Flawed loan paperwork? Prove it.

Published February 14, 2011 with the Investigative Reporting Workshop.

When Nicolle Bradbury was on the verge of foreclosure in 2009, she reached out to a nonprofit legal services group in Maine, asking for help. Tom Cox, a volunteer with Pine Tree Legal Assistance, took her case. And he quickly spotted a red flag in her file — something that only someone, like Cox, who spent decades looking at legal documents is likely to have caught. Her foreclosure paperwork had been approved by a “limited signing officer,” and Cox suspected that person didn’t know as much about Bradbury’s mortgage as he was supposed to.

Photo by Tim Greenway

Tom Cox prepares for a court case in front of the Maine District Court in Biddeford on Nov. 18, 2010. He says foreclosure defense work is “some of the most complicated that there is.”

That hunch led to what is now known as the robo-signing scandal: the practice by which lenders and mortgage companies, processing thousands of foreclosure papers every month, used low-level workers who breezed through stacks of documents but did not actually verify the information in the loan papers, although their signatures attested that they had done just that. In theory, borrowers with robo-signed loans may be able to challenge their foreclosures. But flawed loan paperwork is no guarantee of success in court, particularly if, like most homeowners, they are facing the courtroom alone.

“The foreclosure defense work is some of the most complicated that there is,” Cox told me last week. “The amount that you have to know, and the speed at which the law is evolving, is amazing to me.”

To expose what he calls the “dishonest documents,” Cox deposed Jeffrey Stephan, who signed loan papers for GMAC, including Bradbury’s foreclosure paperwork. But to get Stephan “into a chair at a table across from me” took enormous effort, Cox says. He had to file a document with the Maine courts, asking the courts in Pennsylvania, where Stephan lived, to take action. The whole process was so obscure he had to explain the system to the judge.

“There’s no way a lay person could navigate that,” he says. “Most lawyers can’t.”

Maine is not a state known for its foreclosure crisis, and, indeed, the numbers are miniscule compared to states like Nevada and Florida. But in a rural state, where the rental housing options are limited, foreclosure can be devastating.

Nan Heald is the executive director of Pine Tree, the only group in the state that receives money from the Legal Services Corporation. She says that Pine Tree, Maine’s biggest legal services agency, can handle just 6 percent of the foreclosure cases that come its way. And that’s with the support of outside lawyers like Cox. Without the lawyers coming through the state’s pro bono program, Heald says, she’d be able to help just 3 percent of the foreclosure cases they see.

Historically, legal services groups in Maine have received substantial support from a state fund fed by the interest on lawyers trust accounts. But with interest rates down, the flow from that fund has plummeted. Pine Tree is facing a 20 percent budget shortfall this fiscal year, according Heald. Asked how she plans to make up the deficit, she laughs.

“A lot of grant writing,” she says. Heald says she hopes new funding will become available as awareness of the crisis in legal representation grows.

“I’m always optimistic that budget deficits can be erased,” she says. “I’d like to believe that’s possible.”


Housing counselors under siege

Published August 5, 2011 with New America Media.

By Kat Aaron and Mary Kane

Just as foreclosures are poised to take off again, housing counseling groups across the country are getting hammered by federal budget cuts, a deficit-reduction measure that may save a few dollars now but could further damage an already hobbled economy.

In April, $88 million was cut from the Department of Housing and Urban Development budget, a reduction that included all funding for foreclosure prevention, reverse mortgages and first-time and other home purchases, said Jesse Van Tol, spokesperson for the National Community Reinvestment Coalition.

Those cuts take effect Oct. 1, and it’s not clear yet whether other sources of foreclosure counseling funds can come close to making up for the lost money. In the meantime, securing any money for HUD counseling in 2012 will require a fight, given that proposals so far call for zero funding again next year.

“We won’t have much of a chance for a recovering housing market if people aren’t able to buy homes and avoid foreclosure,” Van Tol said. The housing counseling money “helps people to do both of those things. By stripping it away, we’re making the problem worse.”

In New Jersey, for example, “where lawyers are just waiting to push the button,” it’s been estimated that there are between 20,000 and 30,000 foreclosures pending, said Alan Mallach, a senior fellow at the National Housing Institute. Yet one New Jersey housing counseling agency already has shut its doors and more closings are expected.

