Get Ready for the Great MERS Whitewash Bill

Congress may pardon MERS retroactively. Don’t say it won’t happen. Doesn’t any politician care about the rule of law. (by Joe Vera)

Get Ready for the Great MERS Whitewash Bill
By: John Carney Senior Editor, CNBC.com
Congress comes back into session next week, it may consider measures intended to bolster the legal status of a controversial bank owned electronic mortgage registration system that contains three out of every five mortgages in the country.
The system is known as MERS, the acronym for a private company called Mortgage Electronic Registry Systems. Set up by banks in the 1997, MERS is a system for tracking ownership of home loans as they move from mortgage originator through the financial pipeline to the trusts set up when mortgage securities are sold.
The system has come under scrutiny by critics who charge MERS with facilitating slipshod practices. Recently, lawyers have filed lawsuits claiming that banks owe states billions of dollars for mortgage recording fees they avoided by using MERS.
If courts rule against MERS, the damage could be catastrophic. Here’s how the AP tallies up the potential damage:
Assuming each mortgage it tracks had been resold, and re-recorded, just once, MERS would have saved the industry $2.4 billion in recording costs, R.K. Arnold, the firm’s chief executive officer, testified in 2009. It’s not unusual for a mortgage to be resold a dozen times or more.

The California suit alone could cost MERS $60 billion to $120 billion in damages and penalties from unpaid recording fees.

The liabilities are astronomical because, according to laws in California and many other states, penalties between $5,000 and $10,000 can be imposed each time a recording fee went unpaid. Because the suits are filed as false claims, the law stipulates that the penalties can then be tripled.

Perhaps even more devastatingly, some critics say that sloppiness at MERS—which has just 40 full-time employees—may have botched chain of title for many mortgages. They say that MERS lacks standing to bring foreclosure actions, and the botched chain of title may cast doubts on whether anyone has clear enough ownership of some mortgages to foreclose on a defaulting borrower. The problems with MERS system led JPMorgan Chase CEO Jamie Dimon to stop using MERS for foreclosures in 2008.
Now it appears that Congress may attempt to prevent any MERS meltdown from occurring. MERS is owned by all the biggest banks, and th the value of their bonds sink because of doubts about the ownership of the underlying mortgages.
So it looks like the stage may be set for Congress to pass a bill that would limit MERS exposure on the recording fee issue and perhaps retroactively legitimate mortgage transfers conducted through MERS private database.
Self-styled consumer advocate Neil Garfield says the legislation is already being drafted:

After years of negative judicial decisions about the use of a straw-man on mortgages, MERS was about to lose its existence as well as its credibility. But now all of that is set to change as Wall Street money is pouring into the coffers of those who are receptive (i.e., almost everyone in Congress). The legislation is already being drafted under the interstate commerce clause to ratify MERS and everything it did retroactively. It appears that the Obama administration is ready to pardon all the securitization deviants by signing this bill into law. This information is corroborated by several people who are in sensitive positions — persons who would be the first to know such proposals. Fortunately, there are some people in Washington who have a conscience and do not want to see this happen.

Garfield is overstating things a bit. In truth, the results of the legal challenges to MERS have been mixed. But it is very plausible that the banks might want to put to rest any ongoing uncertainty about the legality of MERS. I wouldn’t be at all surprised if Congress manages to pass a bill that bails MERS out of its legal issues.

Viewpoint: Five Key Tasks to Make FDIC Loss-Sharing Work

Why? Every day a court in the USA stops a bank from wrongfully foreclosing. Failed Bank executives walk away keeping bonuses based on bad loans. Then …

Why? Every day a court in the USA stops a bank from wrongfully foreclosing. Failed Bank executives walk away keeping bonuses based on bad loans. “After all, there is a reason why these banks failed. Oftentimes, financial statements are old,
appraisals are out of date, and file memos chronicling the loan’s current status are missing.” Then the government insures the buyer of a failed Bank against losses. The thinking seems to be if the government keeps hiding theft and charging it to our children and their children, maybe they (the bankers and the politicians that received “contributions) can continue to get away with skimming.

This article is written by an expert recommending that expert investors who intend to acquire a failed bank with an guarantee against loss should get more experts to counsel on the loss sharing agreement.

