I’m So Happy that I Ignored the whole AGs-Investigate-the-Servicers Thing

Well, this time it seems I played it perfectly.  This time, even though it was being discussed as being a really big deal, I just completely ignored it.  I’m talking about the negotiations that have been going on in Washington D.C. these last two or three weeks between the mortgage servicers/bankers… and the 50 state attorneys general.

People have asked me for my thoughts on the ongoing negotiations almost every day, and I’ve told everyone the same thing… I’m not paying attention to it.  I did get some funny looks.

I assured everyone who asked that I was fine… no more exhausted than usual, which is somewhere slightly north of dead, it was just that I wasn’t going to pay attention this time around.  I wasn’t going to write an article that forecast what was to come… I was committed to doing nothing… no mention of it whatsoever.

I knew there was a risk to this approach, I mean, what if it had an earth shattering impact… shook the servicers to their core… finally gave the citizens of this country some of their power back… demanded that the abuse stop… I would have looked like I was asleep at my post had something like that happened.

I made fun of the whole process a few weeks back, when I wrote that article about how they might discipline the banker/servicers by getting rid of the hot towels in the rest rooms… ‘cause bankers need hot towels.  I’d hate to see a banker have to go without hot towels in the rest room, it just wouldn’t be right.  Like looking at a dog with nowhere to lay down or something.  Who wants to see something like that?

And in case you missed it, the folks over at American Banker magazine sort of took offense that I said something about how it would be fun to push around one of the insipid sycophants they were quoting in the meaningless drivel they called an article.

The guy over at AB took the position that I was being too harsh and cynical about the whole “we’re going to discipline the servicers” thing by quipping about how they may get rid of the hot towels and stuff like that, and that they were going to take the more responsible journalist approach and wait and see what happens before saying anything.  The clear implication being that were I a serious journalist, I would do the same… and refrain from suggesting that anyone kick anyone’s butt in a parking lot.

I didn’t waste even a single minute reading any of the articles that were published to track the progress along the way… I just ignored the whole affair.  And if I had been wrong to do so, then I suppose the guys at AB would have been able to gloat at how I was wrong and how they are the superior journalists, and I was just an immature hack throwing spitballs at the back of the class.

But that’s not what happened, is it American Banker people?  No, that’s not at all what has occurred?

See, I’ve started to realize that all those serious journalist rules that the serious journalists are so fond of drawing like a gun whenever a blogger is in the room… why I’m pretty sure they’re for the writers that sort of wander around with one of those little pads, because they can never remember what someone has told them, that barely know what’s already happened let alone what’s going to happen next… the conformists that can’t see around corners at all.  That’s who those rules are for, they certainly can’t apply to me.

If you’re not quite sharp enough to see the way something is going to work out, then I guess you do have to wait and see what unfolds, but if on the other hand, you’re me… well, then you can pretty much phone it in three weeks ahead of time and then just sit back and cackle when what ends up happening is precisely what you said would happen.

Which, as you’ve no doubt surmised through my self-congratulatory strutting about, is precisely what has happened in this particular case… right AB people… only they’re not even going to get rid of the hot towels, now are they?  No… they’re not, although I cannot wait to read your take on this whole regulatory and investigative charade.

And now a brief word from our sponsor…

This portion of Mandelman’s column is brought to you by CHASE… When you need a loan modified, it’s our name that says it all.  Call us at 1-800-CHASE THIS.  That’s: 1-800-C-H-A-S-E-T-H-I-S.

And now, we return to Mandelman’s regularly scheduled column…

Okay, so I’m done… did it feel good?  You’re damn right it did, but let’s get to the meat of what went on here…

Well, what they’re calling the Attorneys General “Term Sheet” is out and to kick it all off, I went with an analysis of the AG’s work product written by Joshua Rosner, who is Managing Director at independent research consultancy Graham Fisher & Co.  According to his bio in Huffington Post, Josh “advises regulators and institutional investors on housing and mortgage finance issues.”

