Fannie Mae and Freddie Mac Now Say that Mortgage Principal Reductions are Good for BOTH Homeowners AND Taxpayers

Will Fannie and Freddie finally be making mortgage principal reductions now that their own analysis shows that doing so would benefit their own financial health—and make them better able to repay billions owed to U.S. taxpayers?

My last blog described Fannie and Freddie’s conflicting purposes: to make home ownership more accessible, but to do so profitably for themselves. And I showed how this inherent conflict has led to a political dispute between the Obama Administration on one side pushing for greater flexibility in helping distressed homeowners keep their homes—and specifically to allow principal reductions, while on the other side Edward DeMarco, the acting director of the Federal Housing Finance Agency (FHFA) and Fannie and Freddie’s overseer, disallowing principal reductions in order “to preserve and conserve [Fannie and Freddie’s] assets.”

Helping Homeowners Also Helps Taxpayers

But what if there is no conflict between these purposes? What if reducing mortgage balances would help hundreds of thousands of homeowners stay in their homes and at the same time would save money for Fannie and Freddie?  

That is the conclusion of a very recent not-yet public analysis by Fannie and Freddie presented to the FHFA, according to the ProPublica article: “Fannie and Freddie: Slashing Mortgages Is Good Business.”

The new analyses by Freddie and Fannie were done to assess the new financial incentives that the Obama administration announced in late January.  … . The companies now find that reducing principal on troubled mortgages has a “positive net present value” — in other words, that doing it would bring in more money for the companies over the life of the loans than not doing it.

The two companies’ analyses showed that upwards of a quarter million borrowers who owe more on their mortgages than their homes are worth could benefit from principal reductions. The companies would take a loss upfront, but over the long run these mortgage modifications would save the companies money because they would lead to lower default rates.

FHFA’s Response

DeMarco is thinking about it. In a statement he said:

“As I have stated previously, FHFA is considering HAMP incentives for principal reduction and we have been having discussions with [Freddie and Fannie] and Treasury regarding our analysis.”

But he also stated:

“FHFA’s previously released analysis concluded that principal forgiveness did not provide benefits that were greater than principal forbearance as a loss mitigation tool. FHFA’s assessment of the investor incentives now being offered will follow the previous evaluation, including consideration of the eligible universe, operational costs to implement such changes, and potential borrower incentive effects.”

DeMarco seems to be saying that this new analysis may well not change their policy. Why not? After looking at all their options (“the eligible universe”), and considering how borrowers would react to principal reductions (“incentive effects”), it seems to come down to “operational costs”—changes to their accounting and computer systems—which could outweigh the other benefits. It just might be too hard to change Fannie and Freddie’s operations so that principal reductions would work for them.

The Bigger Picture      

So is the FHFA so institutionally ingrained with the short-term profit motive that it would reject Fannie and Freddie’s own conclusions about principal reductions being good for their long term financial health? Does it have SO little ability to adapt? Does the FHFA have such tunnel vision that it can’t give any consideration to the potential benefits to the national housing market, where home values STILL continue to slide? And where in DeMarco’s comments is there any hint whatsoever of compassion for the millions of Americans—about half of them under his control—at continued risk of losing their homes?

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A New Alternative to Foreclosure: Mortgage to Lease

Bank of America is starting a pilot program that will allow homeowners at risk of foreclosure to stay in their homes. Essentially, it entails handing over the deed to the house to the bank and signing a lease that will allow them to rent the house back from the bank at a market rate. Borrowers will agree to a “deed in lieu” of foreclosure, which is less costly to the bank and damages the borrower’s credit less than a foreclosure. Former owners will be offered a one year lease with options to renew every two years at or below the current market price.

The initial breadth of the program has been released to 1,000 homeowners in Arizona, Nevada, and New York-and only homeowners who receive letters from the bank can participate. It is unclear yet how widespread the program will become.  Some have suggested a deterrent may be the need for the bank to comply fully with the Oregon and Washington landlord-tenant act in becoming a  landlord, which includes an obligation to maintain the habitability of the housing unit.  Are banks really ready to become landlords?  My guess is, not really.

