Disorganization at Banks

Causing Mistaken Foreclosures

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By Paul Kiel, ProPublica – May 4, 2010 9:20 pm EDT

Millions of people face losing their homes in the continuing foreclosure crisis, but homeowners often have more than the struggling economy and slumping house prices to worry about: Disorganization within the big banks that service mortgages has made a bad problem worse.

ProPublica is matching local journalists with homeowners having trouble getting loan mods.

Are you a homeowner with a story to tell?
Are you a reporter and want to cover it?

Sometimes the communication breakdown within the banks is so complete that it leads to premature or mistaken foreclosures. Some homeowners, with the help of an attorney or housing counselor, have eventually been able to reverse a foreclosure. Others have lost their homes.

“We believe in many cases people are losing their homes when they should not have,” said Kevin Stein, associate director of the California Reinvestment Coalition, which counts dozens of nonprofits that work with homeowners among its members.

In the worst breakdowns, banks — and other companies that service loans — actually work at cross-purposes, with one arm of the company foreclosing on the home while the other offers help. Servicers say such mistakes are rare and result from the high volume of defaults and foreclosures.

The problems happen even among servicers participating in the administration’s $75 billion foreclosure-prevention program [1]. Servicers operating under the year-old program are forbidden from auctioning someone’s home while a modification decision is pending. It happens anyway.

Consumer advocates say the lapses continue because they go unpunished. “We’ve had too much of the carrot, and we need a stick,” Stein says. The Treasury Department has yet to penalize a servicer for breaking the program’s rules. The program provides federal subsidies to encourage modifications.

Treasury officials overseeing the program say they’re aware of the problems and have moved to fix them. But some states are going further to protect homeowners, with recent rules that stop the foreclosure process if the homeowner requests a modification.

Many homeowners, seeing no other option, have gone to court to reclaim their homes. At least 50 homeowners have recently filed lawsuits alleging the servicer foreclosed with a loan mod request pending or even while they were on a payment plan.

Homeowners have long waits for help

In good times, banks and other servicers — Bank of America is the biggest, followed by Chase and Wells Fargo — were known mainly to homeowners simply as where they sent their monthly mortgage payments. But the companies have been deluged over the past couple of years by requests for help from millions of struggling homeowners.

Homeowners commonly wait six months for an answer on a loan mod application. The federal program for encouraging loan mods includes a three-month trial period, after which servicers are supposed to decide whether to make the modifications permanent. But some homeowners have waited as long as 10 months [2] for a final answer.

Communication breakdowns occur because of the way the servicers are structured. One division typically deals with modifications and another with foreclosures. Servicers also hire a local trustee or attorney to actually pursue foreclosure.

“Often they just simply don’t communicate with each other,” said Laurie Maggiano, the Treasury official in charge of setting policy for the modification program. Such problems were particularly bad last summer, in the first few months of the program, she said. “Basically, you have the right hand at the mortgage company not knowing what the left hand is doing,” said Mark Pearce, North Carolina’s deputy commissioner of banks. Communication glitches and mistakes are “systemic, more than anecdotal” among mortgage servicers, he said.

“We’ve had cases where we’ve informed the mortgage company that they’re about to foreclose on someone.” The experience for the homeowner, he said, can be “Kafkaesque.”

“We’re all human, and the servicers are overworked and trying their best,” said Vicki Vidal, of the Mortgage Bankers Association. She said foreclosure errors are rare, particularly if struggling homeowners are prompt in contacting their servicer.

The Human Face

Frances Gomez, of Tempe, Ariz., lived in her house for over 30 years. Three years ago, she refinanced it with Countrywide, now part of Bank of America, for nearly $300,000. The home’s value has declined dramatically, said Gomez, who put some of the money from the refinancing into her hair salon.

Last year, the recession forced her to close her shop. Gomez fell behind on her mortgage, and after striking out with a company that promised to work with Bank of America to get her a loan mod, she learned in December that her home was scheduled for foreclosure.

