, and consistently and effectively track the progress of mitigated claims.

In the quote above, Mrs. Clinton stated that "We've got to stem the tide of failing mortgages and give the markets time to recover."

Maybe we should give our neighbors and neighborhoods the time to recover as well!

So, What Do You Think?

I would welcome your comments and views.
Please feel free to email me at any time.

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

NYS: Leads with Foreclosure Affirmation

In what may be a national trend, on October 20, 2010 the court system of the State of New York directed that lender's lawyers must verify the accuracy of foreclosure papers filed with the court by signing an Affirmation.

The Affirmation provides this preamble:

During and after August 2010, numerous and widespread insufficiencies in foreclosure filings in various courts around the nation were reported by major mortgage lenders and other authorities. These insufficiencies include: failure of plaintiffs and their counsel to review documents and files to establish standing and other foreclosure requisites; filing of notarized affidavits which falsely attest to such review and to other critical facts in the foreclosure process; and "robosignature" of documents by parties and counsel. The wrongful filing and prosecution of foreclosure proceedings which are discovered to suffer from these defects may be cause for disciplinary and other sanctions upon participating counsel.

The Affirmation is available at the New York State Bar Association website or may be downloaded from our Library.

Highlights

Under penalty of perjury lawyers for lenders must file an Affirmation that includes the following attestations:

1. I am an attorney at law duly licensed to practice in the state of New York and am affiliated with the Law Firm of __________________, the attorneys of record for Plaintiff in the above-captioned mortgage foreclosure action. As such, I am fully aware of the underlying action, as well as the proceedings had herein.

2. On [date], I communicated with [name and title], a representative of Plaintiff, who informed me that he/she (a) has personally reviewed plaintiff's documents and records relating to this case; (b) has reviewed the Summons and Complaint, and all other papers filed in this matter in support of foreclosure; and (c) has confirmed both the factual accuracy of these court filings and the accuracy of the notarizations contained therein.

3. Based upon my communication with [person specified in ¶2], as well as upon my own inspection of the papers filed with the Court and other diligent inquiry, I certify that, to the best of my knowledge, information, and belief, the Summons and Complaint and all other documents filed in support of this action for foreclosure are complete and accurate in all relevant respects. I understand my continuing obligation to amend this Affirmation in light of newly discovered facts following its filing.

4. I understand that the Court will rely on this Affirmation in considering the application.

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State of New York, Unified Court System, Press Release, "New York Courts First in Country to Institute Filing Requirement to Preserve Integrity of Foreclosure Process" October 20, 2010
Affirmation (Verification of Foreclosure Papers) October 20, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Foreclosures: The Plot Thickens

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

Question: What term describes when a servicer does not comply with applicable state and local laws on foreclosure?

Multiple Choice:
(A) Foreclosuregate.
(B) Foreclosure meltdown.
(C) Foreclosure scandal.
(D) Foreclosure fraud.
(E) All of the Above.

In my Commentary of October 4, 2010, issued soon after the commencement of the current crisis in foreclosure processes, I wrote:

• I suppose an argument can be made that this situation will eventually straighten out and most foreclosures will be completed in the fullness of time. This is a procedural matter that will require a legal solution. Most foreclosures are not going to be reversed, once this legal mess gets disentangled, although regulatory oversight may be considerably strengthened.

In the two weeks since making that observation, we have learned that gaming the foreclosure process has been far more the norm than the exception among several servicers. It is one thing when a particular servicer acts on its own to cut corners in due diligence, it is quite another thing when others, especially the largest servicers, act in a similar way.

Regulators have a phrase for this: systemic failure.

There is nobody who truly believes the handling of enormous number of mortgages through the foreclosure process has been an easy or efficient task to effectuate. Our clients look to us to offer guidance in administrative coordination and relevant preparation. But applicable statutes and implementing regulations are meant to be followed - fully, accurately, and timely - by all parties to a transaction. An alleged failure to comply - and what compliance is! - may require a court to decide. But no party to a contract can walk away from requirements of the law, or the attendant legal remedies. Servicers are no doubt anticipating extensive litigation against them from borrowers and investors alike!

Of course, the politicians have gotten into the act, with some of them asking all servicers to voluntarily impose a moratorium on all foreclosures. All servicers? All foreclosures? Voluntarily? Good luck with that! At this point, the Attorneys General of all 50 states - up from 23 states two weeks ago - have banded together to investigate the alleged violation of foreclosure procedures and the "robo-signing" predicament.

Last Tuesday, October 12th, President Obama pocket vetoed a bill that would have streamlined the foreclosure process by permitting servicers to file foreclosure documents at state and federal courts that were notarized by a notary or by a computer. Recently, there have been allegations that the Administration actually knew for some time about the weaknesses inherent in some servicers' foreclosure processes. Expediency in foreclosing seemed to be tolerated, in lieu of regulatory compliance and following the dictates of the law.

