SIGTARP Schools Treasury on Repeated Failure to Protect Homeowners Instead of Servicers With TARP Money

Highlights from the Special Inspector General for TARP’s latest Report:



TARP’s signature housing program, HAMP, has not provided enough sustainable

foreclosure relief given the unspent TARP funds that Treasury has set aside.

HAMP’s foreclosure relief is only sustainable if the homeowner does not fall out

of the permanent mortgage modification during the five year period, increasing the

risk of foreclosure.

As of June 30, 2014, only 958,549 homeowners were active in a HAMP

permanent modification. Treasury continues to extend the application period

for MHA programs such as HAMP, and did so again on June 26, 2014, further

extending MHA programs for another year, through December 31, 2016.

An extension of HAMP’s timeframe is not enough on its own to bring about

meaningful change, particularly as hundreds of thousands of homeowners who got

into HAMP, fell prematurely out of the program. Treasury must help homeowners

using TARP with the same effort it put toward bailing out banks, the auto

companies, and AIG. Hopefully, Treasury’s HAMP extension reflects a realization

that Treasury has not, in fact, provided sustainable foreclosure relief to enough

homeowners using TARP. With approximately $15.7 billion in TARP funds for

HAMP sitting unspent, Treasury has ample resources to help the tens of thousands

of homeowners still applying each month for a HAMP modified mortgage.

During the month of May 2014 alone, more than 87,000 struggling homeowners

continued to seek help through HAMP.

Treasury needs meaningful reform to HAMP to dramatically change the current

levels of HAMP assistance reaching homeowners. Treasury should constantly

explore ways to improve HAMP rather than relying on servicers to act differently

than they acted in the past. SIGTARP is committed to working with Treasury to

ensure the efficiency and effectiveness of TARP and to prevent fraud, waste, and

abuse of taxpayers’ dollars funding HAMP. Through SIGTARP’s investigations,

hotline, and otherwise, SIGTARP has learned about the difficulties homeowners

continue to experience while trying to get into HAMP, particularly based on alleged

misconduct by HAMP servicers, and has reported on these difficulties publicly on

several occasions. This quarter, SIGTARP reported on the results of a SIGTARP

criminal investigation, conducted with its law enforcement partners, and a nonprosecution

agreement with TARP recipient, SunTrust Banks, Inc., the parent of

SunTrust Mortgage, Inc., (collectively, “SunTrust”).

SIGTARP’s criminal investigation of SunTrust’s administration of its HAMP

program revealed that SunTrust made material misrepresentations and omissions

to homeowners in HAMP solicitations. SunTrust did not have adequate personnel,

infrastructure, or technological resources in place to process the paperwork,

render decisions, and communicate with and about homeowners, as represented

in 2009 and 2010. Because SunTrust’s HAMP program was under-resourced and

under-funded, month after month, a backlog of tens of thousands of homeowners

were left waiting to apply for HAMP, waiting for SunTrust to send a trial period

agreement, or waiting to hear whether they qualified for their much-needed

mortgage relief. For example, SunTrust put piles of unopened homeowners’ HAMP

applications and paperwork on an office floor until the floor buckled under the

sheer weight of the unopened HAMP applications. SunTrust lost documents and

paperwork. SunTrust mass-denied some homeowners for HAMP without reviewing

their HAMP applications. SunTrust lied to Treasury about the reasons for the

denials. Rather than rendering decisions on a permanent modification within the

three- to four-month trial period SunTrust represented, some homeowners were

stuck in limbo in extended trial modifications of two or more years. SunTrust

misreported current homeowners as delinquent to major credit bureaus. In

other instances, SunTrust denied HAMP modifications to eligible homeowners

and instead placed the homeowners in alternative, private modifications that

were less favorable. SunTrust improperly commenced foreclosure proceedings

on homeowners in active HAMP trial periods, and some of those homeowners

saw their homes listed by SunTrust for sale in local newspapers. As a result of

SunTrust’s mismanagement of HAMP, thousands of homeowners who applied for a

HAMP modification with SunTrust suffered serious financial harm. Homeowners

would have been exponentially better off having never applied for HAMP through

the bank in the first place.

