By BuckleySandler LLP – JD Supra

On March 8, Senator Ron Wyden (D-OR) released a letter to Attorney General Eric Holder advising the DOJ about claims made to the Senator’s office by a “long-time professional in the mortgage industry” that banks and mortgage servicers have engaged in a “systematic effort” to double bill borrowers for certain foreclosure-related fees. The letter identifies a major default service provider with whom other banks and servicers allegedly have been complicit in establishing a fraudulent fee structure that increased foreclosure rates and led directly to other servicing problems, including robosigning. Senator Wyden offers that in addition to being potentially fraudulent, the practices described may violate the False Claims Act. The letter explains that Fannie Mae and Freddie Mac, which currently operate under government conservatorship, are improperly being asked to pay fees that the servicers also are passing on to borrowers. [read more]

By Alan S. Kaplinsky and Jeremy T. Rosenblum – Lexology

A collection letter violated the Fair Debt Collection Practices Act (FDCPA) because its invitation to call a toll-free number could be read by the “least sophisticated debtor” to permit the debt to be effectively disputed by telephone, the U.S. Court of Appeals for the Third Circuit has ruled.

FDCPA Section 1692g requires a debt collector to send a written “validation notice” to a consumer within five days of the collector’s initial attempt to collect a debt and specifies what information the notice must contain. This section requires the notice to include statements that if the consumer disputes a debt in writing or makes a written request for the name and address of the original creditor, the collector will provide verification of the debt or the requested information. This section also requires a debt collector to cease all collection efforts if it receives a written dispute or information request until the verification or information is provided.

While Section 1692g further requires the validation notice to include a statement that the debt will be assumed to be valid unless the consumer disputes the debt within 30 days, the section is silent on what form the dispute must take to avoid that assumption. Reading the section’s requirements together, the Third Circuit has previously held that, to be effective, a debtor must dispute a debt in writing.

In Caprio v. Healthcare Revenue Recovery Group, LLC, the debt collector, on the front of a double-sided collection letter, told the debtor that “[i]f we can answer any questions, or if you feel you do not owe this amount, please call [our toll-free number] or write us at the above address.” The words “please call” and the telephone number were in bold, and, in the letterhead at the top of the collection letter, the telephone number appeared again in a larger font than the collector’s address. The FDCPA validation notice required by Section 1692g appeared on the letter’s reverse side. [read more]

By Hunton & Williams LLP

On February 5, 2013, the Third Circuit weighed-in on the developing Circuit Court split regarding whether notice alone is sufficient to exercise a valid right to rescind under the Truth in Lending Act. The Third Circuit’s decision and the Circuit Court split, along with the CFPB’s focus on this issue, create uncertainties for lenders concerning the potential invalidity of liens upon merely receiving a borrower’s notice of rescission. The Third Circuit’s decision also suggests that after receipt of a borrower’s notice of rescission, if a lender does not consent to the rescission, then the lender may need to consider filing suit to resolve the potential lien validity issues because there may be no clear deadline by which the borrower must initiate rescission litigation.

In its opinion in Sherzer v. Homestar Mortgage Services et. al., the Third Circuit aligned with the Fourth Circuit, holding that “an obligor exercises the right to rescission by sending the creditor valid written notice of rescission, and need not also file suit within three years of consummation of the loan transaction.” In so doing, the Third Circuit adopted the position advocated by the Consumer Financial Protection Bureau (“CFPB”) in an amicus brief. In June 2012, the Tenth Circuit in Rosenfield v. HSBC Bank, USA, N.A. had rejected a similar argument advocated by the CFPB and instead followed the Ninth Circuit, concluding that “notice by itself is not sufficient to exercise (or preserve) a consumer’s right of rescission under TILA. The commencement of a lawsuit within the three-year TILA repose period [is] required.” The Eighth Circuit is currently considering this issue in Sobieniak v. BAC Home Loans Servicing, in which oral argument was held on October 16, 2012. [read more]

By David Dayen – Naked Capitalism

There’s been an unlikely yet welcome resurgence of chatter about breaking up the nation’s largest and most powerful banks. Bloomberg’s story quantifying the too big to fail subsidy grabbed some eyeballs (and there’s an upcoming GAO report on the subsidy that will do the same). Sherrod Brown announced an unlikely pairing with David Vitter working on legislation on the subject. Dallas Fed President Richard Fisher is going to give a big speech on Friday on breaking up the banks… at CPAC, the largest conservative political conference of the year.

