CROOK ALERT! FORECLOSURE FACTORY: Mortgage Lender and Servicer Vultures Are Cheating Borrowers in Foreclosures

Some of the same unethical mortgage lenders and servicers whose questionable and, in many cases, dishonest practices are now feasting on the misfortune of homeowners who are facing foreclosure and/or bankruptcy. The largest mortgage servicer, Countrywide, has been accused of losing or destroying $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007. The U.S. trustee said in court filings that even as Countrywide misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs and stated that "The integrity of the bankruptcy process is threatened when a single creditor dishonors its obligation to provide a truthful and accurate account of the funds it has received."

Mortgage loan servicers typically generate profit margins of about 20 percent. A borrower's default can present a servicer with an an opportunity for additional profit.

The amounts can be significant. Late fees accounted for 11.5 percent of servicing revenues in 2006 at Ocwen Financial, a big servicing company. At Countrywide, $285 million came from late fees last year, up 20 percent from 2005.

"We're talking about millions and millions of dollars that mortgage servicers are extracting from debtors that I think are totally illegal."

A class action lawsuit filed in Stptember in Federal District Court in Delaware accused the Mortgage Electronic Registration System (MERS), a home loan registration system owned by Fannie Mae, Countrywide Financial and other large lenders of overcharging borrowers for legal services in foreclosures....Although MERS pays a flat rate of $400 or $500 to its lawyers during a foreclosure, the legal fees it demands from borrowers are three or four times that....A spokeswoman for MERS declined to comment.

Although bankruptcy laws require documentation that a creditor has a claim on the property, 4 out of 10 claims in a foreclosure study by Katherine Porter of the University of Iowa did not attach such a promissory note. And one in six claims was not supported by the itemization of charges required by law.

Ms. Porter's study of 1,733 bankruptcy filings also showed that some creditors ask for fees, like tax charges and payoff fees that would probably be considered "unreasonable" by the courts.

In 96 percent of the claims Ms. Porter studied, the borrower and the lender disagreed on the amount of the mortgage debt. In 70 percent of the claims the creditors asserted that the debt woed was greater than the amounts specified by borrowers.

The median difference between the amounts the creditor and the borrower submitted was $1366; the average was $3533 or more than $6 million than the loan debts listed by borrowers. [Steal a few dollars from a lot of people and it adds up!]

In April, Elizabeth W. Magner, a federal bankruptcy judge in Louisiana, ruled that Wells Fargo overcharged Michael Jones in bankruptcy $24,450.65 more than he actually owed. The court attributed some of that amount to arithmetic errors but found that Wells Fargo had improperly added charges, including $6741.67 in commissions to the sheriff's office that were not owed, almost $13,000 in additional interest and fees for 16 unnecessary inspections of the borrower's property in the 29 months the case was pending.

"INCREDIBLY, WELLS FARGO ALSO ARGUES THT IT WAS DEBTOR'S BURDEN TO VERIFY THAT ITS ACCOUNTING WAS CORRECT," the judge wrote, "EVEN THOUGH WELLS FARGO FAILED TO DISCLOSE THE DETAILS OF THAT ACCOUNTING UNTIL IT WAS SUED."

In Texas, A United States trustee has asked for sanctions against Barrett Burke Wilson Castle Daffin & Frappier, a Houston law firm that sues borrowers on behalf of lenders, for providing innacurate information to the court about mortgage payments made by homeowners who sought refuge in Chapter 13.

The above was excerpted from another excellent article in the NYT 11-6-07 by financial writer, Gretchen Morgenson who deserves another Pulitzer for exposing the conflicts, dishonesty and downright corruption in our banking and financial system. Her article is linked below along with a previous Hub on the mortgage servicing racket.

[NOTE: Those of you who may be inclined to jump to the conclusion that Ms. Morgenson is a fuzzy-minded, NYT socialist should be advised that she was a broker for several years with Dean Witter Reynolds, a writer for a number of financial publications and worked on Steve Forbes presidential campaign.. She is dedicated to making sure the free market system honest as well as free and delivers on its promises. Her wikibio is linked below.]

THE FORECLOSURE MACHINE by Gretchen Morgenson and Jonathan D. Glater NY Times 3-30-08

http://www.nytimes.com/2008/03/30/business/30mills.html?_r=1&scp=3&sq=Gretchen+Morgenson&st=nyt&oref=slogin

Meanwhile, according to a NYT editorial today, our public servants in the U.S. House of Representatives are in the process of watering down the mortgage reform bill at the behest of WALL STREET.

Surprisingly, Barney Frank is about to offer an amendment which would make an already weak bill even weaker. It would undercut borrowers' ability to pursue legal remedies against Wall Street under federal law. In addition, it would prevent borrowers from seeking redress in state courts.

Here's a link to the NYT editorial.

Countrywide stockholders are suing CEO Mozillo and 19 other officers for dumping their Countrywide stock while allegedly making misleading statements about the company's outlook. Mozillo and other officers dumped $842 million in Countrywide stock as the the shares plummeted 62 percent. Moreover, the lawsuit claims the company used $4 million of company cash to buy the stock back from Mozilo and other officers at inflated prices, leaving other shareholders holding the bag.

THE FORECLOSURE MACHINE by Gretchen Morgenson and Jonathan D. Glater NY Times 3-30-07

http://www.nytimes.com/2008/03/30/business/30mills.html?_r=1&scp=3&sq=Gretchen+Morgenson&st=nyt&oref=slogin