Topic: Foreclosure defense in a nutshell

Excerpts from The Nation, May 18, 2009

All over the country, confused, struggling homeowners were delinquent on their mortgage payments or in foreclosure, i.e. more than 11%. Every effort to date to try to bring order to the problem has utterly failed.

In July, 2007, the mortgage industry offered the HOPE NOW program, cruelly named, as it offered no real hope. George W. Bush offered a narrowly tailored Federal Housing Authority (FHA) refinancing program dubbed FHASecure. Last summer, Congressional Democrats came in big with HOPE for Homeowners, which put up $300 billion for FHA administered refinances. All these things had these important aspects in common, i.e. they relied on the industry's voluntary participation, and they didn't work.

HOPE for Homeowners, launched in October, 2008, has, as of late March, 2008, prevented exactly ONE foreclosure. "Needless to say, the program isn't working terribly well," an FHA spokesman deadpanned to

HOPE NOW program has claimed to help millions avoid foreclosure through loan modification, but despair lies just below the surface of the industry's assertions. More than half of all loan workouts last year failed to reduce monthly payments, and nearly one-third actually increased the payments.

Sixty percent of the loans modified in the first three quarters of 2008 were at least thirty days delinquent at year's end according to the Office of Thrift Supervision.

There are a myriad of reasons for the dismal performance of all these efforts to arrest foreclosures. Servicers are afraid to modify loans they don't actually own; the industry's fee structure blinds it to the long-term costs of foreclosure; and many borrowers are far too deep in debt to be helped.

President Obama's own proposal in February, 2009, the fourth major initiative in less than two years, with a plan to let bankruptcy judges reduce principal owed required Congressional approval that it did not get. It didn't strengthen the negotiating power of overwhelmed borrowers. The legislation was blocked by industry giants JPMorgan Chase, Wells Fargo, and Bank of America, i.e. those who stood to lose the most money to the process. These companies have fought hard to kill the legislation. Like it's predecessors, the plan did not give borrowers any leverage.

Mortgage Servicers play a role like loan sharks in a gangster movie, and 91% of all outstanding home loans are serviced by third-party banks and firms that don't own the note. A dramatic restructuring of the mortgage servicing industry coincided with the subprime explosion. In 1989 the five largest firms controlled 7% of the market. By 2007, 46%, and after Bank of America's merger with Countrywide, 48%. Automation and outsourcing followed so they could make more money, but this resulted in hiring servicers without much training who did little more than data entry. Not only subprime loans are failing; in 2008 the formerly stable prime loans failed more than twice as much as in the past.

A surprising number of workouts have done nothing to change the loans; more than half are merely repayment plans that give borrowers more time to catch up leaving most borrowers in an exhausting, no-win game of chase, in which separating predation from plain incompetence is nearly impossible.

At first, the foreclosures seemed to be the result of horrible loans written to borrowers who didn't realize they were getting an extremely bad deal, but now well over half of the foreclosing loans were affordable, then the borrowers lost their jobs.

Loan servicers tell borrowers to dig up dozens of documents about income and expenses and turn it all in. Borrowers comply but don't hear anything for months, then suddenly they are served with foreclosure documents. Sometimes this is a result of the loan having been sold to another company.

Higgins Law, LLC, can file papers challenging the foreclosure and this sometimes gives the borrowers enough leverage that the lenders start making better loan modifications. The lenders have been inserting a controversial clause into those loan workout agreements that states the borrowers, in accepting the agreement, waive their right to sue the lender. Servicers urge desperate borrowers into agreements that accomplish nothing more than making sure a judge never sees the ugly details of either the original loan or the fee frenzy of servicing. The default servicer has no interest in modification, because they are not paid for modifications. They are actually paid better if the loan is allowed to foreclose! The servicing industry's pay structure creates perverse incentives that impede loan modification even when loan modification is in the best interests of both the investor and the borrower. Servicers get paid a portion of the money paid by borrowers, so if many borrowers do not pay, servicers need to move quickly to stop the monthly loss to them and foreclosure is the fastest way to stop the damage and, they get to charge the investors and borrowers new fees. That means the only way for borrowers to slow the race to foreclosures is to make it a costly process for servicers. When the borrower hires an attorney to defend against the lawsuit, the servicer often lets the case sit in favor of working on the "easy ones", i.e. the foreclosures where borrowers don't respond at all and the lender wins by default. Once a borrower exerts leverage through a countersuit, the servicer usually disappears. The case becomes too expensive to pursue and thus moves to the bottom of the pile. Servicers cede no ground without being forced to through litigation.

Even when services "help", they bungle things so badly that borrowers just can't accept. Litton Loan Servicing has been known to offer modification plans that dramatically raise the amount the borrower has to pay to keep their home. Their forbearance agreements offer even higher monthly payments with harsh repayment agreements such as no grace period, and mounting late fees, demand for thousands of dollars "down" within the next few days.

Few servicers can foreclose without committing fraud, but it takes a lawyer to recognize this, and borrowers are already having financial problems when the foreclosure began, so they don't think they can afford a lawyer. There are hard and fast rules that mortgage backed securities must follow that are very time-consuming, so many just cheat! Mortgage assignments, or the lack of them, is often an obstacle to moving forward in a foreclosure, but only if you know that, and most borrowers do not. You must hire a lawyer who knows what to look for to push the servicers into doing the hard work of highly skilled negotiations and details that are necessary to rewrite these loans. Even though President Obama has offered to pay $2,500 to rewrite each loan, servicers are loathe to do so; it simply is not in their financial interests to do so. They make more money pushing for quick foreclosure instead.

Industry lobbyists don't want the process of rewriting loans to give borrowers any leverage. Bankruptcy judges are still barred from modifying mortgage loans on primary residences. Borrowers need to be armed with a countering threat when offered lousy loan workouts. It is the only source of leverage that has been found to "work". Large servicers do not like the idea of a judge digging through poorly made and poorly serviced loans, many of them riddled with fraud. If you don't have a Goliath-like lawyer filing a counter-claim for you, there is little to no chance of saving your home through a modification / workout. It simply doesn't happen. Call Higgins Law, LLC, for foreclosure defense or to file for ch. 13 bankruptcy to force the lender to accept your regular mortgage payment plus a small fraction towards the arrears that can be spread out over five years' time.