Mortgage Servicers to Pay Back Overcharged Homeowners

Posted on August 1, 2012 by

Obscuris vera involvens or “truth is enveloped by obscurity”. Have you ever been late with a mortgage payment then you see fees pile up like cars in a rear end collision from that single event? This accounting is illegal but this is how Mortgage Servicers’ systems record payments and assess fees. Most people paid the multiple fees then made sure it never happened again. Others, not so lucky, lost their home through foreclosure.

Legacy Mortgage Servicing system on autopilot, unable to change its path

To straighten out a file, a bank employee or consultant must manually piece together every transaction, sort them into a time line so he or she can then figure out what should have happened when before correcting any errors. If that person doesn’t perform this task perfectly, they may have inadvertently harmed a borrower with possible legal liability to their employer. Additionally, this work is time consuming, there are not enough experienced auditors to reconstruct and correct the files of millions of homeowners and former homeowners who have been at the loosing end of the banks’ legacy systems.

Last year the largest mortgage servicers signed consent agreements with the Office of the Comptroller of the Currency OCC or the Federal Reserve FRB or both. In it they promised to sample files, identify systemic errors and pay back homeowners for overcharges and improper foreclosures.

To do this work the servicers engaged Independent Consultants IC. The ICs’ work is on going and they are due to issue their final reports to the OCC and the FRB soon. In addition to the above, they were charged to identify inaccurate borrower files and calculate remediation to borrowers. Their decision on remediation must be accurate as their word is final, over riding the bank’s own results. Borrowers will demand fairness, either individually or, more likely, through class action court challenges.

Institutional Investors are also covered by the consent agreements. The ICs are required by the OCC and the FRB to calculate bank and third party overcharges and fees that were deducted from foreclosure proceeds that are sent to the Institutional Investors. One IC however, Promontory Financial Group, has publicly stated calculating remediation payments to Institutional Investors is not part of their mandate. We will see.

To achieve the level of accuracy necessary to insure every borrower file is properly reconstructed and computed requires a level of repeatability and auditability that no human can achieve. Even if there were enough workers, no auditor can know all of the application rules, itself a complex moving target.

Independent Consultant striving to fairly treat every borrower

In short, automation is needed. Automation can extract the necessary data from various sources, reconstruct payments, charges and events into a time line. This output can be given to the auditors for their analysis. Or, automation can take the next step. Automation can apply contract rules, Federal, State and Local laws, court judgments, institutional investor agreements, Fannie Mae and Freddie Mac rules. Such things as SCRA compliance, Bankruptcy Court payment application schedules, and legally or contractually permitted charges can be applied and tested.

Unfortunately, mortgage servicers, borrower rights and creditor rights law firms, and GSEs have had no automated way to sort out errors in their processing system, until now. Our data extraction, normalization and file reconstruction services have solved these and other problems. E-bRM has a comprehensive collection of analytic templates and software as a service applications for most mortgage servicing bottlenecks. Let us prove it. Click on the link below to see a presentation of some of the mortgage servicing issues we can help solve.

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Connecting the Dots: How Pervasive is the Systemic Risk?

Posted on April 12, 2012 by

As the depth and discovery associated with the systemic risk of mortage assets is realized, the financial harm grows and so do the number of stakeholders! What was once perceived as a Borrowers problem has now grown to include an over-burdened Bankrupcty Court System, Institutional Investors, State Attorney Generals, and every single governmental infrastructure support agency as a function of rapidly devaluing housing assets and an eroding tax base.

Judge Wagner vs. Wells Fargo

Comprehensive Overview of the Systemic Risk and Events to Date

San Francisco Assessor validates high systemic error rates in foreclosures

Posted in Attorneys General, CFPB, FED, Foreclosure, Independent Consultants, Law Firms, Look Back, OCC, Servicers, Settlement Plan | Leave a comment

Software Tools that Automate the Mandated Mortgage Look Back

Posted on April 2, 2012 by

E-bRM Solutions

We are currently offering automated solutions for major aspects of the Servicer MOU requirements and on a going forward production basis for Servicers, Regulators (CFPB, OCC, FED), GSE’s (FHFA, Fannie, Freddie), HUD, Auditors (GAO, Internal, External), Attorney General’s (State Housing Finance Agencies, Independent Settlement Monitors), Creditor Rights Law Firms,  that include transparency and accuracy for all fee related calculations;

1) Bankruptcy (see example of Bankruptcy template in our overview section, link)

2) SCRA

3) Borrowers Fees (includes accurate payment histories, invoice proofing and secure realtime access for Servicers and Borrowers)

New templates can be created for areas such as the 22 types of Borrowers harm described in the outreach programs if desired.

