Big Banks See Fines and Penalties Coming

Bloomberg reported on Saturday that Bank of America and Wells Fargo/Wachovia, the biggest mortgage lenders, are anticipating significant fines, penalties, and legal costs to come from the many current investigations into questionable mortgage lending and foreclosure practices.  This news comes as the "Homeowner's Bottom Line" campaign has been meeting with states' attorneys general across the country to press for justice in the foreclosure crisis.

Of course, the devil is in the details.  What will and will not be addressed in the results of the foreclosure investigation has yet to be seen.  However, these big banks see enough significant impact coming that they felt the need to inform the public in a recent report filed with the Securities and Exchange Commission.

Foreclosure Fraud Day of Action

I've finally finished breaking down the proposals in the "Homeowner's Bottom Line."  In the meantime, the campaign has continued to progress.

Around the country, citizens groups met with their state Attorney General during the past week to discuss the ideas in the "Homeowner's Bottom Line."  On Thursday and Friday, from Massachusetts to California, they pressed the agenda to be included in the potential settlement between the state Attorneys General, the thirteen federal agencies with a horse in the foreclosure derby, and the powerful banking interests.  In North Carolina, fourteen leaders,  representing six broad-based organizations with over 250 congregations, institutions, and community groups, met with the NC Attorney General's senior staff.  We came from Charlotte, Davidson County, Winston-Salem, Guilford County, Orange County, Durham, and Raleigh, and our constituents stretch across most of the state.  We are blacks, whites, and Latinos seeking the common good.

Attorney General Roy Cooper currently serves as the President of the National Association of Attorneys General.  In that office, he has played an important role in pressing for a fifty-state investigation into foreclosure fraud.  We were pleased to find that a new staff member who oversees the Consumer Protection Division is now devoting much of his time to this foreclosure fraud investigation.  The AG's staff were well-informed on our proposals and demonstrated a commitment to pursue an agenda very similar to ours.  Since AG Cooper was one of the instigators in bringing about this investigation, we were not surprised to find that to a great extent, our leaders and his staff were on the same page.  Good exchanges of information and assistance were followed by agreements for continued cooperation.

We have a follow-up meeting with AG Cooper himself scheduled for April.  The investigation on foreclosure fraud is apparently moving very fast, and it could be that significant announcements will appear within the next month.  When I hear reports from other states, I will post again about this Day of Action.

Foreclosure Fraud 6: Appeals, Resetting the Market, and Criminal Charges

The "Homeowner's Bottom Line" concludes by addressing a few additional concerns.  The issue of appeals echos earlier concerns with transparency.  This process cannot be left to autocratic decisions by banks and mortgage servicers.  The formulas they are using, the comparisons they are making, the documents they are relying on--all of these need to be available for examination by homeowners and their advocates.  Moreover, if a decision seems unfair to the homeowner, there must be an appeals process for reexamining the decision to foreclose.

Second, the insistence on loan modifications and principle reduction should not become a point of contention between homeowners facing foreclosure and other homeowners who have been able to continue paying their mortgages.  This crisis, and the lending feeding frenzy that led up to it, has harmed the entire economy.  Speculative, inflated prices of real estate harm entire neighborhoods, not only the homeowners facing foreclosure.  If houses in a neighborhood face sharp devaluation, underwater mortgages, and foreclosure, it hurts everyone there.  Neighborhood devaluations spread to entire municipalities as housing values drop.  People who bought homes during the housing bubble may have payed inflated prices and interest rates.  To get the housing and mortgage market back to a rational level of valuation, we recommend loan modifications be made available to all homeowners.  Mortgage principle and mortgage interest rates should be reset at the current market levels for all borrowers who want loan modifications, whether or not they are facing foreclosure.

Finally, the reckless, devious, and unscrupulous actions of some mortgage brokers, bankers, and other financial executives betrayed their primary fiduciary responsibilities to homeowners, workers, investors, and the common good.  Some have committed criminal acts.  As in the investigation of the savings and loan scandal, appropriate authorities at state and federal levels should bring criminal charges against any and all persons responsible for contributing to this crisis of credit, unemployment, foreclosure, and economic collapse.

Problem: Under the current system, borrowers who are denied for loan modifications do not have access to any kind of appeals or escalation process to have the decision reviewed for accuracy.

Solution:

Every borrower must have the right to appeal to an independent third party-a court, mediator or public agency-that can review the servicer's loss mitigation effort.  Foreclosure must be stayed during the appeal.

Problem: Mortgage fraud has caused a ripple effect of negative consequences for families, communities and government, including reduced property values, negative equity for millions of American homeowners, widespread job loss, and massive state revenue shortfalls.

Solution:

Allow homeowners to refinance at current interest rates and market values.

Problem: Throughout the entire mortgage process, from origination to servicing and modification, banks and bank executives have consistently broken the law.  Bank executives knowingly made and purchased deceptive and predatory mortgage loans; fraudulently packaged those risky loans as AAA high quality investments; ignored the securitization rules they themselves wrote; and systematically falsified loan documents in a rush to foreclose on families.  But so far, not a single bank or bank executive has had to face justice or pay for their crimes.

