Will Attorney General Brown Continue to Prosecute case against Mozilo and Sambo?

After accepting more than $86 Billion from the banking community, Attorney General Brown fails to prosecute Angelo Mozilo, the former Chairman and Chief Executive of Countrywide Financial Corporation or David Sambol, formerly the President of Countrywide Home Loans and the President and Chief Operating Officer of Countrywide Financial Corporation.

Attorney General Brown added, "My loan-modification program provides real relief for borrowers at risk of losing their homes. Tragically, California and the other states have had to step in because federal authorities shamelessly failed to even minimally regulate mortgage lending." To date, no money has been paid to modification companies servicing this need.

Meg Whitman

A Message from Meg

"Restoring California will not be easy. It will take time to uproot old habits … old ways of thinking … and old ways of doing business. But do it we can, and do it we must, because we all love California too much to let it fail."

– Meg Whitman

Less Than a Dime Goes to Help Homeowners

Attorney General Brown Announces Landmark $8.68 Billion Settlement with Countrywide but nothing goes to small modification firms in California.

Attorney General Edmund G. Brown Jr. announced a landmark, multi-state settlement with Countrywide Home Loans, Countrywide Financial Corporation and Full Spectrum Lending that is expected to provide up to $8.68 billion of home loan and foreclosure relief nationally, including $3.5 billion to California borrowers. Not my normal channels, but in political contributions, as usual. The goal is Sacramento, Brown says.

Attorney General Brown added, "Unlike last week's congressional bailout, this loan-modification program provides real relief for borrowers at risk of losing their homes. Tragically, California and the other states have had to step in because federal authorities shamelessly failed to even minimally regulate mortgage lending."

"With this settlement, homeowners will receive direct relief from the catastrophic damage caused by Countrywide," said Attorney General Brown. "Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford."

The Countrywide settlement will likely become the largest predatory lending settlement in history, dwarfing the nationwide $484 million settlement with Household Finance Corporation in 2002, under which California received approximately $91 million.

The settlement marks a swift resolution of the Attorney General's June 30, 2008 lawsuit alleging that Countrywide, the nation's largest mortgage lender prior to its July 2008 acquisition by Bank of America, deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers' ability to afford loans.

In a nutshell, this settlement will enable eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining a modified and affordable loan. To date nothing has happened. The office is no longer looking into the action of modifying or the low amounts of mortgages that were modified. The loans covered by the settlement are among the riskiest and highest defaulting loans at the center of America's foreclosure crisis. Assuming every eligible borrower and investor participates, this loan modification program will provide up to $3.5 billion to California borrowers as follows:

- Suspension of foreclosures for eligible borrowers with subprime and pay-option adjustable rate loans pending determination of borrower ability to afford loan modifications;

- Loan modifications valued at up to $3.4 billion worth of reduced interest payments and, for certain borrowers, reduction of their principal balances;

- Waiver of late fees of up to $33.6 million;

- Waiver of prepayment penalties of up to $25.6 million for borrowers who receive modifications, pay off, or refinance their loans;

- $27.9 million in payments to borrowers who are 120 or more days delinquent or whose homes have already been foreclosed; and

- Approximately $25.2 million in additional payments to borrowers who, in the future, cannot afford monthly payments under the loan modification program and lose their homes to foreclosure.

More specifically, the modification program covers subprime and pay-option adjustable-rate mortgage loans in which the borrower's first payment was due between January 1, 2004 and December 31, 2007. The program will be available for loans in default that are secured by owner-occupied property and serviced by Countrywide Financial or one of its affiliates. In addition, the borrower's loan balance must be 75% or more of the current value of the home, and the borrower must be able to afford adjusted monthly payments under the terms of the modification.

The terms of the modification will vary based on the type of loan, including:

- "Pay-option ARM loans," in which loan balances increase each month if a borrower makes only a minimum payment. Borrowers may be eligible to have their principal reduced to 95% of their home's current value and may also qualify for an interest-rate reduction or conversion to an interest-only payment.

- Subprime adjustable-rate loans, such as 2/28 loans. Borrowers may have their interest rate reduced to the initial rate. If the borrower still cannot afford it, the borrower may be eligible for further interest-rate reductions to as low as 3.5%.

- Subprime fixed loans. Borrowers may be eligible for interest-rate reductions.

- "Hope for Homeowners Program." If they qualify, some borrowers may be placed in loans made through this federal program.

- Alt-A and prime loans. Borrowers who are in default, but have Alt-A and prime loans, may also be considered for modifications, depending on circumstances.

In addition to the settlement's direct relief to borrowers, Bank of America, who negotiated the settlement with the Attorney General following its acquisition of Countrywide, has agreed that it will suspend offering, under its own name or through Countrywide, subprime loans or loans that can negatively amortize. The bank has significantly restricted the circumstances under which it will make so-called "no doc" or low-documentation loans, in which borrowers do not fully document their ability to repay their mortgages.

