Richard Zombeck

Eyes and Ears Mortgage Specialist and ShametheBanks.org Founder

Posted: November 23, 2010 11:14 AM

Foreclosure Hearings Show Homeowners Who in

I know that even as I write this, no amount of proof or testimony from experts will stop seemingly
sanctimonious, self-righteous ignoramuses from making comments about deadbeat homeowners who
caused the entire economic meltdown because they simply didn't want to pay their bills.

I recently wrote a piece calling attention to articles written by Matt Taibbi from Rolling Stone and
William Black, former Senior Regulator during the S&L debacle, making very clear points that this crisis
was not caused by homeowners, yet there were still comments from people who insisted homeowners
caused the meltdown.

Aside from being ignorant and baseless, the problem with those comments is that they rely on the rest
of us assuming one of two things: 1.) That somehow millions of people woke up one morning and
collectively decided to commit fraud using the most complex and intricate financial instruments
invented, and 2.) Everyone woke up stupid.

While the second assumption could be successfully argued to a point, given that a shocking percentage
of people in this country don't know that the GOP regained control of Congress, it's hardly an argument
for mortgage fraud, nor does it justify having your home taken.

In short, these comments most likely come from the industry itself, people who suffer from a lack of
basic reading comprehension skills, are selectively ignorant, simply don't care, or a convoluted
combination of the mix.
Mark Rodgers, Director of Public Affairs for Citi Group, left a comment on one of my posts, back in July
touting Citi's supposed, albeit fabricated, efforts in the foreclosure mess and offered a report (written by
Citi Group) proving his claims of his company's transparency. Two weeks later Citi ended up shelling out
$75 million to the SEC for having lied to investors about high-risk mortgages and last week the company
admitted having a paperwork problem after months of vehemently denying it.

That's not to say that the other side doesn't have its fair share of fakes and phonies. Steve Dibert of MFI-
Miami has an interesting expose of who he identifies as key offenders posing as activists who lean more
towards histrionics and wildly inflated and convoluted claims, rather than providing homeowners with
accurate and useful information.

"These guys not only won't post comments from people who correct them, they don't even post
comments that enhance their claims with more info. It's like they have to be the authority on
everything," one angry reader wrote to me in a recent e-mail.

It's surprising and disturbing that in an era of unlimited information there are those who simply choose
to get it wrong.

During the past couple of months a wealth of information has flooded the media about robo-signers and
mortgage fraud on the part of banks and servicers. Attorneys general, law firms, and investigators have
begun looking into the nefarious and suspect practices that can best be described as financial terrorism.
This led to impressive action and inquiry in the form of congressional hearings.

Having spent the better part of two days watching three hearings ripe with questions, statements, and
testimony relating to mortgage, foreclosures, and the HAMP program (the administration's miserable
attempt at a mortgage relief plan) I was left with an unfamiliar, yet not entirely unpleasant feeling of
hope. While the result of these hearings remains to be seen, there's a sense that a handful of
government officials get it and seem to be looking out for the rest of us. I would suggest that anyone
involved, affected, or generally tweaked by the fiasco that has consumed the country, Congress, and
millions of families take a few hours, sit back, and watch the show.

I've listed the three different hearings and highlighted particularly interesting, but not unique
statements below.

Let's start with the Congressional Oversight Panel Hearing.

Congressional Oversight Panel on TARP Foreclosure Mitigation Programs - October 27 th

Watch it here: Congressional Oversight Panel Hearing

Damon Silver, director of policy and Special Counsel for the AFL-CIO and a member of the panel, blasted
Treasury about their inability to see what was right in front of them. In an exchange with Treasury
Department's representative, Phyllis Caldwell, who seemed to show more concern for the banks than
for homeowners, Silvers says:
While banks and mortgage servicers are bracing for a wave of lawsuits over flawed paperwork, Ms.
Caldwell said the government believed the overall risks to the financial system were slim.

"We're very closely monitoring any litigation risk to see if there is any systemic threat, but at this point,
there's no indication that there is," she testified.

I'm concerned about Treasury making representations categorically that you don't see a systemic risk,"
Silvers told Treasury's chief homeownership officer. "And let me walk you through exactly why."

"That letter asks for $47 billion of mortgages -- of mortgage- backed securities to be repurchased at
par," Silvers went on. "Do you know what those mortgages are currently carried at ... the market value
of those bonds today?"

Caldwell says nothing.

Silvers continues:

"OK, fine. Let me tell you what the Fed says they're worth. The Fed tells us they're worth 50 cents on the
dollar. So if the Fed's request to Bank of America is honored, right, Bank of America, assuming they are
carrying these bonds, assuming when they buy them back they mark them to market, Bank of America
will take a $23 billion loss.

