U.S. Sues Wells Fargo, Alleging Mortgage Deceit

United States prosecutors sued Wells Fargo on Tuesday, accusing it of lying about the quality of the mortgages it handled under a federal housing program, the latest in a series of lawsuits related to banks’ lending practices during the housing boom.

In a lawsuit filed in Federal District Court in Manhattan, the prosecutors accused Wells Fargo, the country’s largest originator of home loans, of defrauding the government for more than a decade. The bank recklessly issued mortgages and then made false certifications about their condition to the Federal Housing Authority, a government agency that insured them, the complaint said.

The loans were not eligible for the government insurance, according to the lawsuit, and when they defaulted, the F.H.A. was obligated to cover the losses. The Justice Department is seeking hundreds of millions of dollars in damages. “Yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance,” Preet S. Bharara, the United States attorney in Manhattan, whose office filed the lawsuit, said in a statement.

Wells Fargo denied the accusations, saying that it had acted in good faith and in compliance with the F.H.A. program.

“Wells Fargo is the leading F.H.A. lender and has acted as a prudent and responsible lender, with F.H.A. delinquency rates that have been as low as half the industry average,” the bank said in a statement. “The bank will present facts to vigorously defend itself against this action.”

The action against Wells Fargo comes after a slew of civil lawsuits filed by the government against large banks related to their lending practices. A number of the banks have settled the cases brought against them, including Deutsche Bank, which paid more than $200 million to resolve civil fraud charges; Citigroup’s Citimortgage unit, which settled claims for $158 million; and Bank of America, in a settlement connected to its Countrywide Financial business, for $1 billion.

To bring these cases, the government has used an obscure law called the Financial Institutions Reform, Recover, and Enforcement Act. The law, passed after the saving-and-loans scandals in the late 1980s, gives the government broad authority to bring civil claims and seek big financial penalties against federally insured banks.

That law also has a lower standard of proof than criminal business fraud statutes.

Despite these civil actions against the large banks, the Justice Department has been criticized for bringing too few criminal cases against banks and their executives tied to their conduct during the housing boom and financial crisis. Federal prosecutors have said these cases have been difficult to build because investigations have failed to show an intent to defraud, which is required for proving criminal activity.

The complaint depicts a mortgage factory inside Wells Fargo that was singularly focused on increasing the bank’s loan volumes — and profits — while ignoring the quality of the loans.

“Management’s actions included hiring temporary staff to churn out and approve an ever-increasing quantity of F.H.A. loans, failing to provide its inexperienced staff with proper training, paying improper bonuses to its underwriters to incentivize them to approve as many F.H.A. loans as possible, and applying pressure on loan officers and underwriters to originate and approve more and more F.H.A. loans as quickly as possible,” the lawsuit said.

Wells Fargo knew about the vast number of deficient loans but concealed them from the F.H.A., according to the government’s complaint.

The case was assigned to Judge Jesse M. Furman, one of the newest federal judges in Manhattan. Mr. Furman, 40, a former federal prosecutor, assumed a seat on the bench in February 2012.

By PETER LATTMAN

The New York Times

For seniors, foreclosure can destroy the golden years

MIAMI -- Marie Ginise thought she and her husband, Joseph, had prepared well for retirement. They worked hard to build up their asphalt driveway business, saved a few pennies and eventually moved to Florida from Connecticut to enjoy their golden years.

But when Joseph got sick and died, Marie, 75, realized she could not afford the two-bedroom manufactured home the couple had bought in Deerfield Beach, Fla., in 2005. Now, instead of enjoying shuffleboard and card games in her senior community, she's fighting off foreclosure.

"I cry every night when I go to bed," Ginise said. "You work for something your whole life and then it doesn't turn out like that at all. I don't know if I'm here or there."

Marie Ginese is among the older Americans who owe more on their homes than they're worth after the real estate crash - but with less time to make up the financial loss than those who are younger. An AARP report released this summer, "Nightmare on Main Street: Older Americans and the Mortgage Market Crisis," revealed that:

-About 3.5 million loans held by people over 50 (or 16 percent of all loans for that group) were underwater as of December 2011.

-The percentage of seriously delinquent mortgage loans increased from 1.1 percent in 2007 to 6 percent in 2011 for people 50 and older.

-The foreclosure rate for people 50 and older also increased, from 0.3 percent in 2007 to 2.9 percent in 2011.

"It's like the end of the American Dream for them," said Gladys Gerson, a supervising attorney for Coast to Coast Legal Aid of South Florida. "They're very embarrassed that they can't maintain their own home."

