Mortgage Modification: Many Hurdles Still


Mortgage Modification: Many More Hurdles

The administration’s loan modification program has helped 55,000 troubled borrowers so far. But the housing crisis is complex and the fixes aren’t so easy.

The housing crisis has become very serious and complex according to CNNMoney.com. Most of the loan servicers are flooded by applications, their faxes machines are full and churning out copied paper days and nights. The numbers are busy in most part of the day. The phone lines are jammed. Still, the foreclosure is rising with the increase in the unemployment rate, divorces and other social factors of migration.

Nearly three months after President Obama first announced his $75 billion mortgage rescue effort, his administration is still refining the program in hopes of reaching its goal to save 9 million homeowners from foreclosure. As the NY times reported few days ago, so far, more than 55,000 borrowers have been put into trial modifications, which become permanent if they keep up with payments for three months. Hundreds of thousands more have applied.

Well, as we speak this loan modification process is getting longer and complicated. In some cases, the lenders are back to their original game. They were nice in the very first few days, now back to their dirty old game of playing with words, issues and papers. Most of these folks are collection representative with nasty phone habits and manners. The initiative must still get over several hurdles before its chances for success can be determined. Here, the lender has build many layers of Chinese wall made of not only real brick but some time with iron gates and panthers watching its caves.

Stressed Servicers:

The program’s guidelines were issued on March 4, but it took many servicers weeks to reprogram their systems and train their staffs. Many did not even start accepting applications until early- to mid-April, frustrating troubled borrowers forced to wait to find out if they qualify for lower rates. Servicers are still learning and giving training to their newly hired employees. Many servicers slowed down the process with the excuse that their software is not ready or they waiting for more guidelines to come. In fact, everyday, they came with different excuses.

This is causing lots of delay and confusion. It is a constant battle of sending the lenders every day something new. Each time the lender demands something new. In one case, they asked a marriage certificate along with utility bills. I remember in one instance they demanded an electricity bill for the month of April, which was promptly sent to them. Now, the servicer is demanding a utility bill for the month of May. They want to see if that is paid or not. Dumb question, there is always a column on the bill which says the current amount, and the amount last paid. Most of the reps do not understand simple logic. They are not even familiar with the basic computer functions and put you on hold for long time. It is shocking they never receive anything, or refuse to acknowledge something sent already.

Angry Investors:

One complicating factor in the mortgage meltdown is the fact that the loans are bundled into securities and then sold off in pieces to investors. Some servicers have blamed the slow pace of mortgage modifications on the fact that their contracts with investors limit their ability to adjust the loans’ terms.

To address this concern, Congress is currently finalizing a bill that would give servicers a “safe harbor” in modifying mortgages.

“The goal of ‘safe harbor’ is to allow servicers to use these program to their fullest capacity. Some investors, however, are lobbying hard against the bill, saying that the contracts already give.

Although the administration has since expanded the modification requirement to cover second liens, some investors still aren’t satisfied. They want the administration to treat second liens in the modification program the same way it does in the Hope for Homeowners program, which requires these liens to be extinguished.

Escalating Unemployment: The rising unemployment rate is threatening to reverse any gains being made in stabilizing the housing market. When homeowners lose their jobs, they often can’t afford to stay in their homes. Modifications often can’t help, experts say.

Few Words for The Borrowers
Too

While I have lambasted lenders many times in these columns, some of our borrowers have not been above board as well. They were willing partcipants in this greed game in many ways. Most of them would tell you lots of stories when they come to your office but still would not bring the right papers with them. Their knowledge about the basic aspects of their loan is very elementary. Of course story telling skills are great. Some do not even know how much is their current interest rate or terms of the loan. Some were offered good modification terms, which either they lost the paperwork or procastinated, and did not sign on some flimsy grounds and hopes of more bargaining. The offers are lapsed and new paperwork is required and meanwhile they had serious negative ratings on their credit reports. Some of these folks needs another modification. Why on earth they were lazy in the first place. I want to be honest here. I see lots of lazy, financially irresponsible people who are borrowers. Truthfully, some of them should not be allowed to buy homes, and it is not a bad idea if some of these people should be living in apartments. Sometime you wish when you see a lousy driver ahead of you, how on earth he got a driver license. He should have been behind bars. Yes, that is true. Some are just lazy people, and I have no compassion for them. Your brought it to yourself, and meanwhile you are an equal contributor to mess up our economy. How come you don’t pay your HOAs and insurance, and mow your lawn, and sometime park in your front line. Come on guys civic lessons are not taught in a school, and neither the lousy parental skills where only children are procreated and then lift on whims to be raised and educated from the public system. Okay, I am sorry, I get drifted as I am not a social scientist to lecture here having lots of my own flaws. Truth is that some of these folks should not be allowed to be homeowners and some should not be allowed to get married. That is a great irony of our time.

This may be an unending process. Another bad thing, which I noticed that homeowners are getting used to stay free and without a payment in these homes. This is making their approach very parasitic and self centered. They are dreadful to pay even a modest payment. They should acknowledge the fact that their action is conducive to causing bad economy. If they can continue paying theri car payments, and their credit card payments, they can also pay their mortgage payments. It shocks me when folks come to my office with all kinds of stories and gory tale of the miserable things happened to them but never acknowledge their own financial irresponsibility. How come they can’t pay a mortage monthly amount of mere $900. Yes, this is true. This lady called me from this fancy location and with crying and tears of course told me she is behind her payments for 6 months. I asked her what kind of hardship she had? She is still fully employed and had in fact taken a foreign tour as well. How can you go and take a foreign tour and not pay your outstanding mortgage statements? She said and acknowledged that she is a procastinator. In fact, I was so afraid few times that I sent the loan modification signed package myself right to the box else these procastinators forget and just don’t mail it. Yes, it had happened, and the bank refused to acknowledge the expired contract. Once they refuse, the modification has to start all over again. This, of course, is the pinnacle of procastination and laziness. Next time I make sure, they do not come to my office. Some of them of course had stiffed me with the outstanding balance.

