A little over a week ago, I saw a headline that I’m sure most everyone interested in the foreclosure crisis did as well. It ran in the New York Times, and it read, “How to Erase a Debt That Isn’t There[1].” It was written by Gretchen Morgenson, one of my favorite columnists on the planet.
The story was about JPMorgan Chase and Bank of America, and it had to do with the National Mortgage Settlement, a topic on which I’d spent a good portion of my time lately, what with the deadline for servicer compliance with the settlement agreement’s new servicing standards having recently come and gone.
Because it was Gretchen writing the article, the story was very quickly picked up by numerous other prominent bloggers including Mish Shedlock, who ran the story under the headline, “JPMorgan, Bank of America Forgive Debts that No Longer Exist; Wonderful News! But For Whom[2]?”
Max Kaiser’s “Kaiser Report” kicked off this week’s RT News broadcast with his own version, “Debt Erasers.” For the record, Max won the funniest phrase competition, describing the nine scariest words in the English language as being, “I’m from JPMorgan and I’m here to help.”[3]
BeforeItsNews.com got more serious, describing the situation as, “Banks Forgiving Phantom Debts for Bankrupt Homeowners.[4]” And then Dave Dayen got into the mix on Firedog Lake, titling his take, “Another Foreclosure Fraud Settlement Scam: Banks Trying to Get Credit for Already Discharged Debt[5].”
Interest.com ran with, “Why are banks forgiving debt that no longer exists[6]?” And then a blog I’m not familiar with ran their own vitriolic version, “JPMorgan Forgives Debt the Bankruptcy Court Already Discharged, Defrauding US Government and Putting Millions into an IRS Tax Liability[7].”
In a matter of hours we saw the exact same story be transformed from the benign and inquisitive, as in “How to Erase a Debt That Isn’t There,” to the entirely untrue, “Defrauding the Government and Putting Millions Into an IRS Tax Liability.”
Wow… so which is it? Did Gretchen understate the severity of the story, or did the down-line blogger exaggerate them?
So, click after click I read the story and as it spread through the Web, becoming more acrimonious almost by the minute. And the thing was… besides its apparent metamorphosis into something I thought Gretchen might not even recognize, something about the story’s facts was making me uncomfortable, and yet no one writing about it was mentioning it.
Gretchen’s story focused on two homeowners. One homeowner in Florida received a letter from JPMorgan, and another homeowner in Virginia received a similar letter from Bank of America. Both letters contained offers to extinguish each homeowner’s second lien.
Chase was offering to erase $190,065, and Bank of America, $231,767… neither an insignificant sum to my way of thinking. The odd part, at least at first blush, was that the debts of both homeowners had already been discharged in their respective bankruptcies, and that’s what all the headline outrage was referencing.
It occurred to me, however, that when you file a Chapter 7 bankruptcy and such a debt is discharged, while it’s true that you as an individual no longer owe it, I was pretty sure that the lien would remain on your property. And should you ever sell your house, any proceeds from the sale in excess of the amount of your first mortgage, would go to satisfying that second lien. That’s what I thought would happen anyway.
Since I’m not a bankruptcy expert, but do happen to be good friends with the country’s top bankruptcy attorney, Max Gardner, I figured I’d take my question straight to the top. So I sent Max an email asking about the erasing-the-second situation. Max wrote back in a flash, saying…
“Chapter 7 will cancel the personal debt on the note but not the lien on the real estate. In a Chapter 13, we cannot modify a first mortgage on the primary residence but can strip away the 2nd if there is no equity above the first mortgage. However, the holder and owner of the 2nd is under no legal duty to cancel the 2nd mortgage of “record” until the debtor completes the plan and secures the discharge. So, do these acts of simply canceling the 2nd help, even in bankruptcy, yes.”
That’s exactly what I had thought. Forgiveness of a lien… even one already discharged in bankruptcy… would be a benefit to the borrower, at least in most cases.
Gretchen’s article then went into describing what she thought might be happening…
“Cast your mind back to February. Five of the nation’s big banks, including Chase and Bank of America, agreed to pay $25 billion to settle state and federal claims over questionable mortgage practices and promised to work harder to help borrowers who were in trouble. To prod the banks, the government said it would give them credits against the amounts they agreed to pay.
