The incentive payments from the Federal government for HAMP modifications were merely used for profit, bonuses and the like. No attention was paid to HAMP modifications except in rare instances where the banks thought it prudent to at least make it appear as though they were following HAMP guidelines when they clearly had no interest in doing so.
Most Judges are still basing their mindset that the loans are valid and that the interests of the servicer are just like any other “bank.” Not so much.
THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
I have written about this before. But now there are 2 qui tam actions in Texas against Ocwen and Homeward. Both are governed by the rules of HAMP modifications, neither complied, and they both did so intentionally. The same holds true for most other servicers. Ocwen tried to escape the civil action by saying that the information used by the whistle-blowers was “inadvertently” disclosed and should not be allowed as evidence nor as a basis for the qui tam lawsuit. The Texas Judge rued against Ocwen citing a statute that explicitly stated that such material can be disclosed and released.
The real question, as I have repeatedly suggested, is why would the nation’s largest servicers accept billions in incentive fees from the US Government while at the same time abusing the modification process? In the real world of real banking, workouts were always the rule rather than foreclosures. All seminars I have ever attended for bank lawyers (yes, I was one of those for a while) involving bankruptcy, deficiency and defaults, start out and maintain one basic theme: workouts wherever possible. The reason? The bank does far better in workouts than in foreclosure. Most Judges are still basing their mindset that the loans are valid and that the interests of the servicer are just like any other “bank.” Not so much.
So why all the obfuscation about modifications? If you just think about it logically there are several things that come to mind. First, the servicers are only incentivized to bring cases to a “successful” conclusion which is a forced sale of the property backed up by a Final Judgment in judicial states. The basic assumption today is that the servicers are representing the investors through the pass through entity described as a REMIC Trust. Setting aside the issue of whether that assertion is even true as to form or substance, it is obvious that the push to foreclosure was adverse to the interests of the investors and adverse to other entities that had bought or sold derivative products whose value derived from the value of the performing loans in a specified pool (which probably didn’t ever exist).
If the services are acting adverse to the interests of investors, then who are they working for? The Trust exists only on paper, was never funded, never had a bank account or any active business even for the window described in the “Trust” documents or the IRC provisions allowing for REMIC Trusts. That eliminates the Trust as the party for whom the servicers are working. And the assertion that the Trust is only a holder and NOT a holder in due course corroborates the fact that there was no purchase by the Trust.
So the servicers are NOT working for the people whose money was used to fund the illusion of a securitization scheme and they were NOT working for the special purpose vehicle (REMIC Trust). If you drill down into the prospectuses and the trust document (the PSA) you will see that the designated servicer is often the Master Servicer or the Master Servicer is described deep inside the document. The Master Servicer is the one who supposedly is making servicer advance payments to investors, except they are not advancing those payments; instead they are using investor money from a reserve described in the documents, from which, the investors agree, the servicer can advance payments in order to keep the mortgage bond “performing.” Hence servicer advances are neither advances (they are return of capital to investors) nor are they payments by the servicer (who makes “payments” from the reserve of investors funds).
So you can see the incentive. If the case goes all the way through foreclosure, the “Master Servicer” can claim recovery of servicer advances at the time of liquidation of the property, but if the loan is modified, the servicer can not claim recovery of servicer advances. Most cases in which the banks have let the case go 6-8-10 years is that they were piling up their claim for servicer advances.
And the other incentive that is major is that by refusing HAMP modification and offering “in-house” modifications, they are essentially make the “loan” an asset of the bank rather than the investors. The incentive payments from the Federal government for HAMP modifications were merely used for profit, bonuses and the like. No attention was paid to HAMP modifications except in rare instances where the banks thought it prudent to at least make it appear as though they were following HAMP guidelines when they clearly had no interest in doing so.
None of this would be possible were it not for the ignorance of investors. Both investors and Trustees are contractually barred from even making inquiry “for their own good and protection.” This provision, in virtually all securitization documentation, was one of the large red flags for fund managers who peeked under the hood at this scheme. The idea that they could get no information on the loan portfolio when that was supposed to be the only asset or business of the Trust, was ludicrous and they didn’t invest.
But most fund managers go with the crowd and are lazy. Having the incentive of bonuses if they achieve certain performance levels, and having their asses covered by what appeared to be insurance that was backed up by American tax payers, and the mortgage backed securities being rated AAA by the rating agencies PLUS the representations of the underwriting bank and the seller of those mortgage “bonds,” these find managers of stable managed funds (the investors) gave money to the underwriter in exchange for worthless securities issued by a completely inactive entity. They got nothing and they were contractually barred from learning they got nothing. It was the perfect cover for the perfect crime and the banks, so far, got away with it.