Understanding the FHA mortgage probe and the foreclosure crisis

Chase CEO Jamie Dimon recently made comments about the banks problems with foreclosure procedure, including the use of robo-signers and improperly reviewed foreclosure files.  In his comments, he stated that no-one is losing their home when they shouldn’t be because of these problems.

His comments are directed at whether people are losing their homes because of mistakes.  But as the Federal Housing Administration’s recent probe into this mess clarifies, that isn’t the thing we should be looking at.  The FHA has plainly stated that five large mortgage servicers (i.e. banks) are not following the proper procedure to work with people to keep them in their homes, especially helping people to qualify for a loan modification that they are entitled to under FHA rules.  In short, the servicers are failing to help people get loan modifications they should be getting.

Does that ring a bell?  We’ve seen a huge number of stories about the endless impediments people experience when trying to get a loan modification with Chase.  In fact, Chase’s own reporting of both the number of temporary modifications and especially permanent modifications granted (it isn’t many compared to the number of loans in trouble) clearly points the finger at either a broken or intentionally difficult process.  Furthermore, Chase’s admission that they practice parallel foreclosure when someone applies for a loan modification clearly shows their interest is not in helping the borrower.

The FHA isn’t specifying who the five servicers they’ve found in violation of the rules, but I suspect that Chase may be one of them.

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Have you been treated poorly or been a victim of their incompetence at Chase Bank? Here is your platform to make comments. Tell us your horror stories. It will make everyone feel better. Promise! Vent it here.

Chase foreclosures continuing despite self-imposed moratorium?

From the information posted in this article, it appears that at least some Chase foreclosure actions are continuing despite their statement that they have stopped them in all 23 states that require judicial oversight.

JPMorgan Chase & Company and Bank of America Corporation announced that they were holding off on court-based foreclosures until they could sort out issues with them.

But, in Lee County, court records indicate that both of those banks kept on receiving court judgments that allowed the sale of mortgages on foreclosed houses at public auctions.

Three years and still no loan modification

How screwed up is this?

I called Chase and they said they would not talk to me until I was 2-months late on my payment. So I became 2-mos late. So over the last 2.8 years or so, I have done trial payments 3-times. Each time, Chase has reneged and decided to start the entire process over again. I have tried NACA, to no avail. I have written my congress people etc. to no avail. I have dealt with the executive offices several times and they have made permanent modifications (I have letters to the effect) yet the right hand of Chase does not know what the left is doing and even though I have letters and documents saying my loan is complete and final, they refuse to acknowledge that and continue to send threatening letters of foreclosure.

Who really owns your loan?

On Thursday, the stock market reacted negatively to the foreclosure crisis and punished bank stocks.  Why the negative outlook?

According to a story in yesterdays Marketplace program, investors are worried about the validity of documents, but not just the documents between the banks and the homeowner, but the documents between the banks and the scads of people who they sold the loans to, in little bits and pieces.

It may just be that in all the excitement, the banks didn’t do a very good job of tracking all the transactions and the documentation for those transactions, which might make it extremely difficult to actually prove who owns the loan.

So what does this mean?

If it isn’t possible to prove who owns the loan, it would be very difficult to banks or anyone else to prove they have the authority to demand that you pay them your mortgage payments, in a court of law.  This likely means though that, barring some high-level litigation by state’s Attorney’s General or a class-action lawsuit, you would have to challenge the bank in court to prove it has the authority to accept your payments or foreclose on you.  This is not without precedent; people have successfully gotten their loans dismissed because the bank couldn’t prove it owned the loan.

Another scenario is that banks might be forced to take back the loans they can’t properly document, and this is perhaps the main reason the banks stocks got hammered yesterday.  If the securitazation transaction is reversed, the bank would still have to document the original transaction, but I think they are more likely to have this paperwork.

A little bright news for borrowers.