In addition to California, attorneys general in 10 states, including Arizona, Connecticut, Florida, Illinois, Iowa, Michigan, North Carolina, Ohio, Texas and Washington, are participating in the settlement. Attorney General Brown's office, along with the Office of the Illinois Attorney General, led the negotiations for the states. The Countrywide parties to the settlement include parent Countrywide Financial Corporation, Countrywide Home Loans and Full Spectrum Lending.

Attorney General Brown added, "Unlike last week's congressional bailout, this loan-modification program provides real relief for borrowers at risk of losing their homes. Tragically, California and the other states have had to step in because federal authorities shamelessly failed to even minimally regulate mortgage lending."

The settlement does not include Angelo Mozilo, the former Chairman and Chief Executive of Countrywide Financial Corporation or David Sambol, formerly the President of Countrywide Home Loans and the President and Chief Operating Officer of Countrywide Financial Corporation. Brown will continue to prosecute his case against Mozilo and Sambol.

California Jerry Brown Settle with Bankers to Kill Off Small Mortgage Brokers

Settlement vs Advanced Fees

Fairbault MN,Daily News, January 1, 2010, Countrywide Settlement Administrator, Rust Consulting, Inc., share information with the press early in January 2010 that while it seemed to be doing a service for the public, multi state attorney generals including California Jerry Brown, managed to take the heat off of Countrywide, Washington Mutual and IndyMac while focusing on mortgage brokers instead.

An old rule was dusted off and raised as allegations against thousands of California mortgage brokers. In an area were trust is key, allegations were painted in the press for hundreds of mortgage brokers. Was this a cover up?

At the center of the controversy, was how lenders authorized payments and compensated their broker networks for services.

The open understanding of the settlement was that lenders were to be held responsible to compensate borrowers for any damages commercially caused in the lender broker network. Bank of America spokesperson said that they chose the settlement and a start point to eliminate relationship with the large number of affiliate and reduce as close as zero fees to all brokers.

In a domino effect, lenders dropped brokers and arranged to have consumers deal directly with their retail centers. There the compensation could be hidden aside normal branch compensation models.

Did Jerry Brown and other attorney generals cause brokers to request advance fees with this settlement?

Well, if so, should all of the blame fall on the mortgage brokers?

Let’s examine this closer. For nearly 20 years, lenders would pay for the services of brokers who prepared, collected and submitted applications for home mortgages. When home mortgages needed to be modified, lenders elected to not pay any fees for their services.

So client, who always worked with mortgage brokers, asked the very same set of brokers to represent them with their lenders for a loan modification.

With little to no profit for the lenders, the process was driven by small armies of independent mortgage brokers. Why advanced fees? The work involved in packaging and submitting a loan modification is tedious and time consuming. Mortgage brokers work with processor who generally were salaried personnel. Without fee revenue from the lenders, the client seemed to be next in the picking order.

Should the settlement dollars go to loan modification firms? Is the blame for taking advance fees from the client a sole crime of the thousands of mortgage brokers, who for years were never alleged to be committing any crimes, fall on the fees of the settlement.

Advance fees is not the issue. The real issue is that the lender are not providing compensation to the active brokerages who package their requirements. The attorney generals need to include the lender who held the loans that need modification side by side with the honest mortgage brokers who were always affiliated with those same lenders.

As California stands today, the percentage of foreclosures is the highest in the nation. Attorneys who saw loan modification and ripe as bankruptcy, were all stopped in their shoes, when California law in October eliminated ALL Advance Fees for loan modification. In fact, the Department of Real Estate, is also involved in killing off the services. Very few mortgage companies are in the position to help clients with problem loans.

If you ask the experts, they would say that if you have a hardship in California, and a loan modification could help, good luck, your attorney general has already been paid.

Fed and Lender on Different Sides of Reality

By Lew Sichelman

WASHINGTON (MarketWatch) -- Question: I have also made trial payments under the Making Home Affordable program. But my house truly was in foreclosure and I spoke with an attorney. Your advice in your column is wrong. They can foreclose, they will foreclose, and they are foreclosing on thousands of people who have made their trial payments every month! See previous Realty Q&A.

There is nothing written into this program that provides any penalty for lenders if they do not modify a loan. They very clearly state that you are not actually approved for the program, and stipulate that the magical approval (or denial) will happen at some unspecified future time.

Mortgage fix elusive for many

Recent evidence suggests housing is rebounding, but many mortgage holders who face financial problems because of the recession have a tough climb to modify their loans and keep their homes out of foreclosure. (Dec. 16)

My story is not unique. I was able to stop foreclosure (only days before the trustee sale) temporarily by filing a complaint with my state attorney general. However, I still have not received a permanent modification and my lender continues to claim paperwork that I have provided is missing.