So, if the experts have to get experts, how are decent Americans, whether a cook, fireman, truck driver, doctor, or Ph.D. going to understand what is taking place behind closed doors. Yes, closed doors.

A county recorder in Utah said of MERS, “… if looked like a scam from hell.” You will be hearing more about Loss Sharing Agreements. What you won’t hear or read is how by starting a new bank, it might be possible to actually end up with profit by foreclosure on a American. This looks like another “scam from hell” to me.

Viewpoint: Five Key Tasks to Make FDIC Loss-Sharing Work

American Banker | Tuesday, January 12, 2010

By Charles B. Wendel

Entering into shared-loss transactions appears to be the Federal Deposit Insurance Corp.’s preferred approach for
dealing with failed banks. More than 60% of last year’s 140 bank failures were resolved using this approach.

Shared-loss transactions let banks build market share or move into new markets with minimal risk. They also let

private-equity players (led by a team of bankers) take advantage of current industry discontinuities.

Much of the attractiveness of these transactions centers on the “guarantee” the FDIC offers buyers. Typically, the
agency remits 80% of “dollar one” loan losses to buyers and increases its payments to 95% for losses beyond an
agreed upon threshold. In turn, the FDIC benefits from recoveries during the 10-year life of these deals.

Though these deals are attractive strategically and economically, they are also complex.

My company’s work with banks and private-equity players points to five key elements that should be addressed in
order to structure and manage a transaction appropriately.

Conducting a focused due diligence process and negotiating the FDIC shared-loss deal. Though many players

are experienced in due diligence, the FDIC window is short, with no more than two weeks between reviewing an offer
package to bidding. Time with the target is also limited (two to three days), requiring a focused approach. Buyers
should assemble a team of internal and external resources and set clear priorities for their review process.

As for negotiating an agreement, the FDIC has standardized the general structure of its purchase-and-assumption
and shared-loss agreements. However, no two agreements are alike, given evolving requirements by the FDIC (for
example, a “true-up” provision added in the fourth quarter) and buyer-negotiated amendments. Management should
view these agreements as a bible that will be revisited many times. Bank buyers should consult the handful of legal,
valuation and related advisers with expertise in the shared-loss world, leveraging their knowledge rather than relying
solely on internal controllers, general counsels or other internal resources.

Addressing key accounting-related priorities. Accounting regulations to be addressed include FAS 141R, SOP

03-3 and IRC Section 593. Many tax and accounting issues stem from the need to determine the tax basis of assets
subject to the shared-loss agreement and the rules related to deferred tax gains. A bank’s auditor is conflicted out
from offering these services, since it would be reviewing and passing judgment on its own work. This requires bank
buyers to obtain the services of an independent firm with appropriate accounting and valuation capabilities.

Ensuring strong portfolio support. The FDIC expects buyers to make regular claim submissions related to loan

losses, usually monthly for residential loans and quarterly for commercial and consumer loans.

Residential submissions are relatively straightforward because of the objective loss criteria outlined by the FDIC,
namely, “actual losses incurred due to modifications, foreclosures, short sales, deeds-in-lieu or bulk sales.” However,
commercial submissions are more subjective and require greater evaluation.

The state of commercial loan files in failed banks is often inadequate for portfolio management or for making “audit-
proof” submissions. (After all, there is a reason why these banks failed.) Oftentimes, financial statements are old,
appraisals are out of date, and file memos chronicling the loan’s current status are missing.

Owners should select a team of internal and/or external resources to triage, in effect, the portfolio, uncovering the
low-hanging fruit that can be submitted earliest while establishing a process to assess the entire portfolio. Every loan
in the portfolio must be reviewed against the acquirer’s risk rating system and managed within policy guidelines.

Commercial bankers at the acquired bank should undergo a sea change in how they look at their loans. Before

failure, many banks avoided taking losses because their reserves could not support a realistic view of a borrower’s
position. Under shared-loss agreements, management wants bankers to accurately assess transaction risk as quickly
as possible in order to identify loans subject to FDIC claims.

Making accurate and complete certificate submissions. The FDIC has developed a three-page certificate that

requires buyers to tap multiple internal databases and in some cases provide manual inputs as well. Systematizing
this process is crucial to increased accuracy and productivity.

