CITIGROUP Agrees To Pay Freddie Mac $395 Million For Toxic Mortgages & Poor Loan Servicing

#Citi

"Citigroup To Pay Freddie Mac $395 Million To End Mortgage Claims"

Citigroup Inc. (C), the third-biggest U.S. bank, agreed to pay Freddie Mac $395 million to resolve repurchase claims on soured mortgages sold to the government-backed firm over more than a decade.

The accord covers about 3.7 million loans sold to Freddie Mac between 2000 and 2012, the New York-based company said yesterday in a statement. The payment was covered by repurchase reserves as of June 30, Citigroup said.

The biggest U.S. home lenders, including Bank of America Corp.and Citigroup, faced mounting pressure after the housing crisis to resolve claims on faulty mortgages sold to Fannie Mae and Freddie Mac, the U.S.-owned firms that took a $187.5 billion bailout. Citigroup announced a deal in July to pay Fannie Mae $968 million for loans over a similar period.

The deal with Freddie Mac is “another important milestone in successfully resolving Citi’s remaining legacy mortgage issues,” Jane Fraser, chief executive officer of the firm’s CitiMortgage unit, said in the statement.

The accord doesn’t release the bank from liability tied to servicing the loans.

It excludes less than 1,000 loans from the period with “certain characteristics,” including those already in the process of being repurchased. Citigroup said it believes it’s also adequately reserved for those.

The biggest U.S. home lenders, including Bank of America Corp. and Citigroup Inc. faced...

The company had $719 million in reserves for buying back faulty mortgages at the end of the June, according to a July 15presentation.

The bank added $3.9 billion to its reserves since 2009 through June, according to data compiled by Bloomberg.

U.S. Seizure

Freddie Mac and Fannie Mae, its larger rival, bought about $2.2 trillion of mortgages from the 15 biggest banks and Ally Financial Inc.

(ALLY) between 2006 and 2009, according to Inside Mortgage Finance, a trade journal.

Regulators seized the two firms in 2008 after their purchases of risky loans pushed them to the brink of collapse.

Citigroup sold $62.4 billion of mortgages to Freddie Mac between 2005 and 2009, according to data from Washington-based Compass Point Research & Trading LLC.

The bank’s CEO, Michael Corbat, 53, named Fraser in May to run the mortgage operation.

She has sought to reduce staff and move beyond legacy issues.

Citigroup said earlier this week it’s cutting about 1,000 jobs in its home-lending business as refinancings slow.

The bank said earlier this month that it closed a Danville, Illinois, facility, leading to 120 job cuts, and fired some telephone sales agents.

Separately, the firm is hiring employees to originate new mortgages for home purchases as opposed to refinancings, a person familiar with the moves said this week.

Citigroup created $65 billion of mortgages last year, or about 3.4 percent of the total market, according to Inside Mortgage Finance, a trade publication.

#CITI

CITI MORTGAGE IGNORED OBAMA'S NATIONAL MORTGAGE SETTLEMENT BY PUSHING FAKE LOAN MODIFICATIONS TO STEAL HOMES!!

THAT'S HOW CITI'S PROFITS SOARED!!

In February 2012 Pres Obama signed a National Settlement Agreement w/ the CEOs of America's four largest Banks: BOFA, Chase, Citi & Wells Fargo.

Another MORTGAGE SETTLEMENT was signed in January of 2013.

Since then both BOFA & Citi have basically ignored the Terms of this Settlement.

Especially Citi Mortgage!

Yet Congress allowed Citi Mortgage to rake in huge PROFITS at the expense of Struggling Homeowners, many whom are now Homeless because Citi Mortgage Stole their Homes via FAKE Loan Modifications.

So How was this being done?

Five Different Ways: (FORT MILL, S.C. & O'FALLON, MO. LOCATIONS)

**1) Send Struggling Borrowers on a Wild Goose Paper Chase by asking them to send in the SAME Financial Docs over & over again.

**2) Hire Loss Mitigation Specialists, Poorly train them & Use their names to Foreclose on Millions of Properties.

**3) String Borrowers along on a Doc Chase until the Foreclosure Statue of Limitations in each State Expires.

**4) Grant only allow a Handful of Borrowers HAMP Certifications.

**5) Reward Managers & Loss Mitigation Specialists Huge Bonuses for helping to Steal Homes from Struggling Borrowers via FAKE Loan Modifications.



Sources: AP; Bloomberg; NJ.com; NY Times

BOFA Claims It Will "Really" Begin To Help Homeowners

Bank Of America Vows To Do More For Harried Borrowers


Bank of America Corp.'s top mortgage executive will tell a Senate panel today that the Charlotte bank is taking steps to improve loan modification and foreclosure processes that have confounded many struggling borrowers.

Among the changes, the nation's biggest Mortgage Servicer has started giving borrowers a single point of contact in the modification process, Barbara Desoer says in written testimony submitted to the Senate Banking Committee. Homeowners often complain about being passed from department to department when they're seeking agreements to reduce their payments.

The bank is also looking to change an industrywide practice of considering a borrower's modification request, while also taking steps toward foreclosure, she says. This so-called "dual-track" system has led to incidents in which borrowers face foreclosure proceedings even as they're working out modifications.

Bank of America doesn't "claim perfection," Desoer says in her prepared remarks, but continues to "put forward solutions that respond to customer needs."

The bank is working with state attorneys general and other parties as it makes changes to its approach, Desoer says. Last week, bank executives were in Iowa for discussions with state officials who are leading a probe of foreclosure practices at the nation's biggest lenders. N.C. Attorney General Roy Cooper and some of his peers have indicated that changes to modification programs may be a potential remedy.

Desoer and a JPMorgan Chase & Co. mortgage executive are likely to face tough questions from senators angered over allegations that banks employed so-called "robo-signers" who rapidly approved foreclosure documents without properly reviewing them. Iowa Attorney General Tom Miller is also on the witness list.

Bank of America became the nation's largest mortgage servicer in 2008 when it bought ailing Countrywide Financial Corp. It now administers about 14 million customer loans - about one in five U.S. mortgages.

