Sunday, July 24, 2011




EDITOR’S ANALYSIS: There is a reason why TILA, RESPA and HOEPA were enacted into law. The central theme, as clearly stated in a recent seminar led by lawyers for the banks, is to provide the consumer with a credible and understandable method of deciding between two or more potential loan offerings. The reason for these Federal Laws is to make certain that the borrower is given the information he/she needs to decide whether they want Deal A or Deal B — or none of the above.
These laws worked fairly well until wall Street stepped into the lending scenario with the illusion of securitization. The result was that the “disclosure documents” lied to the borrower. These documents took away the possibility of deciding between one loan or another and one lender or another because they intentionally misstated the identity of the lender in table-funded loans, which are identified by TILA and Reg Z as presumptively predatory loans.
The reason they are predatory is because a table-funded loan (funds and terms coming from an unidentified third party) actually tricks the borrower into thinking he/she knows the lender, thus eliminating the possibility for the borrower to reject the real lender.
The disclosure statements are also supposed to tell the borrower who is getting paid in their loan transaction and how much they are getting paid. Once again, the “disclosure” documents straight out lie to the borrower, by withholding vital information about the securitization scheme, without which the “lender” at the table would never have offered the loan.
If the securitization scheme was not in place at the time of the loan, the lender identified at closing would have had to assume risk, putting the loan on its financial statements as an asset (loan receivable) along with an entry for “reserve for bad debt”on the liability side of the balance sheet.
Of course it is easy to see why this disclosure was not made. Promises were made to the creditor (investor who advanced funds for a bogus mortgage-backed bond) including insurance, servicer obligations to continue payments, credit default swaps, and cross collateralization would have informed the borrower that the creditor was not getting the note they were signing.
The investors (I.E., THE REAL LENDER/CREDITORS) were getting a bond that included multiple sources of revenue to reduce the risk of non-payment from any of the parties who promised to pay. The borrowers would have learned that even if they made their payments on time, they could still be part of a pool that a Master Servicer would declare was in default or was subject to write-down, thus triggering payments from third parties.
The investment banks of course need to hide this information from borrowers who might be more likely to stop paying if they knew there were third party sources from which payments could be made. Any lawyer who knew these facts would have told them that it would be pretty difficult to declare the borrower in default when so many other people were obligated to pay for varying reasons that were not necessarily ties to whether the borrower made payments.
The robo-signing frenzy that ensued was a cover-up for obviously defective notes and mortgages that did not describe the actual transaction that took place — a single transaction in which investors advanced the money and borrowers received part of it, with the rest going to a myriad of third party players who were trading hedges, insurance and bets on the value of the mortgage bonds. Whether the homeowner actually made payments was and is almost irrelevant to the obligation of others (AIG, servicers et al) to make payments to the creditor either against principal, interest or both.
Nobody wanted the borrower to know what was really going on. But that is exactly what TILA, RESPA and HOEPA were all about — requiring the real lenders to show themselves, identify themselves, and disclose the identities of all the intermediary parties who were making money as a result of the money transaction between the investor and the homeowner.
The effect of this line of reasoning on RESCISSION remedies both under TILA (or HOEPA) is huge. The three day window is a “buyer’s remorse” window of opportunity where the borrower can reverse the transaction, no questions asked. If they go beyond the three-day window they have three years to cite a material violation and then give notice of rescission. Lenders want the courts to construe it as a claim of rescission but congress specifically worded the statute leaving it entirely within the hands of the homeowner and shifting the burden of the challenge to the “lender” who would be required to file a lawsuit (declaratory action) pleading and proving why the borrower should not be allowed to rescind.
The importance of rescission under TILA is that it gives the borrower the power to disconnect the mortgage lien from the property leaving the obligation unsecured. If there is a balance due from homeowner to “lender”, after the “lender” has returned all documents, filed the satisfaction (although Reg Z  says that the mortgage is terminated by operation of law upon sending of the notice to rescind) then the homeowner is obligated to tender a payment plan.
The failure to properly disclose the parties and terms and the outright lying that went on at nearly every closing, provides a window of opportunity to invoke the 3 day rule that starts from the date the disclosure is made. At this point, even with millions of foreclosures, the pretender lenders have still not identified the real lender or creditor and still have withheld the full accounting for the payments received by or on behalf of the real lenders or creditors. So, it would seem that the three-day right of rescission has not even begin to run in nearly all cases.
Now the new Consumer Financial Protection Bureau has inherited this problem and is charged withe responsibility of  making certain that at least future transactions comply with the law. But the future transactions include satisfactions, payoffs, foreclosures etc., all of which are predicated upon a false foundation of liens that were never perfected, defective and incurable. Politically it is a third rail to suggest that the banks be held tot he letter of the law. If the borrower showed up at closing by way of a straw-man the transaction would have been canceled or the “lender” would have cried “foul!” But now the shoe is on the other foot and what happens from this point forward is going to be interesting.

