A federal judge has ruled that Bank of America Corp cannot have a lawsuit by investors seeking to force it to buy back mortgages heard in federal court, saying he lacks jurisdiction to decide the case. Tuesday’s ruling by Judge Richard Holwell of the U.S. District Court in Manhattan means the case will move to state court. Holwell did not decide the merits of the case. “Congress passed two statutes within a year of each other to address the mortgage crisis,” the judge wrote. “In neither of these statutes did Congress federalize the case.”

The ruling is a win for investors, to the extent that Holwell rejected a claim by the bank’s Countrywide Financial Corp unit that new federal laws to encourage loan modifications to help struggling borrowers stay in their homes govern this case. Countrywide had argued that the laws negated obligations it might have had to buy back modified loans. In 2008, Countrywide agreed with some 11 state attorneys general to modify $8.4 billion of loans made to roughly 400,000 borrowers. Investors who own mortgage securities typically receive interest and principal payments. If servicers modified the underlying loans to reduce borrower obligations, investors would be harmed because they would receive lower payments.

Holwell did rule that investors bear the burden of showing that pooling and servicing agreements for their loans, taken “as a whole,” require Countrywide to buy back the loans. The current case was brought by two investment funds holding Countrywide mortgages, Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC. These investors complained they would be harmed if Countrywide shifted the burdens of loan modifications to 374 trusts into which loans had been repackaged and securitized.

These investors would rather Countrywide repurchase modified loans for the full unpaid amounts. Countrywide had been the largest U.S. mortgage lender before Bank of America acquired it last July for $2.5 billion. The case is Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC v. Countrywide Financial Corp, U.S. District Court, Southern District of New York (Manhattan), No. 08-11343.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Banks Fail To Modify Mortgages - Homeowners tell how firms failed to redo home loans

By Kevin G. Hall
McClatchy Newspapers

Nearly three years into the deepest U.S. housing slump in generations, lenders are modifying only a small number of problem mortgages, and rising foreclosures are retraining the economy’s recovery.

The Obama administration has stepped up pressure on lenders and their mortgage servicers, who act as bill collectors on behalf of investors who own mortgage bonds. The administration on Aug. 4 unveiled the first of what will be monthly “name and shame” exercises, publishing data on the loan-modification efforts of about three dozen companies. McClatchy received calls and e-mails from borrowers across the nation in response to a recent story about the “name and shame” effort.

In subsequent interviews with them, a common theme emerged: Virtually all say they were encouraged, directly or indirectly, by their lenders to fall behind on their mortgage payments in order to qualify for loan modifications. Then the modifications never came. These borrowers burned through retirement savings, destroyed their credit reactions and suffered mental and financial hardship.

Here are two of their stories:
Phil Stubblefield, 61, arrived in loan modification hell quite by accident. His ex-wife died of heart failure April 20, and her Sacramento home and Countrywide mortgage passed to their daughters, one of whom was in college and the other starting medical school. As students, each had limited income.

Stubblefield reached out in May to Bank of America, which had bought Countrywide in January 2008, as it faced a bankruptcy filing because of problems with its loan portfolio. Stubblefield sought to modify the loan on the property in order to stay current amid unusual circumstances.

“Virtue was met with no help at all. The only recommendation was, ‘We can help you when the loan goes into default,’ “said Stubblefield, an Amtrak train conductor in California’s capital.

After the mortgage payment became two months late in June, the girls started receiving what Stubblefield dubs “nasty-grams.” After becoming authorized to speak for his daughters, he tried to negotiate a lower interest rate to reduce payments enough for him to help, or to have some portion of the loan forgiven.

“I was waiting for them to turn around and say, ‘What can you do for us?’ There was no coming together, no negotiation,” he said. “It was ‘Sell the house,’ and that’s when I came back and said, ‘Don’t you read the newspapers? There are 40,000 foreclosures in Sacramento and a 19-month turnaround on [real estate] listings.”’

A work-from-home psychotherapist and real-estate agent, Helen Rudinsky, 53, bought property in the nation’s capital in June 2004. At the height of the housing boom, she took out an interest-only loan, offered for pricier homes and marketed as virtually risk-free because of climbing home values.

