Tag Archives: Wells Fargo

Is $50 Billion of Mortgage Relief Enough?

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The National Mortgage Settlement Monitor issued his Final Crediting Report. The report states that

In total, the servicers have provided more than $50 billion of gross dollar relief, which translates into more than $20 billion in credited relief under the Settlement’s scoring system. More than 600,000 families received some form of relief under the Settlement. Aggregate credited relief includes:

• $7,589,277,740, or 37 percent of total credited relief, of first lien principal forgiveness.

• $3,105,152,359, or 15 percent of total credited relief, of second lien forgiveness.

• $3,587,672,814, or 17 percent of total credited relief, of refinancing assistance.

• $6,410,554,173, or 31 percent of total credited relief, of other forms of relief, including, but not  limited to, assistance related to short sales and deeds in lieu of foreclosure. (2)

I am not going to criticize the substance of the mortgage settlement. But I have a hard time translating these massive numbers into an understanding of how much help people got from the settlement. $20 Billion of credited relief divided by 600,000 households comes out to about $33,000 in relief per household. The Monitor gives us no sense as to whether that $33,000 made a difference to the affected families.

Perhaps going forward, massive settlements like this should include metrics that help to break down these large numbers into categories that make more intuitive sense:  for instance, did the mortgage relief reduce the monthly payment to a sustainable level?  What percent reduction was there in monthly mortgage payments? How many mortgages were converted from underwater mortgages into ones that were in the money as a result of the settlement? Metrics such as these would help give an understanding of how many people were helped (certainly more than one of the metrics often repeated by the monitor, “My team spent 36,000 hours reviewing and testing the consumer relief and refinancing activities reported by the banks.”

As counter-intuitive as the question may seem, do we have enough information to really know whether $50 Billion of mortgage relief made a meaningful difference for American households?

National Mortgage Settlement Update

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Joseph A. Smith, Jr., the Monitor of the National Mortgage Settlement (NMS), has issued his Second Compliance Report (I blogged about an earlier report here) which has been filed in the District Court for the District of Columbia. According to the Monitor, Ally Financial and Wells Fargo were not in violation of the settlement at all during 2013 and BoA’s and Chase’s deficiencies were not widespread. Citi had a widespread deficiency.

The Monitor’s conclusion echoes his earlier report although his tone is more optimistic than last time:

It is clear to me that the servicers have additional work to do both in their efforts to fully comply with the NMS and to regain their customers’ trust. The Monitor Reports that I have just filed with the Court show, however, that the Settlement is addressing shortcomings in the treatment of distressed borrowers.

CAPs [corrective action plans], including remediation efforts when required, have been implemented or are in process. If the CAPs are not successful, the Monitoring Committee and I will take additional action, as dictated by the Settlement. In addition, we have applied what we have learned to enhance our oversight of the servicers by creating four new metrics to address persistent issues in the marketplace. (16)

The big five banks appear to be improving their compliance with the settlement, which is obviously a good thing. But there is still work to be done to improve loan servicing. The monitor notes the top ten complaints about servicers that were submitted by elected officials on behalf of their constituents:

1 Single point of contact was not provided, was difficult to deal with or was difficult to reach.

2 Single point of contact was non-responsive.

3 Servicer did not take appropriate action to remediate inaccuracies in borrower’s account.

4 Servicer failed to update the borrower’s contact information and/or account balance.

5 Servicer failed to correct errors in the borrower’s account information.

6 The borrower was “dual-tracked.” In other words, the borrower submitted an application for loss mitigation, and although it was in process or pending, the borrower was foreclosed upon.

7 Servicer did not accept payments or incorrectly applied them.

8 Servicer did not follow appropriate loss mitigation procedures.

9 The borrower received requests for financial statements they already provided.

10 The completed first lien modification request was not responded to within 30 days.

Total Executive Office complaints for all servicers: 44,570 (n.p.)

Obviously not every complaint is valid, but these numbers suggest that the settlement is not being fully complied with.

Is Banks’ $200 Billion Payout from RMBS Lawsuits Enough?

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S&P issued a brief, The Largest U.S. Banks Should Be Able To Withstand The Ramifications Of Legal Issues, that quantifies the exposure that big banks have from litigation arising from the Subprime Crisis:

Since 2009, the largest U.S. banks (Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo) together have paid or set aside more than $45 billion for mortgage representation and warranty (rep and warranty) issues and have incurred roughly $50 billion in combined legal expenses .  . . This does not include another roughly $30 billion of expenses and mortgage payment relief to consumers to settle mortgage servicing issues. We estimate that the largest banks may need to pay out an additional $55 billion to $105 billion to settle mortgage-related issues, some of which is already accounted for in these reserves. (2)

S&P believes “that the largest banks have, in aggregate, about a $155 billion buffer, which includes a capital cushion, representation and warranty reserves, and our estimate of legal reserves, to absorb losses from a range of additional mortgage-related and other legal exposures.” (2) As far as their ratings go, S&P has already incorporated “heightened legal issues into our ratings, and we currently don’t expect legal settlements to result in negative rating actions for U.S. banks.” (2) But it warns, “an immediate and unexpected significant legal expense could result in the weakening of a bank’s business model through the loss of key clients and employees, as well as the weakening of its capital position.” (2) S&P also acknowledges that there are some not yet quantifiable risks out there, such as DoJ’s FIRREA suits.