Using technology to track and monitor loan submissions and recoveries during the life of the FDIC agreement.

While residential mortgage loans usually involve one submission, both CRE and C&I loans may require multiple
submissions based upon declining values and continuing expenses related to asset preservation, legal and appraisal
costs.

In addition, recoveries occur across the portfolio. Buyers need to develop an inclusive information management

system or “portal” to track these ins-and-outs. Tying the portal to the bank’s core systems allows for the “automatic”
generation of certificates, eliminating much of the manual activity that dominates bank staffers’ time in the early
stages of integrating an acquisition.

Shared-loss transactions can be very attractive and beneficial to all stakeholders, including the customer and the

FDIC. However, making them work requires senior management focus, clear priorities, and a bankwide

understanding of the unique opportunity these transactions offer.

Charles B. Wendel is the president of Financial Institutions Consulting Inc.

Oregon Foreclosure Filings up 236 percent in April

BoA file 236 new foreclosures. Attorney Phil Querin , “They’re doing the same thing they were before. “They’ve not recorded successive assignments.”

Oregon foreclosure filings up 236 percent in April
The Associated Press, Published Monday, June 6, 2011
PORTLAND, Ore. — PORTLAND, Ore. (AP) – Oregon is bucking a declining national trend in new foreclosure filings with a big increase in April, all of it from one loan servicer, The Oregonian reported.
The surge in “notices of default” by Bank of America Corp.’s foreclosure arm, ReconTrust Co., boosted the number of notices in Oregon by 236 percent, to 3,700 from 1,100, according to figures from ForeclosureRadar.com.
Another foreclosure data tracker, Realty Trac Inc., showed 3,200 notices in Oregon. Nationally, Realty Trac said the number declined by 14 percent in April.
The increase in April filings follows a jump in cancelled foreclosures filed by ReconTrust in late February and March. Those came after rulings by federal judges halting out-of-court foreclosures in Oregon, saying lenders failed to follow state recording law.
The judges said documents showing the successive chain of mortgage ownership had not been publicly filed in county recorders’ offices.
Bank of America spokesperson Jumana Bauwens said the withdrawals and new filings resulted from a review late last year of its foreclosure process when it halted sales in all 50 states.
“We wanted to provide our customers with every opportunity for home retention as well as ensure all foreclosure filing were completed with our improved process,” Bauwens said in an email to The Oregonian last week.
“As we entered April, we began initiating filings with that improved process. The filings in April may or may not be those held back in February and/or March,” Bauwens said.
But real-estate experts say little changed with the new filings.
Phil Querin, a real-estate attorney and critic of the finance industry’s handling of foreclosures, say ReconTrust’s new foreclosure starts are no different.
“They’re doing the same thing they were before,” Querin said. “They’ve not recorded successive assignments.”
The bank also might have been running up against a legal deadline that limits postponed foreclosures to six months, he said.
“We don’t really know too much because the banks aren’t talking,” Querin said.
Last month, the rate of new foreclosure starts slowed but remained higher than in February, according to recorders’ offices in two Portland metro area counties.
In Clackamas County, new foreclosure filings totaled 151 in March, with only 17 from ReconTrust. In April, filings spiked to 560, with 432 filed by ReconTrust. The trend was similar in Washington County, where new foreclosure starts jumped from 208 in March to 656 in April.
Attorneys say it’s not clear when Oregon judges will rule definitively on the legality of mortgage recordings, many of which involve the Mortgage Electronic Registration System, or MERS.
Title insurance attorneys have suggested that lenders might start foreclosing in court, but other real estate attorneys say lenders don’t want to spend that much money and will face a formidable fight from borrowers.

