Bank Lawyer's Blog

Pot, Meet Kettle

Since shortly after the onset of the financial meltdown and housing market collapse in 2008, a populist narrative has been that mortgage lenders and servicers have deprived defaulting borrowers of their rights by "robo-signing" documents and outright fraudulent manufacturing of note and mortgage assignments and similar practices in foreclosure actions. The narrative has a factual basis.

However, not all of the fraud may have been perpetrated by lenders. Recently, allegations have been made that at least one Florida lawyer falsified note assignments to make it appear that the notes had been assigned to a bank other than the one that initiated the foreclosure proceedings.

The allegations against Kalogianis center on promissory notes, the document in which a borrower promises to repay the lender. Promissory notes often change hands as mortgages are sold and resold. Many lenders went out of business after the housing crash. Because it was not always clear whom a borrower owed, promissory notes often were stamped with a "blank endorsement'' — whoever the promissory note was endorsed to would be legally entitled to foreclose and collect any money due.

"It's like a blank check,'' Weid­ner said.

In cases defended by Kalogianis, the companies seeking to foreclose said they filed promissory notes with blank endorsements. But at some point, the motion says, the notes in four of the cases were altered to show they had been endorsed by "Bank of New York, as trustee.''

In the fifth case, a blank endorsement was altered to show Wells Fargo had signed it, the motion says.

One company, BAC, lost its case against a Kalogianis client in 2014 when Kalogianis argued at trial that only Bank of New York could foreclose because it was the one that had endorsed the promissory note. (The case has since been reopened.)

Kalogianis denies the allegations and asserts that the lender falsified documentation and "was trying to 'turn the tables'' on him rather than lose the case."

"It is the plaintiff's own improper conduct … that should be reviewed,'' he said.

Another impediment for the lender is that there is no eyewitness who saw the alteration of the assignments, and there exists no clerk's office video which would reveal the alteration. The lender asserts that it must have been Kalogianis who altered the assignments because no other person who might have had access to the documents had a motive to falsify it. I'm not sure that's a winner. Remember, just like on "Cops," all suspects are presumed innocent until found guilty in a court of law. Moreover, if Kalogianis can prove his allegations that the lender engaged in other document fraud, then a judge could determine that any falsification of the assignments to show the Bank of New York as the assignee may just as well have been made by the lender rather than Kalogianis, perhaps as a desperate "Hail Mary" maneuver.

The Tampa Bay Times reporter does devote considerable space to recounting the colorful history of Mr. Kalogianis, including a couple of previous ethical complaints, his unsuccessful run for US Congress, and the fact that he worked his way through law school as a male stripper. So many of us worked our way through law school as strippers that I fail to see what bearing that might have on the lender's allegations.

Other than the allegations of a couple of clients of Kalogianis, both of whom alleged that the lender in their cases had "committed fraud," there is no similar recounting of the colorful past of the lender or any of its legal counsel. Perhaps they are all Carmelite nuns and monks who spent their law school years and beyond grappling with the dark night of the soul and had no time or inclination for strip bars or the US Congress, nearly identical fora in the popular imagination.

Certainly, the lender's motion in this case might be more persuasive if, as was the case with a motion brought by another foreclosing lender against Kalogianis, he was allegedly caught on camera.

This week, Bayview Loan Servicing, which is foreclosing on a Kalogianis' client on behalf of Bank of America, obtained a video of a man it says is Kalogianis looking at court files in the Pasco clerk's office. The video appears to show him removing a small object from an accordion folder, stamping a page in a court file and returning the object to the folder.

Kalogianis' attorney's defense is "nothing to see here" and "I'm rubber, you're glue, whatever you say bounces off me and sticks to you."

"I can't see anything incriminating other than a lawyer doing a diligent search, going through files looking for mortgage fraud,'' Cohen said of the video. "After all, it would not be unusual to find mortgage fraud on the part of Bank of America and its legal agents in that they've already stipulated to being responsible for tampering with evidence resulting in payment of billions of dollars of fines to avoid a possible criminal prosecution.''