SunTrust’s management of the program harmed the homeowners that HAMP

was designed specifically to assist. Real people lost their homes, and many others

faced financial ruin. SIGTARP and its law enforcement partners continue to root

out fraud related to TARP’s housing programs and will hold those responsible

accountable. These law enforcements efforts will hopefully deter future

misconduct and, where necessary, force institutions to change their culture.

SIGTARP is concerned that similar misconduct, negligence, or poor, shoddy

performance by servicers that does not rise to the level of violating the law, could

be preventing struggling homeowners eligible for HAMP from obtaining available

relief. SIGTARP spotlights one of those issues this quarter in a special report on

the more than 221,000 homeowners that have applied for HAMP but are still in

limbo, with no decision from their servicer.

To enact meaningful change in TARP’s housing programs, Treasury should first

start by implementing SIGTARP’s many ignored recommendations. Since 2009,

SIGTARP has made 50 recommendations to Treasury concerning improvements

to TARP’s housing programs and to prevent fraud, waste, and abuse of taxpayer

dollars used to support struggling homeowners. While Treasury has implemented

some of SIGTARP’s recommendations, 44 of those 50 recommendations (88%)

remain unimplemented. SIGTARP’s recommendations are based on concerns we

uncover in our investigations, audits, public hotline, and other oversight activities.

We cannot always share our findings with Treasury, for example, when we are

conducting a confidential criminal investigation. Any reasons Treasury has given for

not implementing SIGTARP’s recommendations are not good enough.

SIGTARP has issued a series of recommendations aimed at the process by

which a homeowner gets into HAMP. For example, SIGTARP has previously


  • Treasury should establish benchmarks and goals for acceptable program

performance for all MHA servicers, including the length of time it takes for trial

modifications to be converted into permanent modifications, the conversion rate

for trial modifications into permanent modifications, the length of time it takes

to resolve escalated homeowner complaints, and the percentage of required

modification status reports that are missing.

Implementing this recommendation could have gone a long way to fix the

extended trial periods at SunTrust. Moreover, the concern extends beyond

SunTrust. Treasury’s HAMP data shows that thousands of homeowners across

multiple servicers are in trial periods of six months or more. This is not always the

homeowner’s fault. Benchmarks for acceptable performance brings accountability

if the servicer denies the homeowner permanent assistance after being in a lengthy

trial period. After such a lengthy trial period, the homeowner could owe a balloon

payment of the total amount difference between the mortgage payments and the

trial period payments. That required payment could be so large that it is impossible

to make, leaving the homeowner headed towards foreclosure. For example, the

latest data collected by Treasury from the 137 HAMP servicers with active trial

modifications indicates that the average monthly savings from homeowners in trial

periods lasting six months or longer was $472. If servicers deny that homeowner

permanent HAMP assistance at the end of the six month period, the average

homeowner would have to pay $2,835. Treasury’s data indicates that the payment

could be much higher. In one of several similar examples, a homeowner who is

saving $3,351 per month and has been in a trial modification since December

2011 could be required to pay back almost $100,000 if rejected from HAMP.

Worse yet, some homeowners were current on payments when they entered HAMP

trial modifications, but after being denied permanent modifications, were worse off

than if they had not applied at all.


SIGTARP’s recommendations are designed to help protect homeowners,

including the following recommendations that have not been implemented by

Treasury, to help additional homeowners get a permanent mortgage modification

from HAMP:

Treasury should publicly assess the top 10 MHA servicers’ program performance

against acceptable performance benchmarks in the areas of: the length of time

it takes for trial modifications to be converted into permanent modifications, the

conversion rate for trial modifications into permanent modifications, the length

of time it takes to resolve escalated homeowner complaints, and the percentage

of required modification status reports that are missing.