This is very unfortunate when an attorney modifies the loan, the terms are attractive, but still the homeowners is reluctant to take it. Why? Their excuses are novel and unique. The wanted half of the principal reduced and interest rate locked fo 40 years fo 3 percent. That shocks me when a mobile society like US, intends to stay in their home for 40 years. How many people you can tell us who stayed in their homes for 40 years, or ever stayed in their homes for 40 years. Probably there may be exceptions in some strong ethnic neighborhoods. On average, a US family moves about five times in their life and buys at least 5 to 8 homes during this life span.

Folks, this is plain and simple loan modification. My answer to them is simple:
-How come you were not so smart when you were signing your original loan?
-Why are you asking all kinds of fault in simple loan modification papers.
-Why did you not ask all these questions at that time?
-Were you sleeping when the loan officer ripped you?
-What happened during the closing?
-Did you take an attorney with you?
-You had one home, what was the dire necessity to buy a second home?
-There was no gun placed on your head by anyone?
– Why on earth you refi your home four time in last 6 years?
-Lastly why happened to the cash out after refinancing?

We are creating a socialistic mentality. Of course, we live in USA and not in some communist country or even in the former USSR. This is USA and not a housing complex of some socialist country. These are legal contracts, and decent human being should honor if an aid is provided to them to get through this turbulent time. They should say thank you loudly. Profit making is a genuine American capitalistic issue and this creates financil security and brings prosperity to our system. We cannot deny lenders, and other related agencies to make profits. It is fundamental principle of capitalism. This crisis was not created by George Bush (no matter how much unpopular he can be, and neither created by Obama: it was created by the collective greed of all of us including lenders, loan officers, real estate brokers and of course our greedy politicians. Of course, it is loan modification—definitely not a loan rewrite or a refinancing. Take what you can take,and remember one thing beggers cannot be choosers!.

How to Fight Wrongful Foreclosure in Nevada?


Foreclosure is on the rise and especially in Nevada. The last time, and that was only a few days ago, I had seen some 30 lawyers in the District Court’s room where all the cases were on foreclosure. It broke my heart when the lenders attorneys’ foreclosed and asked judge to sign the eviction orders for some 20 homes in less than 20 minutes. Yes, there was no fight in any of the case. Couple of homeowners aka defendants appeared and they offered just meek defenses, filed no opposition and begged the judge just for few more days, in barely inaudible voices. Please, say No\: the homeowners does not have to be meek, humble and beg for more time. They can put up a fight, and fight with their bear tooth, (tooth and nail of course). Once Winston Chruchill said, that Britian (that of course in second world war) shall fight in the air, in the mountains, and in the seas. That should be the motto of Nevada homeowners. Give them a fight. Give them hell. This is your home. It is your fortress and you should be a foot solider, and fight this hand to hand combat.

Challenging Wrongful Foreclosure in Nevada

This is a brief guide for lay persons about how to challenge foreclosure successfully. This memo is not a substitute for legal assistance. For legal advice, please only seek qualified and licensed Nevada attorneys.

Foreclosure is a complex areas of law and one should not venture into it without proper legal help. However, at this time it is meant as only education purposes. It is divided into the following parts:

• Filing Bankruptcy before Foreclosure Occurs
• Suing to Enjoin Foreclosure before It Occurs
• Suing to Set Aside a Foreclosure that Has Already Taken Place
• Filing a Counterclaim in the Detainer Action after Foreclosure Has Occurred
• Filing Bankruptcy after Foreclosure
• Procedural Grounds for Challenging the Foreclosure
• Substantive Grounds for Challenging the Foreclosure

Filing Bankruptcy before Foreclosure Occurs

This is often the shortest and simplest procedure. It has the following advantages:
– a bankruptcy filing automatically prevents foreclosure temporarily and sometimes permanently;
– you have the opportunity to cure a default in your payments by paying the delinquent amount in installments over a reasonable period;
– you may be able to reduce or eliminate the fees of the lender’s attorney;
– you may be able to avoid interest on the amount you are delinquent (though not interest on the loan itself).

Hire a qualified lawyer for bankruptcy. A paralegal would not understand all the issues. It is not just the forms needed to be filled and filed. Also, you need an expert who can give you a qualified opinion considering all of your target areas. You must file before the foreclosure sale takes place, a time that usually is only 20 or so days after the foreclosure process starts with a letter to you or a notice in a newspaper.

Suing to Enjoin Foreclosure before It Occurs
To obtain an injunction, you must file a complaint in a court. You will need a lawyer. Only a qualified lawyer can tell you how to obtain an injunction. Sometime a bond is required, and more often the requirements of a bond are dispensed with based on proper grounds.

Temporary injunctions require:- a “clear” showing of “immediate and irreparable injury, loss or damage”
– balancing of equities;
– or “that the acts or omissions of the adverse party will tend to render final judgment ineffectual.” Judges take this requirement seriously.
– The most difficult requirement of all may be the need to give a bond “in such sum as the court … deems proper” unless you successfully obtain permission to bring the action as an indigent person.
– A homeowner with only modest amounts of other assets and income may be unable to qualify as indigent and may also be unable to find anyone willing to provide a bond, especially one on short notice.

Suing to Set Aside a Foreclosure that Has Already Taken Place
The grounds for setting aside a foreclosure are limited to “some evidence of irregularity, misconduct, fraud, or unfairness on the part of the trustee or the mortgagee that caused or contributed to an inadequate price.” Defenses like the absence of a delinquency or violations by the lender of federal or state commercial law may not be raised.

You have the burden of proof in a lawsuit to set aside a foreclosure. Damages are the only remedy. There is nothing to prevent a third-party purchaser from keeping your house even if he knows of your claim against the lender and even if he believes that your claim is meritorious.

