Category: Real Estate

Foreclosures Hit a New Record in September

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I wonder how many of them were fraudulent or otherwise in error:

More than 100,000 U.S. homes were seized by lenders in September, a record number that probably will decline in coming months as major banks halt repossessions and review their foreclosure practices.

Lenders took over 102,134 properties last month, RealtyTrac Inc. said in a report today. That was the highest monthly tally since the company began tracking the data in 2005, surpassing the August record of 95,364. Foreclosure filings, including default and auction notices, rose 3 percent from the prior month to 347,420. One out of every 371 households received a notice.

I’m dubious of that the, “number that probably will decline,” as, “major banks halt repossessions and review their foreclosure practices.”

The banks will rush the moratorium, and in any case the moratorium will be very porous, because the banks are evil, so I expect the numbers to rise.

Your Bank Foreclosure Fraud Update

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Barry Ritholtz opens a can of whup ass on a clueless Diana Olick (@ 8:20 but watch the whole thing)

First, some perspective.

When I went to UMass, there was a murder case in the Amherst area. Someone bought some land, and they met on the property to exchange deed and money, and when he got the deed, he shot the seller, and took back the money.

At the time, I wondered how someone could be so stupid to think that this would still work.

The requirements of real estate transactions are such that, even if they never find the body or suspect you of murder, you won’t get the property, and it’s been that way since well before the Civil War, and possibly since before the Revolutionary War in Massachusetts.

That’s what all these transactions are about. They are the product of hundreds of years of social and legal development in order to ensure that someone does not just shoot you and take the deed.

But the bankers just want to shoot you and take the deed, so they take short cuts.

It’s why Barry Ritholtz calls the foreclosure fraud an assault on the basic property rights that make capitalism work in our society.

On a slightly less philosophical level, read Rortybomb’s Foreclosure Fraud for Dummies, Part One, Part Two, and Part 3. It’s clear, it’s concise, and it helps you understand just what is going on here with the fraudulent paperwork.

Additionally, Felix Salmon points out that the entire mortgage backed securities process was a deliberate fraud perpetrated on investors:

………

This is where things get positively evil. The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business. They weren’t going to hold on to the loans: they were just going to package them up and sell them on to some buy-side sucker.

In fact, the banks had an incentive to buy loans they knew were bad. Because when the loans proved to be bad, the banks could go back to the originator and get a discount on the amount of money they were paying for the pool. And the less money they paid for the pool, the more profit they could make when they turned it into mortgage bonds and sold it off to investors.

Now here’s the scandal: the investors were never informed of the results of Clayton’s test. The investment banks were perfectly happy to ask for a discount on the loans when they found out how badly-underwritten the loan pool was. But they didn’t pass that discount on to investors, who were kept in the dark about that fact.

………

In any case, it’s clear that the banks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool. That’s a lie of omission, and if I was one of the investors in one of these pools, I’d be inclined to sue for my money back. Prosecutors, too, are reportedly looking at these deals, and I can’t imagine they’ll like what they find.

The bank I talked to didn’t even attempt to excuse its behavior. It just said that Clayton’s taste-testing was being done by the bank — the buyer of the loan portfolio — rather than being done on behalf of bond investors. Well, yes. That’s the whole problem. The bank was essentially trading on inside information about the loan pool: buying it low (negotiating for a discount from the originator) and then selling it high to people who didn’t have that crucial information.

We should be looking at throwing these folks in jail. (read the whole thing)

In terms of shoes dropping, we now have Wells Fargo initiating a review of its foreclosures, and J.P. Morgan announcing in an investor call that it has stopped using MERS as its agents in foreclosures, which indicates that the big banks have real concerns about the legality of what is basically a database containing an incomplete record of scanned images:

JP Morgan Chase is a valued member of MERS. They currently have their correspondent loans registered on the MERS System. They do not, nor have they ever, registered their retail loans on the MERS System. As members of MERS and for loans registered on the MERS System, banks have the option of foreclosing in their own name, or MERS foreclosing for them.