The following day, Wednesday, October 13th, I was on a morning call with a friend when he broke off our conversation to tell me that, just at that instant, news sources had reported in real time that JPMorgan Chase had suspended its use of MERS - and would henceforth foreclose in its own name, not in the name of MERS. Given the on-going litigation against MERS, I suppose such an outcome was inevitable. Lawsuits against MERS abound in many states, including California, Nevada, Arizona, Maine, Arkansas, Tennessee, and Kansas. There is now a class action complaint in Kentucky, a RICO-action, against MERS, GMAC, Et Al.

Simply put: at issue is whether MERS has standing to foreclose in its own name, as nominee, with beneficial interest in the note or mortgage, and thus the legal authority to transfer promissory notes and appoint successor trustees.

Many borrowers facing foreclosure, and their attorneys, have become aware of the opportunity to postpone or prevent foreclosure. They are finding ways and means to challenge foreclosure proceedings. In fact, an investigative journalist has written a 250 page report, entitled "Clouded Titles," about the MERS fiasco and the possible options that attorneys are suggesting to avoid foreclosure.

Fannie and Freddie, and Citicorp, have suspended their use of certain foreclosure attorneys in the wake of the "robo-signing" scandal.

Over the weekend, Shaun Donovan, the HUD Secretary, stated that "a national, blanket moratorium on all foreclosure sales would do far more harm than good -- hurting homeowners and home-buyers alike at a time when foreclosed homes make up 25 percent of home sales." The problem is this, though: without clear title or insurance companies willing to insure title, who would buy an REO?

As I have said repeatedly, the drafting, maintaining, and monitoring of policies, procedures, forms, and practices, and also hiring appropriately trained personnel, to assure compliance with state and local foreclosure laws are the only operationally sound corrective and proactive measures. Nevertheless, this sudden foreclosure paralysis is yet another example of financial institutions not implementing existing regulations.

An opportunity now presents itself to permanently fix this systemic risk! Will we rise to the challenge?

So, What Do You Think?

I would welcome your comments and views.

Please feel free to email me at any time.

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Fannie: Directs Servicers to Review Foreclosure Procedures

On October 1, 2010, Fannie Mae issued Lender Letter LL-2010-11 which directs all of its servicers to immediately undertake a review of their policies and procedures relating to the execution of affidavits, verifications, and other legal documents in connection with the default process.

Fannie issued this notice because it recently learned that there are potential defects with affidavits submitted by servicers in support of motions for summary judgment in states with judicial foreclosure processes. The issues pertain to "whether the individuals executing the affidavits on behalf of the servicer had the required personal knowledge of the information contained in the affidavits and whether the affidavits were notarized in accordance with applicable requirements."

The issuance provides citations to Fannie's Mortgage Selling and Servicing Contract and Servicing Guide provisions with regard to:

• Servicer's basic duties and responsibilities

• Compliance with applicable laws and mortgage documents

• Servicer's audit and control systems

• Consequences of non-performance of servicer's duties and responsibilities and non-compliance with applicable laws and mortgage documents

Highlights

Servicer's Basic Duties and Responsibilities

The servicer must have sufficient and properly-trained staff, and adequate controls and quality assurance procedures in place:

• to carry out all aspects of their servicing duties

• to protect against fraud, misrepresentation, or negligence by any parties involved in the mortgage servicing processes

• to protect Fannie Mae's investment in the security properties

• to provide borrowers with assistance when it is requested

• to ensure that its staff is knowledgeable in all aspects of mortgage servicing to comply with Routine vs. Non-routine Litigation procedures, and contact Fannie Mae's Regional Counsel via e-mail if:

• any routine legal proceeding becomes contested (i.e., the defendant in any proceeding files any appeal, motion for rehearing, or similar procedure

• the servicer receives notice of a non-routine action that involves a Fannie Mae-owned or - the securitized mortgage loan or that will otherwise affect Fannie Mae's interests, regardless of whether Fannie Mae is also named as a party to the action.

• Email Contact: nonroutinelitigation@fanniemae.com

Compliance with Applicable Laws and Mortgage Documents

All federal, state, and local laws (including statutes, regulations, ordinances, administrative rules and orders that have the effect of law, and judicial rulings and opinions) that apply to any of its origination, selling, or servicing practices or other business practices (including the use of technology) that may have a material effect on Fannie Mae, including:

• fair housing

• equal credit opportunity

• truth-in-lending

• wrongful discrimination

• real estate settlement procedures

• borrower privacy

• escrow account administration

• mortgage insurance cancellation

• debt collection

• credit reporting

• electronic signatures or transactions

• predatory lending

• terrorist activity

• the enforcement of any of the terms of the mortgage loan

Servicer's Audit and Control Systems

The servicer must maintain adequate internal audit and management control systems to ensure that mortgage loans are serviced in accordance with sound mortgage banking and accounting principles; to guard against dishonest, fraudulent, or negligent acts; and to guard against errors and omissions by officers, employees, or other authorized persons.