Michigan County approves Funding to Help Homeowners fight MERS, DocX cases

Michigan county approves funding to help homeowners fight MERS, DocX cases
by JON PRIOR
Wednesday, June 8th, 2011, 5:42 pm

A committee for the Ingham County Board of Commissioners in Michigan approved up to $60,000 in Legal Aid funding to represent borrowers affected by allegedly improper foreclosures and possible documentation fraud.
The full board is scheduled to approve the resolution June 14.
The county’s Register of Deeds Curtis Hertel Jr. uncovered potential fraudulent documents in his office calling into question hundreds of foreclosures. Hertel told HousingWire Wednesday he found 400 cases with possible fraudulent documentation involving Mortgage Electronic Registration Systems and another 100 involving DocX, a division of Lender Processing Services (LPS: 24.54 +0.41%).
According to the resolution adopted by Ingham County, the alleged wrongful foreclosures by MERS resulted in more than 400 people losing their homes over the last two years.
The legal assistance provided to affected homeowners will be made available between July 1, 2011, and June 30, 2012.
Both MERS and LPS signed consent orders with federal regulators in April as a result of a robo-signing scandal that engulfed multiple mortgage industry firms. Regulators required the two companies to “address significant weaknesses in, among other things, oversight, management supervision and corporate governance.”
MERS declined to comment on the Michigan subsidies. LPS did not immediately reply to requests for comment.
The Michigan Attorney General launched his own investigation into legacy DocX affidavits after Bill Bullard, the Register of Deeds in Oakland County uncovered questionable signatures and improper documentation as well.
The Michigan Court of Appeals required MERS in April to pursue foreclosures through the courts, even when the state normally uses a nonjudicial process.
Consumer advocates lobbied Washington for a federal funding program to help homeowners in these cases. Thad Bartholow, a foreclosure defense attorney for Armstrong Kellett Bartholow in Dallas, said such a program sounds like a good idea but could cause more harm in the long run.
“In particular, I would have concerns about creating a parallel to the already horrible problem with ‘foreclosure rescue’ scams by incentivizing shoddy or unscrupulous attorneys with little experience in this highly technical area of the law to take these cases, perhaps even on a volume basis, and absorbing the settlement funds without adequately serving their clients,” Bartholow said.
Hertel said other patterns cropped up in his investigation, which the courts are looking into. Bartholow said the issues arising out of these and federal probes seems unending in scope.
“Calling the problem of robosigning ‘epidemic” is a gross understatement,” Bartholow said. “Virtually industry-wide, it was the norm, with very few exceptions.”

THIGPEN WANTS TO TAKE ON MORTGAGE GIANTS:

A Greensboro, NC Guilford County Register of Deeds is going after MERS for $1.3 million in fees for mortgage assingment. I wish him luck.(Joe Vera)