Sorting Through Lending Costs

The New York Times
PLENTY of people have ideas about what you should be told when you’re shopping for a mortgage, but for now, that may not be much help.
Even before it officially opened for business on July 21, the Consumer Financial Protection Bureau, the federal agency created to oversee mortgage lending, started looking at loan shopping. The bureau is legally required to propose by July 2012 a way to streamline mortgage disclosure. It is exploring avenues for combining the two forms that borrowers get now — the three-page Good Faith Estimate and the two-page Truth in Lending Act form.
These forms tell would-be borrowers the terms of their loan — for instance, how payments on an adjustable-rate mortgage change. They also lay out fees.
Although interest rates grab attention, fees can make a big difference, said Eileen Anderson, senior vice president of the Community Development Corporation of Long Island, which provides home buyer education. The easiest way to compare loans, she said, remains the Annual Percentage Rate, or A.P.R. That calculation rolls in fees as well as the stated interest rate. Because lenders are required to follow the same formula, useful comparisons can be made. “That’s the best way to shop for a loan, whether it’s 10 years ago, or now,” she said.
In May, the Consumer Financial Protection Bureau solicited reactions to two versions of a form that combines the current forms onto one double-sided sheet. It received more than 13,000 comments. According to a bureau summary, people praised the effort, but had specific suggestions on layout and phrasing.
On June 27 the bureau posted two more revised versions. The comment period on them closed July 5; among those responding was the Mortgage Bankers Association, which said in a three-page Department of Housing and Urban Developmentoverhauled the Good Faith Estimate — an effort that involved years of soliciting comments and was mightily resisted by some in the lending industry. That form not only changed the way information was presented, but also required brokers and lenders to commit to many parts of their estimates — a big change, as previous estimates sometimes had little relationship to actual closing costs.
But the forms themselves are longer and, for some borrowers, more confusing than the previous ones, Ms. Anderson said.
The form is still “horrible, just horrible,” said Mark Yecies, an owner of SunQuest Funding, a lender in Cranford, N.J. “The G.F.E. doesn’t actually itemize the closing costs in such a way that makes it easy for a borrower to understand what they are.”
Still, he advises people to get the form from every lender they approach. “If you receive approximate closing costs in an e-mail or a form that is not the G.F.E.,” he said, “it doesn’t mean squat.”
He added that some lenders had become adept at manipulating the estimates, by providing interest-rate quotations that expire almost instantaneously, or by low-balling fees in instances where they have legal flexibility. “If you get two or three different G.F.E.’s and there’s several thousand dollars’ difference,” he said, “you know someone is playing games.”
But David Flores, a financial counselor with GreenPath Debt Solutions in New York, which provides home buyer education, says game playing is not as big a problem as it used to be. “We’re removed from the day when it was a 3 percent interest rate with a big asterisk,” with the asterisk leading to fine print about teaser rates, he said.
Borrowers seem to have learned a lot from the attention paid to shaky loans in the last few years, he said. “More people are asking the right questions when it comes to these adjustable rates and exotic loan types. More people are wise to them.”
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One Response

  1. Don’t be expecting the CFPB to come riding into D.C. on a white horse to save the day. While Amerika slept, the House passed a bill essentially neutering the new agency even before the Grand Opening paint had dried.
    In times passed, the oligarchy hid behind shuttered doors, doing their nasties out of sight. Now days, they’re in your face and even daring the populace to do anything about their over-reach. Obama has said that he’d veto any such bill. However, what he’s said he would do and what he has actually done has differed in every case to date. In the mean time, the only change Obama and crew have offered the average Amerikan is a change of address, as their home is sold out from under them.
    We’d better start reaching back people, before it’s too late. Matt Stoller:
    Two years ago at this time we were in the midst of a major battle about whether and to what extent Congress would stand up to Wall Street and financial industry special interests and change the failed program of deregulation that led to the financial crisis. One year ago we applauded the progress made with the passage of the Dodd Frank Wall Street Reform and Consumer Protection Act. Today we are celebrating the new Consumer Protection Bureau officially opening its doors– so that for the first time there is a cop on the beat ensuring fair play for consumers in the financial marketplace.
    But the battle for accountability and transparency is anything but over. Today the House has passed H.R. 1315 the ‘Consumer Financial Protection Safety and Soundness Improvement Act’– a bill title that would make George Orwell blush. In fact, HR 1315 would cut the CFPB off at the knees, and make it impossible for it to do the job we need it to: standing up for Main Street, even when Wall Street doesn’t want it to.
    Earlier this week, we released a poll with AARP and the Center for Responsible Lending that demonstrates widespread support for the CFPB and Wall Street reform. By a 3 to 1 margin Americans want financial firms held accountable and financial reforms to take effect. And they want the CFPB– created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010– to be up and running. By overwhelming margins and across the political spectrum they want the CFPB to make credit offers clearer, they want rules of the road for all kinds of financial companies, and they want an end to tricks and traps.
    Public Citizen was even more brutal in its assessment– and even more on target. Bartlett Naylor, Public Citizen’s Financial Policy Counsel:
    Public Citizen deplores the shameful vote in the House of Representatives today to emasculate the new Consumer Financial Protection Bureau. A House majority that votes against the interests of its own constituents who continue to suffer massive unemployment from the bank-caused recession has clearly lost its moral compass.
    There’s only one constituency that favors gutting the CFPB– abusive bankers. Unfortunately, the banking industry continues to funnel some of its profits into a lobby offensive to dismantle the new consumer agency so as to shield itself from the new cop on the beat enacted in the year-old Dodd-Frank law. And it paid off today.
    Call your reps and tell them that you will not stand for this treasonous behavior. And then vote them all out next year, each and every one of them.

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