Solution:

As the top law enforcement officials in our states, Attorneys General must seek criminal penalties as they discover bankers and servicers who broke the law.  Banks and bank executives are not above the law and should not escape the consequences for their illegal actions.

 

Foreclosure Fraud 5: Help for All Who Have Been Harmed

The relentlessness of the current foreclosure crisis can push one to despair.  There is endless talk about solutions, but too many people get their hopes up only to see nothing change.  Many striving for some way to keep their homes wait and wait until the time and opportunities run out and their homes are taken. 

There have been many stories of improper foreclosure proceedings through which people who had not missed any house payments found their homes sold at auction.  They were told that since it was a legal sale, they could do nothing about it.  Even more people, guided through a loan modification process and assured by a bank that the modification is forthcoming, have awoken one day to discover that their homes will be sold at auction anyway.  This does not even take into account the foreclosures completed by banks and servicers who have not produced any proof of their right to foreclose on the home.

In the meantime, millions more homeowners are facing foreclosure in the coming year.  A loan modification solution needs to be available soon so that these foreclosures will not continue to drive people from their homes and further undermine and harm the housing market.  Yet fairness requires that those whose homes have been fraudulently foreclosed have recourse to recover their home and investment.  A just solution must take all of this into account.

Problem: Because of entrenched problems and long-standing fraudulent practices, many families who should have received a loan modification have already been harmed, including the loss of their homes.

There are two basic categories of homeowners who have been harmed by servicers' malfeasance: (1) those who have lost their homes; and (2) those who are still in their homes, but have been denied a loan modification, pushed into default, or merely had improper fees tacked onto their account.

Solution:

• Remedies for Those Still in Process

For homeowners who have not yet lost their home in a foreclosure sale, servicers should institute a supervised, full review of every file marked in default. This review must include a review of the payment history, including the timing and application of payments and the validity of fees charged.

1. Homeowners found not to be in default should be removed from foreclosure, corrections of credit reporting status must be provided to the credit bureaus, and accounts should be fully corrected.
2. All pending foreclosures should be halted while this review takes place, and dual track processing must be stopped on all loans so that the modification review can be completed.
3. Fees should be rolled back and limited to reasonable and necessary ones.
4. Recalculation of principal balances should be done to account for improperly assessed fees or overcharged interest.

• Remedies for Those Whose Foreclosures Have Been Completed

The servicers should also be required to undertake a review of all completed foreclosures to identify any cases where the foreclosure was executed on the wrong home, where the homeowner was not in default, and where the foreclosure was completed without completing the loan modification review process, providing a written denial to the homeowner, or failing to offer a qualifying homeowner an appropriate modification.

1. If the home has not yet been sold to bona fide third party, the servicer should offer to restore the mortgage, with a reduction of the principal balance to account for all assessed foreclosure fees, as well as any improper fees.  If the homeowner cannot afford the current mortgage payments, they should be assessed properly for a loan modification under the procedures established above.  Servicers must further provide corrected credit reporting to the credit bureaus to mitigate the negative credit reporting.  A restitution fund should be established, funded by the servicers, to provide damages to this class of injured party.  

2. If the home has already been sold to a third party or if the homeowner no longer wishes to retain the home, the servicer should be required to refund to the homeowner all foreclosure fees assessed against the homeowner's account, plus the amount by which the valuation the servicer relied on exceeds the foreclosure sale price.  Servicers must also take steps to repair the homeowner's credit in these situations.  A restitution fund should be established, funded by the servicers, to provide damages to this class of injured
   party.  

3. If the homeowner who was subject to a wrongful foreclosure cannot be located, the servicer should be required to deposit the money that would otherwise be paid to the homeowner into the fund for legal services and housing counselors.

The last post in this series will cover a few final concerns, including the criminality of foreclosure fraud.

Taking the Showdown to the Texas Senate

One of the efforts for economic justice of which I have been a part in recent months goes by the name Showdown in America.  On February 22, the showdown made its way to a committee hearing in the Capitol of Texas.  An overflow crowd packed into the Committee on Business and Commerce of the Texas Senate, lining up to give public comment on legislation designed to eliminate a loophole in the Texas credit laws which has allowed payday lenders and car title lenders to avoid regulation and charge "fees" and interest rates amounting to APRs of 300%, 395%, 529%, 740%.  It is almost a reverse limbo dance: "How high can you go?  It's the payday lending rock."

Things got pretty hot when the CEO of a national payday lending business testified, and in the process was unwilling to go beyond the party line:  if Texas applies any new controls or interest caps on the "short-term, small principle" lending business, we will all go out of business.  The senators finally had their fill of this vague, undocumented scare tactic.  They demanded that credible documentation and good faith negotiation had better come fast from this industry if they want to have a say in how this legislation turns out.  It was a sight to see.

