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The Foreclosure Fiasco

The ethics of big banking in America
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Quoted

“Bank of America has misled my family and me for more than two years, enticing us to drain our savings and our pension and playing games with my families’ future. The bank is threatening to take the home that I grew up in and where I raised my family.” Wayne Salas, Bank of America customer

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Cover image for Apr 20, 2011

Some of Hawaii’s homeless say living on the beach is their preferred lifestyle, choosing to call themselves “houseless” rather than “homeless.” But for many of the 52,000 local Bank of America mortgage holders who have lost–or could lose–their houses due to the bank’s nationwide frenzy of mortgage foreclosures, the possibility of being houseless is terrifying.

Criticism is also directed at a handful of other large mainland banks, but in Hawaii, more than 30 percent of the mortgage foreclosure complaints target Bank of America (BofA), America’s largest bank, according to a report by Faith Action for Community Equity (FACE). Founded in 1996, this organization has been dealing with borrowers’ foreclosure problems for several years. The top 10 mainland lenders foreclosing in Hawaii represented 86 percent of all foreclosure notices in the state in the month of November, according to FACE. This data implies that a significant proportion of families facing foreclosure cannot meet face to face with the off-shore mortgage lender or servicer who is foreclosing on their home.

Maui homeowner, and BofA mortgage customer, Wayne Salas says, “Bank of America has misled my family and me for more than two years, enticing us to drain our savings and our pension and playing games with my families’ future. The bank is threatening to take the home that I grew up in and where I raised my family.” Salas, a longtime City & County employee, will retire from the Hawaii Army Reserve with 31 years of service in June. “We are a hardworking family, and we want to pay our mortgage,” says Salas. “But Bank of America has rigged the system; and no matter how much we pay, they have found ways to make sure that they will get our home in the end.”

Self-employed Jodi Sussman owns a BofA home loan and managed to make her monthly payments until her income dropped dramatically due to a decline in tourism when the economy tanked in 2008. “I am working hard to stay afloat,” she told legislators. “Please help us not suffer [from] foreclosures. We wanna keep our homes and their value, good credit, work and livelihoods. We need help for the little guy–not for the bank.”

Waikoloa on the Big Island has been Arlene Larrua’s heavenly home for nearly a dozen years. Larrua, senior pastor of Abundant Life Ministries, says “I have been battling Bank of America to reinstate my mortgage loan since January of 2010. I was incorrectly told I could not make any payments to my loan while [I was] in the loan modification process.” Larrua keeps an 18-page diary of contradictory conversations and events regarding BofA “to share my frustrations.” But she still has been unsuccessful in a reconciliation process with the bank to get her loan reinstated.

“I believe [it’s] the predatory practices of the large banks, who are not dealing fairly with homeowners as directed by the Federal Government Bailout for National Banks, such as Bank of America and Countrywide (which is owned by BofA),” says Larrua. She favors a legislative bill to freeze all foreclosures in Hawaii until the state Attorney General can investigate the “mishandling and attempts to defraud Hawaii homeowners.”

Jade Brown, a Maui homeowner at risk of losing her home, is doing everything she can to prevent foreclosure. She and her husband Patrick purchased their home in Kula in 2003. “We worked very hard to pay the mortgage, maintain our home and be good stewards of the precious land.”

The couple was shocked to recently learn that their mortgage was not really a mortgage, but rather a security instrument sold to parties unknown and undisclosed to them. The banking industry, she claims, intentionally avoided proper recordkeeping to skip having to pay local recording fees. The Browns applied for a government loan modification plan and were accepted. After over 167 phone calls and 85 faxes–because the bank kept losing their paperwork–a trial modification that was supposed to take three months dragged on for almost a year.

They still have no permanent modification of their loan. “We are not deadbeats and have stayed in good faith to modify our mortgage,” says Brown. “Now, we may be facing foreclosure.” She believes that lost revenue from local BofA customers could tally millions of dollars, robbing our local economy and contributing to our current financial crisis.

Salas, Sussman, Larrua and Brown are just a handful of thousands of local mortgage holders angry at BofA for such claims as fabricating a chain of title documents allowing the bank to foreclose on them and enriching their coffers through unwarranted credit charges, misapplied loan payments, unwarranted insurance policies and faulty loan modifications in which borrowers were falsely told they needed to be delinquent to qualify for new loans terms. The creditors were mostly made whole through credit default swaps and bailout money from public tax dollars, while legitimate homeowners paying their mortages on time struggled to keep their homes.