 

 

Posted in Attorneys General, CFPB, FED, Foreclosure, Independent Consultants, Law Firms, Look Back, OCC, Servicers, Settlement Plan | Tagged , , , , , , , , , | Leave a comment

United States Sued and Settled Suit Against Major Mortgage Servicers for Unfair and Deceptive Practices

Posted on April 2, 2012 by

United States Sued and Settled Suit Against Major Mortgage Servicers for Unfair and Deceptive Practices

posted by Nathalie Martin

To add to Jean’s post on the National AG’s mortgage settlement, we now have a copy of a complaint that formed the basis for the AG settlement, in which the United States of America (along with all the states but Oklahoma) sued most of the major  servicers for committing misconduct in connection with the origination and servicing of single family mortgages. Here is the complaint (Download US v Servicers), but to give you a flavor the suit alleges, among other things, failing to discharge underwriting obligations, failing to do modification underwriting, losing the paperwork, failing to train or maintain sufficient staff to deal with the modification processes, allowing borrowers to stay in trial modifications for excessive periods of time, wrongfully denying modifications, misleading consumers in connection with modifications, and foreclosing while a customer is in modification.

Posted in Attorneys General, CFPB, FED, Foreclosure, Look Back, OCC, Servicers, Settlement Plan | Leave a comment

National Mortgage Settlement Details Posted

Posted on April 2, 2012 by

The details of the National Mortgage Settlement have finally been made available to the public.

You can read the full Settlement here.

Posted in Attorneys General, CFPB, FED, Foreclosure, Look Back, OCC, Servicers, Settlement Plan | Leave a comment

Audit Uncovers Extensive Flaws in Foreclosures

Posted on February 16, 2012 by

Here’s an example of how messy it can be when things go wrong.

E-bRM LLC has solutions to help identify and resolve these issues for all constituents; servicers, independent consultants and borrowers.

Audit Uncovers Extensive Flaws in Foreclosures

By
Published: February 15, 2012

An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday.

Annie Tritt for The New York Times

Phil Ting, the San Francisco assessor-recorder, found widespread violations or irregularities in files of properties subject to foreclosure sales.

Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings suggest how pervasive foreclosure irregularities may be across the nation.

The improprieties range from the basic — a failure to warn borrowers that they were in default on their loans as required by law — to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership.

Commissioned by Phil Ting, the San Francisco assessor-recorder, the report examined files of properties subject to foreclosure sales in the county from January 2009 to November 2011. About 84 percent of the files contained what appear to be clear violations of law, it said, and fully two-thirds had at least four violations or irregularities.

Kathleen Engel, a professor at Suffolk University Law School in Boston said: “If there were any lingering doubts about whether the problems with loan documents in foreclosures were isolated, this study puts the question to rest.”

The report comes just days after the $26 billion settlement over foreclosure improprieties between five major banks and 49 state attorneys general, including California’s. Among other things, that settlement requires participating banks to reduce mortgage amounts outstanding on a wide array of loans and provide $1.5 billion in reparations for borrowers who were improperly removed from their homes.

But the precise terms of the states’ deal have not yet been disclosed. As the San Francisco analysis points out, “the settlement does not resolve most of the issues this report identifies nor immunizes lenders and servicers from a host of potential liabilities.” For example, it is a felony to knowingly file false documents with any public office in California.

In an interview late Tuesday, Mr. Ting said he would forward his findings and foreclosure files to the attorney general’s office and to local law enforcement officials. Kamala D. Harris, the California attorney general, announced a joint investigation into foreclosure abuses last December with the Nevada attorney general, Catherine Cortez Masto. The joint investigation spans both civil and criminal matters.

The depth of the problem raises questions about whether at least some foreclosures should be considered void, Mr. Ting said. “We’re not saying that every consumer should not have been foreclosed on or every lender is a bad actor, but there are significant and troubling issues,” he said.

California has been among the states hurt the most by the mortgage crisis. Because its laws, like those of 29 other states, do not require a judge to oversee foreclosures, the conduct of banks in the process is rarely scrutinized. Mr. Ting said his report was the first rigorous analysis of foreclosure improprieties in California and that it cast doubt on the validity of almost every foreclosure it examined.