Filing a Counterclaim in the Detainer Action after Foreclosure Has Occurred
Foreclosure may be challenged by a counterclaim when the lender (or other new owner of the property) seeks possession by a “detainer” action. It is better to file the counterclaim in writing, and the grounds for doing so are discussed below. It is preferable that you use a lawyer to assist you, but most persons do not.

Lenders may assert that a wrongful foreclosure may not be challenged even when the parties are before the court on the issue of possession, the right to possession is necessarily founded on ownership, and ownership depends on the lawfulness of the foreclosure.

On the other hand, if the new owner is successful in the detainer action, it is entitled not only to possession but also to the rental value of the property from the date of foreclosure until the date of removal.

Must Furnish a Bond.

The amount of it can be prohibitive: a “sufficient amount to cover, besides costs and damages, the value of the rent of the premises during the litigation.” Even the furnishing of an affidavit of indigency may be insufficient to retain possession during an appeal.

Filing Bankruptcy after Foreclosure

It is possible to set aside the foreclosure through the bankruptcy process. The grounds that may be asserted are discussed below.

There is some good news even if you lose the challenge; bankruptcy usually discharges all or part of a deficiency judgment against you for any amount still due after the foreclosure occurs.

Procedural Grounds for Challenging the Foreclosure

Failure to Give Personal Notice. No personal notice to a borrower is required by statute. However, we believe that federal and state constitutions require personal notice to each borrower, either by summons or by certified mail that is actually received, and we are litigating cases so as to establish this principle.

Insufficient Notice by Newspaper Publication or Posting in Public Places. Under Nevada statutes, advertisement of a foreclosure sale must be made three different times in “some” newspaper “published” in the “county where the sale is to be made.” Only 20 days’ notice is required, and the use of publications read almost exclusively by lenders and lawyers is permitted. Both the shortness of the time and the use of obscure newspapers seem vulnerable to constitutional objection.

Failure to Give Notice Required by the Deed of Trust. Many deeds of trust require notice of foreclosure by certified mail, or at least by mail, in addition to notice by newspaper publication. Many also require notice – before foreclosure is sought — that the entire sum has been declared to be due because of a late payment or other default.

No Meaningful Opportunity to Dispute the Foreclosure. This too is a constitutional challenge to Nevada’s foreclosure process. It is based on the notion that making you find a lawyer and file a lawsuit in 15 days, assume a high burden of proof, and furnish a bond are unfair hurdles imposed on you.

Defects in the Foreclosure Sale. Nevada judges have said that the foreclosure must occur in the county in which the property is located; it must take place at an accessible location; and a lender may not use a purely technical default as a basis for foreclosure. However, when the lender demands the full amount of the debt, they have refused to let the borrower cure the delinquency by paying the disputed amount before the foreclosure occurs. They also have ruled that there is no minimum price that must be paid and have allowed the lender to recover a deficiency judgment if the amount received in the sale is less than the amount owed. They have yet to decide whether the combination of a shockingly low price and another procedural defect are sufficient to disallow the foreclosure.

Substantive Grounds for Challenging the Foreclosure

The following claims and defenses are among those that may be raised so as to defeat a foreclosure altogether or reduce the amount of any deficiency:

Late Payments Were Accepted on Other Occasions. Remember the defense of waiver and estoppel. (Now, you need attorney, this is of course complex phrases) This suggests that the lender waived the right to refuse late payments and was estopped from foreclosing.

The Lender Refused to Supply a Pay-Off Amount or Accept Full Payment so Foreclosure Could Be Avoided. Despite unfavorable precedent, this could be a viable ground.

• A Borrower was in Military Service at the Time of the Foreclosure.

The Loan was Unconscionable. That is, the inequality of the bargain is so manifest as to shock the judgment of a person of common sense, and the terms are so oppressive that no reasonable person would make them on the one hand, and no honest and fair person would accept them on the other. Was this done in arm length? (this does not mean the physical length of your arm)

• The Making of the Loan, or the Servicing of It, was Riddled with Unfair and Deceptive Practices that Violated the Nevadae Consumer Protection Act.

• The Servicer Collected Unauthorized Fees for the Escrow Account, or as Late Charges, or as Attorney Fees during the Foreclosure Process.

• One Spouse Was Required to Sign the Mortgage Note even though the Credit of the Other Spouse was Sufficient.

• One or More Borrowers Lacked the Mental or Physical Capacity to Borrow.

• The Mortgage Broker Was Paid an Unlawful Sum by the Lender.

• The Lender Violated a Relationship of Trust with the Borrower that Developed in the Lending Process.

• There Was Fraud or Misrepresentation by the Lender in the Making of the Loan.

Summary of All Home Loan Modification Program by All Lenders


Here is a summary of all Home Loan Modification Programs offered by all lenders. This link would take you to their excellent work done in this regard. This is in a statistically tabular form, easy to read and grasp. All thanks should go to the National Consumerlaw Organization. They indeed are doing a great service in helping stopping foreclosure and educating America in this regard.

http://www.consumerlaw.org/issues/financial_distress/content/loan_modification/Chart-LossMitigationPrograms.pdf

An Expert Analysis of Your Loan Documents (Fight Back Your Foreclosure)


[This is just an ideal analysis of an expert about your loan documents. It may or may not be true in your case. As usual seek a licensed attorney and that too a Nevada licensed attorney’s advice in your particular situation.]

Expert Analysis of a Mortgage Loan;
This Loan Should Never Have Been Made

Introduction
1. I have been asked to review the file of the ABC mortgage loan entered into by PLAINTIFF1 and PLAINTIFF2 on July 20, 2009 and provide my opinion regarding the practices exhibited by ABC in the origination and processing of the loan made to the PLAINTIFFS, as well as the financial impact that ABC’s actions had on the PLAINTIFFS.

