Massachusetts AG Sues Fannie/Freddie Over Buyback Programs

Massachusetts AG Sues Fannie/Freddie Over Buyback Programs

Massachusetts Attorney General Martha Coakley has sued the Federal Housing Finance Agency (FHFA) and mortgage giants Fannie Mae and Freddie Mac, alleging the companies’ refusal to engage in foreclosure buybacks programs is “unfairly and illegally causing Massachusetts families to lose their homes.”

Filed Monday in Suffolk Superior Court, the Massachusetts AG’s suit alleges that Fannie Mae and Freddie Mac refuse to comply with an August 2012 state law.

Buyback programs, in this instance, are used by non-profit organizations to buy a foreclosed property to resell it back to the original owner at a more affordable price. The aforementioned state law prohibits creditors from blocking such programs.

The recently-filed suit alleges the two GSEs have failed to comply with the law due to policies that prohibit property sales to non-profits in order to resell the property to the original homeowner.

“It makes no sense for our federal government to stand in the way of this work to help struggling families stay in their homes, and it is illegal for Fannie and Freddie to do this in Massachusetts,” Coakley said. “For too long, Fannie and Freddie have been roadblocks to progress in addressing this foreclosure crisis, and I urge them to immediately reverse their policy on this common-sense program.”

One example cited in the complaint is Boston Community Capital’s Stabilizing Urban Neighborhoods (SUN) Initiative. The program buys back foreclosed, REO properties at present market value and sells them back to homeowners.

“Buyback programs like SUN prevent needless displacement of families that through an arrangement with a non-profit can afford to stay in their homes. Fannie Mae and Freddie Mac have continued to block buybacks even though they lose money in the process,” the AG’s office said in a release.

Representatives for Fannie Mae and Freddie Mac offered no comment, citing pending litigation.


Ocwen No Longer Requiring Gag Orders on Loan Mods

Ocwen No Longer Requiring Gag Orders on Loan Mods

In a report originally in Reuters, Ocwen will stop requiring gag orders, which disallowed some homeowners from criticizing the company publicly in exchange for having their loan terms modified, according to New York State’s Superintendent of Financial Services Benjamin Lawsky.

As previously reported, the company, along with Bank of America and PNC, required some litigious homeowners, upon receiving loan modifications from the companies, to sign non-disparagement clauses as a part of their mortgage settlement.

“In discussions with our Department, Ocwen has agreed to no longer seek gag rules as part of settlement agreements or loan modifications with borrowers,” Lawsky, the superintendent of New York’s Department of Financial Services, said in an emailed statement to Reuters. “Additionally, the company has stated it will not enforce gag rule provisions in existing agreements.”

Lawsky said he is reviewing the issue with the other financial institutions.

Bank of America clarified their position, noting that they do not use non-disparagement clauses in normal modification agreements.

The company said, “We do not include non-disparagement clauses or releases of claims in normal modification agreements. Only when a customer is part of a negotiated settlement that provide additional consideration to the customer is a non-disparagement and related confidentiality clause considered, and in those cases it does not preclude the customer from filing suits on post-settlement issues.”

Ocwen said that it had only used non-disparagement clauses in the “highly unusual situation where there is a legal settlement agreement with a borrower.” The company claims these specific situations account for less than 1 percent of the loans in its total portfolio.

“We are gratified that Ocwen worked constructively with us to resolve this matter, and our Department intends to review this issue at other financial institutions,” Lawsky said.

PNC Financial Services could not be reached for comment.

California Man Sentenced to 51 Months for Fraud

California Man Sentenced to 51 Months for Fraud

The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) announcedthat Steven Pitchersky of Rancho Mirage, California was sentenced to 51 months in federal prison for a scheme to defraud GMAC Inc., since rebranded as Ally.

Through his fraudulent actions, the company incurred losses of approximately $5.3 million. In addition to the prison term, Pitchersky is ordered to pay restitution in the amount of roughly $3.2 million, serve five years of supervised release, and a $100 special assessment.

“Greed got the best of Pitchersky, and for his crimes, he will spend the next 51 months in federal prison,” said Christy Romero, Special Inspector General. “Through his mortgage origination company, Pitchersky ran a $5.3 million mortgage fraud scheme that caused millions of dollars in losses to Ally Financial, which still owes billions in TARP funds.”

Pitchersky operated Nationwide Mortgage Concepts (NMC), a California Mortgage Lender. Between 2009 and 2011, Ally was the warehouse lender for thousands of mortgages loans. NMC borrowed from a $10 million warehouse line of credit to refinance first mortgages held by other institutions.