“Clearly, we need to set up a process where lenders are following every part of the law,” Mr. Ting said in the interview. “It is very apparent that the system is broken from many different vantage points.”

The report, which was compiled by Aequitas Compliance Solutions, a mortgage regulatory compliance firm, did not identify specific banks involved in the irregularities. But among the legal violations uncovered in the analysis were cases where the loan servicer did not provide borrowers with a notice of default before beginning the eviction process; 8 percent of the audited foreclosures had that basic defect.

In a significant number of cases — 85 percent — documents recording the transfer of a defaulted property to a new trustee were not filed properly or on time, the report found. And in 45 percent of the foreclosures, properties were sold at auction to entities improperly claiming to be the beneficiary of the deeds of trust. In other words, the report said, “a ‘stranger’ to the deed of trust,” gained ownership of the property; as a result, the sale may be invalid, it said.

In 6 percent of cases, the same deed of trust to a property was assigned to two or more different entities, raising questions about which of them actually had the right to foreclose. Many of the foreclosures that were scrutinized showed gaps in the chain of title, the report said, indicating that written transfers from the original owner to the entity currently claiming to own the deed of trust have disappeared.

Banks involved in buying and selling foreclosed properties appear to be aware of potential problems if gaps in the chain of title cloud a subsequent buyer’s ownership of the home. Lou Pizante, a partner at Aequitas who worked on the audit, pointed to documents that banks now require buyers to sign holding the institution harmless if questions arise about the validity of the foreclosure sale.

The audit also raises serious questions about the accuracy of information recorded in the Mortgage Electronic Registry System, or MERS, which was set up in 1995 by Fannie Mae and Freddie Mac and major lenders. The report found that 58 percent of loans listed in the MERS database showed different owners than were reflected in other public documents like those filed with the county recorder’s office.

The report contradicted the contentions of many banks that foreclosure improprieties did little harm because the borrowers were behind on their mortgages and should have been evicted anyway. “We can deduce from the public evidence,” the report noted, “that there are indeed legitimate victims in the mortgage crisis. Whether these homeowners are systematically being deprived of legal safeguards and due process rights is an important question.”

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The Top Twelve Reasons Why You Should Hate the Mortgage Settlement

Posted on February 9, 2012 by

The top mortgage servicers and the states attorneys general are very close to agreeing to a settlement in the mortgage foreclosure crisis.  How this will impact ongoing federal investigations, like the OCC / Fed consent decrees and look back remains to be seen, but the settlement is likely to take the pressure off the servicers to do any more than the minimum necessary to get this mess behind them.  Yves Smith of Naked Capitalism summed up the top dozen issues with the settlement as follows:

As readers may know by now, 49 of 50 states have agreed to join the so-called mortgage settlement, with Oklahoma the lone refusenik. Although the fine points are still being hammered out, various news outlets (New York Times, Financial Times, Wall Street Journal) have details, withDave Dayen’s overview at Firedoglake the best thus far.

The Wall Street Journal is also reporting that the SEC is about to launch some securities litigation against major banks. Since the statue of limitations has already run out on securities filings more than five years old, this means they’ll clip the banks for some of the very last (and dreckiest) deals they shoved out the door before the subprime market gave up the ghost.

The various news services are touting this pact at the biggest multi-state settlement since the tobacco deal in 1998. While narrowly accurate, this deal is bush league by comparison even though the underlying abuses in both cases have had devastating consequences.

The tobacco agreement was pegged as being worth nearly $250 billion over the first 25 years. Adjust that for inflation, and the disparity is even bigger. That shows you the difference in outcomes between a case where the prosecutors have solid evidence backing their charges, versus one where everyone know a lot of bad stuff happened, but no one has come close to marshaling the evidence.

The mortgage settlement terms have not been released, but more of the details have been leaked:

1. The total for the top five servicers is now touted as $26 billion (annoyingly, the FT is calling it “nearly $40 billion”), but of that, roughly $17 billion is credits for principal modifications, which as we pointed out earlier, can and almost assuredly will come largely from mortgages owned by investors. $3 billion is for refis, and only $5 billion will be in the form of hard cash payments, including $1500 to $2000 per borrower foreclosed on between September 2008 and December 2011.