More than 86 percent of Bank of America customers are current on their loans and making their payments, Desoer notes. But the bank has had to focus extensively on the portion of customers in default or struggling to make payments. Of the 14 million loans, about three-fourths are owned by investors such as Fannie Mae and Freddie Mac, complicating efforts to reach modification agreements.

As it looks to improve the modification process, the bank has assigned 140,000 customers a single case manager to handle questions, according to Desoer's testimony. Wells Fargo has said it will implement a similar approach for certain Wachovia customers as part of a settlement announced last month. The San Francisco-based bank has also said it's providing a single point of contact to customers who make new modification requests.

Among other changes, Bank of America is looking to create a "customer status checklist" that will show customers where they stand in the process. The bank also plans to double its staff that works with customers face-to-face either at Bank of America offices or alongside nonprofit groups. Other steps may come up in the bank's "constructive and continuing conversations" with Miller and other attorneys general, Desoer says.

Meanwhile, Bank of America has halted foreclosure sales in 50 states as it reviews its processes. The bank believes the basis for all of its foreclosures has been accurate, but it has identified "areas for improvement," Desoer says. The bank has changed its affidavit forms, installed extra quality control checks and changed procedures for hiring outside lawyers. "Every affidavit will be individually reviewed by the signer, properly executed and promptly notarized," she says.











Moynihan "Surprised" By N.Y. Fed Letter


Bank of America Corp. chief executive Brian Moynihan said he was surprised when the Federal Reserve Bank of New York and investors sent a letter pushing the firm to repurchase soured mortgages pooled into securities.

The bank expects to resolve the dispute, which could pressure Bank of America to foreclose on borrowers more quickly, Moynihan, 51, said Thursday in Boston at a presentation to banking analysts.

"I don't think we should be put in a position where we aren't trying to help homeowners through this strife because people want us to foreclose faster," he said.

Bank of America shares declined 4.4 percent on Oct. 19 after news of the letter signed by the New York Fed, Pacific Investment Management Co., BlackRock Inc. and others, alleging the bank's Countrywide Financial Inc. subsidiary didn't service loans properly. The New York Fed acquired mortgage debt through its 2008 rescues of Bear Stearns Cos. and American International Group Inc.

"The fact that they signed the letter from your standpoint surprised you, it surprised me, and it is a surprise to a lot of people," Moynihan said, referring to the bondholders. "We have disputes with them about other assets in those pools and we've resolved them."

Bank of America, the largest U.S. lender, has said it has formal outstanding demands from mortgage investors seeking repurchases of almost $13 billion of loans that may have failed to accurately document key data, such as income and home values.

The Charlotte-based bank is also among lenders facing being investigated by state attorneys general over its handling of foreclosures.

Moynihan said he called BlackRock Inc. CEO Larry Fink to discuss the dispute.
Bank of America said Wednesday it would reduce its 34 percent stake in BlackRock, preferring to use the capital for its own businesses. The bank will remain a strategic partner of BlackRock, the world's largest asset manager, for a long time, Moynihan said.

The bank said last month it would start resubmitting foreclosure affidavits in 102,000 cases in which judgment is pending. Amid pressure from lawmakers and state officials, bankers have delayed action in order to review filings that some borrowers claim were marred by so-called robo-signing, in which employees vouched for the accuracy of court statements without personally checking loan records.

The mortgage-bond investor group including BlackRock says Bank of America's foreclosures take too long because of missing documents, processing mistakes and insufficient staffing to evaluate borrowers for loan modifications, Kathy Patrick, their lawyer at Gibbs & Bruns LLP, said Oct. 19.

Moynihan responded Thursday to a question on whether Bank of America would consider a bankruptcy of Countrywide to limit potential losses from distressed home loans.
"We don't see any liability that would make us think differently about working through this in the ways we are working through this," he said.





Did Bank Of America Try To Buy DNC 2012 With Loan?

Pajamas Media roots into FEC filings to discover that Bank of America loaned the Democratic National Committee and the Democratic Congressional Campaign Committee $32m. last month while asking for nothing more than future contributions as collateral. Such de facto mailing list valuations are an extremely flimsy basis for securing a loan. PJM asks:

Were the Bank of America deals legitimate, arms-length transactions, or were they cozy sweetheart deals in which nothing was really put up to secure a $32 million loan?

But one question not asked is the connection between the loan and Charlotte’s ongoing pursuit of the DNC’s 2012 convention. We already know that BAC CEO Brian Moynihan has been called President Obama’s favorite banker and that the bank’s exec team — like the rest of the Uptown crowd — is full-on behind landing the convention for Banktown USA. Plus we have ample local precedent for BAC throwing millions in sweetheart loans at favored endeavors — the US National Log Flume Ride and France Family Convention Center Annex being two glittering, irrefutable examples.

BAC has yet to respond to PJM inquires with details about the loans — but you know what is coming. BAC will say there is a legit business purpose to the loans and any suggestion to the contrary is counter-factual.




Did The DNC Get an Illegal Campaign Loan from Bank of America? (PJM Exclusive)

Shortly after Labor Day, as polls continued to sink, the Democratic National Committee (DNC) realized it needed a cash infusion for the upcoming midterm elections.

Its chairman, former Virginia Governor Tim Kaine, turned to the Bank of America to secure a $15 million revolving credit line. Then, in the middle of this month, the Democratic Congressional Campaign Committee (DCCC) got another loan from BofA for an additional $17 million.

What was their collateral? It turns out, not much.

The DNC claims their collateral was an intangible piece of property — its donor mailing list. The DCCC only cites unnamed “assets.” Neither party organization possesses real estate even close to cover the $32 million. The DNC’s headquarters is owned by another entity. Even it was put up as collateral, its market value was last estimated at only $13.7 million.

Were the Bank of America deals legitimate, arms-length transactions, or were they cozy sweetheart deals in which nothing was really put up to secure a $32 million loan?

And if it was the latter, could it be considered an illegal campaign contribution from the largest bank holding company in America?

There also is troubling evidence that two days before closing on the loan transaction, the DNC changed its own privacy provisions to allow the selling or sharing of private donor data.