Pitchersky misrepresented himself to Ally in order to secure the warehouse line of credit, including a false representation that NMC already had another $10 million warehouse line of credit with another company. The company, “MPL,” was a fake, with a contact number listed for a “Rick Jay” that dialed to Pitchersky’s cell phone.

He funneled the funds through a third-party title company, “Hanover,” which was actually created by Pitchersky, allowing him to have complete control over money NMC acquired from Ally’s warehouse line.

“Between December 2010 and January 2011, Ally advanced NMC approximately $5.3 million to pay off 23 first mortgages for NMC clients. NMC failed to use these funds to pay off these mortgages and instead used the money to pay off first mortgages for other customers,” SIGTARP said.

In total, $17.2 billion in federal taxpayer bailout funds were invested in Ally Financial through TARP. Pitchersky pled guilty to wire fraud in connection with the scheme.

CFPB Fines Alabama Firm for Mortgage Disclosure Violations

CFPB Fines Alabama Firm for Mortgage Disclosure Violations

The Consumer Financial Protection Bureau (CFPB) ordered RealtySouth to pay a civil penalty of $500,000 for inadequate disclosures. The largest real estate firm in Alabama was charged with leaving consumers unaware of their rights to choose service providers during the home-buying process.

“Disclosures give consumers the power to make informed financial decisions, and buying a house is among the biggest financial decisions most people ever make,” said CFPB Director Richard Cordray. “The Consumer Bureau will continue to take action against companies that attempt to modify disclosures and keep consumers in the dark.”

The CFPB charged RealtySouth with violations of the Real Estate Settlement and Practices Act (RESPA), which offers protection to consumers by prohibiting kickbacks for referrals of real estate settlement services. RealtySouth violated these rules by providing preprinted form purchase contracts, which its agents provided to homebuyers that either explicitly directed or suggested that title and closing services be performed by its affiliate, TitleSouth.

“While RESPA allows real estate companies to refer their customers to affiliated businesses, the law requires them to provide consumers an “Affiliated Business Arrangement” (ABA) disclosure that clearly states their right to shop around for a better price and that they are not required to use the affiliated company,” CFPB said.

The disclosure provided by RealtySouth did not comply with the law. The disclosure did not properly highlight consumers’ rights, and the language was buried in a section of text that also made marketing claim’s about the company.

The case was referred to the CFPB by the Department of Housing and Urban Development (HUD). RealtySouth has since changed its disclosure forms after being contacted by the CFPB.

SIGTARP Charges Wisconsin Man with Wire Fraud

SIGTARP Charges Wisconsin Man with Wire Fraud

Christy Romero, Special Inspector General for the Trouble Asset Relief Program (SIGTARP), announced Tuesday in a press release that David Weimert, of Madison, Wisconsin, has been charged with six counts of wire fraud involving a real estate development transaction.

The indictment alleges that Weimert, “while working at Anchor BanCorp Wisconsin, Inc. (ABCW) as a Senior Vice-President in Lending Administration, and as the President of Investment Directions, Inc. (IDI), a wholly owned subsidiary of ABCW, devised and participated in a scheme to defraud IDI and obtain money by means of fraudulent pretenses,” the release said.

In January, 2009, ABCW received $110 million in federal taxpayer funds through the U.S. Department of the Treasury Trouble Asset Relief Program (TARP).

Weimert allegedly misrepresented and omitted information in an effort to gain ownership interest in Chandler Creek, a joint venture partnership formed to develop an industrial park in Round Rock, Texas, and obtain a 4 percent commission fee as a part of the sale of the property.

The release continues, alleging, “Weimert falsely represented to his superiors that the Burke Group, a commercial real estate developer in Costa Mesa, Calif., would purchase IDI’s share of Chandler Creek contingent on Weimert purchasing a minority interest of Chandler Creek as part of the deal, when it was Weimert who desired the minority interest for himself, not the Burke Group.”

Through Weimert’s alleged misrepresentations and omissions, he induced the IDI Board of Directors to accept the Burke Group’s offer to purchase Chandler Creek. Weimert received a 4.785 percent ownership interest, and a 4 percent commission fee totaling $311,680.

“Weimert, a former SVP in lending at TARP-recipient AnchorBank, is charged with scamming the bank and his superiors in order to pocket more than $300,000 for himself in a fraud-laced real estate deal,” Romero said. “Weimert purportedly used his position at the bank to convince his superiors that successfully closing an important real estate deal was contingent upon him being granted an ownership stake in the property, which in turn entitled him to a $311,680 payday at closing.”

If convicted, Weimert faces a maximum penalty of 30 years in federal prison on each count of wire fraud.

