Government Fraud Case Against Bank of America Moves Forward

A court in New York ruled that there are “genuine factual disputes” that justify letting the case continue against the second-largest U.S. bank. Only a few prominent cases tied to the financial crisis have ever gone to trial.

Judge Rakoff also stated that he will decide before trial which specific legal theories he will allow the government to pursue. Presumably, he will announce that aspect of his decision within the next couple of weeks.

What he determines about what the proper scope of the trial should be of great interest to correspondent lenders who sold loans to Countrywide/BofA in the past, and who are now facing repurchase demands from that bank (or other investors) now. In fact, that “scope” ruling could be of great value to correspondents regardless of whether Rakoff allows few or many legal theories and claims to be pursued by the government.

If he rules that certain types if theories or claims cannot properly be pursued, then it stands to reason that correspondents should be able to defend themselves against similar claims by BofA by reminding the bank that those types of claims have been adjudicated to be legally impermissible by a prominent judge in this very prominent case.

Likewise, BofA cannot possibly suffer damages related to certain types of claims by the government if the government is not even allowed to pursue those claims at trial — therefore, any subsequent attempt by BofA to force correspondents to “make it whole” for supposed losses on such claims would be presumptively fraudulent.

On the flip side, if Rakoff allows a broad spectrum of types of claims to go to trial, correspondents should benefit from noting the lengths to which BofA goes to demonstrate that there was no problem whatsoever with the loans, underwriting practices, and loan programs in dispute.

All of BofA’s public protests about the quality and accuracy of the loan data and underwriting will be useful to quote back to the bank when it does a shameful about-face and demands that the third-party originators who sold it these loans should pay up for supposed “defects” related to loan file information and alleged poor underwriting.

Case Background

To recap the pertinent case background, the U.S. Department of Justice sued Bank of America last October, joining a whistleblower lawsuit originally brought by former Countrywide Financial Corp executive Edward O’Donnell.

It alleged that Countrywide, acquired by Bank of America in July 2008, caused more than $1 billion of taxpayer losses by selling defective home loans to Fannie Mae and Freddie Mac, the mortgage financiers seized by the government in September 2008.

The government said the loans went through a program called the “High Speed Swim Lane” – also known as “HSSL” and “Hustle” – that Countrywide devised in 2007 to speed up loan processing, even if it meant ignoring safeguards to help ensure that loans were sound and not tainted by fraud.

Bank of America, in court papers, countered that HSSL was a “legitimate and good-faith effort” to develop systems for making prime loans after the collapse of the subprime market.

Paddy Deighan J.D. Ph.D

http://www.homesavers.pro

Principal Reduction in Loan Modifications

Well, it seems there is a bit of hypocrisy coming out of Washington for a little change of pace. President Obama announced his nomination of congressman Mel Watt (D-NC) for director of the Federal Housing Finance Agency (FHFA).  Many homeowners around the country were delighted by this selection because Congressman Watt has a history of supporting principal reduction in loan modification programs.

The hope is that he will continue this position during his tenure as head of the FHFA. Current acting director of the FHFA, Edward DeMarco, has refused to allow Fannie Mae and Freddie Mac to include principal write-downs in their loan modification arsenals. Demarco argues that the practice not only jeopardizes the American taxpayers, but also rewards poor payment history and sets a bad example. Now Watt could be causing problems in this area himself. During his confirmation hearing in the Senate last week, Watt said that while he would not preemptively refuse to engage in write-downs, he also would not endorse the policy. Instead, he promised to “study carefully how that decision [to not do write-downs] was reached, what it was based on, and then I would build on that new information…and make a responsible decision.”

