What is HAMP and why is the program not working as contemplated?

HAMP is a program introduced in February 2009 by the Obama Administration’s comprehensive Financial Stability Plan during the housing market collapse to help homeowners modify and/or refinance their existing mortgage.  HAMP is an acronym for Home Affordable Modification Program.  It is designed to help those homeowners with an economic hardship modify the terms of their mortgage so that it becomes more affordable, manageable and thereby helps avoids a foreclosure.

To qualify for the program the following criteria must be met:

1)  The mortgage is for your primary residence.

2)  The amount of your first mortgage is equal to or less than $729,750.

3)  You have a qualified hardship.

4)  The Mortgage was obtained before January 1, 2009.

5)  The payment on your first mortgage (including principal, interest, taxes, insurance and   

     homeowner's association dues, if applicable) is more than 31% of your current gross

     household income.

 

Trial Period vs. Permanent Modification

Permanent mortgage modification rose to about 31,000 in November, up from about 26,000 in October.  That brings the total active permanent modifications to just over 500,000 since the programs inception.  Considering how slow new modifications are being offered, it is clear that the program designed to prevent three to four million foreclosures will be lucky to hit even 25% of its target.
Let's look at trial modifications.  A trial modification is when the lender provides a temporary trial periods in which modified payments are to be made for several month (usually 4-6), and if paid timely, should be made permanent.  Trial modifications peaked at nearly 160,000 in October 2009, but have declined ever since.  The number of new trial modifications increased to about 30,000 in November, up from about 24,000 in October. 

With so few active and new trial modifications, it will be harder for this number to increase in the future.  18,000 modifications were cancelled in November 2010.  This is mostly due to loan servicers finally having worked through most of their backlog of "aged trial modifications" which were modifications that were active for an extended period without being cancelled or made permanent.  Many were ultimately cancelled, which is why there was a flood of cancellations from March through July 2010.

So what’s next in 2011 for the program? 
All indications are that foreclosures are expected to rise, even though HAMP appears to be winding down and comprehensively not having the teeth to compel lender compliance as envisioned. 
As of December 2010, more troubled homeowners are dropping out of the Obama Administration's HAMP program, which has been widely criticized for failing to help more homeowners keep their homes and modify “bad loans” to more traditional long- term fixed-rate mortgages.

On December 22, 2010, the Treasury Department said that about 774,000 homeowners have dropped out of the program as of last month.  That's about 54 percent of the more than 1.4 million people who applied for a modification.  As noted, this program is intended to help those at risk of foreclosure by lowering their monthly payments. Borrowers start with lower payments on a trial basis, but for reasons not made very clear or public, lenders have not converted them into permanent loan modifications, causing trouble for the program as a whole.

Foreclosure filings fell by 21 percent last month, their largest monthly decrease since 2005.  However, the government warned that this decrease is only temporary.  Lenders are expected to revise and resubmit paperwork in the coming months to reignite their foreclosures. 
Borrowers applying for HAMP relief are faced with a bureaucratic black hole, with banks losing documents, failing to return phone calls, and simply not keeping track of all documents submitted. 
Lenders are blaming homeowners for failing to submit needed and requested documentation.  Lenders are often times operating on a dual track, where on one hand they are attempting to modify a loan, and on the other hand prosecuting a foreclosure on that property.

A homeoner should be extremely careful when entering into a trial modification.  There is no guarantee that the terms will become permanent.  Thus the bank is collecting payments for several months (from thousands of borrowers) and then for frivolous reasons is not making that modification permanent.  At the same time, continues to prosecute the foreclosure lawsuit.  Such behavior can be classified as violating the lenders obligation to operate in good faith and conduct fair dealings with the borrowing public.        

Homeowners accepted into HAMP can receive lower interest rates and can repay their loans over a longer period of time.  Those who remain in the program on a permanent basis see their monthly payments cut on an average of about $500.

If you or someone you know is dealing with a potential foreclosure of their mortgage, it is in your best interest to speak to a competent lawyer in your specific jurisdiction.

By: Eran D. Grossman, Esq. (212) 227-6755

New laws in New York affecting foreclosure lawsuits

On October 22, 2010, Governor David Paterson of New York signed into law the Access to Justice in Lending Act.  This law makes attorney-fee provisions in mortgages reciprocal, thereby allowing homeowners (defendants in foreclosure lawsuits) to get attorney's fees if and when they prevail in foreclosure actions.

Currently in New York State, it is standard for a mortgage agreement to contain language giving the lender the right to collect attorneys' fees if it is successful in a foreclosure action.  However, there is no requirement that the borrower have the same right to collect if he or she is successful in defending the foreclosure action.  This new piece of legislation will benefit homeowners defending a foreclosure in several important respects.  First, it will level the playing field for borrowers facing foreclosure by clarifying that the obligation to pay attorneys' fees and costs is mutual.  Moreover, it will allow a greater number of borrowers to obtain legal representation.  By authorizing borrowers with meritorious defenses to recover attorneys' fees from their lender, it will increase access to legal representation for borrowers who cannot otherwise afford an attorney.  Finally, it should create an incentive for lenders to resolve cases earlier in the foreclosure process.