So, that’s a pretty solid guy to check in with on this topic, right?  Not someone terribly biased against servicers, in fact, he could be a little banky, you never know…

According to Josh’s take on the Term Sheet being circulated:

The document demonstrates an intent of regulators and government enforcement to settle with servicers without first assessing the damages. Neither the states nor the OCC has carried out any meaningful investigation of the accuracy or completeness of mortgage loan files nor have they earnestly investigated servicer related pyramiding practices.

If a private-sector lawyer, representing any harmed party, settled for damages without an investigation of actual damages they would likely be exposing themselves to malpractice, why would that not be the case here?

It is unclear if this is merely a series of best practices or if this is an actual settlement that, if adhered to, would preclude legal actions by state or federal bodies. If it were the latter, this agreement would be one of the greatest abdications of governmental responsibilities to both borrowers and investors in modern history.

Ooooh, SNAP!

Now, I don’t want to decide for you, or even tell you which direction you should lean on this, and darn the luck, I probably can’t find a place to bet this thing, but for the record. I’m going with:

“… one of the greatest abdications of governmental responsibilities to both borrowers and investors in modern history.”


Ding! Ding! Ding! Ding! Ding! Ding!

Announcer: “Congratulations… you’ve just won an all-expense paid, four nights and seven days at the Best Western Banker Hotel and Slug Farm in Charlotte, North Carolina… the creditor capitol of the United States!

Announcer: Some ancillary charges do apply, and winner must take the trip up to three days prior to or immediately following the Summer Solstice in a Leap Year, winners are responsible for all taxes, surcharges, late fees and penalties, residual interest, impounds, VAT, sales tax, incremental charges, one time assessments, impervious provisions, anaphylactic overtones, obligatory encumbrances, dependent imperatives, and discretionary transaction costs, also, we reserve the right to increase any amounts paid by winner retroactively and without remorse.

That is so cool… I never win anything.

Okay, back to Josh… go  on, my boy… you’re doing fine…

While the document does send the right message on principal reductions, requiring second liens to be written down proportionally with the first mortgages, it is unclear what legal authority states have to enforce this requirement. Moreover, rather than just accepting a negatively amortizing open-end second lien loan that is making minimum payments to be classified as current, were federal regulators to require accurateconsideration of the likelihood of full repayment of such an open-end second lien in which the borrower had negative equity in the first lien then the proportional write-down would not be necessary. After all, with the proper write-down of such seconds the servicer would have little incentive to avoid an NPV positive write-down of a first-lien.

Well, I don’t actually have any idea what Josh is talking about there, but follow my lead on this… the only sentence you really need to focus on in that paragraph is the following:

“… it is unclear what legal authority states have to enforce this requirement.”

See what I mean?  When ever you’re reading something about bankers or servicers, and you see those words or anything like them, just assume that that’s the end and don’t bother paying attention after that.

Back to my man Josh… okay Josh, but what aboutn the whole principal reduction thing… where’s that part…

Also, even if the industry is expected to pay around $25 billion towards principal write- downs, that amount of money is clearly inadequate to cover the necessary principal reductions where will the other monies come from? There is nothing in the document that precludes inappropriate costs, which should be borne by the sell-side, from coming from the pockets of investors in the same manner that Countrywide settled its actions against state AG’s with investor funds.

The document does not prevent investors from being assessed the costs of bringing servicers into compliance with practices that should already exist.

So, there’s the $25 billion for principal reductions… but Josh the amount of money is clearly inadequate, and I can’t understand why… I mean, by my calculations it comes to… let’s see here… seven minus four… divided by nine… carry the three… about $8,000 per household, could that be right?  That seems awfully generous, doesn’t it?  I better get someone to check my math, as I’m all a flutter when it comes to numbers… LOL.

Personally, I think they should deliver the principal reductions to everyone’s door personally… hand whoever answers the door a 1099, spit in the person’s face and then kick him or her in the shin, yell out, “deadbeat,” and then run like the dickens… and I don’t mean Charles.