Requires the servicer to provide for at least the following:

• a delinquent loan servicing system

• a system to control and monitor bankruptcy proceedings

• a foreclosure monitoring system

Consequences of Non-performance of the Servicer's Duties and Responsibilities and Non-compliance with Applicable Laws and Mortgage Documents

• Agreement to Indemnify and Hold Harmless

• Compensatory Fees

• Specific Breaches of Contract
  • Specific breaches of the Contract as they relate to execution of affidavits, verifications, and other legal documents include:
  • Failure To Properly Foreclose Or Liquidate
  • Failure To Properly Manage, Dispose Of, Or Effect Proper Conveyance Of Title

• Remedies for Breach of Contract

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Fannie Mae: Servicer Review of Procedures Relating to the Execution of Affidavits, Verifications, and Other Legal Documents -
Lender Letter LL-2010-11
October 1, 2010

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.

Can't blame the homeowners!

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is the President and Managing Director of Lenders Compliance Group, the first full-service, mortgage risk management firm in the country.

In each of the first two meltdowns, many people believe that regulators failed to enforce existing regulations - even if some of those regulations were inadequate or dysfunctional. But this third meltdown has occurred for the most fundamental of all reasons: not complying with the execution of affidavits! This is basic legal process. What good are implementing statutes already on the books, if the entities subject to those laws do not comply with them?

The culprits? Lenders, and only the lenders, and nobody but the lenders.

By now most of you know that GMAC, JPMorgan Chase, and Bank of America have put tens of thousands of foreclosure processes on hold. When news first came out about this recently, many in the industry had no idea why this happened! Yet my conversations with several industry leaders indicate, sadly, that they were disappointed but not surprised. Disappointed - because this debacle further delays financial recovery and creates even more uncertainty; and, not surprised - because banks have made this kind of mess before, placing expediency over exacting regulatory compliance, and should have known better - given their own culpability in the financial and mortgage meltdowns.

As I write, the aforementioned 3 companies have suspended foreclosures in 23 states; Fannie Mae has issued a Lender Letter (LL-2010-11) that directs all of its servicers "to immediately undertake a review of their policies and procedures relating to the execution of affidavits, verifications, and other legal documents in connection with the default process;" the OCC has ordered its regulated banks to review foreclosure processes for flaws in their document management systems; and, Old Republic National Title Insurance, certainly one of the country's largest title companies, has advised that it would not insure title to GMAC and JPMorgan Chase foreclosures (thereby imperiling clear title). Rippling through the states, some AGs are now calling for a moratorium on all foreclosures in their states.

Plaintiffs' attorneys must be positively gleeful!

And a new term has crept into the vernacular: "robo-signing." Briefly put, this is a technique - if you want to call it that! - which a lender's servicer uses to approve foreclosure cases without personally reviewing the underlying foreclosure documents or without signing affidavits pursuant to required legal procedures. A lender seeking foreclosure must file a specified affidavit in many states' courts. And, of course, such affidavits attest to various facts about the subject foreclosures, such as a description of the lender's legal standing to foreclose. The affidavit is attested to by the bank's representative, who submits the affidavit in support of motions for summary judgment in states with judicial foreclosure processes. But "robo-signing" short cuts this procedure by having the individuals executing these affidavits on behalf of the servicer "sign" the documents en masse without inspecting the attested documents, without actually having the personal knowledge of information contained in the affidavits - and without determining that the affidavits were notarized in accordance with applicable requirements!

I suppose an argument can be made that this situation will eventually straighten out and most foreclosures will be completed in the fullness of time. This is a procedural matter that will require a legal solution. Most foreclosures are not going to be reversed, once this legal mess gets disentangled, although regulatory oversight may be considerably strengthened.

At this point, it seems that lenders did not willfully evade compliance. Taking short cuts - Maybe. We'll all find out soon enough the extent of legal culpability and any willful failure to comply with the law. But perception is a critical issue - especially when we are dealing with the heart wrenching condition of foreclosure.

One has the sense that yet another avoidable situation in our industry could really have been avoided.

At a time of lowered consumer confidence in the economy in general and the mortgage industry in particular, it is incumbent on all of us - the market participants - to police ourselves better and hold ourselves to the highest standards.

Let's not allow ourselves to be 'called out' again like this!

___________________________________

So, What Do You Think?

I would welcome your comments and views.
Please feel free to email me at any time.

___________________________________

LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.