Cohen said that Kalogianis has won "many cases'' in which promissory notes had not been stamped or signed by any lender.

"Why in the world would he want to do something that could potentially hurt his client by putting a stamp on a note?'' Cohen asked "Simply stated, there was no need for Constantine to stamp anything to win the case.''

Forging or altering public records, including court records, can be a felony punishable by up to five years in prison.

As I have discussed many times in the past, the last point is important. Anyone, lender, borrower, or their respective counsel, who falsifies public records ought to get the book thrown at them from a criminal law perspective. Winning or losing a foreclosure case should be collateral damage. At this point, we have nothing to judge but allegations and press reports, but we'll be following this one to see what, if anything, shakes out.

Residential Mortgage Lending: The Bloom Is Off The Rose For More Than Just The Big Banks

My friend, Colorado community and mortgage banker Pat Dalrymple's, latest "Banker's Hours" column in the PostIndependent Citizen Telegram again struck a chord with me. With permission, here it is, in case it also hits home with you:

We hear that the TBTF (Too Big to Fail) banks are getting out of the mortgage business. Can this really be true? Weren’t they reputed to be the culprits in the recent Great Recession that was reportedly triggered by all of the toxic mortgages they originated?

Well, they haven’t left the building entirely, but they’re not in residence like they once were. Here are some fairly dramatic stats:

Wells-Fargo, the nation’s No. 1 mortgage originator, funded $125 billion in mortgage loans during the fourth quarter of 2012. During the same period in 2015, that number was down to $47 billion.

Chase, the second ranking lender, did $51 billion in the last three months of 2012. In 2015, that number had shrunk to just under $23 billion. These are dramatic swings in banking, and show major ramp down of what was once a core business.

And it’s not just the big guys that are backing away from the iconic American Dream of financing home ownership. In 2007 banks made 74 percent of home loans in the country. By 2014, their share had dropped to 52 percent. At the same time, the share of nonbanks, which includes online lenders like Quicken Loans, had increased from 23 percent to 43 percent.

What’s happened? Just business; mortgage lending isn’t as profitable for banks as it once was. Interest margins on home loans held in portfolio are thinner than other lending lines. Since the Great Meltdown, the private bond market has virtually dried up for mortgage-backed securities. The cost of originating mortgages has skyrocketed, and regulatory risk has become, in the eyes of some former mortgage lenders, intolerable.

The increased cost of doing business is graphically demonstrated by the fourth quarter of 2015: Net gain on mortgages originated was down 60 percent, from $1,238 per loan to just $493. This is because lenders spent billions on re-tooling for the new RESPA-Truth in Lending disclosure protocol mandated by the Consumer Financial Protection Bureau that came online in October of last year.

As for regulatory risk, we’ve all heard of the multi-billion-dollar fines levied against the big banks for their role in originating and packaging the famous rotten mortgages that were at the root of the financial crisis. But the risk for banks is ongoing.

For example, PHH — a nonbank mortgage originator, seventh largest in the country last year at $37.57 billion — was just hit with a $109 million fine, which is certainly an attention getter. But the way it happened has lenders shaking in their Guccis. It was alleged that PHH had illegally taken kickbacks from mortgage insurers through customer referrals. The case went to an administrative law judge, who suggested a fine of $6 million.

To appreciate this story, we need to understand what an administrative law judge is. This person is trained in the law, but isn’t a real judge, as in a courtroom. Rather, he or she is employed by the agency bringing the charge. People who have been subjected to this process have likened it to walking into the Godfather’s study, who says, “Don’t worry about a thing, Joey, my consigliere here will give you a fair and impartial hearing.”

In the PHH case, the capo of the CFPB interpreted the law differently than it had been heretofore applied, so he must have said, “Geno, you were too soft on them.” He decided that the violations went back much further than the tame judge deemed, way back even before the CFPB was created, and increased the fine up to the $109 million.

Think the Mob has a long memory?

All of these factors are making big lenders think twice about being in the business. It may be the slack will be picked up by small banks, credit unions and online lenders. The jury’s out on that question.

