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Sunday, October 03, 2010

Nightly Mortgage Mess

by Calculated Risk on 10/03/2010 11:32:00 PM

Note: Here is the weekly schedule for Oct 3rd, and the summary for last week.

A few articles ...

From Gretchen Morgenson at the NY Times: Flawed Paperwork Aggravates a Foreclosure Crisis

The implications are not yet clear for borrowers who have been evicted from their homes as a result of improper filings. But legal experts say that courts may impose sanctions on lenders or their representatives or may force banks to pay borrowers’ legal costs in these cases.

Judges may dismiss the foreclosures altogether, barring lenders from refiling and awarding the home to the borrower. That would create a loss for the lender or investor holding the note underlying the property. Almost certainly, lawyers say, lawsuits on behalf of borrowers will multiply.
Sanctions and awarding the defendants legal costs are likely - and it will be costly to fix these errors, but it is very unlikely in a foreclosure case that a judge will dismiss the bank's complaint with prejudice.

The facts of these cases are 1) the borrower had a mortgage, and 2) the borrower is seriously delinquent (with the exception of a few cases with outright errors). Those facts are not in dispute. Just something to remember when reading these stories.

From Robbie Whelan at the WSJ: Foreclosure? Not So Fast
Israel Machado's foreclosure started out as a routine affair. In the summer of 2008, as the economy began to soften, Mr. Machado's pool-cleaning business suffered and like millions of other Americans, he fell behind on his $400,000 mortgage.

But Mr. Machado's response was unlike most other Americans'. Instead of handing his home over to the lender, IndyMac Bank FSB, he hired Ice Legal LP in nearby Royal Palm Beach to fight the foreclosure. ...

Mr. Machado and his lawyer, Tom Ice, say they now want to convince the owners of the mortgage to cut Mr. Machado's loan balance to between $150,000 and $200,000—the current selling price for comparable homes in his community near West Palm Beach. "The whole intent was to get them to come to the negotiating table, to get me in a fixed-rate mortgage that worked," Mr. Machado said.
That explains why Machado (and I suppose others) are hiring attorneys - they are trying to get the banks to do a principal reduction.

And from the NY Times editorial: On the Foreclosure Front
It is hard to be shocked. During the bubble, banks and other lenders ignored loan standards and stuffed the mortgage pipeline with toxic loans and related securities. Since the bubble burst, efforts to rework bad loans have been slowed by the lenders’ resistance, and by their incompetence.
The robo-signing scandal is yet another reminder that it is folly to rely on banks that got us into this mess to get us out.