As San Bernardino foreclosure defense attorneys, we were very interested to read about another financial scandal that could seriously harm mortgage lenders. As the Wall Street Journal's Real Time Economics blog reported Dec. 1, the Federal Reserve is concerned that major banks don't have enough money to cover "putbacks" from purchasers of securitized mortgages. In essence, a putback cancels the purchase of a security because of misrepresentations or fraud made at the time of the purchase. In the case of securitized mortgages, investors could claim that the bank didn't conform to the standards it said it would when writing the loan, or that there were misrepresentations on the loan application. People who invested in those loans would be legally allowed to ask for their money back -- and that would stick banks with the bill.
The problem is not completely unlike the "robo-signing" issues that arose in late September, or the still-unfolding issue of whether Countrywide Financial systematically violated state lending laws. Like these other issues, putbacks rely on problems with paperwork. However, putbacks are actions by investors in mortgage-backed securities, not by troubled mortgage borrowers, which means the potentially wronged parties are far more likely to have the financial resources to take their cases to court. Federal Reserve Governor Daniel Tarullo told the Senate that banks' potential exposure to losses from putbacks exceeds their exposure from robo-signing. A preliminary review by the Fed found widespread problems with legal compliance, risk management and quality control at so many major lenders that Tarullo said it could be an industry-wide issue. Some investors have already sued, claiming violations of federal law in loan underwriting. If it becomes a trend, banks could be at serious financial or legal risk.
At first glance, this seems like a dispute between banks and investors, not banks and mortgage borrowers. So why does this matter to mortgage borrowers and Chino Hills foreclosure defense lawyers like us? Because the same fraud or carelessness that could cancel the investments could also cancel the underlying mortgages. If courts start closely examining the safety and legality of mortgage loan underwriting, they could expose problems that affects the mortgages as well. For example, if investors prove that a mortgage was issued despite known fraud on the loan application, the borrower for the underlying mortgage may be a victim of predatory lending. That borrower would then be able to sue to cancel or restructure the predatory loan. The suits could also expose systematic paperwork problems at lenders similar to the robo-signing or note ownership problems, which could create yet another reason to challenge foreclosures.
Howard Law PC has represented clients facing unfair foreclosures throughout the mortgage crisis. In that time, we've spoken to hundreds of homeowners frustrated by lenders' bureaucratic problems, contradictory behavior, illegal actions and outright lies about loan modifications and related issues. We believe mortgage lenders and servicers aren't granting loan workouts, or putting many resources into them, because they believe they can make more money by stretching out the foreclosure process and ultimately foreclosing. Our Vista foreclosure attorneys help clients fight back against this misleading or illegal behavior, through aggressive negotiation or, when necessary, litigation.
If you are in danger of default or foreclosure and your lender is actively making things worse, you should contact Howard Law for a free consultation. To set one up, call us toll-free at 1-800-872-5925 or send us a message online today.