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Rep. Waxman and California Democratic Congressional Delegation (CDCD) members sent a letter to Attorney General Holder, Federal Reserve Chair Bernanke, and Comptroller of the Currency Dugan requesting investigations into systemic wrongdoing by financial institutions in their handling of delinquent mortgages, mortgage modifications, and foreclosures. Delegation members have received thousands of complaints from their constituents, which appear to outline a clear pattern of misconduct on the part of lenders and servicers. Recent press accounts have also reinforced the view that these institutions are routinely failing to respond in a timely manner, misplacing requested documents, and misleading both borrowers and the government about loan modifications, forbearances, and other housing related applications.

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Statement by Terry Edwards

Executive Vice President

on Policy Framework for Dealing with Possible Foreclosure

Process Deficiencies



Fannie Mae fully endorses the Policy Framework for Dealing with Possible Foreclosure Process Deficiencies released today by the Federal Housing Finance Agency. These principles reinforce the directive issued by Fannie Mae last week, requiring our servicers to undertake a review of their policies and procedures relating to the execution of affidavits, verifications, and other legal documents in connection with the default process.


We continue to expect prompt execution of our directive. A servicer's failure to comply with any provision of law, or any provision of our servicing requirements, constitutes a breach of the servicer's contractual agreements with Fannie Mae. Our servicers are obligated to adhere to all legal requirements as part of the foreclosure process. They must inform us of and rectify any issues that may arise in this regard.


Fannie Mae recognizes that foreclosure is an extremely difficult experience for affected homeowners and we are working to ensure borrowers are treated fairly and respectfully. Fannie Mae has halted foreclosures, evictions, and REO sale closings when necessary for a servicer to perform required remediation. Our actions are intended to protect the rights of borrowers facing foreclosure, enable a fair and equitable legal process for all impacted parties and allow new homebuyers to close on their transactions in a timely manner. These steps will also help ensure the proper functioning of the mortgage market overall so as to meet our goals of maintaining liquidity in the market and minimizing taxpayer exposure.

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Statement from Bank of America Home Loans


We have reviewed our process for resubmission of foreclosure affidavits in the 23 judicial states with key stakeholders, including our largest investors. Accordingly, Bank of America today began the process of preparing foreclosure affidavits for submission in 102,000 foreclosure actions in which judgment is pending.


We anticipate that by Monday, Oct. 25, the first foreclosure affidavits will be resubmitted to the courts. Upon judgment, foreclosure dates will be set and Bank of America will resume foreclosure sales in such proceedings in the 23 judicial states.


We will continue to delay foreclosure sales in the remaining 27 states until our review is complete on a state by state basis. We anticipate over the course of this pause, less than 30,000 foreclosure sales will have been delayed. As was the case for our judicial state review, our initial assessment findings show the basis for our foreclosure decisions is accurate.


Our decision to review our process and later, to extend our review to all 50 states, has been an important step to give customers confidence they are being treated fairly.

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U.S. Senator Richard Shelby (R-Ala.), ranking Republican on the Committee on Banking, Housing, and Urban Affairs, today released the following statement regarding his call for a Committee investigation of allegations related to mortgage servicing and foreclosure practices at various financial institutions:


“The Federal Banking Regulators should immediately review the mortgage servicing and foreclosure activities of Ally Financial, JP Morgan Chase and Bank of America. The regulators should determine exactly what occurred at these institutions and make those findings available to the Banking Committee without delay.


“Furthermore, because it appears that the regulators have failed yet again to properly supervise the entities under their jurisdiction, the Committee should immediately commence a separate, independent investigation into these allegations. It is the Committee’s fundamental responsibility to conduct oversight of the banking regulatory agencies and the firms under their jurisdiction.


“With the recent passage of the Dodd-Frank Act wherein the financial regulators were granted even broader powers, I am highly troubled that once again our federal regulators appear to be asleep at the switch.”

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New Congress must fix Dodd-Frank


By Senator Richard Shelby


A little more than two years ago, the housing market collapsed and almost took the entire financial system with it. The crisis cost millions of Americans their homes, jobs and a massive amount of personal wealth. It was clear to everyone in Washington, Republicans and Democrats alike, that a significant response was necessary to identify the range of problems that led to the crisis.


Faced with a growing economic calamity, our first responsibility was to scrutinize every aspect of the crisis to identify its causes. Such an examination could develop an informed understanding of what happened and why. Only then could we address with confidence the shortcomings of our financial system. If we found deficiencies in the law, we could correct them. If resources were not adequate, we could provide them where they were needed. If we found that regulators failed in their duties, we could hold individuals or organizations accountable. Most important, we could act in an informed manner and in a way most likely to prevent a similar crisis in the future.


The past practices of the Congress provided excellent examples of the way to conduct large-scale financial investigations. After the banking panic of 1907, the House Committee on Banking and Currency formed a special subcommittee known as the Pujo Committee to investigate the “money trust”. In the wake of the Wall Street crash of 1929, the Senate’s Committee on Banking and Currency created an investigatory subcommittee known as the Pecora Commission.


These bodies conducted comprehensive studies, issued detailed reports and ultimately helped produce landmark legislation that served our financial markets well for decades. Unfortunately, in the most recent crisis, the Democratic majority skipped the first two steps and used this crisis as an opportunity to enact a laundry list of big government programs that are destined to cost jobs and stifle economic growth.


The majority’s failure to conduct a thorough examination of the causes of the crisis created a significant void. Natura abhorret a vacuo. Unfortunately, Washington is no different. When congressional Democrats and the Obama administration failed to get traction on a series of dissimilar reform concepts, bureaucrats at the financial regulators stepped in with proposals that empowered them to make most of the major decisions through the rulemaking process.


Because Congress abdicated its responsibility to examine closely the facts and circumstances of the crisis, it failed to create a comprehensive record on which to base significant changes to our regulatory structure. Consequently, the Democratic majority opted for more of the same — more bureaucrats, more regulations, more spending and more government.


Just last week, regulators testified on the implementation of Dodd-Frank. Typically, the purpose of an implementation hearing is to ensure that regulators are faithfully executing the law as prescribed by Congress. Last week’s hearing, however, sounded more like a policy brainstorming session because so much authority now rests with independently funded and unaccountable regulators. Congress has essentially made itself a spectator at its own event.


According to Federal Reserve Chairman Ben Bernanke, the regulators “are still getting their ducks in a row.” While more than 26 million Americans are unemployed or underemployed, it appears that the regulators are still talking about getting together to talk about what to do with the legislation. When they stop talking and start writing rules, however, there is no doubt in my mind that the 2,223 pages of Dodd-Frank will spawn exponentially more pages of regulations that will bury American consumers and job creators in red tape and unnecessary restrictions.


Prior to Dodd-Frank, Congress last passed landmark financial legislation in 1999. That law (Gramm/Leach/Bliley) repealed many Depression-era statutes and became known as the “financial deregulation bill.” GLB, however, quickly became a four-letter word in Washington after the collapse of the financial system in 2008.


I was one of only eight senators — and the sole Republican — to vote against GLB. One of the main reasons I opposed the bill was that it made drastic changes to the financial system that were not fully thought out. I opposed Dodd-Frank for the same reasons and because I believe that it could actually trigger the next crisis.


Congress owed a great deal to those who lost their homes, jobs and savings. The Democrats failed to meet that responsibility. We now have an opportunity to correct that error and revisit and refine this new law in the next Congress. This is an opportunity we must not squander.

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Report to the Congress on Risk Retention

October 2010


Section 941( b ) of the Dodd–Frank Wall Street Reform and Consumer Protection Act (the

Act, or Dodd–Frank Act) imposes certain credit risk retention obligations on securitizers

or originators of assets securitized through the issuance of asset-backed securities

(ABS).5 Section 941 of the Act also requires a number of federal agencies, including the

Board of Governors of the Federal Reserve System (the Board), to jointly prescribe

regulations implementing the credit risk retention requirements of section 941 of the Act.

