2004 Report On Predatory Lending &amp Servicing Practices &amp Their Effect On Corporate Compliance, Conduct, Ethics &amp Accounting

REPORT ON PREDATORY LENDING & SERVICING PRACTICES & THEIR EFFECT ON CORPORATE
COMPLIANCE, CONDUCT, ETHICS & ACCOUNTING
The following report is provided to directors, executives, compliance officers, accountants, law firms and
others who are responsible for the proper governance of the public companies reflected in this report.
The companies that are receiving this report for investigation include BankOne, JPMorganChase.
Washington Mutual, Merrill Lynch, Ocwen, Fairbanks Capital, Citigroup, Litton Loan Servicing, Fannie Mae,
Freddie Mac and Option One.
Below, you will find a set of facts, supporting evidence and documentation that will clearly demonstrate that
each of the above named firms and/or subsidiaries of these firms are involved in direct or complicit support
of predatory lending and servicing practices that are in direct violation of each company’s stated code of
conduct and ethics. Many of the violations and practices put each company at systemic, operational, legal,
reputational, and financial risk.
The balance sheet and accounts of each corporation are affected as well. A simple formula to understand is
if a mortgage of loan payment is improperly credited or an improper charge is applied or interest rate
miscalculated, the loan must be individually recalculated, adjusted and amortized from each point of so-
called error or wrongful or fraudulent charge. If not, then all resulting balances and reports are misleading
and deceptive.
Also, the treatment of certain mortgage backed securities as “true sales” that may not be true sales but
creative financing of receivables with moral, implicit or secret recourse agreements could mean that such
assets and their liabilities be reported on a company’s balance sheet.
This report is subject to change and anyone having information that contradicts or challenges the findings,
allegations, facts and contents of this report or any other report listed in a subsequent web link can contact
the author and provide their rebuttal, facts or information they wish to be taken into account. Our goal is to
be as accurate and thorough as possible and to provide a fair description of facts as known.
Each of you receiving this report has a moral, ethical, legal as well as fiduciary duty to properly investigate
and substantiate the claims and insure that violation of each company’s code of conduct and ethics have not
occurred. Furthermore, they have a duty to insure that deceptive, fraudulent and predatory practices and
policies described below and in the web indexed reports have not violated such ethics and conduct codes.
The policies and practices listed below also violate many local, state and federal ordinances, laws and
regulations and those responsible for such compliance must insure that proper adherence to these laws is
being carried out. In the end, each respective individual that receives this report must use his or her best
judgement and independence and not rely on executive’s and legal opinions from inside or related counsel,
since many such firms have their own conflicts.
One such avenue available to each director or executive is to have each CEO; officer or individual
implicated undergoes an independent polygraph exam whereby specific and carefully crafted questions
designed to
The author to this report is willing to undergo such an examination himself to validate and support his
conclusions, findings, allegations and facts. He is willing to share the cost of such exams with each
company so willing to support it’s CEO’s certification.
Each company has the right to polygraph its employees for suspicion of theft or impropriety. The author to
this report believes that polygraph exams be made a central part of compliance and that executives be
required to undergo such a reasonable and cost efficient exam on a regular basis to insure the safety of the
company’s books, records and reporting.
A simple polygraph exam would go a long way to insuring the soundness and proper reporting of a
company’s filings with the SEC.
To that end, if anyone should have any questions or need additional input, please contact the key author to
this report, Mr. Nye Lavalle at mortgagefrauds@aol.com and he will provide you with his personal phone
number and address.
We trust that you will take the allegations in this report and the accompanying e-mail seriously and see to it
that your full and complete efforts
Any rebuttals, explanations, denials, or incorrect facts that you uncover would be greatly welcomed so that
the facts as they are known can be revealed to all.
We thank you for your time and diligence ion this matter.