  • Treasury must ensure that all servicers participating in MHA comply with

program requirements by vigorously enforcing the terms of the servicer

participation agreements, including using all financial remedies such as

withholding, permanently reducing, and clawing back incentives for servicers

who fail to perform at an acceptable level. Treasury should be transparent and

make public all remedial actions taken against any servicer.

  • Treasury should stop allowing servicers to add a risk premium to Freddie Mac’s

discount rate in HAMP’s net present value test.

  • Treasury should ensure that servicers use accurate information when evaluating

net present value test results for homeowners applying to HAMP and should

ensure that servicers maintain documentation of all net present value test

inputs. To the extent that a servicer does not follow Treasury’s guidelines on

input accuracy and documentation maintenance, Treasury should permanently

withhold incentives from that servicer.

  • Treasury should require servicers to improve their communication with

homeowners regarding denial of a HAMP modification so that homeowners can

move forward with other foreclosure alternatives in a timely and fully informed

  1. To the extent that a servicer does not follow Treasury’s guidelines on

these communications, Treasury should permanently withhold incentives from

that servicer.

  • To ensure that homeowners in HAMP get sustainable relief from foreclosure,

Treasury should research and analyze whether and to what extent the conduct

of HAMP mortgage servicers may contribute to homeowners redefaulting

on HAMP permanent mortgage modifications. To provide transparency and

accountability, Treasury should publish its conclusions and determinations.

  • Treasury should publicly assess and report quarterly on the status of the ten

largest HAMP servicers in meeting Treasury’s benchmark for an acceptable

homeowner redefault rate on HAMP permanent mortgage modifications,

indicate why any servicer fell short of the benchmark, require the servicer to

make changes to reduce the number of homeowners who redefault in HAMP,

and use enforcement remedies including withholding, permanently reducing, or

clawing back incentive payments for any servicer that fails to comply in a timely

  1. manner.
  • In order to protect against the possibility that the extension and expansion of

HAMP will lead to an increase in mortgage modification fraud: (a) Treasury

should require that servicers provide the SIGTARP/CFPB/Treasury Joint Task

Force Consumer Fraud Alert to all HAMP-eligible borrowers as part of their

monthly mortgage statement until the expiration of the application period for

HAMP Tier 1 and 2; and (b) Treasury should undertake a sustained public

service campaign as soon as possible both to reach additional borrowers who

could potentially be helped by HAMP Tier 2 and to arm the public with

complete, accurate information about the program to avoid confusion and delay,

and to prevent fraud and abuse.

  • Given the expected increase in the volume of HAMP applications due to the

implementation of HAMP Tier 2, Treasury should convene a summit of key

stakeholders to discuss program implementation and servicer ramp-up and

performance requirements so that the program roll-out is efficient and effective.

SIGTARP made recommendations designed to curb the growing number of

homeowners who fall out of a HAMP permanent modification prematurely. If the

current trend continues, large percentages of homeowners will continue to fall out

of HAMP permanent mortgage modifications and Treasury will have missed an

opportunity to use TARP to provide sustainable relief to as many homeowners as

possible. For example, SIGTARP recommended:

  • Treasury should conduct in-depth research and analysis to determine the

causes of redefaults of HAMP permanent mortgage modifications and the

characteristics of loans or the homeowner that may be more at risk for redefault.

Treasury should require servicers to submit any additional information that

Treasury needs to conduct this research and analysis. Treasury should make the

results of this analysis public and issue findings based on this analysis, so that

others can examine, build on, and learn from this research.

Although Treasury has agreed to implement this important recommendation,

the results of Treasury’s ongoing efforts remain unclear and unknown. Meanwhile,

homeowners continue to redefault from HAMP. Since SIGTARP made that

recommendation in April 2013, more than 85,890 homeowners have redefaulted

out of HAMP.

For similar reasons, to address the alarming rate of redefaults, SIGTARP made

the following recommendations, which remain unimplemented:

  • As a result of the findings of Treasury’s research and analysis into the causes

of HAMP redefaults, and characteristics of redefaults, Treasury should modify

aspects of HAMP and the other TARP housing programs in ways to reduce the

number of redefaults.

