The federal government has gone to great lengths to protect the less than 5 percent of borrowers who haven’t been making mortgage payments at the expense of mortgage investors and the other 95 percent of current and future borrowers who will end up subsidizing the delinquents. As if that weren’t enough to hurt investor demand, some individual states have gone to great lengths to delay or block lenders from enforcing their liens — and Ohio is the biggest culprit.
Many of the borrowers who face foreclosure haven’t made a single payment in more than a year.
Bank of America previously released statistics indicating that 80 percent of its borrowers who faced foreclosure had not made a payment in more than a year, while the average foreclosed loan was 560 days past due.
At Wells Fargo & Co., the average foreclosed loan as of September 2010 was 16 months past due.
In some cases, it’s a free ride that will ultimately been borne by the borrowers who struggle to keep their mortgages current because of the increased return that will be required by investors on non-agency loans once the expanded cost of loss mitigation is factored in.
The notion of mass modifications, which was the brainchild of outgoing Federal Deposit Insurance Chairman Sheila Bair, seems to shift the risk of declining home values to the lender versus the borrower who made the decision to buy the property. In addition, such a strategy does little to hold real estate agents and brokers, who are supposed to be the local experts that advise prospective homebuyers, accountable for putting buyers into bad investments.
The Obama administration’s Home Affordable Modification Program has generated nowhere near the as many as 5 million completed modifications initially estimated for the federal program. The administration blames mortgage servicers for the program’s poor showing, with fewer than 1 million HAMPs completed, but it might be more likely that investors and overwhelmed servicers never fully bought into the program.
Investors, who come in the form of portfolio lenders and owners of mortgage-backed securities, have to be questioning why they should make low-return investments — mortgage rates are barely above 4 percent before servicers get their cut — in a country where a creditor’s security has been less than secure lately.
Ohio is Worst
A review of state actions covered by MortgageDaily.com reveals that the worst state for mortgage investors is Ohio.
The assessment is based on a combination of legislative and other government actions taken in attempts to hinder recovery through the foreclosure process. It also factors in foreclosure cases lost by lenders and settlements between states and mortgage-related firms. The poor showing reflects how aggressively lenders are attacked — especially during stressful times.
There were $238 billion in mortgages outstanding in the Buckeye State as of the end of 2010, according to data tracked by CoreLogic — which says its data accounts for 85 percent of all U.S. mortgages outstanding.
Judges on Ohio transactions have been tossing out foreclosure cases and challenging documentation on the chain of title to the mortgages. More than 30 foreclosures filed by Deutsche Bank, Wells Fargo and others were dismissed in 2007, with the judge ruling that the paperwork filed with the court did not establish the history of the mortgages’ ownership.
Franklin County judges now require lawyers to verify that all of the documents in residential-foreclosure actions are valid.
In January 2008, the City of Cleveland sued several defendants including Ameriquest Mortgage Securities Inc., Chase Bank USA, N.A., and Citibank N.A. — alleging that they helped create the city’s foreclosure crisis by securitizing risky subprime loans.
Cuyahoga County Court of Common Pleas issued a policy on foreclosure affidavits, recommending that its judges issue an order requiring a lender who submitted a “robo-signed affidavit,” pre or post-judgment, to show cause why the case should not be dismissed without prejudice.
Last year, Ohio Attorney General Richard Cordray filed lawsuit in Lucas County Common Pleas Court hoping to obtain a preliminary and permanent injunction preventing GMAC Mortgage LLC from proceeding on any foreclosures or auctions in the state. Cordray has also sued HomEq Servicing.
Ohio Secretary of State Jennifer Brunner last year asked the federal government to investigate alleged notary abuse in thousands of cases.
In all, around 18 actions hindering asset recovery were tracked in Ohio since 2007.
California Worth Noting
The Golden State accounts for around $2 trillion in mortgages and nearly a quarter of all U.S. residential loans outstanding. So any actions there can have a greater impact than in other states.
California Attorney General Kamala D. Harris announced last month that LPS was subpoenaed over robo-signing allegations.
A year earlier, SB 1275, sponsored by state Sen. Mark Leno (D-San Francisco) and Senate President Pro Tem Darrell Steinberg (D-Sacramento) proposed to prohibit foreclosures while borrowers attempt to obtain loan modifications.
Another piece of Golden State legislation, Senate Bill 1178, was sponsored by state Sen. Ellen Corbett, D-San Leandro and sought to extend provisions of a California law first enacted in the 1930s that prevents lenders from going to court to obtain deficiency judgments against foreclosed borrowers.