For the full story, please visit: http://online.wsj.com/article/SB10001424052702304724404577297904070547784.html?mod=WSJ_myyahoo_module

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Fannie Mae and Freddie Mac Putting “Profits Before People”?

Now that Fannie and Freddie are essentially owned by the taxpayers, why aren’t these institutions doing more to help homeowners? Particularly, why are they so adamantly against allowing mortgage principal reductions?

These are questions that ProPublica, “an independent, non-profit newsroom that produces investigative journalism in the public interest,” has been following and reporting on in a recent series of articles. I’m highlighting two of those articles in this blog.

Inherently Conflicting Purposes

“Why Fannie and Freddie Are Hesitating to Help Homeowners” describes “Fannie and Freddie’s role in the housing market, and why it seems as if their actions often go against the interests of homeowners.” At the heart of it, these two institutions operate within a conflict about their core purpose: they were set up to make home ownership more accessible, but they are also supposed to make a profit. This first purpose would encourage Fannie and Freddie to be as flexible as possible to allow distressed homeowners to keep their homes. But the profit-making purpose would seem to run counter to letting homeowners too easily get out of their mortgage commitments.

Tax-Payer Takeover Only Complicated the Conflict

Now that taxpayers stand to gain or lose many billions of dollars depending on the profitability of Freddie and Fannie, that would seem to put more emphasis on profit-making and less on homeowner relief. On the other hand, providing significantly more help for distressed homeowners would arguably help stabilize home prices and improve the economy to everyone’s benefit.

As the ProPublica article states:

The two aims of Fannie and Freddie are continually at odds — policies encouraging refinancing and forgiveness for more mortgage holders can increase costs to the taxpayer-owned companies. While the administration has made relief for homeowners their priority, [Edward] DeMarco [the acting head of the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie] says his agency’s priority is to protect Fannie and Freddie’s profits, aka taxpayers’ assets. Of course, many of those taxpayers are struggling homeowners, and that is at the heart of the dilemma over Fannie and Freddie’s future.

Mortgage Principal Reduction Caught between the Conflicting Purposes

A second ProPublica article addresses whether Fannie and Freddie will allow some homeowners to reduce their mortgage principal balances. That decision hangs in the political balance because of this same conflict between profitability and helping homeowners:

The Obama administration has repeatedly tried to push principal reduction — reducing the size of a borrower’s mortgage — as a way to help homeowners, especially those with homes worth less than their mortgages. But… time and again, Fannie and Freddie wouldn’t participate: a crippling problem, since the two companies own or guarantee about half of the country’s mortgages.

[Edward] DeMarco [the interim head of the Federal Housing Finance Agency (FHFA), says principal reduction could cost taxpayers $100 billion. Some economists counter that while principal reductions might lead to a short-term hit for Fannie and Freddie, it would ultimately result in fewer underwater mortgages, fewer foreclosures and a healthier housing market — all good for Fannie and Freddie’s bottom line.

To give DeMarco the last word, until my next blog:

DeMarco has… [told] Congress many times that “as conservator, FHFA has a statutory responsibility to preserve and conserve the enterprises’ assets.” In plainer terms, he [states] that his role is to “make sure Fannie Mae and Freddie Mac undertake activities that don’t cause further losses for the American taxpayers.”

DeMarco has strongly asserted his independence insisting that he is promoting needed fiscal discipline.

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Foreclosures to Increase in Upcoming Months

Although we have seen a decline in foreclosures in recent months, there will be a turn for the worse for delinquent homeowners in upcoming months. This is due to the $26 billion settlement between the five big banks and state attorneys general over past foreclosure practices, which will enable banks to accelerate the foreclosure process.

These are the foreclosure stats: There were 69,000 completed foreclosures in January 2012, compared to 80,000 in January 2011, and 65,000 in December 2011. The number of completed foreclosures for the previous twelve months was 860,128. From the start of the financial crisis in September 2008, there have been approximately 3.3 million completed foreclosures.

