A federal judge in DC swiftly approved the foreclosure fraud settlement yesterday. Actually four of the consent orders with the five largest mortgage servicers were approved Wednesday, but we only learned publicly of the approval of all five settlements yesterday.
Some investor groups had talked about challenging the terms of the settlement, but this approval happened so quickly, and without even so much as a hearing, that they had no time to react. This is the very definition of a rubber stamp.
But the real news on this approval, dug out by Nick Timiraos, is this sentence: “Nothing from the consent judgment entered into court in the $25B foreclosure settlement may constitute ‘evidence against Defendant.'”
Now this was expected, and it was part of the document. The five servicers don’t have to “admit nor deny” wrongdoing as part of the settlement, an example of the total lack of accountability on display here. But it’s really stunning to see it in print that way. And here’s just an example of why this is so wrong.
Via Abigail Field, here’s a just-decided case against Wells Fargo on behalf of a private individual in a bankruptcy proceeding. The judge, particularly angry about the charges, awarded $317,000 to the borrower, and then ten times that, $3.17 million, in punitive damages. Here were just some of the findings in the case:
1. Wells Fargo applied payments first to fees and costs assessed on mortgage loans, then to outstanding principal, accrued interest, and escrowed costs. This application method was directly contrary to the terms of Jones’ note and mortgage, as well as, Wells Fargo’s standard form mortgages and notes. Those forms required the application of payments first to outstanding principal, accrued interest, and escrowed charges, then fees and costs. The improper application method resulted in an incorrect amortization of loans when fees or costs were assessed. The improper amortization resulted in the assessment of additional interest, default fees and costs against the loan. The evidence established the utilization of this application method for every mortgage loan in Wells Fargo’s portfolio.
2. Misapplication of payments received postpetition resulted in incorrect amortization of
Wells Fargo loans and threatened a debtor’s fresh start, as well as, discharge.
3. Application of postpetition payments to new, undisclosed postpetition fees or costs also
threatened a debtor’s fresh start and discharge.
OK, so cutting through the legalese, the judge finds systemic accounting violations of the terms of the mortgage contract, not just on this loan but every mortgage loan in Wells Fargo’s portfolio. In other words, absolutely every loan Wells Fargo services breaks the law, to the detriment of the borrower. If you apply payments to fees first, you can keep claiming late payments to principal or interest, and lard on more fees. This is textbook servicer abuse.
Moreover, the judge found that “There is nothing in the record supporting Wells Fargo’s assertion that it has corrected its past errors. There is nothing in the record to assure future compliance with the terms of notes, mortgages, confirmed plans or confirmation orders.” So they haven’t fixed these violations of the terms of the mortgage. That’s why the judge hit Wells with $3.2 million damages, despite overcharges of just $24,000. The judge called the conduct “willful and egregious,” practiced in thousands of cases, particularly criticizing the bank for dragging this out with five years of litigation. And the judge noted that Wells “steadfastly refused to audit its pleadings or proofs of claim for errors and has refused to voluntarily correct any errors that come to light except through threat of litigation.” This is the Pinto defense, the failure to fix problems in the hopes that they can limit the damage to those with the persistence and means to sue.
This is precisely the type of conduct that is being waived in the settlement. Servicer abuse is part of the settlement terms. From a judge, this borrower got $3.2 million. From the settlement? If she’s out of the home, $2,000. If she’s in the home, perhaps nothing if she’s not underwater.
More important, these systemic crimes are ongoing, as the judge in the Wells case expressed. The settlement did not stop the train rolling downhill of a broken and corrupt servicing sector. They did nothing but waive the ability to sue over it. And a federal judge just went ahead and rubber-stamped it.