So Gomez applied herself. She twice succeeded in getting Bank of America to postpone the sale date and said she was assured it would not happen until her application was reviewed. Gomez had opened a smaller salon and understood there was a good chance she would qualify.

She was still waiting in March when a Realtor, representing the new owner of her home, showed up. Her house had sold at auction — for less than half of what Gomez owed. “They don’t give you an opportunity,” she said. “They just go and do it with no warning.”

It’s not supposed to work that way.

Federal Programs

Under the federal program, which requires servicers to follow a set of guidelines for modifications, servicers must give borrowers a written denial before foreclosing. When Gomez called Bank of America about the sale, she said she was told there was a mistake but nothing could be done. She did get a denial notice [3] — some three weeks after the house was sold and just days before she was evicted.

“I just want people to know what they’re doing,” Gomez, now living with family members, said.

After being contacted by ProPublica, Bank of America reviewed Gomez’s case. Bank spokesman Rick Simon acknowledged that Gomez might not have been told her house would be sold and that the bank made a mistake in denying Gomez, because it did not take into account the income from her new salon business. Simon said a Bank of America representative would seek to negotiate with the new owner of Gomez’s house to see if the sale could be unwound.

Simon said the bank regrets when such mistakes happen due to the “very high volume” of cases and that any errors in Gomez’s case were “inadvertent.”

Timeline: How Michael Hill Almost Lost His Home [4]

Even avoiding a mistaken sale can also be a stressful process.

One day in February, a man approached Ron Bermudez of Emeryville, Calif., in front of his house and told him his home would be sold in a few hours. This came as a shock to Bermudez; Bank of America had told him weeks prior that he’d been approved for a trial modification and the papers would soon arrive. He made a panicked phone call to an attorney, who was able to make sure there was no auction.

Last November, Michael Hill of Lexington, S.C., finally got the call he’d been waiting for. Congratulations, a rep from JPMorgan Chase told him, your trial mortgage modification is approved. Hill’s monthly payment, around $900, would be nearly halved.

Except there was a problem. Chase had foreclosed on Hill’s home a month earlier, and his family was just days away from eviction.

“I listened to her and then I just said, ‘Well, that sounds good,’” recalled Hill, who is married and has two children. “‘Tell me how we’re going to do this, seeing as how you sold the house.’” That, he found out, was news to Chase.

Hill was able to avoid eviction — for now. Chase reversed the sale by paying the man who’d bought the home an extra $19,500 on top of the $86,000 [5] he’d paid at the auction.

After the mistaken foreclosure, he began the trial modification last December. He made those payments, but two months after his trial period was supposed to end, Hill is still waiting for a final answer from Chase.

The miscommunications have continued. He received a letter in January saying that he’d been approved for a permanent modification, but he was then told he’d received it in error.

His family remains partially packed, ready to move should the modification not go through. “I’m on pins and needles every time someone’s knocking on the door or calling,” he said.

Christine Holevas, a Chase spokeswoman, said that Chase had “agreed with Hill’s request to rescind the foreclosure” and was “now reviewing his loan for permanent modification.” She said Chase services “more than 10 million mortgages — the vast majority without a hitch.”

HOPE Hotline

To contest a foreclosure under the federal program, Maggiano, the Treasury official, said a homeowner should call the HOPE Hotline, 888-995-HOPE, a Treasury Department-endorsed hotline staffed by housing counselors. Those counselors can escalate the case if the servicer still won’t correct the problem, she said.

That escalation process has saved “a number” of homeowners from being wrongfully booted out of their homes, Maggiano said. Hill, the South Carolina homeowner, is an example of someone helped by the HOPE Hotline.

Of course, the homeowner must know about the hotline to call it. Gomez, the Arizona homeowner who lost her home to foreclosure, said she’d never heard of it.

Many homeowner advocates say the government’s effort has been largely ineffective at resolving problems with servicers.

“I uniformly hear from attorneys and counseling advocates on the ground that the HOPE Hotline simply parrots back what the servicers have said,” said Alys Cohen, an attorney with the National Consumer Law Center. Cohen said she’d voiced her concerns with Treasury officials, who indicated they’d make improvements.