As the endgame of the financial crisis begins to take shape and financial institutions are held accountable for their actions, one is left wondering about a group who is left relatively unscathed: financial institution employees who received mega bonuses for involving these banks in these bad deals. As we think about the inevitable next crisis, we should ask if there is a way to hold those individuals accountable too.

Reiss on Government’s Role in Housing Finance

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The Urban Land Institute New York Blog posted Housing Finance Leaders Gather to Discuss the Future of Freddie and Fannie about a recent panel on the housing finance market. It begins,

Housing finance industry leaders came together last week to debate the future role of government-sponsored lending giants, Fannie Mae and Freddie Mac. Both entities were placed under the conservatorship of the Federal Housing Finance Agency (FHFA) during the financial crisis from which they have yet to emerge.

Panelists included David Brickman, Head of Multifamily for Freddie Mac, Robert Bostrom, Co-Chair of the Financial Compliance and Regulatory Practice at Greenberg Traurig, Mike McRoberts, Managing Director at Prudential Mortgage Capital Company, David Reiss, Professor of Law at Brooklyn Law School, and Alan H. Weiner, Group Head at Wells Fargo Multifamily Capital.

The debate centered around the proper role for the mortgage giants and to what extent government-backed entities should intervene in capital markets.

A market failure or liquidity crisis is the only reasonable basis for government intervention in the housing market, according to Reiss. “However, it is not possible for the government to create liquidity only in moments of crisis, so there is a need to have a permanent platform that is capable of originating liquidity at all times,” said Brickman. Fannie Mae, which was created during the Great Depression and Freddie Mac, which was created during the Savings and Loan crisis, were both responses to past market failures.

Reiss on Future of Frannie at Urban Land Institute

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I will be on an Urban Land Institute panel on November 21st, The Future of Fannie Mae and Freddie Mac.  The panel

will seek to shed some more light on the road ahead for the GSEs and their impact on commercial real estate lending and residential mortgage securitization. Specifically, the panel will address questions such as:

• What will the GSEs’ roles be in the multi-family and single-family markets in the future?

• Will the GSEs remain in conservatorship? If not, what level of government support, if any, will they receive going forward?

The event will feature individuals speaking on behalf of the lending, investment, academic, and GSE communities.

The moderator is Katharine Briggs, a Managing Director at BlackRock. She is a member of BlackRock’s Financial Markets Advisory Group within BlackRock Solutions. Ms. Briggs is a member of the Commercial Real Estate Advisory Team within BlackRock Solutions’ Financial Market Advisory Group. Mrs. Briggs specializes in US and European commercial real estate and related analytics. Ms. Briggs was formerly the Vice President of Corporate Finance with Summit Properties, a multifamily developer and publicly traded REIT owning 60 communities valued at over $2 billion. At Summit, she was responsible for all capital markets activities, investor relations, financial forecasting and tax planning.

The other panelists are:

Robert E. Bostrom, Co-Chair of the Financial Regulatory and Compliance Practice at Greenberg Traurig. His legal career spans more than 30 years, where he has worked and advised at the highest levels of leadership in the banking sector, in private legal practice and inside a government sponsored enterprise (GSE). As general counsel of Freddie Mac, Bob played a pivotal role during the financial crisis and recovery directing Freddie Mac’s legal strategy through the conservatorship, investigations, enforcement actions and litigation. Bob has advised clients on financial institutions regulation, examination, compliance and supervision matters. He is experienced helping clients navigate the implementation of the Dodd-Frank Act, especially the Consumer Financial Protection Bureau.

David Brickman, the Senior Vice President, Multifamily,, at Freddie Mac.  He was named senior vice president of Multifamily in June 2011. As head of Multifamily, Mr.
Brickman is responsible for customer relations, product development, marketing, sales, loan purchase, asset management, capital markets, and securitization for the company’s multifamily business, which includes the flow mortgage, structured and affordable mortgage, CMBS and low-income housing tax credit portfolios. The total multifamily portfolio was $180 billion as of March 31, 2013. He is a member of the company’s senior operating committee and reports directly to CEO Don Layton.

Mike McRoberts, a Managing Director at Prudential Mortgage Capital Company.  He is responsible for growing and enhancing Prudential’s leadership position in multifamily lending as head of the company’s market rate Fannie Mae and Freddie Mac portfolio teams and agency production team. Prior to joining Prudential, Mike was a vice president and national head of sales and production for Freddie Mac, where he was responsible for the agency’s conventional multifamily business, structured transactions and senior’s housing teams, the national Freddie Mac Program Plus network and Freddie’s four regional production offices. Earlier, he was
national head of underwriting and credit and managing director of Freddie Mac’s southeast region.