  • Treasury should require servicers to develop and use an “early warning system”

to identify and reach out to homeowners that may be at risk of redefaulting

on a HAMP mortgage modification, including providing or recommending

counseling and other assistance and directing them to other TARP housing

  • In the letter Treasury already requires servicers to send to homeowners who

have redefaulted on a HAMP modification about possible options to foreclosure,

Treasury should require the servicers to include other available alternative

assistance options under TARP such as the Hardest Hit Fund and HAMP Tier\2, so that homeowners can move forward with other alternatives, if appropriate,

in a timely and fully informed manner. To the extent that a servicer does not

follow Treasury’s rules in this area, Treasury should permanently withhold

incentives from that servicer.

  • Treasury should increase the amount of the annual incentive payment paid to

each homeowner who remains in HAMP. Treasury should require the mortgage

servicer to apply the annual incentive payment earned by the homeowner to

reduce the amount of money that the homeowner must pay to the servicer

for the next month’s mortgage payment (or monthly payments if the incentive

exceeds the monthly mortgage payment), rather than to reduce the outstanding

principal balance of the mortgage.

SIGTARP looks forward to continuing its work with Treasury on implementing

SIGTARP’s recommendations, especially these crucial recommendations

concerning TARP’s housing programs, to ensure homeowners obtain the affordable

and sustainable relief Treasury intended.

Ninth Circuit Issues Common Sense Decision on Applicability of Pleading Tender in Truth in Lending Rescission Case

Merritt v. Countrywide Financial Corp., 09-17678 (9th Cir. July 16, 2014).

     “Automatically to require tender in the pleadings before any colorable defense has been presented would encourage creditors to refuse to honor indisputably valid rescission requests, because doing so would allow the security interest to remain in place absent tender,” Judge Marsha Berzon wrote for majority. “The result would be to allow creditors to vary the statutory sequence simply through intransigence.”
Berzon added that “plaintiffs can state a claim for rescission under TILA without pleading that they have tendered, or that they have the ability to tender, the value of their loan.”
“Only at the summary judgment stage may a court order the statutory sequence altered and require tender before rescission,” she wrote, “and then only on a ‘case-by-case basis,’ once the creditor has established a potentially viable defense.”
Reviving the Merritts’ claims under the Real Estate Settlement Practices Act, which “prohibits kickbacks and unearned fees” in such transactions, the panel found that the one-year statute of limitations could be postponed under certain circumstances.


This is great for Truth in Lending rescission cases, because it limits Yamamoto’s applicability, which the district courts were expanding.

Also, for just the common law “tender rule,” this same reasoning should apply because as we have argued, a borrower should not have to tender anything at the pleading stage.  You shouldn’t have to tender an entire loan just to argue that someone has recorded false or fraudulent documents against your property, or that someone has fraudulently tried to foreclose non-judicially.  Discovery should happen before determining whether tender is even appropriate, or how much, or to whom.  Tender was supposed to apply to crafting a remedy, not to bar pleading a case.  As the Ninth Circuit put it in Merritt,

In addition, in many cases, it will be impossible for the
parties or the court to know at the outset whether a borrower
asserting her TILA rescission rights will ultimately be able to
return the loan proceeds as required by the statute. That
ability may depend upon the merits of her TILA rescission
claim or on other claims related to the same loan transaction.
See, e.g., Prince v. U.S. Bank Nat’l Ass’n, 2009 WL 2998141,
at *5 (S.D. Ala. Sept. 14, 2009) (denying creditor’s motion to
dismiss as based on “mere speculation” that plaintiffs would
be unable to tender, and indicating that court would address
the proper sequences for implementing the rescission, if
necessary, only after resolving the rescission claim on the
merits). For instance, if a TILA rescission claim is
meritorious and the creditor relinquishes its security interest
in the property upon notice of rescission as required by the
default § 1635(b) sequence, the obligor may then be able to
refinance or sell the property and thereby repay the original
lender. Cf. Burrows v. Orchid Island TRS, LLC, 2008 WL
744735, at *6 (C.D. Cal. Mar. 18, 2008) (declining to require
pleading of tender where the court inferred that borrower
would be able to tender by selling or refinancing the property
if rescission was found to be appropriate); Williams v. Saxon
Mortg. Co., 2008 WL 45739, at *6 n.10 (S.D. Ala. Jan. 2,
2008) (declining to condition rescission on tender as was
done in Yamamoto, because it was not clear that borrower
would not be able to refinance the loan). Or her complaint
may allege damages claims arising from the same loan
transaction, the proceeds of which, if successful, could then
be used to satisfy her TILA tender obligation. See Shepard,
supra, at 205 & n.200, 210.