Waioni D. Dickison, a Maui realtor, says she has assisted clients who are undergoing the traumatizing experience of attempting to secure a loan modification. “I’ve heard countless stories of numerous phone calls and letters from banks asking for the same exact paperwork and being told to rush paperwork to the bank in anticipation of an impending modification, only to have the property sold out from under the homeowner in the midst of the modification application.” She has also had many skeptical client/borrowers ask the mortgage servicer for proof of their official title, with no response.

Mainland Problems

Last week, federal regulators hit BofA and 13 other mortgage servicers for “unsafe and unsound foreclosure practices such as using ‘robo-signing’” and ruled that servicers would be forced to repay homeowners wrongfully foreclosed and must submit written plans explaining how shortfalls will be fixed.

On top of that, the Levin-Coburn Report on the Financial Crisis was released. “High risk lending, regulatory failures, inflated credit ratings and Wall Street firms engaging in massive conflicts of interest that contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets,” said the report.

Foreclosure Stats

Hawaii foreclosures rose by 183 percent in 2009, nearly triple the foreclosure count in December 2008, according to RealtyTrac, a real estate research firm. In 2010, one out of every nine homes sold in Hawaii was in foreclosure. According to the Levein-Coburn report, these statistics are largely due to mortgage fraud, and thus, Hawaii’s foreclosure rate jumped to 11th highest in the nation in 2010.

In January, foreclosure filings were reported on 985 Hawaii properties, or one filing for every 541 households–a 2 percent decrease from December. On a year-over-year basis, the state’s foreclosure total is 24 percent below the level reported for January 2010, according to RealtyTrac. The Big Island has the worst foreclosure rate in the state, with one filing per 270 households.

“We’ve now seen three straight months with fewer than 300,000 properties [nationally] receiving foreclosure filings, following 20 straight months where the total exceeded 300,000,” says James J. Saccacio, chief executive officer of RealtyTrac. Unfortunately, says Saccacio, this is not a sign of a robust housing recovery, but an indication that US mainland lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.

Burned by the Bank

“One of the biggest factors for the mortgage foreclosure situation is that too many people bought creative loans five years ago. There were many no- or low- interest loans, interest-only loans and pay-what-you-can loans, with adjustments made every three to five years,” says Iris Catalani, Commissioner of Financial Institutions in Hawaii. “These folks are now caught up in our current economic conditions, making it difficult to get a loan modification with a different lender.”

Her solution? “We would like to see some kind of loan modification for the consumer that allows them to stay in their home, and the lender would also get payment for collateral. The longer [both parties] are fighting, the less the lender is making. They both have to come to the table.”

Ann W. Jenny, a former manager in the federal comptroller’s office and current professor of micro- and macro-economics, says another “trick” played by BofA is taking advantage of the state’s 4-year statute of limitations by getting borrowers to pay a small amount of money every four years.

“There is absolutely no incentive for the banks to do loan modifications because they are making money hand over fist in late fees and charges,” says Jenny. “Every time they get someone to pay just a little bit, that resets the 4-year clock for the bank.”

Jenny’s goal is to educate her students and others that “It’s not all the borrower’s fault. It was a whole constellation of factors going back to the Financial Deregulation Act of the 1980s, when they began breaking down the barriers between banks and insurance companies.” Speculation was rampant, she adds. “But why were regulators not looking at the mortgage companies, just the banks?”

Jenny, who lives on Maui, firmly believes that “nobody was looking over the shoulders of lenders” when they made those loans. “All the regulators were just looking at the bank’s stream of income. They were supposed to look at the bank’s mortgage subsidiary assets. But nobody looked at the mortgage companies–they were essentially unregulated.”

She has a possible job offer doing government regulatory work but doubts the job will exist for long. “The problem is that the Republicans are now trying to de-fund all the regulatory agencies.”

Legislation

“In the 20 years I have been in politics, I have never worked as hard on any single issue,” says Rep. Herkes, D-Big Island. “Foreclosures have impacted so many people and affected so many families.”

In fact, Herkes says his cousin in South Kona had been regularly paying her monthly mortgage when someone showed up at her front door. “He told her he had bought her home at an auction the previous day.” As it turned out, her mortgage company went bankrupt and she was never informed. Luckily, she obtained an attorney who was able to get her house back.