In Maryland, in March, more than 7,100 notices of intent to foreclose were filed in Prince George’s County alone, more than twice as many than in any month since the state began keeping records in 2008.

“This has become a major crisis around the country,” Mallach said. “It’s crazy. It’s totally crazy. No one believes foreclosures are going down in the long term. We’re totally cutting services to people who need them the most.”

Nationally, RealtyTrac said a backlog of pending foreclosures has cast “an ominous shadow” over the housing market.  As many as 1 million foreclosure actions that should have taken place in 2011 will now happen in 2012, or even later, the company reported in July. Even with delays in those foreclosures, some 2 million total foreclosure filings are expected this year, RealtyTrac said.

Advocates contend housing counselors have helped prevent some 900,000 foreclosures. In Maryland, HomeFree, a counseling agency, is already fielding far more requests for help than its staff can handle, thanks to a drumbeat of foreclosures and escalating unemployment. And that’s despite the herculean efforts of the agency’s staff.

“The reality is, counselors are carrying probably double (the workload of) what they should,” said Peyton Herbert, vice president of the organization.

In Maryland, one source of cash is the foreclosing lenders themselves. Under the state’s foreclosure mediation law, lenders must pay $300 each time they file a notice of intent to foreclose, a document alerting homeowners that a foreclosure action is around the corner.

Those fees totaled $2 million for counseling groups between June 2010 and July 2011, said Carol Gilbert, assistant secretary for neighborhood stabilization at the Maryland Department of Housing and Community Development.

But the state funds can’t make up for the lost HUD funding.

A major obstacle to preventing foreclosure is getting mortgage servicers to process loan applications, something housing counselors can assist with. The slow grind of foreclosure notices and modification limbo can make homeowners lose hope.

“People are ditching their homes,” said Lisa Butler McDougal, executive director of Sowing Empowerment and Economic Development, a Maryland counseling agency.

“It’s unemployment, a lack of wages, low wages, or any kind of reduction of wages in the home,” she said. “That’s what’s leading to the foreclosures.”

Foreclosures mount, mediation efforts fail

Published July 21, 2011 with msnbc.com.

By Kat Aaron and Mary Kane

PRINCE GEORGE’S COUNTY, Md. – On a hot summer evening, two second-year law students are trudging through the leafy neighborhoods of suburban Prince George’s County, knocking on doors. Toting stacks of fliers, the young women are going house to house, making sure that delinquent homeowners know about the state’s mortgage mediation program.

Tonight, only two people answer the door. One, like 11 others the students have contacted during previous outings, insists she already has gotten her loan modified and doesn’t need mediation, despite a foreclosure notice on record. Another homeowner, in default after taking off work to care for a sick relative, takes the mediation information and says she’ll consider it. The students leave fliers at a house with a “for sale” sign in Hyattsville and an empty condo in a nearby neighborhood.

They will try again another day.

Mediation has been touted as a key strategy to stop foreclosures, both in Maryland and nationwide. Maryland passed a law last July giving homeowners in foreclosure the right to mediation, if they ask for it. The Justice Department reported in a November study that there were 25 mediation programs in 14 states.

But if Maryland is any indication, the programs are not working. As of May 31, just 56 homeowners have gotten a modification of their loan. Borrowers complain that lenders are more interested in foreclosing than negotiating. One borrower was horrified to discover that the bank had sold her home during the mediation process.

Prince George’s is the nation’s wealthiest majority-black county. Like many majority-minority areas, Prince George’s has been devastated by the foreclosure crisis. Heavily targeted by subprime lenders in the boom years (see map), the county is now staggering under the weight of abandoned homes and plummeting prices.

For Prince George’s, and for other communities of color around the country, a “lagging collapse” may be ahead, said Alan Mallach, a nationally known housing expert who has done extensive on-the-ground research into the foreclosure crisis.

Foreclosures slowed in the early part of 2011, as lenders dealt with accusations of “robo-signing” — approving foreclosure documents without looking at them. But now, they’re coming back with a vengeance: In March, more than 7,100 notices of intent to foreclose were filed in Price George’s alone, more than twice as many than in any month since the state began keeping records in 2008, according to an analysis of state records by the Investigative Reporting Workshop. Statewide, close to 30,000 notices were filed.

