Dec 29 2008

Dubious accounting undermines aid for U.S. homeowners

Posted by admin in Politics & Economic Policy
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With U.S. home prices in free fall and mortgage delinquencies mounting, pressure to modify troubled loans is ratcheting up.

But lawyers who represent candidates for modifications say the programs are hobbled by the complexity of securitization pools that hold the loans, as well as by uncertainty about who actually owns the notes underlying the mortgages.

Problems often emerge because these notes - which are written promises to repay the full amount of a mortgage - were not recorded properly when they were bundled by Wall Street into pools or were subsequently transferred to other holders.

How can a loan be modified, these lawyers ask, if the lender cannot prove that it actually owns the note? More and more judges are asking the same thing about lenders who are trying to foreclose on borrowers.

And here is another hurdle: Most loan servicers - the people responsible for handling all the paperwork surrounding monthly mortgage payments - are not set up to handle all of the details involved in a modification.

Loan servicing operations are intended to receive borrowers’ payments. Producing loan histories and verifying that payments have been received or junk fees have not been applied is considerably more labor-intensive. This cuts into profits.

“These servicers are not staffed up and they don’t have a chance in the world to do the stuff they are supposed to do,” said April Charney, a consumer lawyer at Jacksonville Legal Aid in Florida. Many servicers stonewall troubled borrowers who ask for histories of their loan payments and fees, she said.

“This is your biggest, hugest expense - your home - and when you ask for a life-of-loan history, your servicer tells you to get lost,” she said. “And when you ask for a list of charges in the loan history that’s not going to happen.”

So even if loan modifications were to rise rapidly, it is unclear that borrowers could trust what lenders told them about what they owed.

Consider a U.S. bankruptcy court case in Colorado. It involves two borrowers who got into trouble on their loan but agreed, under a bankruptcy plan, to make revised mortgage payments to get back on track.

The lender in the case is Wells Fargo, and on Dec. 22 the judge overseeing the matter took a tough stance on the bank’s record-keeping and billing practices.

In June 2004, Brandon Burrier and Denon Burrier received a $183,126 loan for a property in Arvada, Colorado. The note was later transferred to Wells Fargo, court filings show.

The Burriers fell behind on their loan and in February 2007, they filed a Chapter 13 bankruptcy, agreeing to pay $12,000 that Wells Fargo said they owed. Chapter 13 bankruptcies allow debtors to retain their properties and work out repayment plans based on their incomes and levels of indebtedness.

The Burriers’ payment plan was confirmed by the bankruptcy court in August 2007. Last December, a second plan requiring higher payments was approved by the court.

waronyou

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