Banks will be required to modify second liens that sit behind firsts “at least” pari passu, which in practice will mean at most pari passu. So this guarantees banks will also focus on borrowers where they do not have second lien exposure, and this also makes the settlement less helpful to struggling homeowners, since borrowers with both second and first liens default at much higher rates than those without second mortgages. Per the Journal:

“It’s not new money. It’s all soft dollars to the banks,” said Paul Miller, a bank analyst at FBR Capital Markets.

The Times is also subdued:

Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out because earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected.

2. Schneiderman’s MERS suit survives, and he can add more banks as defendants. It isn’t clear what became of the Biden and Coakley MERS suits, but Biden sounded pretty adamant in past media presentations on preserving that.

3. Nevada’s and Arizona’s suits against Countrywide for violating its past consent decree on mortgage servicing has, in a new Orwellianism, been “folded into” the settlement.

4. The five big players in the settlement have already set aside reserves sufficient for this deal.

Here are the top twelve reasons why this deal stinks:

1. We’ve now set a price for forgeries and fabricating documents. It’s $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It’s a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.

2. That $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.

3. That $5 billion divided among the big banks wouldn’t even represent a significant quarterly hit. Freddie and Fannie putbacks to the major banks have been running at that level each quarter.

4. That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.

5. The enforcement is a joke. The first layer of supervision is the banks reporting on themselves. The framework is similar to that of the OCC consent decrees implemented last year, which Adam Levitin and yours truly, among others, decried as regulatory theater.

6. The past history of servicer consent decrees shows the servicers all fail to comply. Why? Servicer records and systems are terrible in the best of times, and their systems and fee structures aren’t set up to handle much in the way of delinquencies. As Tom Adams has pointed out in earlier posts, servicer behavior is predictable when their portfolios are hit with a high level of delinquencies and defaults: they cheat in all sorts of ways to reduce their losses.

7. The cave-in Nevada and Arizona on the Countrywide settlement suit is a special gift for Bank of America, who is by far the worst offender in the chain of title disaster (since,according to sworn testimony of its own employee in Kemp v. Countrywide, Countrywide failed to comply with trust delivery requirements). This move proves that failing to comply with a consent degree has no consequences but will merely be rolled into a new consent degree which will also fail to be enforced. These cases also alleged HAMP violations as consumer fraud violations and could have gotten costly and emboldened other states to file similar suits not just against Countrywide but other servicers, so it was useful to the other banks as well.

8. If the new Federal task force were intended to be serious, this deal would have not have been settled. You never settle before investigating. It’s a bad idea to settle obvious, widespread wrongdoing on the cheap. You use the stuff that is easy to prove to gather information and secure cooperation on the stuff that is harder to prove. In Missouri and Nevada, the robosigning investigation led to criminal charges against agents of the servicers. But even though these companies were acting at the express direction and approval of the services, no individuals or entities higher up the food chain will face any sort of meaningful charges.

9. There is plenty of evidence of widespread abuses that appear not to be on the attorney generals’ or media’s radar, such as servicer driven foreclosures and looting of investors’ funds via impermissible and inflated charges. While no serious probe was undertaken, even the limited or peripheral investigations show massive failures (60% of documents had errors in AGs/Fed’s pathetically small sample). Similarly, the US Trustee’s office found widespread evidence of significant servicer errors in bankruptcy-related filings, such as inflated and bogus fees, and even substantial, completely made up charges. Yet the services and banks will suffer no real consequences for these abuses.

10. A deal on robosiginging serves to cover up the much deeper chain of title problem. And don’t get too excited about the New York, Massachusetts, and Delaware MERS suits. They put pressure on banks to clean up this monstrous mess only if the AGs go through to trial and get tough penalties. The banks will want to settle their way out of that too. And even if these cases do go to trial and produce significant victories for the AGs, they still do not address the problem of failures to transfer notes correctly.

11. Don’t bet on a deus ex machina in terms of the new Federal foreclosure task force to improve this picture much. If you think Schneiderman, as a co-chairman who already has a full time day job in New York, is going to outfox a bunch of DC insiders who are part of the problem, I have a bridge I’d like to sell to you.

12. We’ll now have to listen to banks and their sycophant defenders declaring victory despite being wrong on the law and the facts. They will proceed to marginalize and write off criticisms of the servicing practices that hurt homeowners and investors and are devastating communities. But the problems will fester and the housing market will continue to suffer. Investors in mortgage-backed securities, who know that services have been screwing them for years, will be hung out to dry and will likely never return to a private MBS market, since the problems won’t ever be fixed. This settlement has not only revealed the residential mortgage market to be too big to fail, but puts it on long term, perhaps permanent, government life support.