New rules to offer more protection

Under the current rules for the federal program, servicers have been barred from conducting a foreclosure sale if the homeowner requested a modification, but are allowed to push along the process, even set a sale date. That allows them to foreclose more quickly if they determine the homeowner doesn’t qualify for a modification.

As a result, a homeowner might get a modification offer one day and a foreclosure notice the next. As of March, servicers were pursuing foreclosure on 1.8 million residences, according to LPS Applied Analytics.

Maggiano, the Treasury official, said that’s been confusing for homeowners. Some “just got discouraged and gave up.”

New rules issued by the Treasury in March say the servicer must first give the homeowner a shot at a modification before beginning the process that leads to foreclosure.

They also require the servicer to adopt new policies to prevent mishaps. For instance, the servicer will be required to provide a written certification to its attorney or trustee that the homeowner does not qualify for the federal program before the house can be sold.

Maggiano said the changes resulted from visits to the servicers’ offices last December that allowed Treasury officials to “much better understand (their) inner workings.”

The rules, however, don’t take effect until June. Nor do they apply to hundreds of thousands of homeowners seeking a modification for whom the process leading to foreclosure has already begun. And Treasury has yet to set any penalties for servicers who don’t follow the rules.

Maggiano said Treasury’s new rule struck a balance to help homeowners who were responsive to servicer communications to stay out of foreclosure while not introducing unnecessary delays for servicers. Some borrowers don’t respond at all to offers of help from the servicers until they’re faced with foreclosure, she said.

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States Differ

Some states, such as North Carolina, have recently gone further to delay moving toward foreclosure if a homeowner requests a modification. State regulators there passed a law that requires a servicer to halt the process if a homeowner requests a modification.

Pearce, the North Carolina official, said the rule was prompted by the delays homeowners have been facing and puts the burden on the servicers to expeditiously review the request. “They’re in total control.”

Stopping the process not only removes the possibility of a sudden foreclosure, he said, but also stops the accumulation of fees, which build up and can add thousands to the homeowner’s debt as the servicer moves toward foreclosure.

In California, state Sen. Mark Leno, a Democrat from San Francisco, is pushing a bill that would do something similar. The servicers “should be working a lot harder to keep homeowners in their home,” he said.


Original article: http://www.propublica.org/feature/disorganization-at-banks-causing-mistaken-foreclosures-050410


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18 Responses

  1. Banks lose lobbying effort over debit-card fees

    According to the NYT, the US Senate just backed large and small retailers seeking caps in banking overhaul bill.


    Disorganized …. indeed.



  2. On Covering the Bank Investigations: A Cautionary Tale
    [By Stephen Engelberg, ProPublica – May 13, 2010 12:27 pm EDT]

    The story of the banks that created investments and then bet against them has reached a particularly unedifying stage.

    Every day seems to bring another [1] headline [2] about a bank or hedge fund that is “under investigation” by one authority or another. Such stories can be built around a wispy fact or two. They typically feature indignant denials and lots of caveats, and are often sourced to the always-revealing “people familiar with the case.” (For a run-down of the stories, see our just-published Bank Investigations Cheat Sheet [3].)
    To be fair, this is honest journalistic labor. I’ve done it as a reporter in Washington, and we’re doing a bit of it ourselves right now on several stories, from Wall Street [4] to New Orleans [5]. Without doubt, there are moments when the mere fact that there is an investigation is worth noting, particularly if the principal figure is a leading financial institution or a public official.

    But we should all be aware that this work is particularly subject to pitfalls. Stories about investigations often leave the impression that authorities are running full tilt at malefactors. And they often fail to answer basic questions. Are these investigations fishing expeditions? Pro forma reviews? The first steps toward significant charges?

    There are good reasons for the lack of clarity. First, the investigators themselves don’t always know where they’re going. Investigators also have little reason to telegraph what they’re doing to journalists, and they’re usually tight-lipped in the early phases of their inquiries. (Occasionally, prosecutors do provide information to the press in hopes of rattling their targets or pressuring people to cooperate. That’s more the exception than the rule.)

