DOJ Probing Mortgage Data Processing Firms

DOJ Probing Mortgage Data Processing Firms

By Peg Brickley
Of DOW JONES DAILY BANKRUPTCY REVIEW

The Department of Justice is conducting a nationwide probe of the company whose automated systems handle half the mortgages in the U.S., looking for evidence Lender Processing Services Inc. (LPS) has “improperly directed” the actions of lawyers in bankruptcy court.

The Jacksonville, Fla., company was spun out last year from Fidelity National Information Services Inc. (FIS), a financial technology giant that is also under scrutiny for its role in court actions, according to documents filed with the U.S. Bankruptcy Court in Philadelphia.

Although the companies say they are providers of electronic information services, the U.S. trustee believes LPS and Fidelity play a “much greater” role in court actions where thousands of homes are at risk of foreclosure, according to Bankruptcy Judge Diane Weiss Sigmund.

“The thoughtless mechanical employment of computer-driven models and communications to inexpensively traverse the path to foreclosure offends the integrity of our American bankruptcy system,” Sigmund wrote in a decision released Wednesday, April 15.

A spokeswoman for Fidelity did not respond to requests seeking comment on the investigation by the Office of the U.S. Trustee, an arm of the Department of Justice whose mission includes safeguarding the integrity of the bankruptcy courts.

Michelle Kersch, a spokeswoman for LPS, said the U.S. trustee has “advised outside counsel for LPS that it is seeking to better understand LPS’ role.” In an e-mail, Kersch pointed out that the judge held the lawyers, not LPS, responsible for the problems in the case before her.

The probe of the mortgage technology operation surfaced in a Philadelphia case after Sigmund started asking questions about the source of false court filings that came from HSBC Mortgage Corp. In pursuit of homeowners Niles and Angela Taylor, HSBC filed the wrong mortgage, gave incorrect payment amounts and claimed the Taylors had missed monthly payments. This “was simply not true,” Sigmund wrote in a 58-page decision.

Pressed to produce a loan history for the Taylors, HSBC’s lawyer confessed the system simply wouldn’t give it to him.

HSBC, it turns out, had handed off servicing of the troubled loan to Fidelity, which spun out LPS last year. The processes the company uses to crank out court documents for fast, cheap foreclosures were the culprit, the judge found.

By forcing lawyers to talk to computers rather than to their clients – the lenders – LPS makes it hard for lawyers to do right by the court and discharge their ethical obligations, Sigmund said.

Lawyers at one level spot-check a fraction of the documents that are on their way to foreclosure actions, Sigmund found. But the business is built for profitability rather than reliability, and counts on “lower-cost labor,” according to the judge.

Although LPS’s system “has many features that make a volume business process more efficient, the users may not abandon their responsibility for fairness and accuracy to the seduction of electronic communication,” Sigmund wrote.

She faulted HSBC and some of the lawyers involved in the case for having “sacrificed accuracy and fairness to efficiency and cost-savings,” by relying on LPS’s systems.

Fidelity, later LPS, is the electronic powerhouse behind the foreclosures rolling through much of the country, taking in data and spitting out loan-default notices for 16 of the 20 largest mortgage-loan servicers in the nation. Banks like HSBC and mortgage servicers outsource the handling of their troubled loans to LPS’s default management services business.

Business is booming in the loan default unit, LPS’s financial reports say, with revenue up 68.3% for the fourth quarter of 2008, compared with the same period a year earlier.

Consumer advocates have long complained that Fidelity and LPS are much more than electronic data providers. The companies say which lawyers get the lucrative business of foreclosing on troubled homeowners. Those who move the fastest are rewarded, said O. Max Gardner III, a consumer bankruptcy attorney. Those who pause to ask questions or to investigate whether a loan should be foreclosed, don’t last as LPS network attorneys, Gardner said.

“The Fidelity-LPS system represents a complete outsourcing of the foreclosure and bankruptcy process to a third-party, Fidelity-LPS, who then manages the entire legal process,” Gardner said in an e-mail Thursday, April 16.

Sigmund’s opinion revealed that the Department of Justice is looking at Fidelity, LPS and the law firm that handles HSBC Mortgage Corp.’s troubled loan business nationwide, Moss Codilis LLP.

