In April, 2010 Judge Gary A. Feess, U.S. District Court for the Central District of California, issued an opinion holding in substance that there is no injunctive relief against foreclosure based on lender RESPA violations. [see RESPA TRO Denial] Presiding Judge Irma E. Gonzalez in the Southern District held to the contrary in November, 2009, [see Preliminary Injunction RESPA Preliminary Injunction] albeit in a case apparently involving different facts. The gravamen is the same, lenders are running amok with foreclosures even though they cannot show the two basic things they need to show – (1) who owns the note and (2) how much is owed? Which opinion do you think best follows the law?
In February, 2010 I posted a Page entitled “Foreclosure Profits Beat Loan Mod” in which I reviewed the IndyMac Loan Purchase Agreement and Loss Sharing Agreement between the FDIC and OneWest Bank. These are evidently templates that the FDIC devised during the Resolution Trust era of the 1990s. The issue is whether these arrangements are fair or reasonable in practice. OneWest Bank, which bought out IndyMac in March, 2009, was involved in a short sale case that was disseminated over the internet. It was shown how, after reaching a threshold, OneWest gets a built in profit at the expense of the FDIC whenever there is a loss on a purchased loan. Among the many implications is the effect such sweetheart deals will have over the long term on the general public. Several major investors in OneWest already profited from the subprime mess, and now stand to reap obscene profits in this phase.
The spotlight went off after about a week, the video is no longer readily accessible, and the FDIC simply published a statement that the bank needs to incur a minimum loss amout before it can start taking profits from losses. In the March 27-28 weekend issue of the Wall Street Journal I found this article by Matthias Riekker with the above title indicating there are 94 of these loss sharing agreements outstanding that back $122 billion of assets. There were 175 bank failures in 2009 and 41 in the first quarter of 2010. The way these matters are handled continues to have an important impact on the average person and deserves careful scrutiny.
The Los Angeles Times carried an article March 17 entitled “More Homeowners are Opting for ‘Strategic Defaults‘” documenting the increasing trend of borrowers who stop making mortgage payments, even if they can afford them. It’s been a psychological issue with shame traditionally over-shadowing rational thought. Brent T. White, a Law Professor at the University of Arizona, published a study that made quite a splash on the internet entitled “Law Professor to Homeowners, Walk Away From Your Mortgage“finding that most homeowners still are not walking away due exaggerated anxiety over foreclosure’s percieved consequences in addition to shame and guilt. Since the conduct of financial institutions and government is cold and calucalting, homeowners end up bearing a disproportionate share of the cost of the meltdown.
Have you or anyone you know come up against this dilemma? Certainly it makes no sense to struggle to pay if the bank is going to take the house away anyhow.
In the Page entitled “Foreclosure Profits Deter Loan Mod” last week I suggested three possible motivators for banks to foreclose in preference to short sale or loan modification. Then I went to a seminar by attorney Michael T. Pines and another light bulb lit up brightly. Given the muddled situation with respect to rights and interests in loans that have undergone the securitization process, foreclosure is the quickest way to clean up the mess and consolidate profits with clear title to the asset underlying the mountain of paperwork. After all, the home is the only thing of real value in all this. In addition, the trail back to ill begotten profits that were pocketed during the course of previous loan cycling is erased and there’s a clear slate for renewed pillaging of the home when it gets back into the marketplace.
One West Bank recorded a profit last year of $1.6 billion [see LA Times Business 02/20/2010]. The FDIC stands to lose $11 billion. This one year of profits was more than OWB paid to buy predecessor Indy Mac from the FDIC in March of 2009. OWB’s feeding frenzy is being fueled by rampant foreclosures and turning loan modifications into a farce. Your personal experience by way of comment would help document.
The stated goal of the Home Affordable Mortgage Program is to modify 3 to 4 million mortgages by 2012. At a pace above 110,000 per month, nearly double last month, it could be that the program is on track by number of mortgages. But in dollar terms, $2.2 billion allegedly saved by homeowners doesn’t compute. Over what period of time? Total funding is $75 billion, so where, when and how is that money being spent?
A video appeared February 8, 2010 by a group called “Think Big, Work Small”. The subject matter of the video is a case history of borrowers who, by virtue of a series of agreements between One West Bank and the FDIC that were entered into when the failed IndyMac Bank was taken over by OWB last year, completed a short sale that resulted in an estimated 34% profit for OWB. To add insult to injury, the borrowers had to sign a promissory note to OWB for an additional $75,000. I studied the situation and wrote an article summarizing the highlights (see companion Page on this blog “Foreclosure Profits Beat Loan Mod”. It does appear that the loss sharing arrangement between FDIC and OWB facilitates quick, easy and virtually guaranteed profit maximization by foreclosure. What do you think?
Richard Worthington, younger brother of Michael Worthington, attended the global climate conference in Copenhagen as Professor of Political Science specialized in science and technology at Pomona College. In this article, Rick is interviewed by BBC Journalist Daniel Grossman for background on two polls, World Wide Views and Pew Center, that were taken to measure public concern about global warming. It is encouraging that when given time to think, US respondents were 90% in favor of urgent, tough action. Due to the importance of this issue, and given the likelihood that it will intersect with environmental law, not to mention the advantage of regular access to Rick for updates, it will be followed as a special interest topic on this web page.
The most recent legislative enactment in California designed to stem the rising tide of fraud in loan modifications may have been an over reaction. There has been a prohibition on attorneys charging fees in advance. How are borrowers supposed to get the help they need to extract performance from obstinate lenders?
See new Page entitled “Loan Modification Suggestions” for more information.