So, to the ire of customers who couldn’t get banks to work with them before, banks are now forgiving debts that no longer exist.
“When I got this letter that said they were going to relieve our debt, I just about fell over,” Ms. Esposito said last week. “You can’t forgive a debt that you’re legally unable to collect.”
Okay, so that was her point. It was the credits that the government would be applying to the $25 billion settlement… that’s what was bothering everyone. I couldn’t even think of a blogger or journalist who didn’t want to throw up over the National Mortgage Settlement, so it wasn’t a surprise.
As much as I hated to do it, I pulled up my copy of the settlement agreement in order to find out just how much in “credits” the banks would be receiving in exchange for wiping out those second liens in their entirety.
One blogger friend of mine said that he’d heard the banks were getting 125% of the amounts forgiven, but that made no sense whatsoever, as that would constitute a bail out of irresponsible homeowners and no way that was happening as long as Tim Geithner was still Treasury Secretary or Larry Summers was still alive, I wasn’t entirely sure which.
It wasn’t easy to find in the 304-page settlement agreement, and if I remember correctly I found the answer on page 186, but regardless, the amount of “credit” the bank would receive for extinguishing a second lien… delinquent over 180 days was… 10 cents on the dollar. That’s it and that’s all.
Bank of America and JPMorgan Chase could only hope to receive credits equal to 10 percent of the amounts forgiven, and that assumed Joseph A. Smith, the monitor for the National Mortgage Settlement, approved the transaction. So, in exchange for erasing $231,000, Bank of America would be looking at $23,100 in credits that would go towards their total, which was something like $9 billion.
I hated to say it, but It wasn’t exactly the sort of pay back that would motivate me personally to forgive a debt of $231,000, but then… I’m not a bank, so what do I know.
The article went on to focus only on the Chase customer, Jackie Esposito of Guilford, Connecticut, leaving the Bank of America customer to fade into the background.
Gretchen said that she contacted both banks, and had found their answers “less than satisfying,” when she posed the question: How could they forgive debts that no longer existed?
But I was satisfied… it was the liens against the properties that were being extinguished by the banks and to me that didn’t seem to be nothing. So, I called Bank of America to ask a few questions of my own, and after pulling the appropriate records, my contact at the bank filled me in on the numbers involved.
The Bank of America borrower from Virginia that Gretchen had mentioned, albeit only briefly in her story, had a first mortgage of $324,000, and of course the aforementioned second lien of $231,000… for a total of $555,000 in debt secured by the property.
The bank’s appraisal showed the home’s current value to be $416,000, so the homeowner was $138,000 underwater… until receiving and accepting the bank’s offer to extinguish the $231,000 second lien. After that, Bank of America’s Virginia homeowner had instantaneous equity of $92,000! And wasn’t that better than a poke in the eye with a sharp stick, as Mom used to say?
Receiving such a letter from the bank had transformed a borrower from being underwater… to being one with a significant amount of equity once again. That’s was not nothing… right? Bank of America erasing $231,000 for this borrower certainly was a long way from being nothing. In fact, it was $92,000 worth of something, regardless of the borrower’s debt having been discharged in bankruptcy because the lien had remained on the property, as it most often does.
Gretchen’s article, however, then pointed out that in the case of the JPMorgan Chase borrower, Ms. Esposito, both her loan AND her lien were discharged by her bankruptcy proceeding.
Okay, so I wasn’t at all sure what that meant. As I understood it, loans attach to people, liens to houses… but what did I really know?
I decided to call the guy at Chase, Tom Kelly, who Gretchen had spoken with to find out. I sent him an email, and he called me back later the same day.
Tom explained that, interestingly enough, and a bit of a technicality really, her bankruptcy had not been discharged yet, but he was also quick to add that her lawyer may not have known that at the time he told Gretchen that both loan and lien had been discharged. According to Tom the judge didn’t sign off on Ms. Esposito’s Chapter 7, so that means both the lien and loan could still be enforced at that moment anyway.