“I think it’s grim. And it’s going to be grim for a while. I’m not sure we’re anywhere near the aftermath yet. We’re still in the middle of the storm,” Mallach said.

Mediation a ‘formality’

More than 42,000 properties in Maryland received foreclosure filings last year, according to RealtyTrac. Mediation was supposed to be a way to stop the bleeding. When the mediation legislation was introduced in April 2010, Lt. Gov. Anthony Brown, a Democrat and Prince George’s County resident, said the program would “provide homeowners a chance to explore any and all options to find a positive resolution and remain in their homes.”

Tell that to Louis Boney.

He lives in a small, white frame house on a quiet, grassy street in Clinton, Md. When his home fell into foreclosure, he thought the mediation process might help. But he hit unexpected pitfalls. Although he submitted all the financial documentation required under the law, his lender, Wells Fargo, demanded he provide bank statements as additional proof of income.

African Americans lead in foreclosures

Source: Center for Responsible Lending.

Graphic by Melanie Taube, Investigative Reporting Workshop

The Wells Fargo servicer — present by speakerphone during the mediation — explained that he could not discuss any potential foreclosure alternatives without having three months’ worth of bank statements in hand.

“My computer won’t allow me to proceed further (without them),” the bank representative informed everyone at the session, said his Legal Aid lawyer, Gretchen Reimert.

Reimert asked for a second mediation session but Wells Fargo refused. She also asked for more time to submit the statements, and the bank refused. Reimert then threatened to challenge the validity of the mediation. Prodded by the mediator, Wells Fargo gave Boney several weeks to submit a package with the additional paperwork. But that’s no guarantee Boney won’t be foreclosed on. Wells Fargo will either make an offer that Boney will have to accept to keep his home, or notify him that he does not qualify for anything, and set a foreclosure sale date, Reimert said.

“For me, the mediation process, I think, was a gimmick,” Boney said. “In my opinion, they came there just to go through the formalities. They just want to foreclose.”

Wells Fargo, for its part, sees the situation differently. Spokesman Tom Goyda said the bank is very supportive of Maryland’s program and has participated in training and outreach for it. “Wells Fargo is committed to helping every customer we can avoid foreclosure,” he said. “We continue to work with Mr. Boney on a resolution to his case.” Goyda also noted that it’s not unusual for Wells or other banks to require additional documents when working with a borrower on a loan modification. In some cases, investors request the information, or it’s required for Fannie Mae, Freddie Mac, or FHA loans.

Program ‘new to everybody’

Boney isn’t the only one who found mediation underwhelming. A year after the law was passed, fewer than 1,000 borrowers had applied for mediation, and just 56 borrowers had received a loan modification as of the end of May, according to the Maryland Department of Labor, Licensing and Regulation. Another 159 cases ended with a so-called contingent resolution, meaning that the borrowers were promised a modification pending additional paperwork. In total, 829 mediation cases have been closed since the law took effect.

One reason for the low participation may be that homeowners don’t know about the mediation program. That’s why law students go door to door, handing out fliers. But there’s only so much ground they can cover.

The mediation program is still “new to everybody,” said Carolyn Green-Fitzgerald, a housing counselor with United Communities Against Poverty. While the program became law in July 2010, it only began operating in earnest in September. “Homeowners just aren’t sure what to do or to expect.” Her agency hasn’t referred a single borrower to mediation.

Despite the low participation rates, mediation sessions have been good for borrowers, said Carol Gilbert, assistant secretary for neighborhood stabilization at the Maryland Department of Housing and Community Development.

“Whether or not they prevent foreclosure, they do get to closure, by understanding what their lender’s position is and understanding what their options are, or are not,” she said.

What the mediation program has accomplished is “getting both sides of the (lending) shop to communicate,” Gilbert said. “The foreclosure side of the shop that’s working in turbo drive is very effective, and the modification side is not.”

“We were seeing so many consumers fall through the cracks who were midstream in their modification process and next week they were getting foreclosed upon,” she said.

Except that’s still happening.

Foreclosure sale, then mediation?

Antoinette Barber, a homeowner in Baltimore City, requested a mediation session, using the information provided by her lender, HSBC Bank. But paperwork problems plagued her case from the start, including that HSBC listed her home as abandoned, said her attorney, Legal Aid’s Reimert.