Part of the slowdown has been due to borrowers fighting back against allegedly unlawful maneuvers by the banks and other abuses of foreclosure process.  Now that the way has been cleared for them to resume without threat of continued actions by attorney generals, the pace of actions will likely increase.  It is important to note, however, the settlement does not in any way prevent private parties from suing lenders and others who engage in wrongful or unlawful practices against them.

More info can be found here: http://www.thenichereport.com/breaking-news-2/foreclosures-decline-year-over-year-set-to-heat-back-up-with-huge-mortgage-settlement/

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Study Shows Chapter 7 Debtors Represented by an Attorney Are “Almost Ten Times More Likely to Receive a Discharge” of their Debts

My own professional experience about the dangers of filing bankruptcy without an attorney is validated by carefully analyzed data.

In my work as a bankruptcy attorney, I spend a fair amount of my time attending Chapter 7 “341 hearings” with my clients. That’s the usually straightforward 10-minute or so meeting with the bankruptcy trustee that everyone filing bankruptcy gets to go through a month or so after their case is filed. As I wait for my clients’ turn and listen to other hearings, I see the bad things that happen there to people who file bankruptcy without an attorney. I won’t go through a litany of horror stories here, but let me just say I’ve seen countless examples proving how dangerous it is to file a Chapter 7 bankruptcy without an attorney. Besides, I know how complicated bankruptcy laws and procedures are because that’s what I deal with day in and day out. Yet, I’ve always wondered: in actual fact, beyond my own professional knowledge and experience, how much more dangerous is it going without an attorney?

This question is addressed, among many others about the current state of bankruptcy, by a book that was published just a few weeks ago, Broke: How Debt Bankrupts the Middle Class. A compilation of articles by respected scholars, one of the chapters focuses on “pro se” filers (those without attorneys). The author of this chapter, Asst. Professor Angela K. Littwin of the University of Texas School of Law, analyzed data from the Consumer Bankruptcy Project, “the leading [ongoing] national study of consumer bankruptcy for nearly 30 years.” She concluded “that pro se filers were significantly more likely to have their cases dismissed than their represented counterparts.”

I haven’t yet gotten my hands on that book for the statistical details there, but in another closely related study from last year, Prof. Littwin concluded that “17.6 percent of unrepresented debtors had their cases dismissed or converted” to Chapter 13, [while] only 1.9 percent of debtors with lawyers met this fate.”  Even after controlling for other factors such as “education, race and ethnicity, income, age, homeownership, prior bankruptcy, whether the debtor had any nonminimal unencumbered assets at the time of the filing,” “represented debtors were almost ten times more likely to receive a discharge than their pro se counterparts.”

In her carefully understated and scholarly appropriate way, Prof. Littwin concluded that “there may always be additional unobservable factors for which I cannot control… [b]ut this analysis suggests that filing pro se dramatically escalates the chance that a Chapter 7 bankruptcy will not provide a person with debt relief.”

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How Quickly Will Bankruptcy Stop My Wage Garnishment?

Wage garnishments are stopped instantaneously… except that different state laws and procedures can effect what happens to the current paycheck.

Bankruptcy is a federal proceeding governed by federal law, but state law often plays into it as well. This question about stopping wage garnishments is a good example of the mix of federal and state law.

Except in rare circumstances (mostly involving income taxes and student loans), your wages cannot be garnished for repayment of a consumer debt before the creditor sues you in court and gets a judgment. That lawsuit will almost always be in state court, because the jurisdiction of federal courts is limited. The vast majority of the time debtors do not respond to such lawsuits by the legal deadlines, so the creditors win their judgments by default. Once your creditor has such a state court judgment in hand, it must then follow state law in collecting on it.

But states’ garnishment laws vary widely. Most states permit wage garnishment in some form, but a few restrict it to only very select kinds of debts (like child support, taxes, and/or student loans). Other states which do allow wage garnishment for conventional debts often have special garnishment statutes favoring some of those same select debts. State laws also differ on what part of a paycheck is subject to garnishment compared to the part that is “exempt,” or protected. And laws differ on the details of garnishment procedure, which can become critical as we return to the topic of this blog—how fast a bankruptcy stops a garnishment.