As we’ve said before, this settlement is yet another raw demonstration of who wields power in America, and it isn’t you and me. It’s bad enough to see these negotiations come to their predictable, sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners.

Reposted from Yves Smith’s Naked Capitalism post dated 9 February 2012

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CFPB Releases Guidance on Confidentiality, Information Sharing

Posted on February 9, 2012 by

In January, Kate Davidson for the American Banker reported that the CFPB will require large financial institutions to share sensitive and personal mortgage data with the new government agency.  The banks of course are resisting. You can find the specifics in her article below.

While all eyes were on the recess appointment of its first director Wednesday, the Consumer Financial Protection Bureau quietly released guidance that directs supervised banks to turn over any and all information it requests.

The bureau said supervised institutions — banks with more than $10 billion in assets, and in the near future, certain nonbanks — may not selectively withhold documents based on their judgment that the materials “are not necessary to the bureau’s execution of its responsibilities or that other materials would be sufficient to suit the bureau’s needs.”

“The supervisory process is based on the supervisor’s full and unfettered access to information, and the supervisor is entitled — indeed, duty bound — to ensure that it thoroughly understands the institution in question and has access to all information that, in its independent judgment, may bear on its supervisory responsibilities,” the bulletin said. “Failure to provide information required by the bureau is a violation of law for which the bureau will pursue all available remedies.”

The industry, however, has said the CFPB’s jurisdiction only extends to consumer financial laws. As such, it may only collect information, documents and other materials that relate to consumer financial products and servicers, they said.

“It has a defined jurisdiction, which is consumer retail transactions, and that is not the same thing as safety and soundness examination,” said Oliver Ireland, a partner with Morrison & Foerster. “I think there’s a real question as to what they can look at and how far their examination authority goes within the organization.”

The bulletin also assured banks that sharing information with the bureau would not amount to a waiver of attorney-client privilege — meaning, for example, that plaintiffs could not subpoena the information to use against a bank in court.

Under the Financial Services Regulatory Relief Act of 2006, the bank regulators have the power to receive confidential information from supervised entities without the entities effectively waiving their attorney-client privilege. Industry groups have worried that the provision does not apply to CFPB, because the Dodd-Frank Act did not specifically include it under the Financial Services Regulatory Relief Act.

In its bulletin, the bureau said its powers and authorities “encompass the ability to receive privileged information from supervised entities without effecting a waiver.”

“Further, if a supervised entity were ever faced with a claim of waiver, the bureau would take all reasonable and appropriate actions to rebut such a claim,” the bulletin said.

CFPB Bulletin 12-01 _ “Guidance on Confidentiality, Information Sharing”
Link:  http://www.consumerfinance.gov/wp-content/uploads/2012/01/GC_bulletin_12-01.pdf

CFPB:  Makes the Case for Supervisory Examination Privilege
Link:    http://www.paulhastings.com/assets/publications/2090.pdf?wt.mc_ID=2090.pdf

See the original article by Kate Davidson in the American Banker

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JPMorgan, BofA Sued by New York Over Use of Mortgage Database

Posted on February 6, 2012 by

The heat is being turned up on mortgage servicers.  Their attempts to finalize a negotiated settlement is floundering, and now, state attorneys general are going after them with a renewed vengeance, as Bloomberg’s David McLaughlin recently reported below: 

JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. were sued by New York Attorney General Eric Schneiderman over the use of a mortgage database that the state said led to improper foreclosures.  The banks’ use of the database, known as MERS, misled homeowners, undermined foreclosure proceedings and created uncertainty about ownership interests in properties, the state said in the complaint filed yesterday in New York State Supreme Court inBrooklyn.

“The banks created the MERS system as an end-run around the property recording system, to facilitate the rapid securitization and sale of mortgages,” Schneiderman said in a statement. “Once the mortgages went sour, these same banks brought foreclosure proceedings en masse based on deceptive and fraudulent court submissions.”

The lawsuit came three days before a Feb. 6 deadline for states to join a proposed multistate agreement over foreclosure practices said to be worth as much as $25 billion. Last week, Schneiderman was selected by the Obama administration to help lead a state-federal group probing misconduct in the packaging and sale of residential mortgage-backed securities.

