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Ken Gross Comments on $25 Billion Settlement in Michigan Lawyers Weekly

MICHIGAN

LAWYERS WEEKLY

State to share in $25B settlement

Michigan one of 49 states to sign on to compensate for ‘abusive practices’

POSTED: 11:02 PM Friday, February 17, 2012
BY: Carol Lundberg

Michigan will share in a settlement said to be worth $25 billion, but it’s not exactly raining cash on Michigan’s foreclosure problem.

Michigan joined 48 other states in a $25 billion settlement with the country’s five largest mortgage lenders.

The settlement, intended to hold mortgage servicers accountable for what U.S. Attorney General Eric Holder said were “abusive practices,” will provide some relief to homeowners struggling to pay mortgages that are more than their houses are worth.

But the amount of relief is so small, too small to stabilize the country’s still-crippled housing market, said Matthew Heron of Clark Hill PLC in Detroit.

“If you think about it, how could it really solve the problem of $700 billion worth of underwater mortgages?” he asked. “The reason the housing market isn’t recovering yet is a function of the economy, of the free market.”

Heron represents lenders. Though the settlement doesn’t cover the damage to state budgets and individual borrowers as a result of the foreclosure crisis, it does give states’ attorneys general a little bit of resolution without requiring them to invest a lot of resources in investigations.

“The investigations by the attorney generals haven’t resulted in significant settlements, and they do put a burden on the states, which are having economic problems,” Heron said.

But the states and borrowers certainly aren’t going to receive $25 billion worth of relief.

Of the $25 billion, the banks — Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and GMAC/Ally — are paying about $5 billion in cash to federal and state governments, or approximately 1 percent of their combined market capitalization.

Of that, $1.5 billion will be used to establish a Borrower Payment Fund to provide payments to borrowers who lost their homes to foreclosure, according to Michigan Attorney General Bill Schuette. The payments will be as much as $2,000, though details have not yet been worked out.

The payments to state and federal governments will be used to repay public funds lost as a result of servicer misconduct, and to fund programs such as legal aid and housing counseling that the states are providing. The settlement excludes borrowers with Fannie Mae and Freddie Mac mortgages, who make up approximately half of the homeowners in the U.S.

Schuette said in a press release that Michigan residents will receive approximately $500 million dollars, but the only hard cash flowing into Michigan will be $101 million, which will be paid mainly to the State of Michigan. (See “Settlement details,” right.)

That payment is not meant to make up for a foreclosure,” said attorney general spokesman John Selleck. “It’s a punishment for poor customer service by the banks. We were getting calls from people who would be on the phone with a mortgage servicer trying to get some kind of help with their payments, at the same time that the bank was foreclosing on them.”

He said that when the housing market crashed in 2008, it crashed very hard and very fast.

“The banks just didn’t handle their customers the way they should,” Selleck said. “The settlement is to address two main thrusts — horrendous customer service by the banks, and robosigning, which we are still criminally pursuing.”

Michigan has been particularly hard-hit by the foreclosure crisis. Last year, a California-based analytics firm, CoreLogic, reported that 35 percent of Michigan homeowners are underwater in their mortgages.

The deal does nothing to solve the problems in the housing market, which will continue to be a drag on the economy because small business owners aren’t able to create jobs when they have no equity in their real estate, said Kenneth Gross of Thav Gross PC in Bingham Farms. Gross represents borrowers.

What would help borrowers the most, he said, is principal reductions, something the banks have been reluctant to do.

“This settlement doesn’t address any of that. It’s extremely limited to the issues of robo-signing and fraudulent foreclosures,” Gross said.

“Basically what’s going to happen is everyone in the world going to call my office wondering how to get their $2,000,” Gross said. “But no one knows yet who will be eligible to receive what. There have been 1.9 million foreclosures with another 1.9 million still to come.”

The settlements will not prevent individual borrowers from suing their lenders if they have a cause of action, Heron noted.

“What this does do is to free up the attorney generals and their resources to decide what they want to dedicate their time to,” Heron said. “The public settlement funds are being used to prop up the services the states would have a hard time providing.”