2. [Statement of Qualifications]

3. My hourly rate for this case is $300, paid to the Office of M———– Law Office. A full list of my publications is included in my resume, which is attached.

4. My opinions in this case are based on a review of the files provided to me by, Counsel to the PLAINTIFFS. These files include loan files provided to counsel by ABC and XYZ, the company that did the title work on the loan; as well as depositions of the PLAINTIFFS, various employees of ABC, the closer of the ABC loan, and the person designated as an expert witness by ABC.

Summary of Findings

ABC’s loan to the PLAINTIFFS on July 9, 2009 should never have been made. The loan provided no benefit to the PLAINTIFFS. It appears that virtually all aspects of the processing of this loan, from application, appraisal, determination of affordability, closing, and underwriting were fundamentally flawed.

• The PLAINTIFFS did not have sufficient income to make the loan payments, and this was apparent in the documents.

• The PLAINTIFFS’ purpose in obtaining the loan – to pay off their other debts – was not achieved. They wanted protection from debt collectors, which they did not get.

• The PLAINTIFFS wanted to maintain their home – for themselves and their son – and this loan resulted in foreclosure and loss of ownership. The Plaintiff 1 is a cab driver, and Plaintiff 2 is a substitute school teacher.

• The loan was based on an inflated value of the house, and there appears to have been no real review of the appraisal which substantiated this inflated value. The appraisal provided was done without any actual and inhouse home inspection.

• The loan was based on a clearly flawed process – in the application, the approval, the processing, the appraisal, the closing, the delivery of federally required disclosures – such that it appears from a review of the file that the entire loan was fraught with serious problems. The documentation provided were not validated or checked by any independent means and agency.

The problems of this loan range from the overarching issue for these borrowers – that the loan was a terribly bad deal for this family – to the highly specific – that there are numerous irregularities in the application, loan approval, underwriting, closing, and disbursement processes. These problems are grouped into the following four categories:

1) The loan was of no benefit to the PLAINTIFFS. Their immediate, mid term and long term financial health were all seriously harmed by the July 20, 2009 loan from ABC.

2) The ABC loan was unaffordable for the PLAINTIFFS. The PLAINTIFFS did not have adequate income to sustain the payments when the loan was made. When the payments increased, due to the force placed insurance, continued payments became impossible.

3) ABC ignored serious red flags apparent in the loan file which indicated that the appraisal of the PLAINTIFFS’ was inflated. The appraisal was flawed, in violation of industry standards, and it appears that this inflation was facilitated and accepted by ABC.

4) The numerous problems in the processing and closing stages of the ABC loan indicate either seriously improper processing standards or outright deception. These problems are evident from the file and would have been caught if prudent underwriting standards had been followed. Report

1) The ABC loan was of no benefit to the PLAINTIFFS.

The PLAINTIFFS’ immediate, mid term and long term financial health were all seriously harmed by the July 20, 2009 loan from ABC. The interest rate on their mortgage increased. The monthly payments increased significantly. The amount their mortgage payments could adjust to based on future interest rates increased considerably. The ABC loan depleted their home equity by thousands of dollars. Their total monthly payments from their mortgage loan plus other scheduled debts increased dramatically. No debt was paid off by the ABC loan that posed any financial threat whatsoever to the PLAINTIFFS. Indeed, the ABC loan only relieved them of paying $97 a month in other debts, yet their mortgage payments increased from $344 to $568. They were immediately and considerably worse off the day the ABC loan was funded, and as time passed the financial damage to the PLAINTIFFS resulting from the ABC loan only got worse.

The PLAINTIFFS were referred to ABC for a home equity loan by collection agencies. PLAINTIFF2 had not previously thought of the idea of obtaining such a loan to pay off their various debts. Yet, after receiving numerous calls from debt collectors on a daily basis for over a year, she succumbed to the suggestion that ABC could “help you with your bills.” So she went to ABC for assistance for her family.

The ABC loan was extremely expensive – based on every measurement. The up-front closing fees were $4,616.66 – which is over 8.3% of the amount loaned. The calculation to determine whether this is a high cost loan under federal law (a HOEPA loan ) yields different results depending upon the treatment of the fees charged by the lender. However, even the most lender friendly view of these fees – which accepts ABC’s designation of the fees as bona fide and reasonable – indicates that the fees charged by the lender exceeded 6.7%. Loans in which the lender charged more than 5% have been considered as predatory for many years in a number of states, including Nevada, and by Fannie Mae and Freddie Mac. In a landmark analysis of the problem, the Departments of Housing and Urban Development and Treasury issued a joint report in 2000 recommending that home loans in which more than 6% was charged up front in fees should be prohibited.

According to PLAINTIFF2’s deposition, the loan application, and ABC’s Conversation log of the initial conversation with PLAINTIFF2, the purpose of this loan was to consolidate the PLAINTIFFS’ debts. The loan application lists some debts. The credit report lists more. With the exception of the loan used to purchase their home, all of the PLAINTIFFS’ debts appear to have been revolving debts, and thus were likely to have been unsecured.

The PLAINTIFFS were delinquent on a number of these debts – so delinquent in fact, that if there had been an attempt to bring these debts to judgment through the courts, some of them may have been time barred due to the statute of limitations. Indeed, if a debt collector had even attempted to collect a time barred debt from the PLAINTIFFS by threatening to sue them if they did not pay the debts, the collector may been found to have violated the Fair Debt Collection Practices Act.