The implementing regulations must be jointly prescribed by the federal agencies within

270 days of the date of enactment of the Act (which was July 21, 2010). The Act

requires that the regulations “establish asset classes with separate rules for securitizers of

different classes of assets, including residential mortgages, commercial mortgages,

commercial loans, auto loans, and any other asset classes that the Federal banking

agencies and the [securities and Exchange] Commission deem appropriate."


Section 941( c ) of the Act requires that the Board conduct a study and issue a

report not later than 90 days after the date of enactment on the effect of the new risk

retention requirements to be developed and implemented by the agencies, and of

Financial Accounting Standards (FAS) 166 and 167. Specifically, section 941( c )

provides as follows:



(1) STUDY.—The Board of Governors of the Federal Reserve System, in coordination

and consultation with the Comptroller of the Currency, the Director of the Office of

Thrift Supervision, the Chairperson of the Federal Deposit Insurance Corporation, and

the Securities and Exchange Commission shall conduct a study of the combined impact

on each individual class of asset-backed security established under section 15G( c )(2) of

the Securities Exchange Act of 1934, as added by subsection ( b ), of—


( A ) the new credit risk retention requirements contained in the amendment made

by subsection ( b ), including the effect credit risk retention requirements have on

increasing the market for Federally subsidized loans; and

( B ) the Financial Accounting Statements 166 and 167 issued by the Financial

Accounting Standards Board.


( 2 ) REPORT.—Not later than 90 days after the date of enactment of this Act, the Board

of Governors of the Federal Reserve System shall submit to Congress a report on the

study conducted under paragraph ( 1 ). Such report shall include statutory and regulatory

recommendations for eliminating any negative impacts on the continued viability of the

asset-backed securitization markets and on the availability of credit for new lending

identified by the study conducted under paragraph (1).


Section 941 is intended to help align the interests of key participants in the

securitization process, notably securitizers and originators of the assets underlying an

ABS transaction, with the interests of investors. The Act requires, as a general matter,

that the securitizer or originator retain some of the credit risk of the assets being

securitized. By retaining a portion of the credit risk, the securitizer and/or originator will

have an incentive to exercise due care in making underwriting decisions, or in selecting

assets for securitization purchased from the entities making such decisions. In

circumstances where the underlying assets are otherwise underwritten in accordance with

sound underwriting standards, the statute expressly provides or allows for exceptions

from the risk retention requirement, recognizing that in these circumstances additional

incentives to promote the quality of the assets being securitized may not be needed.


The federal agencies have an additional 180 days from the date of this report to

adopt rules to implement the risk retention requirements of section 941. The agencies are

continuing to develop these regulations, and thus the effects of a final set of risk retention

requirements cannot be analyzed at this time. This report provides information and

analysis on risk retention and incentive alignment practices for individual classes of

asset-backed securities.




This report focuses on securities backed by eight loan categories and on assetbacked

commercial paper (ABCP). ABCP can be backed by a variety of collateral types

but represents a sufficiently distinct structure that it warrants separate consideration.

These categories account for the bulk of the ABS market, excluding mortgage-backed

securities guaranteed by the housing-related government-sponsored enterprises (GSEs)

Fannie Mae and Freddie Mac. In terms of overall new debt issuance, mortgage-related

and other asset-backed securities represent a significant proportion (16 percent) during

the period between 2002 and 2010.


The classes of collateral considered in the report are as follows:


1. Nonconforming residential mortgages (RMBS)9

2. Commercial mortgages (CMBS)

3. Credit cards

4. Auto loans and leases

5. Student loans (both federally guaranteed and privately issued)

6. Commercial and industrial bank loans (collateralized loan obligations, or CLOs)

7. Equipment loans and leases

8. Dealer floorplan loans



Asset classes are further grouped into three broad sectors: real estate (RMBS and

CMBS), consumer finance (credit cards, auto loans and leases, and student loans), and

business finance (CLOs, equipment loans and leases, and dealer floorplan loans). ABCP

is considered separately.


Because section 941 of the Act exempts RMBS that are backed by mortgages that

are insured or guaranteed by a federal agency from the credit risk retention requirements,

securitizations backed by the Department of Veterans Affairs (VA), the Federal Housing

Administration (FHA), and other agency-guaranteed or agency-insured loans are not in

the asset classes defined above. While the statute does not provide a similar exemption

for RMBS guaranteed by the housing-related GSEs (Fannie Mae, Freddie Mac, and the

Federal Home Loan Banks), these securitizations also are not included within the

nonconforming RMBS category as defined for purposes of this report. These entities

retained all of the credit risk for the mortgages they securitized; hence, their experience

and practices likely offer limited insight regarding the effect of credit risk retention by

securitizers when significant credit risk is transferred to ABS investors.


The term “securitization” generally refers to two separate, though related,

activities. First, a financial institution is said to have securitized a pool of financial assets(for example, loans) when it creates securities backed by the cash flows from those assets

and sells some or all of these securities to investors. The financial institution may or may

not retain responsibility for “servicing”—providing on an ongoing basis some or all of

the services necessary to collect payments from borrowers, monitor performance of the

loans and distribute the cash flows generated to investors. Second, securitization may

also refer, more narrowly, to the process of creating multiple securities with different

payment priorities from a pool of underlying loans. For example, a pool of loans may be

transformed into a senior tranche that is first in line to receive cash flows and a junior

tranche that is last in line to receive cash flows.


Securitization provides economic benefits that may lower the cost of credit to

households and businesses. These benefits come from a reduction in the cost of funding,

which is accomplished through several different mechanisms. First, firms that specialize

in originating new loans and that have more difficulty funding existing loans may use

securitization to access more-liquid capital markets for funding. Second, securitization

can also create opportunities for more efficient management of the asset–liability

duration mismatch generally associated with the funding of long-term loans, for example,

with short-term bank deposits. Third, securitization allows the structuring of securities

with differing maturity and credit risk profiles from a single pool of assets that appeal to a

broad range of investors. Fourth, securitization that involves the transfer of credit risk

allows financial institutions that primarily originate loans to particular classes of

borrowers, or in particular geographic areas, to limit concentrated exposure to these

idiosyncratic risks on their balance sheets.


These benefits are not without cost, however. In particular, during the financial

crisis securitization also displayed significant vulnerabilities to informational and

incentive problems among various parties involved in the process. The ramifications of

these problems have had and continue to have profound effects on many American


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Section 941 of the Act defines a “securitizer” to mean “( a ) an issuer of an asset-backed

security or ( b ) a person who organizes and initiates an asset-backed securities transaction

by selling or transferring assets, either directly or indirectly, including through an

affiliate, to the issuer.” The bill defines an “originator” to mean a person who

“( a ) through extension of credit or otherwise, creates a financial asset that collateralizes

an asset-backed security and (B) sells an asset directly or indirectly to a securitizer.”


An originator makes the initial decision about whether, and on what terms, to

extend credit to a household or business and provides initial short-term funding.

Originators include banks, thrifts, subsidiaries of bank or thrift holding companies,

independent finance companies, and finance companies affiliated with vehicle,

equipment, or other types of manufacturers.


The originator may securitize the loans directly or sell them to an aggregator that

may buy loans from many different originators. Aggregators are intermediaries between

originators and securitizers, and loans may pass through several such parties’ hands

before being securitized. Certain periods have seen active wholesale markets for pools of

loans suitable for securitization.