BofA has been a longtime friend of Democrats. In the 2008 election cycle, BofA gave its largest single campaign contribution to then-Senator Barack Obama. According to Bloomberg News, BofA’s new CEO, Brian Moynihan, is considered Obama’s top political ally on Wall Street.

On the eve of the midterm elections, the appearance of preferential loans from cozy Wall Street bankers could play badly with the electorate. What message does a largely unsecured $32 million credit line for the Democratic Party send to thousands of cash-starved small businesses across the nation who can’t secure any credit even with tangible assets?

The findings are part of an exclusive Pajamas Media investigation.

The DNC Loan Agreement as posted online by the Federal Election Commission (FEC) and signed by former Virginia Governor Tim Kaine (D) on September 16, 2010, says the loan collateral included: “All electronic mail (‘E-mail’) addresses and other contact lists, records and other Information (electronic or otherwise) relating to contributors, supporters and subscribers owned by any of the Borrowers.” The borrowers in this case were the DNC and the DNC Services Corporation.

The loan agreement further stipulates that if the Democrats defaulted, Bank of America would be entitled to “proceeds from any fundraising activity, refunds, reimbursements, or proceeds from the rental or sale of mailing, contact or subscription lists or Information (electronic or otherwise).”

One key to understanding the problems behind the $15 million loan is determining what the donor list is actually worth. The DNC filings with the FEC do not attach any independent appraisal documents or list broker evaluations to establish the list’s fair market value.

Senator John McCain once tried to use his presidential donor list as collateral for a loan. He valued his Republican donor list as worth $3 million. The bank rejected the loan.

Trying to fix a value on an intangible mailing list is very difficult.

“Donor lists do have value, but very fleeting value,” Ken Boehm, chairman of the National Legal and Policy Center, told Pajamas Media. “Lists do deteriorate and $15 million is an awful lot of money. So if the bank ends up with the list because the party is broke, where are they going to get their money?”

A senior executive who is part of a national U.S. bank told Pajamas Media that a data list would be a weak basis for a $15 million loan. He gave his comments on the grounds that he would not be publicly identified. He said he was “somewhat skeptical of a donor list as adequate collateral for a $15 million credit line.”

But if the value is not $15 million, it could be considered a substantial campaign contribution to the Democratic National Committee. And that could be illegal.

“The DNC would have to demonstrate it’s an arms-length, commercially reasonable, properly collateralized loan,” says Cleta Mitchell, a Washington-based attorney with Foley & Lardner LLP and an expert on campaign finance law. She says there needed to be some outside way to assess or appraise the list before the line of credit could be approved. “Otherwise, it’s an illegal contribution from a national bank,” she says.

Hans von Spakovsky, a former commissioner on the Federal Election Commission, agrees. Unless the DNC or BofA conducted an independent appraisal, the loan could be considered an illegal campaign contribution. “The FEC would require an independent appraisal of the fair market value of the list that supports the amount of the loan. Otherwise as a commissioner I would consider this an illegal contribution,” he told Pajamas Media.

In 2005, ATA attorneys for direct mail pioneer Richard Viguerie told the Federal Election Commission that ATA could not get credit using its mailing lists as collateral. Concerning its own client’s many mailing lists, ATA told the FEC that as a standard business practice, “the collateral is the mailing lists. Banks have informed ATA that this is not the type of collateral that banks use to extend credit.”

Without independent documentation, Mitchell told Pajamas Media, “you would never be able to say that their mailing list was worth $15 million. A bank would have to discount the value. So a bank would have to say it was worth at least twice that to get to $15 million.” That, she emphasizes, does require an arms-length appraisal and documentation.

Pajamas Media contacted both the Democratic National Committee and Bank of America for comment and details surrounding the transaction. As of this posting, the DNC has not replied to our inquiries. A communications person from BofA did return our phone call but could not respond to our query. [Update: They did after the piece ran; see addendum below.] She promised she would get someone to respond.

Boehm and Mitchell point out that many campaigns frequently take out short-term, temporary loans as bridge loans until new contributions come in. Most promise to pay it off before the election. The BofA terms are different.

The bank states that the first payment of principal will not be required until February 28, 2011, well after the November elections. Final payment for the debt will not be required until December 2011. What if the party found itself in deep debt after losing one or both houses of Congress?

As of October 13, the DNC reported $13.5 million of cash on hand with debts of $7.7 million. Their total worth was $5.8 million with three more weeks of campaigning ahead. (The Democratic Congressional Campaign Committee took out an additional $17 million credit line on October 21.)

There is also the issue of whether on the eve of the loan, the Democrats altered their own privacy policy about sharing private donor data. On September 14, two days before executing the loan, the DNC changed its privacy policy web page. The site initially states that their privacy policy is not to share private data: “It is our policy not to share the personal information we collect from you.”

However, the site adds in its last line that indeed it might share private information if it is the result of an “asset sale or in any other situation where personal information may be disclosed or transferred as one of the assets of the DNC.”

Is it simply a coincidence that the last item of this section acknowledges the DNC might share private information as a result of an asset sale to a third party? Or was it added to accommodate the new collateralized loan?

Other Democratic Party web sites strictly forbid the sharing of their mailing lists unless authorized by the individual. For example, one local Democratic website directly state to its supporters: “We will not give, sell or rent your email address to any other organization unless you specifically authorize us.”

The Democrats’ long-time sweetheart relationship with the banking world and with the Bank of America in particular creates the appearance of an insider deal.

BofA was very generous to Barack Obama when he ran for President. Campaign finance records show that in the 2008 election cycle, Senator Barack Obama was the top recipient of Bank of America campaign donations, reaping $421,000.

BofA’s new CEO, who took over from embattled Kenneth Lewis, is considered one of the Obama administration’s top Wall Street allies on a whole host of issues, from the creation of a consumer regulatory agency to the defense of the administration’s home mortgage fiascoes.

Here’s what Bloomberg News reported about the Moynihan-White House axis last May when he was the number two at BofA:

“He has been willing to speak out bravely in his industry on the need for reform measures,” says Valerie Jarrett, Obama’s liaison to corporate America who has met with Moynihan at the White House several times. “And he has been willing to come to Washington and roll up his sleeves and work on the issue.”

