MORTGAGE
MELTDOWN:
The Reality

The real foreclosure crisis continues, as homeowners struggle to keep their homes when everything is stacked against them.  Newcomers ask all the wrong questions. They assume the banks are honest, and that foreclosures occur only for acceptable reasons. 

Hardened Foreclosure Fighters understand that they have been trapped in loans that are doomed to fail, and that the legal system will not defend their rights. Here are the three most useful answers to Foreclosure Fighters' Frequently Asked Questions (FFFAQ):

Here's what you see:

The year is between 2004-2008.  You have improved your modest "fixer upper" house in a low-income neighborhood while working multiple jobs, and waited patiently while housing values rose to cover your purchase price plus repairs.  You find a loan agent (broker, bank representative) and agree to refinance your home loan with a solid, friendly neighborhood bank, maybe Wells Fargo. You wait a few weeks while they prepare your paperwork.

You read all the papers carefully and sign them. BANKS LIE. The papers all say, "Wells Fargo Bank, N.A."  Therefore, you think you are signing a contract with Wells Fargo. One page says, "This loan may be sold." You think this means your loan is held by Wells Fargo now, but it might be sold in the future to another reputable bank that is insured by FDIC and is bound by federal laws. After a few years of low payments with fixed interest, the loan becomes "adjustable" and payments can rise. Not to worry! You can re-finance after a couple years, before the interest rate changes.

BANKS LIE:  The papers say, There is no other part of this contract, and no verbal agreement outside this contract. No mention of a private investment fund holding your loan, no mention of secret rules that WF will never let you see.

A few years later (early 2009), you are warned about an impending job layoff, while homes all around yours are being lost to foreclosure (so many predatory loans), which lowers your own property value.  You ask about getting a loan modification while you still have equity. 

BANKS LIE.  For 4 months, Wells Fargo says (falsely) you must miss a payment before you can be considered. When you finally get laid off and must miss payments, they will not accept your offer of partial payments.  You make one full, late payment, but you are already sliding down the slippery slope.  They issue a Notice of Default (NOD) and prepare to sell your house. But you are still trying to get a loan mod. BANKS ARE DISORGANIZED. Wells Fargo requests a ton of paperwork every 30 days and keeps you on the phone for hours and hours, making you miss work, while they complain about your low income.

Eventually, you arrange through NACA to get a temporary loan mod (forbearance), with lower payments for 10 months. The unpaid portion will be added to your principal "permanently" which seems okay, better than losing the house. You sign papers for this arrangement. BANKS LIE. The papers say, This is the whole contract, and there is no other part of this contract. The papers do NOT say, By agreeing to this short-term loan mod (forbearance), you cancel your right to any other loan mod for the life of the loan. Ever. No matter what.

Before and during the 10 months, you keep asking, What happens after the 10 months end? Answer: You can re-apply. BANKS ARE DISORGANIZED.  Indeed, WF sends papers so you can re-apply many times. With no plan in place, and the economy still very depressed, and no chance to work predictable hours because you need to deal with WF, you spend hours and days calling WF reps, until finally one of them gives verbal permission to continue paying the reduced mortgage. 

After many rejected loan mod applications, which consume incredible amounts of time and energy, you are told, "Your loan is in a fund that does not permit another modification."  You say, "WHAT?  Show me the papers that transferred my loan into that fund!"  BANKS CORRUPT JUSTICE.  This fruitless pursuit for documentation takes over a year and no paper trail is ever sent to you.  But you keep submitting a HAMP application each month, so WF can say they are considering you for a loan mod and thereby defer your foreclosure sale, month by month. 

BANKS ARE DISORGANIZED. Because you cannot make full payments, and the bank will not accept partial payments, the WF the lawyers schedule your house for auction... in a neighboring county (not your own county) which is illegal.

They do not sell your house that day, but reschedule in correct county without telling you.  You find out by accident (say, March 30, 2010). Suddenly, you are on 2 phones at once, with 2 WF people who will not speak to each other. Valerie assures you that your house will be sold the day after tomorrow. Maria assures you that this is impossible because you have submitted an application for a loan mod.  BANKS LIE, so you plan for the worst. You have 1 day to file for Chapter 13 bankruptcy to save the house.  No lawyer will take your case, because they have no way to win, and there is no award of damages (the "pain and suffering" awards that pay the lawyers) in these cases.

You have an easy bankruptcy, for only 3 years (2010-2013).  During that time, your house is supposed to be protected by a "stay" but in 2011 WF asks your bankruptcy judge for a "relief of stay" to take your house.  You spend 6 weeks writing exhaustive briefs and compiling a mountain of paper to support your position. When WF sees all this evidence, their lawyer backs down.  The 2-minute hearing consists of the WF lawyer proposing you continue your modified payments as usual, but under a court order ("Adequate Protection Order"), which you accept even though the home value has declined to 24% of the value it had when you got this loan, and your total expense for housing (Principal, Interest, Tax, Insurance) is well over half your limited income.

