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You may know by now that American Banker has uncovered the 27-page term sheet that could form part of a global settlement between state and federal regulators and mortgage servicers. The term sheet describes a host of actions to which the servicers would have to conform, most of which reflect current law with a couple that go a little bit further.
I’m a slight bit late to discussing this term sheet, so I’ll refer you to some other worthy commentators and analysts for the details. Cheyenne Hopkins at American Banker has a nice synopsis of the terms, as does HuffPo’s Shahien Nasiripour. Georgetown Law Professor Adam Levitin finds the terms to be strong, while Felix Salmon finds any settlement of this type to be doomed, mainly because of the lack of strong enforcement for non-compliance.
Here’s what I can add to this. This morning, there just so happens to be a field hearing of the House Oversight Committee in Baltimore. In fact, it just started at 9am ET. Rep. Elijah Cummings, who represents the area, called the hearing, which will feature the mayor of Baltimore and the Governor of Maryland, among others, to examine the foreclosure crisis and the abuse carried out by mortgage servicers. I got a chance to talk with the star witness yesterday.
His name is Sgt. Kevin Matthews, and he served in Iraq in 2005-2006. He was wounded in the line of duty and returned to the US a disabled veteran. He bought his home in 2008 and then lost his job a year later. He exhausted all of his funds to keep up with the mortgage payments, but eventually went into default. In the second half of 2009 he sought a variety of modification packages with his mortgage servicer, USAA (GMAC Mortgage actually serviced the loan, but Matthews interfaced with USAA). “I basically got the runaround,” Matthews said.
In February of 2010, Matthews received the notice of intent to foreclose within 45 days, but by then he had been approved for disability from his injuries. He had a local housing agency put in for a modification for him, reflecting this new information, in April 2010.
The crucial piece of information here is that Matthews had a VA loan. “With a VA loan, foreclosure is supposed to be the last option,” Matthews explained. “By contract, they cannot foreclose until all options are exhausted: a modification, deed-in-lieu, or a short sale.”
But instead of reacting to the new information in the modification package received in April 2010, Matthews’ servicer simply ignored it, and made good on the foreclosure sale on May 21, 2010. Under the law governing federally-funded VA loans, the servicer was to rescind that sale date as they pursued a modification. “They got the package but never pushed back the sale date,” Matthews said.
Here’s where the story takes quite a turn. Matthews was away at school on June 8, 2010, and he returned home to find the locks changed on his house. The servicer had gone into the house and taken all of his belongings out, in preparation for the foreclosure sale. This violated Maryland law, because the servicer needed to file a writ of possession to remove Matthews from the home. “They stole my stuff, stole my kid’s stuff,” Matthews said. “They took everything in the house. They took my lawn mower.”
As it turned out, Matthews had a very unique situation. His legal defense, the Baltimore-based non-profit Civil Justice, discovered that his foreclosure affidavit was signed by none other than Jeffrey Stephan, GMAC’s infamous robo-signer. After months in court, GMAC dismissed the case against Matthews and rescinded the foreclosure sale. GMAC has the ability to re-file the case, but has yet to do so thus far.
Matthews has returned to the home, where he’s still trying to obtain a permanent loan modification. He’s also still trying to get his possessions back. His lawyer, Anthony DePastina, called the phone number made available to inquire about his belongings, but nobody ever answered. The servicer, in ransacking the house, also damaged it. They broke the hot water heater and cracked a drain pipe. They stuck Matthews with all the water bills, and he also wound up with a citation for overgrown weeds on the property. “In Maryland, if a citation is not remedied, it becomes a misdemeanor,” Matthews explained. “But how can I cut the grass, they stole my lawn mower!”
Now, why do I bring up this particular servicer horror story? Mainly because this was a VA loan. And therefore, a great many of the elements of the settlement term sheet are similar to how the servicer is required to deal with a VA loan. The VA Home Loan Program spells out specifically how their products are to be treated. And still, in this case, the servicer violated the guidelines. Not only that, but they stole everything in the borrowers’ home to boot. Additionally, in this case the legal system actually worked. Matthews got his home back because of faulty affidavits. But that has not helped him get back everything he owned.
The main point is this: you can make all the guidelines you want, and basically, the 27-page term sheet has most of them. You can demand a single point of contact for borrowers, an end to the dual track process of the servicer pursuing modifications and foreclosures simultaneously, specific mandates for modifications and all the rest. You can even set stricter guidelines for dealing with military families. All of those are in the term sheet, and many of those kinds of guidelines are in the VA Home Loan that Sgt. Kevin Matthews received. It didn’t matter. Neither did all the promises servicers have made to reform their systems going back to 2003. Servicers pretty much don’t follow the law. That’s why they were under investigation. A document that tells them to comply with the law, in language the banks are already using, doesn’t seem like it’ll make much of a difference.
Two more things. Without rigorous enforcement, the guidelines are approximately meaningless. State AGs and the Consumer Financial Protection Bureau would serve as the enforcement monitors under the terms of the agreement. And CFPB adds a new wrinkle to this. However, if servicers have been abusing their customers for this long, and the term sheet mostly reinforces the same laws that they broke all this time (with a couple additional strictures), who’s to say that they won’t simply treat the Kevin Matthewses of the world the same way again?
The final issue is this. The term sheet sets the basic standards for conduct in the servicing industry that servicers should have followed all along. But this is supposed to be a sanction, for violations of law. So now the penalty for failing to follow the law is having to sign an agreement saying you’ll really follow the law this time? We don’t know what monetary penalties or quotas for principal mods will come along with this yet. But we do know this. Kevin Matthews had all his possessions stolen from him, and nobody under this agreement will go to jail for that theft.
