Pleasanton Real Estate

THROUGHOUT the foreclosure crisis, Washington has done little to help people hang on to their homes. All those programs that were supposed to help — HAMP, HARP, Hope for Homeowners — have mostly failed.
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Times Topics: Gretchen Morgenson | Foreclosures

So many were skeptical when the Office of the Comptroller of the Currency announced yet another program in April. This one was intended to provide reparations to homeowners who’d been hurt financially by foreclosure abuses at banks.

As the details trickle out, the program looks like more of the disappointing same. “This is just the next program that’s getting people’s hopes up,” said Alys Cohen, staff attorney at the National Consumer Law Center in Washington. “Not only will it not help people, it could easily harm them.”

The program arose out of a regulatory review in late 2010 of loan servicing practices at the nation’s largest banks. The review followed the robo-signing scandal that erupted after consumer lawyers — not regulators, mind you — identified numerous apparent forgeries and other improper foreclosure documents filed with courts by banks and their representatives.

Last April, the banks agreed to fix problems found in the review and were required to hire independent consultants to audit their practices in 2009 and 2010. JPMorgan Chase engaged Deloitte, while Citibank and U.S. Bancorp hired PricewaterhouseCoopers. Three other banks hired Promontory Financial.

On Nov. 1, letters started going out to more than four million borrowers who were ensnared in the foreclosure process in the two years covered by the program. Those people were told how to request reviews of their cases. The letters also described 22 types of financial harm they might have experienced. Borrowers have until April 30 to request a review.

Obviously, this program has a lot of moving parts. But many of them are flawed, according to Ms. Cohen and other foreclosure experts.

Some of the problems were aired at a Senate subcommittee hearing on Dec. 13. Three Democrats — Robert Menendez of New Jersey, Jeff Merkley of Oregon and Jack Reed of Rhode Island — expressed doubts about the program to Julie L. Williams, chief counsel at the comptroller’s office. The senators were especially vocal about the potential for conflicts of interest among the consultants hired to conduct the reviews.

This is a real defect since the consultants were chosen by the banks that are paying them. And companies that have done work for these banks in the past, or that hope to do more work for them in the future, were not barred from taking on the assignments.

According to Ms. Williams, the comptroller’s office closely vetted the consultants to disqualify any that posed a conflict.

BUT Michael Olenick, a specialist in mortgage research, said he spotted a conflicted consultant after one hour of digging. Allonhill, a smallish firm appointed by Aurora Bank, a mortgage servicer, is headed by Sue Allon, whose previous small firm acted as credit risk manager in a 2003 mortgage pool for which Aurora oversaw the loans’ servicing. The prospectus on that deal noted that Murrayhill, Ms. Allon’s former firm, would “monitor and advise the servicers with respect to default management of the mortgage loans.” It also said that Murrayhill would make recommendations to the servicers regarding delinquent loans.

Now, under the comptroller office’s program, Ms. Allon’s firm may be analyzing the treatment of borrowers on whose loans it acted as credit risk manager. “This conflict is so deep and so obvious, how could anybody have missed it?” Mr. Olenick asked.

A representative for Ms. Allon wrote in an e-mail that Allonhill “focuses on a different area of the mortgage industry than Murrayhill did.” She said the foreclosure information Allonhill was reviewing for Aurora was “outside the scope of what was provided to Murrayhill.”

Aurora did not comment.

JPMorgan Chase’s hiring of Deloitte to analyze foreclosure practices also raises questions. Deloitte was the auditor not only for Washington Mutual, the huge mortgage lender that collapsed in 2008, but also for Bear Stearns, another defunct firm. Both WaMu and Bear were acquired by JPMorgan, so any loans they made may come under scrutiny by the same firm that audited their books.

Nye Lavalle, a foreclosure fraud expert who began warning bank executives about bad lending practices back in 1999, is troubled by this situation. “This review process is a wink-wink, nod-nod,” he said.

JPMorgan and Deloitte declined to comment.