After a break for the Senate to do some business, the committee reconvened in the afternoon.  Suddenly, more forthcoming witnesses discussed a path toward mutual interest in regulating these businesses.  Forced to admit that their businesses are profitable in many states where regulations are much more strict, industry representatives offered to dialogue further on the kinds of regulation that would allow them to stay in business.

A friend of Shaw University and a well-known leader among Baptists had opportunity to speak in the morning about the effects of predatory lending where their church ministers, Rev. Freddy Haynes of Friendship West Baptist Church in Dallas.  He said, "Instead of throwing them a lifeline, we're throwing them shackles."  Rev. Chad Chaddick, pastor of Northeast Baptist Church in San Antonio told of predatory lending affecting his church's ministries.  Bishop Joe Vasquez of the Catholic Diocese of Austin, addressed both the tradition of Catholic social teaching and the ways that it had become clear that the diocese's funds were indirectly subsidizing profits of payday lenders when desperate borrowers came seeking charity from the churches.  Suzii Paynter of the Texas Baptist Christian Life Commission laid out extensive information on the way the business operates, then made an impassioned plea to the senators that they owed as much concern and compassion toward families harmed by predatory lenders as they seemed willing to show toward business owners trying to make a buck.

I hit a few key points that have been recurring themes of my public work on usury in the past year.  Below see my remarks and a video of my testimony that was broadcast live on the Texas legislative television coverage.

Remarks presented to the Texas State Senate

Committee on Business and Commerce

February 22, 2011

Rev. Dr. Mikael Broadway, Associate Professor of Theology and Ethics, Shaw University Divinity School, resident of Bell County, TX, http://mbway.blogspot.com

My name is Dr. Mike Broadway, and I am a Baptist minister and theological professor living in Salado.  I am representing myself as a citizen. 

For the past year and a half I have been working with a wide range of church people, including pastors and seminary professors, to address economic injustices which have become increasingly acute in the wake of the mortgage security debacle and the burst housing bubble.

Along with other leaders, I have met with the top credit and mortgage executives of Bank of America and Wells Fargo/Wachovia to address usury and  justice issues.  I have also joined leaders from around the nation to meet with Attorney General Tom Miller of Iowa to articulate our concerns for justice pertaining to a national investigation of foreclosure fraud perpetrated by major national and regional banks, of which he is the lead investigator.  Only last week we sent a letter to all the state attorneys general, including Texas Attorney General Greg Abbott, to outline a path toward economic justice in housing.

I give you this background because I want to emphasize that the struggle against usurious lending is not only a Texas struggle, but a nationwide struggle.  In many states, legislators like you have worked diligently with citizen leaders to try to clean up the predatory lending practices that continue to spring up in our cities, towns, and neighborhoods. 

All of you can agree with me that lenders and borrowers need to operate in a system built on fairness.  That is what the millennia of historical usury laws has been about.  Under this assumption, for four thousand years financial institutions have been able to succeed and flourish under the careful regulation of interest rates to protect people from usury.  Yet for some reason we now find ourselves, because of laws made in 1979, 1980, and 1987, operating with few legal protections from usury.  Perhaps contemporary humans have overestimated our maturity in failing to listen to the wisdom of four millennia, which recommends strong usury laws.

Of course, there have always been people who believe they should be able to charge as much as they want to lend money.  In saner times, we knew what to call them:  loan sharks.  Nowadays, they pass as respectable business operators.  When a legislature musters enough moral courage to try to prevent the worst forms of usury, these predators search the fine print and locate every loophole in the letter of the law.  Exploiting these loopholes, they find new and creative ways to abuse borrowers and scoff at the spirit of the law.  The latest way is to pretend that interest is not interest by calling it a fee.  The current abuse of payday lending and car title lending is an egregious example of this bald-faced lie.

If I borrow money from you, and you charge me for borrowing that money, then that is interest.  The ancient text of Deuteronomy makes it very clear that usury is usury, whether you collect a fee up front, you charge it along the way, or you claim it at the end.  The heart of the legal tradition’s bias against usury is that it is wrong to victimize the poor and weaker members of the community by creating lending practices which prey upon their weakness. 

Payday lenders may claim that closing this loophole will make it impossible to do business.  It will make it impossible to do business the way they do it.  But from my observations around the country, let me say that it will not make it impossible to operate a fair lending business among people of low and moderate income.  Numerous workable business models exist, from non-profits like Grace Period of Pittsburgh, PA, to microlending banks, to community banks and credit unions.  These businesses can make fair, non-usurious loans to fill the need of people who patronize payday lenders.

One of the shameful practices of the recent past in our nation was known as sharecropping.  Theoretically, it was a way for people to apply their labor to improve themselves and benefit the landowner, whose land they farmed, at the same time.  In reality, it was often a trap to keep people in debt to the landowner, living as debt slaves, perpetually indebted.  The biblical tradition opposing usury has at its core the assumption that no society can be just if it creates and maintains a permanent debtor class.  There must be a way out of debt.  Payday lending as we have it now is debt sharecropping . . . debt sharecropping.  Its business plan is perpetual indebtedness of its borrowers.  Please close this loophole and help our state take another step toward economic justice in consumer credit.

