Wells Fargo Ordered by Judge to Review Homeowner for a Mod
Wells Fargo Ordered by Judge to Review Homeowner for a Modification
Josh Kosman of the New York Post recently wrote an article entitled, “Judge deals Wells Fargo another blow in mortgage scandal.” At a Ch. 13 status conference held last week, Judge Drain ruled that Wells Fargo must fairly review a Nyack homeowner, who may have potentially been denied a loan modification due to bank math errors and bias in the review process. https://nypost.com/2018/09/13/judge-deals-wells-fargo-another-blow-in-mortgage-scandal/?utm_campaign=iosapp&utm_source=message_app
Nyack, NY homeowner Mia Derosa, and her attorney Linda Tirelli, Esq. (a graduate of Max Gardner’s Bankruptcy Bootcamp) argued that the denial of her loan modification was mathematically flawed, when she can clearly afford the mortgage. Her lawyer noted that the mathematically aberrant denial casts doubt on Wells Fargo’s second quarter report that a “computer glitch” led to improper denials of only 625 affected loans. Tirelli suggested that Wells Fargo’s mistakes and miscalculations are far more rampant and widespread.
Tirelli made the following statement to the court in response to Wells Fargo objecting to further modification review – and her voiced frustration will resonate with anyone who has tried to help a beleaguered homeowner to get a loan modification or any homeowner who has lived through the process:
“How is it that Wells Fargo claims that only 625 affected loans were discovered between 2010 and 2015 – a five-year period when this very court witnessed and experienced standing room only crowds praying and begging and fighting for loan modifications? Is this 625 a reliable number – how do we know? Should we now trust Wells Fargo? The Debtor avers that finding a mere 625 affected loans, out of the hundreds of thousands, if not millions of loan modifications, processed and denied by Wells Fargo is akin to finding needle in a haystack.” (Emphasis added).
See homeowner’s full response here.
DeRosa had previously received a HAMP loan modification in 2011 due to the fact that her Pick-a-Pay Loan with World Savings Bank, FSB (now Wells Fargo) was a negatively amortizing subprime loan. However, DeRosa got into trouble in 2016 and defaulted again, but subsequently recovered, and now earns over $11,000 per month – more than enough to afford a loan modification in the range of $2,500—to—$3,000 per month.
DeRosa is a real estate investor, which is how she earns her income, and has a $0 mortgage balance (i.e. has paid off the mortgage entirely) on a number of homes she has bought and currently rents out to support herself. While one might think that this would show her creditworthiness, Wells Fargo apparently views the fact she has assets to her name as a negative, feels she should liquidate them to pay Wells Fargo – even though these investments are the way she earns a living and pays her bills – and is making its mortgage modification decision for reasons unrelated to the modification math or investor guidelines, but which appear to be biased and discriminatory toward her situation vis-à-vis other applicants. She is making the case that she is a creditworthy woman who is entitled to reasonable modification review.
Josh Kosman relayed DeRosa’s lawyer’s briefing on what happened at the most recent loss mitigation hearing in which, “Drain asked Wells this week why it was not accepting Derosa’s loan modification application, considering that Derosa was earning $11,000 a month, enough to pay the current mortgage and some of the back money she owes, Tirelli said.”
DeRosa’s loan was originally taken out in 2006 at the height of the housing market, and was sold to Wachovia Bank, NA in 2009, shortly after the collapse. Wachovia Bank, NA, DeRosa maintains, only had servicing rights at the time and a proper transfer from World Savings Bank, FSB never occurred. Through FDIC receivership, Wachovia Bank, NA was absorbed by Wells Fargo on Nov. 1, 2009. Wachovia Bank, NA was simultaneously renamed North Las Vegas Branch. What does all of that matter?
In a prior case, with a similar loan that also ended up being scrutinized in bankruptcy court in Judge Drain’s courtroom, Wells Fargo was found to have forged the signature of Texas homeowner Cynthia Carssow-Franklin, and ultimately paid $175,000 for legal costs and agreed not to enforce the mortgage.
Even though DeRosa accepted a loan modification through HAMP, that does not mean that she does not, at least arguably, have some rights to dispute the legitimacy of Wells Fargo’s standing to enforce the mortgage she originally entered into with a different bank at the height of the housing crisis. She is doing just that by disputing the bank’s proof of claim.
Chapter 13 Loss Mitigation Procedures in the Southern District of New York
Normally, in a Ch. 13 plan, you list all of your delinquent debts and propose a plan to pay the current amounts as they become due plus the arrears – over a period of no more than 60 months. In the ordinary course, a homeowner trying to restructure a mortgage would not be able to show the financial wherewithal to prove out a feasible plan if they are already struggling just to pay their mortgage as sit comes due. The Ch. 13 plan is like the kind of “reinstatement plan” that some mortgage lenders offer to cure a default.
However, in the Southern District of New York Bankruptcy Court and an increasing number of other courts, there is a “Loss Mitigation Track,” where homeowners can get a second review of their mortgage modification – which if granted – would cause the mortgage to be handled outside the Ch. 13 Plan, which would cover everything else. The DeRosa’s utilized this procedure.
Wells Fargo is Doubling Down on Prior Abuses and Back in RMBS
The next housing bubble is on the horizon. But, Wells Fargo is still up to its old tricks of refusing to modify loans for eligible borrowers duped in the 2008 housing crisis. Worse yet, Wells Fargo is returning to its pre-recession ways and packaging pools of tainted residential mortgage backed securities (“RMBS”) for sale to investors.
As we discussed in a prior Newsletter article, Wells Fargo just concluded a 10-year old Justice Department investigation into the bank’s lending practices that culminated in Wells Fargo settling by agreeing to pay a $2.09 billion penalty for misleading investors about the quality of loans, which is what precipitated the 2008 mortgage crisis and caused billions of dollars of harm to U.S. homeowners and families.
One snippet from the Justice Department’s Aug. 1, 2018 press release reads: “’Abuses in the mortgage-backed securities industry led to a financial crisis that devastated millions of Americans,’ said Acting U.S. Attorney for the Northern District of California, Alex G. Tse. ‘Today’s agreement holds Wells Fargo responsible for originating and selling tens of thousands of loans that were packaged into securities and subsequently defaulted. Our office is steadfast in pursuing those who engage in wrongful conduct that hurts the public.’” Wells Fargo only waited about a month from the conclusion of that investigation to begin packaging loans for sale again!
What does this mean? It shows that Wells Fargo prefers the business model of making or buying up loans and flipping them to investors, which means it needs to have loans – good, bad or indifferent – since loans are its stock-in-trade.
Wells Fargo’s strategy is unknown, but insiders told the New York Post that the bank is looking to buy-up loans originated by non-bank lenders like Quicken, who have made federally subsidized FHA or Ginnie Mae loans to low-income, over-levered and first-time home buyers – similar in structure to the kind of loans that caused the 2007 and 2008 housing crisis. If the federal government is on the hook for rubber-stamping the applications of these borrowers and has subsidized the loans, they are more likely to get involved and be forced to offer relief if a large proportion of these loans go into default. Thus, Wells Fargo’s strategy appears to follow some of the same patterns from 2008-2009.
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