Max Rothman, president of the Alliance for Aging in Miami, said he is seeing "more older folks calling in about various issues relating to financial insecurities. It's a symptom of the times."

Older Americans are struggling to make ends meet on nest eggs earning paltry returns, but the underlying factors of the mortgage crisis began long before The Great Recession. As housing prices soared, older homeowners took home equity loans and second mortgages on their houses, just as their younger counterparts did - but with less time to weather the financial storm if the monthly payment became unaffordable.

"If you're 65-plus, it's not like you can take a second job to make the payments," said Debra Whitman, AARP's executive vice president for policy. "Your income just doesn't change much. You have a lot fewer options."

The AARP report noted that older Americans are carrying more mortgage debt than ever before. This spells trouble because home equity has often been used to help pay for medical bills or supplement fixed incomes later in life.

Gerson, of Coast to Coast Legal Aid, which represents low- and moderate-income Broward County, Fla., residents, is defending Marie Ginise in foreclosure proceedings. Gerson said there are hundreds of seniors like Ginise who are behind on their mortgage payments - with no hope of catching up. "They get further and further behind."

The hardest hit: low- and middle-income seniors. According to AARP, older middle-class borrowers with incomes ranging from $50,000 to $124,999 accounted for 53 percent of foreclosures in 2011. Borrowers with incomes below $50,000 made up 32 percent of all foreclosures in that age group.

"There are limited things they can do" in the case of a foreclosure, Gerson said. "If they're lucky, maybe they move in with a relative or rent a room somewhere. But most fear that they're going to be stuck in some institution at the end of their years."

Though she's hopeful that the lender will reconsider the foreclosure, Ginise worries about where she will live if the lender refuses to modify her loan. She had already asked the company for a break when her husband got sick in 2007. At the time, the lender agreed to lower monthly payments but did not reduce the loan. When her husband died in May 2009, the lender demanded she pay what was owed over the two years of reduced payments. She couldn't afford the sum then, and she can't afford it now. Meanwhile, the 32-year-old manufactured home the couple bought for $125,000 seven years ago is worth just over $40,000 - if she can even sell it. "I'm making myself sick over this," she said.

Myriam Rodgers can relate. She and her then-husband downsized to a townhouse in West Kendall, Fla., in 2006. At the time, making the mortgage payments wasn't a problem. "We thought we were doing the right thing. We didn't want to have to take care of the yard and the pool," she said.

It didn't work out that way. After a divorce and the death of her mother, who helped with the mortgage, Rodgers negotiated a loan modification that allowed her to pay interest only - 2 percent during the first two years and then 4 percent over the next two years. In the fifth year, the negotiated terms required her to start paying principal and interest at 5.75 percent. As the fifth year approaches, she realizes she can't afford the payment on her Social Security and part-time job earnings.

The value of the home has dropped, too. The townhouse she bought for $300,000 is now worth about $180,000.

"I don't see a future with this house," said Rodgers, 66. "But where will I go?"

Marta L. Carreno, 70, managed to rent an apartment in June after the bank started foreclosure proceedings on her condo in Pembroke Pines, Fla. She was lucky to find a place. "I know the manager, so I got a break. If I didn't know anybody, I would have had a hard time," she said. "My credit isn't good."

Her dream retirement has turned into a nightmare, she added. The two-bedroom condo she bought in 2005 for $230,000 is worth less than half that now. Even before her husband, Miguel Angel, died in 2010, the couple had asked for a loan modification. Now without his pension or Social Security, there's no way she can afford to keep it. Instead of fighting the foreclosure, she has decided to let the bank take over her property.

"I live one day at a time," she said, her voice wavering with emotion. "I never thought I would end up this way. I've lost everything."

By ANA VECIANA-SUAREZ

The Miami Herald

According the The Palm Beach Post, a San Diego company bought 699 Florida foreclosures Thursday in a bulk deal with the Federal Housing Finance Agency that included $12.3 million in cash.

The sale to Pacifica Companies is the first in a new program aimed at reducing the so-called shadow inventory of foreclosed homes by offering blocks of properties to private investors. The investors are expected to hold the homes as rentals for an unrevealed period of time before they can be sold.

Florida had three tranches of homes, including 376 in Southeast Florida, which had been repossessed and were owned by federal mortgage backer Fannie Mae.