Fresh-Ground Coffee

Thanks to my infinitely lovable brother-in-law Jim Lowder for the gift of a Capresso coffee grinder.  I had burned out and fixed and burned out again my coffee grinder almost a year ago, so I was back to depending on getting my coffee ground before I brought it home.  I was a bit perturbed by reading opinions and reviews of coffee grinders and had given up on getting one.

Jim has had long experience grinding his beans for coffee, and he had the kindness to solve my dilemma with a Christmas gift.  I've used up my ground coffee stocks, so I started a couple of weeks ago grinding beans with a bag of Larry's Beans Holiday Blend.  One way I know the coffee is really good (which means really strong) is that no one else in the house can stand it.

Thanks, Jim, for just the right gift.

Foreclosure Fraud 4: Reigning in the Imbalance of Power

Anyone who has negotiated a price for a car knows what happens next.  Having agreed upon a price, the salesperson or clerk starts filling out an invoice and adding more fees, charges, and items over and above the agreement.  A whole new round of negotiations starts, and unless the buyer is willing to walk away from the car, she or he may be stuck with paying these "mandatory" fees.

Banks and other lenders have taken a page from the car dealer's book, and they must have entire departments devoted to thinking up charges and fees with fancy and official-sounding names.  With the passage of reforms for the credit card business and other consumer credit, these fee inventors have redoubled their efforts to replace outlaws charges with new ones.

If there is any fairness in the consumer credit industry, then this ability to arbitrarily and independently add fees and charges has to be reigned in.  Borrowers need to be able to enter discussions on modifications with at least the presumption that the process has their interest as a concern along with the lender's interest.  We want the attorneys general to enforce procedures which help maintain a balance of power in the loan modification and foreclosure process.

Problem: Servicers take unfair advantage of borrowers in default by charging multiple fees, sometimes for services that are unnecessary, and sometimes for costs that are disproportionate to the service being performed (in some cases by affiliated companies).

Solution:

All Fees Must Be Reasonable and Transparent

All servicer fees must be bona fide and reasonable and fully disclosed to the borrower.  Lender attorneys fees charged to borrowers may not exceed bona fide and reasonable fees for work.  Fees may only be collected for services actually rendered or for work actually performed.

Forced-place Insurance Severely Limited

The use afforce-placed insurance must be limited to reasonable application, affordable payments and only after other options, including borrower's option to purchase on open market, have been exhausted.

Problem: For any requirements (including those already in place), adequate enforcement provisions and staff must be put in place so servicers are not able to ignore the requirements with impunity.

Solution:

• Each settlement should contain the creation of an ombuds-office under the AG that will investigate violations of the agreement. Fines should be imposed for violations of the agreement if servicer refuses to cure. Also, the AGs should have the right to issue a "cease and desist" letter to halt foreclosure activity during the investigation.
• A portion of any monetary funds from the settlement should be directed to legal aid and housing counseling groups to assist with modifications and enforcement of agreement including foreclosure prevention litigation.
• In addition to assigning each borrower a single case manager, a single team should be created in house at each servicer as part of the settlement to oversee loan modification activity under the settlement.

The next post will deal with which people should have relief and recourse in dealing with foreclosure fairness and foreclosure fraud.

It's a Nationwide Fight Against Predatory Payday Lending

For numerous years, a fight has been going on from state to state and on a national level to curb and stop usurious payday lending.  This loan-sharking business exists by finding the cracks in the laws.  They hire sophisticated lawyers to find the legal loopholes, and slick PR firms to explain why they fill a need in the credit market.  They prey on desperate people and pretend to be a friend of the people who need credit.  The real nature of their business, however, is to be debt sharecroppers.  They gain an interest and claim on a person's future income in perpetuity.  It is a business designed to entrap borrowers so that they can never get out of debt.

I'll get a chance to speak about this predatory business at a public hearing on Tuesday, February 22, at the Texas Senate Committee on Business and Commerce.  I am impressed with the work of Texas Faith for Fair Lending, at whose invitation I will be speaking.  Some of these folks are the ones I used to work with as a wet-behind-the-ears seminary graduate in the mid-1980s.  In those days, these organizations were working to protect and provide for children in poverty and trying to hold off the tsunami of state-sponsored victimization through gambling businesses.  Suzii Paynter of the Texas Baptists Christian Life Commission will be part of the fight, and I am proud to get to work with such a distinguished drum major for justice.  The quoted material below comes from the Texas Faith for Fair Lending web site.  You can read the original at this link.

Payday Lenders and Car Title Lenders Evade Existing Texas Lending Laws

Although Texas lending laws provide generous regulatory and fee structures, payday lenders and car title lenders sidestep these provisions by posing as credit services organizations (CSOs), giving them an unfair advantage in the lending landscape.  As CSOs, payday and car title lenders operate outside of the bounds of the rules set for all other consumer lenders in the state and exploit a state law designed to protect consumers from seeking credit repair help. Both payday and auto title lenders could operate under Ch. 342.  For the smaller loans, auto title lenders could use the rate computations under 342F (or 342E).  For larger loans, they could operate under 342E.ⁱ

Below is a comparison of Texas's existing lending law which payday and car title lenders evade, and a snapshot of their abusive practices permitted by the CSO loophole.

