by K.K. MacKinstry
The media claims the number of home foreclosures is down sharply from the depths of the financial crisis, even as many of the mortgage firms involved remain the same, including Fannie Mae, Wells Fargo, Bank of America and JPMorgan Chase. However, some companies like CitiMortgage are exiting the servicing industry altogether. As Livinglies previously reported, CitiMortgage may be exiting the profitable servicing industry to distance itself from its decade of abusive and fraudulent practices.
But the latest foreclosure rankings also include a number of firms that barely registered or did not exist when the crisis began a decade ago.
These new entrants into the servicing industry include firms affiliated with the private equity giant Lone Star Funds, the mortgage lender PennyMac Loan Services, the investment bank Goldman Sachs and the mortgage firm Carrington Mortgage Services.
Quicken Loans, who over the last decade was a top originator of loans, ranks relatively low in terms of recent completed foreclosures, according to the RealtyTrac data.
Most of these newer firms that are moving up in the foreclosure rankings are ones that have bought defaulted mortgages with defective paperwork and are looking to profit by restructuring those loans and getting delinquent borrowers to start making payments again. By modifying these defective loans they can be “rehabilitated” with new paperwork and a new loan. And when those efforts fail, the firms foreclose on borrowers with fabricated notes, defective assignments and then take back the homes and resell them. There can be little doubt that these loan refurbishers are fully aware that they are purchasing scratch and dent merchandise. With a little LPS/DocX/Black Knight bondo repair- the defective loan looks all shiny and legit.
Firms affiliated with Lone Star, PennyMac, Goldman and Carrington all have been staple buyers of distressed mortgages, either from big banks directly or from government agencies like Fannie Mae and Freddie Mac. Lone Star, a $70 billion private equity firm based in Dallas, has been one of the largest buyers and works in tandem with its wholly owned mortgage firm, Caliber Home Loans. Fannie Mae and Freddie Mac are offloading record numbers of distressed/defective mortgages when in reality these loans should be targeted for reformation or some other corrective action.
“The players who are running counter to the overall trend in foreclosures are ones who have been involved in purchasing nonperforming loans over the past few years,” said Daren Blomquist, senior vice president of ATTOM Data Solutions, the parent company of RealtyTrac. He admits that these new firms were “taking on the risk that the big banks want to distance themselves from as much as possible.” At this point in the game everyone but the government is willing to admit that these loans are damaged goods while the banks simply pass the buck.
Foreclosure activity in the United States stemming from the financial crisis peaked in 2010 with lenders foreclosing and taking possession of about 835,000 homes, according to RealtyTrac. Ever since, the pace of foreclosures has been on a downward trajectory. Last year there were 264,458 foreclosures — the lowest number since 2006 according to Realtytrac.
At the big banks, the decline in foreclosures is evidence that there is something else going on that has not yet surfaced. Big Banks only stop fraudulent behaviors when cornered and there must be some reason why they have backed off. Like any criminal enterprise, when the heat is on, you leave the kilos in Columbia or dismantle the crack lab until law enforcement focuses on someone else. Foreclosures are incredibly profitable, unconscionably evil and for too long the banks have gotten away with murder.
In 2016, JPMorgan foreclosed and took the titles of 6,221 homes compared with 25,126 homes in 2010. At Wells Fargo, the number of completed foreclosures last year was 17,850, down from 57,098 in 2010. And at Bank of America, 7,756 homes were foreclosed on, compared with 43,612 in 2010, according to RealtyTrac.
The decrease in the number of foreclosures could be attributed to big banks’ selling delinquent loans and modifying distressed mortgages to comply with the terms of their multibillion-dollar settlements with federal and state authorities- but this is doubtful. The settlements were built into the bank’s profit model and were too miniscule to impact behavior. Since there was no threat of conviction, the banks continued the fraudulent fabrication and forgery process and went unchallenged.
How many of these new servicers are utilizing third party document fabricators like Black Knight/LPS to create the documents, signatures and account statements they will need to foreclose?