Regulator Voices Worries on Growth of Non-Bank Servicers

Regulator Voices Worries on Growth of Non-Bank Servicers

The New York regulator who put a hold on Ocwen’s latest mortgage servicing rights (MSR) deal with Wells Fargo expressed on Wednesday his concerns about the rapid growth of non-bank servicers in the industry—and his belief that regulators should step in when necessary.

Benjamin Lawsky, superintendent of financial services for New York, outlined his worries before an audience at the New York Bankers Association Annual Meeting and Economic Forum.

“In 2011, all of the ten largest mortgage servicers were traditional banks. Today, four of the top ten are non-banks,” Lawsky said. “And those four non-bank firms alone service more than a trillion dollars of loans—10 percent of the residential mortgage market, and climbing.”

With much of this growth coming from distressed loans unloaded from large banks burdened by greater regulatory pressure, Lawsky said his concerns lie with the homeowners struggling on those mortgages.

“There are real people at the other ends of these loans, and the ability to work with those homeowners is not something that these non-bank firms can build up overnight,” he remarked.

The regulator also said watchdogs should maintain a healthy dose of skepticism when these companies tout their abilities to operate at a lower cost, saying such boasts merit a closer examination.

“[W]hen we take that closer look at the non-bank mortgage servicing industry, we see corners being cut. And, as a result of those cut corners, we are seeing far too many struggling homeowners getting caught in a vortex of lost paperwork, unexplained fees, and avoidable foreclosures,” he said.

Lawsky’s remarks cast a little more light on his move to slow portfolio growth at Ocwen, which has expanded dramatically in the last year. He referenced the company—albeit without naming it—in his speech, pointing to the $300 billion growth in its servicing portfolio from 2012 to November 2013.

In the next two to three years, Ocwen sees more than $1 trillion in growth opportunities in bank divestiture and servicer acquisitions, according to a filing with the Securities and Exchange Commission.

Ocwen did not immediately respond to a request for comment on Lawsky’s remarks, though the company said in a release in early February that it intends to work closely with New York’s Department of Financial Services “to resolve its concerns about Ocwen’s servicing portfolio growth.”

FHFA Report Finds Lack of Compliance; Oversight

FHFA Report Finds Lack of Compliance; Oversight

The Federal Housing Finance Agency (FHFA) Office of the Inspector General (OIG) released a report Wednesday, outlining conclusions drawn from a study done on the Servicing Alignment Initiative (SAI). The assessment of servicers provided by the FHFAOIG was far from glowing, citing specific areas of improvement for servicers of Government-Sponsored Enterprise (GSE) mortgages, specifically those who service Fannie Mae and Freddie Mac.

The survey covered FHFA’s implementation and oversight of SAI during the period of January 1, 2011, through October 31, 2013.

In 2011, the FHFA established SAI for the initial purpose, as noted in the report, to “to improve mortgage servicing and limit Enterprise (Fannie Mae and Freddie Mac) financial losses.” To that end, a series of contractual provisions were required by Fannie Mae and Freddie Mac. Servicers were required to comply with these new provisions when managing the accounts of financially distressed borrowers.

“For example, servicers are required to respond to borrowers’ requests for assistance within specified timeframes, and conduct loan modifications and foreclosures pursuant to procedures and deadlines prescribed by FHFA,” said the report.

The FHFAOIG study provided two specific conclusions: an inability to oversee compliance procedures required by SAI, and a lack of servicer compliance.

First, the FHFA’s Division of Housing Mission and Goals (DHMG), primarily responsible for overseeing SAI and servicer compliance, noted limitations of the SAI and the Servicer Oversight Program (SOP).

The report commented that “DHMG has neither reviewed nor evaluated the servicers’ overall compliance with numerous SAI-related guidelines and performance goals even though they have been in place since 2011.” The report says that DHMG is not in a position to assess the effectiveness of the GSE’s initiatives to identify servicer’s compliance with SAI.

The report continued: “Moreover, DHMG does not require the Enterprises to submit critical internal reports and reviews on servicers’ SAI compliance that would be of benefit to the division’s oversight program.”

Second, Fannie Mae and Freddie Mac indicated the existence of “considerable servicer non-compliance with SAI’s requirements.”

In October, 2013, Fannie Mae and Freddie Mac found 63 SAI non-compliance findings in multiple areas, including untimely referrals to foreclosure and completed foreclosures, failure to solicit borrowers to consider foreclosure alternatives, and failure to respond timely to requests for foreclosure alternatives.

An August, 2012, a servicer performance scorecard revealed 9 out of 34 servicers garnered a rating of “needs significant improvement.”

The report commented that “DHMG did not develop and implement a process to determine whether servicers were complying with the numerous requirements contained in the SAI-related servicing guidelines and meeting related performance goals.”

The FHFAOIG called for more monitoring and oversight in order to ensure provisions of SAI are followed.