"The Federal Reserve further informs us that there is nothing particularly unique about that particular
set of mortgage-backed securities -- meaning they have not been chosen...because they're particularly
bad. They believe they are of a common quality with the rest of Bank of America's underwritten
mortgage-backed securities. There are $2 trillion [worth] of Bank of America's underwritten mortgage-
backed securities.

"Five such deals -- five such requests, if honored to Bank of America...will amount to more than the
current market capitalization of Bank of America, which is $115 billion.

"Now do you wish to retract your statement that there is no systemic risk in this situation? And the word
is 'risk' -- not 'certainty' -- but 'risk'? And I would urge you to do so, because these things can be
embarrassing later."

Shahien Nasiripour, of The Huffington Post, has the exchange here, and you can watch the hearing in its
entirety here.

During that same hearing, J. Mark McWatters, also a member of the panel described how, as a
corporate lawyer, he's seen commercial property debt be worked out when properties are seriously
underwater.

"In a commercial setting, what you would do is to write the loan down," McWaters says. He goes on to
explain how this negotiation works for all parties concerned in very simple terms. The segment is well
worth watching and can be found at the 171:00 mark of the video.
Last week the panel released a report on the mortgage documentation mess. According to a New York
Times articles by Gretchen Morgenson, "It argued that, yes, in fact, these paperwork problems may have
significant implications for banks, investors and the stability of the financial system."

The Senate Committee on Banking, Housing, and Urban Affairs - November 16 th

Watch it here: Problems in Mortgage Servicing From Modification to Foreclosure

On November 16th The Senate Committee on Banking, Housing, and Urban Affairs conducted a hearing
on "Problems in Mortgage Servicing From Modification to Foreclosure". Diane E. Thompson of the
National Consumer Law Center, a longtime advocate for homeowners and no stranger to congressional
hearings laid out the systemic fraud on the part of loan servicers in her written statement:

What robo-signing reveals is the contempt that servicers have long exhibited for rules, whether the rules
of court procedure flouted in the robo-signing scandal or the contract rules breached in the common
misapplication of payments or the rules for HAMP modifications, honored more often in the breach than
in reality. Servicers do not believe that the rules that apply to everyone else apply to them. This lawless
attitude, supported by financial incentives and too-often tolerated by regulators, is the root cause of the
robo-signing scandal, the failure of HAMP, and the wrongful foreclosure of countless American families.

The falsification of judicial foreclosure documents is closely and directly tied to widespread errors and
maladministration of HAMP and non-HAMP modification programs, and the forcedplaced insurance and
escrow issues. Homeowners for decades have complained about servicer abuses that pushed them into
foreclosure without cause, stripped equity, and resulted, all too often, in wrongful foreclosure.

During the hearing both Barbara Desoer, President Bank of America Home Loans and David Lowman,
CEO of Chase Home Lending, looked particularly puny, unprepared, and visibly rattled throughout their
testimony and questioning. Both of these executives gave the same tired excuses of this being the
homeowners fault and that no one who is being foreclosed on is undeserving of the action. They both
also continue to contend that their obligation and contract with investors is what is holding up and
preventing them from modifying mortgages.  "Many investors limit Bank of America's discretion to take
certain actions," Desoer says in her statement. A statement, according to a Propublica report, that is
simply not true. In fact, a study by UCDavis School of Law found that only eight percent of contracts
covering subprime deals prohibited modification. In fact, almost two-thirds of the contracts explicitly
gave servicers the authority to make modifications, particularly for homeowners who had defaulted or
were facing imminent default. The rest of the contracts did not address modifications at all.

For either of these executives to claim, under oath, that they are doing everything they can to help
homeowners and deny that they aren't stalling, purposely pushing homeowners to the brink of collapse,
and unfairly taking homes for no other reason than to cover up a mess that they caused constitutes
perjury. I would suggest they read any of the hundreds of stories, submitted by homeowners every day -
in their own words at www.shamethebanks.org to see precisely what homeowners think of what Desoer
and Lowman consider help.
At around the 161:00 mark in the video Senator Jon Tester (MT) runs through the letters his office has
received from homeowners getting the run around from banks. He cites examples from the letters of
homeowners who have paid their bills and have been paying their bills, "getting hammered".

"These are not isolated incidents," Tester says. "I don't know how many people who didn't come to me
that are out on the street [as a result]."

Mortgage Services and Foreclosure Practices, Financial Regulators Panel - November 18 th

Watch it here: Mortgage Services and Foreclosure Practices, Financial Regulators Panel

One of the more enjoyable exchanges in the month-long hearing-paluza came from Representative
Maxine Waters, California. You may remember her as being one of the few members of Congress to take
up the cause of homeowners when this mess started to unravel, going so far as to call servicers on
behalf of her constintuents. During the November 18th Mortgage Services and Foreclosure Practices,
Financial Regulators Panel, Waters visibly loses patience with Phyllis Caldwell, chief of Treasury's
Homeownership Preservation Office during an exchange in which Waters repeatedly asked Caldwell if
she had "levied any penalties or sanctions." Watch the exchange here. You can also watch the entire
hearing on C-Span's Video Library.