In the case of Bank of America, the monitor named to oversee its $16 billion settlement recently reported that the bank had completed its obligation to provide $7 billion in so-called consumer relief as part of that deal. In a March 17 report, the monitor, Eric D. Green, said Bank of America had received credit for restructuring and lowering payments to borrowers on more than 130,000 mortgages. A freedom of information request should be done to get a better of understanding of how this relief was provided. Bank of America conducts business only when it benefits them- not the consumer.
Under the terms of the mortgage settlements, banks do not get credit for foreclosing on a mortgage. So some banks have dealt with their thorniest delinquent mortgages by selling them to upstart firms willing to buy loans at a steep discount on the gamble that they will have better luck restructuring them.
PennyMac, for instance, has bought nonperforming loans from Citigroup, and Lone Star has bought bundles of defaulted mortgages from JPMorgan Chase and HSBC.
Lone Star has also been a major buyer of delinquent mortgages sold by Department of Housing and Urban Development and Fannie Mae.
A Goldman subsidiary, MTGLQ Investors, has emerged as one of the largest buyers of distressed mortgages from Fannie and is known to be ruthless in its collection efforts. The Wall Street bank is buying the mortgages to meet its consumer relief obligation under the terms of its $5 billion mortgages settlement with federal and state authorities.
The buying of those delinquent loans and the inability to restructure all of them is now showing up in the foreclosure ranking for those firms.
In the case of Lone Star, affiliates of the private equity firm foreclosed on 4,980 mortgages last year and 5,378 in 2015, the data shows. By comparison, Lone Star affiliates foreclosed on just 147 mortgages in 2010.
PennyMac, which was founded in 2008 with just 72 employees, foreclosed on 1,281 mortgages last year and 1,594 in 2015. The firm foreclosed on 361 home loans in 2010. Today, PennyMac employs more than 3,000 employees and is the nation’s fourth largest originator of new mortgages.
Firms buying nonperforming loans have stated that foreclosure is the last resort. The firms all contend that they make more money by getting delinquent borrowers to start making monthly payments again, as opposed to foreclosing on and selling vacant homes. This is especially true when there is no longer any creditor that can be identified. These companies are debt collectors that purchase debt with major defects and then go about collecting these payments that have likely been paid off by default insurance, written off, or have no actual creditor or holder in due course that can be identified. When you sell a defective loan to a new creditor the defects don’t disappear.
PennyMac claims that foreclosure is a last resort and claims to have modified over 6,700 mortgages last year. We currently have a client whose loan was sold to Penny Mac. However, Penny Mac is relying on a defective note and a Taylor, Bean, Whitaker robosigned assignment to prove standing. The client is unwilling to enter into a modification agreement with Penny Mac when there is no longer a true creditor. These debt collectors are acting as loan servicers and are not being directed by a legitimate creditor. Homeowners should challenge their servicers to prove they have standing not only to modify a loan but to foreclose.
Fannie Mae and Freddie Mac are in the process of selling tens of thousands of distressed mortgages in the coming year, and the new mortgage firms will replace some of the big bank servicers. However, they also face the same class-action lawsuits if they pursue foreclosures with defective documents. Furthermore, these entities are vulnerable because it is unlikely that the courts or government entities will protect these companies as ferociously as they did the Too Big to Fail banks since they are not protecting their judicial retirements and pensions are not directly tied to these companies.
Although the writing is not on the wall yet, it would be fair to speculate that there is a master plan behind the decision for Big Banks and the GSEs to unload the last toxic remnants of their decade of fraud. It is more than likely that for now, the risks associated with fraudulent foreclosure now exceeds the benefits. Modifying defective loans and issuing new loan instruments whitewashes the underlying fraud. Only time will reveal the true agenda behind the liquidation. Banks don’t stop rigging currencies, debasing economies or conducting fraudulent foreclosures unless the risks exceed the benefits.