Archive for June, 2011

As Lee Corso Would Say…

Not so fast my friend!

This is a pretty technical review of the proposed Bank of America settlement we posted on the other day, but it is great reading and raises some serious questions.

See Yves Smith’s article over at the fantastic nakedcapitalism.com

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Bank of America to Pay $8.5 Billion to Settle Mortgage Securities Fraud Claims

The legacy of fraud from Countrywide Financial continues. The Associated Press is reporting that Bank of America will pay $8.5 billion–that’s right, BILLION–to settle claims by purchasers of mortgage-backed securities. Investors had alleged that Countrywide (which was bought by Bank of America) sold them poor mortgage-backed securities that lost a substantial amount of their value. 

Now, what exactly are these “mortgage-backed securities” that were the subject of these claims and, perhaps more importantly, how does this impact homeowners?  Your mortgage loan has most likely been pooled together with thousands of other mortgage loans into a special entity called an asset-backed trust (which is a type of “special purpose vehicle”).  These trusts exist solely to receive income from mortgage payments, and then distribute the proceeds to owners of the trust (i.e. the “certificateholders”).  Bank sold “certificates” on the trust, which is kind of like selling shares of stock in it.  Investors would buy these certificates as a type of investment, with hopes that they would receive a return in the form a distributions (made from the mortgage loan income the trust received).

The trusts, and the Wall Street banks that set them up, were supposed to follow certain protocol and risk management procedures, as these were investment securities.  Insurance companies, pension funds, municipalities, and many other investors bought these certificates, believing they were good investments.  After all, the investors were counting on Countrywide loans–and what company was hotter in the mid-2000’s than Countrywide?

Well, hindsight has shown us that Countrywide wasn’t as squeaky clean as they once appeared.  They had questionable loan procedures and made thousands upon thousands of bad loans.  Which means investors in the pools of these bad loans lost billions and billions of dollars.  Not just Wall Street investors, but pension funds, too, that contained the retirement savings of millions of hard-working Americans. 

I’m sure one of the terms of this $8.5 BILLION settlement is that Bank of America will deny any culpability or guilt.  That’s typical of any settlement–standard lawyer operating procedure.  However, no company agrees to pay out that enormous sum of money without some risk of liability.

Now, what does this mean for homeowners?  In my opinion, it’s further confirmation of what I’ve already been preaching–you have to take control of your own destiny and don’t rely on the bank to look out for your best interests.  No modification or workout is final until it is signed in writing, and you can (and will) be foreclosed on while the process is pending.  Countrywide was willing to make loans they knew (or reasonably should have known) borrowers would never be able to repay.  Why?  Because repayment didn’t matter to them.  They packaged up the loan and sold it off to someone else, who eventually bore the risk of homeowners not being able to repay the loan.  On the one side, they screwed homeowners by selling them something they couldn’t afford.  And on the other side, they screwed investors by packaging up and selling bad securities.

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Do Not Count on the State Attorneys General

Unfortunately, the people elected (or appointed) to protect you from the likes of Wells Fargo, JP Morgan Chase and Bank of America from getting away with the theft of American homes are not doing their job.

While talks are ongoing between the State AG’s and the biggest banks involved with the foreclosure crisis, the numbers being discussed are, frankly, paltry. With the number of distressed homes (homes that are 30+ days overdue and/or in foreclosure) in the United States currently hovering around 6 million, having a total value of around 1.1 trillion dollars, the largest US banks are negotiating with the states to settle all potential claims for around 20 to 25 billion dollars.

Step back and think about that for a second. These banks want to settle with the states for 25 billion to secure access to property worth potentially 1.1 trillion. Well of course they do! Why wouldn’t they? It is a no brainer.

Luckily, at least one AG out there isn’t taking this lying down. Eric Schneiderman, New York’s Attorney General, is balking at these talks and says this isn’t enough. Calling it nothing more than a “quick, cheap settlement“, Schneiderman vows to veto the deal and retain New York’s right to go after these banks for the fraud committed on its citizens.

Threats of other AG’s simply ring hollow given the numbers being talked about.

But you, our faithful readers, can do something about this. Call or write your attorney general, your congressmen, the people who were elected to represent you. Not some faceless corporation at the root of the greatest housing meltdown since the great depression! Tell them this course of action is not acceptable. If the states, and thereby their citizens, are prevented from pursuing justice in a court of law, then the banks win by default as there can be no challenge. Sure, it cost them $25B to win, but that is a small price to pay when the prize is $1.1T.

We will watch these issues closely here at Lone Star Foreclosure, and until it is illegal for us fight against the wrongful foreclosure of our friends’ and neighbors’ property, we will continue to hit back and hit back hard.

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And the Pendulum Begins to Shift

Washington becomes the third state in the Union to adopt foreclosure protection for homeowners, which will go into effect next month.

Joining Nevada and Maryland, Washington state now provides homeowners facing foreclosure another option to help save their home.  Washington (like Texas and Utah) is one of 27 states where the banks can foreclose without going to court.  In our experience, this forces the homeowner to bring a lawsuit to stop the foreclosure as most national banks and mortgage servicers have little interest in negotiating once foreclosure proceedings have begun.  Now, in Washington, the banks will be required to enter into mediation before they can proceed with a non-judicial foreclosure. While this won’t solve the current foreclosure crisis, it will give homeowners in those states a little more time, and a few more options in determining whether or not it is feasible to save their home.

While such options are not mandated by the legislature in Texas, it does show the tide is shifting not only in public opinion, but in the legislatures of the land, toward the homeowners. If you are lucky enough to live in Washington, Nevada or Maryland, use the tools available to you. If not, an experienced attorney may be your only hope.

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Florida Homeowners Foreclose on Bank of America

Yes, you read the headline right–a Florida couple foreclosed on a Bank of America branch in Collier County, Florida. 

It began when Bank of America tried to foreclose on the couple’s home.  The only problem was that the couple paid for their home with cash and had no loan from Bank of America.  So, after a lawsuit was brought, the couple was awarded their attorney’s fees against the bank.  Despite multiple efforts from the couple’s lawyer to collect, Bank of America never voluntarily paid the judgment against them.  The couple then did what the banks do–with the help of the local sheriff, they began seizing the bank’s assets, including computers, file cabinets, and furniture.  Ultimately, the Bank of America branch manager wrote the attorney a check for the judgment.

Now that is sweet justice.

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