How to Protect Yourself From Unauthorized Mortgage Modifications

It’s important to review any mortgage statements or documents you receive. Changes outside of what you originally agreed to should be considered red flags.

 

The Seattle Times | July 9, 2017        The company that holds your mortgage isn’t supposed to extend your loan or alter your monthly payments if you don’t agree to it beforehand. But recent lawsuits argue Wells Fargo changed the terms of home loans held by customers in bankruptcy without their consent.

Wells Fargo allegedly attached loan-modification letters to payment-change notices, forms routinely filed in Chapter 13 bankruptcy cases to authorize preapproved adjustments. Without following the proper procedures, the bank allegedly lowered monthly payments and extended loan terms by years, potentially costing borrowers thousands of dollars in interest.

It’s unclear how many of the unauthorized loan changes Wells Fargo is alleged to have made (the company has denied wrongdoing), but if you’ve filed for bankruptcy, pay attention to what’s happening to your mortgage, especially if you live in a jurisdiction that allows a trustee to make payments on your behalf.

“Even though the consumer might be in a bankruptcy, they should not ignore any written notices that they get from their mortgage servicer,” says John Rao, a bankruptcy expert and attorney with the National Consumer Law Center. “If there’s anything in it that suggests that there’s a payment change or something, you know, they probably want to contact their attorney and just make sure that this is correct.”  Read more here.

New Wells Fargo Scandal Over Modifying Mortgages Without Authorization

CNN | June 15, 2017          Christopher and Allison Cotton had 16 years remaining on their mortgage when family medical expenses forced them into bankruptcy in 2014.

Wells Fargo went ahead and modified the North Carolina couple's mortgage several times without their authorization, according to a class action lawsuit. The bank extended the term of the mortgage by nearly 26 years, documents say.

If the "stealth" modifications hadn't been caught, the Cotton family's total interest payments would have nearly tripled to more than $140,000, the lawsuit said.

"I anticipate Wells Fargo has done this to thousands of customers," said Theodore Bartholow III, a lawyer who represents the Cottons and last week launched the class action.

News of the latest legal trouble facing Wells Fargo (WFC) was first reported by The New York Times. It comes as Wells Fargo continues to dig out of a scandal over unauthorized account openings and alleged worker retaliation.

Bartholow described an "insidious" process where Wells Fargo uses a routine, but little-noticed form to "sneak through" mortgage modifications on unsuspecting homeowners.  Read more here.

Bank Forecloses on 'Extreme Makeover' Homeowner

USA Today | May 26, 2017         HOLT, Mich. — Nearly nine years after her home was rebuilt on national television, Arlene Nickless must turn in her keys.

Designers with ABC’s Extreme Makeover: Home Edition — with the help of hundreds of volunteers — built her family's home in 2008 following the death of Tim Nickless, her husband of 18 years. But Arlene Nickless has been struggling to manage the mortgage for years and must leave by Monday.

The home was foreclosed on in September and has been up for auction online for weeks.

This past Sunday, cardboard boxes were stacked on the dark hardwood floors once showcased in nationwide broadcasts. The 2009 Ford Flex given with the home sat in the driveway hooked to a moving trailer.

And the overwhelming feeling a tearful Arlene Nickless had all those years ago took on a different tenor.

“When I stepped out of the house the day Extreme Makeover came, you will see me say ‘I can’t believe this is happening,’ ” she said. “And, truthfully, that’s what I feel right now: I can’t believe this is happening.”

Arlene Nickless is quick to defend the ABC show, whose lavish rebuilds have in some cases led to foreclosure because of increased property taxes and pricey utilities. She's less complimentary of her mortgage servicer that state regulators now are targeting.

Her home’s foreclosure resulted from an ongoing struggle to manage the property’s pre-makeover mortgage — a balance that rested at about $30,000 after the 2008 makeover, but had ballooned to at least $113,000 by the end of 2016, she said.  Read more here.

The Shame of the Mortgage-Interest Deduction

It’s not just a failure of housing policy. It's a symbol of everything that’s wrong with the American tax code.

 

The Atlantic | May 14, 2017        It might be one of the most important policies in the U.S. economy, but the mortgage-interest deduction sounds esoteric to most people. Perhaps that’s because, for most people, it’s completely irrelevant.

Although about two-thirds of American households own a home, only one-quarter of them claim the deduction, which sometimes gets abbreviated to MID. As Matthew Desmond, a sociologist at Harvard University, explains in a magisterial essay on the MID in the New York Times Magazine, this little fact has played an outsized role in the United States’ yawning wealth inequality.

Federal housing policy transfers lots of money to rich homeowners, a bit less to middle-class homeowners, and practically nothing to poor renters. Half of all poor American families who rent spend more than 50 percent of their income on housing costs. In May, rental income as a share of GDP hit an all-time high. Meanwhile, in 2015, the federal government spent $71 billion on the MID, and households earning more than $100,000 receive almost 90 percent of the benefits. Since the value of the deduction rises as the cost of one’s mortgage increases, the policy essentially pays upper-middle-class and rich households to buy larger and more expensive homes. At the same time, because national housing policy’s benefits don’t accumulate as much to renters, it makes it harder for poor renters to join the class of homeowners.  Read more here.

Supreme Court Says Cities Can Sue Banks Over Predatory Loans

USA Today | May 1, 2017       The Supreme Court ruled Monday that cities can sue banks for discriminatory mortgage lending practices, but they must prove that predatory loans led to damages such as lost tax revenue and higher spending on municipal services.

The decision was a partial victory both for Miami, which sought standing to sue banks under the Fair Housing Act, and for Bank of America and Wells Fargo, which argued that the city's damages were too many steps removed from the original loans. The dispute now returns to lower courts for further action.