If you would like to comment on this story, please contact Carol Lundberg at (248) 865-3105 or carol.lundberg@mi.lawyersweekly.com.

From CBS Detroit – Banks In $25B Deal To Settle Foreclosure Abuses

Banks In $25B Deal To Settle Foreclosure Abuses

February 9, 2012 4:07 PM

BINGHAM FARMS (WWJ) – Michigan is among 49 other states to receive a chunk of cash from a landmark $26 billion settlement from five banks for alleged foreclosure abuse.

Some borrowers in Michigan could get between $1,500 and $2,000.

“States across America have worked hard to present a united front in the fight to help stabilize the housing market in the aftermath of harmful mortgage lending and foreclosure practices,” said Michigan Attorney General Bill Schuette. ”As a result, Michigan residents who were hit hard by this crisis will now receive assistance.”

Attorney Kenneth Gross with Thav Gross in Bingham Farms, who represents homeowners going through the foreclosure process, said the settlement is disappointing.

“We’re very disappointed with it, because I think the banks did a lot that they should be called upon to pay for, and I don’t think they are,” Gross said.

How will borrowers get their hands on the cash?

“I’ll research it and once it’s out there I’ll put it up on our website,” said Gross. “It certainly isn’t going to be something that somebody goes to hire an attorney to try and get this $1,500 or $2,000. I don’t see how they’re gonna come out ahead after paying attorney fees.”

“So, it’s gotta be something where you can exercises self  help and get it done.” he said.

The five banks in the settlement include Bank of America, Citi Group, J.P. Morgan Chase and Wells Fargo.

“I’ll research it and once it’s out there I’ll put it up on our website,” said Gross. “It certainly isn’t going to be something that somebody goes to hire an attorney to try and get this $1,500 or $2,000. I don’t see how they’re gonna come out ahead after paying attorney fees.”

“So, it’s gotta be something where you can exercises self  help and get it done.” he said.

The five banks in the settlement include Bank of America, Citi Group, J.P. Morgan Chase and Wells Fargo.

Mr. President – You Need to Deal – By Ken Gross

Mr. President – You Need to Deal

The big speech came – and went. Another speech offering that which we anticipated but not that which America needs. A proposed $447 Billion program – and the President neglects to mention the price tag in the speech. I suppose that is the prerequisite to avoid addressing in specifics a realistic plan to pay for it. After witnessing Congress’s infantile behavior last month on the deficit cap – it is a certainty that the President’s program will go nowhere – other than causing another slow burn of intransigence by Congress.

Sometimes you need to make a deal that your adversary cannot refuse. You do this carefully – but when you need something done  – if it’s important enough – you do it. In this case, the President needs two things – he needs to stimulate jobs and the economy and he needs to garner support for next November. Instead of offering a plan the Republican’s will now have a field day complaining about – he should have taken the podium and laid out a program the Republican’s could not refuse. First – tell us it’s going to cost $447 Billion. Second – that though he doesn’t like it – we’re going to pay for it by shelving Obama Care for 5 years – with the exception only of keeping the no pre-exisiting condition requirement and providing coverage for dependent children to age 26. Third – acknowledge what everyone already knows –without a housing market the economy has no chance. To stimulate housing, tell us that mandated principal reduction on homes underwater will occur and that you will mandate easing the credit restrictions to refinance and purchase a new home. Top this off by telling us that the cost will be charged to the banking industry who caused this fiasco.

Mr. President, if you went in this direction,– the Republican’s could not say no – because the cost would be covered, we all want economic growth and the banking lobby would be handcuffed to protest. If you want four more years – you’re going to need to be a much better deal maker.

Ken Gross is an attorney with THAV GROSS PC (www.thavgross.com) and hosts The Financial Crisis Talk Center (www.fctalkcenter.com), a radio program that airs weekly at 8:30 AM on Saturday mornings on WDFN “The Fan” 1130 AM.