The securitizer oversees the creation and sale of the securities backed by loans

purchased from originators and aggregators. This process has several components, which

may sometimes be divided among separate firms, although this report will generally treat

them as if carried out by a single entity.


The securitizer performs the legal and economic requirements for a securitization,

including: reviewing loan documents and origination standards, handling any required

registration of offer and the sale ABS with the Securities and Exchange Commission

(SEC) if a public offering is contemplated, and selling the ABS to investors. The

securitizer engages one or more credit rating agencies to analyze the transaction and

assign ratings to securities that reflect the securities’ likelihood of default and expected

loss given default. Finally, the securitizer hires an investment bank as an underwriter to

market the deal, to assist in preparation of the offering documents, to conduct due

diligence, and to find investors to purchase the securities. For many ABS transactions,

the underwriter and the securitizer are affiliated.


At many stages of the securitization process, originators and securitizers may use

interim funding, including ABCP conduits and warehouse lines of credit. Warehouse

lines of credit are short-term loans, usually collateralized by the assets being securitized.

In some cases, the transaction may be structured in a manner similar to a repurchase

agreement, a transaction that involves a sale and subsequent repurchase but has the

economics of collateralized borrowing. Often the warehouse lender is also an affiliate of the underwriter in the securitization.

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A critical part of the securitization process is structuring the transaction so that the

bankruptcy, receivership, or insolvency of parties to the transaction, including the

originator, any aggregators and the securitizer, will not affect the ability of the holders of

the securities to be paid according to the terms of the securitization.


Generally, the structuring involves the sale of the assets to a bankruptcy-remote entity that in turn transfers the assets to either a one-time special purpose vehicle (SPV) created specifically for an individual securitization, or to a master trust that issues new liabilities on an ongoing basis. This latter arrangement is more common for short-maturity, revolving

loans such as credit cards or floorplan loans.


The key aim of establishing such separation is that the assets transferred into the securitization cannot be seized by creditors upon the bankruptcy or failure of the transferors of such assets. Thus, investors may demand a lower risk premium to purchase the ABS relative to the corporate debt of the parties involved in the transaction, including the originator and securitizer.

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Guest DC Government Worker

Federal Housing Administration (FHA) Single Family Lender Insurance Process:

Eligibility, Indemnification, and Termination

Proposed Regulatory Changes


The proposed HUD regulatory changes will update and enhance the Lender Insurance process. Most

significantly, the proposed rule would revise HUD’s regulations implementing the statutory requirements regarding lender indemnification to HUD of insurance claims in the case of fraud,

misrepresentation, or noncompliance with applicable loan origination requirements.


The proposed rule will also provide that mortgagees, in order to retain their Lender Insurance authority, must continually maintain the acceptable claim and default rate required of them when they were initially delegated such authority.


In addition, this proposed rule provides that HUD will review Lender Insurance mortgagee performance on a continual basis. HUD also proposes to revise the methodology for determining acceptable claim and default rates to more accurately reflect mortgagee

performance, and to streamline the approval process for Lender Insurance mortgagees that have undergone a corporate restructuring.


The Department has also taken the opportunity afforded by this proposed rule to make two

technical corrections to the regulations.


The proposed regulatory changes are as follows:


1. Lender indemnification for insurance claims. Under section 256( c ) of the National Housing Act (12 U.S.C. 1715z–21©), an FHA-approved Lender Insurance mortgagee may be required to

indemnify HUD for the loss if the mortgage loan was ‘‘not originated in compliance with the requirements established by the Secretary, and the Secretary pays an insurance claim

* * * within a reasonable period specified by the Secretary.’’


HUD may also require indemnification at any time ‘‘if fraud or misrepresentation was

involved in connection with origination’’ of the mortgage loan. FHA may impose indemnifications,

irrespective of whether the noncompliance, fraud, or misrepresentation caused the mortgage



Currently, the section 256 statutory indemnification requirement is limited to mortgagees with Lender Insurance authority.


On January 20, 2010, the Department announced that it would seek changes to section 256 of

the National Housing Act, to apply the indemnification provisions to all Direct Endorsement lenders.


The section 256 statutory indemnification requirements are currently codified at § 203.255( f )(4).


HUD proposes to create a new § 203.255( g ) that would provide additional guidance on the statutory requirements of section 256.


As discussed, the section 256 indemnification requirements are applicable to claims paid in connection to a mortgage that was not ‘‘originated’’ in accordance with FHA requirements.


For purposes of § 203.255( f ), this proposed rule would define the term ‘‘origination’’ as meaning ‘‘the process of creating a mortgage, starting with the taking of the initial application, continuing with the processing and underwriting, and ending with the mortgagee endorsing the mortgage note for FHA mortgage insurance.’’


The proposed definition of ‘‘origination’’ would apply only to indemnifications for mortgages endorsed for FHA mortgage insurance under section 256 of the National Housing Act by authorized

Lender Insurance mortgagees, and is not being proposed by HUD to apply in any other contexts related to the FHA programs.


As noted, cases of fraud or misrepresentation may require indemnification at any time. However,

for cases not involving fraud or misrepresentation, section 256( c ) limits the Department’s ability to require indemnification to insurance claims paid within a ‘‘reasonable time period’’

established by HUD. New § 203.255( g ) would implement this timing requirement by codifying HUD’s longstanding practice of requiring indemnification for FHA insurance claims paid ‘‘within five years from the date of mortgage insurance endorsement.’’


The date of endorsement is a fixed date, and therefore has the benefit of being known to both HUD and the Lender Insurance mortgagee. Moreover, 5 years is a reasonable ‘‘seasoning’’ period for a particular mortgage loan to either perform or go into default and for the Department to

ascertain whether errors in the origination of the mortgage loan were made, while not being so long a time frame so as to burden mortgagees with the possibility of indemnification for a

long-ago endorsed mortgage loan.


The minimum cost of this change to mortgagee would be zero. Most companies already possess the

technology to process electronic documents for their investors. In addition, there are currently seven lenders that submit a total of 250,000 electronic case binders annually. These firms would not incur additional costs for submitting electronic binders to FHA.


Although most companies already subscribe to a service that transmits electronic documents, sending them to FHA would impose an additional cost.


A reasonable estimate of the additional cost per loan is a transaction fee in the range of $9 to $17 per case binder, with an upfront cost of $5,000 to $15,000 per firm. With 4,000 firms, the aggregate fixed cost of this portion of the rule would range from $20 million to $60

million. If FHA has an average of 1.5 million loans, then 1.25 million loans would be affected (1.5 million minus 250,000). The aggregate variable cost of this requirement would constitute from $11 million to $21 million ($9 to $17 multiplied by 1.25 million).


HUD also proposes to revise the methodology for determining acceptable claim and default rates. The regulatory change will more accurately evaluate a mortgagee’s performance record by

basing the claim and default rate comparison on the mortgagee’s actual area of operations, rather than on the national average.


This change would have an overall beneficial economic impact on small business lenders.


HUD data indicates that an additional ten small business lenders would be deemed to have an acceptable claim and default rate for purposes of Lender Insurance authority as a result of this

change. (There are currently 602 active small business Direct Endorsement mortgagees participating in FHA programs.)


The proposed rule also specifies that mortgagees must maintain the required of them when they were initially granted Lender Insurance authority, in order to retain such authority, and that HUD will monitor mortgagee performance on an ongoing basis.


Under HUD’s regulations implementing section 256 of the National Housing Act, mortgagees

must comply with a 2-year performance history requirement in order to qualify for Lender Insurance approval.


As a new business entity, the lending institution created by a merger, acquisition, or reorganization would not be able to comply with the performance 2-year history requirements, and thus would be ineligible for Lender Insurance authority.