Stressing Stress Testing

A recent White Paper from the consulting firm Invictus discusses what those of us who represent community banks have been aware of for some time now: the requirements for "stress tests" that were supposed to apply only to those "Too Big To Fail" banks are "trickling down" to community banks. The buzzwords that apply to banks both large and small are "forward-looking risk analytics." While Invictus notes that bank regulators initially publicly stated that stress testing was only for the Big Guys, their actions belied their words (or, they simply changed their minds).

Regulatory actions in the waning months of 2015 should serve as notice that ignoring forward-looking analytics will lead to lower CAMELS scores, more examiner scrutiny and higher regulatory capital requirements. The new current expected credit loss model (CECL), which is expected early in 2016, is also a forward-looking tool.

Behind the scenes, however, regulators began changing their own methods for examining community banks, relying more and more on forward-looking analytics. In recent months, with signs that community banks are again accumulating higher concentrations of risky commercial real estate loans, regulators are reminding community banks that stress testing is indeed required to manage concentration risk in their portfolios and to develop realistic scenarios for interest rate risk management.
Regulatory actions in the waning months of 2015 should serve as notice that ignoring forward-looking analytics will lead to lower CAMELS scores, more examiner scrutiny and higher regulatory capital requirements. The new current expected credit loss model (CECL), which is expected early in 2016, is also a forward-looking tool.
The large banks have already adopted forward-looking risk analytics and are using the results with regulators. Although community banks are not subjected to the same stress testing requirements as the large banks, the regulatory trend is in the same direction. Those community banks that fail to incorporate new analytics into their risk management systems will find it difficult to communicate effectively with regulators.

The White Paper traces recent public issuances by the FDIC, FRB, and OCC in this direction. A specific red flag is the December 2015 joint agency guidance on CRE concentrations. Those of us who represented community banks and their directors in the aftermath of the last meltdown, when commercial real estate brought a number of community banks to grief, took special note of that guidance. It's "guidance" in the same way vendor management guidance is merely "guidance." Try violating it and see how "sticky" the wicket gets. You'll be up to your eyeballs in MRAs on the your next report of examination...or worse.

Even if you thinkl your CRE isn't all that "concentrated," Invictus thinks that you ought to seriously consider hoping on this forward-looking train.

Even if your bank doesn’t have CRE concentrations, use forward-looking risk analytics to stress test your capital, your strategic plans and any potential acquisition you might be considering. Present the results to regulators. Invictus’ clients that have used stress testing results with examiners have seen their capital requirements decrease, their management piece of their CAMELS composite increase, and their strategic plans win fast regulatory approval.

At the very least, it's worth pausing for a moment and, while you stoop to smell the roses, thinking about whether you might benefit from this approach (if you haven't already adopted it).

A Long, Hot Summer Of Foolish Things

Among the many critical events that occurred this summer while I was pounding down Shiner Bocks by the busload and watching stupefied as the greatest self-aggrandizer since P.T. Barnum managed to vault to the top of the opinion polls by leveraging a condor's wingspan of hair and a face that looks like someone set it on fire with liquefied steroids and tried to beat it out with a rake into the most SPECTACULAR, FINEST, CLASSIEST, ENERGETIC, and HUUUUUGEST presidential campaign EVERRRRRR, the always amusing Supreme Court of the United States of America was proving everyone but left wing-nuts as wrong as Liz Warren about an Indian chief's skeleton in her family's closet when it determined, after a couple of previous misfires, that "disparate impact," indeed, applied to already shell-shocked residential housing lenders. While the opinion did sow some landmines in the statistical road to government-determined racial diversity in housing, the use of the doctrine itself as a basis to bring baseless actions against home lenders and to squeeze some juice out them for the benefit of those who will tend to vote reliably for the party that puts the chicken in all of their pots, was validated.