    Usually, reporters are left interviewing the witnesses, their lawyers and their various associates, from business partners to significant others. If a federal official asks someone on Wall Street pointed questions about a particular investment put together by a big bank, then a reporter might write a story saying officials have begun an investigation. Procedurally, such inquiries begin as “preliminary” investigations. This could ultimately lead to an actual investigation that could eventually result in criminal charges. Or not.

    Over time, such stories have had a mixed track record. Some ultimately explode into significant cases, such as the insider trading scandal that erupted recently on Wall Street. Others fizzle.

    One case I covered in the 1980s involved Raymond Donovan, labor secretary under President Ronald Reagan, and an executive at a New Jersey construction company. Donovan was “under investigation” from the beginning of his term and was eventually indicted. At trial, however, he was acquitted, prompting him to ask this famous question [6]: “Which office do I go to to get my reputation back?”

    All this might make one wonder why reporters would risk writing stories about investigations that barely exist or about which they have the most rudimentary understanding.
    The answer, which has existed through centuries of journalistic history, is competition. When I was at The New York Times, a friend on a rival newspaper said he felt a daily imperative to put the shards of information he was learning into print or else see them in competitors’ stories. It was, he said, a matter of “Write it or read it.”

    With anyone now able to publish at any time, those pressures have only intensified for all of us.

    Investigative reporting broadly divides into two categories. We prefer to do original stories in which we research by gathering documents and exclusive interviews. Our hope is that such work will prompt investigators to take a closer look at issues like police shootings in New Orleans.

    But sometimes “investigating the investigators” can be worthwhile, pitfalls and all. An indictment or a reported inquiry certainly can launch a vein of original reporting. I once initiated a wide-ranging and revealing examination of former New Jersey Senator Robert Torricelli [7] because prosecutors brought charges against an obscure campaign contributor.

    But stories that result from investigating the investigators can leave readers without the full picture. My advice: When the journalistic scrum forms around an investigation, read very carefully and withhold final judgments.

    Stephen Engelberg


  3. Banks and Cyber-Theft

    For small and medium-sized businesses [like medical offices], the message here is clear? You will not be able to blame your bank if you are victimized. Security is your responsibility.

    Sadly, this message may fall on deaf ears at many companies. They would be wise to recall that unlike consumer accounts, there is no law that requires banks to make them whole on stolen money from accounts.




  4. Nevada Wallops Bank of America With Sweeping Suit; Nationwide Foreclosure Settlement in Peril

    By vastly expanding its suit against Bank of America to include all major stages of the bank’s mortgage practices, Nevada signals that the banks’ mortgage troubles will likely continue to dog them.


    Bank of America Gets Buffetted

    Last week, Warren Buffett purchased $5 billion worth of Bank of America preferred stock in what was hailed a “vote of confidence.” Experts worry, however, that Buffett’s investment may erode confidence not just in Bank of America, but the banking sector as a whole.




  5. Fed to Sue Banks?

    Charles – The federal agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation.




  6. Cross-selling a dud so far for financial advisers and banks

    Rewards are not great enough to persuade wealth managers to sell investment products to retail banking customers.




  7. Moody’s cuts Bank Ratings
    [Three of the top U.S. banks are likely to start paying more to borrow money]

    Moody’s Investors Service just lowered its debt ratings for Bank of America, Wells Fargo and Citigroup. The ratings agency said it has become less likely that the U.S. government would step in and prevent the three lenders from failing in a crisis.


    All I can say is – it’s about time!


  8. Investment Bank Fees Down

    We’ve been discussing commercial bank fees ad nauseam recently and speculating about how the big consumer banks would make up for a variety of lost fees. But, consumer banks are hardly the only ones suffering a fee drought.

    In many ways, investment banks have been hit just as hard. Bloomberg cites data from Freeman & Co. that puts it in stark perspective. The data notes that the:

    “global investment banking fee pool, which comprises payments to banks for mergers and acquisitions advice, loans and underwriting debt and equity sales, may post the worst quarter since 2004 and stood at $78.6 billion year-to-date as of December 19th.”




