Banks Allegedly Overcharged U.S. Government When Foreclosing on Homeowners

You think you understand the truly depressing extent of conduct of some banks before, during, and after the foreclosure crisis, and then you read this:

"(Reuters) - The U.S. Attorney's office in Manhattan is investigating at least five banks over whether they overcharged the government for expenses incurred during foreclosures on federally backed home loans, filings and interviews show.

PNC Financial Services Group Inc, PHH Corp, MetLife Inc, Santander Holdings USA Inc and Citizens Financial Group Inc, the U.S. unit of Royal Bank of Scotland, have all disclosed in filings with the Securities and Exchange Commission that they've received subpoenas. U.S. Attorney Preet Bharara's office is seeking information on claims on foreclosed loans insured by the Federal Housing Administration or guaranteed by Fannie Mae and Freddie Mac, according to records reviewed by Reuters." (link)

First banks caused the foreclosure crisis, then got bailed out, then lobbied against the bankruptcy bill that would have helped halt the crisis, then agreed to the Home Affordable Modification Program ("HAMP") but initially refused to actually properly modify mortgages under the program -- all the while foreclosing on homes without the legal right to do so because of improper paperwork and robosigning.

That was not enough?

"The subpoenas, coming years after the height of the foreclosure crisis, seek information about banks' foreclosure-related expenses, which generally include court filings and posting or mailing legal notices.

"You've got a lot of people trying to clean up the servicing industry, but the truth is we are seeing the same servicing problems over and over," said Ira Rheingold, director of the National Association of Consumer Advocates in Washington. "It was built into the model to charge as many fees as they could." (link)

You think you've seen it all . . . and then you see more.


Several Cities Take Foreclosure Litigation Back to the Banks

Last Friday Los Angeles filed a federal lawsuit against Chase for both redlining and reverse redlining in mortgage lending to minority borrowers.  In short, the city alleges claims for violation of the Fair Housing Act and  restitution, and seeks damages for tax revenue lost to the city as a result of these practices. 

"The lawsuit on Friday is part of the second most populous U.S. city's effort to hold mortgage lenders liable for lost property tax revenue caused by falling home values, and the cost to maintain vacant foreclosed properties.

"LA continues to suffer from the foreclosure crisis - from blight in our neighborhoods to diminished revenue for basic city services," City Attorney Mike Feuer said in a statement. "We're fighting to hold those we allege are responsible to account."

It said the New York-based bank's practices included redlining, where minority borrowers are denied credit on the same terms as other borrowers, and reverse redlining, where borrowers in minority neighborhoods are flooded with subprime loans they cannot afford despite qualifying for better terms." (link)

Los Angeles, and several other cities, previously filed similar lawsuits against other large banks:

"Los Angeles in December filed similar lawsuits against Bank of America Corp , Citigroup Inc and Wells Fargo & Co , the next three largest U.S. banks. Wells Fargo on Wednesday lost its bid to dismiss its lawsuit.

Cook County, Illinois, which encompasses Chicago, has filed similar lawsuits against Bank of America and HSBC Holdings Plc , while Providence, Rhode Island on Thursday sued a unit of Spain's Banco Santander SA .

Baltimore, Cleveland and Memphis, Tennessee are among other cities to bring similar cases against banks. Atlanta-area counties have also sued HSBC.

Los Angeles said JPMorgan loans made from 2004 to 2011 in predominantly black or Latino neighborhoods were 2.19 times more likely to go into foreclosure than loans in mainly white areas. It said loans to minority borrowers went into foreclosure faster."  (link)

Could this approach be the solution to holding banks accountable for the foreclosure crises?

Maybe . . .

Los Angeles' lawsuit against Wells Fargo recently survived a motion to dismiss:

"Law360, New York (May 29, 2014, 2:43 PM ET) -- A California district judge on Wednesday kept alive a lawsuit filed by the city of Los Angeles alleging that Wells Fargo & Co. directed predatory mortgage lending practices at minority borrowers before the financial crisis that led to a wave of foreclosures, costing the city millions of dollars in tax revenue.

U.S. District Judge Otis D. Wright II denied the bank's motion to dismiss the case, ruling that the city had provided enough detailed evidence that predatory lending practices . . . ." (link)

The most recent Los Angeles case is City of Los Angeles v. JPMorgan Chase & Co et al, U.S. District Court, Central District of California, No. 14-04168. 

The press release and complaint are available here.


Studies: Foreclosures Literally Bad for Your Health?

A little bit grizzlier than I would have wanted for a Sunday morning, but here it is anyways. 

A recent study, described below, by a Dartmouth professor found that state foreclosure rates may have been linked to suicide rates at the state level.  Previously, a different study had potentially linked foreclosures to increased blood pressure for the neighborhood - not just for those people actually in foreclosure. 

As if there weren't reason enough to get a handle on foreclosures - economic stabilization and economic justice and the like - now it looks like there may be another - public health.

The Dartmouth professor's study:

"Appearing in the June issue of the American Journal of Public Health, is the first to show a correlation between foreclosure and suicide rates.

The authors analyzed state-level foreclosure and suicide rates from 2005 to 2010. During that period, the U.S. suicide rate increased by nearly 13 percent, and the number of annual home foreclosures hit a record 2.9 million (in 2010).

'It seems that foreclosures affect suicide rates in two ways,' says co-author Jason Houle, an assistant professor of sociology at Dartmouth. 'The loss of a home clearly impacts individuals and families, and can arouse feelings of loss, shame or regret. At the same time, rising foreclosure rates affect entire communities because they’re associated with a number of community-level resources and stresses, including an increase in crime, abandoned homes, and a sense of insecurity.'