It's Time to Level the Playing Field. 

The state's CSO statute was designed to protect consumers from abuse when seeking credit repair help, not as a vehicle for loans that result in long term indebtedness.  After more than 5 years of permitting this evasion of state law to continue, it is time for legislators to close this loophole, and ensure that these lenders operate under the Texas lending laws in place for all other consumer lenders.  It's time to close the loophole.

__________________

ⁱ The maximum loan under subchapter F is $1,240.  Under subchapter E, loans of up to $15,000 may be made.

ⁱⁱ Under existing Texas lending laws, finance charges for payday loans are set by the Texas Office of Consumer Credit Commissioner (OCCC).  Texas OCCC's authority to set these rates comes from TFC § 342.007, which allows the finance commission to establish rules for payday loans, and in TAC § 83.604(c) which incorporates the fees by reference.  For current Texas OCCC rates, see http://www.occc.state.tx.us/pages/int_rates/Index.html and click on the link for “Deferred Presentment Transaction Rate Charts.”  However, instead of complying with this law intended for them, payday lenders operate as CSOs, for whom there is no limit on finance charges, and rates reach upward of 500% APR (and higher) fur a loan that typically has a 14-day term.

ⁱⁱⁱ Under existing Texas lending laws, car title loans can carry finance charges consisting of a $10 set fee, plus $4 per $100 a month installment charge.  Car title loan finance charges are authorized under TFC § 342.253, which incorporates the fees permitted by TFC § 342.252 (3).  In addition to these finance charges, under existing Texas lending law, TFC § 342.502 (b) (5) expressly permits a “fee for recording a lien on or transferring certificate of title to a motor vehicle offered as a security for a loan.”  (The recording fee is not included in APR calculations because they are excludable from inclusion in the finance charge under the federal Truth in Lending, Act, Reg. Z § 226(e) (l).)  However, instead of complying with these state lending laws intended for them, car title lenders operate as CSOs, for whom there is no limit on finance charges, and rates reach upwards 300% APR fur a loan that typically has a 30-day term.

^iv Regardless if the cost is classified as "interest” or “fees” under state law, the cost to the borrower is the same.  The federal Truth in Lending Act requires that both interest and fees be combined and disclosed to borrowers as an Annual Percentage Rate (APR).  Federal law requires the cost of the all credit to be disclosed in terms APR, regardless of whether the loan is for two weeks or two years.

^v Existing Texas laws expressly permit payday loans to use a borrower's post-dated check as collateral for the loan, and expressly permits car title loans to use a borrower’s title to her car as collateral.  For payday loans, see TAC § 83.604 (b) (“The check given in the [payday loan] transaction may serve as security for the payment of the loan.”).  For car title loans, car title as security is not expressly prohibited under TFC § 342.503 and is stated as a permitted practice for authorized fees in TFC § 352.502 (b) (5).  However, even though the CSO statute does not expressly allow any of these collaterals, these payday and car title lenders operating as CSOs use checks and car titles as collateral respectively, as well as electronic access to a borrower’s debit account and a letter of credit issued by the CSO.

^vi Under existing Texas lending law, payday lenders and car title lenders, just like all other consumer lenders and brokers, are subject to oversight by the Texas OCCC.  Although CSOs are subject to private litigation and oversight of the Attorney General, these provisions have proven insufficient to protect consumers against abusive high cost lending.  CSOs are the only entities engaged in consumer lending transactions that escape oversight and compliance requirements of the OCCC.

I'll let you know how it goes.  This will be a first for me.

Foreclosure Fraud 3: Clear and Unequivocal Communication

When a bank working on a possible mortgage modification tells a borrower to stop making payments in order to allow the modification to proceed, usually in another office of the bank a red flag flies up to say that the foreclosure clock must start ticking.  One mouth says stop making payments and become delinquent in order to get paperwork moving.  Another says don't stop payments unless you want another set of paperwork to start moving.  Case after case in the past year has found homeowners receiving notification of a modification offer almost simultaneously with notification of a foreclosure sale.  By now you are all thinking about an old saying having to do with a left hand and a right hand.

This kind of carelessness and lack of concern for customers has characterized the current foreclosure crisis.  Admittedly, banks do not traditionally have enough staff to handle the current volume of potential loan modifications or the current volume of potential foreclosures.  In trying to ramp up while also keeping staffing numbers down, the result has been libraries of lost paperwork, constant restarting of the process, and a different answer from the servicer every time a homeowner makes contact.  Getting the banks to clean this up would seem to be in their interest, but when banks are as large as Wells Fargo and Bank of America, there is also a kind of internal struggle over which departments get to do what they should and which ones just do what they can.  We think that it is more than reasonable for homeowners to expect better.  What follows is a second part of what we are asking the Attorneys General to do.