The City of San Diego sued Washington Mutual in 2008 attempting to halt all foreclosures by the company, while it filed a complaint against Countrywide that same year alleging the company was liable for foreclosure problems in the city.
A total of six actions were tracked in California.
New York Too Big to Ignore
The Empire state has $414 billion in home loans in place. It landed on this list mostly because of court rulings against lenders.
New York Gov. David A. Paterson signed a law in late 2009 that requires 90-day pre-foreclosure notices and mandatory settlement conferences and enables tenants in foreclosed properties to stay in their properties for the longer of 90 days or the lease term.
The chief judge of the New York Court of Appeals announced last year the requirement that the attorney of record for a foreclosure plaintiff must file her own affirmation, while State Supreme Court Justice F. Dana Winslow dismissed or froze 20 percent of his cases last year due to evidence disputes.
In 2008, New York blocked LaSalle Bank from foreclosing on a borrower who committed mortgage fraud because of violations to the state’s predatory lending laws by the originating mortgage broker.
One case had a New York judge, upset with the conduct of a lender in an action foreclosing an underwater residential mortgage loan, ordering that the cancellation of the promissory note.
Massachusetts a Problem
Next on the list of worst states was Massachusetts. The state accounts for $328 billion of the nation’s collective real estate loan portfolio.
While some significant litigation has been making its way through courtrooms in the state, the government has been busy putting up roadblocks to asset recovery.
In South Essex, the register of deeds rejected foreclosures documents that were signed by DocX employees.
Massachusetts Attorney General Martha Coakley obtained a preliminary injunction against Fremont Investment and Loan in early 2008. Later that year Coakley extracted settlements from several mortgage lenders and servicers over a crooked foreclosure rescue attorney.
Coakley also obtained preliminary injunction against Option One Mortgage Corp. in 2008 prohibiting the former lender from initiating or advancing foreclosures on any of the 9,700 loans in the state that are considered presumptively unfair.
Massachusetts had a total of nine actions in the report.
In Maryland, where $297 billion in mortgages are outstanding, the state’s legislature put forth a bill that would mandate mediation before filing foreclosure.
Maryland Gov. Martin O’Malley Maryland’s governor and attorney general and a Baltimore congressman jointly called on mortgage companies to voluntarily halt foreclosures in the state until the firms could say for certain that they are following state law.
The Maryland Court of Appeals approved an emergency amendment to its foreclosure rules allowing courts to adopt procedures, including the appointment of special masters, to screen foreclosure lawsuit papers for deficiencies and demand that deficiencies be cured or compliance demonstrated within 30 days.
On a more local level, the City of Baltimore sued Wells Fargo alleging that predatory and discriminatory lending practices by the bank caused a disproportionately high foreclosure rate in Baltimore’s black areas.
Lenders Lose in Florida Courts
Several cases have been tracked in the Sunshine State where judges ruled against lenders in foreclosure actions. In addition, a Florida appeals court ruled in a case against U.S. Bank, N.A., that mortgage servicers cannot finalize a foreclosure without an original note.
The Supreme Court of Florida approved an amendment to the Florida Rule of Civil Procedure requiring the use of mediation and a new form Affidavit of Diligent Search and Inquiry.
U.S. Rep Alan Grayson’s (D-Fla.) asked for a suspension of all foreclosures being handled by three South Florida law firms under investigation by the attorney general.
Florida, where $741 billion in mortgages are outstanding, accounted for a total of 11 actions tracked in the review.
Rhode Island Small But Obstructive
Officials in Rhode Island, where only $40 billion in mortgages are outstanding, have been busy trying to hold up foreclosure sales.
A report last year indicated that lenders would be required to use third-party mediation before foreclosing on owner-occupied properties in Cranston and notify tenants in investor properties before foreclosing.
Before that, the state of Rhode Island passed legislation requiring a 45-day notice by lenders before starting foreclosure proceedings.
Three Other States Warrant Notice
Also in Illinois, which has $370 billion in mortgages outstanding, Cook County Sheriff Thomas J. Dart suspended all foreclosure evictions for a period.
Over in North Carolina, Gov. Bev Perdue signed a law that was expected to delay foreclosures up to 60 days. A state rule allowed delinquent borrowers only to ask for assistance from the mortgage company to halt foreclosure efforts at least temporarily.
In addition, the Guilford County Register of Deeds Jeff Thigpen said his office will no longer accept suspicious “robo-signed” documents that have been linked to foreclosure frauds.
Finally, in New Jersey, the state enacted emergency amendments to foreclosure rules aimed at imposing more rigorous standards on foreclosure plaintiffs.
Both Wells Fargo Bank, N.A., and Bank of America have lost rulings in two New Jersey foreclosure cases.