Well… okay. But as soon as Ms. Esposito’s bankruptcy was finalized, both her loan and the lien would both be discharged, and not just her debt but the lien on her property too. And that would mean that this whole thing was over Chase sending a letter to someone who didn’t owe the money, telling them they didn’t have to pay back what they didn’t owe anyway?
Maybe I’ve been around this crisis too long, because all of a sudden I was having trouble understanding why this story had been written in the first place, let alone echoed throughout the World Wide Web.
I was reminded all of a sudden, of days I had spent writing about how a bank had foreclosed on a home they never even owned… cleared everything out and took it to storage as the homeowner, who was 1500 miles away, screamed her head off as she tried in vain to get the foreclosure monster to stop. Compared to that sort of outrage, sending a letter that would have no real affect whatsoever just seemed like an entirely forgivable offense.
As in… “Bank letter has typo… misspells the word ‘arrearages’… film at 11?”
But, Tom Kelly also explained to me that there was another problem… the letters the banks had sent out could have been worded more clearly. Both banks readily admitted as much, and Bank of America immediately expanded its explanation of its debt forgiveness and lien release offers on its Website.
What happened was that both banks had sent out letters to two types borrowers… those with debts the banks were offering to forgive, and those with debts already discharged in bankruptcy, but with liens remaining on the property. In this case, both banks said the letters were supposed to notify borrowers with liens being released, as opposed to debt being forgiven.
Because when debt is forgiven the Internal Revenue Service generally views it as being a taxable event, the letters warned that the amounts forgiven would be reported to the IRS, and I can certainly see how that could cause someone to freak out… at least until they called their bank and found out that in this case, there was nothing to worry about… debts discharged in bankruptcy are not taxable.
But, Gretchen’s larger point was that she had smelled a rat.
“All of this made me wonder: are the banks’ forgiveness letters a way to gain credits for debts these institutions are improperly claiming to have extinguished? The banks say no.”
She contacted Joseph A. Smith, the National Monitor for the National Mortgage Settlement, who assured her that there would be systems in place to review a bank’s transactions to make sure none are fraudulent. Smith was quoted in her article saying…
“We will review compliance with this requirement as we will with all of the consumer relief requirements, through review of the corporate records relating to such transactions.”
Gretchen’s reply was, “Good luck with that,” which I liked for its snarky qualities, but I wasn’t sure that I shared her concerns.
When it came to the National Mortgage Settlement, I would think that there would be so many people paying attention that the banks wouldn’t even bother trying to get credit for questionable transactions in any significant quantity anyway, and slipping one or two in, would hardly be worth the risk because at 10 cents on the dollar, and when you’re trying to hit a $9 billion number… well, who cares?
Would it really be worth the risk to pick up just $23,100 in credits, and possibly end up with the entire blogosphere calling you disparaging names and feeding on whatever was left of your character?
Besides, although I don’t know Mr. Smith, I do know Katherine Porter, California’s Settlement Monitor, and I don’t believe for a second that she’s going to allow too much wool to be pulled over her eyes. (I just interviewed Katherine this past week, and you can listen to what she had to say about the settlement and her role as state monitor HERE[8].)
Gretchen’s article closed with Ms. Esposito saying she found the letter from Chase “especially upsetting” after all the years she says she spent trying to get her loan modified.
Gretchen explained… “She pays 9 percent on her loan and cannot refinance it into a lower-rate mortgage, given her recent bankruptcy.”
The dreaded loan modification process…
As soon as I read Ms. Esposito’s quote about having tried for a loan modification, years spent trying to get Chase to modify her loan… and then she filed bankruptcy. Sounds like she had to file in order to stop a trustee sale, doesn’t it? Happens all the time.
Since I didn’t know enough to comment on Ms. Esposito’s situation based on the information provided, I asked Tom Kelly if he knew out her situation… why she had been denied a loan modification… and he did: Her mortgage payment was already below 31 percent of her gross monthly income.
“No kidding,” I said.
I wasn’t surprised. I’ve been spending the last so many months chasing down homeowners who say that they can’t get their loans modified and all blame the servicer. But for more times than not, although it may have been the servicer at one time, it’s now the borrowers who have simply given up and thrown in the towel somewhere along the way. I can’t blame them… after a while you just can’t keep trying something that doesn’t seem to be working.
