The Loan Modification Trap: They find a way to be more sinister

by Marty Macisso Jr

From the front lines of the war, written in the 1st person, frustratedly.

It appears that a Charlatan (bad guys who lie) must always find a way to disguise. To wear many hats, to bait many traps, to always find a bigger soap box on which to stand, One Nation under God, as they say.

It just blows me away, how the Banking Industry, which I realize is a loaded term and vaguely broad, can prey on every emotion that leads to a profit center. The same clan, the same group of elites, same group of lobbyist-o-crats or banking-upublicans, have found a new and even more diabolical way to defraud America. The imaginary Loan Modification.

The loan modification is not a new thing, it has been around for years, however, the Housing Crisis, where the economy is so tightly wrapped around people and their evaporating home equity, is a new thing. Never before has America seen such a housing market, once so hot and ever prosperous for all, become what it is today. What is it? Couldn’t tell ya.

What I can tell ya, is this: The men and women responsible for generating such an artificial economy built around a manic housing bubble of malfesant reckless loans, are the same men and women using the new pop-culture term – the Loan Modification, as its saving grace. The current Presidential Administration even championed their own version as the Making Home Affordable Plan. This plan has been as successful as New Coke, or putting Dennis Miller on Monday Night Football, or maybe as good an idea as using Oxygen in passanger blimps(cough,cough Hindenberg Disaster). References are fun.

At the risk of being redundant, the Loan Modification has been a failure of policy both public and private, but not for reasons that make sense to middle-class working(or not working) America. The malicious fact of the matter, that the Main Stream Media has yet to pick up on, is that the Loan Modification is a TRAP. Yes, an absolute TRAP.

Riddle me this America, would it make sense to you that the entity claiming to be your mortgage company, the people who so graciously lent you the money to by your home, the company who so routinely sends you the statements demanding the monthly principal and interest payment, actually in their own warped sense of reality – WANT YOU TO DEFAULT ON YOUR MORTGAGE? (run on sentances are fun) Yes, its true. How? Why? Impossible? Senselessly paradoxial?

I know it sounds like an absurd accusation. But you need to think like an investment banker, and not a retail banker at your local Credit Union. Put on your greedy, financial wiazrd hat, for a moment while I break it down.

Your mortgage company is not a mortgage company, its what we call in the biz as a Servicer. A servicer is a 3rd party agent hired by a mortgage fund Trustee, the ugly guy who is in charge of funneling payments from the Homeowner to the thousands of Investors claiming a piece of your pie. A SERVICER only makes a little money (relatively speaking) in the process, through fees paid by the investors in a normal conforming loan payback. However, when a Homeowner begins to fall behind on payments, the process becomes much more profitable for Servicer, as their job become one of channeling the stream of payments to investors, to Collecting the delinquent account. This is where the Servicing entity like Countrywide, BOA, IndyMac, and other ghosts of Wall Street past really begin to rake in excessive fees.

What does this have to do with Loan Modifications? Well, plenty. When a homeowner is applying or in process for a loan modification they are typically under the false pretense – that the Mortgage company is working things out with them. It couldn’t be further from the truth, because in actuallity these unscrupulous pretender lenders (servicers) have no intention to modify the loan…its simply not in their hands. The actual decision maker is the investor or the Trustee for a mortgage backed security fund, who would rather you default and be foreclosed on because its easier and more profitable. Yes, these are real sweethearts.

So the Servicer tells Mr. Borrower, “Yes sir, we just need one more document and we’ll submit this for review by our Loss Mitigator. Just sit tight and don’t pay your mortgage.”

Mr. Borrower is feeling great and is hoping for the best. Unbeknown to him, the collection activity is continuing and the file is going nowhere, the Servicer never submits it to the Investor (reasons I’ll explain in a second) and the homeowner wakes up one day with the local town Sherriff serving him foreclosure papers. “Wait! What! Huh!???” says Mr. Borrower

Reason being for such a bait and switch is this: The Servicer must purchase every loan back that is modified under the Pooling and Servicing Agreement (contract between Investor pool and the Mortgage frontman) or they face a certain lawsuit for breach of contract.

So, in the end, it may take an actual Court ordered mediation to get a mortgage servicing company in the HOT SEAT and in front of an unbiased 3rd party mediator. This is becoming the only possibility to re-structure a loan and have it modified at terms that are affordable and permanent. But this route requires the due diligence of a qualified Housing Counselor who can guide a struggling homeowner through the process, or an Attorney, whichever is the most cost benefit.

In this messy mortgage environment, homeowners have many defenses and should always “Fight and Stay!”

A mortgage paper trail often leads to nowhere

Here’s an article written by Gretchen Morgenson from the NY Times to give further context:
December 28, 2008
Fair Game
A Mortgage Paper Trail Often Leads to Nowhere
By GRETCHEN MORGENSON

WITH home prices in free fall and mortgage delinquencies mounting, pressure to modify troubled loans is ratcheting up.

But lawyers who represent candidates for modifications say the programs are hobbled by the complexity of securitization pools that hold the loans, as well as uncertainty about who actually owns the notes underlying the mortgages.

Problems often emerge because these notes — which are written promises to repay the full amount of a mortgage — weren’t recorded properly when they were bundled by Wall Street into pools or were subsequently transferred to other holders.