Notwithstanding the people out there who are maintaining that this is just a bit of paperwork, one of the more savvy banks out there is clearly concerned.

Holy Crap

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LoL Cat approves of the investigation

State Attorney Generals have opened investigations into foreclosures.

No, really, I don’t mean that some of them, I mean all of them. All 50 state Attorneys Generals have opened investigation:

Top legal officers of all 50 states opened a joint investigation into home foreclosures, saying they will seek an immediate halt to any improper practices at banks and mortgage companies.

The states will conduct a coordinated inquiry into whether banks and loan servicers used false documents and signatures to justify hundreds of thousands of foreclosures. The group intends to establish independent monitoring, Iowa Attorney General Tom Miller, who is leading the probe, said today in a statement.

Great googly moogly!

Every single one of them.

Still, I expect that the net result of all this will be that there will be changes in the law to wallpaper this all over, and leading the charge for banker amnesty will be the White House.

Seriously, when you have Virginia State AG Ken “Misuse my office to abuse climate academics” Cuccinelli joining in on this, the political and legal landscape is pretty unambiguous.

While it is clear that the United States needs a functioning credit system, it does not need these banks, who f%$#ed our whole country (with out lube), but little Timmy Geithner* is determined to shield the people who broke the law and defrauded the their customers, because he* is completely unable to see behind the needs of the megabanks.

*But remember, the Cossacks work for the Czar.

Economics Update

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Small Business Hiring Down


The index still sucks wet farts from dead pigeons

H/t Calculated Risk for the graph pr0n

Oh, those invisible bond vigilantes are at again, with the 3-year Treasuries hitting a record low yield, 0.57%. (!)

Meanwhile the National Federation of Independent Business released its September survey of small business optimism, and the numbers remain grim, essentially flat, up from 88.8 to 89.0 from August, still highly contractionary, and the businesses are looking to lay off more workers.

We also saw 30-year mortgage rates continue to fall, but no one is borrowing, because non one is buying.

What Atrios Said:

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When Atrios notes that Barack Obama had nearly complete freedom in designing the Home Affordable Modification Program. The money was allocated largely without strings, and he was free to do anything short of throwing it from a helicopter, or as he so pithily notes, “This program did not require President Snowe to sign off.

Still, as David Dayen at FDL notes, the program was designed to benefit banks and loan servicers, and in fact paid for the sort of foreclosure abuses and law-breaking at the expense of home owners in peril.

This is more than a policy failure, it is a deliberate betrayal of the basic ideals of liberalism, and an embrace of Bush/Cheney style crony capitalism.

If anything comes from the current foreclosure implosion, it will be in spite of the Obama administration, not because of it.

And the Obama Administration’s Response to the Widespread Foreclosure Fraud by the Banks Is…

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To take the side of the big banks who are ignoring the law, with Obama proxy David Axelrod on Face the Nation saying that he hopes that this, “moves rapidly and that this gets unwound very, very quickly,” meaning allowing the banks to continue breaking the law, while an “administration source is saying that, “the administration was also seeking the servicers’ help with modifying the home loans of millions of borrowers to help them avoid foreclosure.”

The translation here is that because the administration was perpetrating a fraud on homeowners on behalf of the banks with the HAMP, they couldn’t be expected to pursue them when they broke the law.

The most egregious quote is from Federal Housing Administration Commissioner David Stevens:

We believe freezing foreclosures for all banks in all states, whether we have reason to believe them to be in error or not, is simply not the prudent step to take in this fragile housing market

(emphasis mine)

So, even if the banks broke the law, it is the victims who have to pay for this, because the banks own Barack Hussein Obama.

I would suggest that you read Yves Smith here, here, and here. She touches all the bases, and does it better than I am.

This is Getting Ugly Fast…

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Bank of America just suspended all foreclosures nationwide:

Bank of America Corp. imposed a nationwide moratorium on foreclosures and the sale of foreclosed homes after it came under intense pressure from a government-run housing-finance giant worried about documentation problems, people familiar with the situation said.

