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The New York Post: A House of Loan Horrors

October 24, 20104:00am

Source: New York Post

Last month, banks foreclosed on more than 100,000 homes — yet in more and more of these cases, the homeowners have decided to battle what they feel is an unfair, perhaps fraudulent, process. Lisa and Carmine Spinelli of Easton, Conn., are one of the fighters.

The Spinellis got a $325,000, 15-year mortgage in 2004. The loan was bought by Countrywide Financial the following year. They own their own wholesale and retail bakery business in Stamford.

In late 2008, while starting a new business, the Spinellis ran into money problems and contacted the Bank of America — which agreed to purchase Countrywide in January 2008 for $4.1 billion in stock — to see if they could work with them on refinancing their mortgage.

According to Lisa Spinelli, the bank told her that the couple’s credit was too good to be put into an assistance program such as HAMP (Home Affordable Refinance Program). Bizarrely, they would have to be 90 days delinquent to qualify.

According to HAMP documents, this is not necessary. All you need to be eligible is “if they [the mortgagee] reasonably believe they are very likely to default on their mortgage soon (often referred to by loan servicers as ‘imminent default’).”

“So the bank started the process with its first strike,” said Linda Tirelli, a foreclosure and bankruptcy lawyer in White Plains who has seen victims in all the different facets of the foreclosure picture.

After holding back their mortgage payments beginning in January 2009, the Spinellis were then able to request the modification.

Working with a Connecticut state foreclosure mediator they were told to expect the paperwork to arrive within a week. When no paperwork showed up, the Spinellis called the state mediator and were told they did not qualify for a modification because they had too much credit-card debt.

BofA then filed for foreclosure in June 2009.

In August, the Spinellis did receive a modification offer from BofA. But according to Tirelli, the loan had too many strings attached.

“The Spinellis had three days to accept the offer. If they accepted the offer, they were signing away many of their legal rights and giving BofA the right to tack on additional fees,” said Tirelli.

“This was strike two,” she added.

A BofA spokesperson said, “In July, the Spinellis were offered a three month repay trial to permanent modification (also called special forbearance agreement). From our understanding, the customers were pleased with this offer but unfortunately, they did not sign the agreement or make the pre-arranged payments.”

After not signing the modification, Lisa Spinelli did a title search of the home. It turned out that Fannie Mae owned the mortgage on their home and that BofA was the servicer of the loan at the time of the foreclosure filing.

“Nowhere has BofA disclosed the fact they are a servicer and this loan is owned by Fannie Mae,” says Tirelli. “That’s strike three.”

The servicer of a mortgages does not have standing in court to file a foreclosure unless the owner of the note issues an assignment to the servicer.

Tirelli said the case is currently with the state foreclosure mediator’s office and that she has contacted Connecticut Attorney General Richard Blumenthal’s office on the matter.

And on it goes. Thousands of homeowners have lost their property to the same circumstances because they did not know to ask questions and challenge the bank’s assertions.

Lisa Spinelli knows she owes the bank, but says, “All I want is a fair agreement so I can keep my house.”

However she also adds, “It is cheaper to hire a lawyer, than make a loan payment that is just paying off bank fees and not your principle.”

You can call this aspect of the problem Foreclosure 2.0.

It became clear this week that the country’s mortgage-meltdown monster had morphed into an even more toxic form — as shares of Bank of America, the country’s No. 1 bank, skidded nearly 8 percent over three days on fears it might have to eat $47 billion in allegedly bad mortgages.

The decline, which wiped out $10 billion in shareholder value, was even more dramatic as rivals JPMorgan Chase, Citigroup, Wells Fargo and others managed to ride the overall market rally to higher ground.

The news that drove BofA down? It was urged by mortgage-backed security investors — Pimco, Blackrock and the New York Fed — to repurchase $47 billion in loans written by its Countrywide Financial unit.

It seems the mortgages might be a bit toxic.

In the maddening rush to write mortgages during the housing-boom years, mortgage brokers and lenders either did not confirm the information on loan applications or lied about the data in order to move loans quickly toward securitization, to feed the mortgage-backed securities appetite of Wall Street banks with new product to sell.

In the past year or so, the foreclosure plague crisscrossing the country dealt mainly with robo-signers, fraudclosure and notary fraud that could have affected as many as 102,134 properties that were foreclosed upon last month, according to RealtyTrac. There were 347,420 foreclosure court filings in September, 3 percent higher than August and 1 percent higher than a year earlier.

This questionable origination process could expose tens of trillions of dollars worth of mortgages to investor scrutiny. This is what BofA is dealing with.

In addition banks are being forced to deal with:

* Fraudulent paperwork: Banks and servicers facing a glut of foreclosures due to the weak economy and extended, nearly 10 percent unemployment levels, attempted to streamline the foreclosure process by hiring outside firms to handle the workload.

These firms — to enhance profits — turned to robo-signers, paper-mill law firms, to process the foreclosures. State courts trying to stay ahead of the mounting foreclosure caseload rubber stamped many of these actions, until some judges began to take a closer look at the filings and asked questions about the veracity of the filings and whether the plaintiff attorneys prosecuting the cases knew about them.

* HAMP: It is alleged in a whistleblower lawsuit from a former Fannie Mae consultant that troubled borrowers were placed in the federal government’s homeowner assistance program with the express purpose, by Fannie, of collecting funds from the feds to help stem the tide of foreclosures.

The government is also on the hook, with Fannie Mae’s exposure estimated at $3.3 trillion and Freddie Mac having $716 billion in mortgage securities as of August 31.


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