The Elephant In The Foreclosure Fraud Room: Second Liens

[marmar]

from AlterNet:



The Elephant In The Foreclosure Fraud Room: Second Liens
Posted by Zach Carter on @ 11:11 am


There’s been plenty of recent media attention to the prospect of investor lawsuits over fraudulent mortgages and mortgage securities. But investor lawsuits against mortgage servicers could be even more damaging than these other lines of legal inquiry. The four largest banks hold nearly half a trillion dollars worth of second-lien mortgages on their books—loans that could be decimated if investors successfully target improper mortgage servicing operations. The result would be major trouble for the financial system. The result would be major trouble for too-big-to-fail behemoths.

Mortgage servicers are the banking industry’s debt collectors. They accept payments and forward them along to investors who own mortgage securities– servicers themselves don’t actually own the mortgages they handle. This is a recipe for trouble for a variety of reasons, but one of the biggest problems is the fact that the nation’s four largest banks also operate the four largest mortgage servicers. Bank of America, Wells Fargo, JPMorgan Chase and Citigroup service about half of all mortgages in the United States. They also have multi-trillion-dollar businesses whose interests often conflict with those of mortgage security investors.

The most glaring conflicts involve second-lien mortgages. Much of the foreclosuregate coverage has focused on first-liens—ordinary mortgages that people take out when they want to buy a home. But during the housing bubble, banks frequently sold second-lien mortgages in an effort to cash-in on inflated home prices. If you’ve had a mortgage for a few years, and paid down $30,000 of your home’s value, a bank might try to sell you a new $30,000 loan, backed by the equity you’ve accumulated in your house by paying your first mortgage.

In fact, banks were much more aggressive than this. Usually homeowners have to put up a certain amount of money up-front when they buy a house—this is the down-payment. But the profits available from mortgage securitization were tempting. Banks could issue a mortgage, sell it off to investors, and not have to worry about any potential losses. So banks got around down-payments by selling a second-lien mortgage at the same time they sold the ordinary first mortgage. The second-lien would be used to pay the down-payment on the first lien. ...........(more)

The complete piece is at: http://blogs.alternet.org/speakeasy/2010/10/21/the-elephant-in-the-foreclosure-fraud-room-second-liens/

[Klukie]

1. Oh crap!!

Huge elephants leave huge piles of dung....yikes!!!!

[tridim]

2. And the banks are blaming the borrowers.

At least my bank is.

The one party who didn't do anything wrong.

[cbdo2007]

5. This is where the Appraiser scam comes into the whole thing.

I had friends who bought in 1995 for $100,000 and $0 down.

6 months later they needed money and asked their bank for their options. The bank said they could do a second mortgage if they could get an appraiser to say the house was worth more. So the appraiser they sent out said the house was now worth $115,000, so they got a $15,000 check on a property that was really only worth $100,000 and right now they can probably only sell the house for $90,000.

Again, not the buyers fault...sure, they SHOULD have known better but the bank encouraged them and set up the bum deal for them, they were just following the banks advice.

[taught_me_patience]

6. You didn't pay your mortgage

how can you claim you did nothing wrong?

[sandnsea]

8. You really think it's that simple?

Through a bunch of fine print, your mortgage suddenly resets to double, out of the blue? That's the borrowers fault??

[ProgressiveProfessor]

11. I would have a hard time believing that was not disclosed up front

[tridim]

10. My servicing bank doesn't hold my mortgage.

Niether does Fannie, the supposed investor. I've checked.

All the time I was paying my mortgage (8 years) the money was going into a black hole.

[louis-t]

3. Sometimes they would present you with an equity loan

AT THE CLOSING. "You don't have to use this, but sign here and you'll have access to the equity in your home." Buyers would have to fight with the lender to refuse the equity loan. I have also seen these forced equity loans become a problem when the person went to sell. It was hard to get the lien off the house, for some reason. Even when there was a zero balance, the lien holder took their sweet time sending a release of lien.

[Mimosa]

4. Thanks for the good info. n/t

[SoCalDem]

7. 125% equity loans around these parts..

When we re fied a few years back, the lady I spoke to was LIVID because we only wanted $22,750 cash-out ...."but but but, you have $275K equity AVAILABLE"... She could not understand that we did not want anymore than what ouor new roof, the concrete work & a new HVAC system was going to cost us..

Those 125s were the NORM for a while out here.. All they would do is send "their" appraiser out & he would boost the valuation, so they would qualify:(

[sandnsea]

9. I know a few people who lost their house that way

That was really the first wave of scams, they were doing that back in the 90s. Then came the no money down, then the teasers, then they put the whole thing in a pot AND added interest only mortgages on top of that. All so they could have securities to sell on Wall Street.

And blame 25 year old buyers for this fiasco? I don't think so.