Not surprisingly, Watt’s apparent reluctance has upset many home owners who believed that he would definitely approve the controversial measure to engage in principal reductions as part of a loan modification program. He has been accused of backtracking and failing his constituents. This is particularly alarming since Watt was a vocal critic of DeMarco’s policies as a congressman. Watt responded that while it was his responsibility to support write-downs as a congressman because he had many underwater borrowers in his district, as director of the FHFA he would have to be “a strong advocate for taxpayers”. Watt is likely treading lightly around this issue because one presidential nominee to replace DeMarco has already been blocked.

As my Mother was known to say, “We will see what we shall see”

Paddy Deighan J.D. Ph.D

http://www.homesavers.pro

Litigation Reveals ASTOUNDING Claims of Abuse During Bank of America Loan Modification Applications

Well, the happy news out of BofA’ville just never seems to end. Last month I read that according to their CEO, Bank of America’ problems are behind them!!!! Really??  Wall Street is buying it but I am not!!! Recent litigation has revealed numerous statements by former Bank of America employees that are ASTOUNDING and SHOCKING!!!

According to Bank of America employees, the lender offered employees incentives for sending homeowners into foreclosure rather than modifying their loans!!! Special!!! The BofA employees stated under oath that they were “told to lie to homeowners about loan modifications and were rewarded for sending homeowners to foreclosure rather than modifying their loans”. The allegations and incriminating statements are part of the evidence being presented in a federal class-action lawsuit brought by homeowners against BofA. The homeowners say that the lender deliberately “thwarted their attempts to take advantage of the federal Home Affordable Modification Program (HAMP).” Former employees of BofA involved in the suit testified that they were “instructed to deny modifications for no reason, to pretend they had not received documents they received, to hold documents and then claim they were too old, and to cancel trial modifications for ‘nonpayment’ even when all payments had been received.” The employees also reported that the bank “drilled” into them that the longer loan modifications were delayed, the more fees the bank could collect, even if this meant “lying to customers.”

The mortgage workers reportedly received cash bonuses and gift cards for meeting quotas for sending distressed homeowners into foreclosure. Not surprisingly, BofA has denied all of these allegations and pointed to the fact that it has, so far, helped the most homeowners under HAMP of any lender. “[BofA] is committed to assisting customers at risk of foreclosure,” said spokesman Rick Simon via email. A former loan collector for the bank disputes this claim, saying that he received $500 for every 10 customers he put into foreclosure and adding that other collectors received gift cards to Target and Bed, Bath & Beyond for putting homeowners in trial modifications into foreclosure.

Paddy Deighan J.D. Ph.D

http://www.homesavers.pro

Bank Of America to Transfer More Servicing

Fannie Mae and Bank of America (BOA) recently announced an $11.6 billion settlement to a long-standing dispute Monday. Fannie Mae, is a government-sponsored enterprise that buys mortgages and bundles them and then turns them into securities. It has been legally pressuring BOA to buy back a significant amount of non-performing loans issued between Jan. 1, 2000 and Dec. 31, 2008. The allegation is that these loans were poorly underwritten. The bulk of those mortgages came from Countrywide Mortgage, which was acquired by BOA in 2008. As part of the settlement, BOA agreed to pay $1.3 billion to Fannie Mae to atone for alleged poor servicing on mortgages for Fannie Mae by delaying contacts with delinquent borrowers or failing to process foreclosures properly. While the settlement is aimed at compensating Fannie Mae, there are implications for many BOA mortgage customers. In coming months, they will be notified that someone else will service their mortgages. BOA, which has been pulling back from several areas of mortgage lending, got approval from Fannie Mae to transfer certain mortgage servicing rights to two firms, Nationstar Mortgage of Lewisville, Texas, and Green Tree, part of Walter Investment Management Corp . Nationstar Mortgage, which specializes in mortgage servicing, agreed to acquire $215 billion in servicing rights from Bank of America for about $1.3 billion. Executives of Nationstar, whose shares trade on the New York Stock Exchange, said in a conference call Monday they expect to take over the massive pile of mortgage servicing rights in a series of steps over the next nine months. In the meantime, BOA will continue to handle them. Specialty servicers like Nationstar focus on customer outreach to try to reduce losses. But changing mortgage servicers can often be a challenging experience for bank customers.