In light of changes in technology that facilitate the electronic submission and storing of mortgage loan records, HUD is considering requiring that case binders be submitted electronically regardless of the insurance process used by a mortgagee. As discussed in detail in the ‘‘Regulatory Planning and Review’’ section of this preamble, the proposed change likely

would reduce the economic burden imposed on mortgagees by no longer requiring that they incur the cost of maintaining paper records (except in the worst high-cost scenario). Moreover,

these benefits are expected to last for the next 10 years until a new technology investment is required.



1. The authority citation for part 203

is revised to read as follows:

Authority: 12 U.S.C. 1709, 1710, 1715b, 1715z–16, 1715u, and 1717z–21; 42 U.S.C. 3535( d ).


2. In § 203.4, amend paragraph ( a ) by revising the reference ‘‘§ 203.5’’ to read

‘‘§ 203.3’’ and revise paragraphs ( b ), ( c ), and ( d ), to read as follows:


§ 203.4 Approval of mortgagees for Lender Insurance.

* * * * *

( b ) Performance: Claim and default rate.


(1) In addition to being unconditionally approved for the Direct Endorsement program, a mortgagee must have had an acceptable claim and default rate (as described in paragraph ( b )( 3 ) of this section) for at least 2 years prior to its application for participation in the Lender Insurance program, and must maintain such a claim and default rate in order to retain Lender Insurance approval.


(2) HUD may approve a mortgagee that is otherwise eligible for Lender Insurance approval, but has an acceptable claim and default record of less than 2 years, if:


( i ) The mortgagee is a an entity created by a merger, acquisition, or reorganization completed less than 2 years prior to the date of the mortgagee’s application for Lender Insurance approval;


( ii ) One or more of the entities participating in the merger, acquisition, or reorganization had Lender Insurance approval at the time of the merger, acquisition, or reorganization;


( iii ) All of the lending institutions participating in the merger, acquisition,or reorganization had an acceptable claim and default record for the 2 years preceding the mortgagee’s application for Lender Insurance approval; and


( iv ) The extrapolated claim and default record of the mortgagee derived by aggregating the claims and defaults of the entities participating in the merger, acquisition, or reorganization, for the 2-year period prior to the mortgagee’s application for Lender Insurance

approval, constitutes an acceptable rate of claims and defaults, as defined by this section.


( 3 ) A mortgagee has an acceptable claim and default rate if its rate of claims and defaults is at or below 150 percent of the average rate for insured mortgages in the state(s) in which the mortgagee operates.


( c ) Reviews.


HUD will monitor a mortgagee’s eligibility to participate in the Lender Insurance program on a

continual basis.


( d ) Termination of approval. (1) HUD may immediately terminate the mortgagee’s approval to participate in the Lender Insurance program, in accordance with section 256( d ) of the

National Housing Act (12 U.S.C. 1715z–21( d )), if the mortgagee:


( i ) Violates any of the requirements and procedures established by the Secretary for mortgagees approved to participate in HUD’s Lender Insurance program, Direct Endorsement program, or the Title II Single Family mortgage

insurance program; or


( ii ) If HUD determines that other good cause exists.


( 2 ) Such termination will be effective upon receipt of HUD’s notice advising of the termination. Within 30 days after receiving HUD’s notice of termination, a mortgagee may request an informal conference with the Deputy Assistant Secretary for Single Family Housing or

designee. The conference will be conducted within 30 days after HUD receives a timely request for the conference.


After the conference, the Deputy Assistant Secretary (or designee) may decide to affirm the termination action or to reinstate the mortgagee’s Lender Insurance program approval.

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Federal Reserve Bank of New York

Regional Economy and Housing Update

October 19, 2010


William C. Dudley, President and Chief Executive Officer


Remarks at the Quarterly Regional Economic Press Briefing, New York City


The steep decline in home prices put many families at risk of mortgage delinquency and, ultimately, losing their homes to foreclosure. With lower home prices, many families now owe more on their mortgage than their home is worth. This means that they cannot refinance or sell their homes easily if they experience a financial crisis, such as a job loss or a serious illness. Recent developments on foreclosures have been mixed. While RealtyTrac reports that foreclosure completions in the United States exceeded 100,000 for the first time in September, it is important to remember that foreclosure is a lengthy process in most states. Our data indicate that, in recent quarters, borrowers are becoming less likely to fall behind on their mortgages, so fewer households are now entering the foreclosure process. At the same time, though, major lenders have acknowledged serious problems in the processes they have used to repossess homes and announced moratoria on new foreclosures. Taken together, these developments suggest that the situation in housing remains uncertain for the foreseeable future.


The Federal Reserve actively encourages efforts to find viable alternatives to foreclosure, like loan modifications, or deeds in lieu. We also support due process and access to legal counsel for homeowners facing foreclosure, for instance through legal aid programs. At the same time, it is important that foreclosures that properly comply with state and federal law can ultimately take place, as this is a necessary part of the adjustment that will eventually return us to more normal conditions in the housing market.


At present, the extent of the documentation problem and its wider ramifications are still uncertain. In conjunction with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, the Federal Reserve is therefore seeking to establish the facts through a review of the foreclosure practices, governance and documentation at the major bank mortgage servicers. We want to ensure that the housing finance business is supported by robust back-office operations—for processing of new mortgages as well as foreclosures— so that buyers of homes and investors in mortgage securities have full confidence in the process. We are monitoring developments closely in order to evaluate any potential impact on the housing market, financial institutions and the overall economy.

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This week, Bank of America (BoA) shares plunged on concern about the impact of legal challenges to foreclosures after the bank announced it was resuming sales of repossessed homes. Investors warn that the bank's exposure to bad mortgages could depress its stock for years to come, perhaps falling from the current $11 to $2.50 by 2013.

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Guest Ted Hart

In response to reports that Bank of America plans to restart foreclosures on borrowers in 23 states where issues of possibly fraudulent documentation have been raised, Ohio Attorney General Richard Cordray today offered the following statement:


“While I would not presume to speak for all 50 state attorneys general, from my own standpoint, we will want to be very careful in reviewing whatever their revised process purports to be. I would caution that they still have significant financial exposure in many, many cases if they are now acknowledging that the evidence that they previously submitted to the courts was fraudulent.


“Those previous submissions remain subject to possible sanctions and penalties by the courts and so Bank of America would be well-advised to consider aggressively pursuing loan modifications as a means of resolving those cases by agreement rather than pushing toward a court order that may involve sanctions and penalties for their prior misconduct.


“You have to remember, these are the same people who have essentially acknowledged that they committed fraud in perhaps tens of thousands of cases. Now they tell us that they have fixed the problem in a matter of weeks. We are certainly not just going to take their word for it.”


Cordray filed a lawsuit against GMAC/Ally on October 6, becoming the first attorney general in the nation to take legal action to confront the emerging “robo-signing” problem in home foreclosures. A week later, the attorneys general from all 50 states joined together in announcing a multi-state coordinated investigation of the mortgage industry over the faulty affidavits.


Ohio homeowners who have questions about the litigation against GMAC/Ally or investigations into foreclosure fraud by other banks or mortgage servicers can contact the Ohio Attorney General’s office at ForeclosureFraud@OhioAttorneyGeneral.gov.

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Guest Jester6

If the banks buy back $120 billion in mortgages they will not have any reserves left. And if they they have to modify loans to let people stay in their homes, that will erode reserves as well (but not as much as buying back the old mortgages.)


This could be very very bad. At the very least the banks might not have the reserves needed to be able to make new loans. At worst they will not have enough liquidity to stay in business. The Feds will have to shut them down or give them cash to prop them up.


If you don't want a bailout then a good bank has to buy the bad bank. But considering the the bad banks in this scenario are the biggest banks in the country their is no bank to buy them. And anyone forced to buy the bad institutions (like Bank of America being forced into the Bear Stearns) will be weakened because the problems of the bad bank get passed on to the good bank.


