Posts filed under “Foreclosures”
Sample Letter Sent to Public Companies on Accounting and Disclosure Issues Related to Potential Risks and Costs Associated with Mortgage and Foreclosure-Related Activities or Exposures
In October 2010, the Division of Corporation Finance sent the following illustrative letter to certain public companies as a reminder of their disclosure obligations to consider in their upcoming Form 10-Qs and subsequent filings, in light of continued concerns about potential risks and costs associated with mortgage and foreclosure-related activities or exposures.
Chief Financial Officer
Dear Chief Financial Officer:
The purpose of this letter is to remind you of disclosure obligations that you should consider for your upcoming Form 10-Q and subsequent filings in light of continued concerns about potential risks and costs associated with mortgage and foreclosure-related activities or exposures.
Items that should be considered include, without limitation, the impact of various representations and warranties regarding mortgages made to purchasers of the mortgages (or to purchasers of mortgage-backed securities) including to the government-sponsored entities (GSEs), private-label mortgage-backed security (MBS) investors, financial guarantors and other whole loan purchasers. While not an exhaustive list, these representations and warranties may include the following:
In addition, we understand that some issuers are undertaking reviews of their loan documentation and foreclosure practices, and, in some cases, have suspended foreclosures pending completion of such reviews.
Item 303 of Regulation S-K requires you to discuss, in your Management’s Discussion and Analysis of your Forms 10-Q or Form 10-K, any known trends or any known demands, commitments, events or uncertainties that you reasonably expect to have a material favorable or unfavorable impact on your results of operations, liquidity, and capital resources. Item 103 of Regulation S-K requires disclosure of legal proceedings, including proceedings known to be contemplated by governmental authorities. Item 1 of Part II of Form 10-Q requires you to address legal proceedings when they first become a reportable event and in subsequent quarters when there have been material developments.
In addition, ASC Subtopic 450-20 (SFAS 5) requires you to establish accruals for litigation and other contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. When a loss is not both probable and estimable, an accrual is not recorded, but disclosure of the contingency is required to be made when there is at least a reasonable possibility that a loss or an additional loss has been incurred. The disclosure should indicate the nature of the contingency and give an estimate of the possible loss or range of loss or state that such an estimate cannot be made. Rule 10-01(a)(5) of Regulation S-X requires the disclosure of material contingencies in interim financial statements.
As appropriate, you should provide clear and transparent disclosure regarding your obligations relating to the various representations and warranties that you made in connection with your securitization activities and whole loan sales. In addition, you should discuss any implications of any foreclosure review, including potential delays in completing foreclosures, if applicable. These disclosures should address your role as an originator, securitizer, servicer, and investor, as applicable. Depending on your circumstances, please consider the following points as you prepare your Form 10-Q and subsequent filings:
In addition, if you have established a reserve relating to representations and warranties attributable to loans that you have sold, you should consider providing a roll-forward of this reserve presenting separate amounts for increases in the reserve due to changes in estimate and new loan sales and decreases attributable to utilizations/realization of losses.
This is not an exhaustive list of the disclosures you should consider. It is your responsibility to determine the disclosures that should be provided in your particular circumstances.
Some of these issues are not limited to financial institutions that sold or securitized mortgages or mortgage-backed securities. Issuers that engage in mortgage servicing, title insurance, mortgage insurance, and other activities relating to residential mortgages should also consider the impact of these and similar issues for their disclosures.
Please contact me if you have any questions.