Trouble started with the envelope that foreclosure attorneys representing HSBC gave Barber to send in her mediation request. It was labeled with an incomplete address, missing the room number for the mediation program at the Baltimore circuit court. The paperwork never arrived at its destination, so no mediation session was scheduled. Barber received a second notification of her mediation rights, and submitted a second request on March 9.

But HSBC’s attorneys had already scheduled a foreclosure sale for March 11. And although the court scheduled a mediation session for April 13, and notified the foreclosure attorneys about it, the foreclosure firm didn’t cancel the sale. Barber’s house was sold two weeks later. Barber, a single mom with two children, arrived at the April mediation session in tears.

Things got worse from there.

HSBC’s servicer — after putting the call on hold for 15 minutes during the session — said that Barber’s file had been transferred to another department and couldn’t be found. Besides that, HSBC’s foreclosure attorney said she wouldn’t agree to anything that day, unless Barber would allow the foreclosure sale to go through. Barber refused, and Reimert has filed a motion to rescind the sale and stop the foreclosure. HSBC, for its part, told Reimert it considered the matter settled because Barber could try to call back and talk to someone in two to three weeks. “My head almost exploded,” Reimert said.

“Mediation is a joke,” Barber said. “I was really counting on it helping me. But they did nothing for me. It was a waste of time.”

HSBC officials had not returned a call seeking comment for this story by press time.

It could be worse?

In some ways, Prince George’s is doing better than many other communities of color. It sits next to Washington, D.C., a city relatively insulated from the recession by a stable base of government jobs. D.C. is the only metro area in the country where home prices are on the rise.  Unemployment in the greater D.C. area is under 6 percent. If Prince George’s can’t make it through the crisis, the fallout in less wealthy minority neighborhoods may well be worse.

The homeownership gap

The homeownership rate for non-Hispanic whites has remained at over 70 percent since 1994, while the homeownership rate for blacks and Hispanics has trailed significantly, at less than 50 percent.

Source: Census Bureau

Graphic by Melanie Taube, Investigative Reporting Workshop

But the prosperity of the region is not evenly distributed, not now, and not in the pre-recession years. The District’s communities of color were hit hard by subprime loans at the front end of the crisis. African-American and Hispanic borrowers in the D.C. metropolitan area were far more likely to get subprime loans than white borrowers with similar credit scores and incomes, according to a 2009 study by the National Community Reinvestment Coalition. That echoes patterns seen around the country, with black and Latino neighborhoods blanketed with high-cost, often abusive loans.

In Prince George’s county, subprime lenders dominate the list of companies filing notices of intent to foreclose, according to the Workshop’s analysis of state data. Many are no longer in business: Fremont Investment & Loan, New Century Financial Corp., Option One Mortgage, WMC Mortgage Corp., GreenPoint Mortgage Funding Inc. and EquiFirst Corp. have all closed their doors. But their loans live on. Topping the list is Wells Fargo, which was sued by the city of Baltimore for allegedly steering black borrowers toward higher-cost loans.

Memphis and Cleveland, like Baltimore, filed suit against the banks they blamed for selling predatory loans and causing damage to their cities. In Prince George’s County, however, attitudes toward the foreclosure crisis are different. The county government has taken little action, and a series of corruption scandals haven’t helped matters. For the most part, people in and out of government don’t talk about it. When they do, there’s a sense of shame, of blaming themselves, even though they know their community ended up with more of its share of subprime loans. And there’s a simmering anger that lenders aren’t paying for the damage done.

Tough choices for borrowers

On a recent afternoon, Doris Tucker and her father-in-law, Ron Tucker, sat on a sunny balcony overlooking a creek in a cul-de-sac of expansive new homes in Fort Washington, a prosperous Prince George’s County neighborhood. Inside was a potential buyer, who had just made an offer for a short sale — meaning the buyer would pay less than what was owed on the loan. Ron Tucker’s home, built in 2004 for $1.3 million, was about to be sold for $725,000.

Tucker’s problems began after his wife died of cancer in July 2010. Despite the loss of her income, his lender, IndyMac, a major subprime lender that was seized by the federal government, wouldn’t consider a loan modification because Tucker remained current on his payments. And with a “jumbo” loan, Tucker didn’t qualify for a government loan-modification program.

