May 20, 2014
Mortgage Servicer Accountability
Joseph A. Smith, Jr, the Monitor of the National Mortgage Settlement, issued his third set of compliance reports (I blogged about the second here). For those needing a recap,
As required by the National Mortgage Settlement (Settlement or NMS), I have filed compliance reports with the United States District Court for the District of Columbia (the Court) for each servicer that is a party to the Settlement. The servicers include four of the original parties – Bank of America, Chase, Citi and Wells Fargo. Essentially all of the servicing assets of the fifth original servicer party, ResCap, were sold to and divided between Ocwen and Green Tree pursuant to a February 5, 2013, bankruptcy court order. Accordingly, Ocwen and Green Tree are now subject to the NMS for the portions of their portfolios they acquired from ResCap.1 These reports provide the results of my testing regarding compliance with the NMS servicing standards during the third and fourth calendar quarters of 2013, or test periods five and six. They are the third set of reports for the original four bank servicers, the second report for Ocwen and the first report assessing Green Tree. (3)
The Monitor concludes that Bank of America, Citi, Chase, Ocwen and Wells Fargo “did not fail any metrics during the most recent testing periods.” (2) The Monitor also reports on “fourth-quarter compliance testing results for the loans Green Tree acquired from the ResCap Parties. Green Tree implemented the Settlement’s servicing standards after such acquisition. Green Tree failed a total of eight metrics during this time period.” (2) The metrics that Green Tree failed include a number of practices that have made the lives of borrowers miserable during the foreclosure crisis. They are,
- whether the servicer accurately stated amounts due from borrowers in proofs of claims filed in bankruptcy proceedings
- whether the servicer accurately stated amounts due from borrowers in affidavits filed in support for relief from stay in bankruptcy proceedings
- whether loans were delinquent at the time foreclosure was initiated and whether the servicer provided borrower with accurate information in a pre-foreclosure letter
- whether the servicer provided borrower with required notifications no later than 14 days prior to referral to foreclosure and whether required notification statements were accurate
- whether the servicer waived post-petition fees, charges or expenses when required by the Settlement
- whether the servicer has documented policies and procedures in place to oversee third party vendors
- whether the servicer responded to government submitted complaints and inquiries from borrowers within 10 business days and provided an update within 30 days
- whether the servicer notified the borrower of any missing documents in a loan modification application within five days of receipt (9, emphasis added)
These metrics seem pretty reasonable — one might even say they are a low bar for sophisticated financial institutions to exceed. Until the servicing industry can do such things as a matter of course, close government regulation seems appropriate. The monitor notes that “work still remains to ensure that the servicers treat their customers fairly.” (2) Amen to that, Monitor.
May 20, 2014 | Permalink | No Comments
Connecticut Court Denies Claim Alleging Lack of Standing
The court in deciding Deutsche Bank Nat’l Trust Co. v. Speer, 2013 Conn. Super. 2682 (Conn. Super. Ct., 2013) found that the defendant misstated the law in arguing that the plaintiff must hold the assignment of the mortgage before commencing a foreclosure action.
Defendant, Sheri A. Speer, challenged the standing of the plaintiff to commence the foreclosure action. After hearing from both sides, the court was satisfied with the fact that at the commencement of this action, the plaintiff was the holder of the promissory note that was the foundation of this cause of action.
Although the plaintiff had not been assigned the mortgage at the time of commencement of the suit, it eventually had been assigned the mortgage. Furthermore, the court noted that the defendant misstated Connecticut law in arguing that the plaintiff must hold the assignment of the mortgage prior to the commencement of this foreclosure action.
May 20, 2014 | Permalink | No Comments
S.D.N.Y. Denies Mortgagor Under 11 U.S.C.S. § 1109(b)
The court in deciding In re Residential Capital, LLC, 2013 Bankr. 5316 (Bankr. S.D.N.Y., 2013) denied the mortgagor’s motion for an order declaring that the debtors’ bankruptcy estate owned title to the note, to void a state court title transfer, and enjoin the foreclosure action.
The court decided Phillip Scott’s motion to (1) determine that bankruptcy estate owned title to note, (2) void state court title transfer, and (3) enjoin post petition.
In this case, the mortgagor (Scott) did not have standing under 11 U.S.C.S. § 1109(b) to seek a ruling from the bankruptcy court that the business declared Chapter 11 bankruptcy after it acquired and transferred the mortgage he executed with the note held title to real property that secured the note.