FOR IMMEDIATE RELEASE:
Greensboro, NC
March 2, 2011
Contact:
Jeff Thigpen, Guilford County Register of Deeds
Ph. 336-451-5300
Ph. 336-641-3239
jthigpe@co.guilford.nc.us
THIGPEN WANTS TO TAKE ON MORTGAGE GIANTS:
SEEKS INVESTIGATION OF “MERS” FOR REIMBURSEMENT OF $1.3 MILLION IN LOST
REVENUE TO GUILFORD COUNTY
Guilford County Register of Deeds Jeff Thigpen announced today that he will be conferring with County
Attorney Mark Payne, NC Attorney General and Secretary of State as to whether the Mortgage Electronic
Registration Service (MERS) owes Guilford County fees estimated at $1.3 million in lost revenue from
mortgage assignments. Thigpen also wants to review pending legal actions against MERS and consider
options to protect the integrity of public land recordation offices.
“As Register of Deeds, I have two primary responsibilities in land records: a sworn duty to protect the
chain of title and a fiduciary responsibility to collect recording fees. Quite frankly, MERS has
undermined both. Through their own “private for-profit” Register of Deeds mortgage tracking office,
MERS has created a dangerous centralization of power whose sole purpose is to protect and serve the
interests of major banking conglomerates and undermine public recording offices,” said Thigpen.
“For me, the question is clear. Do we want land records in America to be governed by major banking
conglomerates on Wall Street or the people and laws of the United States of America?”
MERS has an electronic registry and database system that tracks more than 65 million mortgages for its
paid membership throughout the country and aides the mortgage backed securities trade in the secondary
market. MERS is reportedly involved in 60% of US mortgage loans. It was established by some of the
largest mortgage lenders in the United States including Wells Fargo, Chase Mortgage, Citi Mortgage,
Countrywide Home Loans, Inc. and Bank of America among others in 1997. A number of class action
lawsuits and civil racketeering suits have arisen against MERS recently, including a suit alleging its
members owe California $60-120 billion for circumventing land recording fees. MERS has also been at
the center of recent foreclosure chaos.
Since the founding of America, counties in the United States have maintained public records of land,
mortgages and deeds of trust, by maintaining indexes of grantors and grantees. Register of Deeds offices
ensure transparency and an important check and balance in private property ownership. County recording
practices have been in place for 300 years. “It is interesting that the first fundamental change in public
land title recording systems was not initiated by publicly elected leaders, but a small group of mortgage
industry insiders. Now it’s coming back to bite all of us- homeowners and taxpayers. MERS creates a
system where only certain eyes see the data and what’s going on. I have a real problem with that as a
Recorder.
Thigpen is asking for clarity on the California suit and others surrounding MERS business practices in
packaging and repackages home owner loans through securitization. MERS has saved larger financial
firms millions of dollars while avoiding recordation and payment of fees related to mortgage transfers.
Since 2005 there were 47,553 deeds of trust that list MERS as a beneficiary filed in the Guilford County
Register of Deeds office. Experts have indicated that those kinds of loans are repackaged and sold two
and four times on average under the MERS system. “One repackaging of MERS documents would have
generated $665,742 if documentation had been filed in our office. Two repackaged loans would have
generated $1,331,484. And that’s conservative estimate.”
Thigpen maintains the lost recording fees would help local elected officials reduce budget deficits and
maintain core services such as public education and public safety in this time of fiscal crisis.
Thigpen’s primary concern relates to recent court rulings in Arkansas, Kansas, Maine and Missouri
questioning MERS legal standing in home foreclosures and suits challenging that MERS filings may be
fraudulent. “If MERS filings are false statements, there are laws that say if you decrease the money that
you pay for a service through using those false statements then you can get damages. The legal term is
“unjust enrichment”. Thigpen wants to explore unjust enrichment and other options related to recovery of
lost revenue.
Thigpen acknowledges that NC General Statutes do not currently require assignments to be filed in local
Register of Deeds offices which allow the public to know the rightful owner of a mortgage. “That may
need to change among other things”, says Thigpen. Thigpen points to a major policy change from
MERS in the past two weeks conceding that assignments should be filed in public registries across the
country even if the state law does not require it and instructed members not to foreclose in MERS name.
“It indicates to me that they know they need to fix this.”
“It used to be that if you bought a house, the mortgage would stay at a single bank until you paid it off.
Times have changed. Through securitization, mortgages are all put in a blender and sold off to Wall
Street investors and Fannie and Freddie among others. MERS has its finger on the spin button. At the
end of the day with MERS, Susie Homeowner can’t keep track of who owns her loan and if she’s going to
get hit with new fees or even foreclosure.
“This type of unregulated greed is giving charity to all the people who should be giving it and undermines
good business practices.” says Thigpen. Thigpen points out those local credit unions like State
Employees Credit Union who didn’t participate in sub-prime lending have avoided legal difficulties.
“This is a mess and the MERS system impacts millions of homeowners across the country in danger of
having their homes foreclosed”, said Thigpen. He wants a review of the lawsuits and investigations into
MERS by state attorney generals and others and believes it will take a coordinated at the local, state and
federal level to resolve it. “To me these issues with MERS are simple. Are major banking conglomerates
going to tell the truth or not; and are we going choose to have two standards of justice in America: one for
Big Money and the other for the rest of us?
Thigpen will also join Southern Sussex Massachusetts Register of Deeds John O’Brian, Jr. in urging
national organizations such as the International Association of Clerks, Recorders, Election Officials and
Treasurers (IACREOT) to address MERS in the coming weeks.