The bank called the halt as concern mounted from legislators and state prosecutors about procedures used by lenders to foreclose on homes. Many banks use so-called robo signers, employees who sign hundreds of documents a day, without carefully reviewing their contents, when foreclosing on homes. Critics say that could result in improper foreclosures.

Freddie Mac, the government-run mortgage-finance company that along with Fannie Mae owns many of the mortgages serviced by banks, pressed Bank of America to expand its search for problems with the foreclosure documentation process, said the people familiar with the situation.

A year ago, I wrote about potential issues with MERS, and I figured that there might be a fair number of cases out there, but the developments of the past few weeks, which, credit where credit is due, were spotted and covered with far more detail and intellect by Yves Smith than by me, have been remarkable.

This is all falling apart at a far greater speed than did the collapses of Bear Stearns and Lehman Brothers in 2008.

We had low key mainstream coverage on the brokerage houses’ issues in 2007, but the first mainstream coverage of the mortgage debacle is from just a month ago.

I would further note, that what is going on now has NOTHING to do with MERS, which remains the elephant in the room.

This feels like the first few pebbles hitting us from an avalanche.

Economics Update

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The paradox of thrift continues

It’s jobless Thursday, and initial unemployment claims fell out of the 450K-485K sweet spot that they have been bouncing around in for most of the year. Initial claims fell by 11,000 to 445,000, better than forecast, with the 4-week moving average falling by 3,000 to 455,750, with continuing claims falling by 48,000 to 4.46 million, and emergency claims rising by 257K to 5.14 million.

So fewer people are losing work, but hiring has not picked, so overall unemployment has increased (257K – 48K – 11K = 198K more people collecting unemployment).

We also had good news on the retail front, with better than expected same store retail sales in September, though I am unclear how consumers are financing this, since wages are stagnant, and consumer credit fell in August. (See graph pr0n)

I guess that it could be that people took out their credit cards more in September, and that the conflicting figures are simply the result of month to month changes.

In Europe, both the Bank of England and the ECB held rates steady, and the BoE says that it will continue quantitative easing (printing money).

ECB bank president Jean-Claude Trichet went further full inflation idiot in statement to the press, tut-tutting other central banks easing moves, andstating that the ECB will be, “gradually phase out its non-standard liquidity measures.”

Yes, we are seeing more pronouncements from the pain caucus about austerity, and the most vocal of these folks, Tory PM David Cameron, has apparently succeeded in pushing UK house prices down by 3.6% in the month of September.

Note that I am not talking about a -3.6% annual rate, I am talking about a £6,000 drop in home prices in just that month. (!)
UK home prices -3.6% in a month (!)

Veto

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The White House has announced that Barack Obama is vetoing HR 3808, the Interstate Recognition of Notarizations Act, which created a South Dakota/Delaware credit card processing style race to the bottom, only this time with forged foreclosure paperwork.

They are actually claiming that it is a pocket veto, but they are also sending it back to Congress with a notice of disapproval, since the Senate is entering into pro forma sessions, making that whole “pocket veto” thing dicey, as you can only pocket veto a bill when Congress is in recess.

This is his second veto, his first was when he vetoed a stop-gap spending bill when the regular bill came in on time, so this is his first real veto, the last one was about cleaning up the bookkeeping.

I would note that there is an important lesson here: If you hold the White House’s feet to the fire, the Obama administration will do the right thing ……… at least occasionally.

It’s why the Fanboi who maintain that it’s all eleventy dimensional chess are so wrong.

Were it not for the firestorm that erupted in the past 72 hours or so, largely due to the efforts of Ohio Secretary of State Jennifer Brunner, not only would have Obama not vetoed it, but he probably would likely have seen it as an innocuous bill streamlining interstate commerce.

If there is not vigorous criticism from liberals directed toward the White House, then they will continue to follow the path of least resistance and do the wrong thing when they can.