And I’ve been alarmed to discover just how many borrowers have given up on applying for a loan modification after receiving advice from a supposed expert who tells them it won’t work.
If you haven’t been on the streets lately, you probably don’t know this, but there are a huge number of people making their livings today by telling homeowners that it’s impossible to get their loans modified. These “helpers” then offer to sell the homeowners a variety of audits and other high-priced documents of questionable value, the idea being that homeowners can take their bank to court as a precursor to obtaining a modification. Or some claim to facilitate the filing of a quiet title action, with the intended result being the illusive “free house” for the homeowner.
Do any of these strategies work? Well, since my mother used to tell me to, “never say never,” I won’t say that, but let’s just say that at most, the answer would be “very, very rarely.”
The simple fact is that the loan modifications keep people in their homes, and nothing else does in any significant number, with any consistency, or as cost-effectively. And now that servicers have finally been required to comply with standards that benefit consumers, it’s tragic to see those consumers avoid the process most likely to save their home from foreclosure.
Esposito’s lawyer, Neil Crane, was given the last word in Gretchen’s article, saying…
“There is no chance that this group of institutions can help homeowners,” Mr. Crane said. “They should not be in charge of fixing problems they helped create.”
And all of a sudden I understood. Gretchen wrote this story to legitimately question whether servicers were potentially capable of gaming the settlement’s credits system by getting credited for the illusion of debt forgiveness. And as I said, in the final analysis it would seem to me to be an unlikely path to pursue because any significant volume would likely be discovered and small numbers wouldn’t be worth the risk. Still, it seemed a perfectly legitimate question for a journalist to pose.
Ms. Esposito was denied for a loan modification after years of trying, which makes so much more sense as her motivation for sending her story to Gretchen, than her being offended by the letter from Chase. Loan mod angst … so, that’s where this was coming from… why didn’t everyone just say so?
2009: That was the year that wasn’t…
While it’s true that in 2009, 2010 and even a good part of 2011, the servicers’ ability to help homeowners with loan modifications was limited. This year, however, things have been getting significantly better. But regardless, the numbers I’ve seen show that there have been in excess of four million modifications completed since 2009. A million of them are HAMP modifications.
And that’s just not what you’d describe as “no chance” of helping homeowners, is it? Just like forgiving a $231,000 lien on a home that puts the borrower in an equity position instead of being underwater is not “no help.”
Gretchen handled the issue with her always velvet gloves, but Dave Dayen of Firedog Lake was less diplomatic about his lack of confidence in Smith’s ability to police servicer compliance related to the terms of the settlement agreement, saying…
“Joseph Smith, the foreclosure fraud settlement monitor, claims his office will “review compliance” of the loans and make the determination on qualification for credits. So he’s going to go through the documentation, then? But this is the whole point; the documentation is bogus!
I don’t think it’s possible that banks are just nicely announcing the discharge of a lien with no expectation that they can slide some of these through the system and get credit for loan forgiveness. Otherwise, why send the letters now, in conjunction with the settlement? And BofA admits to sending 12,000 of them. Even a small percentage getting through means they get settlement credit for millions, perhaps tens of millions, of dollars of phantom debt that they could never collect anyway.”
Understand… I can’t say with any certainty that Dayen is going to be wrong. First of all, he’s a very smart guy, and secondly, after what we’ve all seen during the last few years in terms of oversight of federal programs, I’d readily admit that anything is possible. But, I do have to ask the question…
Why shouldn’t servicers receive credits for extinguishing second liens?
I’m not talking about second liens that have been discharged in terms of both the debt AND any claim against the property, as Ms. Esposito’s situation was described. I mean regular second liens, the type we’re all familiar with… the type that is otherwise just sitting there waiting for the house to sell for more than is owed on the first.
Dayen says the banks would be getting credits for writing off money “they could never collect anyway,” but that’s not entirely accurate either, right? A lien on property could end up being paid when the property sells.
If the lien is still secured by the property, as is true in the vast majority of instances, then the borrower is unquestionably benefiting when it’s extinguished. Why shouldn’t the bank get the credits that are calculated at 10 cents on the dollar, assuming the lien is at least 180 days delinquent, which if discharged in bankruptcy all undoubtedly are?
