Home > 2011 > Mortgages > For Mortgage Servicers, a Terrible, Horrible, Very Bad Day

For Mortgage Servicers, a Terrible, Horrible, Very Bad Day

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The first day of September was a rough day for companies that handle the day-to-day details of millions of American mortgages. First, the U.S. Treasury announced that two of the nation’s largest mortgage servicers are doing a poor job modifying loans for people who deserve it, and the government won’t pay the companies until they improve.

The same day, a third large mortgage servicer agreed to pay $53 million to consumers for unfair practices related to servicing and modifying mortgages.

“Our agreement sets a new higher standard for the residential mortgage servicing industry, whose troubling foreclosure and servicing practices we have been investigating along with other regulators across the country,” Benjamin M. Lawsky, superintendent of financial services for New York State, said in a press release announcing the state’s $53 million settlement against Goldman Sachs.

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In the Treasury decision, the agency singled out Chase and Bank of America, saying the mortgage servicing companies owned by the two megabanks did such a poor job rewriting mortgages under the federal Home Affordable Modification Program (HAMP) in the second quarter of 2011 that neither company will get paid.

“(W)e need to keep the pressure on servicers to effectively assist those homeowners who are still struggling and eligible for assistance,” Tim Massad, Treasury’s assistant secetary for financial security, said in a press release.

Both Chase and Bank of America need to make “substantial” improvements before they can start getting paid again by the federal government. Bank of America did a poor job calculating something as basic as homeowners’ incomes, and only a fair job of informing consumers and the federal government about its modification program, according to a report by the Treasury.

Chase performed even worse in those areas. It was the second straight quarter that the two banks failed to meet the program’s requirements.

The failing grade is somewhat ironic since Chase and Bank of America have been two of the most successful banks in the program in terms of writing permanent modifications, which in most cases means reducing the interest rates on mortgages to make the monthly payments more affordable. Together the two banks have issued 225,693 modifications, 38% of the total 675,447 approved under HAMP so far.

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That in itself is a tiny fraction of the 4 million American homeowners the Obama administration initially claimed would be helped by the program. Back in December, the Congressional Oversight Panel described HAMP as an abject failure.

The second piece of bad news came in a settlement worked out between Goldman Sachs, the Federal Reserve and the New York State Department of Financial Services over allegations of deception and unfair practices in the Goldman’s mortgage servicing division, Litton Loan Servicing.

Litton was accused of filing forged documents to foreclose on homeowners, unfair practices that prevented qualified homeowners from obtaining mortgage modifications, and charging homeowners improper fees. Goldman is trying to sell the Litton decision to another company, but the federal and state regulators promised to fight the sale unless Goldman agreed to a list of demands.

The biggest part of the compromise: Goldman will set aside $53 million to repay homeowners hurt by the misdeeds. All New York residents whose loans are owned by Goldman and serviced by Litton, and who are more than 60 days delinquent, will get 25% of their principal written off, according to the state agency.

In addition, the agreement requires Litton to stop foreclosure proceedings against people whose documents were forged by robo-signers. People who lost their homes due to documents that were robo-signed will be repaid the value of their lost houses.

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Image: Bill Ward, via Flickr.com

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  • JStern

    This is just ridiculous.
    I purchased my investment property in 2005 for $2.1 million dollars. Recently, (over the past 18 months) I’ve had a tremendously high vacancy rate due to the poor economy and it began taking a toll on all my reserves just to maintain the property. I tried to negotiate with my lender (Bank of America) for a modification. I went round and round with the bank, submitting documents and so on and in the end, Bank of America denied me for a modification. I couldn’t understand why they wouldn’t modify my loan when it was clear that the economy hamstringed my ability to service the debt. The only thing that Bank of America could tell me was that the investor was the one who declined the modification. I asked who the investor was and they would not tell me. It was then that I began to look closer at my original loan and I saw on the Deed of Trust that MERS was listed as the Beneficiary. With all the information about MERS in the news I decided to talk to an attorney. My attorney had an auditing company called Lighthouse Consulting Group review my documents for both a forensic analysis of my original loan documents as well as a Mortgage Securitization Audit. It turned out that my loan was securitized in a trust called “Structured Asset Mortgage Investments II Trust 2005- 8. It was in this trust; there is a pooling and serving agreement, which governs the rules of the REMIC Trust. In my loans pooling and servicing agreement, it said specifically that any loan modified would require a buy-back from the servicer. Now, it was about this time that I began to default on my loan and was looking at ultimately losing my investment property. I was already 6 months in default at this point. The individual I talked to that is an attorney and real estate broker immediately ordered a forensic audit for predatory lending. Commercial properties do not have TILA and RESPA violations. The attorney also ordered a securitization audit to verify if the lender that filed the NOD was actually in proper standing. Both audits reveled several issues about my loan. First, the forensic audit proved that my lender had wrongfully calculated my payment it was overstated by $350 per month. Secondly, the loan itself was an adjustable loan based off the Libor Index, which was dropping, but the loan always adjusted up. This was a major development in a very positive way for me. Then, I had the securitization audit show that my loan was never securitized properly and the note and deed were not even with the same party. My attorney drafted a complaint, outlining everything I have mentioned. As soon as the lender was served, they contacted my attorney and settled without going to court. The settlement I got was a principal balance reduction of $400,000; my interest rate was reduced to 4.5% fixed for 30 years.

    • Lynne Rothchild

      VERY nice result, JStern! Unfortunately, I’m afraid anyone that’s not a millionaire able to afford a $2.1 million second home in the first place and then what was I’m sure a very high-paid attorney in the second place, would just be foreclosed upon and out on the street.

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