The moment your bankruptcy is filed, the “automatic stay” goes into effect. The filing itself operates as a “stay,” or a stopping, of virtually all collection activity. It operates as an immediate and one-sided court order against creditors, made effective by the very act of filing the bankruptcy case.  So the bankruptcy filing and the automatic stay stops a wage garnishment in its tracks.

But what if the bankruptcy is filed within just a day or two after the money has been taken out of your wages under a state court garnishment order but not yet turned over by your payroll office to the creditor? What does the Bankruptcy Code’s automatic stay require here when it says that the bankruptcy filing stops “the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the [bankruptcy] case”? (Section 362 (a)(2) of the Bankruptcy Code.)  Money that was taken out of your paycheck before your bankruptcy case was filed is not “property of the estate,” which consists of all your assets as of when your case is filed. But arguably it’s not your money either as of the time when your case is filed because it was already legitimately taken from you by the garnishment order. So can the creditor get that money that your employer is holding, or would that be a violation of the automatic stay?  

Because different state laws may have different answers to the question of who owns money that has been garnished from your wages but not yet forwarded to the creditor, whether the automatic stay prevents that money from going to the creditor can turn on those different state laws.

Overall, reputable creditors tend to be cautious about violating the automatic stay, and so will usually err on the side of caution to prevent doing so. But other creditors may be more willing to be aggressive, especially if the state’s statutes and/or courts have given them some cover to do so.

The bottom line is that your experienced bankruptcy attorney will be able to tell you two things:

1) what the interplay between the bankruptcy code’s automatic stay and your state’s garnishment law means for a particular paycheck of yours; and

2) whether your specific garnishing creditor tends to be cautious or aggressive about garnishments stopped by bankruptcy.

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The Bankruptcy Consequences of the National Mortgage Settlement

The bankruptcy world played a quiet but significant role in bringing about this controversial $26 billion settlement. So, fittingly, the settlement terms require the banks to make significant changes in their behavior in bankruptcy court.

Before leaving my current series of blogs on this mortgage settlement, I had to tell you about its bankruptcy angles.

The bankruptcy courts are where some of the earliest signs of bank misconduct appeared. For many years before the “robo-signing” scandal broke in the fall of 20010, mortgage lenders had been making a bad name for themselves in bankruptcy court with shoddy accounting and loose paperwork. Unlike most foreclosures—judicial or non-judicial—in which homeowners do not have attorneys representing them, the majority of homeowners in bankruptcy do have attorneys. So when, for example, mortgage lenders try to get “relief from stay”–permission to foreclose on a home under bankruptcy protection—the homeowner has both a convenient forum—the bankruptcy court—and an advocate who can point out to the court that the lender has not credited all the payments, that it has misplaced payments in some “suspense account,” and/or that it hasn’t even provided its own attorney with accurate accounting information or documentation.  

The bankruptcy system also had another player with a major role, as U.S. Attorney General Eric Holder highlighted when he announced the settlement last month:

The U.S. Trustees Program, which serves as the watchdog of all bankruptcy court operations, was one of the first federal agencies to investigate mortgage servicer abuse of homeowners in financial distress.  As part of their investigation, Trustees reviewed more than 37,000 documents filed by major mortgage servicers in federal bankruptcy court – and took discovery in more than 175 cases across the country. 

Accordingly, the Complaint filed against the banks as part of this settlement documentation includes a major section on “The Banks’ Bankruptcy-Related Misconduct,” listing 15 distinct types of misconduct. (See pages 34-38 of the Complaint.)

And each bank’s Consent Judgment contains a series of requirements related to their bankruptcy procedures. (See the Ally Financial/GMAC Mortgage/Residential Capital ”Consent Judgment” here, along with its exhibits, totaling more than 300 pages. The other banks’ Consent Judgments can be found here.)

Here is an example of some of the requirements, as applicable to the banks’ filing of proofs of claim (“POC”) in bankruptcy court, which they file to establish the nature and amount of a debt:

The lender “shall ensure that each POC is documented by attaching:

a. The original or a duplicate of the note, including all indorsements; a copy of any mortgage or deed of trust securing the notes (including, if applicable, evidence of recordation in the applicable land records); and copies of any assignments of mortgage or deed of trust required to demonstrate the right to foreclose on the borrower’s note under applicable state law  … .