Full statement from the White Houseafter the break:

Why President Obama is Not Signing H.R. 3808
Posted by Dan Pfeiffer on October 07, 2010 at 01:15 PM EDT

Today, the White House announced that President Obama will not sign H.R. 3808, the Interstate Recognition of Notarizations Act of 2010, and will return the bill to the House of Representatives. The Interstate Recognition of Notarizations Act of 2010 was designed to remove impediments to interstate commerce. While we share this goal, we believe it is necessary to have further deliberations about the intended and unintended impact of this bill on consumer protections, including those for mortgages, before this bill can be finalized.

Notarizations are important for a large range of documents, including financial documents. As the President has made clear, consumer financial protections are incredibly important, and he has made this one of his top priorities, including signing into law the strongest consumer protections in history in the Wall Street Reform and Consumer Protection Act. That is why we need to think through the intended and unintended consequences of this bill on consumer protections, especially in light of the recent developments with mortgage processors.

The authors of this bill no doubt had the best intentions in mind when trying to remove impediments to interstate commerce. We will work with them and other leaders in Congress to explore the best ways to achieve this goal going forward.

Dan Pfeiffer is White House Communications Director

Your Bank Foreclosure Fraud Update

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Alan Grayson connects the dots

The lede here has to be that the Ohio Attorney General has sued GMAC mortgage:

This is big news. I just got off a conference call with Richard Cordray, the Attorney General for the state of Ohio. He has filed a lawsuit in Lucas County (Toledo) Common Pleas Court against GMAC Mortgage and their parent company Ally Financial, in a suit which names Jeffrey Stephan, the infamous “robo-signer” who signed off on up to 10,000 foreclosures a month across the country with affidavits, without verifying the information in the foreclosure documents. The lawsuit alleges fraud on the part of GMAC, along with violations of the Ohio Consumer Sales Practices Act, in filing false affidavits to mislead the courts in what they describe as “hundreds” of Ohio foreclosure cases. And, the Attorney General is treating every single false affidavit filed in an Ohio court as a separate violation, with a fine of up to $25,000, plus additional restitution for the homeowner of an unspecified amount.

This is a major lawsuit, and as Cordray told reporters, “We’re at the beginning of this, not the middle or end, and we’ll see where it leads us.” For context, approximately 450,000 foreclosures have been filed in Ohio since 2005, and potentially all of them used this robo-signing process. At the outer edge of this, if every one of those foreclosure processes is seen as a single case of fraud, the fines for the entire lending industry would add up to $11.25 BILLION dollars, just in the state of Ohio, not including the extra restitution for homeowners.

Cordray is also requesting information from the other major lenders, and has moved for an injunction against GMC, so it looks like this snowball once he gets to discovery.

Additionally, we have more calls for investigations and a moratorium, with both Nancy Pelosi,the Republican Texas Attorney General Greg Abbott, and North Carolina Attorney General Roy Cooper raising concerns. (talk about the odd couple)

Congress has weighed in, sort of, with an unexpected vote in the Senate a week ago approving an electronic notary law which, at least according to Jennifer Brunner, the Ohio Secretary of State, increases the possibility of fraud by creating a credit card style race to the bottom in terms of legal standards.

This growing furor may explain one of the peculiarities of the property meltdown, why banks seem to favor foreclosures over short sales even when the former generate more money.

I was unaware of the fact, but the standards for titles are much lower in the event of a foreclosure sale:

If you know anyone in real estate, you have bumped into countless frustrated agents who were attempting to complete shortsales for their selller clients only to have the whole thing fall apart at the last moment and then they later see the same property go into foreclosure for LESS than what the pre-approved shortsale buyer had offered just weeks earlier. Why, why, why, they moan. Why would a bank or mortgage servicer take less than what they could have had?

