HOUSING

JUSTICE FOUNDATION REPORT ON THE FORECLOSURE CRISIS IN PALM BEACH COUNTY JUNE 20, 2012
In the last five years, the foreclosure crisis struck hard in communities across the United States. From 2007 2011, nearly eight million homeowners in the United States lost their homes to foreclosure. Many of these homes were occupied by families with children; the total number of people in foreclosure likely exceeded 15 million. There are approximately two million more homes in the foreclosure process in 2012, according to a report by The Joint Center For Housing Studies of Harvard University, The State of the Nations Housing 2012. Certain areas, including South Florida, were particularly hard hit, with California and Florida being the hardest hit states. An article published by the Center for Responsible Lending in April, 2012, California Foreclosure Statistics: The Crisis Is Not Over, included the following results: On average, more than 500 California families have lost their homes every day since 4Q 2007, and the data show few signs of a return to the pre-crisis housing market. California foreclosure activity remains elevated, with more than 30,000 completed foreclosures each quarter, compared to less than 3,500 foreclosures in 3Q 2006. In addition, large numbers of California homeowners continue to fall behind in their payments, and would benefit from more effective policies to prevent avoidable foreclosures. This report focuses on the foreclosure crisis in affluent, yet hard hit area, Palm Beach County, Florida. From 2007 2011, there were over 100,000 foreclosures filed in Palm Beach County by banks and mortgage services. Wells Fargo, Deutsche Bank and Bank of New York Mellon were the top three banks foreclosing in Palm Beach County. During this same period, home values plummeted. While home values fell by about one third across the country, Palm Beach County was much harder hit. The median sales price of an existing home in Palm Beach County in November, 2005, was $421,500. By November, 2011, the median sales price for an existing home in had fallen to $183,700. In the hardest hit areas, the loss in home values also means that a higher percentage of homeowners currently owe more in mortgage debt than the value of their home.

This leads to more foreclosures as homeowners are no longer willing or able, because of the downturn in the economy, to keep paying their mortgages. The unemployment rate in Palm Beach County rose to 8.6 percent in May, 2012, from 8.5 percent in April, 2012. In May, 2011, the unemployment rate in Palm Beach County was 10.4 percent. In nearby St. Lucie County, the unemployment rate rose to 10.9 percent in May 2012, the third worst in the state. In the first five months of 2012, there was a significant increase in the number of new foreclosure filings throughout the country. Again, Palm Beach County was particularly hard hit. According to the website of the Palm Beach County Clerk of the Court, there were 1,356 new foreclosures filed in May, up 3.6 percent from the 1,309 cases filed in April, and up 61.8 percent from the 838 foreclosures filed in May 2011. For comparison purposes, in May, 2010, there were 1,623 new foreclosure filings. Even at 1,500 new filings a month, annualized there would be 18,000 foreclosures, still considerably less than the 2009 new filings of 30,200. The foreclosures have resulted in a significant number of bank-owned properties. These properties are often poorly maintained, and usually sell for less than the average sales price, driving prices further down. As of June 20, 2012, major banks, Fannie Mae and Freddie Mac owned over 3,500 properties in Palm Beach County. Fannie owned the most properties 725. Wells Fargo was second with 440 properties and Deutsche Bank was third with 385 properties. Bank of New York Mellon owned 320; Bank of America owned 316; BAC Home Loans Servicing owned 217; U.S. Bank owned 199; Chase Home Finance owned 186; Freddie owned 168 and HSBC owned 152. The records of the property appraiser regarding bank-owned homes are misleading because the banks have a significant number of cases where they have delayed transferring the title of the home into the name of the bank. When banks delay applying for a Certificate of Title, they delay their liability for taxes, assessments and property maintenance. The banks also delay accounting for the realized loss from the foreclosure and resale. In most cases, the foreclosing banks act as trustee for a residential mortgage-backed securitized (RMBS) trust. Of the $14 trillion in U.S. mortgage-debt, RMBS trusts are estimated to own at least $8 trillion. When banks and servicers delay the sale of a foreclosed home, they can delay reporting the losses to the investors. Pension funds, state and local government and insurance companies are the major investors in RMBS trusts. As more of the losses are ultimately accounted for, these investors will see the frequent failure of their RMBS investments. Palm Beach County was also particularly hard hit by mortgage document fraud. DocX, the most infamous mortgage document mill, was located in Alpharetta, Georgia with its parent company, Lender Processing Services, located in Jacksonville, Florida.

 In October, 2010, then Florida Attorney General Bill McCullom announced he had subpoenaed documents from Lender Processing Services in an investigation of mortgage document fraud. On April 3, 2011, the fraudulent document preparation practices of DocX were exposed on national television on a segment of 60 Minutes. On April 13, 2011, the Federal Reserve, the FDIC, the Office of Thrift Supervision and the Office of the Comptroller of the Currency issued a Consent Order against both DocX and Lender Processing Services. In May, 2011, Illinois Attorney General Lisa Madigan and California Attorney General Kamala Harris issued subpoenas to Lender Processing Services as part of their probes into mortgage document fraud. On June 15, 2011, Michigan Attorney General Bill Schuette served subpoenas as part of a criminal investigation of Lender Processing Services. On November 16, 2011, Nevada Attorney General Catherine Cortez Masto filed a 606 count indictment against two title officers employed by a subsidiary of Lender Processing Services. On February 7, 2012, Missouri Attorney General Chris Koster announced a 136-count criminal indictment against DocX. Lender Processing Services admitted in its own annual report to the Securities and Exchange Commission that it had discovered document preparation problems at DocX and instituted a document remediation program. The company has never publicly identified which of its documents were fraudulent or faulty but attorneys for banks that used DocX mortgage assignments have filed corrective assignments of mortgage stating that DocX employees Linda Green and Tywanna Thomas were never authorized to sign as officers of Mortgage Electronic Registration Systems, Inc. as they did sign on hundreds of thousands of mortgage assignments used in foreclosure cases. Despite the widespread repudiation of these documents, mortgage assignments prepared and filed by DocX have been used in hundreds of foreclosures in Palm Beach County and tens of thousands of others throughout Florida. In Palm Beach County, in the 18 months from July 1, 2009 to December 31, 2010, DocX filed 1,742 mortgage assignments in Palm Beach County. These suspect documents were used to transfer over .5 billion in mortgages, primarily to mortgage- backed securitized trusts. Deutsche Bank National Trust Company used these documents more often than any other bank. 3

THE GOALS OF THE HOUSING JUSTICE FOUNDATION: END avoidable foreclosures that displace families, drive down home prices and destroy communities. REQUIRE banks to modify mortgages to fair market value to avoid foreclosures. REQUIRE banks to fairly compensate victims of foreclosures obtained with fraudulent mortgage assignments. REQUIRE county clerks to put systems in place to prevent widespread use of fraudulent documents to foreclose. REQUIRE banks, Fannie and Freddie to properly maintain the homes they own, and pay their taxes as all other homeowners. REQUIRE every bank, mortgage-backed trust, and government entity to file an Assignment of Mortgage within 60 days of the time they claim to have acquired the mortgage. REQUIRE the clerk of the court or county recorders to file every mortgage assignment under the name of the homeowner, as well as the grantor and grantee so that all homeowners have notice of any transfer of mortgage. PROSECUTE any individual or entity that files any robo-signed, surrogate-signed or otherwise deceptive mortgage document in the official county records or in any foreclosure proceeding.