An excellent analysis of the decision, and potential legal issues to be considered by interested parties, can be found in this client alert by Joe Lynyak and his colleagues at Dorsey & Whitney. For the moment, I'm more interested in more fundamental concerns regarding the entire notion of "disparate impact." Another person who shares similar concerns is economist Thomas Sowell. He was interviewed in the Wall Street Journal on a wide range of topics, but the following is what Sowell, a man once so poor he pawned a suit of clothes for enough money to buy a knisch and a can of orange soda, had to say about disparate impact:

Or take “disparate impact,” the idea that different outcomes among different groups—say, that there are more male CEOs than female—is ipso facto evidence of discrimination. The Obama administration has used disparate impact to charge racism in housing, employment and other matters. In the absence of discrimination, the theory goes, people naturally would be dispersed more or less at random. Nonsense, Mr. Sowell says. “In various books I’ve given lists of all the great disparities all over the world, and I recently saw a column by Walter Williams in which he added that men are bitten by sharks several times as often as women.”

Differences in outcome is a matter that Mr. Sowell takes up in his new book, “Wealth, Poverty and Politics: An International Perspective,” out Sept. 8. Its theme, he says, is that “in a sense, there was never any rational reason to believe that there would be this evenness that they presuppose.” Some continents have more navigable rivers and deep water harbors than others. Some cultures value education highly, and some don’t. Underwhelming as the conclusion might sound to those with the urge to reorder society, many disparities arise simply because people are different, and because they make different choices.

Another problem is that the “disparate impact” assumption misidentifies where group differences originate. He sets up an example: “If you have people in various groups in the country, and their kids are all raised differently, they all behave differently in school, they do differently in school. And now they’re grown up and they go to an employer, and you’re surprised to find that they’re not distributed randomly by income.” It’s “just madness,” he says, to assume “that because you collected the statistics there, that’s where the unfairness originated.”

[...]

Why do we never seem to learn these economic lessons? “I think there’s a market for foolish things,” Mr. Sowell says—and vested interests, too. Once an organization such as the Equal Employment Opportunity Commission is created to find discrimination, no one should be startled when it finds discrimination. “There’s never going to be a time when the EEOC will file a report saying, ‘All right folks, there’s really not enough discrimination around to be spending all this money,’ ” he says. “You’re going to have ever-more-elaborate definitions of discrimination. So now, if you don’t want to hire an ax murderer who has somehow gotten paroled, then that’s discrimination.”

"A market for foolish things." Yes, we are.

The Mistress of Spin

A reader recently emailed that she was surprised by how brazenly Elizabeth Warren speaks out of both sides of her mouth. The specific event that caused her incredulity was Warren's initial public support of regulatory relief for community banks and her subsequent assertion that community banks didn't need regulatory relief because they were doing just fine financially.  After telling her that speaking out of two sides of a mouth is a gift commonly demonstrated by those born with a forked tongue, I pointed out that Ms. Warren's been stretching the boundaries between lies and damned lies for, literally, years.

Back in 2008, she went on the warpath (this was in the days before anyone called her questionable claim of Native American ancestry) over what she claimed on her blog (yes, Liz was a blogger) was a proposal by national banks to claim preemption from all state foreclosure laws. The fact that those banks were claiming preemption only over extended foreclosure moratorium and similar laws, not the general binding nature of each state's foreclosure process law requirements, didn't enter her discussion. Instead, she made this spurious allegation as to the position of the banks:

State laws are pre-empted whenever a national bank holds the mortgage, so the states can't make them follow the local rules. Pre-emption has been used successfully by the credit card companies to fight off state regulation, so now the banks want to escape local restrictions on foreclosure as well.

That was not the position of the banks regarding foreclosure laws at the time. It was also not the position on national bank preemption of either the OCC (which issued preemption regulations and opinions) or of the federal courts. In fact, the then-applicable OCC regulation specifically stated that state debt-collection and foreclosure laws were not preempted. Warren's characterization that the banks were arguing that they were preempted from all state foreclosure laws and, therefore, could, apparently, seize homes at will, was false. Of course, as a practical matter, some national banks did, in fact, seize homes without due process (even those on which they did not hold a mortgage), and even the owner's pet parrots, but that was through incompetence, not intent.

