Mortgage Industry Trends

    At a time and place in the mortgage industry when the bottom line is getting awfully thin, lenders and brokers should remember that there are sources of revenue in the some very unusual and largely forgotten places.  In fact by some estimates there are millions of dollars in lender and broker funds just waiting to be claimed if only the rightful owners knew how and where to look for them.

    Over the past several years, investors have negotiated thousands of indemnity agreements, collecting deposits and sometimes periodic payments toward “estimated losses.”  In most cases these deposits and payments, collected in anticipation of some final property disposal and loss calculation, were designed to give an investor comfort that when their final losses were known there was security for their ultimate losses.

    Since most investor do not service their loans, and therefore never speak to a borrower or handle collections and foreclosure proceedings, they themselves rely on third parties to report to them a particular loan’s status.  This means that the investor has no direct knowledge of how loss mitigation is being conducted on its behalf, including the costs incurred and methods employed.  It also means that an investor relies on these third parties to accurately report on losses in a timely manner.

    In many cases, lenders and brokers who have signed indemnity agreements to avoid the dreaded repurchase, no longer concern themselves with the fate of the property and the status of their investor’s actual losses.  Lenders and brokers are understandably more interested in turning the page and continuing to originate loans and generate revenue; repurchase demands and investor indems are just uncomfortable but necessary costs of doing business along the way.   Like a short but dramatic bump in a road, repurchase negotiations are strongly felt but soon forgotten, however the deposit money and payments made to offset anticipated losses are still out there, waiting for the ultimate loss accounting.

    During the period from 2001 through 2004, with housing prices rising dramatically to levels never before seen in the United States, REOs had the strange habit of actually re-selling for values that came close to or even exceeded the ultimate loss calculations.  Some commentators claim that investors and servicing companies in this period encouraged or even manipulated loan records to create default scenarios, thereby generating a profitable and unintended consequence of the secondary transaction:  some properties were worth more in foreclosure than they were at the time their loans initially closed.     I have no real data to support these claims, and am merely reporting what I have read in other publications, however I have been involved in at least one scenario representing a lender in a loss mitigation matter where the REO sale brought $75,000 more than the actual losses incurred after 2 years of non-payment default status.   

    What I also know for sure, is that because investors have historically had poor communication with servicers about loan status, and because lenders and brokers tend to “move on” once an indemnity is signed, sealed and delivered, it is highly probable that there are thousands of indemnity agreements that were signed between 2002 and 2005 where refunds are due.  What I mean by this is that when investors collected deposits and payments toward “estimated losses,” they thereafter were obligated to provide a final accounting of those losses, and where monies were collected in excess those funds should rightfully be returned.

    Now that you know you may have unclaimed funds sitting out there somewhere, what do you do?

    The place to start in researching whether you may be owed money by an investor is of course your indemnity agreements.  If you paid a deposit and/or periodic payments in connection with a defective loan, in lieu of a repurchase, you should ask for an accounting.  Several clients I have worked with have been surprised to discover that their investors actually owed them money, a pleasantly ironic position for any lender or broker to be in today.   So, dust off those old indems and start dialing.  There may be “gold in those hills.”

    Andrew Liput has been an attorney for more than 20 years and is the president of The Liput Group, an affiliation of companies exclusively servicing the mortgage industry in the areas of investor relations, repurchases, mortgage fraud investigation and litigation, and the country’s only third party closing agent credential verification service.  He can be reached toll free at 1-888-424-3728, by email at bankerman44@optonline.net, or visit www.ciercus.com to access his various websites and closing fraud blog.