Robert Garsson, a spokesman for the comptroller’s office, said the regulator was satisfied with its vetting process. “We were particularly focused on situations where consultants and law firms may have previously worked on issues they would be called upon to evaluate in the review process,” he said in a statement. “If we identify conflicts that were not apparent at the time the engagement letters were signed, we will take steps to address them.”

Beyond the potential for conflicts, Ms. Cohen pointed to other flaws in the program. For instance, she said the years under review were not when most subprime loans were put into foreclosure. Many predatory loans are likely to be excluded from the analysis.

Even more problematic, Ms. Cohen said, is the fact that the program has left troubled borrowers who participate in it unprotected against further damage. For example, participants in line to get remuneration may be asked to give up their rights to defend themselves if they get into financial trouble again.

“This process is not meant to fix the original lending practices, so people need to hang on to their right to challenge the original loan later,” she said.

She also noted that borrowers in the process of having their cases reviewed could still lose their homes under the program. “O.C.C. has said their policy will involve an escalation process and expedited review of people in a certain proximity to a foreclosure sale,” Ms. Cohen said. “But the sale itself is not being stayed in any systematic way.”

None of this surprises Ms. Cohen or others familiar with the regulator. “This is the O.C.C . that we’re talking about,” she said. “It has a long record of favoring banks over homeowners.”

By Dina ElBoghdady, Thursday, April 14, 8:46 PM
One of the leading Democratic lawmakers on housing policy and the Obama administration’s own housing agency criticized as too stringent an administration proposal that would push home buyers to come up with sizable down payments.

Housing officials criticize 20% down-payment proposal
Down-payment requirement angers senators
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Under the plan, banks would have to retain a stake in the home purchase loans they make to borrowers who put down less than 20 percent. The banks say that the requirements would be costly and that those costs would be passed on to borrowers in the form of higher interest rates. That would effectively shut millions of families out of homeownership.

At a House subcommittee hearing Thursday, Rep. Barney Frank (D-Mass.) said the arguments against setting such a high threshold are “persuasive.” A 20 percent down payment “does seem very high,” Frank said.

Bob Ryan, acting commissioner of the Federal Housing Administration, agreed that the proposal has the potential to deny affordable loans to creditworthy borrowers. Ryan urged serious consideration of another option in the proposal that would set the down payment at 10 percent.

“We are definitely concerned about 20 percent and the impact,” Ryan said.

Since the proposal was unveiled last month, a coalition of consumer groups and civil rights advocates has joined the real estate industry to lobby against the high-down-payment initiative. They say saving the upfront cash is an especially tough hurdle for first-time buyers and minorities, who rely heavily on low-down-payment loans.

The six federal agencies involved in crafting the proposal — including the Federal Deposit Insurance Corp. and the Federal Reserve — will gather public comment on it through June 10. The plan would take effect a year after it is finalized.

But differences among the participating agencies surfaced at the hearing.

Ryan, whose agency is part of the Department of Housing and Urban Development, aligned himself with the 10 percent alternative. He argued that down payments alone are not the most reliable predictor of a borrower’s ability to sustain a loan, and he pointed to other factors, such as a borrower’s credit score. His agency insures low-down-payment loans and caters to low-income borrowers and first-time buyers.

But the Federal Housing Finance Agency — which oversees mortgage financiers Fannie Mae and Freddie Mac — analyzed loans sold to both companies from 1997 to 2009 and concluded that lowering the down payment to 10 percent would not greatly boost the share of loans exempt from risk retention.

The share of home purchase loans would have increased by just 5 percentage points, from 27 percent to 32 percent and those additional loans would have been riskier, Patrick Lawler, FHFA’s chief economist, told lawmakers.

Some consumer advocates reached similar conclusions. To buy a home for $172,100, the median national price, a borrower making a 10 percent down payment would have to come up with nearly $26,000, including closing costs, according to the Center for Responsible Lending. It would take a middle-income family about nine years to come up with the cash.

“Even a 10 percent down payment would put homeownership beyond the reach of many creditworthy families who would otherwise have succeeded in homeownership,” Ellen Harnick, senior policy counsel at the center, said in her testimony.