The history between BofA and Democrats goes back years. One highly publicized political scandal linked the bank and Democrats to the subprime mortgage giant Countrywide Financial, which BofA acquired more than two years ago. Countrywide CEO Angelo Mozilo gave preferential below market mortgages to leading Democrats like Connecticut Senator Chris Dodd, the chairman of the Senate Banking Committee. After the disclosure of the mortgage favors, both Dodd and Senator Kent Conrad (D-SD) decided not to run for re-election.

Dodd and other Washington Democrats belonged to a group of VIP loan recipients known in company documents and emails as “FOAs” — Friends of Angelo, a reference to Angelo Mozilo.

“This (type of loan) isn’t something that’s generally offered to the general public, but it looks like it is something of a sweetheart deal,” observes Boehm about the new BofA credit line to the DNC. “Usually when you see this it is banks with a relationship with candidates and we see that all over the place. We saw that with Countrywide,” he told Pajamas Media.

Allowing third parties access to donor mailing lists as part of financial transactions can be tricky business. For years Democratic activists hounded Republican Sen. John Ashcroft about the third party use of his mailing list. The Federal Election Commission fined his campaign $37,000.

The issue may not play well with voters either. Getting an easy line of credit may not sit well with cash-starved small businesses that have sought loans during the bad economy — even when they tried to collateralize it with real, not abstract assets.

The question is, will the DNC come clean and open their books on the transaction?

Update:

Jefferson George, a Bank of America spokesman, responds:

First, the answer to the question raised in the headline – “Did the DNC Get an Illegal Campaign Loan from Bank of America?” – is no. We follow all Federal Election Commission guidelines in our financial transactions with political parties and apply the same underwriting standards to these organizations as we do to any other institutional borrower. We also work closely with outside campaign finance legal experts to structure and document these transactions. These agreements are required to be arms-length transactions, and we are very careful with how we underwrite these loans.

As I mentioned, we have always had relationships with committees that represent political parties on both sides of the aisle. Our banking relationship with the Democratic Party dates back more than 30 years, well before the current administration. We also have provided loans for Republican candidates and committees. For instance, we provided financing for Mitt Romney’s 2008 presidential campaign.

Regarding the loans to the DNC and DCCC, due to client confidentiality obligations, we can’t discuss specific loans publicly beyond what is disclosed by the FEC, and we would refer you to those individual organizations. We can say, however, that collateral for these types of loans may include many things, and donor lists usually are insignificant compared such security measures as blanket liens against all assets, including accounts receivable. This also assumes a client doesn’t have adequate cash flow from the collection of contributions. Other factors in considering a loan include a client’s history with repaying loans on time or ahead of schedule.

Update (5:10 PM PDT):

More from Jefferson:

Thanks for this. Saw the updated story. One clarification, and it was my error: We didn’t provide financing for Romney. Rather, we had — and have — a banking relationship, handling deposits and providing other cash management services. And that relationship is still active.

Update (8:00 PM PDT):

Richard Pollack adds:

The nub of the story is that Bank of America refuses to confirm that an independent appraisal was done for the issuance of two huge loans to the Democrats totaling $32 million. While the bank might wish to invoke confidentiality, in the post-partisan era promised by President Obama, transparency around this particular loan is vital. This is especially true if there are allegations of violations of law.

The scope of the BofA small business loan to the Democrats is breathtaking. According to CNN/Money, in 2009, the bank issued 308 loans to small businesses totaling $17.6 million and in 2010 it issued 185 loans totaling $22.8 million. So the size of the Democrats’ two loans dwarfs all loans to small businesses in each calendar year. I wonder how credit-starved small business owners would feel about these Democrat loans tonight.

In that CNN/Money article, Mr. George was interviewed, saying, “Among those seeking loans, the creditworthiness of many businesses has changed. Cash flow — the most important factor — often is down. The value of collateral, such as real estate or equipment, has decreased.”

Mr. George had it right. Collateral is everything. The public has a right to know what is the collateral behind the $32 million in loans. Otherwise, it can be regarded as a gift, and patently illegal under federal campaign finance laws.

(Update: 7:54 AM PDT, 10/28):

More from Jefferson:

Your last update at 8:00 pm ET is incorrect. The numbers you cite from the CNN/Money story are for SBA loans. That was clearly stated in the story, and SBA lending is a very small percentage of Bank of America’s total lending to small businesses. In 2009, Bank of America loaned $16.5 billion to small businesses. Through the third quarter of 2010, Bank of America loaned $13.9 billion to small businesses.

Beyond direct lending, Bank of America works with Community Development Financial Institutions (CDFIs) to provide financing and technical assistance to businesses that don’t qualify for traditional financing. As the leading financial institution supporting CDFIs, the bank provides $1 billion of capital – including more than $200 million to CDFIs that finance small businesses in lower-income communities. Bank of America also recently launched a grant program for CDFIs and other nonprofit lenders, aimed at unlocking $100 million in low-cost, long-term capital for small and rural businesses. To date, the bank has awarded grants that allowed CDFIs to access nearly $27.5 million in lending capital.

In addition, Bank of America has made a commitment to increase spending with small, medium-sized and diverse businesses. The bank’s pledge to purchase $10 billion in products and services from those suppliers over the next five years will provide much-needed income for those businesses. Finally, Bank of America recently announced it will hire more than 1,000 Small Business Bankers by early 2012. Based in communities across the U.S., these bankers will consult with small business owners, spend time at their offices and assess their companies’ deposit, credit and cash management needs.

(Update:7:56 AM PDT, 10/28): Richard Pollock responds:

Thank you for your additional comments on behalf of Bank of America. We will post them in full.

As for the substance of your comments:

Actually, I understated the case in your favor by citing the CNN/Money figures. These loans are not to your smallest business customers, which are really hurting in the credit crunch. It’s your biggest SBA (7) loan portfolio, which is the government backed loan program for small businesses through the Small Business Administration.

Your $32 million dwarfs those loans, many of which have been in trouble because of deterioration in collateralized assets. Your former CEO, Ken Lewis, has admitted this repeatedly. That’s why more conservative rules need to be applied in this economic downturn, not more relaxed standards. The Democratic National Committee and the DCCC will continue. No doubt. But its indebtedness after its most expensive and probably losing mid-term election cycle may put it in a precarious state until the presidential campaign. If may twist on an old financial cautionary warning: past performance is not a guarantee of future results. In 2010, the DNC and the DCCC may face substantial indebtedness and will have to repay the loan through 2012 as well as re-build their donor base.