Senior Assistant Chief Accountant
Hat tip Branch Hill Capital
Please welcome Foreclosure Crisis Weekly, a new publication by Charles Hugh Smith, dedicated to documenting the often-amazing foreclosure crisis. Since we can expect the crisis to unfold for years to come, the Weekly will undoubtedly have a reliable source of material for quite some time. > > from Charles Hugh Smith
Keith Jurow , Ph.D., has been researching and writing about the housing market debacle around the U.S. with an eye for issues that are frequently overlooked or ignored by the media. This article was originally published on www.realestatechannel.com where his in-depth stories have been regularly featured since March 2010. Keith is a former senior economic writer…Read More
Yesterday morning, I had The Misinformation Hour on TV as I got dressed for work. One of the comments that was made – “No one was wrongly thrown out of their home” — was repeated or ignored by hosts and guests alike. This is patently demonstrably false, and yet no one challenged it. The banks…Read More
Yet another of our brutal mortgage linkfests: Investors are beginning to sue, there are protest over HAMP, and foreclosure probes are happening. Here’s our round up: • COP Hearing on TARP Foreclosure Mitigation Programs: On Wednesday, October 27 at 10:00 a.m., the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) held a hearing…Read More
What Is MERS and What Role Does It Have in the Foreclosure Mess? (Hint: It Holds 60% of All Mortgages, But Has ZERO Employees)
You’ve heard the name Mortgage Electronic Registration Systems or “MERS” mentioned in relation to the foreclosure problems in the residential real estate market.
But what is MERS?
It is the company created and owned by all of the big banks to process title to property in the U.S. Approximately 60% of the nation’s residential mortgages are recorded in the name of MERS.
MERS is a shell corporation with no employees, but thousands of officers.
As the treasurer and secretary of MERS admitted in a deposition:
Q Does MERS have any salaried employees?
Q Does MERS have any employees?
A Did they ever have any? I couldn’t hear you.
Q Does MERS have any employees currently?
Q In the last five years has MERS had any
Q To whom do the officers of MERS report?
A The Board of Directors.
A That’s correct.
Q And in what capacity would they report to you?
A As a corporate officer. I’m the secretary.
Q As a corporate officer of what?
Q So you are the secretary of MERS, but are not
an employee of MERS?
A That’s correct.
How many assistant secretaries have you
appointed pursuant to the April 9, 1998 resolution; how
many assistant secretaries of MERS have you appointed?
A I don’t know that number.
A I wouldn’t even begin to be able to tell you
Q Is it in the thousands?
Q Have you been doing this all around the
country in every state in the country?
Q And all these officers I understand are unpaid
officers of MERS?
Q And there’s no live person who is an employee
of MERS that they report to, is that correct, who is an
A There are no employees of MERS.
(page 70, line 1 through page 72, line 8)
In another deposition, a legal assistant at a law firm initiating 4000 to 7000 foreclosures per month in Florida held herself out as “vice president” and “assistant secretary” of MERS. She testified:
Q: The question was you have no job duties as an assistant secretary of MERS, correct?
A: I do not have any job duties other than signing the assignments and mortgage. Does that help?
Q: Yes. Here, I’ll try to rephrase this. Do you attend any board meetings at MERS?
A: No, sir.
Q: Do you attend any meetings at all at MERS?
A: No, sir.
Q: Do you report to the secretary of MERS?
A: No, sir.
Q: Who is the secretary of MERS?
A: I have no idea.
Q: Where are the MERS offices located?
A: I can’t remember.
Q: How many offices do they have?
A: I have no idea.
Q: Do you know where their headquarters are?
Q: Have you ever been there?
Q: How many employees do they have?
A: I have no idea.
(pages 11 & 12)
She further testified that her signatures on “these assignments,” which from all indications were and are at least several thousand in number, were in no way attestations that the statements contained therein were accurate or truthful. She further testified that she was the person with the most knowledge about the subject assignment.
For example, she testified:
Q: It says, ‘but effective as of the 19th day of February, 2008.” Do you see that?
Q: Where did you get that date from?
A: I did not pick that date. That date was put in by the processor that prepared the
Q: And who was that?
A: Off the top-of-my-head, I do not know who actually typed this assignment.
Q: Okay. But you are signing on behalf of MERS, and you are stating here that it is effective as of the 19th day of February, 2008, correct?
Q: At the time you signed this, what reason did you have, as agent for MERS, to make it
effective as of the 19th day of February, 2008?
A: I did not pick that date. And I do not recall this document.
Q: Sitting here today, you have no idea why it is that it says, “effective as of the 19th day of February, 2008.” Is that correct?
A: Looking at this one particular piece of paper, I do not recall or know the answer to that question, no.
Q: Is there some general practice, of which you are aware, that would give us information as to why this particular date was inserted?
A: That information was determined by the people that review the file prior to me.
