Lender Allowed To Foreclose But Punished By Court For Violating Consumer Fraud Act

by: Peter J. Gallagher

A New Jersey trial court issued an interesting opinion last week, allowing a lender to foreclose but imposing significant limitations on the lender because the court concluded that the lender had violated the Consumer Fraud Act.

In Freedom Mortgage Corporation v. Mamie E. Major, borrower wanted to refinance the mortgage on her home to lower the 5 5/8 interest rate and take out additional money to help pay for her grandson’s college tuition. Defendant was 70 years old, earned approximately $30,000 per year and owed $341,500 on her existing mortgage. At the time of the refinance her home had a market value of $365,000, but she eventually abandoned her plan to obtain more equity from the home and instead refinanced just to lower the interest rate.

Her existing home loan was an FHA-insured loan and was current, so Freedom Mortgage Company treated the refinance as an FHA “Streamline loan,” which required little or no new or extra documentation and did not require a new appraisal. According to Freedom, FHA guidelines allowed it to rely on the underwriting performed by the prior lender. Nonetheless, before approving the refinance, Freedom used a “net benefit” test to determine whether it was justified, and concluded that it was because both the interest rate and the monthly payment would be lower under the new loan.

At the closing, borrower signed a HUD-1A Settlement Statement that showed a new loan of $354,005, which included the payoff of the prior loan, the payoff of open tax balances, and $11,479.65 in settlement charges, payable to Freedom, for, among other things, a loan discount fee, commitment fee, application fee, and courier fee.

After making six payments on the new loan, borrower defaulted. Freedom filed a foreclosure complaint, which borrower answered. Freedom then moved to strike the answer and proceed with the foreclosure as uncontested. The court granted this motion, but found that there was a factual issue as to whether Freedom violated the New Jersey Consumer Fraud Act (“CFA”) in connection with the refinance. After trial on this issue, the court concluded that Freedom had, in fact, violated the CFA.

 

Continue reading “Lender Allowed To Foreclose But Punished By Court For Violating Consumer Fraud Act”

You Got A Better Idea?!? Government Opens Suggestion Box For Ideas On How To Rent Out Foreclosed Properties

by:  Peter J. Gallagher

  The New York Times is reporting that the government is soliciting ideas for turning its glut of vacant, foreclosed houses into rental units that could be managed by private parties or sold in bulk  ("U.S. Seeks Ideas On Renting Out Foreclosed Property").  The goal of the program would be to "stabilize neighborhoods where large supplies of empty, foreclosed properties have hurt property values" and "clear the nation’s balance sheet of real estate holdings that, because they have been difficult to sell individually, have hung over the housing market and stunted sales of existing homes and new construction."  The request for ideas comes from the Federal Housing Finance Agency, the Department of Housing and Urban Development, and the Treasury Department, and you can click here to submit your ideas.

As the article notes, the percentage of homes owned by the government that are currently in foreclosure is somewhat staggering:

Of the 248,000 homes owned by Fannie Mae, Freddie Mac and the F.H.A. at the end of June, 70,000 were listed for sale, said Corinne Russell, a housing finance agency spokeswoman. The remainder were not yet on the market or the agencies had already received an offer from a prospective buyer.

But it is possible that hundreds of thousands of more homes that are now in the foreclosure process could come into the possession of the federal government in the next few years, housing experts say.

The government is now looking for a few good men ideas for how to deal with this crisis.  Among those already proposed are "rent-to-own programs, in which previous homeowners or current renters could lease properties as a path to ownership, and ways in which the properties can be used to support affordable housing."

If you have any thoughts, be sure to let us know when you let the government know.

Update: Maybe HUD Is Not A Dud And The Washington Post Was Just Slinging Mud?

by:  Peter J. Gallagher

Earlier this week, we posted a story about the Washington Post's year-long investigation into HUD's HOME Program which was designed to provide affordable housing to the  working poor ("HUD Is A Dud According To Washington Post Investigative Report").  As you might recall, the investigation slammed HUD's management of the HOME Program as "dysfunctional."  HUD has now posted a response on its blog (the cleverly title HUDdle), called "Setting The Record Straight: What The Washington Post Got Wrong About The HOME Program."  After reading the response, you may be left with the impression that HUD could have shortened it to one word — "everything" — because it offers a strikingly different view of the HOME Program than the one presented in the Post.  Among other things, HUD criticized the Post's study for: (1) unfairly focusing on a small percentage, approximately 2.5%, of the more than 28,000 active developments underway pursuant to the HOME Program; and (2) failing to factor the nationwide housing crisis into the equation. 