The politicians demagoguing this issue need to be very careful. I don't think they realize they are standing in a puddle of gasoline with a lit match. If they make a mistake they will burn the whole house (economy) to the ground with this one.

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Guest Total Fiasco

Bank of America, who purchased Countrywide Financial back in 2008, faces the potential of having to buy back $74 billion in repurchased loans. Currently, Bank of America has $4.4 billion set aside for repurchases, far short of what they could potentially need.


Fannie Mae and Freddie Mac, the largest mortgage-finance firms in the country, are two such companies which also invested in loans bought directly from lenders. They could potentially reap over $42 billion on such loans. According to Fitch Ratings, private mortgage investors could receive up to $179.2 in buy-back loans as well.

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October 18, 2010

Facsimile No. 805 520 5623

Countrywide Home Loans Servicing LP

Attn. Mark Wong

400 Countrywide Way

Simi Valley, CA 93065


Facsimile No. 805 520 5623

Countrywide Home Loans Servicing LP

Attn. Mark Wong

7105 Corporate Drive

Plano, TX 75024


Facsimile No. 212 815 3986

The Bank of New York

101 Barclay Street

4 West

Attn: Mortgage Backed Securities Group

for Trusts Listed on Ex. A

New York, NY 10286


Facsimile No. 212 815 3986

The Bank of New York

101 Barclay Street

Attn: Corporate Trust MBS Administration for Trusts Listed on Ex. A

New York, NY 10286


Mr. Leo Crowley

Ms. Jeanne Naughton Carr

Pillsbury LLP

1540 Broadway

New York, NY 10036-4039




Dear Sir or Madam:


Unless otherwise indicated, all capitalized terms used in this letter have the meaning ascribed to them in those certain Pooling and Servicing Agreements (PSAs) governing


Residential Mortgage-Backed Securities (RMBS) evidenced by the Countrywide Mortgage Pass- Through Certificates (Certificates) listed on the attached Exhibit "A."


The undersigned are the Holders of not less than 25% of the Voting Rights in Certificates issued by the Trusts listed on the enclosed Exhibit A.


Pursuant to Section 7.01(ii) of the applicable PSAs, the Trustee and the Master Servicer are hereby notified of the Master Servicer’s failure to observe and perform, in material respects, the covenants and agreements imposed on it by the PSAs. Specifically, the Master Servicer has failed and refused to do the following, which have materially affected the rights of Certificateholders:


1. Section 2.03© of the PSAs states that “Upon discovery by any of the parties hereto of a breach of a representation or warranty with respect to a Mortgage Loan made


pursuant to Section 2.03( a ) … that materially and adversely affects the interests of the Certificate-holders in that Mortgage Loan, the party discovering such breach shall give prompt notice thereof to the other parties.” The Master Servicer has failed to give notice to the other parties in the following respects:


a. Although it regularly modifies loans, and in the process of doing so has discovered that specific loans violated the required representations and warranties at the time the Seller sold them to the Trusts, the Master Servicer has not notified the other parties of this breach;


b. Although it has been specifically notified by MBIA, Ambac, FGIC, Assured Guaranty, and other mortgage and mono-line insurers of specific loans that violated the required representations and warranties, the Master Servicer has not notified any other parties of these breaches of representations and warranties;


c. Although aware of loans that specifically violate the required Seller representations and warranties, the Master Servicer has failed to enforce the Sellers’ repurchase obligations, as is required by Section 2.03; and,


d. Although there are tens of thousands of loans in the RMBS pools that secure the Certificates, the Trustee has advised the Holders that the Master Servicer has never notified it of the discovery of even one mortgage that violated applicable representations and warranties at the time it was purchased by the Trusts.


2. In violation of its prudent servicing obligations under Section 3.01 of the applicable PSAs, the Master Servicer has:

a. Failed to maintain accurate and adequate loan and collateral files in a manner consistent with prudent mortgage servicing standards;


b. Failed to demand that sellers cure deficiencies in mortgage records when deficient loan files and lien records are discovered;


c. Exacerbated losses experienced by the Trusts;


d. Incurred wholly avoidable and unnecessary servicing fees and servicing advances to maintain mortgaged property, all as a direct result of the Master Servicer’s deficient record-keeping; and,


e. Prejudiced the interests of the Trusts and the Certificateholders in the mortgages by fostering uncertainty as to the timely recovery of collateral.


3. Section 3.11 (a) states that the Master Servicer “use reasonable efforts to foreclose upon or otherwise comparably convert the ownership of properties securing such of the Mortgage Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments.” Despite these covenants, the Master Servicer has continued to keep defaulted mortgages on its books, rather than foreclose or liquidate them, in order to wrongfully maximize its Servicing Fee, at the expense of the Certificateholders’ best interests, including rights to recover from pool or financial guaranty insurance policies. In addition, the applicable provisions of the PSAs contemplate that foreclosures and liquidations of defaulted mortgages will proceed forthwith and in accordance with applicable law, provided the documentation is in order, as a matter of fairness to all parties. The Servicers’ failure to proceed appropriately and their failure to maintain records in an accurate, appropriate, and adequate manner has impeded this process and caused wholly avoidable delays that have injured investors, borrowers, neighborhoods, and communities. To make matters worse, these delays have also enriched the Servicers, as they have continued to charge unearned and unwarranted servicing fees on mortgages which would have been liquidated but for the Servicers’ breach of their duties;


4. Section 3.11 of the PSAs provides that “Countrywide may agree to a modification of any Mortgage Loan” in certain specified circumstances. The Holders do not seek to halt bona fide modifications of troubled loans for borrowers who need them. When, however, modifications are required to remedy predatory lending violations, Section 2.03( c ) of the PSAs requires that the offending seller of the mortgage bear the costs to “cure such breach in all material respects….Nowhere do the PSAs permit the costs of curing predatory loans to be imposed on the Trusts or the Certificateholders. Despite these provisions, the Master Servicer has breached the PSAs by agreeing to modify loans held in the Trusts for the purpose of settling predatory lending claims made by various Attorneys’ General against its parent company while breaching its obligation to demand that the offending mortgage seller (its parent company) bear the costs of curing the violation, as well as the expenses reasonably incurred in enforcement of the mortgage seller’s obligation to cure predatory mortgages. Id. At §2.03©. The Master Servicer has also unjustly enriched its parent company by using Trust collateral to settle claims that are not, and could never be, made against the Trusts, in a manner that has “materially and adversely affected the interest of the Certificateholders…” Id. The Master Servicer has therefore:

a. Failed to perform its obligation to demand that Countrywide comply with the requirement that it cure or repurchase predatory and ineligible loans it has agreed to modify in the Attorney General settlement;


b. Failed to track or notify the Trustee concerning which specific loans the Master Servicer has modified pursuant to these provisions, even though the PSAs require that “the Modified Mortgage Loan shall be automatically be deemed transferred and assigned to Countrywide…”; and,


c. Failed to perform its obligation to “deliver to the Trustee a certification of a Servicing Officer to the effect that all requirements of this paragraph have


been satisfied with respect to the Modified Mortgage Loan.”


5. Section 3.14 of the PSAs provides that the Master Servicer shall be entitled to recover Servicing Advances that are “customary, reasonable and necessary ‘out of pocket’ costs and expenses incurred in the performance by the Master Servicer of its Servicing Obligations including but not limited to the cost of ( i ) the preservation, restoration, and protection of a Mortgaged Property…” Despite the requirement that Servicing Advances were to be incurred only for reasonable and necessary out of pocket costs, the Master Servicer instead utilized affiliated vendors–who marked up their services to a level 100% or more above the market price–to provide services related to the preservation, restoration, and protection of” Mortgaged Property, in a fraudulent, unauthorized, and deceptive effort to supplement its Servicing income. See ¶ 3(a) and (B), above.