Colorado Attorney General Goes After Foreclosure Mill Law Firms Aronowitz and the Castle Law Group

$13 Million Settlement with Aronowitz & Mecklenburg Secured
DENVER — Colorado Attorney General John Suthers today announced the filing of civil law enforcement actions against the two largest foreclosure law firms in Colorado. In separate filings, the Attorney General’s Consumer Protection Section charged The Castle Law Group, its principals and affiliated foreclosure-related businesses, as well as Aronowitz & Mecklenburg, its principals and affiliated foreclosure-related businesses with violating the Colorado Consumer Protection Act, the Colorado Antitrust Act, and the Colorado Fair Debt Collection Practices Act. The Attorney General filed a simultaneous proposed Final Consent Judgment settling the case against the Aronowitz defendants.
“These lawsuits come at the end of a lengthy and exhaustive investigation into allegedly fraudulent billing practices by these firms that inflated foreclosure costs,” said Attorney General John Suthers. “These inflated costs were passed on to homeowners trying to save their homes from foreclosure, successful bidders for properties at foreclosure sales, and to investors and taxpayers. The facts uncovered by our investigation are very disturbing and, frankly, reflect poorly on the legal profession.”

From the Complaint,

This action is the result of the State’s extensive two-year civil law enforcement investigation of foreclosure law firms, including Aronowitz & Mecklenburg (“Aronowitz” or “the law firm”), that have performed the vast majority of the roughly 275,000 residential foreclosures in Colorado since 2006. This investigation revealed that these law firms, including Aronowitz, unlawfully exploit the foreclosure process by misrepresenting and inflating the costs they incur for foreclosure-related services to fraudulently obtain tens of millions of dollars in unlawful proceeds. Although the law firms agreed to perform these routine foreclosures for a flat attorney fee, they viewed this fee as insufficient and devised a scheme to generate additional millions by inflating foreclosure costs. Homeowners, purchasers, investors, and taxpayers paid for and continue to pay for these fraudulent charges.

2. Defendants systematically and intentionally misrepresent, inflate, and charge unreasonable, unauthorized, unlawful, and deceptive costs for posting foreclosure notices, obtaining title products, preparing documents, and providing other foreclosure-related services. They do this primarily through affiliated vendors, which create invoices for foreclosure services at costs grossly inflated above the actual costs and above what unaffiliated vendors charge for the same services.

3. Defendants get away with this extensive fraud by taking advantage of the inherent lack of oversight in the foreclosure process. The mortgage servicers that hire the law firm on behalf of the loan’s investor rely upon the law firm to perform all the legal work in the foreclosure for an agreed-upon flat attorney fee (the “maximum allowable fee”) and to pass through only its actual, necessary, and reasonable costs. Servicers do not conduct market analyses of these foreclosure costs; rather, they rely on the law firm to comply with the law and investor guidelines by charging costs that are actual, reasonable, and the market rate.

4. Defendants also get away with charging excessive, unauthorized, and unlawful costs because no homeowner, purchaser, or taxpayer can challenge the law firm’s claimed costs. Nor may the public trustees, which administer the foreclosure process, or the courts, which authorize the foreclosure sale, challenge these costs. Thus, a homeowner seeking to save his home from foreclosure or a person purchasing a property at auction must pay whatever costs the law firm claims to have incurred in performing the foreclosure. If the property returns to the lender, the mortgage servicer assesses these costs to the investor or insurer, which are often borne by taxpayers.