Both Bank of America and Nationstar promised a smooth transition. Yeh, right!!! “Servicing of accounts acquired will be transferred throughout the year in a manner that will ensure a smooth transition for our customers,” Nationstar told The Miami Herald in a statement. Paddy Deighan J.D. Ph.D http://www.homesavers.pro

There has Been NO Better Time than NOW to Seek Loan Modification

Everything in real estate seems to be cyclical. Housing markets go up and down; interest rates go up and down and so on. The real challenge is knowing when a market will change. Loan modifications all but disappeared in the Summer of 2010 because servicers were not processing and owners of notes were not modifying them. In February of 2012, the well-publicized “Attorney General” lawsuit against major lenders and servicers was settled. The settlement took full effect in July of 2012 and as a result, loan modifications are back. For one thing, you no longer have to be behind on your obligation. Owners who are current and who otherwise qualify for modification can receive relief. Another positive aspect of this wave of modification is that banks are required to modify the principle balance down to a point of neutral equity (reduce the principle balance down to the market value). The banks DO receive financial incentive to do this. They are doing this to receive money from the government and to satisfy charges of fraud and abuse. The banks will behave as long as the attorney generals of 49 states are watching them and so long as the pool of funds is available for them. Last week, there was another settlement of additional charges brought by the government against the same lenders and servicers. This placed another $10 billion at the disposal of the lenders and servicers if they modify loans. There has been no better time to modify loans. The guidelines to receive modification have not changed much but the motivation of the lenders has never been higher. However, this wave of modification will not last forever. It has been very cyclical and it is likely that another period of modification resistance will return. It makes sense to seek modification NOW and not to wait. If you or your clients have mentioned a modification, it makes sense to get started now as the process does take time (I typically quote 4-8 months). Paddy Deighan, J.D. Ph.D http://www.homesavsers.pro

Loan Modifications Statistics are Beginning to RISE!!

Many people evaluate the housing market by foreclosure statistics. I have previously blogged that this methodology is fraught with inconsistent variables that alter the findings (such as lenders purposely holding back foreclosure filings). Foreclosure activity remained elevated in the third quarter of 2012, but homeowners are fighting to stay in their homes. According to a report by the Office of the Comptroller of the Currency (OCC), servicers initiated 252,604 new foreclosure actions during the third quarter of 2012. Office of the Comptroller of the Currency Report Homeowners responded with 382,899 home retention attempts. Home retention actions include modifications and shorter-term payment plans. Of course, some of those home retention attempts address foreclosure actions initiated prior to 2012. The OCC reports that home retention efforts appear to be finally starting to work. Home Affordable Modification Program (HAMP) modifications rose 10 percent over Q2, and other forms of modifications increased by 54.2 percent. The Home Affordable Refinance Program (HARP) is also gaining ground, providing more than 80,000 refinanced mortgages in October 2012 alone. HARP article. On the basis of HARP II’s success, many lawmakers are hoping that a new version, HARP III, could continue to expand refinancing options to sub-prime borrowers who have remained current on their mortgages. It is likely (in my opinion) that the loan modification increase is due to the settlement with Attorney Generals in 49 states (Oklahoma did not join the litigation). Thanks to myriad factors like robo-signing, the foreclosure fraud settlement, seasonal trends, and foreclosure moratoria, many analysts claim it is impossible to actually get a clear idea about where the housing market is going. I believe that it is not practical to have a clear idea of where the housing market is…let alone predict where it will be in the short or long term. When you factor in the looming fiscal cliff, the uncertainty becomes overwhelming (even though I believe that the national media has grossly exaggerated the ramifications of the fiscal cliff. The name implies more danger than is really present). Paddy Deighan J.D. Ph.D http://www.homesavers.pro