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“We’re going to put people in jail !”
Tom Miller
oh, and they safely tabled MERS “reserved for further discussion” doncha know
very much appreciate your take David Dayen – but have been reading responses from americans who suffered in this tragedy – a monumental disappointment across the board
per Nasiripour at HuffPo:
The proposed checklist of changes, the result of federal and state probes into big banks’ foreclosure practices, tries to fix that. The Departments of Justice, Treasury, and Housing and Urban Development support the proposal. So do the Federal Trade Commission and the nascent Bureau of Consumer Financial Protection
I think there is much more to these settlement terms than you wrote about. You definitely should write another article about the Constitutional implications of the 27-page “Settlement Terms.”
I say this because, regardless of whether there is any “agreement” in the
future with the servicers, the document itself reveals the policy toward housing of both the United States Government and the States. I think that if you examine the terms you will see that it concedes what has long been sought by housing advocates: a right to housing.
In particular, the United States has long maintained (Geithner just restated it the other day) that there is no RIGHT to a mortgage modification. There is a reason the government keeps taking this line, even though it has seemed that it is encouraging mortgage modifications.
It has to do with the Constitution. Housing enjoys only “minimum scrutiny” under Lindsey v. Normet. That is, there are virtually no individually enforceable rights in housing, and the political system has nearly absolute control over housing. Housing policy need only be “rationally related to a legitimate government purpose.” One of the reasons the Court did not grant housing a higher level of scrutiny in that case was its concern over the idea “that the Constitution expressly protects against confiscation of private property or the income therefrom.” Mandated reductions of mortgage principal
are exactly that.
The concern of the political system is that if a higher level of scrutiny is granted for housing–if housing is granted, for example, intermediate scrutiny, which says that an eviction would have to “substantially advance an important government purpose”–then virtually all power over housing (i.e., the money related to it) would leave the political system and be placed in the hands of individuals according to court-mandated standards.
However, it has become increasingly clear that U.S. ownership interests in
financial institutions mean that these institutions are acting as the government in HAMP modifications. Thus, the HAMP procedures are actually requirements under the Due Process Clause of the Fifth Amendment. Under the servicing agreements between the servicers and financial institutions/the U.S., there is a third party beneficiary Federal Common Law right to a HAMP modification. (See in particular, the Judge’s reasoning in the Southern District of California Marques v. Wells Fargo case.)
The U.S. has fought a losing battle stating that HAMP does not create a housing right, even though a spate of poorly/casually reasoned cases seem to suggest otherwise–and by the way this is a right to a HAMP modification which in FACT reduces the risk of housing loss, not necessarily the government’s 31% debt to income level.
Of course, what the U.S. has feared is that any increased right in housing for homeowners will be instantly extended to renters under equal protection. But now we see by the “Terms” (generated by, among others, the Department of Justice), that the Government DOES believe housing enjoys a higher level of scrutiny, and that there is indeed an individually enforceable right to housing.
Look through the document to see how often the word “shall” is used. And it is used to require modifications. Also, notice that the new “review” process must be by an “independent” entity. This means quasi-judicial (and soon to be official judicial) review in order to see that the right is enforced.
So really, the “Terms” are the surrender of the United States and the States to the proposition that HAMP creates an individually enforceable right to housing.
That is the importance of the “Terms” and you should let your readers know that.
Cheers,
John Ryskamp
All this 27 page document does is reaffirm that there is no one who is going to fight for the rights of the average person. Despite all their high-sounding talk, all the politician AGs have no real enthusiasm for putting their own campaign contributors in jail. Same with the politicos in DC.
Face it: short of rebellion, we’re fucked. Absolutely, completely, irredeemably, fucked.
As you said, the terms of this that are in the public interest are meaningless if they’re not enforced.
But the point of this exercise is not to protect the public at all, but to give the banks a get-out-of-PMITA-prison-free card for their crimes.
It’s just like the Congressional approval of the FISA crimes.
Salmon finds any settlement of this type to be doomed, mainly because of the lack of strong enforcement for non-compliance.
This sentence says it all with congreecritters and wh serving the masters of ws little people like this and millions of others are doomed. If you’re under water stop the payments and save all the money you can until they throw you out. No One is Going to Jail any time soon except you and I if we protest.
Servicers — hell, all financial industry players — would behave better if examples were made of a few. This lawnmowerless fellow’s evildoers sound like a great place to start.
Jail a few miscreants; it will vastly improve the behavior of those left free.
Idle curiosity: how do you do the long dash?
Shouldn’t the guy fill out a police report about his stuff, at least?
I agree, with the stipulation that the miscreants serve their time in a medium security prison. Let them serve time with other career felons.
thanks for the thoughtful and thought provoking post –
but as others have noted – regulation enforcement is key, There are reasonable judges out there (my daughter has beaten BofA in court – but its pro-bono and folks that can’t get pro-bono must pay a lawyer – and even pro-bono requires the lawyer to foot the $200 filing fee and hope to get that fee back from the ruling), but you can’t really change the system on a case by case basis as if you try the Bank will just write it off as a cost of doing business.
During the early years of the Reagan war on unions and womens workers, he put in charge of the EEOC one Clarence Thomas – and Thomas’s faithful non-enforcement of all EEOC regulations got him a black robe and seat on the US Supreme Court.
Given the con-job Obama has shown himself to be, it would take a change of heart (due to the 2012 election?) for Obama to actually set up ongoing funded enforcement – although I expect more speeches “from the heart”.