6. Section 3.01 of the PSAs requires that the Master Servicer “shall service and administer the Mortgage Loans in accordance with the terms of this Agreement and customary and usual standards of practice of prudent mortgage servicers.” Despite this requirement, the Master Servicer has repeatedly and deliberately failed to perform this covenant by:


a. Creating Countrywide-affiliated vendors to provide maintenance, inspection, and other services with regard to defaulted mortgages that should have been undertaken only if they were in the Certificateholders’ best interest. The Federal Trade Commission, however, found that Countrywide repeatedly and deliberately overcharged for these services by as much as 100% or more in order to increase its profits from default-related service fees; and,1


b. As a result of these wrongful practices, Countrywide has increased the losses to the Trusts. Each of these failures to perform the Master Servicer’s covenants and agreements violated the prudent servicing obligations imposed on the Master Servicer by PSA §3.01. Each of these failures to perform the Master Servicer’s covenants and agreements also materially affected the rights of the Certificateholders.


Each of these failures to perform is continuing. If they continue for an additional sixty days from the date of this letter, each of them—independently—will constitute an Event of Default.


The undersigned Holders therefore demand that the Master Servicer immediately cure these endemic and grievous defaults in its obligations under the PSAs. By this letter, the Holders further notify the Trustee of the Master Servicer’s failure to perform its covenants and agreements.


The undersigned Holders also reserve all other rights and remedies they may have, individually and under the PSAs, as a result of the matters described in this letter. We invite you to communicate with our counsel, Ms. Kathy Patrick of Gibbs & Bruns LLP, should you wish to discuss this matter further.

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Guest Snowball

You have to wonder if this scandal is politically motivated. Kinda like George Bush's increased terrorism alert during his campaign time.


Kathy Patrick Contribution List in 2008

Name & Location Employer/Occupation Dollar

Amount Date Primary/

General Contibuted To

Patrick, Kathy


77002 Gibbs & Bruns LLP/Lawyer $1,000 10/31/2008 G ACTBLUE




Patrick, Kathy Ms.


77002 Gibbs & Bruns LLP/Attorney $1,989 10/30/2008 P OBAMA VICTORY FUND - Democrat

Patrick, Kathy Ms.


77002 Gibbs & Bruns LLP/Attorney $1,989 10/21/2008 P OBAMA VICTORY FUND - Democrat



77002 GBBS & BRUNS LLP/ATTORNEY $1,000 10/03/2008 G JEANNE SHAHEEN FOR SENATE - Democrat




Patrick, Kathy


77002 Gbbs & Bruns LLP/Attorney $1,000 10/03/2008 P ACTBLUE

Patrick, Kathy


77002 Gbbs & Bruns LLP/Attorney $1,500 10/03/2008 P ACTBLUE

Patrick, Kathy


77002 Gbbs & Bruns LLP/Attorney $1,000 10/03/2008 G ACTBLUE

Patrick, Kathy


77002 Gbbs & Bruns LLP/Attorney $1,500 10/03/2008 P HILL PAC



77002 GIBBS & BRUNS LLP $2,300 08/28/2008 P FRIENDS OF HILLARY - Democrat

Patrick, Kathy


77002 Gibbs & Burns LLP/Attorney $2,300 08/19/2008 G LAMPSON FOR CONGRESS - Democrat

Patrick, Kathy


77002 Self/Attorney $2,300 07/31/2008 P ACTBLUE

Patrick, Kathy


77002 Gibbs & Bruns llp/Attorney $260 06/10/2008 P OBAMA FOR AMERICA - Democrat

Patrick, Kathy


77002 Gibbs & Bruns llp/Attorney $-260 06/10/2008 P OBAMA FOR AMERICA - Democrat

Patrick, Kathy


77002 Gibbs & Bruns llp/Attorney $260 06/10/2008 G OBAMA FOR AMERICA - Democrat

Patrick, Kathy


77002 Gibbs & Bruns llp/Attorney $2,300 06/05/2008 P OBAMA FOR AMERICA - Democrat

Patrick, Kathy


77002 Gibbs & Bruns LLP/Attorney $250 06/03/2008 G SKELLY FOR CONGRESS - Democrat

Patrick, Kathy


77002 Gibbs & Bruns Llp/Attorney $2,300 07/25/2007 G HILLARY CLINTON FOR PRESIDENT - Democrat

Patrick, Kathy


77002 Gibbs & Bruns Llp/Attorney $2,300 07/25/2007 P HILLARY CLINTON FOR PRESIDENT - Democrat


I still cannot understand why Republicans do not want disclosure with campaign monies. As you can see from the timing of this lawsuit to putting together the people who are involved reveals a whole other story.



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Actually this one done in June.




Countrywide Will Pay $108 Million for Overcharging Struggling Homeowners; Loan Servicer Inflated Fees, Mishandled Loans of Borrowers in Bankruptcy


Two Countrywide mortgage servicing companies will pay $108 million to settle Federal Trade Commission charges that they collected excessive fees from cash-strapped borrowers who were struggling to keep their homes. The $108 million represents one of the largest judgments imposed in an FTC case, and the largest mortgage servicing case. It will be used to reimburse overcharged homeowners whose loans were serviced by Countrywide before it was acquired by Bank of America in July 2008.


"Life is hard enough for homeowners who are having trouble paying their mortgage. To have a major loan servicer like Countrywide piling on illegal and excessive fees is indefensible,” said FTC Chairman Jon Leibowitz. “We’re very pleased that homeowners will be reimbursed as a result of our settlement.


According to the complaint filed by the FTC, Countrywide’s loan-servicing operation deceived homeowners who were behind on their mortgage payments into paying inflated fees – fees that could add up to hundreds or even thousands of dollars. Many of the homeowners had taken out loans originated or funded by Countrywide’s lending arm, including subprime or “nontraditional” mortgages such as payment option adjustable rate mortgages, interest-only mortgages, and loans made with little or no income or asset documentation, the complaint states.

Mortgage servicers are responsible for the day-to-day management of homeowners’ mortgage loans, including collecting and crediting monthly loan payments. Homeowners cannot choose their mortgage servicer. In March 2008, before being acquired by Bank of America, Countrywide was ranked as the top mortgage servicer in the United States, with a balance of more than $1.4 trillion in its servicing portfolio.

When homeowners fell behind on their payments and were in default on their loans, Countrywide ordered property inspections, lawn mowing, and other services meant to protect the lender’s interest in the property, according to the FTC complaint. But rather than simply hire third-party vendors to perform the services, Countrywide created subsidiaries to hire the vendors. The subsidiaries marked up the price of the services charged by the vendors – often by 100% or more – and Countrywide then charged the homeowners the marked-up fees. The complaint alleges that the company’s strategy was to increase profits from default-related service fees in bad economic times. As a result, even as the mortgage market collapsed and more homeowners fell into delinquency, Countrywide earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue.


According to the FTC, under most mortgage contracts, homeowners must pay for necessary default-related services, but mortgage servicers may not mark up the cost to make a profit or charge homeowners for services that are not reasonable or appropriate to protect the mortgage holder’s interest in the property. Homeowners do not have any choice in who performs default-related services or the cost of those services, and they have no option to shop for those services.


In addition, in servicing loans for borrowers trying to save their homes in Chapter 13 bankruptcy proceedings, the complaint charges that Countrywide made false or unsupported claims to borrowers about amounts owed or the status of their loans. Countrywide also failed to tell borrowers in bankruptcy when new fees and escrow charges were being added to their loan accounts. The FTC alleges that after the bankruptcy case closed and borrowers no longer had bankruptcy court protection, Countrywide unfairly tried to collect those amounts, including in some cases via foreclosure.