5. The law firm abuses this system, which it knows is devoid of administrative or judicial oversight, to charge whatever costs it can get away with in order to generate significant revenue beyond the maximum allowable fee.

6. For example, in early 2009 when the Colorado legislature began considering a bill to allow for a brief foreclosure deferment that would require posting a notice similar to an eviction notice, Stacey Aronowitz began working with Caren Castle of The Castle Law Group (“Castle”), Aronowitz’s largest competitor, on what they could get away with charging. Stacey Aronowitz emailed a foreclosure lawyer in another state that also required a foreclosure posting and asked: “I am curious how much you get away with charging . . . .” She later emailed Caren Castle: “I just wanted our offices to try and get on the same page on what we are charging for all of this.” They agreed that Caren Castle would try to seek approval from Fannie Mae, the dominant investor in the foreclosure industry, to charge $125 for this new posting, not the $25 charged for similar eviction postings.

7. Accordingly, these two competitors, who handle 75 percent of Colorado foreclosure filings, coordinated to set the minimum price for posting at $125—an amount unrelated to the actual cost for such postings or the market rate charged by unaffiliated vendors. Once the bill requiring the foreclosure posting passed, Aronowitz and Castle secured financial interests in posting companies and claimed fraudulent and inflated costs of at least $125 per posting. This amount multiplied by tens of thousands of foreclosures resulted in a multimillion-dollar windfall to the posting companies and, directly or indirectly, to the law firm, Stacey Aronowitz, Robert Aronowitz and Joel Mecklenburg (collectively “Aronowitz Defendants”) and to Castle.

8. Operating with no checks and unrestrained by market principles by selling foreclosure services to themselves, the Aronowitz Defendants charge around $350 to $750 in unlawful costs per foreclosure by making false, misleading, and deceptive statements of costs to homeowners, servicers, investors, and the public on reinstatements, cures, bids, and invoices, as follows:
● $125 to $150 for each of the two required foreclosure postings for a total of $250 to $275 per foreclosure when the market rate for each posting is $25;
● $250 to $275 for title search reports when the market rate is $100;
● $400 to $500 in “cancellation fees” for foreclosure title commitments ordered by the law firm during the foreclosure;
● $100 for a one-page form document that can be completed in secondsand is already compensated in the allowable foreclosure fee;
● $35 for a tax search/tax certification when the actual cost is $10 or less;
● $25 for a bankruptcy search that costs $3 or less; and
● $10 to $25 for a military status search that is free.

9. Defendants’ multimillion-dollar unjust enrichment came at a tremendous expense to the public. Not only does it harm desperate homeowners facing foreclosure and persons buying properties at auction, it reverberates to the public at large, as servicers hiring the law firm pass along these costs to taxpayer-funded investors or insurers. As Fannie Mae informed Aronowitz and other Colorado foreclosure law firms during a 2010 training, its credit losses are taxpayer-funded and every effort should be taken to reduce foreclosure costs because every dollar reduction in costs is significant when multiplied by a large volume of loans.

10. These inflated foreclosure costs also negatively impact housing and loan costs outside the foreclosure industry. Moreover, the law firm’s use of affiliated businesses charging inflated costs has adversely affected competition from businesses that could provide foreclosure services at a much lower market rate.

11. The increased cost of foreclosures and negative impact on competition wrought by Aronowitz’s and Castle’s use of affiliated vendors charging above the market rate for foreclosure services was recently highlighted when Fannie Mae suspended Aronowitz and Castle from handling any Fannie Mae foreclosures. Fannie Mae began referring its files to new law firms using unaffiliated vendors, which provide postings at $25, not $125, and title searches at $85 to $105, not $275. This development has already significantly reduced the costs per foreclosure. These unaffiliated vendors—which were effectively cut out of the foreclosure market by Aronowitz’s and Castle’s affiliated vendors—have since substantially increased their volume of work by providing services to new law firms at actual market prices.