  9. Big banks go after 401k trillions

    On the prowl to replace lost income, banks are seeking a bigger slice of the growing, $2.9 trillion 401k pie.


    Buyer beware!



  10. $104 Million Whistleblower Award

    Former UBS banker Bradley Birkenfeld disclosed to the IRS the existence of large numbers of U.S. taxpayers who maintained Swiss bank accounts and were failing to pay income tax on the earnings. The disclosures lead to a substantial income tax recovery by the IRS. Following the disclosure, Birkenfeld served two and one-half years in federal prison for enabling a U.S. billionaire to avoid taxes. He currently is under house arrest.

    On September 11 the IRS published a summary statement and granted Mr. Birkenfeld an award of $104 million. Under the “whistleblower statute” in Sec. 7623(b), an individual who reports tax evasion to the IRS may receive an award of 15% to 30% of the tax recovery.

    The National Whistleblower Center (NWC) issued a press release and discussed the award. Birkenfeld’s attorneys Steven M. Kohn and Dean A. Zerbe jointly stated, “The IRS today sent 104 million messages to whistleblowers around the world – that there is now a safe and secure way to report tax fraud and that the IRS is now paying awards. The IRS sent 104 million messages to banks around the world – stop enabling tax cheats or you will get caught.”

    The Whistleblower Center summarized five different results of the action by Birkenfeld:

    1. UBS Fine – The UBS Bank paid $780 million to the IRS.
    2. Amnesty Programs – The IRS offered amnesty with payments of taxes and interest to citizens with overseas accounts. Over 35,000 U.S. taxpayers entered the program.
    3. Back Taxes – As a result of the amnesty program, the IRS collected approximately $5 billion in back taxes.
    4. Swiss Government – An updated tax treaty that permits greater dissemination of information from Swiss banks has been approved.
    5. Taxpayers – Approximately 4,900 taxpayers with offshore accounts have been disclosed to the IRS. Many Tax Court cases are now in process.

    The whistleblower statue was sponsored by Sen. Charles Grassley (R-IA). He stated, “This case provides evidence about how the whistleblower program can be effective because the IRS is saying its work against this kind of tax fraud would not have been possible without the whistleblower. The potential for this program is tremendous, and it’s up to the IRS to continue paying rewards and demonstrating to whistleblowers that the process will work and that they will be heard and protected.”

    Source: Children’s Home Society of Florida Foundation


  11. Ally Hacked

    Ally Financial [GM] became the latest U.S. financial institution to face cyber attacks that may stem from hackers in Iran.


    Bank of America, Wells Fargo and other banks in recent weeks have suffered so-called denial-of-service attacks in which hackers use a high volume of incoming traffic to delay or disrupt customer websites.



  12. What Obama’s Victory Means for Banks

    Despite President Obama’s victory, the Democrats’ financial policy agenda over the next two years will be far more about defending their past achievements than scoring new ones.




  13. On internet banking

    I don’t often share links to videos, but if one is concerned about privacy, this experiment in Brussels, Belgium is simply frightening.

    Darrell K. Pruitt DDS


  14. Bank of America to pay Freddie Mac $404 million in mortgage settlement

    Bank of America Corp will pay $404 million to Freddie Mac to resolve all repurchase liabilities on home loans sold to the government-controlled mortgage company from 2000 to 2009.


    How about that?




  15. Global Banks Plead Guilty

    Authorities just fined five of the world’s largest banks, including JPMorgan Chase & Co (JPM.N) and Citigroup inc (C.N), roughly $5.7 billion (4 billion pounds), and four of them agreed to plead guilty to U.S. criminal charges over manipulation of foreign exchange rates, according to the U.S. Department of Justice.





    Fraudulent bank accounts, bogus credit cards, compromised customer data and, now, unwanted car insurance.


    Wells Fargo & Co., it seems, just can’t stay out of trouble.



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