Since the price peak in 2006, home values have fallen more than 30%, leaving millions of Americans with negative equity in their homes. Until the Supreme Court’s 1993 decision in Nobelman v. American Savings Bank, the bankruptcy system would have provided many such homeowners with a remedy. They could have filed bankruptcy, discharged the negative equity, committed to pay the mortgage holders the full values of their homes, and retained those homes. In
Nobelman, the Court misinterpreted reasonably clear statutory language and invented legislative history to resolve a 3-1 split of circuits in favor of the minority view. The Court ruled that debtors could not modify even the unsecured portions of the mortgages on their principal residences.… Read More
Loss mitigation actions (e.g., liquidation, renegotiation) of delinquent mortgages might be hampered by conflicting goals of lenders at different seniority. In particular, a servicer has less incentive to take certain actions to reduce losses of investor-owned first lien mortgages if the servicer happens to own the second lien claim secured by the same property. Rather, the servicer has an incentive to hold up loss mitigation as it seeks to preserve the values of its own, junior, claim. The Study shows that a sizable fraction of delinquent mortgages with multiple liens are indeed characterized by the servicer holding a direct financial interest in the junior liens, but not the first-lien mortgage.… Read More
The Manuels fell behind on their mortgage and engaged the assistance of Secure Property Solutions (“SPS”) (which is not a party to this action) and Gembala, an attorney licensed in Pennsylvania and New Jersey, in what the Manuels eventually regarded as a “mortgage modification scam.”
The Manuels initially filed suit in federal district court alleging various RICO and North Carolina state law violations. The federal district court dismissed the action for lack of subject matter jurisdiction, finding that even though RICO would provide for federal subject matter jurisdiction, it would “not embark on an excursion to interpret [Manuels’] verbose, tortured amended complaint to extract a RICO claim that might, but might not, lie hidden or buried somewhere within it.” The Manuels sought leave to file another amended complaint, but prior to a ruling by the federal district court, the Manuels brought suit in Bladen County Superior Court with substantially similarly allegations.… Read More
Following foreclosure and bankruptcy, the Debtors raised claims against Bayview under the West Virginia Consumer Credit and Protection Act. The statute of limitations provides that:
With respect to violations arising from other consumer credit sales or consumer loans, no action pursuant to this subsection may be brought more than one year after the due date of the last scheduled payment of the agreement. W. Va. Code § 46A-5-101(1) (emphasis added).
The sole issue in this case was whether the “the due date of the last scheduled payment of the
agreement” was the loan acceleration date or the loan maturity date.… Read More
This paper investigates whether homeowners respond strategically to news of mortgage modification programs. The authors exploit plausibly exogenous variation in modification policy induced by U.S. state government lawsuits against Countrywide Financial Corporation, which agreed to offer modifications to seriously delinquent borrowers with subprime mortgages throughout the country. Using a difference-in-difference framework, the authors find that Countrywide’s relative delinquency rate increased thirteen percent per month immediately after the program’s announcement. The borrowers whose estimated default rates increased the most in response to the program were those who appear to have been the least likely to default otherwise, including those with substantial liquidity available through credit cards and relatively low combined loan-to-value ratios.… Read More
On March 4, 2011, the New York Times described a settlement (“settlement”) proposed by a consortium of state attorneys general (AGs) to large mortgage servicers. The claims to be settled reportedly relate to failures to follow existing procedural rules relating to the foreclosure process. The settlement would make dramatic changes in those rules, and reportedly require a mortgage loan principal reduction program of $20 to 25 billion. The purpose of this study is to review how such a settlement would affect the housing market and the larger economy.
The authors find that the proposed settlement would generate significant unintended negative consequences for housing and financial markets.… Read More