The bottom line is that paying trial payments in anticipation of a modification does not guarantee anything and foreclosure is the most likely outcome.

Answer: I only report what I am told, which is that a trial modification under the Making Home Affordable program is supposed to suspend foreclosure and credit reporting activities by the lender.

"The program is designed to give borrowers needed relief while the lender reviews eligibility for final approval," says David Bartels of US Home Loan Advocates, a Thousands Oaks, Calif., firm which works with lenders on behalf of borrowers solely on a contingency basis, with no upfront fees. "If you were in a trial modification and making your trial payments on time, foreclosure activity should not have occurred."

Bartels and others on the firing line every day understand your frustration, especially when it comes to so-called "lost" paperwork -- forms and verifications supplied by you and thousands of borrowers have mysteriously disappeared.

"Unfortunately, lost paperwork has become routine for the lenders as they struggle to keep up with millions of pages of documents," he said.

As a result, collections activities of all kinds often continue, even as a loss-mitigation solution is pending. But this is the case not because the bank wants to keep you hanging until it can ultimately foreclose, but rather because papers are misplaced, sent to the wrong person or mistakenly tossed into the circular file.

Like some others, Bartels complains that the way the Making Home Affordable program is set up, with the government "compensating" lenders for up to 95% of their losses on foreclosed homes, makes it more profitable in many cases for lenders to foreclose as opposed to modify. And that, he believes, accounts for a large percentage of people being turned down when they ask to have their mortgages reworked.

However, the loan-mod expert maintains that once you have been preapproved for a Making Home Affordable modification any collection or foreclosure activity should cease and should not resume until and unless you default on the trial payments or the lender determines you are not eligible for a permanent modification.

Q: I hope you can help me. I have been trying to get my loan modified. My mortgage was originally held by a Seattle savings and loan, but it was sold to a bank which has now apparently sold it to another bank. I have provided all of the information requested each time; yet, in the last correspondence from Bank A just before the transfer to Bank B, I was told I didn't qualify because my income was too low, my credit score was not good enough (duh), and that I had too much equity in my home.

I asked the bank how much I would need to make and asked that they recognize that I lost my job, which hurt my credit when I couldn't pay my bills, including my mortgage. I also asked on what basis they valued my house since no one has appraised it in a long time. There was no answer.

Now, Bank B is in the picture and a local attorney working on its behalf has informed me that they are proceeding with the foreclosure. I have been in my home for over 27 years, have two nine-year old girls and my in-laws living with me and had perfect credit until I became unemployed. I used all my resources to carry the mortgage as long as I could, including my 401(k).

I have a new job and hopefully it will provide a reasonable income on which to base a modification, but the bank won't provide guidelines and we just live in fear without being able to know how to satisfy them. What should I do?

A: I know you are frustrated. Everyone is. But the key to your situation appears mainly to be that you have too much equity in your property. Aside from the fact that your income may not be enough to afford even a modified payment, or your credit score is such that you won't qualify, the real crux of the matter seems to be that foreclosing would not result in a loss to the lender, so the better option -- for the lender, at least -- is simply to foreclose and be done with you.

I base my assumption on the fact that you have been paying on your home for nearly 30 years, so you probably have built up tons of equity. That may not be the case if you refinanced to the hilt within the last four or five years or so. But based on what you wrote, I just don't know about that.

My advice now is to try to refinance the property, which may be a long shot. You just started a new job, which may work against you unless it is in the same field your were working in before you lost your job. Your lousy credit score is a negative, too, and you may not make enough to support a loan large enough to pay off the your current mortgage.

But unless you qualify for a loan mod, which doesn't seem to be the case, your only other choices are to sell and move before you are kicked out or refinance.

Nationally syndicated columnist Lew Sichelman has been covering the housing market for more than 35 years. Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space. Email lsichelman@aol.com

U.S. Loan Effort Is Seen as Adding to Housing Woes

By PETER S. GOODMAN

Published: January 1, 2010

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

“If they had said, ‘We can’t work with you,’ I’d have said: ‘What are my options? Short sale?’ None of this would have happened,” said Jaimie S. Smith. Her lender simultaneously modified her loan and foreclosed on her.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”

The Treasury Department publicly maintains that its program is on track. “The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives program did not represent a new policy. “We have said from the start that modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Ms. Reilly said by e-mail. “This has always been a multi-pronged effort.”

Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis.

In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. This year, more than two million homes were lost, and Economy.com expects that next year’s number will swell to 2.4 million.

“I don’t think there’s any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com. “For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.”

Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.

Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity. A paper by researchers at the Amherst Securities Group suggests that being underwater “is a far more important predictor of defaults than unemployment.”