BofA has 52,000 mortgage loans in Hawaii, according to Herkes. “And they bought all that crap from Countrywide and want to just dump it.” Herkes says these are the most important foreclose bills currently in the legislature: HB 1411 Omnibus reform bill; HB 894 Five-month moratorium; SB 651 Mandatory mediation; and SB 652 Implements task force recommendations.

An Ethics Violation?

Attorney Marvin S.C. Dang, a former state legislator, served as vice chair of the state’s Mortgage Foreclosure Taskforce. He is also a lobbyist for BofA, but did not publicly disclose this fact when he was asked to serve on the task force. He recently sent letters to BofA execs to announce that he is lobbying the state House and Senate on behalf of the bank. A few weeks ago, Dang invited BofA’s Senior Vice President and Government Relations David R. Swartley to Hawaii to speak personally to each legislator. Dang accompanied Swartley to all 76 offices, while Swartley passed out cards listing his hot line. To date, no hot line exists for borrowers to speak with a BofA executive.

A call to this supposedly secret number led to a conversation in which the person answering the phone refused to identify the company or her name. She told me the line was reserved for people who work in the nation’s 50 district attorney offices, but she offered to connect me with a media person. (A check with Hawaii’s AG’s office neither confirmed nor denied this information.)


Correction: The Foreclosure Fiasco

In the April 20, 2011 article “The Foreclosure Fiasco,” we erroneously stated that 1) attorney Marvin S.C. Dang, who served as vice chair of the Hawaii Mortgage Foreclosure Task Force, was a lobbyist for Bank of America but did not publicly disclose this fact when he was asked to serve on the task force and that 2) Dang sent letters to BofA execs to announce he is lobbying the House and Senate for the bank.

Dang says he is the lobbyist for the Hawaii Financial Services Association, a local trade association for local and mainland lenders, and became involved with BofA on foreclosure issues in February, seven months after he became vice chair of the task force.

We apologize for these errors.

Dang’s March 1 letter to state Legislators announced that BofA was a new member of HFSA and that David Swartley, BofA’s senior vice president & Manager for state and local government relations, would be stopping by the capitol that week. Dang accompanied Swartley to all 76 legislative offices while Swartley passed out cards listing his toll-free number to be used exclusively by public officials to contact him directly in regards to concerns about the bank. We have asked the Hawaii State Ethics Commission to clarify the appropriateness of this action under the State Ethics Code, Chapter 84, (HRS).


Big Press Campaign

This week, BofA is sending a crew of a dozen people to Hawaii to deal with all the troubled loans, according to Herkes. They will start on Oahu and then travel to the Neighbor Islands. “We are requiring direct contact with the lender and the borrower,” adds Herkes. The families have four days to get all their papers together and meet with a housing counselor. The team will see four families a day and remain in the Islands for eight weeks.

“I believe they want to make as big a splash as possible on the first day of the conference committee for all the foreclosure legislation,” says Kim Harman, policy director for FACE. “BofA has been working our legislature pretty hard, so they must think they can influence pending state legislation.”

Mortgage Meltdown

The depth of the foreclosure mess was revealed when BofA put its foreclosures on hold in 23 states because of concerns that the bank had used fraudulent affidavits to support kicking homeowners out of their homes. One BofA employee said she had signed nearly 8,000 foreclosure documents in a month without reviewing them. “Over the last three months, FACE has investigated stories of Hawaii families seeking load modifications and found a disturbing pattern on the part of mainland lenders and mortgage servicers,” says FACE State President Rev. Alan Mark, “The foreclosures have affected every neighborhood in the state.”

Jenny, a former government regulator, says the housing crisis was driven by greed and speculation. “Banks have to follow certain regulations when they make loans. The problem was that nobody was looking over their shoulders to see if they were doing the right thing. All the regulators were looking at the banks’ stream of income when they were supposed to look at the banks’ mortgage subsidiary’s assets. They were essentially unregulated.”

According to the Progressive Democrats of Hawaii co-chairs Josh Frost and Rachel Orange: “At times, it feels like federal policies have been more concerned with protecting the major banks and ‘making them whole,’ than in helping homeowners salvage their investments, keep them in their homes or helping them to get an equitable resolution if they need to walk away from those homes.”

Some of Hawaii’s homeless say living on the beach is their preferred lifestyle, choosing to call themselves “houseless” rather than “homeless.” But for many of the 52,000 local Bank of America mortgage holders who have lost–or could lose–their houses due to the bank’s nationwide frenzy of mortgage foreclosures, the possibility of being houseless is terrifying.