Los Angeles, fighting blight, goes after Deutsche Bank

The Federal Government is not going to bring the Banks to justice. It will be left to the local and state governments. (Joe Vera)

Los Angeles, fighting blight, goes after Deutsche Bank
6/7/2011 COMMENTS (0)
June 7 (Westlaw Journals) – The city of Los Angeles is suing financial giant Deutsche Bank for allegedly letting many of the 2,000 houses it obtained through foreclosures to fall into disrepair, leading to crime and lower neighborhood property values.
The city says it has repeatedly notified the company about the poor condition of the properties but the bank has not taken action to fix them.
By neglecting the properties, Deutsche Bank has violated state law and city ordinances, according to the complaint filed in the Los Angeles County Superior Court.
“We must fight blight by holding banks accountable when they create vacant nuisance properties that pose threats to our residents and destroy the quality of life in our neighborhoods,” City Attorney Carmen Trutanich said in a statement.
Deutsche Bank did not respond to a request for a comment on the suit.
In its lawsuit, the city says the foreclosure crisis caused the bank to change from a mortgage investor to a property owner when homeowners could not make their loan payments.
As a result of foreclosures, Deutsche Bank has taken title to more than 2,000 homes and buildings in Los Angeles, many of which are in low-income neighborhoods, according to the suit.
The city says the bank is obligated as a property owner to maintain its houses and buildings in good condition.
However, the company has not taken any measures to keep vacant houses in good condition, the suit says. The bank has not complied with a Los Angeles ordinance requiring that uninhabited properties be cleaned and barricaded, according to the complaint.
The city says the vacant properties are a public nuisance because they attract crime and have caused neighborhood property values to decline.
Los Angeles also says Deutsche Bank has neglected many foreclosed properties that are still inhabited, where the residents are living in substandard and dangerous conditions.
Many of the bank’s inhabited buildings do not meet the requirements of the city’s building, electrical, plumbing, mechanical, and health and safety codes, according to the suit.
Los Angeles says that by failing to properly maintain the foreclosed properties Deutsche Bank has engaged in unfair and fraudulent business practices in violation of the state Business and Professions Code.
In addition, the city says the bank has violated the same law by illegally evicting people from their homes following foreclosure actions in order to sell the properties.
Deutsche Bank has improperly forced people out of their homes through threats and by paying them small amounts of money, the complaint says.
The city is asking the court to order Deutsche Bank to bring all the foreclosed homes into a habitable condition and to stop improper eviction practices.
The suit seeks the imposition of civil monetary penalties against the bank for each violation of the law that is found by the court.
People et al. v. Deutsche Bank National Trust Co. et al., No. BC460878, complaint filed (Cal. Super. Ct., L.A. County May 4, 2011).
(Reporting by Catherine Tomasko, Westlaw Journal Bank & Lender Liability)

Treasury To Temporarily Penalize Mortgage Companies, Making Good On Old Threat

Big Banks were fined $23 million for violating agreements to help homeowners. But, the money will be returned. What about the homeowners who lost? (Joe Vera)