Problem: Servicers proceed with the foreclosure process at the same time as they are conducting a loss mitigation process. This leads to borrower confusion and further complicates the process and the communication between borrower and servicer. It also leads to unjust foreclosures before due diligence is completed in the loan modification process.

Solution:

Mandatory and Standard Loan Modification Review

Foreclosures should not be initiated until the servicer does a complete review of a borrower's file. If the borrower is already in foreclosure when he or she requests a review, the foreclosure process (and not just the final sale) must be suspended until the review is completed.

a. This review must include the complete payment history; the contact log; and any other relevant information to determine whether the borrower is actually in arrears.

b. This review must include a determination that all loss mitigation requirements (as set out by HAMP, investors, FHA, GSE's, etc.) have been met, and the servicer must disclose to the customer all inputs and calculations done to establish qualification for a loan modification (see NPV transparency above).

c. Servicers must develop a protocol for evaluating Pooling and Servicing Agreements for investor restrictions and must seek a waiver if necessary.

Written Confirmation of Review to Borrower

If a borrower is not offered a loan modification, the servicer must provide a sworn affidavit to the borrower, disclosing the reasons for denial, including

a. any calculations done to determine loan modification eligibility; and

b. if the denial is due to investor-imposed restrictions, the specific language in the PSA prohibiting the modification, instructions on how the borrower can view the full PSA, and a written log of the servicer's efforts to obtain a waiver of this restriction.

Borrower Appeals Process

The denial letter must provide the borrower with an opportunity to appeal this determination to a neutral party. Foreclosure can only be resumed after written denial has been provided and time for an appeal has passed. If an appeal is pending, no foreclosure can be resumed.

No Legal Foreclosure Without Proof of Due Diligence

Servicers should be required to file a certification of loan modification procedures as a precondition to a foreclosure sale. In the case of a non-judicial foreclosure, the government official responsible for recording deeds and other transfers of property in the jurisdiction in which the property is located shall not permit the recordation of a deed transferring title after a foreclosure without certifying that the party conducting the sale has demonstrated that the requirements of this section have been met. A sale of property in violation of this subsection is void.

Consistent Communication with Consistent Staff

Upon contacting the servicer, the borrower must be assigned a case manager that will remain with that borrower throughout their loss mitigation experience. This case manager will have decision-making authority and access to the highest levels of management in the company. It is permissible for additional line staff to assist the case manager, as long as the case manager is always accessible to the borrower.  If a servicer is temporarily incapable of providing this adequate staffing level, the servicer must refer to a licensed special servicer until adequate staffing levels are reached.

The next post will deal with the imbalance of power that leads banks to multiply additional fees and get by with ignoring the law.

Ecclesia Houston--What Would Dad Think?

I worshiped at Ecclesia on Taft St. in Houston today.  It has some of the expected features of emergent-type congregations: 

• a repurposed building, 
• a coffee shop and coffee drinking in the service, 
• people worshiping in casual clothes, 
• a worship band and large-screens for lyrics and video, 
• a slight techie feel combined with functional furnishings, 
• a sense that the setting is an impermanent stop on a longer journey, 
• an ambivalent relationship with popular culture, 
• one foot in the ancient Christian tradition, 
• a fair share of small beards and goatees, and 
• conversational worship leadership and preaching.

My dad (Rev. Dr. W. D. Broadway), aged 80 and a Texas Baptist preacher for over 60 years, would call this type of church a "Rock Church."  I'm sure that is language harking back to my teen years when a youth movement of evangelical Jesus Freaks and Catholic folk masses were challenging the fixed norms of worship practice across many denominations.  Dad still uses the term to refer to most "praise and worship" style worship services with a worship band, especially those that sing unfamiliar songs with indeterminate melodies, led by CCM wannabe soloists that seem to be imagining they are performing to ticket-purchasing fans rather than leading congregational singing (I agree that he is right to be disgusted by that kind of deformed church service).  But the latter does not describe the worship at Ecclesia.  Dad would probably have found this kind of Rock Church worshipful.

The first thing I noticed was that the worship band and read-along screens were leading the congregation in singing traditional hymns.  It was not just one hymn thrown in as a token for the old fogeys.  Both of the first two songs were hymns folks would recognize from baptist or other protestant hymnals, if not beyond.  Later, they introduced more contemporary songs, of a different type of lyrical and musical style.  What I noticed, however, was that plenty of people were singing along.  It was not a soloist blasting us out.  I suspect the songs were familiar to regular attenders.  Moreover, there was some theological depth to these songs rather than merely repeating statements of personal feeling ad infinitum.  So I suspect Dad would think that part of the service was acceptable.

The conversational preaching probably would have gotten Dad's blessing as well.  Chris Seay, the pastor, indicated that he was continuing a series of reflections on heaven in this sermon.  His opening discussion revealed that people in the congregation are perhaps wary of what heaven might be.  One of the great comments he made pertained to his 8-year-old son's reticence about growing up, since he loves playing with Lego's so much, but his dad is so busy with so many other things.  By comparison, adults who love what they are doing and people they share their lives with may not be so eager to change it for the unknown joys of heaven.