….

f. The POC shall be signed (either by hand or by appropriate electronic signature) by the responsible person under penalty of perjury after reasonable investigation, stating that the information set forth in the POC is true and correct to the best of such responsible person’s knowledge, information, and reasonable belief, and clearly identify the responsible person’s employer and position or title with the employer.”

These requirements strike at the rampant problems with insufficient documentation and authorization, including assignments and recordings.  There are similar rules applicable to motions for relief from stay, about fees charged by lenders during Chapter 13 cases, and their loss mitigation behavior during bankruptcy.

Remember that this national mortgage settlement does NOT settle or waive any “claims and defenses asserted by third parties, including individual mortgage loan borrowers on an individual or class basis.” (See the Federal Release, Exhibit F, p. 42, and the State Release, Exhibit G, p. 10, in the Ally Financial “Consent Judgment,” by way of example.) In effect that means that debtors in bankruptcy are not limited by the settlement from pursuing mortgage lenders for their violations of bankruptcy law, including those laws referred to in this settlement. These lenders simply also have their feet to the fire for the next three and a half years while the settlement is in effect and they are being monitored for compliance with its requirements.

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National Mortgage Settlement to Hand Out Cash to Foreclosed-Out Homeowners

Most of the $26 billion or so in this national settlement is designed to help current homeowners keep their homes. But $1.5 billion of it will go to about 750,000 who have already lost their homes to foreclosure. That’s about $2,000 each.

Who’s included?

  • The entire settlement—including this foreclosure cash restitution payment—applies only to mortgages held by the five biggest home mortgage holders and their subsidiaries: Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial/GMAC and Citi. To contact these banks to find out if your mortgage is included, go to the special website for this settlement for their toll-free phone numbers and websites. (See the right column, under “Settlement Parties.”)
  • Your home must have been “finally sold or taken in foreclosure between and including January 1, 2008 and December 31, 2011.”
  • One state–Oklahoma—did not join in this settlement, so foreclosed homeowners in Oklahoma are not eligible for this payment.

 What are the conditions for receiving the money?

  • Although one section of the settlement website states that there’s “no requirement to prove financial harm,” the Executive Summary on the same website adds that eligible borrowers are those “who were not properly offered loss mitigation or who were otherwise improperly foreclosed on.” Sounds like some showing of improper servicing or foreclosure behavior by the bank will be required, without a need to prove that this behavior necessarily caused you financial harm. But exactly what information or evidence will be required is not clear yet.  
  • What is clear is that former homeowners will not need to release any potential claims against their mortgage holder in order to receive the money. The payment received would, however, be credited as an offset against any such other claim against the bank.

What’s the procedure and timetable?

  • Within about 90 days, a Settlement Administrator will be selected “to administer the distribution of cash to individual borrowers.”
  • Over the following six to nine months, that Administrator will work with the banks to identify the eligible former homeowners, and send out letters to them to apply for the payment.
  • If you are concerned about the Administrator having your current address, you should contact your Attorney General’s Office to have it send your address to the Administrator.
  • The amount to be distributed to each foreclosed homeowner will depend on how many people qualify and apply. And since the $1.5 billion or so pool of money paid by the banks towards these for payments also pays for “all the costs and expenses of the Administrator,” that reduces what will be available for the homeowners. (The actual amount of the pool, by the way, is actually exactly $1,489,813,925.00—I do not know the reason for that odd amount!).
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Senate Bill 1552B Passed March 5th Provides Strong Foreclosure Protection to Oregon Homeowners

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Senate Bill 1552B (passed by the House Rules committee unanimously) would provide key protections toOregonhomeowners. The B engrossed bill includes most provisions of SB 1552 and SB 1564 as passed by the Senate and would provide strong foreclosure protection toOregonhomeowners. The B engrossed bill contains the following elements:

  • Mandatory Meeting with Distressed Homeowners – Requires lenders to meet with homeowners who are underwater to discuss alternatives to foreclosure with a third party mediator upon borrower request.
  • Mediation for Homeowners in Default – Requires lenders to meet face to face with homeowners in default to negotiate possible alternatives prior to foreclosing, unless homeowner chooses to opt-out. 
  • Housing Counseling – Requires a homeowner visit a housing counselor prior to proceeding with mediation.
  • Fast Track to Mediation – If the homeowner is unable to get an appointment with a housing counselor within 30 days, the housing counselor requirement is waived so the homeowner can proceed directly to mediation.
  • Advance Notification – Notice of mediation must be sent 60 days prior to the notice of sale, which is 180 days before a bank can sell a home in foreclosure. The existing 120 day timeline from notice of default to foreclosure sale remains.
  • Authority to Negotiate – Banks must send someone to mediation that has the authority to accept or reject proposals for foreclosure avoidance measures. If good cause is shown, the mediator may allow the lender’s representative to attend the mediation by other means.
  • Attorney General Oversight – Directs the Attorney General to draft rules and oversee the foreclosure mediation program.
  • No Cost to Homeowner – Allows mediator to waive cost of mediation to homeowner.
  • Exception for Small Lenders – Lenders doing fewer than 250 foreclosures a year (including those filed by affiliates or agents) are exempt from the mediation requirements.
  • End to “Dual Tracking” – Prohibits banks from “dual tracking” homeowners (renegotiating loan terms with homeowners while at the same time  pursuing foreclosure) by only allowing a lender to foreclose if:
  1. The borrower has violated a current foreclosure avoidance agreement, or;
  2. The borrower is not eligible for any foreclosure avoidance measure.
  • Proper Notice – Once a lender has determined it can foreclose, it must provide the homeowner with notice 30 days before the foreclosure date is scheduled. If the sale is postponed, the lender must provide the homeowner at least 15 days’ notice of the new date.                                                                                                                                                                  
  • Right to Damages – A violation of dual tracking provision is liable for a $500 fine, actual damages incurred by the homeowner, and reasonable attorney fees to the prevailing plaintiff.
  • Cloud on the Title – Violation of either mediation or dual track provisions would create a cloud on the home’s title that would prevent a bank from selling an illegally foreclosed upon property.

The  Oregon senate bill 1552 is expected to be signed by Governor Kitzhaber.  Once that happens, these new provisions become effective 91 days thereafter.  

The main thing this does is set up a whole new state-run system of foreclosure workout mediation, which is a pre-requisite to all non-judicial foreclosures by any lending institution which conducts at least 250 of them in a year (so all big banks/servicers are subject).  It requires them to be physically present at the mediation together with authority to negotiate a deal and information such as borrower’s complete payment history, copy of actual note, and chain of title of trust deed.  Interestingly, it also appears to allow for a borrower who is in danger of defaulting to pro-actively make a request for this loan workout mediation ahead of any foreclosure notice being filed by the lender.   This could potentially open up a whole new avenue to getting loan modifications, short sales, and other workout options accomplished.

One other significant new provision is the new law will eliminate any possibility for deficiency in a residential trust deed foreclosure action so long as the borrower (or immediate family) lives in the property at the time of the initial DEFAULT leading to the foreclosure.  This is significant because under the current law, in order to receive this protection, the borrower must live in the property at the time the foreclosure action is commenced, which could be a lot later.  This will make it a lot easier for people to abandon properties to foreclosure without worry of deficiency if they wish to do so.

Two more really significant things in here I forgot to point out earlier:

1)      No more “dual tracking” – basically designed to stop lender from negotiating a workout while at the same time pursuing foreclosure – people will know one way or the other and should reduce those situations where the servicer says everything is coming along great, and then they find out the house was foreclosed on the same day, etc.

2)      This one is similar – lender must re-notify by serving a written notice of any postponement of auction which is either greater than 2 days from initial date or more than one postponement.  This will also eliminate the situation where borrower thinks the auction was cancelled, but really was just postponed by oral proclamation at the time, and no further notice ever required to be given.  This will change that quirky and dangerous system of the past.