It appears, however, that while there were numerous phone calls to the PLAINTIFFS in vigorous attempts to harass them into paying these debts, there were not any actions filed in the courts against them on these debts. This is likely to be caused by the PLAINTIFFS’ poverty. They were probably either completely or close to being judgment proof for all of these debts. In other words, as these debts were likely unsecured, there would not have been any repossession of property resulting from nonpayment. Furthermore, if these debts had been reduced to judgment, it is very unlikely that any money could have been collected from the PLAINTIFFS to pay the judgment – either by attachment or garnishment. The PLAINTIFFS were just too poor, they had so little assets that West Virginia’s exemptions would have protected those paltry assets, as well as their low incomes, from being available to pay these judgments. As a result, the only way these debts could have been collected was by having the PLAINTIFFS refinance their house and use the equity to pay these otherwise uncollectible debts.

The ABC loan paid off four unsecured debts of the PLAINTIFFS.

• The JCP Credit Bank debt of $1,101.
• The ANBCC debt – in which $4,364 was owed, yet only $3,000 was paid in the refinancing.
• The Elder Beerman debt of $333.
• The WFBB debt of $967.

The JCP Credit Bank Debt. The debt to JCP Credit Bank of $1,101 may well have been time barred – as there are no payments listed on the credit report, and the debt is simply listed as being in collection. The PLAINTIFFS were not making payments on this debt, and a lawsuit to collect the debt may well have been unsuccessful – either because the debt was time barred or because the PLAINTIFFS had so little assets that none could be collected to pay off the judgment. It seems likely that the only reason that this debt was paid off was because it was the collector for this debt that referred the PLAINTIFFS to ABC. As this debt probably could not have been otherwise collected at the point in time that the ABC loan was made, and the PLAINTIFFS were not making payments on it, paying it off with a 30 year adjustable rate note at a minimum rate of $12%, had a completely negative financial impact on the PLAINTIFFS. The cost to the PLAINTIFFS from financing this unnecessary debt in the ABC loan is $4,077.01.

The ANBCC Debt. The payoff of the debt to ANBCC was similarly bad for the PLAINTIFFS. While the Credit Report is not clear about the most recent payment on this debt, it appears that it was seriously delinquent and that the PLAINTIFFS had not made payment in many months. As PLAINTIFF2 was the sole debtor on this debt, it is unlikely that the PLAINTIFFS’ home would have been subject to attachment to satisfy the judgment. PLAINTIFF2’s income of between $400 and $500 a month would clearly all have been safe from garnishment to satisfy the judgment. In her deposition PLAINTIFF2 indicated that she had never heard of this creditor. Information from the Credit Report reveals that no reports relating to this debt had been made since the previous March, when it was at least four months delinquent; in fact it was at least four months delinquent a year before, in August, 1998. In any event, it appears that at the ABC closing on July 20, 1999, to the extent that there were any disclosures at all to the PLAINTIFFS, the HUD 1 provided to them at that time did not include this debt. Instead, it indicates that the loan for $3,319 to Sears would be repaid. It was only after the loan closing, after the papers were signed by the PLAINTIFFS, that the collector demanded that this debt be included in this loan. The cost to the PLAINTIFFS of financing this otherwise – potentially – uncollectible debt at 12% for 30 years (using the $3,000 amount) was $11,109.02.

This leaves the remaining two debts: one to Elder Beerman for $333 and one to WFBB for $967. Although the Elder Beerman debt appears from the Credit Report to be somewhat delinquent, the PLAINTIFFS had made some payments in recent months of $17. The WFBB debt was also delinquent, but recent payments appear to have been made at a rate of $30 a month.

As the PLAINTIFFS were only making payments on these two debts before the refinancing and not on the other two, the ABC loan only relieved them of making $47 a month in payments for their unsecured debt – which is the combined total of these two payments. In terms of monthly payments the PLAINTIFFS were making before the refinancing and monthly payments they were still required to make after it, their monthly cost thus was only reduced by this $47 a month. However, in the process they paid an additional $4544.66 in points and fees to close the loan, and the base rate of interest on the money owed to purchase their home went from 8.375%, with monthly payments of $343.56, to 12% and payments of $567.79.

Comparing the monthly payments on all debt – regardless of whether the PLAINTIFFS were making the payments – reveals that the PLAINTIFFS monthly payments still increased after the ABC loan was made –

Payments Before ABC Refinancing

Mortgage Loan P & I – $344
Property Ins and Taxes – 66
Minimum payments due on
Unsecured Debt – 561

Total Monthly Obligations $971 Payments After ABC Refinancing

Mortgage Loan P & I – $568
Imputed Property
Ins and Taxes – 66
Minimum payments due on
Unsecured Debt – 411

Total Monthly Obligations $1045

So to pay off $5,041 in unsecured debt – at least some of which was probably uncollectible – the PLAINTIFFS used up a total of $9,945 in home equity. From every vantage point, this loan made the PLAINTIFFS worse off than they were before the ABC loan was financed:

• The monthly payments on home secured debt increased with the ABC loan –

Banc One – $344 ABC – $568

• The monthly payments required of the PLAINTIFFS for all debt increased with the ABC loan –

Banc One – $971 ABC – $1045

• The interest rate applicable to home secured debt increased with the ABC loan –

Banc One – 8.375% ABC – 12%

• The debt secured by the home increased with the ABC loan –

Banc One – $44,790 ABC – $55,200

• The total of payments on their home secured loan increased dramatically with the ABC loan –

Banc One – $123,679 ABC – $204,406

• The risk of further additions to the monthly payments increased with the ABC loan –

Banc One payments would have decreased in September, 2001 to $301

ABC payments could never go lower than they were at the inception of the loan, and would only increase because of a) change from the initial teaser rate for the payments to the fully indexed rate, b) rises in the applicable index for the loan’s interest rate, or c) the force placing of property insurance.
The ABC loan provided no benefit to the PLAINTIFFS. Instead it caused their monthly payments to increase, significantly increased their total debt load, stripped them of thousands of dollars of home equity, reduced their available money because of the drain caused by the high payments, and set their course towards losing their home to foreclosure.

2) The ABC loan was unaffordable for the PLAINTIFFS.