In addition to the $12.3 million in cash, Fannie Mae will receive 90 percent of the proceeds from the homes until it collects $49.3 million, according to a transaction summary released Monday. After that, Fannie Mae and Pacifica Companies will split the proceeds. Pacifica will also receive 20 percent of all gross rental income as a management fee for overseeing daily operations of the rentals. The estimated transaction value for Fannie Mae is $78.1 million.

“The transaction is designed to promote home price stability, improve quality of housing stock and enhance rental inventory of markets by utilizing a rent-and-hold strategy,” according to the summary.

Nationwide, about 2,490 Fannie Mae-owned homes were being offered in bulk sales to investors. There were no acceptable bids on 541 Atlanta-area homes, according to a Federal Housing Finance Agency announcement Monday. The other properties are in Illinois, Arizona, California and Nevada.

A source familiar with the sales said the Atlanta homes will either be repackaged or sold individually through the government’s traditional foreclosure process or the website www.homepath.com.

The program has faced opposition from the National Realtors Association for taking away inventory in high-interest areas where the supply of homes has dried up.

“Florida is one of the hottest markets in the U.S. and there’s absolutely no reason to sell those homes in bulk,” said Dean Hooker, owner of Pompano Beach-based Southeast REO, which specializes in bank-owned homes. “People are knocking down the doors for properties.”

In Palm Beach County, 6,788 single-family homes were on the market in July, 43 percent fewer than last year during the same time and 50 percent fewer than in 2010.

Statewide, there were 100,657 single-family homes for sale last month. That’s about a five-month supply and 41 percent below last year.

But others believe private investors are better equipped to handle the distressed properties.

“They are more capable of managing the properties, getting them in the right condition and putting them on the market for rent or sale,” Boca Raton-based Realtor Tim Kinzler said last month. “It’s about finding a balance.”

Pacifica Companies said it was not prepared to comment Monday. Founded in 1978, Pacifica is a real estate development firm that owns and manages hotels and housing communities in the U.S., Mexico and India.

By Kimberly Miller

The Palm Beach Post

Florida eases rules for mortgage aid

Florida's leading housing agency will more than double the amount of federal mortgage assistance it provides to unemployed homeowners who have fallen behind on their loan payments.

The state has basically loosened the purse strings on a federally funded foreclosure-prevention program that has so far benefited only a small percentage of the homeowners who have applied for help from the Hardest Hit Fund.

"We found that people were coming to the end of their benefits and they had been unable to secure a job to pull themselves up," said Len Tylka, chairman of Florida Housing Finance Corp. "They had good prospects and things were starting to turn around. They were just falling short. And we had gone for so long without really distributing the kind of money we wanted to distribute."

Until now, unemployed or underemployed homeowners who qualified could get only six months of mortgage help, totaling as much as $12,000, from the federal Hardest Hit Fund, which is administered in this state by the Florida Housing Finance Corp. But according to new guidelines released this week, recipients now will be able to receive help totaling $24,000 for an entire year.

Previously, struggling owners could also qualify for a one-time payment of $6,000 to make their mortgage current — as long as they found jobs and recovered from being underemployed, so that they could continue making payments on their own. Under the changes made public this week, those homeowners can now get as much as $25,000.

As of the beginning of June, Florida had received 28,556 applications from homeowners for Hardest Hit Fund assistance. About 5,700 were declared eligible for funds and about 2,000 homeowners actually received assistance — and most of those exhausted their benefits. Only about 225 Florida homeowners received the one-time boost to help them bring their mortgage up to date.

"People thought this was a real freebie handout, but the qualifications were stringent — and they need to be," said Tylka, a custom-home builder based in West Palm Beach. "We felt the need to be really careful, because this is taxpayers' money and not something to throw around. We are doing what we should be doing."

Still, Tylka said, the housing agency, though needing to remain strict about spending the funds, would like to assist more qualified applicants.

Until now, recipients could be no more than six months behind on their mortgage payments to qualify for the aid. But under the new rules, the lender holding the delinquent mortgage determines whether the homeowner should get the funds, regardless of how far behind the owner is on the loan payments.

The revised eligibility criteria and program benefits are available at flhardesthithelp.org.

When the program was about to debut last year, the Florida Housing Finance Corp. delayed a February launch when newly elected Gov. Rick Scott asked that the assistance for each qualified homeowner be cut from a proposed $35,000 over 18 months to just $12,000 over six months.

Other states have also been revisiting their rules to beef up the distribution of funds. Earlier this week in Nevada, for instance, that state announced it would allow applicants to own more than one home, though any assistance can be applied only to the mortgage on the primary residence. Nevada also loosened its income-documentation requirements, and people with a permanent financial hardship — such as retirement or long-term disability — can now participate.