Respectfully,
Nye Lavalle
BACKGROUND FACTS
1. Nye Lavalle is a consumer and investor advocate dedicated to fighting predatory lending, servicing,
securitization and accounting abuses by major Wall Street banks, mortgage companies and servicers as
well as accounting scandals by the Government Sponsored Enterprises such as Fannie Mae and Freddie
Mac.
2. Mr. Lavalle, is a renowned market and social researcher who has worked closely with many journalists
and the Associated Press. He has been quoted on the front pages of virtually every major newspaper in
America including the Wall St. Journal, New York Times, USAToday and many others. He has also
appeared on a variety of news programs including PBS’ Nightly business report, CNBC’s Power Lunch and
Hardball with Chris Matthew’s. This information and fact can be found by typing or clicking on the following
search strings:
3. http://www.google.com/search?q=+%22nye+lavalle%22&num=100&hl=en&lr=&ie=UTF-
8&as_qdr=all&filter=0.
4. http://news.google.com/news?q=+%22nye+lavalle%22&num=100&hl=en&lr=&ie=UTF-
8&as_qdr=all&tab=wn&filter=0.
5. http://search.yahoo.com/search?_adv_prop=web&ei=UTF-
8&prev_vm=p&vp=nye+lavalle&vp_vt=any&vst=0&vf=all&vm=p&fl=0&n=20&xargs=0&pstart=1&dups=1
6. http://www.dogpile.com/info.dogpl/search/redir.htm?
advanced=1&top=1&qso=location&q_all=&q_phrase=nye+lavalle&q_any=&q_not=&qbool=&qafter=1&qafter
m=01&qafterd=01&qaftery=1990&qbeforem=06&qbefored=01&qbeforey=2004&domaint=&familyfilter=0&lan
g=&dpcollation=1&qk=40
7. For additional info, the same key words can be used in Factiva, Dow Jones, Vutext, Datatimes or any
major newspaper or publication or search engine with searches from 1986 to present date.
8. As a market and social researcher, Mr. Lavalle has experience in and an understanding of basic
statistics, analysis techniques and methods to interpret data and information.
9. His experience in analyzing and determining “patterns” as well as “correlation” allow him the ability to
document and articulate findings, forecasts and predictions.
10. Using his research and investigative experience, Mr. Lavalle has found wide-scale national and even
international patterns of practices and abuses in the mortgage industry. He has isolated over seventy-five
individual financial engineering schemes that directly affect borrowers, shareholders, financial markets and
the current and future beneficiaries of pension, trust and mutual funds.
11. Since 1996, Mr. Lavalle has devoted virtually his full time to the investigation, analysis and exposure
of mortgage fraud, abuse and what are now known as predatory lending, servicing and securitization
schemes. He began his investigation in 1993.
12. In his investigation, Mr. Lavalle has conducted hundreds of interviews [many taped], and has reviewed
over 2 million pages of documents, court files, evidence and complaints from around the nation.
13. The schemes and frauds he has uncovered have now been well documented by hundreds of
consumer advocates, lawyers, consumer groups and even some industry professionals who want to see a
change to the frauds by some of their colleagues.
14. The frauds being perpetuated today are done so by many of the same individuals and entities involved
in the Savings and Loan crisis of the late 80s and early 90s where government statistics found a 60% fraud
rate.
15. In order to combat these white-collar crimes, dozens of new laws and regulations by local, state and
federal governments and regulators have been enacted across the nation to curb many of the abuses
identified by Mr. Lavalle. The industry’s own trade association [MBAA] keeps tract of these laws and the
introduction of laws at it’s predatory lending center at http://www.mortgagebankers.org/news/. Here you will
find pdf files of many laws as well as industry comments and actions.
16. Mr. Lavalle has spent over 14,000 hours and over $350,000 of personal and family resources
investigating, documenting and exposing the abusive and fraudulent patterns and practices in the mortgage,
mortgage servicing and mortgage banking industries.
17. Since 1996, he has written to and warned law firms; accounting firms, government agencies and
consumers about various financial engineering techniques that mortgage companies, banks and the GSEs
have been involved in.
18. Such issues include: the financing of receivables that were not true sales; the use of off shore trusts
as special purpose enterprises to hide debt that should be on the balance sheet; creating implicit, moral and
side recourse agreements; hiding debt that should be on the balance sheet off balance sheet; using fake
derivative trades to increase revenue; and fraudulently over-charging customers to increase revenue and
the assumptions used for valuing mortgage servicing rights.
19. Furthermore, prior to enacting the Sarbanes-Oxley Act, Mr. Lavalle had taken stock with Wall Street
firms and financial institutions and brought his allegations to various CEO’s, executives, lawyers, board
members and accounting firms.
20. Some of the firms Mr. Lavalle took stock in were Bear Stearns and Washington Mutual. He then
began informing each firm’s CEO and chief legal counsel as well as the managing partner’s at Deloitte and
Touche [each firm’s accounting firm] about the frauds and abuses discovered.
21. He reported these abuses directly in phone calls, e-mails and meetings with Ace Greenberg, Mark
Lehman, James Cayne and others at Bear Stearns and with Kerry Killinger and William Lynch of
Washington Mutual and with Jeffrey Dimon of BankOne.
22. Mr.’ Lavalle began his effort due his family being one of the biggest victims of predatory lending and
servicing practices. His investigation began in the early 90s and continues till this day. A copy of the
complete history and documentation of the fraudulent predatory lending and servicing abuses that were
taken against Mr. Lavalle’s family by EMC Mortgage, Bear Stearns, Savings of America, Washington Mutual
and BankOne can be found at http://www.emcsucks.org/insert.pdf a web site maintained by victims of
predatory mortgage abuse.
23. Mr. Lavalle possesses the exhibits to this report which total over 1000 pages from the over 200,000
pages of evidence he has regarding the frauds and abuses directed at his family and other borrowers by
Bear Stearns, EMC Mortgage, Savings of America, Washington Mutual and BankOne. These documents
are available for inspection at reasonable hours in Atlanta, GA or copies made and sent upon request.
24. These documents include hundreds of identical complaints that are only a small sampling of the tens
of thousands of complaints and disputes communicated to these companies about predatory lending and
servicing practices.
25. To demonstrate the arrogance of these white-collar criminals, EMC’s own policy manuals describe
borrowers as Smucks!
26. Mr. Lavalle was one of the first individuals to fight, attack and expose predatory lending and servicing
practices via investigations, guides and information to consumer lawyers and groups. Another of his initial
reports titled 20th Century loan sharks can be found at http://www.emcsucks.org/AAMA_Report.pdf.
27. Fraudulent predatory lending and servicing practices and their industry wide application can be
documented by pattern and practice by analyzing the following facts and evidence.
28. Please visit and review the following web sites and their forums as well as the complaints listed in the
following links:
29. http://www.msfraud.org/forum.htm http://www.msfraud.org/howtheysteal.html

http://www.msfraud.org/artic2.html http://www.msfraud.org/.
30. http://www.ripoffreport.com/results.asp?
q1=ALL&q4=&q6=&q3=&q2=&q7=&searchtype=0&submit2=Search
%21&q5=Emc+Mortgage&submit=Search
31. http://www.ripoffreport.com/results.asp?q1=ALL&q5=Ocwen&submit2=Search
%21&q4=&q6=&q3=&q2=&q7=&searchtype=0
32. http://www.ripoffreport.com/results.asp?q1=ALL&q5=Litton&submit2=Search
33. http://www.ripoffreport.com/results.asp?q1=ALL&q5=Fairbanks&submit2=Search
34. http://www.ripoffreport.com/results.asp?q1=ALL&q5=washington+mutual&submit2=Search
35. http://www.homesidecomplaint.com/
36. http://www.emcsucks.org/
37. http://www.contifairbankssucks.org/
38. An examination of the reports that Mr. Lavalle produced and a comparative analysis of his findings
against the complaints and findings of various Federal and State investigations clearly show the complete
industry wide practice of predatory lending and servicing abuses.