A house with a lien.
Dayen says that banks could earn millions or tens of millions in credits through this method. But, it’s 10 cents on the dollar that is being reimbursed here, regardless the total, and it seems to me that an extinguished lien would be worth at least ten percent of its amount… I don’t know… doesn’t it seem reasonable to everyone else?
Several other articles also raised the possibility of a servicers imposing a tax liability resulting from the forgiveness of debt by the bank, on the homeowner, but no one was particularly definitive about how this would work, and I suppose it depends on a number of factors, including what the amounts loaned were used for, and a law that as of today is due to expire at the end of this year that allows amounts forgiven to be tax-exempt under certain circumstances.
But clearly, the IRS views forgiveness of a lien as providing a benefit to the borrower because, these circumstances notwithstanding, in general such forgiveness is a taxable event.
An exploding tax bill?
Bank of America FAQs, and I’ve provided a link to them at the end of this article, explain that borrowers who receive letters offering to extinguish their second liens can contact the bank should they want to decline the bank’s offer, and although I personally would think that it’s better to pay a small tax as opposed to a large debt, that decision is left to the borrower. No one is forcing anyone to have their lien forgiven.
And, think about where we’re going here… do we want such debt to be forgiven or not? Are we saying that we do, but only if it’s tax-free? Fine… then extend the law that makes it so. Otherwise, blaming the U.S. Internal Revenue Code on Bank of America or JPMorgan Chase seemed… well, a little silly.
So, are the banks in trouble here because of the unfortunate verbiage in their letters… because of forgiving a debt that wouldn’t be repaid until the house sold… or because their documentation for some future auditor be necessarily fraudulent? Or does the National Mortgage Settlement have everyone so upset that they are unable to see the new servicer standards as an enormous benefit for homeowners?
Because the last ten words in the paragraph above should be the real story in this week’s headlines being echoed all over the Web. Those ten words describe the best thing to happen to homeowners at risk of foreclosure that we’ve seen since the crisis began in earnest in 2008.
Finally, after better than three years of sheer misery all around, the process through which loans are modified finally improves, and no one seems to care. Bank of America mails out 60,000 letters offering borrowers principal reductions of $150k and no one responds… and all we do is chuckle.
The whole situation, which was already the most distorted I could have ever imagined, now becomes that much more distorted, only now I have seen the enemy and it is… us.
Lately, I’m finding myself in the less-than-comfortable position of having to clarify messages coming from the pro-homeowner and foreclosure defense side of the fight. Statements like, “no chance and no help,” are certainly not accurate, and more importantly, they’re harming homeowners who are only now finding themselves at risk of losing their homes.
Don’t get me wrong, I’m not suggesting that we paint any sort of overly rosy pictures of the mortgage settlement or what it’s like to get a loan modified, I’m only interested in being accurate. Because when you look at the numbers, it’s abundantly clear that if we’re going to save homes from foreclosure we’re going to need to modify loans.
There are millions of homes that have been saved as a result of modified loans. How many have been saved by the second most successful way to save a home from foreclosure?
I don’t even know what the second most successful way to save a home from foreclosure would be, except maybe short sales, but that’s not what I mean. I mean “saved a home” so that the people still live in it. Would the number two method for saving a home from foreclosure be successful litigation, because if that’s the case, there would be no reason to get your calculator out… it isn’t anywhere close… loan modifications save homes more than any sort of litigation by a factor of… I don’t even know but a lot.
Misinformed misanthropes…
By being less than accurate, like telling homeowners that the mortgage settlement has failed long before it has or hasn’t, or by perpetuating tales of loan mods in 2009, we’re doing homeowners a great disservice by coloring their views, adding to their frustration, and ultimately driving them into the arms of those that profit from telling homeowners that loans never get modified.
By telling tales that cause borrowers to fear a modification process that has changed so significantly and in reality no longer exists in many cases, we very likely become the proximate cause of their losing their homes. Why would WE EVER want to do that?
Just look at the echo effect that this story had, and with each subsequent version of the story becoming harsher and harsher… as you read a dozen variations on Gretchen’s theme, it starts to feel like “death panels,” or anything of the other urban myths that became believable to some simply by being repeated.