Well, now I wonder if one potential answer doesn’t have something to do with the types of deeds that get conveyed in a foreclosure and the tie to title insurance. In foreclosures in many states the buyer obtains a specialized deed – a special warranty deed, or a bargain and sale deed which make fewer guarantees for the buyer than the general warranty deed which is transferred in a normal sale(which I believe a short sale still falls under)

………

Is it possible that the foreclosers realized it was in their best interest to abort short sales in favor of foreclosures in order to pass the more limited deeds conveyed in a foreclosure? Did that decision come back to haunt them once the entire foreclosure process itself became highly suspect and publicized? (There is already a large title insurer who is denying title insurance on some foreclosures.)

Of course, the real elephant in the room is that anyone who has gotten a mortgage in the past decade* is just as likely to have problems with their title.

Foreclosures do not create title problems, foreclosures merely reveal those problems.

This is going to be uglier than David Boehner in a thong.

*Full disclosure, like me.

Foreclosure Fraud Hits Prime Time

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Yesterday, we’ve had a New York Times editorial, and today, Getchem Morgenson hits their front page with a survey of “flawed paperwork” issues:

As some of the nation’s largest lenders have conceded that their foreclosure procedures might have been improperly handled, lawsuits have revealed myriad missteps in crucial documents.

It’s good that this story has hit the big time, but Ms. Morgenson is wrong. There were no flawed documents, this was deliberate fraud, and the dead tree media is behind the curve on this.

We are seeing Fitch making noises about downgrading mortgage servicers over this issue, and on the regulatory front the Connecticut Attorney General has placed a 60 day moratorium on foreclosures, so that paperwork can be reviewed, and the Comptroller of the Currency has ordered 7 of the larges banks to review their paperwork.

On the private side of the business, we are seeing title insurance companies refusing to write policies on foreclosures for some of these banks.

In terms of the irregularities that we are seeing:

If you think that the housing crash is bad, just wait until millions of foreclosed homes hit the market, and no one is willing to buy them, because the title is not clear, than the sh%$ really hits the fan.

My earlier post on the subject is here.

Economics Update

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It’s jobless Thursday, and the initial jobless claims are out, initial claims down 16K to 453,000, and the less volatile 4 week moving average fell 6,250 to 458,000, a two month low, with continuing claims falling 83K to 4.46 million, and emergency claims falling 293K to 4.88 million.

Generally, the numbers are good, but still firmly in the 450-480K “sweet spot” where the numbers have lingered for most of this year.

Additionally, the revised GDP numbers have come out, and, for once, the numbers were revised up, from the truly anemic 1.6% annual rate releases last month to a (truly anemic) 1.7% annual rate.

In real estate, mortgage applications fell, despite falling rates, though the home purchase application index nosed up slightly.

In terms of the various indices out there, the Institute for Supply Management’s Chicago PMI rose in September, beating estimates.

Generally a good news day for this economy, this.

Economics Update

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I guess that the lede here is consumer confidence, which The Conference Board reports has fallen to a 7 month low. My personal guess is that the number is low because of the news reports that the recession has been over for over a year, which is so clearly contrary to what consumers see that it depresses them.

On the other hand, manufacturing jobs are reported to be growing strongly since the beginning of the year, which is a bit of a surprise.

In real estate, and, as Calculated Risk notes, the Case-Shiller numbers are out, and they are positively schizophrenic:

From the Financial Times: US home prices slip in July

From the WSJ: Home Prices Rose in July

From CNBC: US Home Prices Slipped In July And May Stabilize Near Lows

From MarketWatch: Home price growth slows in July

From HousingWire: S&P/Case-Shiller 20-city composite index rose 0.6% for July

Basically, some of them are reporting seasonally adjusted numbers, and some are reporting non-seasonally adjusted numbers. I would tend to go with the latter with July, since I think that the expiration of the tax credits probably overwhelmed any seasonal effects, and the composite 10 and the composite 20 numbers are a bit different, but basically it’s flat near the recent bottoms.

Finally, we have the various reports from the regional Federal reserve banks: Dallas, up slightly in September, Chicago down slightly in August, and Richmond down slightly in September.