Q: And what would they base that on, as a general practice?
A: I do not know.
Q: You don’t know? Were, to your knowledge, any physical documents transferred on February 19, 2008?
A: I do not know.
Q: To your knowledge, does the 19th day of February, 2008 have any significance?
A: I do not know.
Q: Ma’am, if you signed this document on behalf of MERS, picking this date, this effective
date – -
A: I did not pick the effective date.
Q: But you ratified it by signing this; didn’t you?
Q: Didn’t you attest to the accuracy of that date by signing this document?
A: I would say, no.
Q: Did you attest to this document, as a whole, by signing it?
A: I do not think that in my capacity of signing these assignments, it was my position to attest. My role was to be given a document that had been reviewed by an attorney, had been reviewed by a title examiner, had instructions from the client, and I was to sign the assignment as secretary on behalf of MERS.
Q: Right. And when you signed it as secretary on behalf of MERS, were you approving and agreeing with the terms contained therein for MERS?
A: I believe I was approving and agreeing to the fact that the mortgage needed to be assigned from MERS to another entity.
(pages 13 and 14)
In other words, assignments of title were never actually created, notarized and recorded, as required by state law. The “vice president” and “assistant secretary” MERS signing sworn statements under penalty perjury was simply making it up and doing what she was told.
In that light, Yves Smith’s report that “no one in the industry transferred the paper” makes perfect sense.
But why was MERS created in the first place?
MERS, the banks and the mainstream financial press all say that it was simply to save fees by digitizing mortgage electronic.
But as Ellen Brown notes, there is in reality a very different reason that the big banks created MERS:
The rating agencies required that the conduit be “bankruptcy remote,” which meant it could hold title to nothing ….
Indeed, the secretary and treasurer of MERS admitted this in a deposition, stating:
As a requirement for mortgages that were securing loans or promissory notes that were sold to securitize trust, the rating agencies would only allow mortgages MERS — well let me step back. They required that a bankruptcy remote single purpose entity be created in order for transactions holding loans secured by MERS, by mortgages MERS served as mortgagee to be in those pools and receive a rating, an investment grade rating without any changes to the credit enhancement. They required that to be a bankruptcy remote single purpose subsidiary of MERS, of Merscorp.
(page 32, lines 9-20)
Three fascinating Fraudclosure related items:
• Law.com: Bank of America Sued in Class Action Over Flouting of Foreclosure Rules
Bank of America has been hit with a class action on behalf of homeowners seeking damages for alleged disregard of foreclosure process rules.
The suit, filed Wednesday in federal court in Newark, N.J., accuses Bank of America and two subsidiaries, LaSalle Bank and BAC Home Loans Servicing, of “an undisciplined rush to seize homes” through “pervasive and willful disregard of knowledge, facts and statutes.”
Bank of America has filed foreclosure proceedings on many mortgages in New Jersey without holding the necessary rights as the mortgagee or assignee at the time of foreclosure, the suit says.
“Many thousands of foreclosures are plainly void under statute and settled New Jersey case law. Many borrowers never obtain statutorily required notices, and many foreclosure suits are filed entirely based in inaccurate recitations concerning ownership of the mortgage, the note, or the assignment,” the suit says.
The putative class in the suit, Beals v. Bank of America, N.A., 10-cv-05427, consists of all named defendants in pending New Jersey foreclosure actions initiated by Bank of America or its affiliates. The complaint includes counts of common-law fraud, breach of the covenant of good faith and fair dealing and violations of the New Jersey Fair Foreclosure Act and Consumer Fraud Act.
• Macro Index:
Courts are hurriedly catching up to the changes technology and financial innovation have brought to mortgage and equity law. The new rules adhere to an established legal tradition that slows the pace at which cases can be brought to trial. This is a good thing 99% of the time as civil and criminal trial processes are designed to terminate cases before they ever reach the courtroom. Trials are expensive. Settling cases before trial will save the plaintiffs, defendants and taxpayers significant sums of money.
• NYSBAS.org Template New York Courts First in Country to Institute Filing Requirement to Preserve Integrity of Foreclosure Process
(PDF after the jump)