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April 20, 2014

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Committee: Homeowners facing foreclosure should know what banks paid for mortgages

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The number of Nevadans who are underwater on their mortgages is down, but only because many have lost their homes to foreclosure, a report says.

Hoping to place Nevadans facing foreclosure in a better negotiating position with their lenders, a state panel recommended Thursday that banks be required to disclose how much they paid for homeowners’ mortgages.

Banks have purchased many mortgages for far less than the original loan amount — sometimes with the assistance of a federal bailout — according to attorneys for homeowners, real estate agents and consumer advocates. Even so, banks in Nevada have rarely agreed to lower the value of mortgages — the principal.

In an attempt to force banks to modify more loans, the state advisory panel recommended a series of changes to the Nevada Foreclosure Mediation Program on Thursday. Some of the recommendations divided the committee between those allied with banks and consumer groups.

The advisory committee is seeking to improve the program, created by the 2009 Legislature, and pressure banks to fully cooperate, according to consumer groups.

“Right now, we’re at a standstill,” said Thomas Qualls, a Reno attorney who represents homeowners in foreclosure mediations and is a member of the committee. “Banks are not helping homeowners. They’re digging in their heels, refusing to play.”

He said in the vast majority of cases, banks only offer to extend mortgages or sometimes reduce interest rates.

The rule change, recommended in a 7-5 vote by the committee, will now be considered by the Nevada Supreme Court. Both sides of the debate will submit arguments to the court.

Qualls said that after the mortgage market collapse and federal bailout, some banks purchased distressed loans for as little as 5 cents on the dollar.

Banks and their representatives on the committee opposed revealing how much lenders have paid for the notes. Some said loans frequently changed hands in bulk and determining the amount paid for a specific mortgage would be too difficult.

Others questioned why such information is relevant to negotiations.

The disagreement over whether banks should disclose to homeowners what they paid for the mortgages is just one piece of a bigger debate about principal reduction.

Phil Silvestri, an attorney who represents lenders in mediation, said in an interview that disclosing the amount the bank paid for a mortgage might not alter the outcome of mediation.

“It could give homeowners false hope that their lender will offer a principal reduction,” he said.

A state law that took effect in October requires lenders to produce signed affidavits attesting to the accuracy of mortgage paperwork. The law has essentially halted foreclosures by banks.

Even so, Nevada has led the nation in foreclosures for five years, and a majority of Nevada homeowners are underwater on their mortgages — meaning they owe more than they’re worth.

In 2009, the Nevada Legislature created the Nevada Foreclosure Mediation Program, run by the courts, that allows homeowners to request mediation with their banks before going through foreclosure. While lenders are not required to adjust mortgages or reduce principal during mediation, they are required to negotiate “in good faith.”

“When possible, we try to reduce homeowners’ monthly payment to where it’s affordable so both parties are satisfied,” Silvestri said.

But consumer advocates have been frustrated by what they see as banks’ unwillingness to negotiate.

(That frustration boiled over Thursday when former mediator Phil Olsen was temporarily removed from the meeting by police for interrupting the proceedings. Olsen, who is suing the program, requested a copy of the rules committee members had been discussing but that had not been made available to the public. Verise Campbell, administrator of the program, said backup material would be provided to the public in the future.)

Qualls said homeowners, mediators and judges should have information on the amount banks paid for their loans.

Homeowners need that information to decide whether to walk away or continue paying their mortgage. Lenders can, though rarely do, attempt to collect the unpaid balance on foreclosures through deficiency judgments.

Qualls also said knowing the amount banks paid for loans would help the state foreclosure mediation program and the judicial system determine if banks are negotiating in good faith.

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Barbara Buckley recently cleaned out her Assembly office in Carson City. She says she will be at the legislative session to support her causes.

The committee also recommended requiring lenders to list documents they need from homeowners up front and show calculations about whether modification or foreclosure is more beneficial to the bank, said Barbara Buckley, chair of a subcommittee for the Foreclosure Mediation Advisory Committee and executive director of the Legal Aid Center of Southern Nevada.

“Banks are reluctant to do principal reduction because they’re afraid if they start giving them, everyone wants principal reduction,” said Buckley, a former Assembly speaker who authored the legislation creating the program. “In markets like Nevada, where people have had their hours reduced, undergone grave economic hardship and they’re so underwater, principal reduction makes sense for them.”

Buckley expressed hope that a $1.5 billion settlement involving 49 states’ attorneys general and five banks, as well as a separate settlement between the state of Nevada and Bank of America, will prompt banks to begin reducing principal amounts on homeowners’ loans.

“If it works that way, it’s a relief for Nevada homeowners,” she said.

If not, she said the state could sue lenders again. She noted legal actions against lenders and mortgage companies filed by Nevada Attorney General Catherine Cortez Masto.

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  1. Banks have to protect the lending system by not agreeing to let default borrowers slide thru on an easy pass. This will completely undermine the whole credit system as borrowers would know if they don't want to pay there is no consequence. This sets a very dangerous precedent. The banks should, however, refi at current rates and possibly lengthen the loans to 40 or 50 years to keep the payment down as people have to pay rent or something to live anyway, so paying back on their own loan is the best way to go.. Forgiveness of debt is not an option.

  2. If people feel the need for a principal reduction and the banks will agree to it, then let it happen. BUT! A nonpaying 2nd should be put on the home for the amount of the reduction. If the home is ever sold in the future then any profits go towards paying on that 2nd that you did not have to pay on while you lived in the home.

    People agreed to the price of the homes and the loan amount when they bought the home so this way they can not get a reduction then profit off it in the future but won't have to pay the forgiven amount if they don't sell the home.

    Let it be fair on all sides if principal reduction is the way they end up going.

  3. For those who would really like a glimpse of the entire mortgage debacle, there is an excellent book entitled, "All The Devils Are Here".

    Written in a documentary style, the book is loaded with bibliography to enhance and backup every reference.

    The book will enlighten everyone as to the role of government, banks, Freddie Mac/Mae, Wall Street, and the average American's role in the mess.

    I warn you, no holds are barred and no group/person is safe from the facts in this book.