Spotlight On the News with Chuck Stokes – Ken Gross appears to discuss Short Sales and What to Do if You're Underwater in Michigan

Houses Under Water – Solutions for Michiganders – Ken Gross Interviewed by Chuck Stokes – On Spotlight on the News 6/25 Channel 7

Catch Ken Gross Interviewed by Alisa Zee from Sunday 12/3 Radio FM/AM

Listen here  to Aliza Zee – The Alisa Zee Fan Club ‘s interview of  Ken Gross from The Financial Crisis Talk Center on the current state of the Financial Crisis – Banks, houses underwater and credit card debt are covered.  This interview aired on Sunday, December 5, 2010 on on WOMC, WYCD, WXYT-AM, 97.1 and 98.7 AMP – Part 1 Part 2

Ken Gross Interviewed by the Examiner.com – Detroit

Check out Lori William’s interview of Ken Gross in the Examiner – Will Santa Bring an end to the Housing Crisis for Christmas?

Ken Gross on Fox 2 News with Robin Schwartz on the latest announcement of help for homeowners …

Loan Modifications Are Impeding Economic Recovery – Wake Up Washington!

February 26, 2010 – Ken Gross

Help for Homeowners – announced last year, has, unfortunately, evolved into nothing more than government acronyms. HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program). HARP permits a refinance of a home if the homeowner but the homeowner must be current for the last year and meet normal underwriting criteria. The only benefit to the program is that the lender can refinance up to 125% of the market value of the home. In practice, the government mandated appraisals have been on the low side of market so that few properties can fit within the 125% framework. Worse than that, this program affords no help for people who have sustained financial hardship because if they were 30 days late on a payment in the last year, they are not eligible.

The HAMP program allows modifications to reduce the mortgage payment down to 31% of the Gross Monthly income of the homeowner. This program helps people who have sustained a reduction in their income so that if their present payment exceeds 31% (i.e. Monthly Income is $7,000 per month, Mortgage Payment $4,000; the reduction could go to $2,170 if all other program requirements are met) they are able to obtain a reduced monthly payment.  The problem with this program is that the participating lenders have not made the effort to adequately process the modifications applications. Homeowners are told to fax papers in, and then weeks pass and they are informed that the paperwork is missing – so refax. When you call a lender, such as Bank of America, they will not even allow you to speak to a negotiator for the modification. All you can get is a status report. As an attorney, we want to speak with someone to make sure they are properly evaluating the file – but that is impossible because they refuse to come to the phone. End result – of the estimate 4,000,000 people who to be helped, few modifications have been put in place – with only 66,000 permanent modifications in place as of January of this year.

The poor outcomes of HARP and HAMP are not the big story. The biggest problem facing our country – is an economy that is undermined by high unemployment and nonexistent stimulus for the growth of small business. What Washington has missed, is understanding that the dismal real estate market is the underlying problem that must be solved in order to stimulate small business growth.

It does not take a Rhodes scholar to understand the process.  Consumer spending drives our economy. Consumers cannot spend if they are unemployed. Even employed consumers will not spend if they have no available credit from the credit card companies and live in fear of losing their jobs. We all recognize to correct this problem, small business must begin to thrive – thereby employing more people, offering more goods and services and driving our GNP.  Small business, however, will not and cannot thrive unless banks make credit available to businesses. Banks, however, are not lending. The reason – banks require collateral to underwrite loans. The collateral typically pledged is inventory and accounts receivable and real estate. Real estate is acceptable collateral ONLY if and to the extent there is an  “Equity Cushion” in the property.

Here lies the problem. The “Equity Cushion” on residential and commercial real estate has been lost in the Financial Crisis. Because there is no equity in real estate, the banks will not accept it as collateral and therefore ½ of the historical collateral used to support lending is gone with the result that the banks will not lend due the lack of adequate collateral. You can scream and holler all you want about how the banks have improperly conducted themselves in the context of executive bonuses, credit card abuses and everything else. It is not going to matter – unless there is equity in real estate to support lending, you are not going to see lending occur, which means continued virtual no growth for our economy.