The PLAINTIFFS did not have adequate income to sustain the payments when the loan was made. When the payments increased due to the force placed insurance, their lack of sufficient income made continued payments impossible.
The fact that the PLAINTIFFS lacked sufficient income to sustain the payments on this loan is quite apparent from the loan file. A review of the loan file indicates that ABC either knew that the PLAINTIFFS did not have sufficient income to make the payments, or that this lender simply did not care. Some examples of rather obvious clues to this effect — In the “Conversation Log” which records some of the original risk analyses, the debt ratio is described as “1515/1428 106%.” This indicates two important pieces of information: 1) that in this initial analysis the income for the PLAINTIFFS was considered to be $1428 a month. This is a far different number than the $3125 listed in the Loan Application. 2) That the PLAINTIFFS’ debt load exceeded their income.

• On this same Conversation Log, when contact is first made on June 17, 1999, it shows that the loan is contemplated to be a “full doc” loan – indicating that the borrowers were able and willing to provide full documentation of their income. Yet, a few weeks later, on the Comments and Concerns Log, which appears to have been generated on July 12, 1999, the loan has morphed from a fully documented loan into a stated income loan. According to both this document and Mary Quan, the witness proferred by ABC on loan origination issues, one criterion for a stated income loan is a letter from the borrowers stating their income. No such letter appears anywhere in the PLAINTIFFS’ loan file.

• The “Verification of Employment” for PLAINTIFF1 shows income in each of the previous two years of $12,960 for 1997 and $11,818 for 1998. Both of these incomes are far less than the $17,700 ($1475 times 12) shown on the Loan Application. Similarly the only items included as Verification of Employment for PLAINTIFF2 show a biweekly gross income of – at most – $216. Translating that into a monthly income (multiplying by 26 and dividing by 12) yields a monthly income of $468. This is a far different figure that the $1,650 a month noted in the Application.

• All of the critical questions are checked on the Underwriting Approval Sheet, which requires the reviewer to ascertain the information before checking next to each item. The items for Income, Verification of Employment, Current YTD Paystubs, and W-2s Wage Statements for previous year, are all checked. The check mark next to each item is intended to indicate that all of these tasks have been completed. Yet, the underlying documents upon which these tasks were based directly contradict the amount of income stated on the Application.

• The explanation of derogatory credit information in the file – used to explain the delinquencies on some of the PLAINTIFFS’ debts – states that the reason they were late on these payments was “because of the change in my income.” This is an indication that the PLAINTIFFS’ income had decreased recently that should have triggered a further analysis for the reviewer to ascertain sufficient income to make the loan payments.

Stated income loans are generally justified in the mortgage industry because of the difficulty some professions have in documenting income. According to ABC’s witnesses, the standard is to do fully documented loans for salaried borrowers like the PLAINTIFFS. A stated income loan might have been justified for borrowers with both a salary and other income. However, there is no indication anywhere in the PLAINTIFFS’ loan file of any income other than that which is documented in the Verifications of Employment, which show much less income than that stated on the Loan Application.

According to PLAINTIFF2, the real joint income of both of the PLAINTIFFS in 1999 was in the range of $1100 a month (this is probably their net income). This is nowhere close to the $3125 listed on the Loan Application. Indeed, this number is much closer to the $1428 figure listed in initial Risk Notes by AMC. Further, the $1428 figure is almost exactly what they were actually both earning a month.

The PLAINTIFFS obtained the ABC loan to consolidate debts. They went through the time and stress and expense of refinancing their home in order to reduce their monthly payments and keep their home. They believed that the loan would pay-off their debts. Before the ABC loan their monthly payments on their unsecured debt was $561 a month. Their mortgage payment was $344, and their monthly escrow for taxes and insurance was $66.05. Their total monthly payments before the ABC loan equaled $971. Yet after the ABC loan was made, the total monthly payments went up to $1045!

If the ABC loan had indeed paid off all these other debts and had included the amounts required to pay property taxes and insurance, their new monthly payments would have been a total of $568 – the monthly payment for the ABC loan. Instead, to keep up with their unsecured debt payments, the PLAINTIFFS still had to pay an additional $411 a month, plus monthly contributions to property taxes and insurance.

The ABC loan required the PLAINTIFFS to pay more each month than they had previously. This problem of increased monthly payments was considerably exacerbated when ABC added the premiums for force placed insurance. Yet the force placed insurance was itself a problem waiting to happen – PLAINTIFF2 quite specifically asked for escrow in the initial conversation about the loan. Even one of the papers presented to the PLAINTIFFS at closing would lead one to believe that there would be escrow on the loan. As a result, when the force placed insurance was added to the required monthly payments, around August, 2001, this apparently triggered the beginning of the PLAINTIFFS’ serious default problems which eventually led to foreclosure.

When this loan was made there was no analysis of the PLAINTIFFS’ ability to pay. In fact, as is illustrated above, the approach more closely resembled “burying one’s head in the sand.” ABC ignored the PLAINTIFFS’ income and all the warning signs which should have indicated to any reviewer of the file that this family would have great difficulty making the new, higher monthly payments which would be a result of this mortgage.

When the loan was made three facts could be easily predicted, any one of which would considerably exacerbate the difficulties the PLAINTIFFS would have making these mortgage loan payments:

• The monthly obligations required of the PLAINTIFFS would be greater immediately after the loan was made than it had been before, yet they went through this refinancing to lower their payments.

• The monthly obligations would most likely increase in the first year, because while the PLAINTIFFS had requested that their new loan include escrow and expected that it did, it did not. As a result, the additional cost of premiums for the force placed insurances charged by ABC was entirely foreseeable. Force placed insurance is traditionally much more expensive than homeowner obtained insurance because it includes large commissions to the lenders that sell it. In fact, when the monthly payments for this ABC loan did increase because of the force placed insurance, that triggered the PLAINTIFFS’ first real difficulties maintaining current payments.

