Archive for November, 2010
You can chalk this one up to kicking homeowners while they’re already down. Congress is considering eliminating the tax deduction for mortgage interest. This is a deduction that homeowners all across this county rely upon. What does this mean for you? If the deduction is eliminated, many, many Americans will see a significant increase in their tax bill.
The idea is being proposed as part of the so-called deficit reduction plan. While reducing the federal deficit is certainly a worthwhile goal, doing it by withdrawing a valuable tax deduction, with little warning, that many homeowners have relied upon for years doesn’t quite seem fair.
Citi is one of the banks that has found itself caught up in the recent foreclosure mess, could be facing more problems, including litigation. Not only is the bank being hit by homeowners challenging foreclosures, it is also facing possible liability to investors who bought Citi’s mortgages. To understand Citi’s potential problems (as well as other major banks), and also to better understand the current “foreclosure crisis,” it is important to understand just exactly what the big banks did with your mortgage (and the thousands of other mortgages they acquired).
Remember the movie “It’s A Wonderful Life”? Of course you do, it’s a holiday classic. The movie’s main character, George Bailey, had a small savings and loan bank in Bedford Falls. “Bailey Building & Loan” lent money to the citizens of Bedford Falls to build homes, stores, etc. Bailey Building & Loan loaned its actual funds, and when the homeowners of Bedford Falls made their mortgage payments, they sent a check to Bailey B&L (okay, those details weren’t actually in the movie…because who wants to watch a movie about banking).
The banking and mortgage industry today is nothing like what we saw in It’s A Wonderful Life. The company you got your mortgage from (the “originator”) most likely funded it with money from another financial institution. That originator then packaged a number of mortgages together and sold them to a big bank (such as Citi, JP Morgan, Bank of America, or Wells Fargo). The large banks then took thousands of home loans, pooled them together, and put that pool of loans through a process called “securitization.”
Through securitization, the banks would essentially create a corporate entity or trust that held this large pool of loans, then sell off interests in this new entity or trust to investors. This process was similar to setting up a traditional company and selling shares of stock in it. However, instead of owning tractors or equipment, this new entity only owned home loans. Investors would then have the right to revenues that came in as the homeowners repaid the loans.
In short, your mortgage is most likely not owned by the community bank down the street. It was probably sold to a big bank, pooled with thousands of other loans and “securitized,” and then sold off to third party investors (such as pension funds, university endowments, charitable trusts, etc.). This is where banks such as Citi, Bank of America, and Wells Fargo are finding themselves in trouble. These banks made certain representations to potential investors about the securities (generally referred to as “mortgage back securities”). As the deficiencies in the underlying mortgages have come to light in recent months, these mortgage backed securities have also taken a hit. And the investors are now looking at the banks that created and sold them these securities.
So the current mortgage and foreclosure mess that the banks created runs very deep. When they played fast and loose with mortgages, not only are they affecting the homeowners who just want to keep a roof over their family, they’re impacting innocent investors as well.
A woman in Maryland has decided the best way to fight her foreclosure is to go on a hunger strike. Whether or not this will lead to any resolution or not remains to be seen, but we certainly believe hiring an attorney is a much better alternative.
Chalk up a recent success for homeowners in the fight against wrongful foreclosures. Recently, attorney Walker M. Duke of Duke Law Office, P.C. in Dallas, Texas, obtained an injunction preventing JP Morgan and related entity Chase Home Financial from foreclosing on an Austin-area home. Mr. Duke filed a lawsuit against JP Morgan, Chase Home Financial, and American Homefront Mortgage seeking declaratory judgment that none of those companies owned the actual debt on the house and therefore, had no right to foreclose. See the lawsuit here.
“This injunction was a real victory for the homeowner, but it also sends a strong message to banks. I think we will see a trend of judges holding lenders accountable. If they want to foreclose on a house, they had better be able to prove they followed all the legal requirements,” said attorney Walker Duke, who successfully obtained the injunction.
But attorney Duke cautioned that the bank was not going to stop the foreclosure sale without a court order. “We literally stopped the trustee who was conducting the foreclosure sale on the courthouse steps. The bank had every intention of foreclosing on the home until we obtained an injunction stopping the sale while the lawsuit is pending.”
Duke concluded, “It just shows you how aggressive these banks can be. They take the approach of ‘foreclose first, ask questions later.’ “
Another election day has come and gone, and the talking heads have done their part to analyze what it all meant. One thing that has gone relatively unnoticed, however, was the nationwide results of many state attorney general elections. Of the 50 attorneys general that are currently investigating mortgage lender inproprieties, 17 were voted out of office. Included in this sweep was one of the leaders of mortgage fraud investigations, Ohio Attorney General Richard Cordray (who recently filed a lawsuit against Ally Financial’s GMAC Mortgage).
What does this mean for consumers and homeowners facing foreclosure? It’s hard to say at this point whether the newly elected attorneys general will pursue this matter with the same interest as their predecessors. However, one thing that is likely is at least a slowdown in the investigations as new administrations are established. There is a learning curve for every job, and the position of attorney general is no exception. Time will tell if they continue investigating robo-signers, mortgage fraud, and wrongful foreclosures. In the meantime, homeowners facing default or foreclosure would be well served to contact legal counsel to assess their rights and determine if the bank has acted wrongly.
Lately, the news has been full of analysts and pundits offering their opinions on the big picture surrounding the current problems in the mortgage industry (the “foreclosure crisis,” as they like to call it). One of the more commonly cited side effects is that an inability to foreclose will cause chaos in the real estate industry and artifically deflate home prices.
In other words, these experts and opinion makers are taking the approach that the ends justify the means. Simply translated, who cares about the legality of foreclosing because foreclosures are good for the market.
In my opinion, there could not be a more two-faced attitude. On the one hand, these folks want to enforce the loan contracts that were entered into. They just want the protections the law affords them. Sounds reasonable enough, right? Well, these same folks also want to pick and choose which contracts they can enforce, and which laws they want applied.
In most instances, your mortgage has been sold off several times over (without you ever knowing), and the bank that is trying to foreclose probably doesn’t even own the debt it’s trying to collect. That bank entered into contracts to sell your mortgage to investors through complex financial instruments. Not surprisingly, the bank doesn’t want you to know about those contracts, and it certainly doesn’t want to be bound by them when it tries to foreclose on your home. Banks also don’t seem to want laws relating to the technical requirements for the transfer of property to apply to them either.
While the banks and analysts warn about the result of suspending foreclosures (or even just making lenders establish that they have the legal right to foreclose), I worry more about a marketplace where contracts no longer mean anything. I worry about an environment where a company can collect a debt that they are not even owed–even if that means taking your home. Banks preach about the “disasterous” effects of slowing down foreclosures, but they don’t stop and consider the even bigger impact of wrongful foreclosures.
Under Washington DC law, every transfer of an interest in a mortgage must be recorded within 30 days of said transfer taking place. MERS’ action of simply electronically recording those transfers does not fly under DC law and according to the DC Attorney General in his statement released here.
Further, any foreclosure based on a MERS transfer that did not comply with DC recording statutes is tantamount to fraud.
While this only affects homeowners in DC, it is another sign that the tide is definitely turning and the system is not going to continue to turn a blind eye to what is going on out there.