Servicers Are Lying About Your Eligibility for a Loan Mod

I often get interesting opportunities to do things for clients that I can share with you, our audience. This week, I was asked to review a Pooling and Service Agreement for a client in California.

By the way, this blog post is really long….so be forewarned. I didn’t intend for it to be so long, but it turned out that I had a lot of good information to share and didn’t want to make it into two posts.

This particular client has an Indy Mac serviced loan, and those of you with Indy Mac serviced loans might want to pay special attention to what I’m about to share with you.

Many of you have written to tell me that the servicers on your loans will not reveal who the investor is on your loans. What’s interesting about Indy Mac is that when my client received the Notice of Default, the NOD revealed the name of the mortgage pool that her loan was purportedly in.

As a side note, for those of you who are still trying to figure out who your investor is, send a Qualified Written Request (”QWR”). One of the questions in your QWR should be asking for the name of the mortgage pool. Send your QWR EARLY in the default process so you have enough time to gather all the information before you have to make a decision about how to proceed. More information is better in terms of your defense to a foreclosure.

Another way to find out who the servicer is to use a Debt Verification Letter (”DVL”). The best opportunity you’ll have to do this is when you receive the Notice of Default (”NOD”). Most of the time these letters have language on them that says “This letter is an attempt to collect a debt and any and all information collected will be used for that purpose…….”

This is the perfect time to write to the party sending you the NOD to let them know that you’re disputing the debt under the Federal Fair Debt Collections Practice Act (”FDCPA”). After all, you’re asking a reasonable question: Who are you and what makes you think you can foreclose on my property?

The FDCPA states that if you notify the party attempting to collect within thirty days of the date of the letter, advise them that the debt is disputed, and ask for the name of the original creditor, they are required to tell you who the creditor is and verify the amount of the debt. If your loan is in a mortgage pool, this is a good time for the servicer to come clean and reveal who the investor is because they would technically be the party with authority to foreclose (assuming your loan is actually in the pool, which is another issue and blog post!).

This type of letter is called a debt verification letter (”DVL”). I haven’t seen a lot of people using the DVL, so be sure to use this to your advantage.

As for the mortgage pool that my client’s loan is in, the pool’s name is called INDX Mortgage Loan Trust 2005-AR7. I just finished reviewing the PSA and am in the process of summarizing the contents. Many of you have told me that you get confused about how to search the EDGAR database, so if you want to take a look at this particular PSA, go here. (Note: if you have trouble searching the SEC’s EDGAR database, a Google search of the name of the pool will usually lead you right to the page on the SEC’s website.)

So, here’s what I’ve learned so far. Keep in mind, I’m not an expert: this is basically what I’ve learned through working with clients and studying their documents.

Before a loan can be pooled, it has to have been sold twice already before the bank would put it into the mortgage pool. This is to make the loan “bankruptcy proof,” because when a party files for BK, the trustee can bring an asset back into the debtor’s estate if it was sold or transferred within the previous twelve months.

Also, my understanding of the PSA’s is that they are all substantially the same! This is hard to believe, but when you think about the size of the agreement, I think the mortgage pools all used the same agreements because someone originally had to get the approval of the Securities and Exchange Commission. In theory, once you have the “blessing” from the SEC, there was no reason to draft another agreement and go through the approval process, so most of the mortgage pools used the same format.

The first section of the PSA is definitions. These are defined terms, which are a standard part of many contracts and is used to define terms as they are used within the agreement.

The second section is called “Conveyance of Mortgage Loans; Representations and Warranties.” This section governs the procedure for conveying the loan into the pool. Section Four governs the distributions and advances by the Servicer to the Trust; Section Five discusses the Certificates; Section Six talks about The Depositor and Master Servicer; Seven discusses Default; Eight is Concerning the Trustee; Nine is Termination and Ten is the Miscellaneous Provisions. There are also quite a few Exhibits attached to the PSA.

The only piece I did not find is the Mortgage Loan Schedule, which is essentially a list of all the mortgages pooled in this particular mortgage pool. This particular pool had around $720 million dollars worth of pooled mortgages, all of which appear to be in California, so the schedule is likely very long, too long to be posted to the internet.