A few years later, she gave birth to a boy who was diagnosed with autism. She temporarily moved to Bend, Oregon, seeking easier access to expensive testing and therapy for her child. Rudinsky contacted Wells Fargo last October about mortgage options because her payment of $2,500 a month was set to leap by $1,000 this month. She said that a Wells Fargo employee advised her that only loans that fell behind on payments were reviewed for modification. Rudinsky has never missed a payment, had a credit score of 770 (anything higher than 600 is considered good) and put down $130,000 when she bought her home - clear evidence that she was a reliable customer. She took the employee’s response as a suggestion to miss payments, and as a solution to her problem. “I got behind, and then it spiraled out of control,” she said.

Assigned a loan negotiator, Rudinsky called many times a week but got nowhere. She followed a checklist to ensure that all necessary documents were with the lender, but it was never enough, she said.

In May, she was told that she was approved for a program with interest payments potentially as low as 2 percent. After more documents and more back-and-fourth, Rudinsky was finally assured that things were on track and that the foreclosure process was on hold. Later, to her shock - nearly 10 months after her initial call to Wells Fargo for help, her home suddenly headed for auction.

The sale was scheduled for 10:15AM, August 4th. Rudinsky raided her retirement funds to pay $30,795 in a last-ditch move that saved her home minutes before the auction. Days later, when Wells Fargo called again, demanding that she make good on her loan or lose her home, she said, “I don’t know what to do anymore. I feel like Alice in Wonderland, because whatever you do, it isn’t enough.”

Wells Fargo had modified only 6 percent of its eligible loans through June.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Nevada recently passed a bill that requires all lenders to appear for mediation prior to foreclosing on a property. The bill has now been utilized to force lenders to the mediation table before they foreclose.

The Nevada Foreclosure Mediation Program has received its first three requests for mediation as the homeowners work to save their houses.

Two requests came from Clark County residents and the third came from a Carson City homeowner. Mediations have not yet been scheduled, but will be within 80 days of the filing of the foreclosure notice under Nevada law and Supreme Court rules. The first mediations are expected to occur in August.

In the first three weeks of the Nevada Foreclosure Mediation Program, which began on July 1 under Assembly Bill 149, more than 2,400 foreclosure notices have been filed in Nevada. More than 2,000 of those originated in Clark County. Those default notices include commercial and non-owner-occupied properties as well as the owner-occupied homes eligible for the mediation program.

The initial mediations will be conducted by Senior District Judges or Supreme Court Settlement Judges in addition to experienced mediators and some attorneys. These will participate in the program’s initial training sessions on Aug. 5 in Reno and Aug. 6-7 in Las Vegas. The media is invited to attend the training.

More than 400 attorneys have offered to become mediators, but are not yet trained. Under AB-149, the Nevada Supreme Court was responsible for adopting the rules for the program, which is being operated by the Administrative Office of the Courts. The rules require that the parties to mediate in “good faith.”

While the program will offer homeowners the opportunity to sit down with their lenders, mediation will not be the solution for everyone and some homes inevitably will be lost to foreclosure. AB-149 only affects single-family, owner-occupied housing in Nevada and currently applies only to foreclosure notices (formally known as Notice of Default and Election to Sell) filed on or after July 1, 2009.

A request form and easy to understand instructions will accompany the foreclosure notices when they are served. That form, along with other forms and information, is available on the Supreme Court website.

The Administrative Office of the Courts has established hotline phone number for questions about the program. The number in Carson City is 775-687-9816. The number in Las Vegas is 702-486-9380. Questions may also be directed over the Internet to foreclose@nvcourts.nv.gov. This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

The foreclosure mediation program is self funded through fees and will not require the expenditure of any taxpayer dollars. Lenders pay an increased fee for filing a foreclosure notice, which is used to fund administrative costs of the program. Homeowners and lenders will share the $400 costs for the mediators, with each party paying $200 prior to the mediation.

Forcing the lender to the mediation table is a great step in the right direction to help homeowners protect their homes from unethical and wrongful foreclosures.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com