Banks: It’s all about trust

As this Huffington Post article points out, we’ve lost trust in the big banks:

As Bank of America, JP Morgan Chase, and others scurry to figure out if their foreclosure processes are in fact legal, it’s clear we’ve reached a new low in terms of trust in America’s big banks.

I’ll take this a step further and say that we’ve really lost the trust that these banks that we have a business relationship will do the right thing.  In fact, we can trust that in most cases, when faced with a choice about whether to do the right thing, or the thing that makes them the most money, these banks will usually chose the thing that makes them the most money.

Are banks trying to discourage concerned borrowers from taking action?

In light of the allegations against shoddy verification practices in the foreclosure process, most of the large banks have halted foreclosures in some or all of the 50 states.  The biggest reaction so far has come from Bank of America, which has suspended foreclosures in all 50 states pending review of its process.

I’ve suggested a few times in the last couple of weeks that this might be a good time for borrowers to ask their bank to prove they actually have the proper documentation that says they own the loan or have sufficient authority over it to do anything significant, like foreclose.  Believe it or not, there have been a good number of cases where the courts have not only found that banks didn’t have the proper documentation (like when they can’t find the trust deed), but the judges went further and dismissed all the debt.

Apparently banks are well aware of the possibility that large numbers of people make take this opportunity to ask them to verify their mortgage, if the recent fee notice from Bank of America is any indication.

Fee Notice Information

Fees for Special Services and Paying Off Your Home Loan

Generally, there are no fees for the routine servicing of your loan. The following fees are the maximum fees that may apply if you request certain special services regarding your mortgage or home equity loan:

Verification of mortgage $15.00

Faxing a payoff statement (FHA only) $ 5.00*

Expediting a payoff statement $30.00*

“”There is no charge for mailing the payoff statement by regular U. S. mail.

If you payoff or refinance your loan, you may incur a fee for the preparation of the documents to release or reconvey your lien (up to $45). Reconveyance is a release of your mortgage when the security instrument on your loan is a deed of trust.

You may also incur a fee to record this reconveyance or release document (in the amount of the actual fee charged by the county recorder, normally not more than $100). In addition, if you have a home equity line of credit (HELOC) that is subject to an early closure fee, you may be charged an early closure fee as described in your HELOC Agreement.

There is also a returned payment fee of up to $40.00.

If you request information or services that incur a fee not listed above, Bank of America will inform you of the fee prior to
processing your request. However, in the event of a returned payment, fees will automatically be applied to your loan account. The information above is not a complete list of the types or amount of fees that could be charged to you over the life of your loan, and the amount of any fee shown above is subject to change.

I think part of the motivation for these fees is to make up for the recent fee haircut banks received from the Credit Card Act of 2009, but I find the fee for verification of mortgage particularly timely.  Could BofA be trying to discourage people from challenging their loan.

Charging for the documentation to prove that you have paid off your loan is also very timely.  There have been some high profile cases where banks have hounded people for mortgage payments long after their mortgage was actually paid off in full and perhaps as a result banks like BofA are getting hit with a lot of requests for documentation to prove a loan is paid off, which they should be providing for free.

BofA, I am happy with you for now; I sure hope this doesn’t mean you are a becoming a crappy, fee hungry bank like Chase.

Chase loses big in TILA fraud case

This story is good in so many ways.  Homeowner Paul Nguyen sued Chase for Truth in Lending Act violations for a loan that he says he was fraudulently led into.  It would have been a great story if Nguyen simply won against Chase in a court of law and received damages, but the story is so much better than that.

First, Chase simply didn’t show up for the case.  Did not appear.  One might interpret this to mean they were so guilty they felt that putting on any kind of defense might just make things appear even worse than they are.

So as a result of Chase not showing up, Nguyen wins a default judgment.  The judge rescinds the promissory note between Nguyen and Chase, thereby giving Nguyen the home free and clear, wiping out his debt.  Then the judge goes even further by awarding Nguyen damages, expected to amount to about $16,000, and also awards him attorneys fees, also in the tens of thousands of dollars.

A very solid win.