Essentially, mortgage pooling works like this: the Seller, in this case Indy Mac FSB (meaning the actual BANK), transfers (sells) the Seller’s interest to the Depositor, Indy Mac MBS (another Indy Mac entity — MBS “means mortgage backed securities”), which means they are basically selling the bank’s interest in the mortgage to itself through another of its entities.

At the same time, the Depositor transfers all of its interests in the mortgages to the Trust, which is “INDX Mortgage Loan Trust 2005-AR7,” and the Depositor makes Deutsche Bank the Trustee of the Trust.

At the same time, the Seller/Depositor is required under the PSA to deposit the actual mortgage loan file with the Trustee. This means that if your loan is in a mortgage pool, the Trust should have the actual mortgage file for your loan.

The PSA has many requirements for the pooling of mortgages, but as we all know, much of the time they don’t follow their own agreements. If they are selling the mortgages to themselves, who is going to object if they don’t do it correctly?

A requirement of the PSA is that the Notes are supposed to show the chain of endorsement on the back of each note before it is deposited in the Trust.

Also interesting is that the PSA requires that if a loan was not a MERS originated loan, that the assignment be completed, RECORDED, and placed into the file. This means that in many cases, the Trusts were not even abiding by their own PSA’s! Most of the time, the MERS assignments happen at foreclosure or after the Notice of Trustee’s Sale is recorded, which means the parties in many foreclosures aren’t paying attention to their own agreements.

The other thing I found interesting is that the Trustee is not required to perform any due diligence with regard to the documents in its files, meaning that they have no obligation to make sure the documents in its files are complete and in compliance with the rules of the PSA.

Talk about contradictory! The PSA in many instances says one thing in one place and the complete opposite in another paragraph.

Oh, and for those of you who have been told that you don’t “qualify” for a loan modification, the servicer is lying to you! According to Section 3.06 (note, this is going to get a little wordy, but stay with me here):

Collection of Mortgage Loan Payments; Servicing Accounts; Collection Account; Certificate Account; Distribution Account

(a) In accordance with and to the extent of the Servicing Standard, the Master Servicer (IndyMac Mortgage Servicing) shall make reasonable efforts in accordance with the customary and usual standards of prudent mortgage servicers to collect all payments called for under the Mortgage Loans to the extent the procedures are consistent with this Agreement and any related Required Insurance Policy. Consistent with the foregoing, the Master Servicer may, in its discretion (i) waive any late payment charge, …….prepayment charge in connection with a Mortgage Loan, and (ii) extend the due dates for payments due on a Delinquent Mortgage Loan for a period not greater than 125 days. In connection with a seriously delinquent or defaulted Mortgage Loan, the Master Servicer may, consistent with the Servicing Standard, waive, modify or vary any term of that Mortgage Loan (including modifications that change the Mortgage Rate, forgive the payment of principal or interest or extend the final maturity date of that Mortgage Loan), accept payment from the related Mortgagor of an amount less than the Stated Principal Balance in final satisfaction of that Mortgage Loan, or consent to the postponement of strict compliance with any such term or otherwise grant indulgence to any Mortgagor if in the Master Servicer’s determination such waiver, modification, postponement or indulgence is not materially adverse to the interest of the certificateholders…….” (emphasis added by Christine)

By the way, the Servicing Standard is defined as “That degree of skill and care exercised by the Master Servicer with respect to mortgage loans comparable to the Mortgage Loans serviced by the Master Servicer for itself or others.”

So, I think it’s clear that the servicers are lying to homeowners. The particular client in question here got a bit further with Indy Mac when she cited the paragraph under the PSA that stated that they could modify the loans!

The reason the servicers are lying? Because the agreement is set up so that they get most of the benefits, such as late payments, fees and other charges to the borrower.

So, if a servicer asks you to pay a $1500 fee for a loan modification, it goes right into their pockets, as do late payments and other administrative fees you might pay to the servicer. Also, once a mortgage goes into foreclosure, the servicer no longer has to keep paying the trust the mortgage payments. In short, the PSA appears to be structured to benefit the servicer, and the servicer gets more money by foreclosing than it does in working out a loan modification.

Although it’s very long and possibly hard to understand, I do suggest you read through the PSA if you find out your loan is pooled. It provides a wealth of information that I think can help you fight foreclosure, especially if you can point out to a judge that the servicer isn’t abiding by its own PSA, among other things.

Do you have questions about the PSA? Let us know, or send me an e-mail: christine@desertedgelegal.com.

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