The impact of foreclosures on the incidence of suicides was strongest among adults 46 to 64 years old; those in this age group also experienced the highest increase in suicide rates during the recessionary period.

. . .

'Foreclosures are a unique suicide risk among the middle-aged,' Houle says. 'Middle-aged adults are more likely to own homes and have a higher risk of home foreclosure. They’re also nearing retirement age, so losing assets at that stage in life is likely to have a profound effect on mental health and well-being.'" (link)

 

Report: Stalled New York Foreclosure Settlement Conferences

Anybody who has ever represented a homeowner in a New York foreclosure settlement conference knows all to well the contents of a report about bank misconduct in these conferences.

MFY Legal Services has, however, compiled the information in a convenient report available to all - advocate and non-advocate alike:

"New York has coped with the foreclosure crisis by implementing a pioneering settlement conference process administered by the court system, designed to promote negotiation of affordable home-saving solutions. These conferences present a remarkable opportunity for lenders and borrowers to meet face- to-face in a court supervised settlement conference at which creative solutions can be forged, and have allowed thousands of New Yorkers to avert foreclosure. But banks routinely flout the law by appearing without required information or settlement authority, causing delays that cost borrowers money and can make home-saving settlements impossible.  The process can be far more effective, and less prone to delay, if the courts rigorously enforce the requirements of the settlement conference law, as this report recommends." (link)

To make the point:

"Non-profit legal services attorneys representing low-income New York City homeowners in New York State Supreme Courts recently concluded a survey to monitor compliance with New York State’s law requiring that lenders and the law firms representing them appear at foreclosure settlement conferences with full authority to settle and resolve such cases

. . .

The survey confirmed what homeowners’ advocates in the settlement conference have long-known:

• The banks routinely violate the settlement conference law requiring them to appear at conferences with full authority to negotiate settlements and with required information needed for meaningful settlement conferences— they violated the law in 80% of the observed settlement conferences.

• The banks’ systemic violation of clear law frustrates New York’s policy to foster the early settlement of foreclosure actions as a means of preserving homeownership.

• The delay caused when the banks violate the settlement conference law harms homeowners, because interest and fees add up with each month that banks delay the process.

• Courts should rigorously enforce the settlement conference law and deter banks from violating it by penalizing parties who appear in court without the authority and information needed to negotiate in good faith" (link)

Time for a more aggressive revised foreclosure settlement conference law in New York?

Sounds like it.

Barclays Accused of Predatory Lending Targeting Minority Homeowners in NYC

The story is available here, the class action complaint filed by MFY Legal Services is available here, and the press release is excerpted below:

"Plaintiff Tony Wong, a long-time Staten Island homeowner and school security officer for the New York City Police Department, alleges he fell prey to Barclays’ scheme to market risky, predatory mortgages in New York City’s minority neighborhoods. He claims that in September 2007, he was duped into refinancing with Barclays’ wholly owned subprime subsidiary EquiFirst Corporation.  With high monthly payments and an 11.075% interest rate, Mr. Wong’s mortgage was engineered to fail but only after his savings ran dry in his attempt to keep up with the mortgage payments. 

According to publicly available records, Mr. Wong was not the only minority who received a disastrous EquiFirst loan. During the year Mr. Wong’s loan was originated, the vast majority of the predatory loans EquiFirst issued in the New York City area were for homes in minority neighborhoods. Taking advantage of New York’s segregated housing market, Barclays, through EquiFirst, sold nearly 50% of its predatory loans to homeowners who lived in neighborhoods with 80 percent or greater minority populations. Mr. Wong’s home is located in a neighborhood that is now 69 percent minority and was 56 percent minority in 2007. These subprime mortgages were largely bundled, securitized and sold on Wall Street by investment banks like Barclays in the form of mortgage-backed securities. (link)"

MFY attorney Elizabeth M. Lynch explains:

“This lawsuit demonstrates that the profits Barclays made in the housing market run-up in the mid-2000s came on the backs of minority borrowers in New York City like Mr. Wong,” said Elizabeth M. Lynch, a staff attorney at MFY. “Barclays should be held responsible for its fraudulent conduct, and borrowers like Mr. Wong should be made whole for the suffering Barclays caused them. While the media touts the recovery of the housing market, communities of color are still reeling from the effects of the mortgage crisis.” (link)


NY Times Editorial: How to Fix the Mortgage Market

Available here:

"A bipartisan bill that the Senate Banking Committee is expected to vote on soon seeks to rejuvenate the housing finance market while guarding against the excesses of the past. Named the Housing Finance Reform and Taxpayer Protection Act of 2014, it aims to ensure broad and steady access to sustainable and affordable mortgages, in part by providing an explicit government guarantee to attract investment in 30-year fixed-rate mortgages and other loans. It also seeks to protect taxpayers from future bailouts partly by requiring those who package and sell mortgage loans to hold capital to absorb losses.

Importantly, it includes a new financing provision, essentially a fee on government-guaranteed securities, to generate money for affordable housing.

For all of its positive attributes, however, the Senate bill is fatally marred by two provisions buried in the text. One, named the “investor immunity” provision, is ostensibly aimed at protecting mortgage investors from legal liability for transgressions by lenders, guarantors or other participants in the mortgage process.

. . .

Another section of the bill, dubbed the “business judgment” rule, is ostensibly aimed at preventing the government from meddling in the decisions of mortgage-market participants as to which loans to include in various mortgage securities." (link)