While intellectual dishonesty has served her, and will continue to serve her, well as a US Senator, Ms. Warren's ability to let no fact stand in the way of a populist narrative should come as no surprise to anyone who's been paying attention to her public pronouncements for any length of time. I mean last year, she blamed the 2008 financial meltdown on Ronald Regan. Next up: ISIS was created by Billy Graham.

Eric The Zombie Killer

Like the Windy City, the Empire State wants to make sure that when voters complain about run down neighborhoods, abandoned buildings, and general urban malaise, they know who to blame. No, not Teflon-coated pols. Instead, everybody's favorite whipping boys: mortgage lenders.

The State of New York doubling down in its efforts to fight back against the rising tide of zombie properties, which are homes that are vacant or abandoned during the foreclosure process.

New York Attorney General Eric Schneiderman announced on Monday that he plans to resubmit an expanded version of a bill he first introduced in 2014 to the state legislature. Schneiderman’s bill, called the Abandoned Property Neighborhood Relief Act, is designed to reduce the number of zombie homes by informing homeowners of their right to stay in their home until a court orders them to leave.

According to Schneiderman’s office, the bill will also require mortgage lenders and servicers to identify, secure and maintain vacant and abandoned properties shortly after they are abandoned. Under current state law, lenders and servicers aren’t required to secure and maintain vacant properties until the end of the foreclosure process.

The bill would also create a statewide registry of zombie properties, designed to help local governments with the enforcement of property maintenance laws.

Additionally, if Schneiderman’s bill becomes law, any fines levied against banks, lenders or servicers for violations of the state’s abandoned property laws would be directed into a fund, which would be used by local governments to hire additional code enforcement officers.

Making lenders legally responsible for properties that they do not legally own is a scam that's been around, in one form or another, for years. It's generally been considered a bad idea by mortgage lenders, which is an understandable reaction from a business standpoint, since it increases the risk and cost of lending in areas that attempt to impose such liability. Chicago fought the FHFA in court over an ordinance that tried to do the same thing that Schneiderman's bill would try to do. Last year, Chicago settled with the FHFA, after the FHFA won at the district court level and the city recognized that the FHFA was not legally compelled to comply with such a law. While the FHFA agreed to voluntarily register properties with the city, "the city will not require Fannie and Freddie to comply with the city’s vacant and abandoned building ordinances and will not fine the FHFA for ordinance violation."

Expect New York's law, if enacted, to generate a similar reaction from the FHFA.

I just love the smell of litigation in the morning. It smells like...attorneys' fees.

Another interesting aspect of the proposed bill is the following Catch 22.

Schneiderman’s bill requires lenders and mortgage servicers to periodically inspect properties with delinquent mortgages to determine if the property is occupied.

But the bill also makes it unlawful for a lender or servicer, or a person acting on their behalf, to enter a property that is not vacant or abandoned for the purpose of “intimidating, harassing or coercing a lawful occupant” in an attempt to get them to abandon the home.

That high wire walk, as well as the bill's other provisions, ought to discourage lenders and/or make them price the high risk into the cost of loans made in New York. Ultimately, it's the customer who always pays the price.

As if there weren't enough reasons to move to Texas, Eric the Red gives New Yorkers one more.

I Left My Equity In San Francisco

When a government takeover plan is so whacked that even a city official in San Francisco thinks that it's whacked, you know that it's officially jumped the shark.

San Francisco’s controller discouraged city lawmakers from going forward with a proposal to use eminent-domain to help homeowners avoid foreclosure, citing federal limitations and risks to the city’s borrowing costs.

“The city’s participation in an eminent-domain program will likely have broader negative impacts on the city’s participation in financial markets, at least for an initial period,” controller Ben Rosenfield wrote in a report released Thursday.

Rosenfeld had been asked by the city's Board of Supervisors to look into a proposal that the City by the Bay join the quixotic quest of the City by the Backside (Richmond) to seize underwater mortgages through the power of eminent domain, write the principal balances down to current fair market value, and, its proponents hope, benefit homeowners who then can then lower their monthly mortgage payments as ride rising home values upward as the economy continues to recover. The only people who get screwed under that arrangement are lenders, but to hell with those capitalist pigs, goes the reasoning.

