US banks to resist loan mods in mortgage probe

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SAN FRANCISCO - US banks being probed over their foreclosure practices expect to negotiate with state attorneys general, but they are unlikely to agree to forced loan modifications, lawyers for lenders said this week.
Big mortgage servicers such as Bank of America Corp and JPMorgan Chase & Co are under the microscope over the use of "robo-signers" -- people who sign hundreds of affidavits a day.
US attorneys general for all 50 states are jointly investigating whether bank units that foreclose on bad loans failed to review documents properly or submitted false information to evict delinquent borrowers.
Lawyers for big banks say servicers want to be cooperative with the AGs and clean up their procedures, but they do not want to be forced into modification programs that come with huge logistical headaches and limit banks' ability to handle delinquent mortgages on a case-by-case basis.
Attorney Andrew Sandler, who represents lenders at Washington, D.C. firm BuckleySandler, said settlement talks will get contentious if AGs seek such remedies as loan modifications.
"That's where servicers will draw a line in the sand," Mr Sandler said on Sunday.
Other lawyers involved in the AG probe also said banks would resist a settlement based on loan modifications. Alternatives could include fines or even a fund to help foreclosed families relocate.
Any settlement is likely to be complicated by the number of states involved and the position of individual banks.
Richard Gottlieb, a Chicago-based Dykema attorney who also has lender clients, argues that servicers do not have the authority to force modifications beyond what is allowed in contracts with investors.
"The servicer doesn't have the right to modify a loan, the owner does," Mr Gottlieb said, adding that modifications are irrelevant if the house is vacant.
Trying to move on
The states' joint probe is still in the early stages, but banks are seeking to quickly put behind them the paperwork mess that sparked voluntary but temporary halts to foreclosures and made investors fearful about the impact on earnings.
So far some individual state attorneys general have issued narrowly focused requests for data from lenders, while others have cast a much wider net, said banking industry attorney Michael Mierzewski with Arnold & Porter in Washington, D.C.
However, Mr Mierzewski said he has not yet seen any information requests from the joint 50-state investigation.
Ally Financial's GMAC unit and Bank of America said last week they were resuming some foreclosures after reviewing their procedures.
Ohio Attorney General Richard Cordray, a prominent player in the nationwide probe, said last week he was deeply concerned about the foreclosure resumption and renewed a call for the banks to aggressively pursue loan modifications.
Such relief has long been a priority for consumer advocates. Last week Mr Cordray told Reuters that loan modifications would be a "good result" from the AG probe, but was unsure whether it would happen.
A Bank of America representative declined to comment for this story, while Ally spokeswoman Gina Proia said the company works to exhaust all home preservation options with borrowers, including loan modifications.
Finding thought leaders
For banks, the key to negotiating a deal with the AGs is figuring out what appeals to a broad cross section of the group, said attorney John Beisner, who represented Countrywide in a recent multi-state probe over subprime lending but does not have clients in the current probe.
"The real trick of this is to try to find the leaders in the group who you think will persuade the others to the kind of conclusion you would like to reach," he said.
If an agreement can be reached, then other AGs who want more aggressive remedies will have to decide whether they want to reject the deal and go to court on their own, he said.
But that path carries risks for AGs, like questions from constituents about why they are not getting the same immediate benefits as states that settled.
States could pursue other remedies against lenders besides loan modifications. For instance, lenders could be forced to pay fines of $US10,000 per violation of Arizona's consumer protection laws, said Susan Segal, chief counsel in Arizona Attorney General Terry Goddard's office.
Mr Cordray has already asked in a lawsuit for penalties against GMAC of up to $US25,000 per violation in Ohio.
States could also establish a fund for people who have suffered wrongful foreclosures, Mr Segal said, which lenders would pay into.
Additionally, there could be a "cash for keys type of remedy" to help borrowers with relocation expenses, Mr Segal said.

More news on loan mods and banks

Report Shows Treasury Disagrees With Loan Mod Decisions at Chase, Wells & BofA – Requires Servicers to Make Changes Going Forward

You may not know this because it’s not been well publicized, but each month the Treasury Department reviews a sample of the loan modification decisions being made by HAMP participating servicers… it’s called “Second Looks”.
Apparently, if that monthly review indicates that Treasury disagrees with a servicer’s decisions to modify loans more than the average amount of disagreement, or if the percentage of disagreements does not come down over time, it will require the servicer to change how such decisions are made.  (Did you get all that?)
Well, in the August HAMP Report, which is published monthly by Treasury, is a chart that shows that Treasury has disagreed with a higher than average number of the decisions being made by CHASE, Wells Fargo and Bank of America.  And Housing Wire is reporting that Treasury says that it will now REQUIRE the three giant servicers to change how they determine homeowner eligibility going forward.
Well, what do you know about that?
Curiously, Bank of America is conspicuously absent from the chart, and according to Treasury, “other compliance activities were conducted in this time period that included the same processes evaluated during Second Look reviews.”  And I have no idea what they mean by that, but alrighty then.
Treasury says that it has asked all three servicers to reevaluate loans that were denied HAMP modifications.  The servicers are now being required to submit additional documentation, provide clarification of the loans’ status, and make changes to their processes, including the implementation of new training programs that further clarify policies.  And the irony of that, I trust, is not lost on anyone reading this.
(Wouldn’t it be beyond great if after the servicers submitted the additional documentation requested, Treasury were to contact the servicers and tell them that they have to resubmit everything because they didn’t receive it, and then a week later send the servicers a letter telling them they missed the deadline and a sale date is now set for two weeks away.  Oh, I know… but, a boy can dream, right?)
So, what did the servicers have to say?  Can you guess?  I’ll bet you can…
Wells Fargo told HousingWire that as related to the decision index, Treasury reviewed 100 loans from each of the bank’s five servicing businesses, and wouldn’t you know it… they didn’t weigh them properly.  Of course they didn’t, and I didn’t expect them to.
JPMorgan Chase’s spokesliar told HousingWire the changes being requested by Treasury were already made but could not disclose details.  Of course they couldn’t, and I would not expect them to be able to.
Bank of America was not immediately available for comment, but if they had been available, they probably would have responded by saying something like: “Bank of America fully supports our troops in Afghanistan.”
Treasury estimates that among the three servicers there are more than 724,000 mortgages that could be eligible for HAMP, which represents more than 54% of the entire program.  HAMP launched in March of 2009, and to-date the three servicers have completed 189,621 permanent modifications under HAMP, which works out to about 3,326 each per month. I’m almost positive, however, that foreclosures have been running well over 300,000 a month during that same time period.  If I’m wrong about that, I’m not wrong by very much.
If you’re a statistics person, Bank of America has offered 410,054 trials and completed 79,859 permanent modifications, JPMorgan Chase has offered 264,353 trials and completed 60,932 permanent modifications, and Wells Fargo has offered 255,986 trials and completed 48,830 modifications.
And that’s according to Treasury’s  August HAMP Servicer Performance Report.  Check it out… or not.  It’s not exactly a page-turner.  You could wait for the movie.
So, the obvious question is… will this change anything, or will the servicers just continue to slap American homeowners around at will, before peeing in their hair.  If you ask me, the answer is… I don’t know.
I do believe that it cannot get any worse, and I also believe that it’s actually much better this year than it was last year.  Call me naïve, call me an eternal optimist… call me insane, but I still have some fundamental faith in this country to ultimately demand and deliver some level of fairness.  I know, I know… but I haven’t give up yet, and I still believe we the people are going to win.  Because we’re right.
Either that, or we’re all screwed.
Ergo bibamus!

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