At the same time the unending stream of reports of abuses and fraudulent actions give fuel to the movement. And we’ll get another one Friday, when Carl Levin’s Senate Permanent Subcommittee on Investigations releases their report, complete with a companion hearing, on the London “Fail Whale” trades, the losses for which stretch as high as $8 billion. Early reports suggest that the report will be unsparing. Levin’s committee did an excellent job in prior investigations of Wall Street, including Goldman Sachs (which they gift-wrapped to the Justice Department as a criminal referral, only to see DoJ toss it in the wastebasket). People I’ve talked to expect the hearing to be explosive.

As an excellent preview for the Friday fireworks, I urge you to read an astonishing new report, which I’ve embedded below, from analyst Josh Rosner of Graham-Fisher and Co. The best way to describe the report, “JPM – Out of Control,” is that it reads like a rap sheet. Notably, Rosner takes mortgage abuses almost entirely out of the equation, and yet still manages to fill a 45-page report with documented case after documented case of serious fraud and abuse, most of which JPM has already admitted to (at least in the sense of reaching a settlement; given out captured regulatory structure the end result is invariably a settlement with the “neither admit nor deny wrongdoing” boilerplate appended). Rosner writes, “we could not find another ‘systemically important’ domestic bank that has recently been subject to as many public, non-mortgage related, regulatory actions or consent orders.” [read more]

By Yves Smith – Naked Capitalism

Over the last two and a half years, Wells Fargo, like most of the major mortgage servicers, claimed that it had a “rigorous system” to insure that mortgage documents were accurate and complete. The reason this mattered was that there was significant evidence to the contrary. Foreclosure defense attorneys found repeatedly that, for securitized mortgages, the servicer or foreclosure mill attorney would present documents to the court that failed to show the borrower’s note (a promissory note) had been transferred properly to the trust. This mattered not only on a borrower level, but indicated that originators of the mortgage securitizations hadn’t bothered transferring the notes properly to the trusts that were to hold them. This raised the ugly specter of what was called “securitization fail,” that investors had been sold securities that they had been told were mortgage backed when they might in practice not be.

The robosigning scandal was merely the tip of the iceberg of mortgage and foreclosure problems that resulted from the failure to adhere to the requirements of well-settled state real estate law. The banks maintained that there was nothing wrong with mortgage ownership or with the records. All they had were occasional errors and some unfortunate corners-cutting with affidavits. If they merely re-executed all those robosigned documents, all would be well.

Wells Fargo’s own actions say the reverse. It has been doctoring documents in house for over fifteen months for borrowers who are targeted for foreclosure. It was having this sort of work done outside the bank for an unknown period of time prior to that.

A contractor who worked at a Wells Fargo facility in Minnesota reports that the bank engaged in systematic, large scale alteration of mortgage notes and fabrication of related documents in preparation for foreclosure. The procedures the bank used are questionable for a large portion of the mortgages.

A team of roughly 100 temps divided across two shifts would review borrower notes (the IOU) to see whether they met a set of requirements the bank set up. Any that did not pass (and notes in securitized trusts were almost always failed) went to another unit in the same facility. They would later come back to the review team to check if the fixes and fabrications had been done correctly. [read more]

By Buckley Sandler LLP – JD Supra

On February 22, the Illinois Supreme Court announced additional rules governing the state’s home foreclosure process. The three rules, respectively, (i) add requirements for mortgage foreclosure mediation programs in state circuit courts and counties (Rule 99.1); (ii) establish required practice, procedure, and notice obligations by the lender as plaintiff (Rule 113); and (iii) require a lender to attest that it has complied with the requirements of any loss mitigation program which applies to the specific home loan (Rule 114). With regard to this final rule, a judge may deny entry of a foreclosure judgment absent the required affidavit. All of the rules take effect on March 1, 2013. Those counties and circuit courts that already have mortgage foreclosure mediation programs in place, including Cook, Will, Peoria, Madison, Bond, McLean and Cane, have until June 1, 2013 to bring their programs into compliance with the new statewide rule on mediation programs. [read more]