I talk to homeowners at risk of foreclosure every single day, and have been doing so for just about four full years. Back in 2009, when HAMP was just getting started and Secretary Geithner was considering homeowners “foam for the runway,” I wrote about the fact that it was a torturous process, and I was very critical of servicers for their treatment of homeowners in the process.
But ever since June of 2010, when servicers started to require income documentation before approving trial modifications, things have been slowly improving at most of the servicers anyway.
This year, the process of getting approved for a loan modification, bears little resemblance to that of 2009. For example, I rarely hear about servicers repeatedly losing paperwork anymore, I can’t remember the last time I saw a trial modification not be converted to a permanent one, and approvals commonly take a few months, as opposed to the years some people spent in the hellish approval process of the past.
But, two key developments… the FTC’s Mortgage Assistance Relief Services Rule, or MARS for short, which as a practical matter eliminated any role for mortgage brokers in the loan modification process by requiring any fees charged to homeowners to be collected only after a loan modification was obtained, combined with the widely publicized document fraud of the “robo-signing” scandal, has fueled the growth of a new industry. And it’s an industry that only profits when homeowners don’t apply for loan modifications.
What started as forensic loan audits that relied on software to primarily identify TILA (“Truth in Lending Act”) violations has become an industry offering securitization audits, chain of title audits, and even credit default swap audits, and each one can set you back several thousand dollars, or more. Why would you put yourself through the torture of applying for a loan modification when for only $5 – $10,000 in audits, plus $1500 a month for an attorney, you can be armed with everything you need to sue your bank for some sort of fraud and win?
After all, don’t you read the news? They don’t know who owns your loan… they lack standing to foreclose… your loan never made it into the trust… there’s fraud in your loan because of MERS or because Mickey Mouse signed something and Donald Duck notarized it, and besides… your loan has been paid off three times by various insurance policies, so you don’t owe your mortgage anyway.
Loan mods don’t work, everyone knows that. And the settlement is a sham. Didn’t you read Gretchen Morgenson’s article last week? What you need to do is sue…it’s the only way to save your home. How about a Bloomberg audit on sale for $3000?
A long way to go…
Valparaiso Law School Professor Alan White, writing on the blog, Credit Slips[9] recently, made clear the following…
“The good news is that the performance of modifications continues to improve, according to the latest OCC mortgage metrics. As more and more modifications reduce interest rates and payments, and even principal, the number of re-defaults steadily and continually goes down. Only 22% of 2011 modifications later went seriously delinquent or were foreclosed.”[10]
“Principal write-downs were featured in 20% of HAMP mods versus about 7% of in-house mods.”
“… banks are writing down principal on 28% of their portfolio loan mods and 16% for private securitized loan mods.”
He also points out the obvious, just as I’ve said so many times I can’t even bring myself to talk about it most of the time…
“… there have been 4.5 million completed foreclosure sales since 2007 and there are still between 4 and 5 million mortgages delinquent or in foreclosure now. Defaulted mortgages are still considerably more than 10% of all mortgages, at least double the rate in normal times, and the foreclosure inventory is still at about quadruple the pre-crisis rate.
There are many ways to extrapolate the trends, depending on whether you use quarter-over-quarter changes or year-over-year changes, but we undoubtedly have years to go before the foreclosure crisis can be declared over.”
Undoubtedly, is correct, Mr. White.
Harming homeowners… with the best intentions.
I know… everyone hates the settlement for all sorts of reasons. And the idea of applying for a loan modification, for many, ranks right up there with having a limb amputated.
But, the National Mortgage Settlement is what we’ve got, and it’s not going to change because we’re unhappy with how it went. It goes without saying that it’s not enough money, but that’s no reason for some not to find tremendous benefit in it for them.
What the settlement does offer, in addition to principal reductions for certain borrowers, is a set of new servicing standards that promise to make the loan modification process significantly better for homeowners.
And it’s not just things like a prohibition on dual tracking and rules for communicating with borrowers, there are some 304 pages describing these new rules that now apply to the loan modification services at the top five servicers, and monitors to ensure their compliance. In California, the standards have even become state law. And last week all five servicers stated publicly that they are operating in compliance with the new standards.
