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New York Fed Investigating Whistle-Blower's Allegation on Litton Loan Modifications

June 6, 2011

As San Bernardino County foreclosure defense attorneys, we work every day with homeowners who have been denied loan modifications for no good reason and sometimes feel as if their loan servicer has been making decisions arbitrarily. So we were extremely interested to read about a loan servicer that really has been accused of denying loan modifications arbitrarily: Litton Loan, a division of Goldman Sachs. According to a May 26 article from HousingWire, an anonymous employee sent a letter to the Financial Times accusing Litton of simply blanket-denying loan modifications to deal with a big backlog of applications. The Financial Times turned over the letter to the New York Federal Reserve Bank, which is now investigating the allegations.

Litton Loan services $46.1 billion worth of American mortgages. According to the letter, the anonymous writer was responsible for reviewing loans for modifications under HAMP -- but the writer alleges that Litton did not give those applications fair scrutiny. Instead, the letter charged, Litton intentionally denied modifications by miscalculating the borrowers' income; or claiming paperwork was missing when Litton had it in the system. Litton was acquired by Goldman Sachs in 2007 from a subprime mortgage investor to help Goldman in its mortgage investments. That plan was shattered by the housing crisis, and Goldman announced plans to sell it in late 2010, after the "robo-signing" scandal raised questions about Litton's processes for handling foreclosures. Reports from June 3 said Ocwen Financial Corp. was in talks to buy Litton.

We will be very interested to see how this investigation progresses. The behaviors alleged by the anonymous whistle-blower match many of the complaints we hear as Costa Mesa foreclosure defense lawyers. Paperwork that's lost repeatedly, denials for no apparent reason and miscalculations of the borrower's income are all common complaints. In many cases, these are solid grounds for a lawsuit against the servicer. However, we don't just hear these complaints about Litton -- they come from borrowers who use a variety of major loan servicers. If these allegations are substantiated, it would be interesting to see if others come forward with similar allegations against major loan servicers, who include Bank of America and Chase.

At Howard Law PC, we represent clients who are fighting their loan servicers or lenders for a fair chance at a loan modification. Under California law, lenders may not write loans that take unfair advantage of borrowers, and they may not foreclose without, among other things, discussing alternatives to foreclosure. Under HAMP rules, loan modifications may not be denied if the borrower meets all of the standards for a modification. Nonetheless, our Torrance foreclosure defense attorneys hear every day from clients who are struggling with these and related unfair behaviors, even as foreclosure sales draw near. By filing a lawsuit, we can stop a foreclosure sale very quickly and bring your case before a judge with no financial interest in the foreclosure.

If you've called and called your loan servicer for help with a loan workout, only to get excuses, delays and mixed messages, you should call Howard Law instead to talk about your legal options and your rights. For a free case evaluation, send us a message through our website or call toll-free at 1-800-872-5925.