Foreclosure Mediation: Poking the Bear

Have you ever heard the phrase, "don't poke the bear?"  Of course you have, unless you are 7 years old and never read anything in your life.  Even by context, it seems like a bad idea.  Well, after some 30,000 foreclosures last year, the bear has had enough, and I mean the voters.  If you have been following me while I tracked SB 5275 and HB 1362, you know that I was of the belief that the banks had won.  In the first substitute of the bill I went to Olympia to fight for, the legislators had gutted the bill.  See Paper Tiger. 

Much to my wonderment and excitement, the second substitute put almost every tooth back in, and those dentures are sharp.  You can read the text of the new bill here, but only if you are a glutton for monotonous punishment.  The bill is about 28 pages and it has twists and turns, new definitions, rules, traps, and in the end, I believe a tool that will allow homeowners to hold banks responsible. 

The bill has not yet been signed.  I didn't want to get scooped here, so I am posting this before Gregoire puts pen to paper.  She got the bill on Friday and it has not been scheduled when she will sign the bill.  Some of the highlights are mediation, of course, bad faith, and attorney opinion letters to HUD.  I always like new business.  there are some traps as well, the provisions are not automatic, they are not free, and in many ways, they will be ineffective, but that doesn't mean you ignore them.

I will write more on this later this week.   So stay positioned, the great bear of the northwest has been poked out of its cave for long enough, and some bankers better be wary.

Update on Foreclosure Mediation-Its Now a Paper Tiger

Legislators like to beat their chests and show they are doing good for the public, but when they compromise, their boasts about the tiger they are unleashing on behalf of their constituents end up being a tiger made out of paper mache.  This is just a quick note on some updates for foreclosure mediation bills, HB 1362 and SB 5275.  Both bills were referred to their respective Ways & Means committees.  The real issue is that what was submitted to the Ways & Means committees were substitute bills (SB 5272 Substitute Bill) and not the bills that I went to Olympia to fight for last month.  Certain provisions have been gutted and substituted, one important item that got the axe was the in person negotiator.  HB 1362 under new subsection (f) says "a person who is authorized to modify the loan obligation or reach an alternative resolution to foreclosure on behalf of the beneficiary may participate by telephone or video conference, so long as a representative of the beneficiary is at the meeting in person." (SB 5275 subsection (e)). During the hearings last month, the banking industry, represented by one of the big downtown law firms, made the argument several times that the person most suited for making the modification doesn't exist within the state boundaries and it would be too much trouble to put that person in front of an underwater homeowner.  I hate that argument, I hate the compromise.

In one of my posts last year, Hi Ebb, I'm Flow, I discussed the dehumanization of the banking experience being one of the factors that has lead to this crisis in our collective history.  The banks wanted nothing more than analytics in determining the risk of a loan, when one of the most important factors of determining risk is the ability of the local banker to work with people that he knew in his community.  The banks moved from that model almost completely and substituted computer programs that were easily fooled by inflated numbers and defeated by crummy underwriting standards.  The foreclosure mediation bills explicitly put decision makers in the room with the homeowner, correcting a dishonorable banking practice of the last decade.  The banks have done their best to keep that decision maker out of that room and now you have a Skype call to get answers with some lackey sitting in the corner listening to the conversation.  If my court can drag your butt into the court room because you have sufficient contacts with my state, why can't my legislators do the same thing to save a home.  The person is coming here on the bank's dime, not the taxpayer's.

The other gutless act of our state legislators was the removal of a provision which would make it an act of bad faith on the part of the bank to not offer a modification if the net present value of the modification was greater than what the bank could anticipate receiving in foreclosure.  Simply put, was the price tag on the modification bigger than the foreclosure?  If it is, do the mod, if not, then do the foreclosure.  That was an aspect of subsection 11(f) of the original bill, but new section 11 completely removed that obligation.  The Washington State Real Property Bar had issued a letter (and no, I didn't get a copy either) stating that the provision, in the committee's opinion violated the constitution by interfering with private contract.  I think that is an overblown argument because a majority of DOTs explicitly make themselves subject to the changes in the Deed of Trust Act in the state and from an economic position, the only way that not making that deal makes sense is if there are other payments coming to the bank which are not being made public knowledge.  Sorry for the conspiracy theory, but the banks are getting its back scratched somewhere which is altering the economics of these transactions.  I wish I had more information but the FOIA requests are turning up squat.