Rick Wagner, the longtime Brooklyn Legal Services Corporation Director of Litigation who passed away last year, was well known for his advocacy on behalf of homeowners.  He once wrote, "For far too long, plaintiff banks have benefitted from a huge number of default judgments in foreclosure actions and/or proceedings. Perhaps the single most important tool in the avoidance of default judgments is legal representation...Those of us in the legal services community—including those of us who are presently prohibited from seeking attorneys' fees— can make a sizable contribution toward leveling the foreclosure playing field by establishing this right for homeowners and, hopefully, generating a private foreclosure defense bar fueled by a substantial revenue stream in the form of recoverable attorneys fees."

New York State Assemblyman Rory Lancman (D-Queens) and Senate Deputy Majority Leader Jeff Klein (D-Bronx) announce passage of the “Access to Justice in Lending Act” by both houses of the legislature.  Almost all mortgage agreements require borrowers to pay attorneys fees to lenders who foreclose on their mortgage, but borrowers are not given the same contractual right.  As a result, few homeowners are able to retain attorneys in foreclosure proceedings – most default or try to represent themselves.  Many homeowners have valid defenses to foreclosure and could save their homes with adequate legal representation.  To add insult to injury, these homeowners then have the lenders' attorneys fees tacked on to the overall amount they owe the bank, pushing desperate homeowners further into debt.  This new law creates a reciprocal right to attorneys’ fees for borrowers who successfully defend against foreclosure where the mortgage agreement gives such a right only to the lender.

“We cannot let people with valid defenses to foreclosure lose their homes merely for lack of legal representation, particularly when the mortgage agreement written by the bank tilts the legal playing field in the bank’s favor,” said Assemblyman Lancman (D-Queens).  “If homeowners had the money to pay for a lawyer to represent them in foreclosure, they probably wouldn’t be in foreclosure in the first place.  This legislation will allow lawyers to take on meritorious foreclosure cases with the fair and reasonable expectation that they will be compensated if they succeed.  We know that many of the families that we see being foreclosed upon today entered into their mortgages due to predatory lending. These are the very people who should have the best defenses to foreclosure, but lose their homes simply because they could not secure counsel to defend them.  Today, we have put homeowners on even playing ground with the lenders that are foreclosing on them, and given them a fighting chance to stay in their homes," said State Senator and Deputy Majority Leader Jeffrey D. Klein (D-Bronx/Westchester).

On October 22, 2010, in response to the robo-signing crisis affecting the nation, New York's office of Court Administration issued a new rule requiring that in all residential foreclosure actions plaintiff's attorneys file an affirmation certifying that counsel has taken reasonable steps to verify the accuracy of the documents filed.  In all new cases, the affirmation must accompany the Request for Judicial Intervention.  In pending cases, the affirmation must be submitted with either the proposed order of reference or the proposed judgment of foreclosure.  In cases where a foreclosure judgment has been entered but the property has not yet been sold at auction, the affirmation must be submitted to the court referee and a copy filed with the court five business days before the scheduled auction.  Plaintiff's counsel must also file an amended version of the affirmation if new facts emerge after the initial filing. 


 

MERS on the hot seat?

On December 2, 2010, the House Judiciary Committee held a hearing on the mortgage crisis affecting the American homeowner.  Disturbing testimony came from Christopher Peterson, associate dean for academic affairs and law professor at the University of Utah.  He indicated in his written submission how big banks basically destroyed America’s land-recording system, which is a method of tracking property titles changing hands since colonial times and the founding of this Republic.

What big banks did was create a company called MERS (Mortgage Electronic Registration Systems, Inc.).  This company was purposely designed to get around physically recording mortgages upon transfer or sale of the note and mortgage.  As shown below, the way they prepare their documents is legally questionable, and makes tracking mortgage ownership extremely difficult, from a consumer’s perspective, since nothing is publicly recorded upon sale/transfer of the note.  Ownership of the note, however, is something that must be proven in court during a foreclosure action.  This creates confusion.   

MERS states on its website that “MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked.  Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.”

So let’s examine this statement.  MERS was created by the real estate finance industry, meaning those big banks that produce home mortgages.  They also eliminate the need to prepare and record assignments, which is contrary to the way mortgage ownership has been recorded since the founding of this country.

MERS was created by banks, for banks, to satisfy their interests and also to limit their liability since MERS is on the original mortgage and note as “nominee” only.  What this actually means is really contentious and there is no definitive answer, yet, since courts are now faced with this issue. 

