Editor’s Comment: The practice of disregarding normal loan underwriting standards creates a claim that homeowners were tricked into loans that they could never repay. The Consumer Financial Protection Bureau, built by Elizabeth Warren under Obama’s direction is about to pass a rule that addresses that very issue. The new Rule would allow homeowners contesting foreclosure to introduce evidence challenging whether the “lender” correctly determined a borrower’s ability to repay the loan.
The details of the test for the “safe harbor” provision that is being contested are not yet known. The objective is to separate those who are using general knowledge of bad practices in the industry from those who were actually hurt by those practices. It would provide the presiding judge with a simple, clear test to determine whether the evidence submitted (not merely allegations — so the burden is still on the homeowner) are sufficient to determine that the “lender” wrote a loan that it knew or should have known could not be repaid.
The game being indirectly addressed here is that the participants in the fake securitization scheme intentionally wrote bad loans and then were successful at entering into contracts that paid insurance, credit default swap and federal bailout proceeds to the participants in the scheme even though they neither made the loan nor did the forecloser actually buy the loan (no money exchanged hands).
Those who do not meet the test would have “frivolous” claims dismissed summarily by the Judge. But they would have other grounds to sue the “lender” or the party making false claims of default and foreclosure. Those who do meet the test, would defeat the foreclosure leaving the loan in a state of limbo.
The net legal effect of the rule could be that the mortgage is void and the note is no longer considered evidence of the entire transaction — because the risk of loss on the homeowner shifts to the lender, at least in part. This would clear the path for principal reduction and new loans that would correct the corruption of title in the county title records.
The rule is coming at the behest of the Federal Reserve, which has is own problems on how to account for the trillions they have advanced for “bad” mortgages or worthless bogus mortgage bonds.
The question remains whether the purchase of these bonds conveys some right of action to collect money that the investors advanced, and who would receive that money. It also leaves open the question of whether a mortgage bond purportedly owned by the Federal reserve or even sold by the the Federal Reserve changes the players with standing to bring lawsuits or other foreclosure proceedings.
This rule, when it is finally written and passed, won’t solve all the problems but it could have a cascading effect of restoring at least some homeowners to at least a better financial condition than the one in which they find themselves.
The issue that would be interesting to see litigated is whether the homeowners who meet the test now have a claim to recover part or all of the money they paid on the mortgage thus far or if they are given an additional credit for the overage they paid — another way of reducing principal.
The bottom line is that there is recognition at all levels of government agencies —Federal and State — that there are problems with the origination of the loans and not just with the robo-signed assignments, allonges endorsements and fake powers of attorney. This recognition is going to be felt throughout the regulatory and judicial system and will redirect the attention of Judges to the reality that Wall Street banks wanted bad loans so they could make millions on each bad loan through multiple sales of the same loans using insurance, credit default swaps, TARP and other schemes to cover it all up.
http://www.housingwire.com by John Prior
Consumer Financial Protection Bureau Director Richard Cordray told a House committee Thursday that mortgage lenders would still not be safe if the bureau elects to grant a safe harbor provision to the upcoming Qualified Mortgage rule.
“The safe harbor versus rebuttable presumption is a mirage,” Cordray said. “Even safe harbor isn’t safe. You can always be sued for whether you meet the criteria or not to get into the safe harbor. It’s a bit of a marketing concept there. The more important point is are we drawing bright lines? If someone were to say to me safe harbor or anything else, I would go with a safe harbor. But I don’t think safe harbor is truly safe. And I think it oversimplifies the issue.”
Rep. Michael Grimm, R-N.Y. then right away pressed Cordray on which he would choose: a safe harbor or rebuttable presumption. The director was forced to remind him the rule was still under development and would be finalized in January.
“I have not taken a position. I have discussed the issue,” Cordray said.
Mortgage industry lobbyists have been pressing the bureau since it overtook QM rulemaking responsibility from the Federal Reserve last year to install “clear, bright lines” and a legal safe harbor that protects lenders from future homeowner suits during foreclosure.
A rebuttable presumption provision allows homeowners to introduce evidence in court challenging whether the lender correctly determined a borrower’s ability to repay the loan before it was written. But a safe harbor allows a simple test for a judge to find if the mortgage met the QM rule, and frivolous suits could be dismissed early.
The Mortgage Bankers Association even showed the CFPB that attorney fees go up to an average $84,000 for a summary judgment from $26,000 if it’s dismissed. The risk of this increased cost would be passed on to borrowers, they claim.
Some consumer advocacy groups previously said such suits are rare, and a safe harbor could clear lenders from risks down the road rule makers cannot anticipate now.
Cordray repeatedly said in the hearing Thursday that his goal on QM and upcoming rules for the mortgage market is to protect consumers but not cut off access to credit. Forcing courts to define areas left gray by regulators is not something he would permit.
“As a former attorney general in Ohio, gray areas of the law are not appreciated,” Cordray said. “They’re difficult for people trying to comply. If we write rules that are murky, they’ll end up getting resolved in courts and it will take years and be very expensive. We are making real efforts to draw very bright lines.”
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: | CFPB, credit default swaps, Elizabeth Warren, Federal Bailout, foreclosures, housing, insurance, investors, Obama, Richard Cordray, TARP, underwriting