39. One only needs to examine the lawsuit filed by the U.S. Justice Department, HUD and the FTC
against Fairbanks Capital and the resulting $50 million settlement and stipulated order as well as the
settlements with the FLA. AG office and class action lawsuits to see the correlation and relevance between
the allegations and facts.
40. A pdf copy of the complaint and stipulated orders reached by the U.S. Justice Department, HUD and
the FTC with Fairbanks Capital can be found at the following web address:
http://www.contifairbankssucks.org/TheFairbanksProposedSettlement.html.
41. Copies of the settlement reached with the Florida Atty. General can be found at
http://www.contifairbankssucks.org/FLORIDAGETSTHERES.html.
42. Also, during this time, another predatory mortgage servicer regulated by the OTS, Ocwen Federal,
reached a settlement agreement for identical predatory servicing practices. Ocwen’s practices, which are
identical to those identified by Mr. Lavalle in his Predatory Bear report and those found at Fairbanks are
listed in an article on page 4 of the following pdf document:
http://www.nationalmortgagenews.com/wow/wow.pdf.
43. Details about the supervisory agreement reached with the OTS and Ocwen can be found at:
http://biz.yahoo.com/pz/040420/56144.html.
44. The Ocwen and Fairbanks schemes correspond to many of the complaints and allegations made by
Mr. Lavalle against EMC in the Predatory Bear Report. The U.S. Justice Department and OTS have found
these schemes to be deceptive and fraudulent. Yet, Fannie Mae and Freddie Mac still use and pay firms
like EMC Mortgage and Fairbanks Capital to service many of their loan portfolios.
45. In addition to these settlements, one only has to look at the FTC’s own web site and Fannie Mae’s
own booklet titled Expanding Responsible Lending which can be found at
http://www.fanniemae.com/initiatives/pdf/lending/expandresponsiblelending.pdf.
46. A careful examination of page 19 of this booklet titled preventing foreclosures where Fannie Mae
states “predatory lending is not limited to the front-end of a mortgage transaction; abuses can occur in
servicing as well. For example, abusive servicers may charge excessive late fees or fail to post payments in
a timely manner, if at all.
47. These are the overall practices, but they take on various fraudulent financial engineering schemes
designed to boost revenue, fee income and coerce larger payments than are owed that increases float
income for the firms.
48. The net effect of all of this to investors and securities regulators is that when payments are not
properly credited, misapplied or unwarranted fees are diverted from the principal balances, then the
amortization of the loan is excessively and wrongfully increased.
49. Evidence provided to Mr. Lavalle by cash managers for Savings of America and Bank of America
supports that these so-called “mistakes” are in reality policies and procedures developed by CFOs and
CCMs [certified cash managers] to financially engineer revenue streams, income, fees and to enhance
balance sheet results and meet earnings projections to Wall Street analysts.
50. There have been many settlements and acknowledgements of the charging of improper fees by many
servicers. Yet, these servicers have not gone back and recalculated and readjusted each customer’s
account to “each and every” point of misapplication, improper charge, delayed credit etc.
51. As such, the principal balances are effected widely and we have seen loans that were off from a few
thousand dollars to over $40,000.
52. The industry has known of these frauds for years. This is one reason why the “servicing” to loans is
sold or transferred often or about once every 3 years. This is done so the new servicer doesn’t have to take
responsibility for the previous servicer’s so-called “mistakes.” In reality, these transfers are done to avoid
liability and to enhance the values of MSRs [mortgage servicing rights] when traded.
53. MSRs use various assumptions that include the outstanding principal balances. The effect of not
properly amortizing a loan is multifaceted. The outstanding principal balance is one of if not the most
important figure in a loan. It’s the amount due on payoff. It’s the amount used to determine purchase of
MSRs and the mortgages themselves. It’s the amount that is validated as the debt in disputes and under
the law. It’s the amount that is used when foreclosure is initiated as well as the amounts that determine the
value of mortgage backed securities and the payoff and prepayment rates.
54. Misapplications and improper credits and charges also affect the prepayment rates that each ratings
agency and firm uses to calculate various risks and prices for mortgage backed securities. Furthermore,
loans in a mortgage pool have their principal balances reported on an individual basis to investors each
month. This creates violations of various Federal and state securities laws since false and misleading
financial data that investors are relying upon is being communicated to the investors.
55. Furthermore, it poses additional liability to the mortgage pools since each and every loan that may go
to foreclosure could raise affirmative defenses to the amount of the payoff and a wrongful foreclosure action
or bring in the investors.
56. To understand the magnitude of this problem, you can look at the web site at http://www.macc-
trac.com. Macc-Tracc is an auditing firm and there are many others. Due diligence performed by them and
other outside firms has slowed since servicers don’t want to have their due diligence performed by outside
parties who may find massive fraud or so-called “errors.”
57. As such, many servicers conduct their own due diligence and then hold the seller to certain
representations and warranties. The problem with this is that this hampers the true sale nature of the
transaction since the transactions could be viewed as recourse ones that then take over the properties of a
financing of receivables or credit line.
58. To understand the effe3ct on such pools and on investors, please read the following articles on Macc-
Tracc’s web site: http://www.macc-trac.com/WhyAudit.aspx. http://www.macc-trac.com/Issues.aspx.
59. Additional information on fraud in the industry can be found at the industry-supported database of
fraud and abuses. This industry only database can be found at http://www.mari-inc.com/.
60. Some in the industry have claimed that every mortgage loan in America contains some element of
fraud.
61. Due to his actions as an industry whistleblower, Mr. Lavalle and his family have been unfairly targeted
for attack by various Wall Street Firms and banks to coerce his silence and to secure legal releases from
him and his family against virtually every major bank, law firm and accounting from involved in the mortgage
banking industry.
62. Copies of the releases demanded from Mr. Lavalle and the Pews will be provided upon request.
63. Via conferences, attorney summits and vendor outings, members of the mortgage banking and
servicing industries get together and conspire on how to keep information away from borrowers and
their lawyers as well as how to support one another and destroy valuable evidence.
64. The industry has created and put various industry players in business and adhere to a
common set of underwriting guidelines, foreclosure practices, assignment and custody of mortgage
loans.
65. To document the abuses, Mr. Lavalle also created complaint web sites titled
EMCMortgageComplaints.Com, WashgingtonMutualComplaints.com and others to solicit complaints from
victims across America.
66. Bear Stearns and EMC Mortgage then sued Mr. Lavalle for such things as intentional infliction of
emotional distress upon a corporation and trademark infringement.
67. BankOne, a partner of EMC and Bear Stearns and the trustee of a trust that Mr. Lavalle and Mr. Pew
were the beneficiaries to, refused to provide Mr. Pew or Mr. Lavalle with distributions from the trusts to
defend themselves.
68. Instead, BankOne and its lawyers and trust officers told the Pews and Mr. Lavalle to declare
bankruptcy, which the Pews did not want to do.
69. A former trust officer at BankOne, who was employed at the time at Northern Trust, also called Mr.
Lavalle and told him to put his family in bankruptcy. A lawyer for EMC said make it easy on your folks and
put them in bankruptcy.
70. All in all, one of the tactics used when the industry is caught in their frauds is to have their
insurance carriers and investors pay the legal fees. In many cases, despite their public image
position to the press and media, Fannie Mae, Freddie Mac and other investors as well as trustees
such as State Street Bank, Bankers Trust and BankOne work behind the scenes to support the
frauds of the servicers.
71. In the majority of cases, notes when required to be produced in judicial foreclosure states
such as Florida are claimed to be lost, stolen or destroyed and the servicer claims to be the only
owner of the note and the only one with a beneficial interest in the note or mortgage.
72. In reality, as evidenced via the document located at the industry’s MER’s web site under
foreclosure at http://www.mersinc.org/Foreclosures/index.aspx [click on state of Fla.] the servicer
acts as an agent for the investor in foreclosure and in bankruptcy proceedings and conceals the
investor’s ownership.
73. Furthermore, the chain of assignments to the mortgage are often missing or are handled via
the industry only electronic system call Mortgage Electronic Registration Systems located at
http://www.mersinc.org/. MERS, which was created by Fannie, Freddie and the MBAA as well as is
owned by the industry.
74. MERS refuses to give the public access to their records telling them who only services the
note, but not who may have any beneficial interest in the note itself and other parties in interest to a
potential lawsuit.
75. In fact, Fannie Mae and MERs go to great lengths to hide and conceal the true holders in due
course and the entity, trusts or owners of beneficial interests to the notes.
76. A review of the following Georgia Supreme Court ruling whereby Fannie Mae was the actual
owner of the note that was not disclosed to the borrower will help explain the role of MERs.
http://www2.state.ga.us/Courts/Supreme/pdf/s03a0137.pdf.
77. In addition to these frauds, Mr. Lavalle had detailed conversations with leading analysts at
Moodys, Fitch and S&P who rate not only the credit ratings on the various issuance of mortgage
backed securities, but also rate the actual mortgage services in their performance of their duties.
78. While each ratings agency states that compliance is a factor in rating the performance of each
mortgage servicer, each of the ratings agencies have full and comprehensive knowledge of the
various frauds, schemes and predatory practices as well as the dozens of predatory lending and
origination frauds.
79. Their knowledge is well known and dozens of reports and presentations on the subjects have
been issued. Copies of these reports and presentations are available upon request.
80. The ratings agencies have failed in their reviews and ratings methodologies for servicers to
take into account the risks inherent in the frauds and the potential for assignee liability to investors
and trustees.
81. They have failed to take into account the billions of dollars in missing, lost and destroyed
mortgages and notes across the nation and the
82. The threat is that in a case of a major collapse or bankruptcy of a Wall Street firm like Bear
Stearns ala LTCM derivative crisis, systemic risk among counter parties to these transactions could
make the market fall like a stack of cards.
83. Upon such a failure, the underlying collateral that is the mortgage and/or promissory note
becomes key as to that will be entitled to future payments from the borrower.
84. The failure to properly record assignments and perfect lien positions, only to have the
underlying instrument declared lost or stolen or appear with missing assignments poses a threat to
virtually every pension, mutual and trust fund that invests in these high risk securities.
85. In fact, one ratings analyst informed Mr. Lavalle that the entire industry is a scam and that the
true sale opinion letters being written by major law and accounting firms weren’t worth the paper
they were written on since everyone knew that the majority of transactions were really financing of
receivables since there were many side recourse agreements that the ratings firm were aware of. An
article appearing in CFO Magazine confirms the analyst’s concerns. This article can be found at :
86. http://www.cfo.com/article/1,5309,9621||M|586,00.html?f=home_featured.
87. This article is headlined False Security? Corporate insolvencies are testing whether securitization is a
stable structure or a flimsy facade.
88. If a bankruptcy court, like in the LTV case, were to rule that in fact the securities or mortgages are the
property of the bankruptcy estate and had not been properly isolated in trust, then the whole industry could
collapse and investors taking a back seat and position to other creditors.
89. “In fact, at the Bond Market Association's annual meeting in New York in April of 2003, the moderator
of a panel on asset-backed securitization (ABS) joked that this enormously popular form of structured
financing has "proven to be bankruptcy remote — except perhaps in the event of bankruptcy."
90. “For investors and honest CFOs, that's no joke. ABS and MBS products are popular because they are
supposed to transfer illiquid corporate assets (such as receivables) to a bankruptcy-remote entity [the
SPV/SPE], which then allows them to be repackaged and sold as securities. Once the underlying assets are
legally separated from the company's fortunes — and its creditors — those securities typically carry higher
ratings than the company's own debt issues.”