I strongly recommend that your urge your clients, the DNC and DCCC, to be transparent and back up the collateral for their $32 million lines of credit. Failure to do so will only give the public the impression that there was a sweetheart deal here, and perhaps even the appearance of unlawful activity as well.


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Sources: Bloomberg.com, CNBC, McClatchy Newspapers, Pajamas Media, Wikipedia, Youtube, Google Maps

North Carolina Joins National Foreclosure Fraud Probe

N.C. Joins Multi-State Foreclosure Inquiry


N.C. and S.C. officials are joining a multi-state, bi-partisan investigation of foreclosure practices at the nation's mortgage loan servicers.

"Our multi-state group has begun inquiring whether or not individual mortgage servicers have improperly submitted affidavits or other documents in support of foreclosures in our states," the group said in a statement today. "The facts uncovered in our review will dictate the scope of our inquiry."

The effort is the latest backlash against allegations that mortgage lenders have mishandled paperwork needed to foreclose on homes. N.C. Attorney General Roy Cooper has already asked 14 lenders to halt foreclosures in the state until they show their practices comply with the law.

The controversy is the latest difficulty for struggling borrowers, a potentially costly problem for banks and a blow to an already fragile housing market.

According to the announcement, 49 attorneys general have joined the investigation, led by a dozen attorneys general offices, including North Carolina's. The N.C. banking commissioner's office is among the state mortgage regulators participating in the inquiry.

In South Carolina, the attorney general's office and the department of consumer affairs are participating.

"Serious errors have been identified in the foreclosure process and procedures of major mortgage servicers," said North Carolina's chief deputy commissioner of banks Mark Pearce, who is leaving for a post at the Federal Deposit Insurance Corp. "We intend to work with other states to ensure that homeowners are treated fairly and that mortgage companies follow the law."

The state banking commission regulates mortgage servicing of state-chartered banks and non-bank mortgage companies. It also runs the State Home Foreclosure Prevention Project, which helps homeowners avoid foreclosure.

Charlotte-based Bank of America Corp. last week said it's halting foreclosure sales nationwide in order to review its activities. Other lenders such as Wells Fargo & Co. and Ally Financial Inc. are reviewing pending foreclosures.






Bank of America Halts All U.S. Foreclosures


Bank of America, the nation’s largest bank by assets, is placing a moratorium on all foreclosure proceedings and sales across the United States, according CNBC and a report on The Wall Street Journal’s Web site. The postponement takes effect Saturday.

Separately, PNC Financial Services Group Inc. is halting most foreclosures and evictions in 23 states for a month so it can review whether documents it submitted to courts complied with state laws.

An official at the Pittsburgh-based bank confirmed the PNC decision, which was reported earlier by the New York Times. The official requested anonymity because the decision hasn't been publicly announced.

The moves come amid mounting political pressure on big U.S. banks to examine foreclosure-documentation problems. Bank of America is the first financial institution to stop all foreclosure actions amid revelations that the banking industry had used "robo-signers," people who sign hundreds of documents a day without reviewing their contents, when foreclosing on homes, the Journal said.

In a statement released Friday, Bank of America said it will stop foreclosure sales until “our assessment has been satisfactorily completed. Our ongoing assessment shows the basis for foreclosure decisions is accurate. We continue to serve the interests of our customers, investors and communities. Providing solutions for distressed homeowners remains our primary focus.”

PNC becomes the fourth major U.S. lender to halt some foreclosures amid evidence that mortgage company employees or their lawyers signed documents in foreclosure cases without verifying the information in them.







Bank Of America Gets Friday Deadline To Halt Foreclosures In N.C.

N.C. Attorney General Roy Cooper is giving Bank of America until Friday to halt foreclosure proceedings in the state amid concerns the Charlotte bank and other lenders haven't properly reviewed documents.

In a letter sent to the bank, Cooper questioned why Bank of America voluntarily suspended foreclosures in 23 states that involve a judicial process but not in its home state. North Carolina requires a "quasi-judicial" process in which clerks of court frequently review affidavits submitted by banks.

"If Bank of America has halted foreclosure proceedings in other states due to flaws in its affidavit process, we do not understand why Bank of America should routinely continue with foreclosures with the same flaws in North Carolina," Cooper's office wrote.

The attorney general wants the bank's foreclosures suspended until it shows its processes are legal. Bank of America said it's responding to officials' concerns.

"Our initial assessment findings show the factual loan information underlying our foreclosures is accurate," spokesman Dan Frahm said, adding the bank continues its "exhaustive efforts to assist our customers who have been unable to make their mortgage payments."

The statement did not address how Bank of America would respond to the Friday deadline set by Cooper.

Cooper has asked 13 other large mortgage servicers to also halt foreclosures in the state until they prove compliance. Those lenders have until Oct. 12 to respond to the attorney general's questions.

North Carolina is also seeking more information about practices at Ally Financial, which has halted foreclosure-related evictions in North Carolina and 22 other states.

In an interview, Cooper said lenders could be breaking an N.C. law requiring a good-faith effort to work out loan modifications if they're improperly handling foreclosure paperwork. One of his main concerns is that homeowners get a "fair shot" at loan modifications, he said.

The attorney general has broad powers to investigate unfair and deceptive business practices, including assessing civil penalties. Cooper said he didn't want to discuss possible penalties until he has heard back from the lenders.

"We are looking to work with the lenders to make sure they get it right," he said.

Among the lenders, Wells Fargo has said its procedures are appropriate and that it doesn't plan to halt foreclosures. BB&T and HSBC also said their processes comply with the law. Citigroup said it doesn't believe a suspension is necessary because it has no reason to believe its employees haven't been following procedures. JPMorgan and Ally have said they are reviewing affidavits and will fix any problems.

SunTrust said it's reviewing the attorney general's letter, while MetLife said it intends to cooperate. OneWest declined comment. Others didn't respond or couldn't be reached.

