In an announcement on Friday, Old Republic National Title Insurance told its agents that it would not write policies on foreclosed properties by JPMorgan Chase “until the objectionable issued have been resolved,” as reported in the New York Times. This follows its decision to not write policies on Ally Financial (GMAC Mortgage) foreclosed properties subsequently sold as REO.
So, the title insurer is now questioning whether the title of a sold REO property following a foreclosure is clean. This appears to be an aggressive posture of whether the courts will look at whether the entire robo-foreclosure process invalidates the sale of property due to the improper court filed affidavit. As previously mentioned, it would be draconian for the courts to take such a position. Beyond using some type of argument of “bona fide purchaser for value” to be used by a purchaser of REO property, to unwind all of the REO sales done (HOPE NOW published statistics showing over 800,000 completed foreclosure sales between 3rd Q 2009 to 2nd Q 2010 reported by HOPE NOW servicers) would just destroy the recovery of the housing market.
The ripple effect of all this is starting to turn significantly substantial. As noted in the article, foreclosure prices would drop, as lenders would not be willing to loan against REO purchases without the title insurance. The court system would become even more log-jammed, at a time when budgets are already requiring States to make significant cut-backs. Plaintiff’s attorneys, now smelling the blood in the water, will look to feed off defaulted borrowers in ways the loan modification scams only dreamed of. Servicers, now without an ability to recover its costs from liquidation proceeds on the sale of the REO properties, will be “pressed” to find operating revenue. And, as the mantra for the industry, the securitization investor will be once again be forced to “eat it.” Cash-flows will be limited, the properties that should at least be held as REO, will be stuck in this foreclosure limbo, and any recoveries will be less money to pay off their investment. Losses will creep up the tranche structures.
While October is harvest month, it looks like the capital market fields are still only providing the smallest of yields. The HAMP, HAFA and HARP plantings appear to have been only marginal seeds. And now, it looks like we just got hit with an early foreclosure frost that may kill a good portion of the crop. And wait, we still have to face the ghosts, ghouls and goblins (including those on Capital Hill looking to frighten the securitization market with its new regulations) that will be coming out at the end of the month for their free candy (also known as year end bonuses at the Wall Street Banks).
Showing posts with label JPMorgan. Show all posts
Showing posts with label JPMorgan. Show all posts
Saturday, October 2, 2010
Friday, October 1, 2010
“CHICKEN LITTLE AIN’T GOT NOTHING ON ME” – THE CONTINUING MORTGAGE FORECLOSURE MESS
Well, as predicted, the regulators are coming out of the woodwork over the robo-foreclosure issue. The OCC, the regulatory agency for banks, is ‘requesting’ that the big boy servicers (BofA, JPMorgan, Wells, Citigroup, HSBC, PNC and US Bank) review their foreclosure practices to see if the person signing the affidavits in foreclosure proceedings had the required knowledge of the facts stated in the affidavit.
To understand the issue at hand, in State’s that have judicial foreclosure, the law requires something like the following:
• The affidavit shall state the facts that establish that the obligor has defaulted in the obligation to make a payment under a specified provision of the mortgage or is otherwise deemed in uncured default under a specified provision of the mortgage.
• The affidavit shall also specify the amounts secured by the lien as of the date of the affidavit and a per diem amount to account for further accrual of the amounts secured by the lien.
• The affidavit shall also state that the appropriate amount of documentary stamp tax and intangible taxes has been paid upon recording of the mortgage, or otherwise paid to the state.
• The affidavit shall also state that the lienholder is the holder of the note and has complied with all preconditions in the note and mortgage to determine the amounts secured by the lien and to initiate the use of the trustee foreclosure procedure.
At issue, then, is what are the requirements of an affidavit. Anderson's Manual for Notaries Public Fifth Edition describes an Affidavit as a "declaration reduced to writing, signed by the affiant, and sworn to BEFORE an officer authorized by law to administer oaths." Blacks Law Dictionary describes an Affidavit as "a written, ex parte statement made or taken under oath BEFORE an officer of the court or a notary public or other person who has been duly authorized so to act."
In several States, notaries are subject to "petty offense" fines for misuse of office. If a notary is signing affidavits without witnessing a signature, the notary is subject to fines.
An affidavit can either be based upon the personal knowledge of the affiant or his or her information and belief. Personal knowledge is the recognition of particular facts by either direct observation or experience. Information and belief is what the affiant feels he or she can state as true, although not based on firsthand knowledge.