That’s a wonderful thing for millions of homeowners who need loan modifications to remain in their homes. And yes… maybe it’s too late for the millions that came before, but it’s not for the millions yet to come. And don’t we want to see as many of those homes saved as possible? Isn’t that why we, bloggers and journalists, are all writing about this crisis? Of course it is.
But, where are those stories? Servicers all say they’re in compliance today, which means things are supposed to be much better for homeowners seeking loan modifications… today. Had these standards gone into place in 2009 or 2010, there would have been parades in the streets. Why isn’t the same news today turned into front-page news, echoed all over the Internet?
I know it has to bleed to lead, but it’s the homeowners that are bleeding… shouldn’t we be leading?
I know what happened here. A homeowner in Connecticut was denied for a loan modification based on excessive income and her lawyer told her she would have to file bankruptcy to stop the sale of her home. Then some months later, she got a letter from Chase offering to erase her second lien that had already been discharged by her bankruptcy… and report it to the IRS.
She flipped out, even though there was no risk of a tax liability, and her lawyer thought it would make a good story for Gretchen Morganson who wanted to legitimately question what was going on. And then everyone saw the story, and 100 blogs, jumped on the bandwagon. Fair enough.
As a result there are untold thousands of homeowners who now believe this was evidence of a continued servicer malfeasance. Now, there are homeowners who believe this was evidence of servicers trying to get away with something by obtaining credits for debt forgiveness, without actually forgiving anything. Some undoubtedly found it further evidence that the settlement was something to be ignored, like the OCC’s independent foreclosure review.
We’re not happy with the settlement, we wanted more. But that doesn’t mean that homeowners are best served by ignoring it… or by not opening the mail that offers a principal reduction… or trying to get their loan modified now that new standards exist, before that isn’t an option anymore.
We’ve lost something like 4.5 million homes to-date, and there appears to be 4.5 million more foreclosures on the horizon. Can’t we all imagine the suffering and unrest in our country with a foreclosure crisis more than twice as bad as what we’re experiencing today?
Homeowners now at risk of foreclosure are beyond confused as to what they should do. And they look to us for insight and guidance as they struggle to determine what’s real and what’s not. Gretchen’s column, along with Dave Dayen’s on Firedog Lake, among others, are sources of information that homeowners trust and deservedly so.
And I understand as much as anyone could, the urge to take a bite out of the banks, the settlement, the administration, treasury, Congress, and numerous others that have largely ignored consumers over the last four years. Even dramatic understatement of today’s situation would provide the material needed to write a financial-disaster-end-of-the-world-type-screenplay.
Four years ago, those writing about the financial and foreclosure crises understood above all the need to be heard in the hopes of affecting change. And we were, and we are.
The statements we make, and the positions we take… guide today’s homeowners. I think we need to take care that what we write doesn’t continually guide everyone back to 2009. I guess that’s all I’m trying to say.
Mandelman out.
P.S. In case you want to see what Bank of America had to say about the program, here’s a link:
Bank of America Notifies Eligible Mortgage Customers of Second Lien Mortgage Debt Extinguishment[11]
References
- ^How to Erase a Debt That Isn’t There (www.nytimes.com)
- ^JPMorgan, Bank of America Forgive Debts that No Longer Exist; Wonderful News! But For Whom (globaleconomicanalysis.blogspot.com)
- ^Debt Erasers (youtu.be)
- ^Banks Forgiving Phantom Debts for Bankrupt Homeowners. (beforeitsnews.com)
- ^Another Foreclosure Fraud Settlement Scam: Banks Trying to Get Credit for Already Discharged Debt (news.firedoglake.com)
- ^Why are banks forgiving debt that no longer exists (www.interest.com)
- ^JPMorgan Forgives Debt the Bankruptcy Court Already Discharged, Defrauding US Government and Putting Millions into an IRS Tax Liability (americankabuki.blogspot.com)
- ^HERE (mandelman.ml-implode.com)
- ^Credit Slips (www.creditslips.org)
- ^latest OCC mortgage metrics (www.occ.treas.gov)
- ^Bank of America Notifies Eligible Mortgage Customers of Second Lien Mortgage Debt Extinguishment (newsroom.bankofamerica.com)