So where does the solution lie? The answer is we must return to an economy where there is equity growth in real estate. Right now, ¼ of all homeowners are underwater in their homes. This statistic was revised from 1/3 based on a change in accounting assumptions – but the reality is that there is virtually no Equity Cushing that homeowners have in their residential homes that can support a second mortgage to finance the start up costs of a new business. The commercial sector is even worse off.

The return of an Equity Cushion in real estate will come from only two outcomes. The foreclosure process is one. The other is modification of mortgages that include a reduction in the principal balance of the loans. Equity in real estate will not return if we modify mortgages that only reduce interest rates and extend mortgage terms to 40 years. This is what HAMP allows and what the banks are pushing. The modification process, as it presently is situated, is in reality a method which hampers our return to and Equity Cushion in real estate and therefore delays the goal of returning to a vibrant economy.

Another obstacle to a return to an Equity Cushion that has evolved  is the problems that are occurring nationwide in completing short sales on homes facing foreclosure. The short sale, if approved by the lender, accomplishes the task of transferring the property to a new buyer at fair value, thereby giving the new buyer equity in the real estate and future growth. The problem that has occurred, however, is that lenders are refusing to release the selling homeowner from the deficiency on the first mortgage arising from the short sale. The result of this intransigence by the lenders is that the short sale process is far too slow and a selling borrower would be well advised to refuse to a short sale unless the lender gives the release of the short liability as part of the deal.

The clear solution is that our government must intercede to expedite the return to the creation of an Equity Cushion in real estate so that banks will then loan money based upon valued collateral. The foreclosure process take too long and the current effort to modify mortgages without principal reduction only serve to delay the process longer and thereby extend the time it will take for a true recovery. To correct this, we must shift the modification process to mandate principal reduction of the property to within reasonable estimates of fair market values. The “Cramdown” legislation that was voted down by the Senate last April, which allowed a cramdown of the mortgage in a Chapter 13 bankruptcy of a borrower’s primary residence to the fair market value of the home, would have accomplished this goal. Accomplishment of the goal would have occurred not as much through the actual bankruptcy process but by virtue of giving the homeowner’s the leverage of the “threat of bankruptcy” as a means of bringing the lender to the bargaining table to voluntarily reduce principal. This legislation was advocated by the President during his campaign. Unfortunately, with Health Care and the many other items on the agenda in 2009, the banking lobby pervaded on the issue and the Administration did not push for the passage of the bill when it hit the Senate floor last year. This legislation should be reintroduced and pushed forward. Alternatively, the government needs to adopt a mandatory Modification With Principal Reduction Program.

The gist of the opposition to principal reductions to mortgages as enunciated by the banking industry is that there is a “fear” that people who can afford to pay their mortgages on homes underwater would use this process as a means to reduce their mortgage. This argument is the fiction that needs to be resolved. If you accept that the critical goal is that we need to return to an Equity Cushion in real estate, as a critical component of banks lending money and thereby allowing our economy to grow, then there is no need for this alleged “fear” because the better result would be for all underwater mortgages to be modified.

The Banks, of course, fear this result because they will have to absorb greater losses. The Banks, however, are nearsighted. Eventually, the banks will realize that they cannot make money merely by charging usurious interest rates on credit cards, bank overdraft fees and renewal fees – but that they have to loan money to people and businesses. (Isn’t that what banks are supposed to do?) It may be true that in the end the banks do have to take the loss on the real estate that is underwater. It was, however, their lending practices and greed that drove us to where we now sit. So let them take the loss they deserve. Their stock value may decline, but we know it will return. Once this occurs, we will all, including the banks, be in a position to grow.

Ken Gross is a the Managing Shareholder at Thav, Gross, Steinway and Bennett, P.C. The firm is gaining national notoriety for its Financial Crisis Management strategies. Mr. Gross is host of the Financial Crisis Talk Center which airs at 8:30 AM, Saturdays, on Detroit Sports Talk Radio 1130 AM, www.detroitsportstalkradio.com, in the Metro Detroit market.