• The monthly obligations could likely rise again in September, 2002 because of the adjustable nature of the ABC Note. According to the Note, the initial interest rate was 12%, the interest rate could never decrease beneath 12%, yet it could rise to 18%. The rate was based on the combination of the index from the six month LIBOR, plus a margin of 7.125%. The initial rate for the first three years of the loan was actually a “teaser rate” because it was not fully indexed. In other words, the rate charged was actually less than the combination of the LIBOR rate at the time of the loan, plus the margin in Note. The actual rate at that time would have yielded an interest rate of 12.75% and monthly payments of $599, instead of the payments of $568 that were charged. The critical point is that there is no indication anywhere in the file of an analysis of the PLAINTIFFS’ ability to pay even this fully indexed rate – although this would be the effective rate on the loan even if interest rates did not increase between the time the loan was made and the first change date in October, 2002.

The actual events relating to the applicable interest rate for the October, 2002 payment did not cause a payment increase for the PLAINTIFFS. Indeed interest rates had decreased considerably in the intervening years between the date of the loan and the change date. However, the terms of the ABC loan prevented the PLAINTIFFS from experiencing the benefit of that decrease. Instead of their payments going down, as they would have with an adjustable rate note, the payments stayed the same. So while the PLAINTIFFS’ note placed all the risk of increased interest rates on them, it provided no benefit from decreased interest rates. Indeed, if the Note had allowed for the PLAINTIFFS to experience the benefit of an interest rate decrease, their payments as of October, 2002 would have been lowered to $487.37, and perhaps they would have been able to avoid foreclosure.

3) ABC ignored serious red flags apparent in the loan file which indicated that the appraisal of the PLAINTIFFS’ home was inflated. The appraisal was flawed, in violation of industry standards, and it appears that this inflation was facilitated and accepted by ABC.

The PLAINTIFFS purchased their home on August 20, 1996 for $56,500. There are no discussions anywhere in the Appraisal, or elsewhere in the file, of any improvements they made to the house. Yet, at the outset of the loan application process for the ABC loan, the house seemed to have an assigned value of $70,000. The following notations in the file provide examples:

• On the very first day the loan was considered (June 17, 1999) the amount of the loan was determined to be $53,000 and the loan was planned to be an 80% LTV – which requires a value of the house of at least $66,250.

• On the Conversation Log dated the same day, the house is noted as having a value of $70,000.

• On the Loan Proposal Worksheet, indicating that the appraisal has only been ordered, the value of the house is stated as $70,000.

The Appraisal was completed on July 14, 1999. It states that the value of the house was $69,000. This represents a growth of over 22% in less than three years as measured against the purchase price of the house. That would necessitate a yearly increase averaging over 7%. Yearly increases in house values of this amount indicate an escalating real estate market which does not appear to have been the case in the PLAINTIFFS’ neighborhood.

A growth of over $12,000 in value on a property worth $56,500 in three years time can only reasonably result from either improvements to the house or a hot, sellers’ market. The Appraisal itself indicates that neither was the case. About the market in the PLAINTIFFS’ neighborhood, the appraiser said:

Market values are stable. Marketing times are 3 to 6 months. Demand and supply are in balance. Property values are in an upswing but it is too early to project future growth.

Regarding the improvements, none are noted on the Appraisal, instead, value was deducted because of the condition of the house:

There are no repairs needed that were noticed by this Appraiser. 25% was deducted for physical depreciation because of the actual and effective age of subject. Quality of construction is average, general condition is good.

The loan file indicates that the Title Commitment from NREIS was faxed on July 16, 1999, presumably to ABC. On the face page, this document shows that the house was purchased on August 20, 1996 for $56,500. So the ABC reviewer had the critical information indicating an unexplained, significant growth in the value of the PLAINTIFFS’ house.

A close examination of the Appraisal itself reveals another problem. For example, the drawn floor plan, which is a critical part of any appraisal, does not include any measurements for the second floor. One result of this omission is that the total square footage of the house was determined to be different than previously.

Industry standards require that there be a review of the appraisal which is separate from the loan production underwriting. In this loan, this review presumably is evidenced by the “Branch Appraisal Review Report.” It is not clear what day this report was produced, but it was presumably after the Appraisal was completed on July 14 and before the closing. It is only notable for what is not on this report:

• No question is raised about the unexplained 22% growth in value in just three years.

• No questions are raised about the omission in the Appraisal of measurements for the second floor.

From the lax standards of review applied to the Appraisal, and the fact that no questions were even raised about the potential that the Appraisal was inflated, it appears that ABC really did not care what the real value of the house was. In fact, according to ABC’s witness Eric Printemps, the loan to value requirement for a stated income loan like the PLAINTIFFS was a 70% ratio. Yet, a waiver was granted to allow their loan to be based on an 80% LTV. ABC did not require any additional procedures or safeguards when this exception was made. It appears that there was one critical question that ABC looked at in determining whether a loan would be made – whether the borrowers have a history of paying their mortgage payments on time:

Q. Can you tell me what things you would have been looking for, you, even if you can’t tell me the specific criteria, what was important in approving a loan?

A.. The borrower’s mortgage history.

Q. Okay. Anything else?

A. Well, that probably would have been the No. 1 factor.

ABC made this loan to the PLAINTIFFS despite many indications that the property was not worth the appraised amount.

4) The numerous problems in the processing and closing stages of the ABC loan indicate either seriously improper processing standards or outright deception. These problems are evident from the file and would have been caught if prudent underwriting standards had been followed.