Each month, since his wife’s death, his income has been $3,100 short of his mortgage payment. He has pieced the payments together with income tax refunds and death benefits. But he can’t keep it up. So Tucker, 69, a former police officer and federal government security guard who retired in September, agreed to a short sale.

Doris Tucker, 48, (watch video) a former Realtor and nurse who stopped working because she has lupus, has a loan modification for her own Prince George’s house. It’s reducing her interest rate temporarily, but not her loan balance, and she’s not sure what will happen in a few years, when it ends. She’s helping her father-in-law with the short sale.

“He has never walked away from anything in his life. So this is really, really hard for him. I had to talk him into it,” she said. “I said, ‘you are either going to lose it today or lose it after you use up all your retirement money tomorrow. Which will it be?’ ”

Standing on the front steps of his house, Ms. Tucker points out at least five other homes on the cul-de-sac that are in foreclosure. There are no foreclosure signs in the yards, no boards on windows, no furniture out front. The crisis is invisible.

That invisibility contributes to the deafening silence in the county about the scale and impact of foreclosures. “It’s all individual pain,” she said. Most people don’t realize “that every two people on every block is going through this, so I think I am the only dummy around that took this bait.”

In Ms. Tucker’s Upper Marlboro block, six of the 11 homes have been in foreclosure at some point. The foreclosures, she said, have changed Prince George’s permanently. Earlier in the crisis, she said, people in foreclosure would just walk away from their homes. These days, even in high-income areas, “they take the furnace, the stove, the refrigerator. They take anything and everything that isn’t nailed down.”

“You already see a change in the quality of life,” she said. “You see more drastic crime. People are desperate.”

The impact of the lost homes will reverberate for years. Her goal, her father-in-law’s goal and the aspirations of many of her friends was to pass down their housing wealth to their children. That’s not going to happen, and that may be the greatest loss that results from the foreclosure mess.

“It’s amazing that two generations and three generations ago they did better actually than we did in obtaining land,” the mother of two said. “Right out of slavery, sharecroppers bought and had” land, she continued, a sharp contrast to “what we are getting to ready to lose this generation.”

Lenders can’t make changes

This dire situation isn’t lost on the state. The state legislature has made tweaks to the mediation law, giving homeowners more time to request a meeting with their lender. They’ve also addressed an early criticism of the program’s outreach, printing the mediation notice on brightly colored paper to help it stand out in the massive stack of documents sent to delinquent homeowners.

But those changes may not be enough. The law student canvassers, from American University’s Washington College of Law, say many Spanish-speaking homeowners aren’t aware of their mediation rights, because the notices are all in English. Or borrowers have been hit by loan modification scammers, making them wary.

The biggest problem, though, may be the lenders. Borrowers and counselors around the country have complained that the modification process breaks down because the people at the servicer call centers don’t have the power to change the terms or balance on a loan.

Maryland’s mediation program was supposed to be a sure-fire way to get decision-makers in the room. The law requires lenders to be “present and or readily available,” said Anthony DePastina, director of litigation at Civil Justice, Inc., a nonprofit legal services group.

That’s the idea. But housing counselors and attorneys say it’s not always the reality.

“Too many times have I heard the story, ‘Oh, the lender is going to be available,’ but you call them and the lender’s out to lunch, or they have no concept of the file you’re talking about,” DePastina said.

When they are available, the servicer often says they don’t have the power to sign off on changes, as in Louis Boney’s case. And the administrative law judges who oversee the sessions have very limited powers. They can’t order lenders to do a loan modification or stop a foreclosure.

“If you’re going to have the mediation, I’m sure the governor never intended for people not to try to work it out,” said Sharon Goldsmith, executive director of the Pro Bono Resource Center of Maryland.

Downward spiral

Just over one-fifth of all loans in Prince George’s were either in foreclosure or delinquent at the end of last year, according to an analysis by the Urban Institute. Rates of delinquency, severe delinquency, foreclosure and real estate owned properties are all more than twice the regional average.

Foreclosures have been down at the start of 2011 in Prince George’s, as in the rest of Maryland and the nation — a change many attribute to the “robo-signing” mess, rather than an easing of the crisis.