Ben noted in his report that mortgage giants Fannie Mae and Freddie Mac have made it clear that cities that use eminent domain for such purposes would threaten the safety and soundness of those two formerly insolvent entities (and Uncle Freddie and Aunt Fannie certainly know unsafe and unsound actions when they engage in them, don't they?). Therefore, "[p]recluding any participation from Fannie Mae and Freddie Mac, the use of eminent domain would seem to be an inviable option." An "inviable option," indeed. Rosenfeld also observed that the eminent domain scheme "hasn’t yet been proven in any jurisdiction in the U.S."

It's doing great on Planet Bizarro, however.

A proponent of the plan was "disappointed" (i.e., threw a hissy fit).

“I’m disappointed that they seem to have bought into Wall Street’s scare tactics about eminent domain,” Avalos said in a statement. He said he plans to call a hearing soon to review the report.

I wonder if, at that hearing, he'll threaten to "socialize" mortgages? That would be the cherry on the top of this fruitcake.

All The Mail That's Fit To Print

It's been awhile since I dipped into the BLB mailbag. It's about time to see what kind of flack I receive.

First up is an email I received from a gentleman who referred to himself as the Director of Public Relations for Citi. Without hurling a single epithet, he informed me that the dispute with a lawyer/house renovator whose home was broken into by contractors for CitiMortage was "resolved" on December 10, 2014. He did not indicate what that "resolution" might have entailed, but we assume, based upon the nature of the dispute ("Show Me The Money!"), it involved coin of the realm passing from Citi and/or its contractor to the homeowner/attorney. While Toni Braxton may yearn for her heart to be unbroken, we aren't aware of any way in which you can unbreak into a house.

Another recent blog post on a scholarly article written by University of Alabama Law Professor Julie Anderson Hill on the legal cunundrum for banks trying to bank state legal - federal illegal marijuana-related businesses in Colorado, I received an email from Professor Hill. She corrected me on the nature of the "Mary Jane" credit union formed in Colorado, Fourth Corner Credit Union. I thought that it was the first special purpose "Cannabis Cooperative" authorized under Colorado law. Instead, Fourth Corner is a state chartered credit union. Because of quirk's in Colorado law, it may open its doors prior to receiving deposit insurance from the NCUA (a processes that could take years), although its still needs approval by the Federal Reserve System of a master account. The organizers think that this approval process by the Fed is a sure thing, but neither Professor Hill or I are as confident. On the other hand, it's not that there is any precedent on which to base an opinion, so we're just going to have to wait and see. The organizers had, according to press reports, hoped to be up and running by January 1, 2015, but that hasn't occurred. Stay tuned.

Finally, a financial institution trade official asked if I thought that Maxine Waters had personally drafted the press release that contained the following words, allegedly spoken by her:

“The disparate impact standard is absolutely essential to providing for fair housing throughout our nation. I sincerely hope that the Supreme Court will make the right decision in this case by affirming that the Fair Housing Act unequivocally prohibits actions that have the effect of disproportionately denying housing to marginalized communities,” Waters said Friday.

“Failure to do so would be contrary to congressional intent; it would overturn decades of major progress in fair housing; and would be particularly devastating for minority individuals and communities,” she added.

Waters said unchecked discriminatory housing practices, such as subprime lending to minority communities, in the time leading up to the mortgage crisis continue to prevent working class families from joining the middle class.

“The disparate impact standard under the Fair Housing Act has been effectively used for decades to weed out practices that create barriers to housing for people on the basis of factors like race, color, religion and gender,” she said.

Given her previous problems in the socialization/nationalize arena, we are both doubtful that Rep. Waters wasn't acting as a mere sock puppet for the guiding hand of a professional PR hack. Then again, we could be wrong. Either way, we're rooting for the visiting team in the disparate impact game being played before the SCOTUS.

Surprisingly, there were no anonymous emails threatening my life or worse, regulatory retaliation. Perhaps with the spring thaw, the wombats and trolls will again be out in force.