As was discussed in Section 1 of this Report, the PLAINTIFFS fully intended for all of the other debt to be consolidated and paid off with this ABC loan. That section details how the cost of this loan far exceeded any savings in monthly payments from the loans that were paid off. These are real substantive problems with the loan made to the PLAINTIFFS. There are also a myriad of issues with the way the loan was made to them – problems with the procedure of making the loan. Some of these problems are —

• It appears that the loan the PLAINTIFFS received was different – and more expensive – than the loan described in the July 9 RESPA and TILA disclosures: The differences are:

• The loan described in the July 9, 1999 documents has an interest rate of 11% – rather than the 12% they were actually provided.
• The loan described in the July 9, 1999 documents had monthly payments of $533.30 – rather than the actual $567.79.
• The loan described in the July 9, 1999 documents called for total closing costs of $4073 – rather than the $4616.66 actually charged.
• Comparing the difference between the loan promised and the loan provided: the loan actually provided would cost the PLAINTIFFS $12,416.40 more over the course of the loan, ignoring any increase in interest rate.

• The PLAINTIFFS say that the loan closer was at their home for only ten minutes or so, they were not given the opportunity to review the documents prior to signing them, and that the loan documents were not left at their home after the closing.

There is also a glaring set of problems associated with the HUD 1s and the Summary of Debts and Disbursements in this file. There are three separate sets of these documents in the loan file. Two sets were provided to the PLAINTIFFS’ counsel by the title company. Two sets were provided in response to discovery requests by ABC. One set from each overlapped. This multiplicity of sets indicates 1) potential violations of both the federal Truth in Lending Act and the Real Estate Settlement Procedures Act, 2) complete disregard of the wishes and intentions of the PLAINTIFFS, 3) serious violations of industry standards in the closing and processing of loans. This is a chart explaining the three sets of documents –-

Set 1
Set 2
Set 3

Date on documents
no date on HUD 1
Summary is dated 7/19/99
HUD 1 dated 7/27/99
Summary dated 7/28/99
no date on HUD 1
Summary is dated 7/22/99

Signed or initialed
signed
initialed
signed

Total Settlement Charges Shown
$4,616.66
$4,544.06
$4,616.66

Debt to Sears Paid?
Yes – $3,319
No
No

Debt to Triad Financial Paid?
No
Yes – $3,000
Yes – $3,000

Stated Disbursement to PLAINTIFFS
$72.60
$464.20
$391.60

Matches TILA Disclosure
yes
no
yes

Matches Actual Disbursements to PLAINTIFFS of $464.20
no
yes
no

Provided to PLAINTIFFS’ counsel by –
Title company
HUD 1 is provided by both Title company and ABC
Summary is provided only by ABC
ABC

Bates Stamped
1003, 1004
1001, 237, 238, 243,
196, 198

I do not know what actually happened here – why there are so many different versions of HUD1s with matching Summary of Debts and Disbursements – not one of which matches both the actual disbursements and the TILA disclosures. Clearly, there is some funny business going on.

Firstly, the Summary of Debts and Documents itself is very misleading. It appears that the entire purpose of this document is to mislead the borrower into believing that all of the debts listed are to be repaid in the ABC loan. There is no independent need for this document, other than to contradict and confuse the borrower. The actual disbursements from the loan are already listed – as they are required to be – on the right hand column of the HUD 1. Indeed, most people looking at the ABC document Summary of Debts and Disclosures would think that all of the debts listed were to be repaid. It is only on very close analysis, and comparing each line of this document with the list of disbursements of loan proceeds on the HUD 1, that one can determine that only four of the listed debts are to be repaid in the ABC loan.

The analysis of what happened in this loan process is assisted by the information provided the PLAINTIFFS’ Counsel by ABC’s Counsel in response to the questions that were raised about the payment to Triad Financial. It appears from this information that Triad Financial found out that their debt was not scheduled to be repaid in the ABC loan. It looks like they called PLAINTIFF2 and complained about this and she told them she thought they were to be paid. PLAINTIFF2 clearly understood that all of the debts were going to be repaid. Triad was thus able – after the closing – to demand that their loan be paid off. The loan that had been scheduled to be paid off to Sears was then dropped from the list of pay offs, and replaced with the Triad’s debt. The PLAINTIFFS did not appear to have any knowledge that one debt was being swapped for another.

Based on all this documentation, I can surmise what may have happened –

• The documents I have titled Set I were probably those that were actually signed by the PLAINTIFFS at closing on July 20. These documents indicate that the loan to Sears will be paid off, and that the PLAINTIFFS will receive cash of only $72.60. These documents match the TILA disclosures provided.

• The documents titled Set II were prepared after closing (they are dated July 27) in response to the change in debts to be paid off, from the Sears debt to the Triad Financial debt. The disbursements shown in these documents appear to match the actual checks written by the Title company. These disbursements, however, do not match the TILA disclosures provided to the PLAINTIFFS.

• The documents titled Set III were also prepared after closing. Despite the fact that they are dated July 22, it is likely that they were actually prepared some time after this date, and possibly after actual disbursements of the proceeds. These documents match the TILA disclosures, however, they do not match the actual disbursements.

There is no cohesive set of documents here. The HUD 1 that matches the TILA disclosures does not match the Summary of Disbursements which actually matches the real disbursements made by the Title Company. This lack of consistency, the multiplicity of documents, the failure of these documents to match the real events in this loan, are all strong indications that the processing and closing and disbursement of proceeds of this loan violated industry standards.

Conclusion

This report has described numerous problems indicated on the paperwork in the PLAINTIFFS’ loan file. All of these problems would have been caught with careful underwriting – as they are simply apparent from a careful review of the loan file itself. To sum up, and describe the problems embedded in this loan which are evident from a close review of the file, these issues would have been caught by underwriters intent on ensuring that the loan be a) the loan offered and agreed to by the borrower, b) one which provides real benefit to the borrower, and c) in compliance with prudent lending standards.

This is a loan which should have never been made. The PLAINTIFFS were hurt financially by it by every possible measurement. Standard industry practices, and even ABC stated practices, were violated.