The Nevada program, unlike Florida's, also includes a reduction in the loan's principal of as much as $100,000 if the company servicing the loan approves.

By Mary Shanklin, Orlando Sentinel

mshanklin@tribune.com or 407-420-5538

Florida leads the nation in percentage of homes in foreclosure

Florida retained its dubious distinction as the state with the highest percentage of homes in some stage of foreclosure, according to data released by CoreLogic Friday.

According to the data firm, Florida’s foreclosure inventory level declined 0.6 percentage points in May from a year earlier, with 11.9 percent of the state’s mortgaged homes mired in some stage of foreclosure. The state with the second highest level was New Jersey, with 6.6 percent; followed by Illinois, with 5.3 percent; New York with 5.0 percent; and Nevada with 4.9 percent.

About 1.4 million U.S. homes — 3.4 percent of all homes with a mortgage — were in some stage of foreclosure in May. That figure was flat with April and down from 1.5 million, or 3.5 percent, a year earlier, CoreLogic said.

The company said 92,405 foreclosures were completed in Florida over the 12 months ended with May 2012, compared with 819,327 homes nationwide.

Five states accounted for 48.8 percent of all completed foreclosures during the year ended in May: California, Florida, Michigan, Texas and Georgia, the company said.

Among the reasons for the state’s status as an epicenter of foreclosures: Florida was a magnet for speculation and mortgage fraud during the housing boom. Florida handles foreclosures in its courts, a process that typically takes longer than the administrative proceedings used in some states.

By Martha Brannigan The Miami Herald

Foreclosure rates, mortgage delinquency down in South Floridaregion

Foreclosure rates were down in each of South Florida’s counties, with Miami-Dade recording the largest percentage point decrease, according to a new CoreLogic report. The region is still recording a significantly higher rate, however, than the rest of the country, which had a rate of 3.41 percent in April, the report noted. In Miami-Dade, the foreclosure rate among outstanding loans was 17.43 percent in April, a decrease of 1.61 percentage points compared to the same time a year ago. Mortgage delinquency was also down: 24.35 percent of mortgage loans were 90 days or more delinquent compared to 26.43 percent, a decrease of 2.08 percentage points for April. Foreclosure rates in Broward for the month of April were at 13.86 percent, a decrease of .64 percentage points compared to the same time last year. Broward county also had 19.63 percent of its mortgage loans 90 days or more delinquent, a decline of 1.56 percentage points from last year. Finally, foreclosure rates on outstanding loans in Palm Beach were down to 12.37 percent in April, a decrease of .77 percent from the same time a year ago. As in the region’s other counties, Palm Beach recorded a smaller mortgage delinquency, with 17.63 percent of its mortgage loans at 90 or more days delinquent, a decline of 1.68 percent points. Oscar Pedro Musibay Reporter- South Florida Business Journal

Lien Stripping in Chapter 7 cases: what does it mean?

What Is Lien Stripping?

Lien stripping is a way of removing an underwater second mortgage on a house in a bankruptcy proceeding. Thus, if a house has two mortgages, and the market value of home is less than the first mortgage, the second mortgage is basically unsecured. In a bankruptcy proceeding, if the second mortgage is unsecured, it may be removed or stripped. Here is an example. Let’s say your home is currently worth $350,000. You have a first mortgage in the amount of $400,000, and a second mortgage in the amount of $50,000. The equity in your home does not secure the second mortgage (it covers $350,000 of the first mortgage). If you were to file for Chapter 13 bankruptcy, you could remove the entire second mortgage from your property. In most jurisdictions, lien stripping is allowed in Chapter 13 bankruptcy only. However, in In Re McNeal, Case No. 11-11352 (11th Cir., May 11, 2012), the 11th Circuit ruled that a debtor could strip off a home lien in Chapter 7 bankruptcy if no part of the lien is secured by the home’s equity (this is referred to as being “wholly unsecured”). It distinguished this situation from that discussed in the U.S. Supreme Court’s decision in Dewsnup v. Timm, which said you cannot strip off partially an unsecured lien in Chapter 7 bankruptcy. The ruling is good news for debtors living in the 11th Circuit’s jurisdiction (Florida, Georgia, and Alabama). If you have a mortgage or lien on your home that is wholly unsecured (and in this day and age of plummeting real estate values, many people do), you can enjoy the many advantages of Chapter 7 bankruptcy and still be able to strip off the junior lien. Once the lien is stripped off, it will become unsecured debt and be discharged at the end of your Chapter 7 bankruptcy.