The remainder appears to be a lot of language and syntax cleanup of the existing statute.

 

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The National Mortgage Settlement’s Actual Terms Finally Released

The settlement documents of the deal that was announced more than a month ago were finally completed and filed at court on Monday, March 12. They catalog page after page of serious wrongdoing by the banks in their servicing of mortgages and processing of foreclosures.

In my last blog I said that the settlement would be finalized and made public “any day now.” It actually happened only hours later.

The settlement documents consist of hundreds of pages, but I’ll make it easy for you.

One document talks about the past, the wrongdoing by the banks. That’s the Complaint. The plaintiffs are the United States, 49 of the 50 states (all except Oklahoma), and the District of Columbia; the defendants are five of the biggest banks—Bank of America, JPMorgan Chase, Wells Fargo, Citi, and Ally/GMAC, and their subsidiaries, totaling 18 named defendants. This 99-page Complaint is the subject of today’s blog.

The rest of the documents—one Consent Judgment for each of the five banks—talk about the agreed penalties for the banks’ past wrongdoing, but mostly focus on the future: 1) where the money from those penalties is going to be spent; and 2) the new standards by which these banks are now required to service mortgages and process foreclosures.  In my next blog I’ll talk about these penalties, and how they are supposed to help homeowners who have been hurt by the banks.

To say that the Complaint is 99 pages long is misleading, because it actually ends on page 48, followed by signature pages for each of the 51 plaintiffs. And In fact the document doesn’t really get to the point until the Factual Allegation starting on page 21. The detailed litany of bank misconduct goes on relentlessly for the following 16 pages, totaling 55 paragraphs of allegations, some including many subparagraphs of even more detailed allegations. It’s difficult to do justice to all this in one blog. To try to show both the breadth and depth of the alleged misconduct, I’ll give you most of the Complaint’s outline of the types of wrongdoing, and one or two examples quoted under each one:

A. The Banks’ Servicing Misconduct

            1. The Banks’ Unfair, Deceptive, and Unlawful Servicing Processes

Failing to timely and accurately apply payments made by borrowers and failing to maintain accurate account statements; imposing force-placed insurance without properly notifying the borrowers and when borrowers already had adequate coverage.

             2. The Banks’ Unfair, Deceptive, & Unlawful Loan Modification and Loss Mitigation Processes

Providing false or misleading information to consumers while initiating foreclosures where the borrower was in good faith actively pursuing a loss mitigation alternative offered by the Bank; miscalculating borrowers’ eligibility for loan modification programs and improperly denying loan modification relief to eligible borrowers.

   3. Wrongful Conduct Related to Foreclosures

Preparing, executing, notarizing or presenting false and misleading documents, filing false and misleading documents with courts and government agencies, or otherwise using false or misleading documents as part of the foreclosure process (including, but not limited to affidavits, declarations, certifications, substitutions of trustees, and assignments).

 B. The Banks’ Origination Misconduct

   1. Unfair and Deceptive Origination Practices

In the course of their origination of mortgage loans in the Plaintiff States, the Banks have engaged in a pattern of unfair and deceptive practices. Among other consequences, these practices caused borrowers in the Plaintiff States to enter into unaffordable mortgage loans that led to increased foreclosures in the States.

 C. The Banks’ Bankruptcy-Related Misconduct

Making representations that were inaccurate, misleading, false, or for which the Banks, at the time, did not have a reasonable basis to make, including without limitation representations contained in proofs of claim under 11 U.S.C. § 501, motions for relief from the automatic stay under 11 U.S.C. § 362, or other documents.

 D. Violation of Servicemembers Civil Relief Act (SCRA)

The Banks foreclosed upon mortgages without required court orders on properties that were owned by service members who, at the time, were on military service or were otherwise protected by the SCRA.

 The 55 paragraphs of wrongdoing resulted in these five banks agreeing to pay about $26 billion in a combination of cash and other forms, to the states and to individual homeowners. As I said, I’ll tell you how this is supposed to be divvied up in my next blog.

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