CFPB - Third Anniversary

The Consumer Financial Protection Bureau celebrated their third anniversary yesterday. They protect people from antisocial and predatory organizations like Ocwen and Altisource. I hope they help many more people in the years to come.

Give Us Hope, Mr. Lawsky!

Where would you like to be when you are old? I don't know how to read minds but I am sure you don't want to be homeless. I am sure you don't want to helplessly see your home foreclosed by a bunch of crooks driven by greed.

Many old people, cancer patients, newly married couples, single moms, among others have been evicted by the loan servicer Ocwen. Many have seen their short sale requests turned down only to watch their homes sold for lower prices to builders and investors. As per the allegations, Ocwen used deceptive and unfair means while working with borrowers who were delinquent and underwater. The company has been accused of misrepresenting facts while filing foreclosure documents, charging unjustified fees for default-related services and forcing borrowers to buy unnecessary insurance policies, among others.

Greed of the lenders led to the subprime mortgage crisis which in turn created an economic crisis which led to people losing income and jobs. People struggled to meet their high-interest mortgage repayments. Some requested for forbearance, some wanted their loans refinanced, some thought a short sale would help ease the strain on their finances.

Greed, though, was not dead yet. Those engulfed by greed only seek profits. To them it does not matter even if it comes from someone else's misfortune. One man finds himself standing against an organization driven by greed of such intensity that has seldom been seen before.

Benjamin Lawsky, Superintendent of the Department of Financial Services, had little option but to block the Ocwen-Wells Fargo deal in a bid to prevent more Americans being unwittingly led towards foreclosure by a loan servicer with a consistent track record of delay in providing statements, adding expensive and at times unnecessary insurance to accounts, not applying payments to account or applying them late. What more, its Chairman is the single largest shareholder in a company (Altisource Portfolio Solutions) that profits immensely from foreclosures and snatches away the livelihood of real estate agents trying to feed their families.

Mr. Lawsky's grandparents, immigrated from Nazi Germany to an apartment on 192nd Street after his grandmother’s father had been killed at Auschwitz; his parents, in turn, had made good through public schools, graduating from Bronx Science and C.C.N.Y. His father was in the U.S. Public Health Service, and Mr. Lawsky and a twin sister were born on a Navy base in San Diego before the family moved to Pittsburgh, where Mr. Lawsky grew up waiting tables and selling funnel cakes out of a food cart. As a high school point guard, he was recruited by several small schools but chose to attend Columbia, where he played briefly as a walk-on before taking up long-distance running. He wanted to study architecture, but, faced with drawing cubes, switched to art history. He became interested in the law when a controversial exhibition of Robert Mapplethorpe photographs in 1989 sparked a national conversation about art and the First Amendment. He graduated cum laude and enrolled in Columbia Law.

Mr. Lawsky has, in the past, questioned Ocwen and gotten them to agree to monitoring but more is expected this time around. For a man who threatened to take away Standard Chartered's license, he can surely do more than just deliver a gentle slap on the wrist to Ocwen.

"For almost 10 years," Lawsky wrote, "SCB schemed with the government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion, and reaping SCB hundreds of millions of dollars in fees. SCB's actions left the U.S. financial system vulnerable to terrorists, weapons dealers, drug kingpins, and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity."

I quote Ana Merlan, "Lawsky wanted to know why he shouldn't pull Standard's license to operate in New York—a move that would cost the bank billions. The financial world erupted in chatter.

From a sleepy federal investigation that was going nowhere fast to punishment that threatened Standard's very existence, it was clear there was a new sheriff in town."

It is time to be brave, Mr. Lawsky. Give the people some hope.

(The author, Saurabh Singh, is a student of the Buddhist monk Thich Nhat Hanh. He is a Foreclosure Prevention Activist and a vegan. He is also a member of People for Ethical Treatment of Animals(India), Consumer Advocates in American Real Estate, UNITES Professionals and supports charitable causes and crowdfunding.)

The Most Viable Foreclosure Alternatives

We don't want anyone to lose their home. We don't want anyone to be forcibly displaced. There is no place for foreclosures and evictions in an intelligent society. They are symbols of moral, economic and social corruption. Unfortunately, they are of our own making. Our own craving for materialistic pleasures leads to consumerism and a system of governance that is more concerned about the health of its financial institutions than the health of its citizens.

In order to help home owners facing foreclosure,  the government of United States introduced HAMP. As of 04/30/2013, 18% of the home owners offered permanent modifications under this program had redefaulted and many were on the brink of default. The program itself is only available until 2015, so it does not really provide us a viable long term alternative to foreclose.

Some market partipants have, however, come up with some options that look like viable long term alternatives to foreclosure. I would like to discuss three of them.

The first one is an Assisted Short Sale program offered by Ocwen Loan Servicing in association with Altisource. The purpose of this program is to help fetch the best price for the property while ensuring that only minimum costs are incurred, encouraging the first mortgagee to approve the short sale instead of foreclosing on the loan. As a part of this program Altisource work on reducing costs by negotiating liens, judgements, HOA dues and other encumbrances and let the seller list the property on their online platform HUBZU.COM. This program is viable long term alternative to foreclosure because it addresses three major concerns of associated with a short sale - time, financial viability and finding a buyer. A short sale can be completed, in most cases, in less than two months from the date the seller opts for this program. Many short sales fail because the costs associated with them are high compared to a foreclosure (particularly in non-judicial foreclosure states). This generaly happens due to junior liens, HOA dues, judgements etc. The major strength of this program lies in the way it is able to deal with these issues. Finally,  HUBZU tries to find buyers. In case the seller already has offers, this a good opportunity to see if it is possible to find better offers. Overall, this looks promising and has folks at Altisource very excited about it. I hope firms other than Ocwen also get together with Altisource to design similar programs.

The second viable long term alternative comes courtesy real estate agents. Wherever and whenever possible a realtor may get an investor to buy the home through a short sale and rent it out to the seller with an option to buy. This would have to be disclosed to the lender at the very beginning. I understand that some lenders may not allow this. However,  wherever possible, this is a great way of letting the distressed home owner continue living in his home. This prevents foreclosure and displacement.

The third option is what can roughly be termed as "a deed in lieu of foreclosure in exchange for contract to rent". The first and the second options are great if you can find a buyer. However, there may be properties which may not find a buyer but have a home owner not wanting to be displaced. In such cases, wherever and whenever feasible, the home owners should have the option of offering the property via a deed in lieu of foreclosure to the lender or an REIT/investor (through the lender) in exchange for being allowed to rent the home.

The only fool-proof way to avoid losing material possessions is to not have them in the first place. Its not the loss of possessions that causes stress but our attachment to them. However, since we all have material desires ourselves, we can understand the stress others undergo when they are on the verge of losing material possessions. It is with this understanding that we must help others. Let us get together and end foreclosures. Let us say no to forced displacement. Let us push for viable alternatives to foreclosure.

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Saurabh Singh is a student of the Vietnamese monk Thich Nhat Hanh and is currently employed with Altisource. All views expressed here are his personal views and are not necessarily  endorsed by his employer. The author does not guarantee the accuracy of any information contained in this post. Real Estate, finance, banking and online transactions are complicated and governed by various regulations and readers are advised to consult with certified professionals before making any decision.