Quelle Surprise! Fed Issues “See No Evil” Report Using Bogus Methodology to Defend Servicers

Posted: 10 Mar 2011 10:15 AM PST

We commented earlier this week on bank defenses of their foreclosure practices:

I’ll spare you several paragraphs of the “but they were deadbeats and no one was hurt by robo-signing and all our foreclosures were warranted.” Well, if you normally operate as judge, jury, and executioner, and it’s too costly for borrowers to counteract predatory servicing, in your little self-referencing world, everything will look hunky-dory and challenges to your authority will be deemed to be improper and unwarranted.

As we have indicated repeatedly. lawyers fighting foreclosure estimate that 50% to 70% of the cases they represent are ones where the borrower is in foreclosure as a result of bank fee pyramiding and other improper fees (note there is sample bias here; contrary to bank spin, most borrower attorneys fight foreclosures when they think the case has merit). But they just about never argue in court on those grounds; the cost of hiring an expert witness and doing the forensics on full details of the banks’ overcharges is too costly.
But of course, the Fed is throwing its authority behind the banking industry spin that all foreclosures are warranted. From Shahien Nasirpour of the Huffington Post:

A months-long investigation into abusive mortgage practices by the Federal Reserve found no wrongful foreclosures, members of the Fed’s Consumer Advisory Council said Thursday.
During a public meeting attended by Fed chairman Ben Bernanke and other regulators, consumer advocates on the panel criticized federal bank regulators for narrowly defining what constitutes a “wrongful foreclosure.” At least one member of the panel voiced concerns that the public would not take the Fed’s findings of improper practices seriously, since the wide-ranging review did not find a single homeowner who was wrongfully foreclosed upon….
Kirsten Keefe, a member of the Fed consumer panel and an attorney at the Empire Justice Center in Albany, New York, said the Fed’s report defined “wrongful foreclosures” as repossessions of borrowers’ homes who were not significantly behind on their payments….
But Keefe, who represents troubled borrowers, argued that the definition should be expanded to include foreclosures in which the wrong party brought the foreclosure action or cases that involve significant errors in foreclosure documents, like an inflated past-due amount, for example. Other consumer advocates at Thursday’s public meeting appeared to agree.

FYI, the Fed apparently has not released the actual document, no doubt to save itself well warranted ridicule.
The more this sort of whitewashing of abuses goes on, the closer the US gets to its Egypt moment.

Drop in Foreclosure Filings Reveals Operational Mess at Servicers

Posted: 10 Mar 2011 09:44 AM PST

The level of complaints about servicer screw ups in the HAMP program and more recent horror stories from borrowers not seeking loan modifications confirms something we’ve noted on this blog: that servicers fee structures aren’t set up for them to handle the workload associated with high volumes of foreclosures. Accordingly they devised processes like robosigning, which are legally impermissible, as a way to contain costs. Many of the abuses still have not gotten the attention they deserve. For instance, the most widely used foreclosure platform for the industry, that of Lender Processing Services, does not have a field in its software to allow a foreclosure of a person in a Chapter 13 bankruptcy to be processed differently. This results in impermissible charges. For instance, when a Chapter 13 debtor is in a bankruptcy plan and sending his payments to the Chapter 13 trustee, who in turn disburses them to various creditors, there is no such thing as a late payment. But if the old borrower due date was the 10th of the month and the trustee sends checks on the 15th, the bank will record a late fee. Then when the borrower emerges from Chapter 13 which means he is current on all the debt under the bankruptcy plans, the bank will send him a bill for what is typically several thousand dollars of fees. The borrower who is still under a lot of financial stress (Ch. 13 plans by design soak up all of a borrower’s income) then has to spend money he does not have to go to court to get the charges removed.
We also pointed in previous posts to signs that foreclosure filings had fallen markedly versus year prior levels. From Bloomberg:

U.S. foreclosure filings fell last month to the lowest level in three years as lenders under legal scrutiny struggled to process a backlog of defaults and put new systems in place for home seizures, RealtyTrac Inc. said.
A total of 225,101 U.S. properties received notices of default, auction or repossession, down 14 percent from January and 27 percent from February 2010, the Irvine, California-based data seller said today in a statement. The number was the lowest since February 2008, and the year-over-year decrease was the biggest since the company began keeping records in 2005…
“It’s clearly taking the lenders and servicers longer than anyone had anticipated,” Rick Sharga, RealtyTrac’s senior vice president, said in an e-mail. “Beyond that, the industry itself is in a state of dysfunction.”….A glut of resubmitted paperwork is “taxing the resources” of loan servicers, and judges are demanding greater scrutiny in states where courts oversee foreclosures, Sharga said….
In Florida, a judicial state that’s been among the hardest- hit by the crisis, total foreclosure filings plunged 65 percent from a year earlier. It still ranked second for total filings.

The Florida slowdown may also reflect the fact that the state attorney general is investigating the state’s major foreclosure mills. One of the very biggest, the Law Offices of David Stern, announced this week that it was closing at the end of March.
Mike Konczal also highlighted a very illuminating chart from a paper by Diane Thompson of the National Consumer Law Center, Why Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior, which shows how payments to servicers influence their behavior in foreclosures: