Freddie, Fannie Force Borrowers to Waive Legal Rights

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Thursday, January 15, 2009 at 11:36 am

When the government announced in November that it would use mortgage giants Fannie Mae and Freddie Mac to streamline loan modifications for possibly hundreds of thousands of borrowers, officials billed the idea as a fast-track program to fight foreclosures. What no one mentioned is that homeowners would have to sign away their rights to sue, if they wanted to get those loans modified.

The waiver of legal rights is buried among a long list of requirements in loan modification agreements for delinquent borrowers seeking more affordable loans under the new loan program, which began on Dec. 15. Some experts say the waivers are problematic, because they could require a homeowner to give up all legal claims related to their mortgage, not just to the loan modification. And some consumer advocates were unaware of its inclusion until notified by TWI. They plan to bring the waivers to the attention of House Financial Services Chairman Barney Frank (D-Mass.), who has been trying to stop private lenders from using such waivers.

Illustration by: Matt Mahurin

Illustration by: Matt Mahurin

“I’m a little shocked by this, frankly,” said Julia Gordon, senior policy counsel for the Center for Responsible Lending, a research and policy organization that fights abusive financial practices and has pushed for more loan modifications. “I’m going to do my best to get rid of it.”

Fannie Mae and Freddie Mac together own or guarantee some 31 million mortgages, or about 58 percent of all single family home loans. Both announced a foreclosure eviction freeze over the holidays to give the streamlining plan a chance to work. The freeze was set to expire on Jan. 9, but was extended to Jan. 31.

Under the program, high-risk borrowers at least three payments behind in their mortgages are eligible for the modifications. Servicers get paid $800 for each modification as well.

But also included in the Fannie agreement is a provision stating that “borrower has no right of set off or counterclaim or any defense to the obligations of the Note or Security Instrument.” The waiver is part of the borrower requirements that must be signed for the loan modification. Fannie Mae’s sample version is available on one of its websites; the Freddie Mac agreement, which has similar language, can be accessed only by servicers. The agreements were designed by Fannie and Freddie.

In plain English, the waivers mean a borrower can’t sue the lender who originated the mortgage if the loan modification goes bad, or for any other lending abuses concerning their loan, Gordon said. Such waivers are regularly required in the settlement of class action suits, but they haven’t been included as a matter of course in individual loan modifications agreements until lately. “I find this outrageous,” she said.

Gordon’s not the only one. Forcing borrowers to sign away their legal rights to sue in order to get loan modifications became an issue this summer, when Frank angrily denounced the practice at a House Financial Services Committee hearing. Frank also told servicers to stop using the waivers. The hearing was called to find out why more loan modifications weren’t getting done and to look at the role of mortgage servicers in the foreclosure crisis. Some advocates cited the increasing use of waivers by servicers and major lenders such as Countrywide as one of the problems.

At the hearing, Gordon testified that “in many cases, voluntary loan modifications or workouts are further disadvantaging homeowners in trouble because the servicer forces homeowners to waive all their rights, even those unrelated to the workouts.” And Gordon said, servicers and lenders were misusing the waivers:

In many cases, homeowners are being asked to permanently sign away their rights to all past, present, and future legal claims, including foreclosure defenses, even when the modifications or workouts are temporary and/or unsustainable… Given that these waivers are typically signed when a family’s only other choice is to lose their home, and given that they are required not just for life-of-the-loan modifications but even for temporary forbearances, we believe they risk compounding the foreclosure crisis.

Fannie Mae and Freddie Mac, however, offered a different interpretation of the waivers. Representatives for both companies said the waivers are nothing more than standard legal language, intended to protect the legal rights of the two mortgage entities while enabling loan modifications to get done.

“It allows for loan modifications to go through without our waiving our rights to collect interest fees or other expenses, and to protect ourselves from litigation,” Freddie Mac spokesman Brad German said. He declined further comment.

But Gordon disagreed, saying the waivers go further: “As written, this broad waiver appears to encompass all claims and defenses related to any aspect of the mortgage, including its origination,” she said.” It is unfair and inappropriate for Fannie and Freddie to require a homeowner to waive all of their legal claims related to a mortgage just to get a loan modification. If Fannie/Freddie intend the waiver to be limited only to litigation related to the loan modification – which we do not oppose — they will need to write the clause differently.”

The regulator for the two agencies, the Federal Home Financing Agency, did not respond to a request for comment.

Consumer and housing advocates say they oppose waivers because the workouts presented to borrowers may only be a temporary solution. Other workouts may raise the monthly payments rather than lower them, or may inevitably fail, said Elizabeth Renuart, an attorney with the National Consumer Law Center in Boston who focuses on predatory lending issues. Borrowers who find out their original loan terms were abusive or fraudulent may have no recourse if they are forced to sign away their legal rights, Renuart said. They could face foreclosure, with no way to fight it.

“It means consumers are being stripped of their ability to protect themselves in a foreclosure,” said Renuart. “What if the loan modification fails?”

She also said the requirement presents a double standard, in that banks received billions of dollars of government bailout money under the Troubled Assets Relief Program without any assessment of their responsibility in the selling of predatory or fraudulent loans or mortgages borrowers couldn’t afford.

“It’s saying to consumers, ‘This is your last chance and you can’t protect yourself if what is offered doesn’t work,’” she said. “But banks get billions of dollars in help and get their slate wiped clean.”

The fact that two government controlled agencies are requiring the waiver is particularly egregious, said Dean Baker, co-director of the Center for Economic Policy and Research. The government seized Fannie and Freddie in September in a move that could cost taxpayers billions of dollars. It means a government-controlled entity could be limiting the legal rights of borrowers who are paying for its bailout. The waiver appears aimed at Wall Street, rather than borrowers, Baker said.

“And if it’s a carrot for servicers to participate in the program, it’s an outrageous carrot,” Baker added.

Requiring borrowers to waive their legal rights in order to get loans modified has become an increasingly popular tactic as the housing crisis has worsened, said Ira Rheingold, executive director of the National Association of Consumer Advocates. He said consumer attorneys regularly advise clients not to sign modification agreements with waivers, or to cross out the waivers first.

During the subprime mortgage boom, lenders were “really, really good” at stopping people from suing them over abusive or predatory loans, Rheingold said. Putting in the waiver is a continuation of that approach, he said.

“It wasn’t invented by Fannie and Freddie,” Rheingold said. “I’m not surprised it’s in there, but I’m disappointed. It’s a real issue. The government shouldn’t be asking people to waive their rights to claims.”

The most vocal opponent of the tactic has been Frank. Gordon said the July hearing featured a dramatic confrontation, in which Countrywide representatives denied requiring the waivers – until Gordon produced a copy of one from her briefcase. The lenders said they would put the waivers under review. Frank told them to put the waivers “six feet under” review, and to end the practice.

Comments

21 Comments

Kenneth C. Detro
Comment posted January 15, 2009 @ 1:25 pm

Is it not rue that no person can legally sign away or waive their legal rights?


Jim Reinhart
Comment posted January 15, 2009 @ 8:28 pm

Americans and other countries are clueless in regards to accounting. Banks created derivatives, (credit swaps, hedge funds, structured investment vehicles…), for leveraged buyouts and consolidations. Their asset value is worth nothing. It is the derivatives et. al. that started speculation with nothing to lose. Unfortunately, financial institutions and corporations are still using derivatives as a way of doing business. The amount is $650,000,000,000,000. The bailout is the equivalent to spitting into the wind. The home loan fiasco is nothing compared to derivatives, credit swaps, hedge funds…


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Freddie, Fannie Force Borrowers to Waive Legal Rights - The Washington Independent.com » Best Mortgage
Pingback posted January 15, 2009 @ 11:04 pm

[...] When the government announced in November that it would use mortgage giants Fannie Mae and Freddie Mac to streamline loan modifications for possibly hundreds of thousands of borrowers, officials billed the idea as a fast-track program to fight foreclosures. At the hearing, Gordon testified that “in many cases, voluntary loan modifications or workouts are further disadvantaging homeowners in trouble because the servicer forces homeowners to waive all their rights, even those unrelated to the workouts. In many cases, homeowners are being asked to permanently sign away their rights to all past, present, and future legal claims, including foreclosure defenses, even when the modifications or workouts are temporary and/or unsustainable… Given that these waivers are typically signed when a family


Loan Modification
Comment posted January 17, 2009 @ 1:02 am

foreclosure is a bomb. loan mod is the bomb diffuser. LOL


Roger
Comment posted January 18, 2009 @ 12:48 am

I'm interested to see that you know exactly how much the amount is. No one else seems to.

One of the problems is that at least some of the Collateralized Debt Obligations are in fact worth their face value, because the underlying mortgages are performing. Some others are only worth a fraction of face value because some of the mortgages are in default, and others are completely worthless, and no one yet knows how to separate them from each other! That's really why Paulson went from buying the “troubled assets” to injecting capital into the banks. Only God knows what the Credit Default Swaps are worth, and he ain't talking.


Roger
Comment posted January 18, 2009 @ 12:52 am

Unfortunately, no, it's not true. Especially after Bush's appointments to the Supreme Court.


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[...] "CHOICE": Freddie, Fannie Force Borrowers to Waive Legal Rights When people are allowed to sign away their rights — and do so — it affects all of us, not just the people doing it. Now government bailout money is going to companies that turn around and deprive people of their very right to sue them if something goes wrong. He who makes the gold makes the rules — and this is a big problem with so-called capitalism. A free market is not a fair market. Similarly, anarchy, the system of governance with no government, is frequently unfair to most small defenseless people here. You need the rule of law to ensure people have rights. But at the same, the practice of signing away rights as a "choice" is growing and growing. This creates externalities which affect MY rights and MY freedom of choice. (tags: politics rights corporations legal government capitalism homeowners freeMarket bailout EconomicCrisis choice econonomics "choice" FreedieMac FannieMay CenterForResponsibleLearning FederalHomeFinancingAgency NationalAssociationOfConsumerAdvocates) [...]


enjoy0rs
Comment posted January 18, 2009 @ 8:34 pm

The most vocal opponent of the tactic has been Frank. Gordon said the July hearing featured a dramatic confrontation, in which Countrywide representatives denied requiring the waivers – until Gordon produced a copy of one from her briefcase.UGG Classic Cardy The lenders said they would put the waivers under review. Frank told them to put the waivers “six feet under” review, and to end the practice.


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Comment posted January 19, 2009 @ 6:52 pm

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[...] Freddie, Fannie Force Borrowers to Waive Legal Rights By Mary Kane       Washington Independent          January 16, 2009 When the government announced in November that it would use mortgage giants Fannie Mae and Freddie Mac to streamline loan modifications for possibly hundreds of thousands of borrowers, officials billed the idea as a fast-track program to fight foreclosures. What no one mentioned is that homeowners would have to sign away their rights to sue, if they wanted to get those loans modified. [...]


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Comment posted February 5, 2009 @ 4:52 pm

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Red Rooster
Comment posted May 22, 2009 @ 3:50 pm

Many of the Big Bank bailout candidates are including this in their Modification agreements. I am trying to decide weather or not to sign one now that contains such language. When approached about the verbage in the mod…I was told take it or leave it !! And our GOVT is backing the practice of signing away your rights. What country are we in??????????

HERE IS THE RELEASE/WAIVER VERBAGE

12. Release and Waiver of Other Claims: In consideration of the modification of certain provisions of the Note and Security Instrument, all as herein provided, and the other benefits received by Borrower hereunder, Borrower acknowledges that Borrower currently has no claims against Lender arising out of the origination or servicing of the Note or Security Instrument and does hereby release Lender, and its predecessors, successors, affiliates, assigns, agents, officers, directors, employees and representatives, of and from any and all claims, demands, actions and causes of action of any and every kind of character, whether known or unknown, present or future, which Borrower may have against Lender, and its predecessors, successors, affiliates, assigns, agents, officers, directors, employees and representatives, arising out of or with respect to any and all transactions relating to the Note and the Security Instrument occurring prior to the date hereof.fficeffice” /


Loan Modification leads
Comment posted May 26, 2009 @ 9:39 pm

Thanks for this post. Good thing that they'll review the waivers.


Loan Modification leads
Comment posted May 27, 2009 @ 4:39 am

Thanks for this post. Good thing that they'll review the waivers.


777222
Comment posted June 23, 2009 @ 2:07 pm

I RECEIVED A REVERSE MORTGAGE FROM THE PNC BANK NEVER RECEIVED ANY PAPERS PRIOR TO CLOSING ON APRIL 23RD I RECEIVED CALLS FROM MR CHIP PAILLEX SAYING WE WERE GOING TO CLOSE THAT DAY (APRIL 23RD)I INFORMED HIM I RECEIVED NO PAPER WORK .HE THEN SET UP A 3 WAY CONVERSATION WITH HIMSELF A MR BEAL AND I ,IN WHICH I WAS TOLD THAT IF I DIDN'T CLOSE IT WOULD MOST LIKELY COST ME ANOTHER 20,000 AS FOR SOME REASON WE HAD TO CLOSE IN APRIL HERITAGE TITLE CO.(MR DENIS BIVONA REP.)
HAD THE CLOSING AT MY HOUSE HE PRODUCE THE PAPER WORK WHICH INCLUDED A
RELEASE AND WAIVER WHICH WE WERE NEVER TOLD ABOUT HE SHOWED UP APP 8 PM
MY WIFE IS ILL THUS I SIGN BLANK PAPERS ETC NOT TO UPSET HER ANY MORE NOW I'LL SEE
WHAT I CAN DO THIS STINKS . MIKE DANZA 908 637 98 91 NOTE THIS DENIS TOOK OUT 1,380.
FOR HOMEOWNERS INSURACE AND NEVERPAID IT.


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Comment posted July 31, 2010 @ 1:09 pm

Unfortunately, no, it's not true. Especially after Bush's appointments to the Supreme Court.


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Comment posted July 31, 2010 @ 1:09 pm

Unfortunately, no, it's not true. Especially after Bush's appointments to the Supreme Court.


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