The 5-3 ruling was written by Justice Stephen Breyer and backed by the court's liberal justices and Chief Justice John Roberts. Three justices — Clarence Thomas, Anthony Kennedy and Samuel Alito — argued that the city had no right to sue under the landmark 1968 civil rights law in the first place. Newly confirmed Justice Neil Gorsuch did not take part in the decision.  Read more here.

Regulators Are Suing Subprime Mortgage Servicer Ocwen for Years of ‘Deceptive Practices’

Fortune | April 21, 2017        For the second time since 2013, the U.S. Consumer Financial Protection Bureau on Thursday sued Ocwen Financial over accusations of widespread misconduct in how it serviced borrowers' loans, from foreclosure abuses to a basic failure to send accurate monthly statements.

News of the CFPB accusations plus related legal actions against Ocwen filed by at least 20 states sent shares of Ocwen crashing by nearly 60% in just over an hour, starting after a cease and desist order filed by North Carolina.

CFPB officials said that mortgage servicer Ocwen and its subsidiaries have failed to clean up their act, even after the CFPB ordered Ocwen in December 2013 to fork over $2 billion in relief to harmed borrowers because of similar violations.

"The consumer bureau has uncovered substantial evidence that Ocwen engaged in unfair and deceptive practices," CFPB Director Richard Cordray said, adding that thousands of customers were harmed.  Read more here.

New Firms Catching Up to Banks in Foreclosure Rankings

The New York Times | March 30, 2017           The number of home foreclosures is down sharply from the depths of the financial crisis, even as many of the mortgage firms involved remain the same, including Fannie Mae, Wells Fargo, Bank of America and JPMorgan Chase.

But the latest foreclosure rankings also include a number of firms that barely registered or did not exist when the crisis began a decade ago.

These new entrants include firms affiliated with the private equity giant Lone Star Funds, the mortgage lender PennyMac Loan Services, the investment bank Goldman Sachs and the mortgage firm Carrington Mortgage Services.

This changing of the guard in the foreclosure rankings, based on data compiled by RealtyTrac, reflects the new reality that most foreclosures today are not coming from mortgages written during the post-crisis period, but from soured loans written before the crisis that are in the final stages of liquidation.

Quicken Loans, for instance, one of the top originators of mortgages issued during the last few years, ranks relatively low in terms of recent completed foreclosures, according to the RealtyTrac data.

Most of these newer firms that are moving up in the foreclosure rankings are ones that have bought soured mortgages and are looking to profit by restructuring those loans and getting delinquent borrowers to start making payments again. And when those efforts fail, the firms are foreclosing on borrowers, taking back the homes and reselling them.

Firms affiliated with Lone Star, PennyMac, Goldman and Carrington all have been staple buyers of distressed mortgages, either from big banks directly or from government agencies. Lone Star, a $70 billion private equity firm based in Dallas, has been one of the largest buyers and works in tandem with its wholly owned mortgage firm, Caliber Home Loans.  Read more here.

Morning Agenda: The Wells Fargo Clawback

The New York Times | April 11, 2017         How could this have happened? You might have wondered after the scandal over fraudulent accounts at Wells Fargo.

Most of the blame has been pinned on two people: John G. Stumpf, the former chief executive, and Carrie L. Tolstedt, the former head of community banking.

To meet sales goals set by Ms. Tolstedt, bankers across Wells Fargo committed fraud, opened unwanted or unneeded accounts, and occasionally moved money in and out of the sham accounts.

The board of the bank will claw back $75 million from the two former executives, the largest forced return of pay and stock grants in banking history.  Read more here.

Goldman's Buying of Default Mortgages Not Without Risk

The Hill|  March 20, 2017        Goldman Sachs has launched an ambitious program to buy severely delinquent or nonperforming home mortgages as one element of a $5.1-billion settlement it has entered into with the federal government for its role in creating and selling mortgage-backed securities (MBS) in the years leading up to the financial crisis.

According to a Wall Street Journal article, Goldman has spent $4.5 billion to acquire 26,000 delinquent mortgages from Fannie Mae. Goldman did not originate any of these mortgages. It also has purchased similar troubled mortgages from Freddie Mac and private sellers.

Goldman intends to restructure the mortgages it has purchased with the expectation that the homeowners will then become current in making payments on them.  In accordance with its settlement agreement, Goldman will provide $1.8 billion of relief to homeowners, presumably by a combination of writing down principal balances, lowering interest rates on the mortgages and extending the repayment period.  Read more here.

The Mortgage Market is Now Dominated by Non-Bank Lenders

The Washington Post | February 23, 2017         Most borrowers, whether they are purchasing property or refinancing their home, focus on their mortgage rate and loan terms rather than the type of lender they choose. 

Quicken Loans has seized a larger share of the mortgage market but rising interest rates and anticipated deregulation under President Trump could change things. (Uli Deck/picture-alliance/dpa/AP )

Quicken Loans has seized a larger share of the mortgage market but rising interest rates and anticipated deregulation under President Trump could change things. (Uli Deck/picture-alliance/dpa/AP )

Yet the landscape of the lending market has shifted dramatically over the past few years from domination by big banks to a market where more loans are made by non-banks — financial institutions that only make loans and do not offer deposit accounts such as a savings account or checking account. 

“For consumers, it doesn’t really matter whether you get your loan through a bank or a non-bank, although in some ways non-banks are a little more nimble and can offer more loan products,” says Paul Noring, a managing director of the financial-risk-management practice of Navigant Consulting in Washington. “The impact is bigger on the housing market overall, because without the non-banks we would be even further behind where we should be in terms of the number of transactions.”  Read full story here.