Compounding Your Errors

Because we've been relentless in our coverage of Bank of America's repeated foreclosure faux pas over the years, it's only fair to welcome to the slap-fest BofA's erstwhile partner in slime, CitiMortgage. Like the bank America love's to call its own, Citi also knows that when it comes to generating bad publicity for banks in general and big banks in particular, nothing works better than breaking into and looting a house the bank does not own.

Until this year, Honesdale attorney Jeffrey S. Treat thought he had seen everything in the wild world of home restoration, flipping and landlording.

CitiMortgage and its agents confused his handyman’s special — a small, long-vacant foreclosure he purchased for cash at 1526A Thackery Ave. in Scranton — with a home it foreclosed on two doors down.

In several visits from June through July, the bank cleared Treat’s building of its contents, including tools, building materials and replacement windows.

The bank changed the locks and crudely padlocked and posted the home.

This came as a great shock to Treat, who had no mortgage on the home and no relationship with Citi.

Unable to reach an agreement with the bank or the company that did the property clean-out, Safeguard Properties of Valley View, Ohio, Treat sued them and CitiMortgage Inc. of O’Fallon, Missouri, for the $3,500 estimated worth of what they removed and $5,000 for trespassing and damages.

A spokesman for Citi said Safeguard Properties and Treat are trying to resolve the issue. But Treat is past negotiating and is preparing for court.

“I don’t live there, and it was just tools, lumber and whatnot, but it’s just bizarre that this would happen,” he said. “It’s my place and all these people were in there and they took my stuff. Yeah, I feel violated.”

If you're going to pick on an individual to abuse in this fashion, who better than a lawyer? Sure, people love to loathe attorneys, yet as a group, they have the annoying habit of not being intimidated by big institutions, knowing their way around a courthouse, and, most unfortunately of all for giant financial institutions, matching bankers tit-for-tat when it comes to displaying your inner A-hole.

Not that Jeff didn't have provocation to sue the beatitudes off of Citi, you understand.

All summer, there were subtle and not-so-subtle clues that a big bank was about to pounce on his property. Treat tried to warn everyone, but never suspected a confused mortgagor would trespass, break into his property and remove everything in it.

It started when he found oversized sheriff’s sale notice on the house, citing a CitiMortgage foreclosure. He called the big law firm handling CitiMortgage’s foreclosures.

“You got the wrong house,” he said. He researched Citi’s actual foreclosure, found the property they wanted was two doors up, which he said was in much better shape than his dusty gut-job. He thought that was the end of it.

He continued working on the property, often with help from his father-in-law, who is retired and enjoys the activity. Through the summer, the grass was mowed regularly.

Treat concluded his father-in-law was taking care of the lawn.

His father-in-law thought Treat was taking care of the lawn.

They never discussed it.

Turns out, it was probably CitiMortgage and Safeguard Properties.

“That shows you what kind of guy I am,” Treat said. “I didn’t even thank my father-in-law for the work I thought he was doing, otherwise I would have known that Citibank was treating my property as though it was theirs.” He gets wind of people on his property and makes a visit, finding the locks changed, the home cleared and a padlocks attached from the outside.

The neighbors watched it happened, thinking Treat fell behind on his payments.

Treat broke into his own property, saw his stuff was gone and replaced by a Safeguard sign-in clipboard where employees logged their visits and what they had done. Treat’s tools, replacement windows, even bags of cement were gone. Treat put up a sign to CitiMortgage and Safeguard, telling them to that it is not their house.

The bank's contractor, who stole Treat's tools, could have settled up by just paying a premium on the "conservative estimate" Treat gave it for the value of those tools. Instead, it decided that nickel-and-diming was the way to best address the "reputational risk" that the federal bank regulators claim is of major concern when a bank engages in questionable activities, like processing payments for an online dating service or a payday lender. We assume that breaking and entering might also qualify as "high risk" of damaging a bank's reputation.

Treat sued them for five large in small claims court.