Joanne Schehl, Vice President and Deputy General Counsel at Fannie Mae. She is Fannie Mae’s Vice President and Deputy General Counsel for the Multifamily
Mortgage Business. She reports to the Senior Vice President and Deputy General Counsel – Multifamily Mortgage Business. Ms. Schehl leads the team responsible for providing legal support for multifamily infrastructure and operations, lender relationships, operational risk, and regulatory compliance. Ms. Schehl was previously a partner at Arent Fox PLLC, where she was a member of the real estate and finance groups, and served on the firm’s executive committee and as its professional development counsel, founded and led the firm’s strategic technology initiative, and was a leader in the firm’s diversity efforts.

Alan H. Wiener, Group Head, Wells Fargo Multifamily Capital, at Wells Fargo & Company. He is the group head of Wells Fargo Multifamily Capital, based in New York. Wells Fargo Multifamily Capital specializes in government-sponsored enterprise (GSEs) financing through Fannie Mae and Freddie Mac programs and Federal Housing Administration (FHA)-insured financing. Alan’s career has focused on housing and community development in both the public and private
sectors. Prior to joining Wachovia, he was the chairman of American Property Financing Inc., which Wachovia acquired in 2006. Before that, he was executive vice president with Integrated Resources, Inc.

$2.7 Million Punitive Damages for Wrongful Foreclosure Action

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Many argue (see here, for instance) that wrongful foreclosures aren’t such a big deal. A recent case, Dollens v. Wells Fargo Bank, N.A., No. CV 2011-05295 (N.M. 2d Jud. Dist. Aug. 27, 2013)  highlights just how bad it can be for the homeowner who has to defend against one.

Dollens, the borrower, died in a workplace accident but had purchased a mortgage accidental death insurance policy through Wells Fargo, the lender (although the policy was actually underwritten by Minnesota Life Insurance Company). Notwithstanding the existence of the policy, Wells Fargo kept trying to foreclose, even five months after the insurance proceeds paid off the mortgage.  Some lowlights:

  • “Apparently, ignoring its ability to to make a death benefit claim is typical of how Wells Fargo deals with such situations. . . . This is a systemic failure on the part of Wells Fargo.” (4)
  • “There is no doubt that Wells Fargo’s conduct was intended to take advantage of a lack  of knowledge, ability, experience or capacity of decedent’s family members, and tended to or did deceive.” (5)
  • “Wells Fargo charged the Estate for lawn care of the property” even though the “property did not have a lawn.” (6)

The court found that the”evidence of Wells Fargo’s misconduct is staggering.” (6) The court also found that “Wells Fargo used its computer-driven systems as an excuse for its ‘mistakes.’ However, the evidence established that this misconduct was systematic and not the result of an isolated error.. . . The evidence in this case established that the type of conduct exhibited by Wells Fargo in this case has happened repeatedly across the country.” (7) As a result of these findings, the Court awarded over $2.7 million in punitive damages.

Mary McCarthy famously said that “[b]ureaucracy, the rule of no one, has become the modern form of despotism.” We generally think of this in terms of government actors, but it applies just as well to large financial institutions that implement “computer-driven systems” that seemingly cannot be overwritten by a human being who might exercise common sense and common decency.

Given that this type of problem seems to affect all of the major loan servicers, I must reiterate, thank goodness for the CFPB.

 

[HT April Charney]

A Welling of Judicial Discontent

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Reuters ran a story that provides the next chapter to my post, Federal Judge Declares War on Wells Fargo.  The Reuters story is Massachusetts Judge Challenges Wells Fargo, Sparks Legal Fight (behind a paywall) and it reads in part:

A legal battle is heating up over an unusual challenge by a Massachusetts federal judge to banking giant Wells Fargo to waive what the judge called a technical defense in a mortgage lawsuit and to argue its case at trial.

Calling the judge’s order “unauthorized and unprecedented,” Wells Fargo has asked a federal appeals court to overturn it before it sparks “copycat” demands across the country.

It seems to me that Wells Fargo is right to be concerned about “copycat” demands across the country.  My sense from reading many of the upstream and downstream cases that I blog about is that many judges have internalized the populist critique of financial institutions that has crystallized during the financial crisis. This came about, no doubt, in large part because of the relentless headlines about actionable and non-actionable misconduct by these institutions.

That being said, judges must apply the law impartially, so the First Circuit’s review of this case, Henning v. Wachovia Mortgage, F.S.B., n/k/a Wells Fargo Bank, N.A., No. 11-11428 (Sept. 17, 2013), will be of particular interest. The transcript of yesterday’s District Court hearing on a motion to stay the Henning case during the pendency of the appeal can be found here. Judge Young makes clear that he is not budging on the requirement that Wells Fargo produce a corporate resolution, although that order is stayed until the First Circuit decides the appeal.