Idiotic statements are not rare at these hearings and for the most part, in all three of these hearings
they come from the banks, servicers, and their representatives, not the panelists. As David Dayen writes
on FireDogLake:

One of the more amusing moments of yesterday's House Financial Services Committee hearings on
foreclosure fraud was when the representatives for the loan servicers were asked why they were
subsidiaries of the large financial institutions. The link between the servicers and the big banks, mainly
caused by a series of mergers, leads to all kinds of conflicts of interest, because it inevitably pairs them
up with the originator or trustee of the loan. The servicers had no real answer to this question. Finally,
the Wells Fargo representative claimed that it was for "customer convenience," because some
customers had their mortgage and their checking accounts at the same bank.

Everyone's jaw dropped in the hearing room.

Dayen had a conversation with Rep. Brad Miller,  who wrote a letter to the Financial Stability Oversight
Committee, Secretary Geithner and the Chairman of the FSOC. The letter signed by all the top leaders of
the House Financial Services Committee, "seriously ratchets up the demands on the Financial Stability
Oversight Council. Among other things, it asks the FSOC to use its authority under Dodd-Frank to force
the large financial institutions to divest from the loan servicers," according to Dayen.

Read the conversation in "Rep. Brad Miller: "Protecting bank solvency has been a goal of Treasury that I
do not share". Be sure to read Miller's letter, in which he writes:

First, we urge that the members of the Council examine a representative sample of collateral loan files
of each major servicer to determine if the files contain all the documents required by contract or by law,
including the note; mortgage, deed of trust or equivalent document; and all documents evidencing or
constituting the necessary assignment, delivery and recording of those documents.

This is precisely what homeowner activists have been demanding for years. I made a similar statement
to Diana Farrell, Deputy Director of the National Economic Council when I was at Treasury in April. If
there was ever a time for the "chicken little" activists to have a call to action it would be over this letter.

I would urge anyone going through this to watch these hearings and educate yourselves as best you can.
I recently received an e-mail from a homeowner expressing that same sentiment.

Dear Mr. Zombeck:

I have been reading your work on mortgage fraud for the past year.  My husband and I have spent the
past year defending our foreclosure pro se and just this week our case was dismissed.   We filed for a
HAMP modification in March 2009.  We waited ten months for an answer.  Because of your articles and
shamethebanks.org we began to understand and piece together exactly what the bank was doing to us. 
I have sent copies of your articles to our bank and even included "Extend and Pretend" as an exhibit in
our trial brief.

I would offer this same advice to those people who chose to see homeowners as the cause of this fiasco.
Watch these hearings, listen to the testimonies, and decide for yourselves.

Bethaney McLean, author of "The Smartest Guys in the Room", in which she exposed the corrupt
business practices of Enron officials, teamed up with Joe Nocera on the recently published "All the Devils
Are Here" addressing the mortgage debacle and its role in the meltdown. In an interview on PBS News
Hour McLean describes how her own preconceived notions of this being the fault of deadbeat
borrowers changed once she started investigating all the players in the game.

I -- I started this book with a bias toward personal responsibility, and, if consumers got in over their head
on their mortgage, that was their fault.

And one of the big discoveries to me in the course of reporting the book is the extent to which these
loans were sold; they weren't bought. And one of the most telling moments were these internal
documents from Washington Mutual, one of the big subprime lenders, around 2003 talking about how
to get consumers who really wanted safe 30-year fixed-rate mortgages to take out these dangerous
option ARMs instead....

how to sell those to people, and how to confront a consumer who said, but it doesn't feel right to me. I
want to pay back my mortgage every month. This is what my parents did.

How do you get these people to take out a risky mortgage instead? You told them that home prices
could only go up. And the reason Washington Mutual wanted to sell these option ARMs, instead of the
30-year fixed rate mortgages, is that Washington Mutual could turn around and sell these to Wall Street
for a lot more money than it could sell the old 30-year fixed-rate loans.
There's a good reason why homeowners are being blamed for this: It's easy and the banks tell us to
blame them. The simple fact is no one wants to understand and wrap their head around things like
securitization, mortgage backed securities, credit default swaps, derivatives, collateralized debt
obligations, and the rest of the mathematically complicated financial products that blew up our
economy. Who would? The people that are to blame certainly don't want to explain that to the rest of
us, so they tell us it's all about deadbeat homeowners and people dragging this country down by not
paying their bills.

After all, it's much easier to blame your neighbor, sit your sanctimonious ass down, and watch "Dancing
with Stars."

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