December, 2013: The lawyers find out your bankruptcy is fully discharged even before you do, and refuse to accept any mortgage payments-- a major step toward selling your house.  Your calls to WF are falling into the VOID, because you no longer have your rep in the WF Bankruptcy dept and no new rep has been assigned.  You arrive home New Year's Eve to find a Notice of Sale on your front gate.  Of course, this happens on a holiday, which you have come to expect, which is why you stay home through every holiday.

One year later, you have survived a foreclosure attempt almost every month, thanks to the help you solicit from elected officials, friends, fellow Home Defenders. Do you have a modified, affordable mortgage? No, and the bank says you never will. Every time you submit your newer, higher income (working whenever you have a rest from dealing with your bank, and saving all you can), your income is still too low: Principal, Interest, Tax and Insurance may not exceed a third of your gross income to be "affordable."  "Affordable" was not a concern while the bank had you paying most of your income through a court order, but suddenly, now, it is an excuse to deny a loan mod. You apply for Hardest Hit funds, twice, and the bank rejects the taxpayers' assistance for principal reduction, both times, hoping to foreclose instead of modifying your loan.

Still, you still keep trying!  You ask your bank, How much monthly income would I need to finance a loan mod? Answer: No amount of monthly income is enough. A loan mod cannot be arranged because the fund's investors do not permit it. And to repeat: You cannot have your loan removed from the fund. Never. 

What if you could get a huge raise and earn $15,000/month, if your Principal, Interest, Tax and Insurance would consume only 30% of your income? The answer is NO.

The bank's "only" choice is to SELL YOUR HOUSE AND MAKE YOU HOMELESS BECAUSE YOU "CANNOT AFFORD" THE AMOUNT OF MORTGAGE THAT YOU ACTUALLY PAID DURING THE WORST OF THE RECESSION, WHILE HOUSING VALUES PLUNGED. The bank appreciates your loyalty during the rough times, and marvels at your budgeting skills, but they still refuse to modify your loan.

Time to make a VERY BIG FUSS for media.  Yes, Wells Fargo has a REGIONAL MEDIA REPRESENTATIVES and Secret Social Media Offices to monitor the buzz. Or post a comment on a Wells Fargo blog. 

Here's what you don't see:

BANKS CORRUPT JUSTICE.  Pretending to lend without prejudice, banks target whole areas (low income Black and Hispanic neighborhoods) for predatory loans that are designed to induce foreclosure. [Download or search WELLS FARGO'S FORECLOSURE PIPLINE .pdf] These are the same neighborhoods where the bank donates a few thousand a year to this or that nonprofit as hush money, to minimize complaints from the housing agencies that try to help homeowners fight foreclosure.

When Wells Fargo sees you are applying for a home loan, they arrange to sell the new loan IN ADVANCE to a group of investors who are promised a high interest rate for 30 years. About 80% of home loans are passed off to Fannie Mae or Freddie Mac, which are government agencies (Housing Finance Agency, or HFA) that pay a return to private investors.  But your loan goes to a private investment fund, which is more profitable for Wells Fargo. WF collects about $480 million from pension fund managers and other private investors to establish a Mortgage Backed Securities (MBS) trust fund.

The $480 million is used to purchase or re-finance about 800 homes in a "pool" that is reported to the Securities Ex change Commission (SEC).  WF creates a new fund every few weeks: #14, #15, #16. #17, etc. Your loan is in put into Fund #16 even before you sign the final loan papers.  BANKS LIE: Not to worry, dear shareholders! Only a few of the loans will default. This fund has a super-safe rating, AAA (because Wells Fargo pays the rating agencies to ignore any problems with this scheme).

Wells Fargo is the Servicer, collecting all the mortgage payments, keeping some of that money and passing the rest to the investors. Wells Fargo can say the bank owns the loan, or that the fund owns the loan-- whichever is more convenient at the moment. 

Starting around 2007, many borrowers get laid off and miss payments. The default rate is ten times what Wells Fargo predicted in public documents. Investors of 30 funds file a class action lawsuit in 2008 that lasts for years. Eventually, they get a tiny settlement from WF, nothing compared to the loss of their pension savings, etc.

Some of the rules for the fund's "pooling and servicing agreement" (PSA) are reported and posted by the SEC on a website, but not all the rules.  BANKS CORRUPT JUSTICE.  Nobody is allowed to see the secret rules: Not borrowers nor their Congressional representatives nor housing counselors nor lawyers.  (In conversations with WF, these rules are called "the investors" as if they are people: The Investors do not permit a loan modification.")   The secret rules say that if a borrower has a financial hardship, Wells Fargo might allow ONE, TEMPORARY reduction in monthly payments, but only one, for the life of the loan. After that, they foreclose and sell the house.