The attorney general's move comes after Bank of America, Ally and JPMorgan Chase stopped some foreclosure-related actions in about half of the country after concerns that employees and outside lawyers signed documents without verifying information. JPMorgan's moratorium includes North Carolina.

Attorneys general in other states and members of Congress have also called for foreclosure suspensions as well as investigations of lenders' procedures. On Wednesday, Sen. Richard Shelby, R-Ala., called on bank regulators to review the foreclosure activities at Bank of America, JPMorgan and Ally.

In some cases, in a process nicknamed "robosigning," bank employees have said they have rapidly signed documents, raising questions about whether they are properly verifying information about homes that are being foreclosed upon. In a deposition obtained by the N.C. attorney general, a Bank of America employee in Texas testified that she would sign as many as 8,000 documents in a month, often in batches.

In another case, a Wells Fargo supervisor based in Fort Mill testified to signing 50 to 150 documents per day. A Wells spokesman noted a judge reviewed the bank's procedures and dismissed the borrower's case, confirming the foreclosure as valid.

Although foreclosures are traumatic for homeowners and damaging to neighborhoods, analysts say the selling off of these homes to financially stable buyers is an important step in a much-needed recovery for the housing market. "If you freeze foreclosures, the overhang in housing gets worse," said Virginia-based banking consultant Bert Ely. "The market isn't clearing."

Cooper said he hopes lenders can work quickly through the process of verifying their practices.

"We don't want to stop foreclosures that are legitimate and need to happen," he said.

"We want to make sure that homeowners are getting a fair shot at keeping their homes and the process has been done legally."










New Foreclosure Mess Shows Need For Reform In North Carolina

For many North Carolina homeowners, losing their homes to foreclosure was devastating. It is beyond outrageous that many banks were so cavalier with the process that employees didn't even bother to read or verify the information in foreclosure documents.

It is even more dismaying to us that one or both of Charlotte's big banks may be among the culprits in this travesty of faulty work known as "robo-signing."

Bank of America has halted foreclosures while it investigates and straightens out faulty paperwork. It's delaying foreclosures in 23 states including South Carolina. Over the weekend, questions arose about Wells Fargo's foreclosure documents. Wells said it doesn't plan to delay foreclosures because it's confident its foreclosures documents are accurate.

We're not so confident. N.C. Attorney General Roy Cooper is right to ask lenders to suspend foreclosures in this state until they can show their process conforms with the law. Given how badly this state was hit with foreclosures, banks involved in lending to North Carolinians should be probing robo-signing practices.

Nationwide, Ally Financial's GMAC Mortgage unit and JPMorgan Chase have halted tens of thousands of foreclosures. Ally stopped evictions here and in 22 other states. Robo-signing is so prevalent more banks are expected to follow suit.

What are those practices? In some cases, bank employees admit they signed foreclosure papers without reading them or determining if crucial information - such as how much borrowers still owed on the property - is accurate. Sometimes documents were notarized illegally with indications that the notary did not actually witness the signing of papers.

These practices are unacceptable. Some appear to be illegal. The N.C. attorney general's office notified Ally last week that using unverified affidavits could constitute fraud. Cooper is right when he says that such practices could mean that "some N.C. homeowners may not be getting a good-faith shot at loan modifications."

This mess is exasperating. The reckless lending practices of financial institutions helped cause the foreclosure tsunami that swept over the country. That damage has been so hard to repair in part because many have been tight-fisted with money they could have loaned consumers and small businesses. Many lenders have been reluctant to modify mortgages, instead moving much too swiftly on foreclosure.

Some of that rush resulted in faulty paperwork that will be costly to fix. Courts may impose sanctions on lenders or force banks to pay borrowers' legal costs in these cases. Judges may even dismiss the foreclosures, barring lenders from refiling and awarding the home to the borrower.

These lenders deserve to be penalized if they failed to meet legal requirements before evicting defaulting borrowers from their homes. Consumers, who often also were losing their financial stability, deserved that consideration.

Belatedly, many lenders will now have to meet those requirements. Investigations by attorneys generals in several states and a probe by federal regulators are forcing them to do so. It did not have to come to this. But it is an apt reminder of why reforms and better oversight of financial institutions are so badly needed.


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Obama To Launch Principal Reduction Program For Unemployed Homeowners

Mortgage Modification: Principal Reduction Program For Struggling Homeowners


After months of criticism that it hasn't done enough to prevent foreclosures, the Obama administration is expected to announce Friday a plan to reduce the amount some troubled borrowers owe on their home loans.

The effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, people briefed on the plan said. It would be funded by $14 billion from the administration's existing $75 billion foreclosure-prevention program.

The people briefed on the plan asked Thursday that they not be identified because the details had not yet been announced.

The plan will also require the more than 100 mortgage companies participating in the administration's existing foreclosure prevention program to consider slashing the amount borrowers owe. They will get incentive payments if they do so.

It also will include three to six months of temporary aid for borrowers who have lost their jobs. And there will be additional payments designed to give banks an incentive to reduce payments or eliminate second mortgages such as home equity loans – a problem that has blocked many loan modifications.

The changes "will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own," an administration official said.

To date, the administration's $75 billion foreclosure-prevention program has been a disappointment. Critics have complained the program does little to encourage banks to cut borrowers' principal balances on their primary loans. Nearly one in every three homeowners with a mortgage are "under water" – they owe more than their property is worth – according to Moody's Economy.com.

An expansion of the foreclosure-prevention program has long been expected because only 170,000 homeowners have completed the process out of 1.1 million who began it over the past year.

The program is designed to lower borrowers' monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms up to 40 years. To complete the program, homeowners need to go through a three month trial period and provide proof of their income, plus a letter documenting their financial hardship.

Though $75 billion in funding is available to the more than 100 lenders who have signed up, only a tiny fraction has been spent. Lenders had received $58 million in incentive payments as of last month, according to the Government Accountability Office.

Meanwhile, one long-delayed piece of the government effort is getting off the ground.

Citigroup Inc. on Thursday joined the government's program to modify second mortgages such as home equity loans. With Citi on board, now four big owners of second mortgages have joined. The others are Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co.