There is a scheduled Senate Hearing on the 24th at 1:30 pm in the Senate Committee on Ways&Means which I am trying to see if I can attend.  Hopefully, I can get some more answers for you.  The new bill is pretty much a paper tiger at this time but there are likely a couple of footfalls there for the banks which can be beneficial to my clients.

The End of HAMP?

I know its just January, almost February but for fiscal minded politicos, its spring time and its time to clean, a little weeding if you will.  We are seeing it here in Washington as cities like Everett and Lynnwood cut back on teachers and other staff, and even at the state level as Governor Gregoire puts the axe to under-preforming programs and asks for whole sale cut backs in expenses and personnel.   News from the other Washington (D.C.) that there are further cuts on a national level.  One in particular is HAMP.

From a professional stand point, I have been less than accepting of the program.  The Home Affordable Modification Program (HAMP) for short has been an abject failure.  Nationwide, until last summer we had seen the modification to application ratio sit at about 3.6%.  Recent news has shown that number climbing to about 7% and in particular locals where the states have implemented special hotlines and other foreclosure deferment programs like Colorado, the number has climbed to 12%.  Not exactly favorable numbers.

To be fair to HAMP, a lot of applicants cannot qualify for the modification.  The target is 31% of pre-tax income.  With the loss of jobs, loss of overtime, or any combination of decreased earning capacity will cause some homeowners to be in a situation to where they simply cannot afford to stay, even if a modification was made to meet 31%.

The issue that I take is that in many instances is that the bank essentially gets to look at the value of the current loan as a starting point for determining if it will in fact modify.  If the bank is not better off, it has not incentive to modify and won't.

Jim Jordan, Darrell Issa and Pat McHenry, all Republican congressmen have introduced a House Bill that would clean out HAMP due to its failure in meeting the projections of 3 to 4 million modifications as opposed to the 579,000 that had been accomplished through December. 

The repeal of these bills in of itself will do nothing to cure the foreclosure crisis.  In fact, for the handful of people it helped, it would be detrimental.  The problem with those bills is taht there is no private enforcement, no consumer protection act application, no provision requiring good faith action on the part of the bank.  When there is no enforcement, the bill or regulation is worth about as much as the paper it is written on. (Sorry for the dangling participle)

The beauty of the Foreclosure Mediation bills that I have commented extensively upon this week, is that there were finally some teeth.  No more paper tigers here.  The attorney could, on good facts, get a finding that the bank had acted in bad faith.  Bad Faith suits are enough to make executives soil themselves and that is why the banks and their big law lackeys have made many arguments against the passage of these bills.

Though I applaud the removal of under-preforming and broken vestiges of government, it is much like a garden with weeds.  You can pull weeds all day long, but if you don't put something good in its place, the weeds come back.  Spring clean, put things in order, but don't leave us without any tools to fight the bank, the weed will just come back.

Money may derail Foreclosure Mediation in Washington

I don't know about you, but I used ride trains everywhere.  Of course, not in the US because our mass transit sucks, but in Japan.  Trains are cool, they are powerful, can transport enormous amounts of people and goods, and if you have a Japanese conductor, they are efficient.  The only problem is that they ride on a rail, permanently attached to the ground and if the train ever leaves that rail, well, buckle-up buttercup, cause you will be needing a personal injury attorney.

Yesterday, I attended the House and Senate hearings on the new legislation which is termed Foreclosure Mediation.  The previous posts went into detail on the legal ramifications of the bills (HB 1362 and SB 5275) and I continue to support them.  However, yesterday's Senate Hearing which was Chaired by Senator Steve Hobbs chimed an unfortunate reality, money.