From its inception, the Obama plan has drawn criticism for failing to compel banks to write down the size of outstanding mortgage balances, which would restore equity for underwater borrowers, giving them greater incentive to make payments. A vast majority of modifications merely decrease monthly payments by lowering the interest rate.

Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses. He pointedly rejects the notion that government ought to get out of the way and let foreclosures work their way through the market, saying that course risks a surge of foreclosures and declining house prices that could pull the economy back into recession.

“We want to overwhelm this problem,” he said. “If we do go back into recession, it will be very difficult to get out.”

Under the current program, the government provides cash incentives to mortgage companies that lower monthly payments for borrowers facing hardships. The Treasury Department set a goal of three to four million permanent loan modifications by 2012.

“That’s overly optimistic at this stage,” said Richard H. Neiman, the superintendent of banks for New York State and an appointee to the Congressional Oversight Panel, a body created to keep tabs on taxpayer bailout funds. “There’s a great deal of frustration and disappointment.”

As of mid-December, some 759,000 homeowners had received loan modifications on a trial basis typically lasting three to five months. But only about 31,000 had received permanent modifications — a step that requires borrowers to make timely trial payments and submit paperwork verifying their financial situation.

The government has pressured mortgage companies to move faster. Still, it argues that trial modifications are themselves a considerable help.

“Almost three-quarters of a million Americans now are benefiting from modification programs that reduce their monthly payments dramatically, on average $550 a month,” Treasury Secretary Timothy F. Geithner said last month at a hearing before the Congressional Oversight Panel. “That is a meaningful amount of support.”

But mortgage experts and lawyers who represent borrowers facing foreclosure argue that recipients of trial loan modifications often wind up worse off.

In Lakeland, Fla., Jaimie S. Smith, 29, called her mortgage company, then Washington Mutual, in October 2008, when she realized she would get a smaller bonus from her employer, a furniture company, threatening her ability to continue the $1,250 monthly mortgage payments on her three-bedroom house.

In April, Chase, which had taken over Washington Mutual, lowered her payment to $1,033.62 in a trial that was supposed to last three months.

Ms. Smith made all three payments on time and submitted required documents, Chase confirms. She called the bank almost weekly to inquire about a permanent loan modification. Each time, she says, Chase told her to continue making trial payments and await word on a permanent modification.

Then, in October, a startling legal notice arrived in the mail: Chase had foreclosed on her house and sold it at auction for $100. (The purchaser? Chase.)

“I cried,” she said. “I was hysterical. I bawled my eyes out.”

Later that week came another letter from Chase: “Congratulations on qualifying for a Making Home Affordable loan modification!”

When Ms. Smith frantically called the bank to try to overturn the sale, she was told that the house was no longer hers. Chase would not tell her how long she could remain there, she says. She feared the sheriff would show up at her door with eviction papers, or that she would return home to find her belongings piled on the curb. So Ms. Smith anxiously set about looking for a new place to live.

She had been planning to continue an online graduate school program in supply chain management, and she had about $4,000 in borrowed funds to pay tuition. She scrapped her studies and used the money to pay the security deposit and first month’s rent on an apartment.

Later, she hired a lawyer, who is seeking compensation from Chase. A judge later vacated the sale. Chase is still offering to make her loan modification permanent, but Ms. Smith has already moved out and is conflicted about what to do.

“I could have just walked away,” said Ms. Smith. “If they had said, ‘We can’t work with you,’ I’d have said: ‘What are my options? Short sale?’ None of this would have happened. God knows, I never would have wanted to go through this. I’d still be in grad school. I would not have paid all that money to them. I could have saved that money.”

A Chase spokeswoman, Christine Holevas, confirmed that the bank mistakenly foreclosed on Ms. Smith’s house and sold it at the same time it was extending the loan modification offer.

“There was a systems glitch,” Ms. Holevas said. “We are sorry that an error happened. We’re trying very hard to do what we can to keep folks in their homes. We are dealing with many, many individuals.”

Many borrowers complain they were told by mortgage companies their credit would not be damaged by accepting a loan modification, only to discover otherwise.

In a telephone conference with reporters, Jack Schakett, Bank of America’s credit loss mitigation executive, confirmed that even borrowers who were current before agreeing to loan modifications and who then made timely payments were reported to credit rating agencies as making only partial payments.

The biggest source of concern remains the growing numbers of underwater borrowers — now about one-third of all American homeowners with mortgages, according to Economy.com. The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.

“This is a conscious choice we made, not to start with principal reduction,” Mr. Geithner told the Congressional Oversight Panel. “We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.”

Mr. Geithner’s explanation did not satisfy the panel’s chairwoman, Elizabeth Warren.

“Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?” she asked, raising the prospect “that we’ll be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?”

A good question, Mr. Geithner conceded.

“What to do about it,” he said. “That’s a hard thing.”

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