Obama readies steps to fight foreclosures, particularly for unemployed


The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.

Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower's income, which would typically be the amount of unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.

The new push, which the White House is scheduled to announce Friday, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more-recent defaults reflect the country's economic downturn and the inability of jobless borrowers to keep paying.

The administration's new push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, offering financial incentives for the first time to lenders to cut the loan balances of such distressed homeowners. Those who are still current on their mortgages could get the chance to refinance on better terms into loans backed by the Federal Housing Administration.

The problem of "underwater" borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.

Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.

The measures have been in the works for weeks, but President Obama is finally to release the details days after his watershed victory on health-care legislation. Following that bruising battle on Capitol Hill, his administration is now welcoming a chance to change the subject and turn its attention to the economy and, in particular, the plight of the unemployed -- concerns that are paramount for many Americans.

The administration has been facing increasing pressure from lawmakers and housing advocates to overhaul its foreclosure prevention efforts. So far, fewer than 200,000 borrowers have received permanent loan modifications under its $75 billion marquee program, known as Making Home Affordable. In the meantime, there is a growing backlog of distressed borrowers awaiting help from their lenders, which threatens to undercut efforts to stabilize the housing market.

Challenges unmet

Assistant Treasury Secretary Herbert M. Allison Jr. told a House panel Thursday that "we did not fully envision the challenges that we would encounter" when the earlier program was launched.

The efforts have been hampered by the difficulty of helping unemployed homeowners, who struggled to qualify for the government's mortgage relief plan. In requiring temporary relief for jobless borrowers, known as forbearance, officials are hoping to give them time to find a new job. Some will still need more assistance after the six-month period while others will ultimately lose their homes, administration officials said.

"We certainly support a forbearance opportunity for unemployed borrowers," said John A. Courson, chief executive of the Mortgage Bankers Association. He said he had not seen full details of the program.

Four measures

In addition to mortgage relief for unemployed borrowers, the program features four other key elements, including several steps to address the growing population of borrowers who owe significantly more than their home is worth, according to officials who spoke on the condition of anonymity because the official announcement had not been made. Underwater borrowers now make up about a quarter of all homeowners, according to First American CoreLogic. Economists consider these homeowners at higher risk of default because they cannot sell or refinance their home when they run into financial troubles.

The first key element is that the government will provide financial incentives to lenders that cut the balance of a borrower's mortgage. Banks and other lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan.

Until recently, administration officials had been reluctant to encourage lenders to cut the principal balance, worrying that this would encourage borrowers to become delinquent. But as federal regulators have struggled to make an impact on the foreclosure crisis, those qualms have weakened.

"We would prefer to see a required principal forgiveness program. But this is helpful," said David Berenbaum, chief program officer for the National Community Reinvestment Coalition, a nonprofit housing group. "This is another tool that will help consumers weather the crisis."

Second, the government will double the amount it pays to lenders that help modify second mortgages, such as piggyback loans, which enabled home buyers to put little or no money down, and home equity lines of credit.

These second mortgages are an added burden on struggling homeowners, especially when their total debt, as a result, is greater than their home value.

Federal officials have estimated that about half of all troubled homeowners have a second mortgage and last year launched a program to encourage lenders to restructure them. That effort has struggled to get off the ground.

Third, the new effort also increases the incentives paid to those lenders that find a way to avoid foreclosing on delinquent borrowers even if they can't qualify for mortgage relief. For example, the administration is scheduled to launch a program next month encouraging lenders to have borrowers sell their homes for less than the mortgage balance in what is known as a short sale.

Fourth, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. The aim is to help these borrowers refinance into a more affordable loan. The FHA will offer incentives to lenders that reduce the amount borrowers owe on their primary mortgages by at least 10 percent.

For those borrowers who have more than one mortgage on their house, the FHA will allow refinancing of the first loan only. The new loan and any second mortgage could not exceed 15 percent of the home's value. This approach is meant to benefit not only borrowers but also lenders by allowing them to offload mortgages that might otherwise fail.

Only homeowners who are refinancing their main residence, have a credit score above 500 and can document their income are eligible.

Administration official say this refinancing program should not strain the FHA's already weakened finances because the effort will be financed with up to $14 billion out of the federal bailout program.


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Jesse Jackson Visits Charlotte, Personally Confronts BOFA Officials (Foreclosures)

Jesse Jackson Asks Banks To Help Struggling Homeowners


The Rev. Jesse Jackson is in Charlotte, challenging big banks to do more home loan modifications for people who are on the verge of losing their homes.

Jackson warned that if the banks don't start doing better, he may call for some of the same tactics used during the Civil Rights Movement, including protests.

"The government bailed out the banks. The banks will not bail out the people," said Jackson, who planned to try to meet with top executives of Bank of America, which is headquartered in Charlotte.

Jackson said he thought the Obama administration's bailout of the banks was the right thing to do but said he did not think it went far enough.

"Maybe the error, in retrospect, is that the bailout had no linkage to lending. No linkage to reinvesting," Jackson said.

Jackson's Rainbow PUSH Coalition set up a meeting at St. Paul's Baptist Church on North Allen Street, where people who were having trouble paying their mortgage could meet with representatives of a number of area banks.

One woman there for help did not want to give her name but said, "I started with a monthly payment of $615 and now I am at $1,047 with an adjustable rate." She was hoping she could get the payment reduced to the original amount.

Bank of America CEO Brian Moynihan was in Charlotte Monday to hand over a $1 million check to United Way. Moynihan did not take questions about Jackson's demand or anything else.










Bank of America Shareholders Lash Out During Meeting


Bank of America's new CEO Brian Moynihan met for the first time with shareholders Tuesday in Charlotte and faced a firestorm of criticism.

The special shareholder meeting at the International Trade Center was held to consider the bank's plan to increase common shares as part of its TARP repayment.

The measure passed but some shareholders were not happy, saying it would hurt the value of their shares.

Shareholder Stella Adams said of Moynihan and other bank executives, "They want a free hand to enrich themselves at the expense of stockholders and at the expense of communities and customers."

Another shareholder, Marijke Knipscheer from Florida said, "They really don't care what happens to the people who are supporting them with their hard earned money."

