Who's paying to mow the lawn at that foreclosure down the block? If you own a life insurance policy, chances are it's you, mate. Not only that, but you're probably getting hit for twice what the guy doing the mowing is pulling down.
A recent interview in the St. Petersburg Times with a 45-year-old Dallas lawyer named Talcott Franklin takes aim at the ongoing shenanigans by mortgage middlemen. If you've been wondering why more loan modifications aren't happening, read on.
In Franklin's view, institutional investors, such as life insurance companies that sank billions into residential mortgage-backed securities, have two things in common with distressed homeowners: they would both benefit if those middlemen started offering loan mods and even forgave principal rather than foreclose, and they'd both like to see the banks that created this mess man up and take some responsibility.
Franklin, who has written two books on securitization, represents a growing number of investors who hope to pressure banks to move this sorry parade along. Until they do, the middlemen who service these foreclosures continue to dine on the carcass of our flat-lined housing market at the expense of frustrated investors.
"One of the tricks, according to the (Federal Trade Commission), is for the servicer to have an affiliate hire somebody to mow the lawn (on a foreclosed house). That $75 cost is billed back to the affiliate, who marks it up to $150 and passes it along to the servicer who then tries to bill the borrower. The borrower can't pay, so they pass it through to the investors," Franklin says. "One of the biggest problems investors have is there is really no effective way to monitor these servicers."
Try as they might, it would be a stretch for investors to pursue claims against banks, since they would have to somehow mobilize 25 percent of their ranks to do so. Franklin's clearinghouse offers the next best thing. He currently has 3,000 cases where he represents that magical 25 percent of investors.
Banks claim investors should have read the fine print on their mortgage-backed securities, especially the subprime ones. Franklin says that's hogwash.
"These investments came with warranties (from the bank) that basically said, 'If the borrower committed fraud, I'm going to buy the loan back.' You hear people saying, 'These are people who bought a Vega who are now saying they bought a Mercedes.' That's not true at all. The Vega and the Mercedes both come under warranty and the maker of the Vega has to make good on the warranty."
Franklin maintains it would ultimately be in their best interests for banks to pull their heads out of the sand.
"The question I have for those who refuse to make good on these warranties right now is, 'Who is going to buy a loan again from you next time?' Investors are not going to trust you."
On Wednesday, more than 50 national organizations urged banking regulators to withdraw proposals that allow mortgage servicers to flout the law and escape repercussions for illegal foreclosures.
Until they do, we're all just pouring money into those fraudulent lawnmowers.
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