How can a loan be modified, these lawyers ask, if the lender cannot prove that it actually owns the note? More and more judges are asking the same thing about lenders trying to foreclose on borrowers.

And here is another hurdle: Most loan servicers — the folks responsible for handling all the paperwork surrounding monthly mortgage payments — aren’t set up to handle all of the details involved in a modification.

Loan servicing operations are intended to receive borrowers’ payments; producing loan histories and verifying that payments were received or junk fees were not applied is considerably more labor intensive. This cuts into profits.

“These servicers are not staffed up and they don’t have a chance in the world to do the stuff they are supposed to do,” said April Charney, a consumer lawyer at Jacksonville Legal Aid. Many servicers continue to stonewall troubled borrowers who ask for a history of their loan payments and fees, she said.

“This is your biggest, hugest expense — your home — and when you ask for a life-of-loan history your servicer tells you to get lost,” she said. “And when you ask for a list of charges in the loan history that’s not going to happen.”

So even if loan modifications were to rise rapidly, it is unclear that borrowers can trust what lenders tell them about what they owe.

Consider a federal bankruptcy court case in Colorado. It involves two borrowers who got into trouble on their loan but agreed, under a bankruptcy plan, to make revised mortgage payments to get back on track.

The lender in the case is Wells Fargo, and last Monday the judge overseeing the matter took a tough stance on the bank’s recordkeeping and billing practices.

In June 2004, Brandon M. Burrier and Denon A. Burrier received a $183,126 loan for a property in Arvada, Colo. The note was later transferred to Wells Fargo, court filings show.

The Burriers fell behind on their loan and in February 2007, they filed a Chapter 13 bankruptcy, agreeing to pay $12,000 that Wells Fargo said they owed. Chapter 13 bankruptcies allow debtors to retain their property and work out a repayment plan based on their income and the level of their indebtedness.

The Burriers’ payment plan was confirmed by the bankruptcy court in August 2007; last December, a second plan requiring higher payments was approved by the court.

Two months later, Wells Fargo told the court that the Burriers had failed to make four of their payments and that it should be allowed to begin foreclosure proceedings.

The Burriers denied that they had missed payments, but in April, to keep their home, they agreed to make double payments to cover the ones Wells Fargo claimed they had missed.

If the borrowers could prove that the mortgage checks were submitted, Wells Fargo said, their account would be credited and they would no longer have to make up the payments. The proof required by Wells Fargo and approved by the court was “valid, accurate and true copies” of the front and back of the checks the borrowers sent in.

Last August, the parties were back in court, with Wells Fargo stating that the borrowers had failed to comply with the deal. Ms. Burrier testified that she had asked her local bank repeatedly for proof of the payments made to Wells Fargo, but had had no luck. The payments to Wells Fargo were processed electronically, she learned, and that meant it did not return the checks to her bank.

The borrowers did produce bank statements showing that the checks Wells said were missing were actually cashed by “WFHM,” an entity that they assumed was Wells Fargo Home Mortgage.

But Tara E. Gaschler, the lawyer representing the borrowers, said that Wells Fargo continued to maintain that it hadn’t received the money.

The bank flew in an expert to testify that all checks received by Wells Fargo from borrowers in Chapter 13 cases were processed by hand, Ms. Gaschler said. “Even when presented with bank statements, they told the court there must be some mistake,” she added.

Finally, Wells Fargo demanded that the Burriers provide the routing number of the account at Wells Fargo that their money went into. If they could not, the bank said, they would have to keep making extra payments.

But Sidney B. Brooks, the judge overseeing the case, was clearly dismayed by the bank’s performance.

In his opinion, he fumed that Wells Fargo had asked the borrowers for canceled checks as proof of payment, even though such checks were often not available. Wells Fargo’s request for canceled checks was especially troubling, the judge said, given that the bank was a proponent of the 2003 law that allowed banks to stop returning canceled checks to customers.

The only institution that could have the original checks is Wells Fargo, he concluded.

“The payments have, evidently, been lost in a black hole of the creditor’s organization or through accounting mismanagement,” the judge wrote. “This is a major lender/mortgage loan servicer where the left hand does not know what the right hand is doing — the collection department does not know what the check processing and accounting departments are doing.”

Because this is not the first time the judge has encountered problems in Wells Fargo’s operations, he is considering sanctions on the bank.

“This dispute might portend a widespread abuse of collection practices or creditor overreaching,” he wrote, “demanding of debtors what it, the creditor itself, is unable to provide: accurate and reliable record keeping and billing practices.”

A spokesman for Wells Fargo said: “We are currently reviewing the court’s opinion to determine whether or not an appeal is appropriate. The Burrier case is quite factually specific, and we disagree with the court’s conclusions. We are confident that our payment processing practices are accurate and sound.”

Ms. Gaschler says that this kind of dispute is becoming more common in her practice and that borrowers wind up losing too often.

“A lot of times clients don’t keep canceled checks or maybe their bank account was closed and they can’t go and get the proof,” she said. “The bank gets that extra money for as long as the debtor can keep it up and when they can’t they are pushed out of their homes.”

While judges are starting to see how flawed loan servicers’ systems can be, those rushing to modify loans may not be as aware of the problems.

In the interests of fairness, modification programs should require life-of-loan histories from servicers and a justification of each entry. New loans, especially ones backed by taxpayers, are no place to bury dubious fees or extra borrower payments to cover those that were allegedly, but not actually, missed.