12. Defendants’ conduct violates the Colorado Consumer Protection Act, the Colorado Antitrust Act of 1992, and the Colorado Fair Debt Collection Practices Act and harms homeowners and the public.

CitiGroup Fine Does Not Bring Enough Homeowner Relief

Truthout writes about the Citigroup civil fine announced yesterday:

Of the $7 billion total settlement, $4 billion will be in the form of a civil monetary payment to the Department of Justice, $500 million will go to state attorney’s general and the Federal Deposit Insurance Corporation, and an additional $2.5 billion will go towards “consumer relief.”

But make no mistake about it. This agreement is another win for the big banks.

Under the agreement, Citigroup will most likely get a $500 million tax write-off. And in pre-market trading on Monday, Citigroup stocks rose by nearly 4 percent, despite the $7 billion agreement.

This is nothing more than a slap on the wrist for Citigroup; basically a cost of doing business.

And as for the mere $2.5 billion in consumer relief, while it will be going towards loan modifications, principal reduction and refinancing for distressed homeowners, it’s nowhere near enough. And there are no guarantees it will make its way into the hands of the people Citigroup victimized, either.

If the Department of Justice was serious about holding Citigroup accountable for its actions, and helping the American people and economy recover from the Great Recession, then it would be taking a heck of a lot more than $7 billion, and giving that money directly to the American people.

It would be helping out American homeowners, instead of continuing to protect the big banks.

After all, it’s consumers buying things like houses who drive demand and grow the economy. Not the big banks on Wall Street.

Directly helping out American homeowners after a crisis isn’t some sort of radical idea or new thing we have to look at Sweden or Iceland to figure out, either.

We’ve done this sort of thing before, right here in the United States, and it worked very well.

Back in 1933, in the wake of the Great Depression, FDR signed into law the Home Owners’ Loan Act of 1933, which created the Home Owners’ Loan Corporation(HOLC).

The HOLC’s main goal was to help refinance home mortgages that were in default or at risk of foreclosure because of the 1929 stock market crash and the previous collapse of the housing industry.

It did that by buying up old mortgages from the banks using government bonds – borrowed money.

In a statement released after the act was signed into law, FDR said that, “In signing the ‘Home Owners Loan Act of 1933,’ I feel that we have taken another important step toward the ending of deflation which was rapidly depriving many millions of farm and home owners from the title and equity to their property.”

By the mid-1930’s, the HOLC had helped to refinance nearly 20 percent of urban homes in America.

And by 1936, the final year that the HOLC was buying mortgages, it had helped to provide Americans with over one million new mortgages, and had lent out nearly $750 billion in today’s dollars.

That’s right; $750 billion in today’s dollars. That makes the $2.5 billion from the Citigroup agreement going towards consumer relief seem like nothing.

To this day, the HOLC is credited with relieving the financial burdens of millions of Americans, and helping to right the American economy.

If we’re serious about rebuilding the American economy, and helping out the millions of Americans who still struggle to keep a roof over their heads, then we need to be doing a lot more than just forcing one bank to handle $2.5 billion in consumer relief and trusting the bank to distribute it responsibly.

We need to stop caring so much about the well-being of Wall Street, and start caring about the American people and economy.

No American should have to go to bed tonight worrying if they’re going to become homeless tomorrow.

Non-Bank Servicers Like Ocwen and Nationstar are Mishandling Foreclosures and Modifications, Finds FHFA Report

This is another one in the “tell us something we don’t already know” archive of government reports but the FHFA published a special report on nonbank mortgage servicers yesterday.  “Specifically, the nonbank special servicers do not have the same capital requirements as a bank, which means they are more susceptible to economic downturns. Such downturns could substantially increase nonperforming loans that require servicer loss mitigation while at the same time impact the ability of the servicer to perform,” the report said.