So, what does this mean to the servicers? Well, to start, did these servicers have policies and procedures in place that required this two step process, specifically (a) that the affidavit had either personal knowledge or information and belief of the facts in the affidavit, and (b) was the affidavit sworn to BEFORE a notary? Next, were these policies and procedures followed (probably not is what it appears). Lastly, what will be the penalty for failing to following these procedures?
So, it appears that one of the culprits of this new mortgage mess is the notaries working for the foreclosure mills. Like the appraisers of sub-prime mortgage originations past, these “low on the totem pole” service providers just processed without following their own rules. Now it is coming back to haunt the entire industry.
Another party to this trouble is the in-house foreclosure group heads at the servicing companies that signed the affidavits. Did they even have personal knowledge (doubtful) or a good faith information and belief of the facts stated in the affidavit? Again, it will be based upon the policies and procedures in place at these organizations. Whether there was “up-the-line” reporting from the person handling the foreclosure to the person signing the affidavit will be key.
So, as more of the servicers get taken behind the wood-shed, plaintiffs’ attorneys will have a field day with this and the regulators will continue to make political hay. Meanwhile, Joe Homeowner who is in default on his loan gets to watch TV rent free and the securitization investor will be flipping the bill for it all. Maybe hedge fund investors will start to see this . . .or maybe not. Maybe they need more write-offs.
To understand the issue at hand, in State’s that have judicial foreclosure, the law requires something like the following:
• The affidavit shall state the facts that establish that the obligor has defaulted in the obligation to make a payment under a specified provision of the mortgage or is otherwise deemed in uncured default under a specified provision of the mortgage.
• The affidavit shall also specify the amounts secured by the lien as of the date of the affidavit and a per diem amount to account for further accrual of the amounts secured by the lien.
• The affidavit shall also state that the appropriate amount of documentary stamp tax and intangible taxes has been paid upon recording of the mortgage, or otherwise paid to the state.
• The affidavit shall also state that the lienholder is the holder of the note and has complied with all preconditions in the note and mortgage to determine the amounts secured by the lien and to initiate the use of the trustee foreclosure procedure.
At issue, then, is what are the requirements of an affidavit. Anderson's Manual for Notaries Public Fifth Edition describes an Affidavit as a "declaration reduced to writing, signed by the affiant, and sworn to BEFORE an officer authorized by law to administer oaths." Blacks Law Dictionary describes an Affidavit as "a written, ex parte statement made or taken under oath BEFORE an officer of the court or a notary public or other person who has been duly authorized so to act."
In several States, notaries are subject to "petty offense" fines for misuse of office. If a notary is signing affidavits without witnessing a signature, the notary is subject to fines.
An affidavit can either be based upon the personal knowledge of the affiant or his or her information and belief. Personal knowledge is the recognition of particular facts by either direct observation or experience. Information and belief is what the affiant feels he or she can state as true, although not based on firsthand knowledge.
So, what does this mean to the servicers? Well, to start, did these servicers have policies and procedures in place that required this two step process, specifically (a) that the affidavit had either personal knowledge or information and belief of the facts in the affidavit, and (b) was the affidavit sworn to BEFORE a notary? Next, were these policies and procedures followed (probably not is what it appears). Lastly, what will be the penalty for failing to following these procedures?
So, it appears that one of the culprits of this new mortgage mess is the notaries working for the foreclosure mills. Like the appraisers of sub-prime mortgage originations past, these “low on the totem pole” service providers just processed without following their own rules. Now it is coming back to haunt the entire industry.
Another party to this trouble is the in-house foreclosure group heads at the servicing companies that signed the affidavits. Did they even have personal knowledge (doubtful) or a good faith information and belief of the facts stated in the affidavit? Again, it will be based upon the policies and procedures in place at these organizations. Whether there was “up-the-line” reporting from the person handling the foreclosure to the person signing the affidavit will be key.
So, as more of the servicers get taken behind the wood-shed, plaintiffs’ attorneys will have a field day with this and the regulators will continue to make political hay. Meanwhile, Joe Homeowner who is in default on his loan gets to watch TV rent free and the securitization investor will be flipping the bill for it all. Maybe hedge fund investors will start to see this . . .or maybe not. Maybe they need more write-offs.
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