91. It also allows the company not to carry this debt on its books. However, many companies like Enron
have stood behind these offering with wink or nod or side agreements guaranteeing performance and the
obligation. In such a case, if there are recourse provisions, then these true sales are not true sales at all,
but sham financing of receivables that places investor money at risk.
92. The firms that follow have all been notified by Mr. Lavalle of such situations and are fully aware of the
issues at hand: Bear Stearns, Washington Mutual, H.F. Ahmanson Company, Merrill Lynch, Fannie Mae,
Freddie Mac, BankOne, Deloitte & Touche, Stroock, Stroock & Levan, Fulbright & Jaworski, Clark Hill,
Cadwalader, Wickersham & Taft, Butzel Long,
93. Ironically, trusts and mutual funds that Mr. Lavalle and his family [the Pews] are beneficiaries to have
knowingly supported the very abuses and frauds perpetuated in the industry by purchasing such high-risk
mortgage backed securities and investing in mutual funds that do.
94. Mr. Lavalle in his investigation found that the trustees of these trusts and their parent companies,
BankOne and Merrill Lynch, have also been involved in many of the frauds and abuses discovered as well
as the support and concealment of these frauds and abuses.
95. Both Merrill Lynch and BankOne are also involved in business practices and transactions with EMC
Mortgage are members of MERs and use many of predatory servicers.
96. What is even more incredulous, is that employees of firms like Merrill Lynch and Bear Stearns
that sell Fannie Mae and Freddie Mac bonds, tell clients that such bonds are backed and/or
guaranteed by the U.S. Government when in fact the implicit and moral recourse that does not exist,
has been perpetuated by an elaborate and fraudulent scheme of misrepresentations by brokers.
97. For Mr. Lavalle and the Pews, what was even more ironic, BankOne and Merrill Lynch that were
trustees to trust funds that Nye Lavalle and his family are beneficiaries under, refused to provide
benefits to the Nye Lavalle and his family that they were entitled to protect themselves and business
clients, partners and associates who were spending over $1 million attacking Nye Lavalle and his
family over a $100,000 original mortgage.
98. Both BankOne and Merrill Lynch have significant business relationships with EMC Mortgage, which is
a unit of Bear Stearns.
99. Furthermore, two of the law firms retained by Nye Lavalle and his family, after supposedly running
conflicts checks the Nye Lavalle had requested, were actually representing not only Bear Stearns, the
company attacking Mr. Lavalle and the Pews, but also BankOne and Merrill Lynch.
100. In the case of Butzel Long, they conceal that Bear Stearns was a client of theirs as well as Fannie
Mae and Freddie Mac. Even more astounding was the fact that a partner at Butzel Long sat on the board of
directors of Fannie Mae and Butzel Long hid this fact.
101. In his work, Mr. Lavalle has written guides and reports that document and chronicle the
fraudulent financial engineering abuses and frauds taking place in the mortgage banking industry.
102. The abuses and financial schemes that Nye Lavalle has identified has become the subject of
various State and Federal investigations and regulatory actions.
103. They have also become the subjects of wide spread press and media attention and
investigations. Many of these media investigations can be found at the links provided for at
http://www.msfraud.org/media5.html.
104. These investigations have led to fines in the millions of dollars being leveled by state and
federal regulators for mortgage servicing and banking abuses.
105. In as much as executives and legal counsel would like to paint Mr. Lavalle as a “conspiracy
theorist,” paranoid or a kook, one only has to wonder the logic of not accepting payment and
instituting over $1 million dollars in litigation over $100,000 note and then a web site.
106. The Pews had plenty of money to pay off the note and offered to do so as well as had a $2 million
trust fund.
107. Mr. Lavalle offered to give up the web address names back to Bear Stearns for a donation of what he
paid for them to Ace Greenberg’s favorite charity.