In regards to the order to enjoin the foreclosure action, the court found that the mortgagor was not a creditor in the debtors’ bankruptcy estate, the note and mortgage were not owned or serviced by any of the debtors, and none of the debtors was a party to the foreclosure action.
May 20, 2014 | Permalink | No Comments
May 15, 2014
Stealing Fannie and Freddie?
Jonathan Macey and Logan Beirne have posted a short working paper, Stealing Fannie and Freddie, to SSRN. It advocates a position similar to that taken by the plaintiffs in the GSE shareholder litigation. They argue,
Politicians are running rough-shod over the rule of law as they seek to rob private citizens of their assets to achieve their own amorphous political objectives. If we were speaking of some banana republic, this would be par for the course – but this is unfolding in the United States today.
“The housing market accounts for nearly 20 percent of the American economy, so it is critical that we have a strong and stable housing finance system that is built to last,” declares the Senate Banking Committee Leaders’ Bipartisan Housing Finance Reform Draft. The proposed legislation’s first step towards this laudable goal, however, is to liquidate the government sponsored enterprises Fannie Mae and Freddie Mac – in defiance of the rule of law. This paper analyzes the current House and Senate housing finance reform proposals and faults their modes of liquidation for departing from legal norms, thereby harming investors and creditors, taxpayers, and the broader economy.
Under proposals before Congress, virtually everyone loses. First, the GSEs’ shareholders’ property rights are violated. Second, taxpayers face the potential burden of the GSEs’ trillions in liabilities without dispensing via the orderly and known processes of a traditional bankruptcy proceeding or keeping the debts segregated as the now-profitable GSEs seek to pay them down. Finally, the rule of law is subverted, thereby making lending and business in general a riskier proposition when the country and global economy are left to the political whims of the federal government. (1)
I found a number of unsupported assertions throughout the piece. For instance, they assert, without support, that Fannie and Freddie “never reached the point of insolvency.” (3) Badawi & Casey convincingly argue that without “government intervention, [Fannie and Freddie] would have defaulted on their guaranty obligations and more generally on obligations to all creditors.” (Badawi & Casey at 5) All in all, I don’t find this short working paper to be compelling reading — perhaps a more comprehensive one is in the works.
May 15, 2014 | Permalink | No Comments
May 14, 2014
Watt’s up with Fannie and Freddie
There has been a lot of press coverage of FHFA Director Watt’s first public speech since taking on his job. Watt emphasized that
we must ensure that Fannie Mae and Freddie Mac operate in a safe and sound manner. It means that we’ll work to preserve and conserve Fannie Mae and Freddie Mac’s assets. And it means that we’ll work to ensure a liquid and efficient national housing finance market. Our job at FHFA is to balance these obligations . . ..
He also set forth three goals for his FHFA:
Strategic Goal 1: MAINTAIN, in a safe and sound manner, foreclosure prevention activities and credit availability for new and refinanced mortgages to foster liquid, efficient, competitive and resilient national housing finance markets.
Strategic Goal 2: REDUCE taxpayer risk through increasing the role of private capital in the mortgage market.
Strategic Goal 3: BUILD a new single-family securitization infrastructure for use by the Enterprises and adaptable for use by other participants in the secondary market in the future.
These goals are all totally reasonable for the FHFA to pursue. But it is also clear that Director Watt is taking the FHFA in a direction that is quite different than the one pursued by his predecessor, Acting Director DeMarco. DeMarco had taken the position that the best way to protect taxpayers was to be pretty tough on everyone else. “Everyone else” included defaulting and underwater homeowners as well as originating lenders who had sold Fannie and Freddie tons of mortgages that did not comply with the reps and warranties that the parties had agreed to about the quality of those mortgages. DeMarco’s strategy was much criticized but also quite coherent.
Watt has made it clear that he is going to be more flexible with homeowners. He highlighted a pilot program in Detroit that will include “deeper loan modifications.” He has also made it clear that he is going to be more flexible with lenders, relaxing rep and warranty standards for mortgages that Fannie and Freddie purchase from lenders. These may be very good policies to pursue, but it would be helpful if he set forth a clearer vision of how safety and soundness is best balanced with liquidity and efficiency. Federal housing finance policy typically goes off the rails when its goals get all mixed up. Director Watt should ensure that FHFA’s safety and soundness goals are clearly set forth and that other goals for Fannie and Freddie are designed to work in harmony with them.
May 14, 2014 | Permalink | No Comments
