Big Banks Continue Retreat From Mortgages

Wall Street banks are backing away from mortgages as nonbank lenders emerge.

The Washington Post | January 19, 2016    Big banks are lending less to homebuyers, or they're making less on loans — and sometimes, it's a combination of both.

Some are making less on home loans, in part owed to the Fed and its yearslong zero interest rate policy. But the trend also coincides with a rise in nonbank lenders, like Quicken Loans, that have been gobbling up market share in mortgages in recent years.

"The mortgage market is coming off the highs it realized in 2012," said Erik Oja, S&P Capital IQ banking analyst. "A lot of it is expected, in terms of origination."

JPMorgan Chase reported net income of $266 million in its mortgage banking division, a 21 percent drop when it announced fourth-quarter earnings last week. The bank also posted a quarterly drop of 25 percent in mortgage originations, which were down 2 percent year over year as well.  Read more here

MERS' Role in Foreclosures

Mortgage Electronic Registration Systems, Inc. (MERS) is a Delaware Company based in Reston, Virginia.  MERS is named on nearly all mortgages and deeds of trust in the USA as the “beneficiary” of the mortgage “solely as nominee for lender and lender’s successors and assigns.”  As is the case in these days of securitization, the original lender named in a mortgage or deed of trust is not usually the party that attempts to foreclose on the loan.  That means the original lender sold the loan into the secondary market, either to be securitized by Wall Street or otherwise. 

Since the 2008 housing crisis, many Texas state courts and Texas federal courts have upheld the proposition that a homeowner may challenge the standing of a bank that claims the right to conduct foreclosure.  These cases hold that a party that is not the original lender has to show an unbroken chain of assignments and/or transfers from the original lender to itself of either the mortgage note or deed of trust in order to foreclose. 

However, the banks have used MERS’ status as “beneficiary” of the security instrument “solely as nominee for lender and lender’s successors and assigns” to try to avoid showing what parties actually are in the chain ofassignments and/or transfers of the loan documents.  The banks will simply file an assignment in the real property records from MERS to the party that is foreclosing and argue that such an assignment demonstrates a complete chain of assignments from the original lender to the party that is foreclosing.  However, on nearly every MERS assignment, MERS does not state for whom they are acting as “nominee” in making the assignment; rather they simply recite that MERS is acting “solely as nominee for lender and lender’s successors and assigns.”  The question thus becomes, for whom is MERS making the assignment for as a “nominee”?

It is common knowledge that MERS does not actually hold or own mortgages or mortgage notes in its own name.  This is the conclusion reached by a federal judge in the Southern District of Texas in the case of Nueces County v. MERSCORP Holdings, Inc., No. 2:12-CV-00131 (Docket #70), 2013 U.S. Dist. LEXIS 93424 (S.D. Tex. July 3, 2013) (“MERS is not a lender, and it does not have the rights of a lender, note holder, or note owner to enforce a promissory note and seek a judgment against a debtor for the repayment of loans.  MERS is merely an agent or nominee of its members, who are banks, lenders, and other financial institutions that hold and trade promissory notes secured by deeds of trust naming them as the lenders and MERS as the beneficiary.”  Id. at 12 (emphasis added).  “MERS has no right to enforce the promissory notes or seek judgments against borrowers in default. MERS is simply the nominee of the beneficiaries of the security instruments with the right to foreclose on behalf of the secured parties under the deeds of trust. In sum . . . Texas law [does not] support Defendants’ argument that MERS may serve as a secured party or lienholder.”  Id. at 22 (emphasis added)).  You can read a copy of Nueces County v. MERSCORP Holdings, Inc. here.

Jackson & Elrod, LLP has several cases pending where this issue has been presented to the courts.  As of this writing, the firm has been able to convince one Texas federal court that MERS’ failure to identify for whom they are acting as “nominee” in a mortgage assignment creates a claim under the Texas Fair Debt Collection Practices Act for “misrepresenting the status or nature of a debt.”  Johnson v. Morrison Home Funding et. al., No. H-14-2549 (Docket #30) (S.D. Tex. August 6, 2015).  You can read a copy of the Johnson memorandum and order here.

Jackson & Elrod, LLP will continue to fight to protect Texas homeowners’ common law right to have the foreclosing bank reveal the true real-parties-in-interest along a chain of assignments and/or transfers of a loan.  If the banks are allowed to skirt this requirement, they will be incentivized to blow up more housing bubbles since the law will not require them to actually complete contemporaneous transfer documents when a loan is sold in the secondary market.  The ability to flash-trade mortgage loans leads to speculative bubbles and a lot of innocent victims in our society when the bubbles crash.



Wall Street Watchdog Can't Sue Over JP Morgan Deal

The Department of Justice (DOJ) has negotiated several “back room” deals related to the 2008 financial collapse with the titans of high finance over the last few years. Recently, the DOJ settled financial fraud claims related to the subprime housing bubble in a deal with the mega bank, J.P. Morgan Chase & Co., for $13 Billion.  J.P. Morgan Chase’s role in causing the worst financial collapse since 1929 was arguably greater than any other bank. The fact that our government is settling these claims in these secretive, closed door meetings with very large, politically powerful, and potentially criminal banks is repugnant to our free and democratic society.

Recently, Better Markets challenged the DOJ’s decision to negotiate this type of sweetheart deal with the megabanks. For those who don’t know, Better Markets is a Wall Street watchdog group dedicated to ensuring that we achieve real, substantive financial reforms and that large financial institutions don’t use their considerable political clout to evade justice filed suit against the DOJ. A Washington Federal District Court dismissed the case ruling that Better Markets and other similar groups lack the requisite standing to sue the U.S. Department of Justice for how it exercises its Federal law enforcement powers. Better Markets is evaluating the court’s opinion and exploring all of its options including appeal.

Sadly, this is another example of a “too big to fail” bank simply purchasing immunity from the Federal government for a pittance in a secret negotiation. This is NOT how American democracy works and it shows how powerful the titans of Wall Street truly are. While the courts have ruled groups like Better Markets lack standing to sue the government for cutting these banks slack, they cannot take away an individual’s right to seek justice for what the banks have done to them personally. This leaves those seeking justice one option, to challenge the wrongdoing perpetrated by the banking industry against them in a court of law. As long as the banks want to burn the little guy and buy their way out of trouble, Jackson & Elrod, LLP will be here to stand up for the rights of those deemed small enough to fail and file lawsuits on their behalf. What is done in the dark will be brought to the light.

Chad D. Elrod, Esq.