This excerpt on the issue is from Structured Finance News:

Borrowers whose loans are backed by Fannie or Freddie “may not have their loans properly serviced” by nonbanks, says Russell Rau, a deputy inspector general for audits who wrote the 17-page report. Rau recommends that FHFA develop a formal framework that would include routine exams, reviews and testing to ensure nonbank servicers can meet current servicing requirements.

Since last year, regulators have ratcheted up their scrutiny of nonbank mortgage servicers after receiving thousands of complaints from borrowers for mishandled foreclosures, denied loan modifications and overcharging on fees. Benjamin Lawsky, the Superintendent of New York’s Department of Financial Services, has launched separate investigations into two nonbank servicers, Ocwen Financial (OCN) and Nationstar Mortgage (NSM).

The FHFA inspector general’s report describes the massive growth since 2008 of nonbank servicers, which it says are not subject to the same capital requirements as banks. The FHFA, Fannie and Freddie have been supportive of banks selling mortgage servicing rights to nonbanks largely to help struggling homeowners and to limit the GSEs’ own losses.

Despite receiving more scrutiny, some nonbank servicers do not have the infrastructure to properly service all of the loans they have acquired, the report found. Fannie and Freddie have been aware of operational problems and have sent teams to specific servicers only to find weak infrastructure and lax handling of borrower complaints.

“This rise in nonbank special servicers has been accompanied by consumer complaints, lawsuits, and other regulatory actions as the servicers’ workload outstrips their processing capacity,” the report found.

New Lawsuit by Hedge Funds Against Securitization Trustees Filed in New York State Court Last Week

Here’s a new lawsuit to watch. It was filed in New York’s state court, called the Supreme Court (trial court) division in New York.   I would wager that the Defendants will try to remove it to federal district court soon.

Of course, this isn’t the first lawsuit related to fall-out from the financial crisis and housing collapse.  Pimco and other giants in the hedge fund industry have sued many times to try to recover for the harm caused by their investments in mortgage-backed-securities, and the Big Banks’ (Bank of America, Citi, etc.) refusal to honor their purchase back obligations when they knew, and failed to disclose, to the investors, that their representations and warranties regarding the quality and underwriting of the underlying loans being transferred into the Trusts were false.  Nothing new there.  There have been high profile lawsuits and settlements by investors and by the bond-insurers who insured the deals, like AMBAC. But three days ago, Pimco and others sued the trustees of the MBS Trusts.  The Trustees of these Trusts are typically large banks, commonly Deutsche Bank, U.S. Bank, N.A., Bank of New York Mellon, and the like.  The trusts claim that their responsibilities are much more passive and limited than those of a common law trustee.  Mainly, they claim that all they do is furnish payments on the certificates to the investors.  But the truth is, they have conflicts and interests that impact the investors, because they are predisposed to honor the investment banks, servicers, and depositors (often all related entities and subsidiaries of the underwriting investment bank, which would have been Lehman, or Goldman Sachs, or Bear Stearns). The investors are claiming  that they were owed a higher duty by the securitization trustees. From the Wall Street Journal at

Trustees are appointed by bond issuers to ensure that interest and principal payments are funneled to investors in the bonds. Their role requires they ensure that mortgage servicing firms are following the rules that govern the treatment of loans with defects, or if a homeowner defaults. But the trustees have long argued their responsibilities are limited to functions such as overseeing how payments are directed to investors and providing routine reports on bond servicing, said Ron D’Vari, chief executive of NewOak Capital, a capital markets advisory firm that consults on bond litigation. Trustees believe that a broad oversight role for them “is a misconception of the investors,” Mr. D’Vari said. The suits filed Wednesday allege that the trustees were aware that the bonds were filled with defective loans due to “pervasive” evidence of systemic abuses by loan originators and shoddy construction of bond deals by issuers, according to the lawsuits. In some cases, the trustees were directly informed by bondholders and bond insurers of violations by lenders and issuers, the lawsuits say. The investors say that trustees were conflicted because the issuers that appointed them often had stakes in the firms that serviced the loans.