Treasury To Temporarily Penalize Mortgage Companies, Making Good On Old Threat
Shahien Nasiripour
WASHINGTON — The Treasury Department will temporarily withhold payments to the nation’s three largest mortgage companies for failing to comply with the Obama administration’s signature foreclosure-prevention effort, perhaps finally making good on a 19-month-old threat, officials announced Thursday.
Bank of America, Wells Fargo and JPMorgan Chase, which collectively service about half of all home loans, abused homeowners and violated the rules of the Making Home Affordable (MHA) program, Treasury said. The initiative aims to lower monthly payments, reduce loan balances or enable distressed borrowers to sell their homes before they’re seized by awarding a series of incentive payments to banks, investors and homeowners when foreclosures are averted. Treasury is only withholding pay to the three banks.
The three were found to need “substantial improvement,” the agency said in a statement. Cumulatively, they received $24 million in government incentive payments last month. Last quarter, the three financial behemoths collectively reported about $11.4 billion in net income. (Another firm came in for criticism, but it was spared the momentary financial penalty because its results were skewed due to an acquisition.)
The remaining six of the 10 largest mortgage companies that were audited were found to need “moderate improvement.” None passed with flying colors.
Bank of America, the worst performer, was found to have poor internal controls for identifying and contacting homeowners. Its error rates were also more than four times Treasury’s benchmark when calculating borrowers’ income. JPMorgan improperly calculated the incomes of nearly a third of borrowers when it was trying to determine their eligibility for the program — more than six times the limit. And Wells Fargo had poor processes for determining borrowers’ eligibility. Its income error rates were also more than five times Treasury’s max.
Treasury first identified potential mass non-compliance in November 2009, warning the participating companies that those failing to meet their obligations to homeowners under their contracts with the federal government “will be subject to consequences which could include monetary penalties and sanctions.” The Obama administration spent the next year and a half defending itself against accusations levied by federal auditors, members of Congress and consumer groups that it was soft on the big banks’ abusive behavior due to its reluctance to follow through on that threat.
But the punishment that has been so long in coming may prove to be short-lived: Treasury will return the money they’re withholding from the three banks once they make the needed improvements.
“If they fix the problem, they will get the money,” said Tim Massad, Treasury’s acting assistant secretary for financial stability, during a conference call with reporters. He added that Treasury had conducted 400 compliance reviews. Massad declined to answer questions over why the administration waited 19 months to make good on its threat.
News that Treasury would temporarily withhold payments to the three companies was first reported by the Washington Post.
More homeowners have been kicked out of the program than are receiving assistance, Treasury data show. Nearly half of them either face foreclosure proceedings, are in foreclosure, or have lost their homes. The initiative will fail to keep President Barack Obama’s promise of helping 3 million to 4 million homeowners avoid foreclosure, auditors have concluded.
Potentially “thousands” of troubled homeowners were denied opportunities to lower their monthly mortgage payments under the administration’s program due to servicer errors and inadequate oversight by Treasury, according to a June 2010 audit by the Government Accountability Office (GAO).
“All this appears to be is that, after the servicers seemingly violated their agreements with Treasury with impunity, Treasury’s sole response is to give them a temporary time-out before paying them in full,” said Neil M. Barofsky, the former special inspector general for the Troubled Asset Relief Program. His critical reports on the bailout earned him plaudits in Congress for looking out for taxpayers, but enemies at Treasury, which administered the TARP.
“It further reaffirms Treasury’s long-running toothless response to the servicers’ disregard of their contract with Treasury, and by extension, the American taxpayer,” added Barofsky, who now serves as a senior research scholar and fellow at New York University School of Law.
In statements, Bank of America said it’s working to improve its results while JPMorgan said it disagrees with Treasury’s conclusions. Wells Fargo went a step further, and said it is “formally disputing” the government’s findings.
Like other companies, Wells has been in constant communication with Treasury and its auditors. Massad said government watchdogs have long been inside the companies’ offices, keeping tabs on their activities. But Wells Fargo said Thursday’s report “contradicts previous written assessments shared with us by the Treasury.”
The withholding of incentives “mean very little to this company,” said Teri A. Schrettenbrunner, a senior vice president at Wells Fargo’s mortgage unit in Des Moines, Iowa. “We’re really in this to get the housing market stabilized. It’s in the best interest of everyone.”
Most experts in and out of government agree that the MHA program has been a dismal failure. Home prices today are lower than when the initiative was launched. Home repossessions continue at a near-record pace. And Americans’ equity in their homes is at a two-year low, Federal Reserve data show.
A substantial portion of them blame the Obama administration — rather than the mortgage industry — for its failure to police the mortgage companies, structure a program that dealt with the biggest drivers of default like negative equity and commit enough money.
Indeed, government auditors have long faulted Treasury for its lack of oversight.
An October 2009 report by the Congressional Oversight Panel, another federal watchdog created to keep tabs on the bailout, recommended that the administration develop “strong, appropriate sanctions to ensure that all participants follow program guidelines.”
In its last report before disbanding, the panel noted that Treasury had yet to take any action.
“There’s no way to help those who have already been harmed by this program,” Barofsky said. “The damage has been done.”
More than three of every four housing counselors surveyed by the GAO said borrowers had either a “negative” or “very negative” experience with the administration’s primary initiative, the Home Affordable Modification Program, better known as HAMP. Just 9 percent described borrowers’ overall experience as “positive” or “very positive,” according to the May report.
The counselors’ most popular recommendation to improve HAMP was for Treasury to enforce sanctions on mortgage companies for noncompliance.
“In many ways, Treasury’s shameful enablement of servicer misconduct has contributed to this program’s abysmal failure,” Barofsky said.

Shahien Nasiripour is a senior business reporter for The Huffington Post. You can send him an email; bookmark his page; subscribe to his RSS feed; follow him on Twitter; friend him on Facebook; become a fan; and/or get email alerts when he reports the latest news. He can be reached at 917-267-2335.