Economics Update

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It’s jobless Thursday, and initial unemployment claims are up again, t0 465,000, with the 4-week moving average falling yp 463,250 from 466,500, continuing claims falling by 48,000 to 4.49 million, and emergency claims rising by 208,000 to 5.17 million.

All in all, not a pretty picture, and neither are home sales, notwithstanding the press noting how much better August was than July, because up 7.6% from July means less than down 19% from August 2009.

In the business world, Blockbuster video filed for bankruptcy, which is not a surprise, it’s been expected for months, but it’s still the end of an era.

Economics (Real Estate) Update

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Fasten your seat belts……it’s going to be a bumpy night!

Really, it’s a real estate news update today, with home prices dropping for the 2nd straight month in July, as did Moody’s commercial property price index, and, despite historically low rates, home loan applications fell again, showing that the current housing market is weakening following the expiration of the tax credits.

Additionally, we have the American Institute of Architects’ Architecture Billings Index continuing to show contraction, which indicates that prospects in the next 6-12 months are not great either.

It’s not all bad news though, as August housing starts rose sharply over the previous month, though as the official census figures show, this is just a anemic 2% year over year gain. (PDF)

OK, Time to Freak Out

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A few days ago, Yves Smith noted that Wells Fargo has started to spring a last minute contract clause on its foreclosure sales that basically says if the property does not have a clear title, it’s your tough sh%$:

Yves here. Some readers may take this all to be unduly alarmist. But confirmation that this problem is real and potentially serious comes via a new “gotcha” practice by Wells Fargo on foreclosure sales. Wells is sufficiently concerned about the risks of selling properties out of foreclosure that it is springing an addendum on buyers, shortly before closing, which effectively shifts all risk for any title deficiency on to the buyer.

Now why is this a big deal? Go reread the boldfaced sentence above. [“Technically, the foreclosing bank has no recorded title rights to foreclose in the first place“] If a bank like Wells does not have the right to foreclose, it cannot have clean title to the property. So the bank could conceivably be selling something it does not own.

Let’s say you buy a vase from a store. You open the box when you get home and find out the box is empty. You’d clearly be within your rights to get your money back.

With the Wells Fargo addendum, even if the bank has sold you the equivalent of an empty box, you have no recourse to Wells. Zero. Zip. Nada.

So the banks realize that they are selling properties at auction that they do not own or hold the note on.

They want to clear their balance sheets, and they are now more than willing to engage in outright fraud to do so.

Well, it looks like it’s not just Wells Fargo who is freaking out about this, because GMAC has just suspended its foreclosures in 23 states based on similar concerns that the documentation was forged, though they claim that it will be resolved, “within the next few weeks”.

There are also rumors of a criminal investigation, while GMAC has denied any moratorium.

It appears that much of this has to do with the foreclosure mills law firms, largely based in Florida, most notably Watson, Shapiro & Fishman, and David J. Stern. (MoJo has a good tour of their business practices here)

Note also that Congressman Alan Grayson has written a letter too the Florida Supreme Court asking for an immediate suspension of foreclosures, because these firm are doing the paperwork on about 80% of the foreclosures in the state and have already been cited by a judge for blatant fraud.

There are a couple of issues here, the first is that in the mortgage mixmaster, title for a lot of properties may have been lost, and the second is that the law firms doing the paperwork are simply defrauding homeowners and the courts.

Grayson’s letter is after the break:

September 20, 2010

Chief Justice Charles T. Canady
Florida Supreme Court
500 South Duval Street
Tallahassee, FL 32399-1900

Dear Chief Justice Canady,

I am disturbed by the increasing reports of predatory ‘foreclosure mills’ in Florida. The New York Times and Mother Jones have both recently reported on the rampant and widespread practices of document fraud and forgery involved in mortgage assignments. My staff has spoken with multiple foreclosure specialists and attorneys in Florida who confirm these reports.

Three foreclosure mills – the Law Offices of Marshall C. Watson, Shapiro & Fishman, and the Law Offices of David J. Stern – constitute roughly 80% of all foreclosure proceedings in the state of Florida. All are under investigation by Attorney General Bill McCollum. If the reports I am hearing are true, the illegal foreclosures taking place represent the largest seizure of private property ever attempted by banks and government entities. This is lawlessness.