Citi could still have cut its reputational losses by cutting Treat a check. I mean, going to small claims court when the only issue involves an amount that Treat claims is "not even an hour of fuel in a corporate jet" seems like bullying the little guy, especially when the question of liability is cut-and-dried. However, according to the linked article, both the bank and its contractor have hired lawyers to contest the proceeding. I hope they show up at the right courthouse. Their track record does not give one encouragement. I suggest the use of a seeing eye dog.

You have to wonder who at the bank is making the judgment call to slug this one out. Treat's getting all the favorable press, and whether or not he gets the full monty financially when he gets his day in court, he's already exacted his pound of flesh in the court of public opinion. The negative publicity hit has got to be costing Citi more than simply paying the guy a few grand and keeping this embarrassing episode out of the newspapers.

Things could have been worse, I suppose. Treat could have had a pet parrot in that house.

FHFA Takes A Baby Step

Even though she managed to lose the governor's race in heavily-Democratic Massachusetts to a Republican (thereby earning the disdain of Democratic strategist David Axelrod), and even though a federal district court last month dismissed her lawsuit against the FHFA and its wards, Fannie Mae and Freddie Mac, on the basis that the court system doesn't have the right to "second guess" the FHFA's business judgement (isn't that a novel concept!), Massachusetts AG Martha Coakley still had the gall to issue a public statement about the FHFA's recent decision to back off its policy of refusing to consent to the write-down of loan principal where a foreclosed house is sold back to the defaulting owners.

“The reversal by FHFA of Fannie and Freddie’s policies, which we have long advocated for and brought suit over in part, alters some of their rigid policies to help keep people in their homes,” she said in a statement Tuesday.

To help keep people in their homes who didn't pay their loans as they agreed to pay them and who are getting a better deal than they originally bargained for, at the expense of Uncle Freddie and Aunt Fannie, both of which have been de facto nationalized. I guess that would be a Progressive's orgasmic night dream were it not for the fact that Coakley had absolutely nothing to do with the policy reversal and, more telling, the "reversal" will not help that many homeowners remain in their homes.

However, the impact of the change could be limited. It will only apply to the 121,000 homes that Fannie and Freddie have already foreclosed on and own, a provision that’s intended to curtail any incentive for borrowers in good standing to default. That narrow scope is unlikely to quiet the drumbeat for the FHFA to make bigger changes intended to help a larger number of borrowers who owe more than their homes are worth.

Foreclosed-upon borrowers will also still need to find the cash or financing to buy the old home back at market value, a tall order for those with tarnished credit histories.

“This is a ‘feel-good’ type of policy. It’s directionally helpful to a small number of homeowners that ran into trouble, but at the end of the day, I don’t look to this to have a major policy impact,” said Clifford Rossi, a finance professor at the University of Maryland.

[...]

The new policy in effect reduces mortgage principal, albeit for a small number of foreclosed-upon borrowers. Some nonprofit groups said that Fannie and Freddie would be better served to reduce the borrower’s principal before a foreclosure.

Fannie and Freddie wouldn't be "better served" by such a policy, although delinquent borrowers, Nanny-State lovers, and the fake Native American politicians they so love to lionize would definitely be "better served."

Speaking of which, the fact that 1/32 Cherokee Princess Fauxcahontas went all "jihad" on Mel Watt last week obviously had more to do with this latest publicity stunt than any dismissed lawsuit by a pol who couldn't beat Abu bakr al-Baghdadi in a race for Prime Minister of Israel. You could see the flop sweat flying off of Watt's brow at that Senate hearing like angel dust in the aftermath of a Lindsey Lohan sneezing fit. It's not pretty when a cougar eats her young.

The FHFA's position has long been that it does not want to engage in any process which encourages borrowers to default in order to gain what are, in effect, write downs of underwater mortgages. This is, in theory, especially important in light of the fact that Fannie and Freddie are in conservatorship and, ultimately, it's the American taxpayer on the hook (leaving aside the fact that both entities have become cash cows pouring their profits into the US Treasury). This is only a baby step toward fulfilling the call for widespread write-downs for political ideological humanitarian reasons, but then, every long journey begins with the first step, no matter how tiny. Between now and 2017, it would not be at all surprising to see the pace quicken and the stride lengthen.