He focused a good deal around Jesus' words from Matthew 25, "Well done, good and faithful servant."  However, the text analyzed more carefully came from Hebrews 11:32-12:2.  His concern was to emphasize that heaven as a state of existence and a state of affairs is not some kind of narrowly religious place and activity, as much contemporary Christianity might portray it to be, but a place and activity of joyously sharing in the justice and mercy of God that Jesus proclaimed as the Reign of God.

To illustrate his argument, he showed a video clip relating to The Advent Conspiracy and their work to fund clean water for the people of Mt. Barclay, Liberia.  Many of the people, especially children, had been dying of water-borne diseases, gathering their water from a stream.  Clean water from wells turned around the health conditions of the community.  The ministers and others from Mt. Barclay who reflected on the work of God in their community included one who said that the clean water had brought heaven down to earth for them.  You would not be surprised, considering the name of this blog, that I agreed with Bro. Seay that those words will preach.

Finally, I should remark that although it is clearly a young adult dominated congregation, they are not merely detached and carefree.  I could go into a number of ways in which they show signs of taking their place in the struggles of human existence, but I will focus on only one thing here.  This sermon followed a day in which one of the young women of the congregation had been buried.  Without telling us a lot of details, it was clear that she had been facing a life-threatening disease and that her expected time to continue fighting the condition had been cut dramatically short. 

Under these conditions, Bro. Seay offered a hopeful reflection on heaven, in which those who have gone before us are watching and pulling for us in the struggles we face.  Heaven is not the same as our lives here, nor is it a locus of complete wish fulfillment.  It will take some adjusting to the differences, he said, but it will be better than we can imagine.  That is a pretty good riff on the biblical language, as I see it.  Dad knows good preaching when he hears it, and I think he would be passing on some things he heard if he had been there today.  Thanks to Curtis Freeman for telling me about these folks.

Foreclosure Fraud 2: Loan Modifications First

The agenda for stopping foreclosure fraud has to address many aspects of the process.  One of the first problems is convincing banks to see that their best interest, rather than robotically following a set of foreclosure procedures, is often to renegotiate mortgages with homeowners.  The following is an excerpt from our detailed proposals to the Attorneys General.

TO:  Attorney General Tom Miller

FROM:  PICO, NPA, SElU, AJS, ACCE, SE IAF

RE:  Problems in U.S. Mortgage Servicing & Needed Solutions

DATE:  February 9,2011 (REVISED)

CC:  Other 49 State Attorneys General

Problem: Servicers are not making affordable loan modifications that benefit both homeowners and the housing market, even when modification would provide a greater return to investors than a foreclosure.

Mandatory Loan Modification

When a loan becomes delinquent or when a borrower provides their servicer with notice that default is imminent, the servicer must review the mortgage loan to see if an affordable loan modification can be made. If a loan modification is in the best interest of the homeowner and investor, then the servicer is compelled to offer a modification.

Mandatory Principal Reduction
If the balance on a loan exceeds the current market value of the house the first step must be to reduce the principal to 100%. Recapture of forgiven amount may not exceed 50% of the increase in market value as determined by a third party appraisal.

Junior Liens Extinguished or Reduced
For any junior lien that is entirely underwater, even if it is not in default, the servicer must extinguish that lien according to the payoff schedule. For other junior liens, all liens must be reduced proportionately to meet the CLTV cap.

Transparent, Fair, Appealable Net Present Value (NPV) Calculation
Each servicer must provide public access to the NPV Test that it uses in making a loan modification determination. Inputs of general applicability (default rate for a community, locally specific appraisal, foreclosure costs, etc.) must also be made public. NPV calculation must be appealable by the homeowner for errors and misinformation.
     The servicer must disclose the property value of the home that it has used for purposes of determining the terms of the modification and the methodology used to determine the property value. If the homeowner disputes the property value and can give basis for the dispute and show that disputed difference is material, the servicer must conduct an independent appraisal of the property at servicer's expense.

Fair Application of Fees

All foreclosure and default related fees and costs must be waived in determining the new principal balance for the loan modification.

Reasonable Debt-to Income and Residual Income Calculations

Affordability should be based on a debt-to-income ratio range and a residual income test. The front-end debt-to-income ratio for modifications should be between 25-31%. The back end ratio, which should include all other secured and unsecured debts and medical expenses, should not exceed 46-60% based on circumstances. A residual income schedule that accounts for geographical differences in cost of living shall be set to ensure that borrowers have sufficient residual to pay other necessary living expenses regardless of front or back-end ratio calculations.

All Modifications Permanent

All modifications must be at a fixed interest rate for the life of the loan.

No Release of Liability

No modification can include a waiver of any legal claims of the homeowner.

Affirmative Outreach

Affirmative outreach provisions should be put in place requiring servicers to alert borrowers of the terms of the settlement, search for and reach out to eligible borrowers with proposed loan modifications, including door to door contact in heavily impacted census tracts.

The next post will deal with the conflicting internal operations of mortgage servicers and banks who simultaneously start foreclosure procedings and negotiate potential modifications with homeowners.