Settlement Terms


The FTC’s complaint and settlement order name two mortgage servicers as defendants: Countrywide Home Loans, Inc. and BAC Home Loans Servicing LP, formerly doing business as Countrywide Home Loans Servicing LP. The settlement requires Countrywide to pay $108 million, which will be refunded to homeowners who Countrywide overcharged before July 2008.

In addition, the settlement order prohibits Countrywide from taking advantage of borrowers who have fallen behind on their payments. The defendants continue to service millions of mortgage loans, including tens of thousands of loans involving borrowers in bankruptcy and foreclosure. In the servicing of loans, the defendants are permanently barred from:

* Making false or unsubstantiated representations about loan accounts, such as amounts owed.

* Charging any fee for a service unless it is authorized by the loan instruments, by law, or by the consumer for a specific service requested by the consumer.

* Charging any fee for a default-related service unless it is a reasonable fee charged by a third party for work actually performed. If the service is provided by an affiliate of a defendant, the fee must be within limits set by state law, investor guidelines, and market rates. Defendants must obtain annual, independent market reviews of their affiliates’ fees to ensure that they are not excessive.


In addition, Countrywide must advise consumers if it intends to use affiliates for default-related services and, if so, provide a fee schedule of the amounts charged by the affiliates.


The settlement also requires Countrywide to make significant changes to its bankruptcy servicing practices. For example, Countrywide must send borrowers in Chapter 13 bankruptcy a monthly notice with information about what amounts the borrower owes – including any fees assessed during the prior month. The defendants also must implement a data integrity program to ensure the accuracy and completeness of the data they use to service loans in Chapter 13 bankruptcy.


This case was brought with the invaluable assistance of the United States Trustee Program, the component of the Department of Justice that oversees the administration of bankruptcy cases and private trustees. This action represents the FTC’s continuing work to help consumers who have been hurt by the economic downturn.


For more information about the case and the FTC’s refund program, see www.ftc.gov/countrywide.


The Commission vote to authorize staff to file the complaint and settlement was 5-0. The complaint and settlement were filed in the U.S. District Court for the Central District of California.


The Federal Trade Commission is a member of the interagency Financial Fraud Enforcement Task Force. For more information on the Task Force, visit www.stopfraud.gov.


NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. Stipulated court orders are for settlement purposes only and do not necessarily constitute an admission by the defendants of a law violation. Stipulated orders have the full force of law when signed by the judge.


The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,800 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

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Guest revolutionary 21

If the banks had kept their documentation in order this wouldn't have been a problem but they didn't. How can you defend foreclosing on someone when you can't provide proof that you own the lien or title?

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October 14, 2010

Attorney General’s office joins multistate review of bank foreclosure practices


Wilmington – Attorney General Beau Biden announced that his office is participating in a coordinated national effort by state Attorneys General and state mortgage regulators to investigate the foreclosure review and verification procedures used by the mortgage servicing industry. Officials from 50 states have joined together to review allegations that affidavits or other documents used in foreclosure proceedings were improperly submitted as well as other issues regarding irregularities or abuses by mortgage lenders and loan servicers. Last week, Biden urged Bank of America, JP Morgan Chase, and Ally Financial to suspend foreclosure proceedings while they review their foreclosure procedures and announced that his office is reviewing the banks’ foreclosure practices. Bank of America responded two days later by halting foreclosure proceedings in all 50 states.


Democratic and Republican Attorneys General from all over the country share the same concern: making sure banks have accurate documentation before foreclosing on families,” Biden said. “Just as homeowners have an obligation to pay their mortgages, lenders also have an obligation to follow the rules when they foreclose on a homeowner’s property. We're working as quickly as possible to ensure that banks follow our laws and regulations so that Delawareans facing foreclosure benefit from the legal protections they deserve.”


The Mortgage Foreclosure Multistate Group, comprised of 50 state attorneys general and state

banking and mortgage regulators in 30 states, will look into whether individual mortgage servicers have improperly submitted documents in support of foreclosures. Its initial objectives include:


• Put an immediate stop to improper mortgage foreclosure practices.

• Review past and present practices by mortgage servicers subject to the inquiry.

• Evaluate potential remedies for past practices and to deter future improper practices.

• Establish a mechanism for more effective independent monitoring of future mortgage foreclosure practices.


The multistate group will contact a comprehensive list of individual mortgage servicers and

will consult with federal regulators and agencies, including the Mortgage Fraud Working Group of the Financial Fraud Enforcement Task Force (FFETF), which was created in 2009.


The Mortgage Foreclosure Multistate Group released the following joint statement announcing

its review:


It has recently come to light that a number of mortgage loan servicers have submitted

affidavits or signed other documents in support of either a judicial or non-judicial foreclosure that appear to have procedural defects. In particular, it appears affidavits and other documents have been signed by persons who did not have personal knowledge of the facts asserted in the documents. In addition, it appears that many affidavits were signed outside of the presence of a notary public, contrary to state law. This process of signing documents without confirming their accuracy has come to be known as “robo-signing.” We believe such a process may constitute a deceptive act and/or an unfair practice or otherwise violate state laws.


In order to handle this issue in the most efficient and consistent manner possible, the states

have formed a bi-partisan multistate group to address issues common to a large number of states. The group is comprised of both state Attorneys General and the state bank and mortgage regulators. All 50 state Attorneys General have joined this coordinated multistate effort. State bank and mortgage regulators are participating both individually and through their Multistate Mortgage Committee, which represents mortgage regulators from all 50 states. Through this process, the states will attempt to speak with one voice to the greatest extent possible.


Our multistate group has begun inquiring whether or not individual mortgage servicers have

improperly submitted affidavits or other documents in support of a foreclosure in our states. The facts uncovered in our review will dictate the scope of our inquiry. The Executive Committee is comprised of the following Attorneys General Offices: Arizona, California, Colorado, Connecticut, Florida, Illinois, Iowa, North Carolina, Ohio, Texas, and Washington; and the following state banking regulators: the Maryland Office of the Commissioner of Financial Regulation and the New York State Banking Department.”

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Congressman Robert Aderholt (R-AL) today issued the following statement after the President vetoed his bill, the “Interstate Recognition of Notarizations (IRON) Act of 2010” (HR 3808).


There is absolutely no connection whatsoever between the Interstate Recognition of Notarizations Act of 2010 and the recent foreclosure documentation problems. I first introduced this legislation in April of 2005, and obviously there was no concern about weakening the foreclosure documentation process at that time. This is a bill that would help people and I am disappointed that it was vetoed.”


“My legislation would improve interstate commerce by requiring that documents be recognized in any state or federal court. It would help court reporters, attorneys, business owners, and consumers in general.”


“The bill expressly requires lawful notarizations, and in no way validates improper notarizations. Enforcement of legal notarizations is a state responsibility and I fully support each state attorney general vigorously prosecuting all notarization fraud.


I believe the fears about this bill have resulted from misunderstanding, and I am eager to get another version of this bill completed and passed in November, with the support of the White House, the Senate, and the House. This bill has strong bipartisan support and I hope that the White House will work with Congress to educate the public and answer any concerns so that this legislation can become law.”


The bill was introduced by Congressman Aderholt on Wednesday, October 14, 2009, it passed the House on Tuesday, April 27, 2010 and the Senate on Monday, September 27, 2010. Congressman Aderholt had previously introduced the legislation during the 110th and 109th Congress. The bill passed the House of Representatives during those Congressional sessions but was not taken up by the Senate.