But the lull in foreclosures in the county hasn’t resulted in a slowdown in foreclosure-related sales. Greater Baltimore Board of Realtors figures show that as of March, 52 percent of all real-estate sales in Prince George’s were foreclosures and 17 percent were short sales, significantly higher than the percentage of such sales in nearby Montgomery County or the city of Baltimore.

And the notices of intent to foreclose are picking up dramatically, indicating a new round of foreclosure filings may be close. Once a notice is filed, a lender can move to foreclose within 45 days.

The crash is particularly steep in Prince George’s because the market flew so high during the boom years. “It’s where movers and shakers were going,” said Vicki Taitano, director of Maryland Legal Aid’s Foreclosure Legal Assistance Project. “People (were) really thinking like they were getting the American dream, establishing themselves.”

Now, though, the combination of predatory loans and a weak economy have had a “rather lethal effect” in Prince George’s County, said Robert Strupp, manager of systemic investigations for the National Community Reinvestment Coalition.

Some borrowers may have overreached in their pursuit of the dream. But many homeowners didn’t live beyond their means. Their means just aren’t enough anymore. A lost job or an illness can be the difference between scraping by and failing.

“The scary story out there is that it takes one or two (missed) payments to get a homeowner into this black hole of hell,” said Douglas Rian, a forensic auditor with Maryland-based Professional Compliance Examiners. “It transcends all socioeconomic bounds.”

As bad as things are in Prince George’s, the fallout may be even worse in minority neighborhoods outside the Washington economic bubble.  For many cities, like Phoenix and Las Vegas, the foreclosure crisis started out huge, but then “things went downward a slower rate,” said Mallach, a senior fellow with the National Housing Institute.

Cumulative impact

In other places, though, the slow but steady pace of foreclosure is just hitting home.

Consider Irvington, N.J., a largely African-American community and inner ring suburb of Newark. The damage wasn’t massive in the first years of the mortgage meltdown, but the cumulative impact of five years of foreclosures and abandonment mean “things have really gone down big time,” Mallach said. The average home sales price fell from $215,000 in 2008 to $94,000 by 2010, with some neighborhoods experiencing declines above 70 percent. Irvington’s experience is not likely to be unique.

“In many minority communities outside the DC metro area, in two to three to five years, I would expect to see major abandonment of foreclosed properties,” Mallach said.

The mediation problems in Maryland are yet another indication that so far, government efforts aren’t putting a dent in the foreclosure problem. Mallach isn’t optimistic they will any time soon. “I see nothing on the horizon that could give these areas the kind of shot in the arm they need to turn things around.”

“This is the disgrace of the whole thing,” Mallach said. “Basically, the lenders who made these loans are paying huge amounts of money to the investors that they defrauded. But the problem for these communities is that basically the lenders got away with murder, and they are continuing to get away with murder.”

In Prince George’s County, homeowners have paid a steep price for some bad loans and some bad choices. Ron Tucker wants lenders to pay, too.

“Those big banks got bailed out with our money and then they turn around and screw us even more. Somebody should go to jail. This is ridiculous,” he said. “These people almost brought down the world and they are still living high off the hog.”

Investigative Reporting Workshop data editor Jacob Fenton contributed to this report.

A Crisis By the Numbers – New Story at the Prospect

(Flickr/Sean Dreilinger)

My friend Mary Kane and I wrote a new story for the American Prospect’s website, about the somewhat staggering fact that the government doesn’t track foreclosures. At all. As we write:

With more than 1 million total foreclosures predicted this year, the government is finally taking steps toward resolving a vexing dilemma: It has very few details about this very big problem.

Since the subprime mortgage market collapse in 2007, regulators, Congress, and consumer advocates have relied on what one housing expert describes as “a lack of even marginally accurate or complete data” on the level and nature of foreclosure activity. Incredibly, almost three years into the collapse, there is no nationwide, government- collected data on foreclosures.

“We can tell you how many grapefruit are grown in every state in the country. But we can’t tell you how many mortgages are being made, how many individual loans, and even the characteristics of those loans,” says Guy Cecala, publisher of Inside Mortgage Finance, an industry publication. “We’ve got much better agricultural data in this country than financial data.”

You can, and should, read the whole thing here.