Foreclosure Fraud 1

A letter went out this week to Attorneys General of all fifty states:  it is time to get tough on the fraudulent, unjust practices of banks and other financial institutions foreclosing on the homes of hardworking people.  Already banks have had to admit they have not followed legal requirements in processing foreclosures.  What needs to be uncovered is the full extent of the carelessness, fraud, and predation by the financially powerful institutions who believe they can get by with it because they can afford the lawyers that most of us cannot.

But each state has an Attorney General who works for us.  They already have initiated action on foreclosure fraud.  The lead investigator, AG Tom Miller of Iowa, has agreed to work with us in pushing this agenda forward.  The letter below is the first page of our expanded agenda to deal with key aspects of the foreclosure crisis, "The Homeowner's Bottom Line."  The letter was cc'ed to AGs from all 50 states.

For more information and to find out how to get involved, check out Showdown in America.

Remembering the Incarnational Vocation

Rev. Noel Castellanos, the executive of the Christian Community Development Association, recently sent a note that I thought worth sharing here.  In our time of economic crisis, we may be inclined to turn selfward, whether as families, individuals, or churches.  We see so many challenges and fear we cannot do anything but survive. 

But turning in on ourselves is the opposite of what to do in this crisis.  We have to continue to realize that God's calling to us, all the way back to the calling of Abraham, is a calling to be a blessing to others.  God blesses us, that we may bless others.  The incarnation reveals the superabundant love of God, shared among the three persons of the Trinity, turning outward toward blessing all humanity.  As followers of Jesus, we get to join him in that incarnational work.  Thanks, Noel, for the words here.

This past Sunday during my church's prayer time, a long-time member stood up to give a testimony before his church family that after two hard, long years, he had finally found a new job. Not just a job, but the perfect job, provided by God. This encouraging testimony came after "Coach" Wayne Gordon's Biblical teaching from the book of Job, which reminded us that bad things often happen to good people.

I am reminded that our core ministry is to live with and among men and women who know this lesson all too well. Violence, unemployment, kids struggling in bad schools, and overall difficult lives are not the exception, but the norm in our most of our neighborhoods, even for those who love God are serving Him diligently.

While sitting in a White House briefing tasked with developing the new Consumer Financial Protection Bureau, I caught myself reflecting on my friend's two-year struggle to find a job. It struck me that families are vulnerable to making bad financial decisions and falling victim to fraud when faced with these kinds of employment challenges. With so many of our families struggling, it is easy to feel overwhelmed!

As we approach Lent, let us take the time to re-examine our commitment to follow the God who left the comfort of heaven to enter the hurt and pain of our sin-filled world. Moreover, let us root our lives and our neighborhood work in a deep, daily walk with Christ. Let us be empowered to be agents of hope and justice wherever we see someone’s God-given dignity compromised.

Some leaders from the MetroIAF were at this meeting with Noel, Jim Wallis, and others.  Our national organizing work on the economy is one part of the bigger picture.  But Noel reminds us that nothing short of blending our lives into the lives of the world will move us toward the calling to let God's will be done on earth as it is in heaven.

Banks Sucker Punch Military Families

As part of the work on resetting the economy, North Carolina United Power and the IAF-SE have been pressing for banks to obey the law in dealing with loans to military personnel.  The law, revised in the past decade, says that when soldiers are on active duty, all of their loans must be capped at 6%, and any existing interest above that level must be forgiven.  Moreover, when they are on active duty and three months beyond, a bank cannot start foreclosure proceedings or other debt recovery strong-arm tactics. 

We took up this cause because we were hearing many stories about how banks were not following these laws.  And that does not even take into account all of the predatory lenders, loan sharks, and such who open for business just outside the gates of military bases.

We made good progress in these negotiations with big banks and with NC government officials.  Bank of America was especially responsive, offering unilaterally to extend the grace period law demands from three months to nine months.  By doing so, they give room for the new shape of military deployment which relies heavily on National Guard and Reserves and which has led to numerous sequential tours of duty.  The law did not anticipate this change, and it has hurt many military personnel whose cases have not been handled correctly.

In case anyone wondered whether this is a real problem, a recent news article points out that at least one major bank, has admitted to breaking the law in dealing with military families.  J.P. Morgan Chase was foreclosing on military families while they were bearing the weight of active deployment.  The article names only a few cases.  I suspect that a committed investigative reporter would find many, many more at all major banks, in regional and local banks, and an explosion of cases among payday lenders, car title lenders, and other criminally conceived businesses trying to fly under the radar.

Let me again acknowledge Bank of America for its promises to improve services and go beyond the letter of the law in working with military families.  We have had some hopeful conversations with Wachovia-Wells Fargo who has had experience operating a specialized military bank out of San Antonio, TX, but they have not made any commitments in response to our requests.  Obviously, J.P. Morgan Chase has had to come clean on a few cases.  I hope some other groups working toward economic justice will raise these questions locally to stop the sucker punching on these families who already face stress and problems beyond what anyone should have to face.