I respectfully request that you abate all foreclosures involving these firms until the Attorney General of the state of Florida has finished his investigations of those firms for document fraud.

I have included a court order, in which Chase, WAMU, and Shapiro and Fishman are excoriated by a judge for document fraud on the court. In this case, Chase attempted to foreclose on a home, when the mortgage note was actually owned by Fannie Mae.

Taking someone’s home should not be done lightly. And it should certainly be done in accordance with the law.

Thank you for your consideration of this request.

Sincerely,

Alan Grayson
Member of Congress

Economics Update

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It’s jobless Thursday, and the initial claims numbers are out, with initial claims falling to 450,000, the 4 week moving average falling to 464,750 last week’s 478,250, continuing claims falling 84,000 to 4.49 million, and emergency claims fell by over 500,000, which is all a good thing, though the story also mentions that the Federal Reserve Bank of Philadelphia’s general economic index missed expectations, remaining in the contractionary range, while the New York Fed’s Empire State Index fell but remained in positive territory.

In terms of other general measures, we have conflicting data, with inventories rising strongly, retail sales rising in more sedately, and the NFIB’s small business confidence rising modestly to an anemic 88, while on the other side we see industrial growth slowing in August.

Real estate, on the other hand is pretty grim in the post-tax credit days, with home repossession spiking, and CoreLogic’s home price index showing no year over year gain for the first time in five months, and home mortgage applications fell this week.

On the inflation front, the Producer Price Index came out, and while there is still little inflation in the core rate, but food and energy costs are rising more sharply, though still well below a 6% annual rate.

A Court Case to Watch on HAMP

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A federal court in California has ruled that a borrower is an intended 3rd party beneficiary of the HAMP program, and so has standing to sue the bank for acting in bad faith:

This is getting interesting. A judge in U.S. District Court, Southern District of California, has issued an order that may just answer a few prayers of many homeowners. Here’s what happened…

A San Diego homeowner, by the name of Ademar Marques, was applying for a loan modification, and, although it might be hard for many readers to believe, his servicer, Wells Fargo, dba, America’s Servicing Company, wasn’t being very nice about it, or even cooperating at all. It seems that Wells Fargo wanted to just skip all of those messy and time-consuming formalities required when considering someone for a loan modification, and just jump straight into foreclosure.

Mr. Marques filed a lawsuit against Wells Fargo’s America’s Servicing Company because he read about the Home Affordable Modification Program (“HAMP”) and the program’s guidelines said that his servicer was “REQUIRED” to screen him for a hardship, and consider him for a loan modification. He also alleged that he qualified for the loan modification program based on all of the published guidelines, and that his servicer, a participating servicer in HAMP never said that his loan could not be modified, they just refused to modify it, and instituted foreclosure proceedings.

Well, I never! The gall of some servicers. Have you ever heard of such a thing? Actually, I have. But not more than 30-40 times a day for the last two years.

The court ruled that as a participant in HAMP, the bank was obligated to review Ademar Marques case, and in not doing so, they breached their HAMP contract, and so do not have the right to foreclose.

Here is the money quote:

Are you digging this? Best I can make out, if you’re the intended third party beneficiary to a federal contract you can sue for breach of contract. So, if it says in the contract that the servicer “MUST” do something, and that servicer doesn’t do it… you the borrower may be able to sue the servicer for breaching that contract.

If Wells appeals, and if I were them, I wouldn’t, because settling in this one case loses them a mortgage, and if the court of appeals rules against them, it becomes case law for a large swath of California, but bankers are not know for cutting their losses.

If there is an appeal, and Mr. Marques prevails, then it is certain that Wells Fargo will appeal to the Supreme Court, and I would bet 5 to 1 odds that if it gets that high, then the Obama administration will argue for the malefactor banks, because that’s how they roll.