Moss Codilis did not reply to an e-mail seeking comment on the investigation, which involves a number of bankruptcy cases, according to Philadelphia court documents.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-By Peg Brickley, Dow Jones Daily Bankruptcy Review; 302-521-2266; peg.brickley@dowjones.com

Pretender Lenders Try to Get Third Parties to Clear Up Title, Assignments

Editor’s Note: Nationwide (described in the article below) is not the only company that is in the business of trying to “clear up” the title, assignment and, ownership and recording problems caused by the manner in which the loans were securitized. In many cases we are seeing fabricated documents, signatures from unauthorized people, notarization in a place where the signatory was clearly not present and false dating. Which goes back to my basic strategy: CHALLENGE EVERYTHING, IT IS GENERALLY ALL A LIE. THAT IS WHY WE CALL THIS LIVINGLIES. Just because they are big doesn’t mean they are right or even honest. Chances are, even if you have served time for bank robbery, you are more honest than the people put this scam over on the American borrowers and foreign investors.

Just think about it. Who is signing this new documentation? Most of the originating lenders are dead and buried. How can someone claim to be a VP of a dead company? And even if that signature was authorized, so what? The loan belongs to some group of investors or some insurance company that bailed out the investors, or the counterparty to a credit default swap, or the U.S. Treasury who paid $600 billion so far for “Troubled Assets” or the Federal reserve which has extended credit taking the “troubled assets” as collateral. This isn’t complicated from the borrower’s point of view. The borrower has a right to know the identity of the true lender as of the current time whether his loan is in default, foreclosure or already has been foreclosed.

AND the borrower has a right to know if someone has paid off the obligation and if there is some new obligation or new contract caused by the various permutations of pooling, insuring, cross collateralizing, bailouts etc. If there is an obligation who is the obligor? Whop is the obligee? What is the current amount of the obligation? What are the terms? In simple terms, who owns this mortgage (if anyone) who owns the note (if anyone) who do I pay my monthly payment to? Am I at risk of making payment to some company just because they said so, and then receiving a claim from several other companies having the original paperwork on the same loan, the same note, the same mortgage, and the same property?

Tampa Bay companies help lenders transfer home loans, foreclose

By Susan Taylor Martin, St. Petersburg Times Senior Correspondent
In Print: Sunday, May 3, 2009