MERS tracks servicing rights and ownership interests in mortgage loans on its electronic registry, allowing banks to buy and sell loans without recording transfers with individual counties. The system was created by the mortgage industry to evade recording fees, avoid the need to publicly record mortgage transfers and facilitate the packaging of mortgage loans into securities, Schneiderman said in the complaint.  Merscorp Inc., which operates the mortgage registry, was sued by Delaware Attorney GeneralBeau Biden last year. Biden claimed the registry is deceptive and harms consumers by permitting foreclosures “for which the authority has not been fully determined and may not be legitimate.”  Janis Smith, a spokeswoman for Reston, Virginia-based Merscorp, which was also named as a defendant in the New York complaint, said in an e-mailed statement that the company rejects the attorney general’s allegations and will fight the suit.

Rick Simon, a spokesman for Charlotte, North Carolina-based Bank of America, and Tom Kelly, a spokesman for New York-based JPMorgan, declined to comment on the suit. Tom Goyda, a spokesman for San Francisco-based Wells Fargo, said the bank was reviewing the complaint.
The state’s complaint, which couldn’t be immediately verified in court records yesterday, states that MERS eliminated the ability of the public and homeowners to track the purchase and sale of properties through the traditional public records system. That information is stored in the MERS private database, which Schneiderman called unreliable and inaccurate. The mortgage industry has saved more than $2 billion in recording fees with the system, according to the complaint.

Banks’ use of the registry, coupled with “faulty and sloppy” document preparation, has resulted in foreclosures being filed against New York homeowners where the foreclosing party lacked the authority to sue, Schneiderman said. By relying on legally invalid mortgage assignments using MERS, foreclosure judgments have been obtained “through fraudulent and illegal means,” according to the complaint. MERS’ conduct and the banks’ use of the system “have resulted in the filing of improper New York foreclosure proceedings, undermined the integrity of the judicial process, created confusion and uncertainty concerning property ownership interests and potentially created clouds of title on properties throughout the state of New York,” the state said.

As originally reported by David McLaughlin Feb 3, 2012 9:01 PM PT

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Looking for Needles in Mortgage Doc Haystacks

Posted on February 6, 2012 by

With millions of mortgages and tens of millions of mortgage documents, trying to find a mortgage with documentation or process errors is quite literally like trying to find a needle in a haystack. Further, with the rapid adoption of collateralization and servicer consolidation, these needles have jumped between multiple haystacks making the job of finding them all the more difficult. Documents are spread around a wide range of servicers and government agencies from county, state, federal, GSE, and various court jurisdictions. Each of these documents needs to be matched up in the proper timing sequence to paint an accurate picture of the life of a mortgage.

Presently servicers, attorneys and independent consultants are trying to look through all these haystacks one straw stalk at a time. They are deploying hundreds of people at great expense to do this stalk by stalk employing a very manual and inefficient process. Teams of people are combing through these documents, creating pencil ledger cash flow summaries in a feeble attempt to identify these problem mortgage needles. This labor intensive process is wearing down the staffers so that when they finally assemble all the necessary documents, they are simply out of gas when it comes to performing the analysis. The servicers and independent consultants have testified to Senators Menendez, Merkley and other members of Congress that the process is far harder and taking way longer than they anticipated, and they are pleading for more time and reduced scope.

But, my engineer father always taught me there is a right tool for every job. Of course you can look for a needle in a haystack one stalk at a time (taking years to do it). But, with a little ingenuity you can find the needle in a matter of minutes. If you have the right tool, in this case a big electro-magnet, all you have to do is turn it on, and the needle will jump out of the stack and into your hands. The search for problem mortgage documentation is no different. Doing it by hand can literally take years, but with the use of software automation tools, you can go through hundreds of documents in minutes.

In one such case study – a single, experienced professional was able to produce the financial history for up to 4 mortgage case files a day. By using software automation, they were able to process an amazing 16,000 mortgage case files in the same 24 hour period. So if software tools like this exist, NY Attorney General, Schneiderman, and others are soon to be asking the obvious question: “Why are not more servicers, law firms and independent consultants using them?” To borrow from other colloquialisms, are their “heads buried in the sand” where they just are not aware that a far better tool exists? Or, are they “stuck in the mud,” tied to doing things the old-fashioned way, uncomfortable with adopting new, more efficient methods.

No matter what the reasoning, it is time to start using the right tools to get the job done.

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