I could hardly keep up with all the reports on housing that came out over the past 24 hours. So let me try to summarize a couple:
• A recently unsealed lawsuit shows that banks cheated military veterans by illegally adding attorney’s fees to their refinancing loans. Illegal fee additions have a rich history, especially in the bubble years, but this particular fee was explicitly banned by Congress. I thought we knew about all the ways that lenders screwed veterans, but here’s one more. Incidentally, the Justice Department didn’t join this lawsuit; it was put forward by a group of whistleblowers inside mortgage lending companies. They want $5,500 to $11,000 in damages per incident for violations of the False Claims Act. So the Justice Department is ignoring these allegations of criminal violations.
• Paul Kiel’s reporting for Pro Publica on HAMP shows a program without oversight. We knew that for over two years, no servicer was ever sanctioned for violating program guidelines. Apparently that was because the guidelines were never checked:
Documents obtained by ProPublica — government audit reports of GMAC, the country’s fifth-largest mortgage servicer — provide the first detailed look at the program’s oversight. They show that the company operated with almost no oversight for the program’s first eight months. When auditors did finally conduct a major review more than a year into the program, they found that GMAC had seriously mishandled many loan modifications — miscalculating homeowner income in more than 80 percent of audited cases, for example. Yet, GMAC suffered no penalty. GMAC itself said it hasn’t reversed a single foreclosure as a result of a government audit.
The documents also reveal that government auditors signed off on GMAC loan-modification denials that appear to violate the program’s own rules, calling into question the rigor and competence of the reviews.
Some of the auditors’ mistakes are “appalling,” said Diane Thompson of the National Consumer Law Center, an advocacy group. “It suggests the government isn’t taking the auditing process seriously.”
It’s true that HAMP was by design a voluntary program for the banks. But like any contract, if the voluntary party violates the contract, they are not entitled to the incentive payments under the contract. And to ensure compliance, you kind of have to check on what the servicers are doing. Treasury said for years that they could not penalize the banks because they wouldn’t participate in the program. Then a few months ago they started withholding payments to some banks for non-compliance. This is something they could have done from the outset, despite their protestations, and as Kiel shows, that would have been impossible in the early days, because they simply didn’t do any checking.
There is a chance that Nevada will pick up where Treasury failed, looking back at the program and finding clear bank fraud against homeowners in the violation of program guidelines, and suing the banks over that. That’s what’s at the heart of Nevada AG Catherine Cortez Masto’s lawsuit against Bank of America.
The third big story again concerned non-existent federal oversight, but I’ll save it for an additional post. Let me just add that foreclosures make you sick.