Despite the turmoil in the lending industry, Bryan Bly seems to have no trouble finding a job.
On Aug. 3, 2007, Bly signed a document as vice president of Option One Mortgage.
On Feb. 13, 2009, Bly signed a document as vice president of Deutsche Bank.
And on Feb. 18, 2009, Bly initialed dozens of documents — this time as vice president of Citi Residential Lending.
In fact, Bly never worked for any of those. His real employer is Nationwide Title Clearing, a Pinellas County company that helps lenders clean up problems that can complicate efforts to foreclose.
Bly, who lives in a Clearwater trailer park, is one of several Nationwide employees authorized by lenders to sign as “vice president” in assigning loans from one company to another. Assignments are key in determining who actually owns the loan, an issue that has become all-important as banks foreclose on millions of loans that were bundled into securities and sold to investors.
Nationwide says the assignments and other services it handles for lenders help ensure everything is legal and above board if they sell a loan or need to foreclose.
“We’re pretty much sticklers that what we put in the record is legitimate,” says Jeremy Pomerantz, a Nationwide spokesman.
Critics, though, say that Bryan Bly and “vice presidents” like him at similar companies are part of an assembly-line process designed to resolve a big problem: In the rush to “flip” loans as fast as possible in order to make more money, the new loan holders often failed to get the proper paperwork showing they owned the loan and had the right to foreclose.
“The problem is that when lenders foreclose, they have to have all their ducks in a row,” says Rob Napolitano, a New Jersey mortgage expert. “They’re trying to doctor up these assignments in order to create an ownership trail that didn’t exist in the first place.”
Signatures challenged
At a time when one in every 159 American homes is in foreclosure, the seemingly slapdash way in which loans change hands is giving homeowners a tool to delay or even stop the foreclosure process. More and more judges are demanding that the party seeking to foreclose prove that it owns the loan “note” — the borrower’s promise to repay the debt.
In New York, a judge dismissed Deutsche Bank’s motion to foreclose on a $408,000 loan last year because it had started foreclosure proceedings while the loan was still owned by IndyMac Bank.
The judge said he wouldn’t reconsider the case unless Deutsche explained why one woman — Erica Johnson-Seck — had signed as vice president of two different companies. The judge also said he was “perplexed” as to why both Deutsche and IndyMac had the same address, and why an affidavit by Johnson-Seck, who supposedly worked in California, was notarized in Texas.
In New Jersey, another foreclosure case was thrown out after the “vice president” for Deutsche Bank acknowledged she was only an assistant secretary. “She said she was told to fill out the paperwork however it needed to be done in order to make the document look valid,” Napolitano said.
To help homeowners protect themselves from questionable, even illegal foreclosures, Tampa attorney Chris Hoyer started the Consumer Warning Network last year. The Web site, which now gets as many as 80,000 hits a day, gives tips on challenging foreclosures — “Make ‘em produce the note!” — and sample letters for contacting lenders.
“The intent is not to get someone a free house, but to delay the foreclosure and put pressure on the lender to negotiate,” said Hoyer, a former federal prosecutor.
Among those who have been helped by the site is Thomas Worthington, who lost his information technology job in November. Although he has yet to miss a payment on his Sarasota home, he decided in February to try to modify his loan terms.
That’s when Worthington learned that the right to collect his payments had been sold to American Home Mortgage Servicing, AHMS. But public records showed that the loan itself had been assigned to Deutsche Bank on a document signed by Crystal Moore, a vice president of Citi Residential Lending.
“So I called AHMS and asked them who owned my mortgage,” Worthington said. “I got a service rep in India, and he said, ‘We own your mortgage.’ ”
Suspicious, Worthington sent the company a letter asking for the loan note, appraisal and other documents proving that it really did own his loan. The response he received might help him fight foreclosure if it ever comes to that.
“What I got back was a copy of the title report,” Worthington said, “which leads me to believe they have squat.”
Nationwide steps in
Worthington’s loan wasn’t the only one assigned to Deutsche Bank in February. Records in Pinellas, Pasco and Hillsborough counties show scores of assignments with Crystal Moore as vice president. Moore appears to have been in a big hurry — instead of signing her full name she scrawled a single loopy initial.
Like Bryan Bly, Moore is actually an employee of Nationwide Title Clearing. And the assignments she and Bly initialed in February were done under a contract with Citi Residential to make sure Deutsche Bank was shown as the owner of thousands of securitized loans.
Founded in 1992, Nationwide is a private company that occupies a swath of low, white buildings in Palm Harbor.
From 300 to 400 employees at the peak of the real estate boom, Nationwide now has about 115 who handle tax and title searches, lien releases and other services for dozens of lenders. It also updates information for MERS, the electronic mortgage tracking system created by the lending industry to reduce paperwork and recording fees as loans change hands.
To expedite transactions, Nationwide gets resolutions from lenders that authorize Bly, Moore and other employees of “proven reliability” to sign as their vice presidents, said Pomerantz, the Nationwide spokesman. On a big project like the Citi-to-Deutsche loan assignments, “they may sit there all day for a week and sign.”
“We follow every little requirement, far better than most banks do,” Pomerantz said, adding that “every one of our competitors uses the same methodology.”
But it is exactly that assembly-line process that makes critics wonder if “vice presidents” can be certain that what they are signing is accurate and legal.
“Papering over a hole doesn’t make the hole disappear,” Hoyer said. “Using this device to present an air of legitimacy is an affront to the judicial system and a stain on society.”

Now here’s a twist: TILA rescission on a loan that’s been paid in full

I’ve been getting quite a few questions lately about the Truth in Lending Act, or TILA. This is the federal law that, when a lender violates it, allows a borrower to cancel their loan, recover their attorney fees, and receive a loan balance reduction equal to all their loan payments and many of their closing costs.

TILA is a powerful tool for borrowers, especially those in foreclosure. Under TILA, one of the other penalties for a lender violation is that the lender’s security interest in the property becomes void. In California, a lender cannot foreclose if it lacks a valid security interest in the borrower’s property.