This legislation would have required that documents be recognized in any state or federal court if the subject affects interstate commerce and the document is duly notarized by seal or if a seal is tagged to an electronic document.


Currently, each state is responsible for regulating its notaries. Typically, someone who wishes to become a notary pays a fee, submits an application and takes an oath of office. Some states require applicants to enroll in an educational course, pass an exam, and obtain a notary bond. This legislation does not change how the individual states regulate notaries in any manner.

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Chairman Ben S. Bernanke

At the Federal Reserve System and Federal Deposit Insurance Corporation Conference on Mortgage Foreclosures and the Future of Housing, Arlington, Virginia

October 25, 2010

Welcoming Remarks


Good morning. It's my pleasure to welcome you to this joint conference of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC). Our program over the next two days will highlight policy-oriented research on U.S. housing and mortgage markets. I would like to thank the many talented people throughout the Federal Reserve System and at the FDIC who have worked together to make this conference a reality.


Before I address the specific topics of this conference, I would like to note that we have been concerned about reported irregularities in foreclosure practices at a number of large financial institutions. The federal banking agencies are working together to complete an in-depth review of practices at the largest mortgage servicing operations. We are looking intensively at the firms' policies, procedures, and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures. We take violations of proper procedures seriously. We anticipate preliminary results of the review next month. In addition, Federal Reserve staff members and their counterparts at other federal agencies are evaluating the potential effects of these problems on the real estate market and financial institutions.


Any discussion of housing policy in this country must begin with some recognition of the importance Americans attach to homeownership. For many of us, owning a home signaled a passage into adulthood that coincided with the start of a career and family. High levels of homeownership have been shown to foster greater involvement in school and civic organizations, higher graduation rates, and greater neighborhood stability.


Recognizing these benefits, our society has taken steps to encourage homeownership. Tax incentives, mortgage insurance from the Federal Housing Administration, and other government policies all contributed to a long rise in the U.S. homeownership rate--from 45 percent in 1940 to a peak of 69 percent in 2004. But, as recent events have demonstrated, homeownership is only good for families and communities if it can be sustained. Home purchases that are very highly leveraged or unaffordable subject the borrower and lender to a great deal of risk. Moreover, even in a strong economy, unforeseen life events and risks in local real estate markets make highly leveraged borrowers vulnerable.


It was ultimately very destructive when, in the early part of this decade, dubious underwriting practices and mortgage products inappropriate for many borrowers became more common. In time, these practices and products contributed to problems in the broader financial services industry and helped spark a foreclosure crisis marked by a tremendous upheaval in housing markets. Now, more than 20 percent of borrowers owe more than their home is worth and an additional 33 percent have equity cushions of 10 percent or less, putting them at risk should house prices decline much further. With housing markets still weak, high levels of mortgage distress may well persist for some time to come.


In response to the fallout from the financial crisis, the Fed has helped stabilize the mortgage market and improve financial conditions more broadly, thus promoting economic recovery. What may be less well known, however, is what the Fed has been doing at the local level. As the foreclosure crisis has intensified, Federal Reserve staff in our research, community development, and supervision and regulation divisions have actively collaborated to support foreclosure prevention at the local level and promote neighborhood stabilization initiatives.


A key initiative developed under the leadership of Federal Reserve Bank of Chicago President Charles Evans has been the Mortgage Outreach and Research Effort, known as MORE. MORE involves all 12 Federal Reserve Banks and the Board of Governors in a collaboration that pools resources and combines expertise to inform and engage policymakers, community organizations, financial institutions, and the public at large.

The Fed is particularly well suited to such an effort. Our community development experts are working on the ground to promote fair and equal access to banking services and improve communities. Further, Federal Reserve staff members are conducting empirical research on mortgage- and foreclosure-related topics, and are reaching out to industry experts as well. We are focusing on the hardest-hit cities and regions of the country.


A new publication released this week offers details about the MORE effort. Copies are available here today, and it is available online at the website of the Federal Reserve Bank of Chicago.1 The report identifies approaches the Fed has taken to mitigate the foreclosure crisis, and I'd like to share some highlights of that work.


We have helped many of our community development partners organize day-long "mega events" that have served thousands of troubled borrowers. Moreover, we've brought together housing advocates, lenders, academics, and key government officials to discuss foreclosure issues and develop solutions. In some cases, alliances have been formed right on the spot to create and implement programs to keep people in their homes.


We have also partnered with the U.S. departments of Labor and Treasury and with the HOPE NOW Unemployment Taskforce to help unemployed homeowners avoid losing their homes. This collaboration led to the creation of an online tool that allows homeowners and servicers to document unemployment insurance benefits as income in order to qualify for federally sponsored mortgage modification programs.


Each Federal Reserve Bank has an online Foreclosure Resource Center with information on foreclosure-related resources, including an enhanced Foreclosure Mitigation Toolkit, which provides detailed steps and information for localities seeking to develop foreclosure prevention activities. The toolkit also includes a new Foreclosure Recovery Resource Guide, which helps consumers recover from the foreclosure process.


A number of Federal Reserve research projects also have been initiated as part of the MORE program. They include studies focusing on foreclosure prevention, financial education, and adverse neighborhood effects resulting from foreclosures. You will hear more about that research over the next two days. Community development researchers across the Federal Reserve System launched a study in 2009 of the planning and early implementation stages of the federal Neighborhood Stabilization Program (NSP). Researchers interviewed more than 90 recipients of the Department of Housing and Urban Development's NSP funds in the fall of 2009. These interviews and other data gathered during this study provide the first nationwide examination of the effect of the NSP and served as the basis for a number of Federal Reserve System reports currently in progress.


Under the auspices of the MORE initiative, the Federal Reserve sponsored conferences such as this one, and the summit held last month on Real Estate Owned and Vacant Property Strategies for Neighborhood Stabilization. Participants at that meeting examined the community effects of foreclosed and vacant properties with the goals of helping practitioners better understand barriers to stabilizing neighborhoods, sharing practices that show promise, and discussing regional differences. As part of that summit, the Federal Reserve released 17 papers analyzing trends, challenges, and possible solutions for addressing foreclosures and promoting neighborhood stabilization. A few of the emerging solutions highlighted at the event were: a national "first-look" property program, which gives nonprofits and municipalities the right of first refusal on repossessed properties to facilitate neighborhood stabilization; new methods of municipal code enforcement; and innovative land-banking strategies. We will be using these ideas and others to inform our community development efforts over the coming year.


To ensure that we have access to more detailed data on mortgage and credit markets, the Federal Reserve System has created the Risk Assessment, Data Analysis, and Research, or RADAR, data warehouse. This new platform will help inform our monetary policy, bank supervision and regulation, and community development.


Over the next two days, I understand that you will be hearing about policy-oriented research on the U.S. housing and mortgage markets--an area of first-order importance to policymakers. You will have the opportunity to discuss the current situation and the outlook for mortgage foreclosures, consider their consequences for neighborhoods, and evaluate efforts to mitigate foreclosures. Also, you will learn results from various studies that have examined mortgage modifications and factors that have led to defaults. Finally, you will consider the future of housing finance.


All the papers on the conference program are of direct interest to policymakers and should lead to better-informed policy. I hope we can draw upon this information and the success of the MORE program to explore new and creative ways to address the foreclosure crisis. At the Fed, we will continue to encourage further research, participate in discussions, and coordinate work among groups striving for sustainable homeownership and the recovery of housing markets.

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Bank of America and Ally Financial Inc. (formally GMAC) are in alliance with the U.S. Chamber of Commerce, with the Federal Reserve's blessings (and with no opposition from the Obama administration), succeeded in using Congress to extort the Financial Accounting Standards Board (FASB) to change the accounting rules so that banks do not have to recognize their real estate losses until they sell their bad assets.

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