In addition to tracking ownership and servicing rights, MERS has taken on another more aggressive legal role.  When closing on a home, the lender (example Wells Fargo) lists MERS as the mortgagee of record on the actual paper mortgage, rather than the lender who funded the loan.  When recorded, the mortgage is under MERS, even though MERS does not solicit, fund, service or actually own any of the mortgages.  MERS continues to be the mortgagee for the life of the mortgage even after the original lender (Wells Fargo) or a subsequent assignee transfers the loan into a pool of loans that are then sold to investors- a process known as securitization.  MERS is legally involved in the origination of about 60% of all mortgage loans in the U.S. 

MERS justifies its role by explaining that it is acting as “the mortgagee of record in nominee capacity.”  This allows for 2 things: 1) MERS does not have to record any subsequent assignments since it is the mortgagee, thus avoiding county recording fees on millions of mortgages- this amounts to millions in savings for the banking industry. 2)  MERS brings foreclosure proceedings in its own name, rather than the actual owner of the loan, which is often a trust owned by investors.  This eliminates the need for the trust to foreclose in its own name or reassign the loan to a servicing company to bring the foreclosure suit.  This does create a host of legal problems.  For example, does MERS have standing to bring a foreclosure action?  Is MERS considered a debt collector under the federal Fair Debt Collection Practices Act?  

Why is this important?

Million of foreclosure documents produced by MERS may have been signed in MERS’s name by people without the power to do so.  A lack of authority to sign these crucial documents calls into question their validity.  While the full scope of its ramifications continues to remain uncertain, this creates more uncertainly in the already murky swamp of foreclosures.

MERS tracks and holds mortgages in a huge electronic database that is created, financed and maintained by its “members” who are the giants in the residential mortgage business.  This database simplifies securitization and makes it cheaper by foregoing the requirement that every change in ownership of a mortgage be recorded in the county where the mortgaged property is located.

Instead of recording the documents as required by law and has been the rule for countless decades, the mortgage is recorded in the name of MERS one time only, and all other transfers of ownership of the note and mortgage in the future, are tracked by the MERS system.  However, entering data into the MERS database is optional for its members.  MERS Chief Executive R.K. Arnold told Congress that “members tend to register only loans they plan to sell.”

The land registering system in each county is losing tens of thousands of dollars since MERS is helping banks bypass the recording process.  In fact MERS boasts of saving the “industry up to $200 million annually by creating an electronic clearinghouse for mortgage ownership rights and information.”

What’s more interesting is that MERS has no employees.  MERS members upload and manage their own data, and whenever a MERS member wants MERS to do something for it, the member just tells a MERS “certifying officer,” roughly 20,000 of them, to do whatever that member wants.  These certifying officers who have a traditional corporate title like vice president do not report to anyone at MERS and do not get paid by MERS.  The only link to MERS is a corporate resolution signed by MERS Secretary Hultman appointing them as officers of MERS.  How and who is appointed a certifying officer has come under attack.  When Hultman was deposed last April, he pointed to a 1998 corporate resolution giving him the power to approve certifying officers.  However, the resolution appears to say that only member employees can be certifying officers.  MERS CEO Arnold told Congress that “MERS relies on specifically designated employees of its members, called certifying officers.”  Regardless of this, Hultman has made numerous attorneys at law firms initiating foreclosure lawsuits for MERS member banks certifying officers.  Further, the resolution that authorizes Hultman to approve certifying officers was originally adopted by an earlier incarnation of MERS, and it may not have been ratified by the current version of MERS.  So unless the current MERS ratified the authorizing resolution or replaced it with a new one, that authority ended by January 1, 1999, when the current MERS was established.  During his deposition, Hultman said he did not know if the current MERS ratified his appointing power.  However, as corporate secretary he is in the best position to know this information.  Mark Malone, the former New Jersey assistant U.S attorney and former New Jersey deputy attorney general who took Hultman’s deposition in April, indicated that Hultman has not turned over evidence that MERS had ratified his power.  Lastly, Hultman’s power to appoint is rooted in MERS’s bylaws, which gives only the board of directors the power to choose officers.  A board of directors cannot pass resolutions that violate their company’s bylaws.  So even if MERS did ratify his power to appoint, it may be invalid anyway.

What Hultman states in the resolution he signs is false according to Malone.  Hultman is not saying he is signing according to the power delegated to him by the board, but rather the board met and adopted a resolution, and what he is signing is a true copy of that resolution.  Malone says this is also false since there is no original resolution that it is a true copy of. 

MERS had 66 million mortgages in its database at one point, and currently has about 31 million.  So this begs the question… how many foreclosures were achieved throughout the Unites States using documents that these “certifying officers” signed and how many pending foreclosures are based on these fraudulent documents?

Homeowners facing a foreclosure lawsuit in New York and elsewhere must be aware this is going on and must consult an attorney so that they can challenge any MERS signed documents.  This is a growing problem that must be addressed by the borrowing public, state and federal authorities.

By: Eran D. Grossman, Esq.