WF gets to keep most of the money from the sale of foreclosed homes-- which "must" be sold (even if a loan mod would benefit the investors more) because the rules say No Permanent Loan Mod.

By 2010, the fund has lost more than half its original value.  By 2012, the fund is down to $101 million, less than a quarter of the original $480 million.  The ratings agencies are downgrading it from AAA to Junk. (Pension funds sue WF by the dozens, for example, this Class Action Lawsuit.pdf, including Alameda County pension fund.) Meanwhile, WF is foreclosing on homes left and right, selling them as fast as possible but keeping backlog of unsold properties.  Wells Fargo's profits rise every quarter, every year.  CEO John Stumpf gets $19 million per year, then $20 million per year, then $21 million per year.  A few pesky lawsuits are not enough to dampen profits, and the top executives never go to jail.  The bankers have purchased enough lawmakers and judges, so only the protesting, homeless homeowners get arrested, not the actual thieves.

BANKS CORRUPT JUSTICE.  The banks tell Congress to forbid the U.S. bankruptcy courts from reducing a home mortgage. Income property (homes rented to tenants) can get their mortgages adjusted, because banks enjoy laws that assist landlords, and a second mortgage (or Home Equity Line of Credit) might be discharged in bankruptcy.  But homeowners cannot get relief from a bankruptcy judge on the mortgage for their own home. The debt follows them to their grave unless the bank chooses to forgive it. 

Even during a bankruptcy, the bank can foreclose. They just need to tell the judge, "We (or our investors) are suffering financial hardship by not receiving the usual stream of mortgage payments. We need to collect all the back-due payments right now, or sell the house." 

Whoops! THIS homeowner is fighting back-- how unusual!  Well, we can wait until the bankruptcy ends, and try again.

In 2012, the Homeowner Bill of Rights is approved for California, and will take effect in January, 2013. BANKS CORRUPT JUSTICE, so bankers make sure the that most of the new laws are weakened to suggestions, with little chance of enforcement.  However, one provision is troubling in particular: Banks are expected to make an effort to modify a loan, or find some other alternative, before issuing a Notice of Default (NOD) and foreclosing on a house.  Quick! Issue a Notice of Default in 2012, before the new restrictions take effect.

Wait for it, wait for it... Bankruptcy ended, so bankruptcy protection is over! Quick! Return that last mortgage payment, issue a Notice of Trustee Sale, get that house sold ASAP.  Do NOT assign a new rep within WF to take phone calls. DO NOT pay attention to the new Loan Mod application that came in.  Must sell house quickly, because the new Homeowner Bill of Rights will not permit "dual tracking" -- considering a loan mod application WHILE selling the house.

BANKS ARE DISORGANIZED. Even when Congressional Office calls and a new rep must be assigned, it takes some days to get everything in order. Almost had a sale... Try again next month. Whoops, another loan mod application came in. Try again, try again.

BANKS CORRUPT JUSTICE. Lawyers still refuse to take your case. The Attorney General is still "planning" to crack down on unethical lending practices. Congress refuses to unite for real reform in real estate lending. Securitized loan schemes spread to student loans, car loans, medical bills, pools of apartment rental leases.

BANKS ARE DISORGANIZED. To keep any one rep from really helping you, your "single point of contact" keeps changing, or does not deal with all your issues, or has office hours that do not match your work schedule (in a different time zone). Most important, nobody has the authority to authorize a loan mod, though the bank keeps sending packets of forms to complete and return promptly.

BANKS CORRUPT JUSTICE. The US Department of Justice finds WF guilty of predatory, discriminatory lending. So what?  Nobody goes to jail, and victims are not compensated. Official word is that the economy is improving and housing prices (what speculators pay for houses sold at auction?) are going up. Usually, WF chooses not to take the funds from Keep Your Home California (Hardest Hit Funds), in order to avoid modifying a loan. Nothing can compel the bank to accept the money and modify the loan.

Can the loan be removed from the restrictive fund for "in house" modification? Technically yes, but nobody can compel the bank to do so, not even the Hardest Hit Funds or Congress.  The bank insists the only choice is to "liquidate" the property, and keep the profit. 

BUT... What if you PROTEST LIKE CRAZY?  The bank does not want to look bad to the public!   When home defenders rally in the branch offices, and harrass the bank executives in waves and floods of protest, when their CEO is confronted by a deserving shareholder like BETTY BADRO at a large public meeting... suddenly the bank CAN find a way to modify a mortgage!