Then just tell homeowners that they’ve got fifty feet for a clean kill and no questions will be asked.  Beyond the fifty foot mark and the guy from the servicer goes free… or maybe a better way to put that would be, lives to improperly charge another fee.

And what a fabulous idea for a reality television show, don’t you think?  You better believe it is… what about calling it… American Shyster?

Oh come on… that’s perfect… shystermeans “a person who uses unscrupulous, fraudulent, or deceptive methods in business,” I looked it up.  I was thinking of going with “shylock,” you know, from Shakespeare’s “Merchant of Venice,” but it seemed too poetic, in sort an anti-Semitic sort of way, of course.

Okay, Josh… got any other gems you’d care to share with the class… because Lord knows I’m not reading this thing…

Section I C – Documentation of note, holder status and chain of assignment: This section appears to give the servicers, originators and Trustees cover for problems not actually related to the back end but rather to the front end, or pooling and assignment of mortgages and notes.

This suggests that the settlement would, once signed onto by states, preclude the ability of AG’s to take actions for improper assignments, fraud in the creation of trusts and other front-end problems. Thus, the scope of this settlement would be more far-reaching than just a back end, or foreclosure settlement. As a result it would negatively impact investor’s private rights of action.

As example sub-point 4, which prohibits servicers from intentionally destroying or disposing of original notes or like documents appears to ignore any prior such actions and proposed no punitive damages or remedies for such past actions.

Section I D – MERS: Ignores all issues relating to MERS.

Oh, and will you look at that?  Well, batter my bread… Shut the front door… what the f#@k does that mean, do you suppose?  (Sorry about the language there, it just slipped out.)

Is that a “GET OUT OF FAIL FREE” card?

Don’t even tell me… I don’t want to know.  And what about the hot towels… they get to keep those too, don’t they?  Anything else Josh… get it out… and then I’m going to bed…

What do they have about loan modifications:

Loss mitigation duty:

Which requires consideration of appropriate loss mitigation is already required by the FHA and the GSEs and, by agreement, HAMP and Help for Homeowners. Consideration of NPV positive modifications is already allowed or required by nearly all pooling and servicing agreements. All incremental costs of compliance with these practices that should already exist would likely be passed on to investors rather than be borne by servicers.

Aare you kidding me?  We had 50 Attorneys General investigate and negotiate to correct the servicer abuses related to loan modifications, and that’s what these clowns come up with… a requirement that the servicer must consider the appropriate loss mitigation strategy?  Just like it says they’re supposed to do know?  Are you friggin’ kidding me?

Oh, this is so stupid…

And check out this next one…

Section II C – Single point of contact:

Requires a single point of contact for borrowers and government oversight. This is not particularly novel and also reflects practices that should already exist. All incremental costs of compliance with these practices that should already exist would likely be passed on to investors rather than be borne by servicers.

So, in other words… it’s a way for servicers to increase the amounts they charge investors?  Oh, hell yes… hell yes… I’m starting to get the way this works…

Next slide please…

Section II D – The loss mitigation communication requirements with borrowers:

Seems to intentionally allow servicers to pass their basic responsibilities on to investors and requires them to inform borrowers of the name of a particular investor that opposes a modification for any reason, valid or invalid. This will act to undermine investor’s ability to assert their rights for fear of valid or invalid public criticism.

Or, since 99.9 times out of a hundred, when a servicer says the investor won’t modify it’s a bald face lie, this paragraph could mean nothing.

Next slide please…

Section II E – Protections for military personnel:

This is also a restatement of existing law. All incremental costs of compliance with these practices that should already exist would likely be passed on to investors rather than be borne by servicers.

A restatement of existing law?  Oh, dear God… Yoohoo… Attorneys General?  Anyone, anyone… so, which is it… is that one in there because the servicers think you guys are stupid, or is it in there because you guys think that we’re stupid?  Either way, it’s way stupid.

