Fannie Mae and Freddie Mac have complete power to address a large part of the national foreclosure problem by demanding that the mortgage servicers and law firms they hire to execute foreclosures do so correctly and fairly.
At this foreclosure defense law firm, we see a large number of the same abuses discussed at the December 1, 2010, Senate Banking Committee hearing in our Maryland, Virginia and DC cases.
Among the worst abuses, the practice of putting homeowners in a dual-track:
Mortgage servicers (the bank departments administering loans from whom homeowners get all correspondence and bills on behalf of the mortgage holders) maintain discussions with homeowners about a modification while at the same they have directed attorneys to take steps toward a foreclosure. This is not disclosed to the loan modification applicant.
It’s quite a surprise to homeowners who think they are negotiating a resolution when they get notice that the house has been sold and they need to move out! Had the homeowner known he could have taken steps such as initiating formal legal process to protect himself. This deceit happens all the time. I have written about how lenders abuse homeowner seeking modification in this blog and I warn everyone with whom I meet. This is how the Freddie Mac official responds, according to a Washington Post article on the hearing:
Meanwhile, Bisenius defended the dual-track approach to mortgage modification and foreclosure embraced by many of its servicers: Attempt to modify a loan to make it more affordable, but also prepare to foreclose if that is not possible.
“While we believe that borrowers who already are under significant stress arising from their financial situations should not be subjected to needless confusion, we also believe that unnecessary delays in an already lengthy foreclosure process would be counterproductive,” Bisenius said.
He noted that foreclosures usually last well over a year, and sometimes close to two. “The dual-track process allows for a delicate balance between the need to minimize losses and protect communities while protecting borrower interests. Lengthy foreclosure delays impose substantial losses on Freddie Mac and taxpayers – by some estimates, $30 to 40 per day and $10,000 to $15,000 per year for every defaulted loan,” Bisenius said. “These costs do not include additional losses resulting from depreciation in the value of the property.”
That’s hardly the case in the Washington, DC area. All foreclosures in Maryland, Virginia and DC are non-judicial — that is, nothing is presented by the lender to a judge before the foreclosure is initiated to prove the lender’s right to foreclose such as a valid note, deed of trust, or the existence of an arrearage. (In Maryland, foreclosures are “docketed” with the court, but nothing is presented to the court except an accounting afterwards for “ratification” of the foreclosure.)
Under Virginia law, a foreclosure can proceed in as little as three weeks. Maryland foreclosures can proceed quickly, but average about six months. DC foreclosures average a couple of months from start to finish.
Other servicer abuses complained about at the hearing, and which we see in this law office:
- Employees of mortgage servicers telling homeowners to stop paying or make a reduced payment to get a modification, without disclosing to them that there is NO legally enforceable agreement to forbear, and that the lender will still hold them default and eventually move the case to foreclosure. I have written about the dangers of lenders telling homeowners NOT to pay before in this blog.
- While the servicer continues to accept reduced payments, they pile on late fees and default charges which the servicer, at foreclosure, collects at 100%, generally right off the top of the foreclosure proceeds.
Most galling is the fact that Fannie Mae and Freddie Mac were also bailed out by the taxpayers, and salaries for employees at both firms are generally above the norm even for the Washington, DC area.
Homeowners and advocates can only hope lawmakers will force Fannie and Freddie to treat the public fairly.