But what about all the homeowners who aren’t (yet) in financial trouble, or those who don’t want to deal with refinancing in the current lending environment? Can TILA do anything for those folks?

Maybe. For homeowners who refinanced or took out an equity loan within the last three years, and then paid off that loan, there may be a right to rescind the already-paid loan. And, because the borrower has already repaid the lender the entire principal balance, the lender ends up owing the borrower money.

Sounds too good to be true, right? Well, several federal courts, and California’s Second District Court of Appeals don’t think so. A line of cases dealing with the issue have held that:

• Neither TILA nor Reg. Z lists “refinancing” as an event that cuts off the rescission right. Congress stated specific ways that the extended rescission right goes away: expiration of three years from the transaction, the sale of the borrower’s property, or the transfer of the borrower’s ownership interest in the property (such as through a contract to sell the property, foreclosure, or in bankruptcy when the Trustee takes title to the assets of the Bankruptcy estate).
• TILA allows rescission of the entire loan transaction, and rescission embodies several borrower remedies, including the lender penalty of losing the right to collect interest on the loan. Specifically, Reg. Z states that a borrower “shall have the right to rescind the transaction.” This point refutes a contention of many lenders that a borrower cannot rescind a paid off loan because the lender’s security interest has already been released, because both the transaction and its rescission involve more than simply releasing a security interest.
• Preserving the rescission right despite a loan payoff protects consumers as intended under TILA. Congress enacted TILA to require lenders to make specific disclosures to borrowers regarding the true cost of credit. Under the law, the proper question is: did the lender provide proper disclosures? If the answer is no, then the borrower may have a rescission right. Allowing a lender to escape its disclosure obligations simply because a loan has already been paid would undermine the purpose of TILA. In the worst cases, a bad lender could escape TILA liability for defective disclosures by “churning” its borrowers into new loans, which is clearly not what Congress intended.

I’m not one to advocate rescinding a loan without careful consideration, even one that’s already been paid off. But for those California homeowners who are struggling or currently upside down in their homes, this could be the difference between losing a home or keeping it.

The Truth In Lending Act (TILA)

Purpose of the TILA and Regulation Z

The TILA is intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably. Before its enactment, consumers were faced with a bewildering array of credit terms and rates. It was difficult to compare loans because they were seldom presented in the same format. Now, all creditors must use the same credit terminology and expressions of rates. In addition to providing a uniform system for disclosures, the act:

• Protects consumers against inaccurate and unfair credit billing and credit card practices;
• Provides consumers with rescission rights;
• Provides for rate caps on certain dwelling-secured variable rate loans; and
• Imposes limits on home equity lines of credit and certain closed-end home mortgages.

TILA requires that:

• ARM Rate Calculations must be correct
• ARM Adjustment Disclosures must be correct
• APR (Annual Percentage Rate) Must be adequately disclosed

When interest rates change, especially when they rise, ARM adjustments become much more complicated and Indexes play into the picture. These economic forces can wreak disaster on improper disclosures. ARM program disclosures must be provided as soon as a customer asks about an ARM program

The most powerful individual remedy provided by TILA is rescission under § 1635(a). This section grants consumers a right of rescission in credit transactions in which a lien attaches to property used as the consumer’s principal dwelling, except for a purchase money loan. § 1602(w). Thus, home equity and home improvement loans are examples of transactions that can be rescinded.

If material TILA disclosures are not properly given, including notice of
the right of rescission, the rescission right is extended to three years
after consummation of the transaction.

TILA § 1635(b) sets forth a three-step rescission process. First, the debtor gives notice of rescission, the sufficiency of which sometimes is litigated. The effect of invoking rescission is that the debtor is relieved of liability for any finance or other charge, and the security interest becomes void. Second, the creditor must return any money paid or property given, including any down payment. Third, the debtor must tender any property received or the value of it. This third requirement means the debtor has an obligation to return the loan principal.

TILA § 1640(a) also provides for damage actions for violations of its requirements. A debtor may recover actual damages plus statutory damages from any creditor that violates TILA, not just a creditor subject to the rescission remedy.

Sources:

• Jean Braucher
• Comptroller’s Handbook
• Wikipedia