In Wells Fargo’s Bogus Accounts, Echoes of Foreclosure Abuses

The New York Times | September 21, 2016         John Stumpf, the chairman and chief executive of Wells Fargo, won a dubious achievement award from one of his interrogators during Tuesday’s scorching hearings on Capitol Hill. The bank’s yearslong practice of opening bogus accounts for customers and charging fees to do so, said Senator Jon Tester, Democrat of Montana, had united the Senate Banking Committee on a major topic for the first time in a decade. “And not in a good way,” he added.

But this was not the first time problematic and pervasive activities at Wells Fargo succeeded in uniting a disparate group. After observing years of abusive mortgage loan servicing practices at the bank, an increasing number of judges hearing foreclosure cases after the financial crisis grew to understand that banks could not always be trusted in their pleadings.

This was a major shift: For decades, the nation’s courts had been largely pro-bank when hearing foreclosure cases, accepting what big financial institutions produced in documentation and amounts owed by borrowers.  Read more here.

Is Another Housing Crisis Just Around the Corner?

Fox News|  January 19, 2016     Movie sequels are rarely as good as the original films on which they’re based. The same dictum, it appears, holds for finance. The 2008 housing market collapse was bad enough, but it appears now that we’re on the verge of experiencing it all again. And the financial sequel, working from a similar script as its original version, could prove to be just as devastating to the American taxpayer.

The Federal National Mortgage Association (commonly referred to as Fannie Mae) plans a mortgage loan reboot, which could produce the same insane and predictable results as when the mortgage agency loaned so much money to people who had neither the income, nor credit history, to qualify for a traditional loan.   Read more here.

Bankers Ask Judge to Disregard $5.4 Million Foreclosure Verdict

Houston Chronicle |  January 11, 2016   In a case that's being watched by legal and real estate interests, the bankers who lost a $5.4 million jury verdict against a pair of homeowners in West University asked State District Judge Mike Engelhart to set aside the jury's decision and allow the bank to foreclose.  

Lawyers for Wells Fargo and Carrington Mortgage Services appeared before Engelhart Monday to argue that David and Mary Ellen Wolf shouldn't receive the $5.4 million that a Harris County jury awarded them in November nor should they be able to keep their house. The bankers argued that the Wolfs, who were sitting on the front row of the courtroom listening to the proceedings, were not victims of fraud as the jury found, and that if the banks did file documents improperly at the courthouse, it wasn't intended to harm the couple.

At worst, it was a "paperwork slipup or negligence," said Thomas Panoff, a commercial litigation lawyer with Mayer Brown in Chicago who is representing Wells Fargo and Carrington.  Read more here.

Lenders Ask Court to Toss Foreclosure Verdict Favoring Homeowners

Houston Chronicle | December 24, 2015    Wells Fargo Bank and its mortgage servicer are asking a state district judge in Houston to throw out a jury verdict in favor of a West University couple facing foreclosure and to order a sheriff's sale of their house.  Read more here.

Fannie and Freddie Give Birth to New Mortgage Bond

The Wall Street Journal |  December 29, 2015     The federal government is trying to get taxpayers off the hook for billions of dollars of potential losses if another mortgage crisis arrives—and in the process, it is quietly giving birth to a new asset class.

Under government control, mortgage-finance giants Fannie Mae and Freddie Mac next year plan to ramp up sales of new types of securities that in effect transfer potential losses in a housing downturn to private investors.

Called Connecticut Avenue Securities by Fannie Mae and Structured Agency Credit Risk by Freddie Mac, the securities are essentially bonds whose performance is tied to that of a pool of mortgages. If the mortgages default, investors in the bonds could lose some or all of their principal.  Read more here.

Jury Awards $5.4 Million to Couple After Finding Fraud in Foreclosure Case

Houston Chronicle  |  December 9, 2015   Jury awards couple $5.4 million in foreclosure case against Wells Fargo and its mortgage servicer.  David and Mary Ellen Wolf were several payments behind on their home mortgage and knew that foreclosure loomed.  They were puzzled, though, when a foreclosure notice came early in 2011 from Wells Fargo because they hadn't done business with that bank.  Read more here.

Texas Mortgage Settlement Millions Misspent, Critics Say

News 8 WFAA ABC |  November 9, 2015     Texas homeowners who fell behind and lost their homes during the mortgage crisis were given hope three years ago.

It came in the form of a $25 billion national settlement with five lenders – Ally, Bank of America, Citi, JPMorgan Chase and Wells Fargo – all accused of wrongly forcing people out of their homes.

But how much relief did the State of Texas provide to its citizens?  Read and watch video investigation here.  

Freedom Caucus Votes For $17 Billion In Government Payments To Banks

Huffington Post |  November 5, 2015    The House voted overwhelmingly on Thursday to preserve $17 billion in government payouts to banks, as part of a major highway funding bill.  The GOP had initially pressed to include other bank-friendly measures in the highway bill, including a plan to hamstring the new Consumer Financial Protection Bureau and deregulate large banks. Those efforts were scrapped in favor of the more straightforward $17 billion payment.  Read more here.

Delinquencies and Foreclosures Up Again; Time in Foreclosure at 1056 Days

The Economic Populist |  November 10, 2015     The Mortgage Monitor for September from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 737,254 home mortgages, or 1.46% of all mortgages outstanding, remaining in the foreclosure process at the end of September, which was down from 747,930, or 1.48% of all active loans that were in foreclosure at the end of August, and down from 1.89% of all mortgages that were in foreclosure in September of last year.  These are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and the September "foreclosure inventory" remains the lowest percentage of homes that were in the foreclosure process since late 2007.   New foreclosure starts, however, rose for the second month in a row, from 76,180 in August to 79,899 in September, up more than 10% from July, while they remain lower than the 95.400 new foreclosures started in September of 2014, they've been volatile from month to month, and they have remained in a range about 50% higher than number of new foreclosures we saw in the precrisis year of 2005.  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.