Morning Banking Funnies (Not Really)


Coming this morning are a couple of interesting points….

First, from Utah:

The Utah Attorney General’s Office says the entity responsible for 4,000 home foreclosures yearly in the state is violating the law.

In a filing with the 10th Circuit Court of Appeals in Denver, Assistant Attorney General Jerrold Jensen said the ReconTrust Co., a unit of Bank of America, is not allowed under Utah law to conduct foreclosure sales.

The law related to this is Utah-specific and states that you must be either an attorney licensed in the state or a title company to foreclose in Utah.  Bank of America argues that The National Bank Act preempts.  Utah says no and there are conflicting decisions thus far.

Here’s the problem folks – this is exactly the sort of creeping loss of your right for redress that you were told wouldn’t happen when the National Bank Act was passed.  You were sold convenience and competition in banking, but it was explicitly stated at the time that this would not result in your rights under state law being lost.

Now, when it suits the bankers, they argue otherwise.

Bank of America said: “Our first priority is to help our customers remain in their home as demonstrated by the more than 775,000 permanent loan modifications completed since January 2008.”

Oh really?

Well then maybe you can explain this.

I was contacted by a BofA screwee, er, “customer” yesterday with a wee problem.  He’s got some financial issues and is in the middle of a bankruptcy.  The house is apparently not part of the bankruptcy proceedings.

Some time last year he made a phone call to inquire about a HAMP modification.

The original loan did not include impound for taxes and insurance (“escrow.”)  Suddenly, out of the middle of nowhere, BofA turns around and whacks him with a sixty percent increase in his payments, arguing that now he must pay escrow (despite the fact that the face of his note does not say so) and that he originally, at the time the note was signed, had more than 20% equity (and thus wouldn’t commonly be required to do so.)  Further, they’re clearly trying to “pre-fund” the escrow account.

This is a guy with an active (but not yet discharged) bankruptcy.  He clearly doesn’t have a 60% increase in his payment, or he wouldn’t be in bankruptcy. 

Now, months later, nobody will talk to him and they’re threatening to throw him out of his house.  They also won’t drop the escrow demand, claiming that any inquiry into a modification instantly and irrevocably forces you into escrowing.

Where did that come from?  Isn’t this “Contracts 101”?  The original note is still in force and effect until and unless a new one is signed.  If the original note provides that when you originated you did not have to escrow, how does the servicer get to unilaterally renegotiate that and demand escrow at a later date as the result of an inquiry?

I don’t have the full set of facts on this case as of yet and will likely write more on it when I do.  And I fully understand (and explained to this gent) that escrow doesn’t change the money owed, just how it’s paid.  Of course if the bank is trying to pre-fund the escrow account then it’s a problem – possibly a very serious problem for someone who’s stretching to make payments to begin with.

Oh, and there’s the usual chain of acts here too.  When he called he was told he didn’t qualify for HAMP as he was current, and if he wanted to be considered he had to be late.  Then when he was a month late they told him he had to be three months late. And then once he was three months late (basically at their direction) they wouldn’t work with him. 

Haven’t we heard this story before – hundreds of times?  Servicers basically telling customers to stop paying?  Isn’t the servicer supposed to work for the benefit of the investor, who’s interest is, clearly, in timely payment, not in forcing mods (or foreclosures)?

But of course late fees and penalty charges are of interest to the servicer.  So are foreclosures, because they get paid first on all those accumulated late and penalty fees. Oh yeah, and since the “investor” is Fannie in this case, is this not The Federal Government looking the other way while the servicer basically rips off the consumer and the government?

Never mind that escrow impoundments are beneficial for the servicer, as they don’t pay interest on them but they get to use the money during the time they “hold” it.  And since they don’t pre-pay the taxes and insurance (you’re supposed to “save” the money with them, effectively) this is interest and earnings power that accrues to them during that time, when it should accrue to you.

The general rule on these when it comes to original notes has, in every jurisdiction where I’ve lived and dealt with it, forced escrow only if you have less than 20% down at origination.  They also have permitted dropping both escrow and any PMI requirement as soon as the 20% equity threshold is reached. 

Again, this is a matter of contracts – where does the servicing bank get the right under the law to renegotiate the original note and “determine”, at the demand of the “investor” (in this case Fannie) that you escrow where you did not have to before based upon an inquiry related to the terms for a modification under HAMP?

Not a completed mod (HAMP does require escrows on those), not even a trial mod, but a phone call?

This smells crooked…. assuming the facts are what they are…. and in this case it may lead the person involved to lose his house.

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