In a follow up article, "Members Of Congress Call For Probe Of HUD's Affordable-Housing Program," the Post noted that it never intended to track all 28,000 projects, but instead analyzed 5,100 deals worth $50,000 or more, hundreds of which were started before the housing crisis began.  The Post also reported that, in response to its study, a bipartisan group of Senators and Congressmen were calling for investigations into the program. 

HUD Is A Dud According To Washington Post Investigative Report

by:  Peter J. Gallagher

According to a recently concluded, year long study by the Washington Post, HUD is dysfunctional.  The paper — which reported its findings in an article last week entitled "A Trail Of Stalled Or Abandoned HUD Projects" — " looked at "every major project currently funded under the [HOME Investment Partnerships Program], analyzing a database of 5,100 projects worth $3.2 billion, studying more than 600 satellite images and collecting information from 165 housing agencies nationwide." The study concluded that HUD "delivers billions of dollars to local housing agencies with few rules, safeguards or even a reliable way to track projects."   This, in turn, has led to "widespread misspending and delays" in the program, which was developed more  than 20 years ago to deliver decent housing to the working poor. 

While the article focuses primarily on the conditions in Washington D.C., it also discusses more systemic problems, and uses an example from Newark, New Jersey in this regard.  The article notes that two partially completed duplexes sit empty in a Newark neighborhood "blighted by boarded-up homes lost to foreclosure."  While the city paid nearly $400,000 to build the houses, the developer delayed for more than 10 years, and ultimately folded and never finished the project.  The money has not been repaid.  In response to the Post's investigation, HUD claimed that it did not need a a more robust enforcement effort to correct problems like these, and indicated that it is "focused more than ever on delayed projects and recouping money," and that the situation "will get cleaned up.”             

Chickens Continue Coming Home To Roost For Lenders And Mortgage Companies Involved In Foreclosure Crisis

by:  Peter J. Gallagher and Steven P. Gouin

Our regular followers know that many of our pieces focus on the foreclosure industry, and with good reason, as over 2 million American homes are currently in foreclosure.  Add to this troubling statistic the recent allegations of shoddy paperwork at many of the nation's largest mortgage companies and the law firms representing them, and you have the makings of a compelling story of a giant foreclosure-induced catastrophe.  While homeowners have been feeling the pain from this crisis for years now, the catastrophe struck close to home recently for many of the banks and mortgage companies at the heart of the foreclosure crisis. 

In an article entitled “Confidential Federal Audits Accuse Five Biggest Mortgage Firms Of Defrauding Taxpayers,” the Huffington Post is reporting that a recent federal audit conducted by the Department of Housing and Urban Development (HUD) revealed that five of the nation's largest foreclosure firms, including industry giants like CitiBank and Bank of America, are guilty of fraud under the Federal False Claims Act.  Specifically, the audit concluded that the banks “filed for federal reimbursement on foreclosed homes that sold for less than the outstanding loan balance using defective and faulty documents.”  According to the article, federal prosecutors are debating whether to use the audits as the basis for criminal and civil sanctions against the mortgage companies. 

At the same time, the New York Times is reporting that New York Attorney General Eric Schneiderman has requested information and documents from three major banks – Goldman Sachs, Bank of America, and Morgan Stanley – about their mortgage-backed securities operations (“NY State Investigates Banks’ Role In Financial Crisis”).  This suggests that Mr. Schneiderman may be launching an investigation into the banks' practices, which many believe led to billions in mortgage losses.  One of the most interesting aspects of the article is the suggestion that, by requesting this information from the banks, Mr. Schneiderman is “operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices.”  The article notes that Mr. Schneiderman has been unwilling to join this proposed settlement because the banks are demanding that it include a clause whereby regulators agree not to conduct additional investigations into the banks’ activities during the mortgage crisis.