Senator Hobbs pointed out that the fiscal note (link here) that this bill would cost WA taxpayers $3.3 million to implement.  Well, that said, there are some enormous issues with that number, and there is alternative financing that should make the impact to the general budget a net of zero. First of all, the fiscal note assumes that WA will see 40,000 foreclosures next year.  The number is likely accurate, or accurate enough for an estimate as the baseline that the industry experts were throwing out yesterday was somewhere in the vicinity of 30,000 and a recent Realty Track estimate had it at 50,000.  Both numbers are skewed by faulty data because they look at different measures such as the number of notices of default that are filed.  Well, in my practice I have forced one bank to file three notices of default on my one client because the bank is an abject screw up.

The second issue with the foreclosure number is that it includes all foreclosures.  Foreclosure impacts every type of property, whether it is bare land, commercial, industrial, investment, or residential owner-occupied.  The bill only targets the properties that are owner occupied.  So there will only be a percentage of the foreclosures that even qualify for the the program. Since only a percentage qualifies, the expenditures should be quite a bit lower because the government will not be looking at the entire cost for 40,000 foreclosures.

The last issue is that there is a funding mechanism of a $30 surcharge being attached to each notice of default filed with the state.  This fee alone should pay for the project, but that is not all.  Each mediation will cost $400, to be split by the parties.  To enhance the overall effectiveness, a lobby from coalition of 20 mediation clinics in the state said that they were already equipped to handle the mediation and have alternate funding sources already accounted for in the State budgets.  Thus no additional cost.

There was some testimony that County Auditors believe that this $30 fee is not a recording fee, but in actuality a tax which is not properly apportioned, can anyone say Health Care Reform?  This is a valid point which will likely be litigated at some point, but I believe the fee is limited in scope and in actuality is a fee.  I am sure that some Big Law lackey will take up the put-upon bank's sob story and dog and pony show it in front of the court but I believe it is a losing argument.

So the action item from this post, is let Senator Hobbs know that the budget office got it wrong, that the bill is right and good, and don't let tactical delay from the big banks derail good legislation.

As I Testify... can I get a Hallelujah?

As some of you know, I did a little work as a preacher.  I had my fair share of chances to testify, but I never got a chance to get a hallelujah.  Well tomorrow, I am hoping for my chance because I will hopefully be testifying on behalf of consumers on a subject that is important to my clients.

It has been a crazy two weeks since my last post and part of the craziness is what I want to write about.  On January 19th, two bills were read on the congressional floors here in Washington (that is the state in the Northwest.)  The House read HB 1362, and the Senate read SB 5275.  These two companion bills are proposals for foreclosure mediation.  A good friend of mine, summed up the bills as such:

• Adds provisions for foreclosure mediation if the borrower elects mediation
• The beneficiary must conduct a good faith review of the borrower's financial situation and offer a loan modification or other option if the borrower is eligible.  A good faith review means that the beneficiary: (1) evaluates the borrower's eligibility for all loan modification programs; and (2) participate in foreclosure mediation, if the borrower elects mediation. Sharing information, negotiating willingly, cooperating with the mediator and keeping agreements are indications of good faith.   If the beneficiary fails to conduct a good faith review, it is a defense to foreclosure.
• Extends the ‘meet and confer’ requirements to all loans (not just those made between 2003-2007)
• Requires banks to pay a surcharge on every foreclosure filing that will fund the program and additional housing counselors
• Makes it a Consumer Protection Act violation for any person to violate the duty of good faith in the mediation requirement  

Tomorrow, I will be attending hearings in Olympia in both chambers and hopefully testifying on behalf of consumers.  I have been told that these meeting usually only have a handful of consumer advocates and the rest are taking money from the banks.  Well, I guess I technically take money from banks too, but that usually doesn't happen in a willing transaction between business partners.  Its more like me acting like the school bully and the banks are giving up milk money.  For a kid that used to have to give up his milk money, that feels good.  Can I get a Hallelujah?