Next slide please…

Section II F – Development of comprehensive loan portals:

This section appears to, without first listing deficiencies in loan servicing tracking platforms (particularly LPS), direct servicers to create a better and more comprehensive and publicly transparent servicing tracking system. There is no discussion of the timeframe this would require or the feasibility of such a platform. All incremental costs of compliance with these practices that should already exist would likely be passed on to investors rather than be borne by servicers.

Yeah, that’s just perfect… classic: “There is no discussion of the timeframe this would require or the feasibility of such a platform.”

Beauty… that one is a real beauty… move on… next friggin’ slide… wait until you see this next one… I took a peek ahead…  you’re gonna’ die… are you sitting down?  Well, then sit.

Section II M – Principal loan modifications:

This section, while appearing appropriate, are highlighted by underlined text which reads “Note: the provisions in this subsection are in addition to the loan modification initiative that is referenced in Section VI and reserved for further discussion”.

Did you see that… did you see what they did there… principal write downs… and it says… “reserved for future discussions?”  What the heck have all your discussions to-date produce… nothing… the only thing you went there to discuss in the first place…. CLOWNS!  Attorney General CLOWNS!

Oh wait… I missed a couple of small ones… not that I care at all what else happened here…

Section II K – General loss mitigation requirements: All incremental costs of compliance with practices that should already exist would likely be passed on to investors rather than be borne by servicers.


Yeah, yeah… we get it… all the costs for everything go to the investors… we’ve got it.

Section II L – Proprietary loan modifications: This section requires basic disclosures of policies and basic fairness in rates and terms.


Fabulous as well… “Basic disclosures” and “Basic fairness.”  Well, that’s certainly a relief.  Because I checked “YES” on basic fairness… no, doubt.  That’s asshats!

Section II N – Second lien relief:

This section which includes only one sub-point requires, at the time of a permanent modification of a first lien, seconds to be written down proportionately. While this is laudable and probably acceptable to most investors, it is worth noting that where a first has substantial negative equity the second should, in most cases, be assumed to be worthless.

Okay, that’s it for me… enough is enough… I’m not going to comment on that last one… who cares… I’ve done my part, right.  I was having so much more fun when I was ignoring this whole thing… time to go back to bed…

Oh wait… one more… because I’m not quite annoyed enough… this last one is on “Monetary relief”…

Monetary relief:

Section VI: This section is vague and states (reserved for further discussion).

Beyond that is states servicers shall provide monetary relief as compensation or penalties for unlawful conduct, to settle claims owed to the government, and/or to fund programs to help homeowners avoid foreclosure, including support of non-profit housing counseling, legal aid assistance, hotlines, web portal access, borrower education and outreach, mediation, post-foreclosure relocation assistance and similar efforts. Servicers shall also establish a fund to compensate victims of servicer misconduct. It also states that a substantial portion of the funds will support and enhanced program of loan modifications.

There is no consideration of harm to investors resulting from illegal or poor servicing practices nor does it address the likely costs that will be passed on to investors.

It really is unbelievable… I mean EVERY SINGLE time there’s even a modicum of a chance the servicer could possibly, maybe have to pay out a nickel, it’s “RESERVED FOR FUTURE DISCUSSION”.  Why is that Attorneys General?

Do you even know, because I’m thinking your were all under the desks of the servicers most of the day.  Kind of hard to hear down there, I’d suppose.

For those of you that want to read the rest, here’s Josh’s document in its entirety.

Wow, I’m blown away… but at least I ignored it these last few weeks… and I’m still pissed off, imagine if I was actually following this stupidity and then this is what I got in the end.  Oh my God…

And get this… The Departments of Justice, Treasury, and Housing and Urban Development all support the proposal. So do the Federal Trade Commission and the nascent Bureau of Consumer Financial Protection.

So what?  Good for them… are any of them losing a house to foreclosure.  That’s it people… we’re done here.

“Laws were not being followed by the servicers,” Illinois Attorney General Lisa Madigan said Monday. “That absolutely has to change.”

Oooh… you’re so tough, Lisa, so tough…

Mandelman out.

Just like I promised, the document in its entirety:

Ag Term Sheet

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