Moynihan, when he spoke, said paying back the TARP money was "in the best interest of the company."

The new CEO also heard from the Rev. Jesse Jackson, who urged the bank to do more home loan modifications.

Noting that Bank of America has paid back the TARP money, Jackson said, "The money is going from Washington to Wall Street, back to Washington but it has not come to the community yet."

Moynihan promised Jackson he would "do everything we can to support you."

After the passage of the vote on common shares, the bank now has about 11.3 billion common shares. Walter Massey, chairman of the board, admitted the move would dilute shares approximately 7 percent.

Shareholder Knipscheer said she felt this would only benefit the bank's executives. "I feel that a lot of these executives, they are doing what is called legalized theft."


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Obama's $75B Mortgage Relief Program A Huge Disappointment...Housing Woes

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U.S. Loan Effort Is Seen as Adding to Housing Woes


The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”

The Treasury Department publicly maintains that its program is on track. “The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives program did not represent a new policy. “We have said from the start that modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Ms. Reilly said by e-mail. “This has always been a multi-pronged effort.”

Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis.

In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. Last year, more than two million homes were lost, and Economy.com expects that this year’s number will swell to 2.4 million.

“I don’t think there’s any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com. “For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.”

Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.

Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity. A paper by researchers at the Amherst Securities Group suggests that being underwater “is a far more important predictor of defaults than unemployment.”

From its inception, the Obama plan has drawn criticism for failing to compel banks to write down the size of outstanding mortgage balances, which would restore equity for underwater borrowers, giving them greater incentive to make payments. A vast majority of modifications merely decrease monthly payments by lowering the interest rate.

Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses. He pointedly rejects the notion that government ought to get out of the way and let foreclosures work their way through the market, saying that course risks a surge of foreclosures and declining house prices that could pull the economy back into recession.

“We want to overwhelm this problem,” he said. “If we do go back into recession, it will be very difficult to get out.”

Under the current program, the government provides cash incentives to mortgage companies that lower monthly payments for borrowers facing hardships. The Treasury Department set a goal of three to four million permanent loan modifications by 2012.

“That’s overly optimistic at this stage,” said Richard H. Neiman, the superintendent of banks for New York State and an appointee to the Congressional Oversight Panel, a body created to keep tabs on taxpayer bailout funds. “There’s a great deal of frustration and disappointment.”

As of mid-December, some 759,000 homeowners had received loan modifications on a trial basis typically lasting three to five months. But only about 31,000 had received permanent modifications — a step that requires borrowers to make timely trial payments and submit paperwork verifying their financial situation.

The government has pressured mortgage companies to move faster. Still, it argues that trial modifications are themselves a considerable help.

“Almost three-quarters of a million Americans now are benefiting from modification programs that reduce their monthly payments dramatically, on average $550 a month,” Treasury Secretary Timothy F. Geithner said last month at a hearing before the Congressional Oversight Panel. “That is a meaningful amount of support.”

But mortgage experts and lawyers who represent borrowers facing foreclosure argue that recipients of trial loan modifications often wind up worse off.

In Lakeland, Fla., Jaimie S. Smith, 29, called her mortgage company, then Washington Mutual, in October 2008, when she realized she would get a smaller bonus from her employer, a furniture company, threatening her ability to continue the $1,250 monthly mortgage payments on her three-bedroom house.

In April, Chase, which had taken over Washington Mutual, lowered her payment to $1,033.62 in a trial that was supposed to last three months.

Ms. Smith made all three payments on time and submitted required documents, Chase confirms. She called the bank almost weekly to inquire about a permanent loan modification. Each time, she says, Chase told her to continue making trial payments and await word on a permanent modification.

Then, in October, a startling legal notice arrived in the mail: Chase had foreclosed on her house and sold it at auction for $100. (The purchaser? Chase.)

“I cried,” she said. “I was hysterical. I bawled my eyes out.”

Later that week came another letter from Chase: “Congratulations on qualifying for a Making Home Affordable loan modification!”

When Ms. Smith frantically called the bank to try to overturn the sale, she was told that the house was no longer hers. Chase would not tell her how long she could remain there, she says. She feared the sheriff would show up at her door with eviction papers, or that she would return home to find her belongings piled on the curb. So Ms. Smith anxiously set about looking for a new place to live.

She had been planning to continue an online graduate school program in supply chain management, and she had about $4,000 in borrowed funds to pay tuition. She scrapped her studies and used the money to pay the security deposit and first month’s rent on an apartment.

Later, she hired a lawyer, who is seeking compensation from Chase. A judge later vacated the sale. Chase is still offering to make her loan modification permanent, but Ms. Smith has already moved out and is conflicted about what to do.

“I could have just walked away,” said Ms. Smith. “If they had said, ‘We can’t work with you,’ I’d have said: ‘What are my options? Short sale?’ None of this would have happened. God knows, I never would have wanted to go through this. I’d still be in grad school. I would not have paid all that money to them. I could have saved that money.”

A Chase spokeswoman, Christine Holevas, confirmed that the bank mistakenly foreclosed on Ms. Smith’s house and sold it at the same time it was extending the loan modification offer.

“There was a systems glitch,” Ms. Holevas said. “We are sorry that an error happened. We’re trying very hard to do what we can to keep folks in their homes. We are dealing with many, many individuals.”

Many borrowers complain they were told by mortgage companies their credit would not be damaged by accepting a loan modification, only to discover otherwise.

In a telephone conference with reporters, Jack Schakett, Bank of America’s credit loss mitigation executive, confirmed that even borrowers who were current before agreeing to loan modifications and who then made timely payments were reported to credit rating agencies as making only partial payments.

The biggest source of concern remains the growing numbers of underwater borrowers — now about one-third of all American homeowners with mortgages, according to Economy.com. The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.

“This is a conscious choice we made, not to start with principal reduction,” Mr. Geithner told the Congressional Oversight Panel. “We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.”

Mr. Geithner’s explanation did not satisfy the panel’s chairwoman, Elizabeth Warren.

“Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?” she asked, raising the prospect “that we’ll be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?”

A good question, Mr. Geithner conceded.

“What to do about it,” he said. “That’s a hard thing.”



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