108. The bottom-line, as admitted by Bear’s own lawyers in an e-mail that was never shown to Mr. Lavalle
until discovery in a lawsuit was that Bear and EMC wanted Nye Lavalle to shut up and to stop trying to
expose them for they were fearful of what he had found.
109. Rightfully so, executives of Fairbanks were fined and sued by the U.S. Justice Department and certain
executives at Freddie Mac are under criminal investigation.
110. A common PR and business practice by major corporations is to attack and retaliate against an
industry or company whistleblower. This is why legislation had to be enacted to protect employees who
came forward with stories of fraud and abuse.
111. Inflicting financial and emotional harm on whistle blowers to make them an example is modus
operandi for many corporate lawyers, executives and PR personnel.
112. Make them look greedy, nuts, insane and disgruntled is Attacking a Whistleblower 101
113. Make him an example so others won’t follow his or her course is chapter 2.
114. Mr. Lavalle and the Pews turned down a $500,000 settlement offer for their silence.
115. The Pew’s and Mr. Lavalle’s demands at that time were as follows: Payment to the Pews an amount
equal to what EMC paid it’s lawyers [less than $500,000 at the time] and for EMC to change its practices
and policies so that this would never occur to any family again.
116. What the Pews and Mr. Lavalle didn’t know at the time was that the abuses were happening to not
only thousands of EMC customers, but to tens and even hundreds of thousands of mortgage customers
around the nation at companies like EMC, Ocwen, Fairbanks, Litton. Wendover, Olympus and others.
117. Strange enough, there was one major element to all of this. The state of Texas seemed to be the
epicenter for these companies as it was for the Savings & Loan crisis.
118. The Pew’s demand was motivated by a desire that no other family in America would ever go through
the indignity, hurt, pain, humiliation, despair and financial ruin that was being directed at them.
119. Bear Stearns lawyers and executives tried to portray the Pews as “McDonald’s Style” Plaintiffs
claiming they were seeking 18 million in damages. This was untrue.
120. The Pews demand for settlement at the beginning was show us the accounting records so that
we could audit our loan, determine what we owe you and pay you off in cash within 14 days and you
provide us the note back stamped paid in full.
121. EMC refused to do so. The question of why must be asked here.
122. Mr. Lavalle’s research shows that such “prepayments” are detrimental to the pricing and credit ratings
of the mortgage backed securities being marketed. Prepayments hurt the pool and the assumptions used to
value various financial numbers such as the MSRs.
123. Another fact, is that the servicers can’t really settle any lawsuits in that they are controlled by
others who are the investors and trustees who are paying their legal bills and any settlements
incurred. As such, the servicer such as EMC does not own the notes.
124. Basically, the special servicer is a glorified collector and henchman designed to intimidate [as
per their manuals “use fear as a motivating factor to pay”] and extort money not owed.
125. Often referred to in the industry as the toxic waste dump. Special servicers are assigned
servicing rights to loans that are “scratch and dent.” Not able to be underwritten by Fannie or
Freddie; have elements of fraud that have been identified or have become PITA borrowers [Pain In
the A**es].
126. Yet, as in EMC’s case, they never in one court hearing or in any subsequent proceeding ever
delivered the original promissory note and deed of trust into the court record or for production as
requested.
127. In fact, new evidence suggests that EMC never owed the not or any beneficial interest, other
than to service the note. This is evidenced by reviewing the FLA. Appeals Court ruling that you can
find at: http://www.4dca.org/July2003/07-23-03/4D02-4051.pdf.
128. This case is important for many reasons. First, Florida is a judicial foreclosure state whereby
the original promissory note and deed must be entered into the court records when foreclosure is
initiated.
129. Mr. Lavalle has reviewed thousands of court files only to find that in 95% of the cases, the
notes are claimed to be lost, stolen or destroyed in affidavits. Fannie Mae’s counsel said this is
nearly impossible.
130. Yet, evidence uncovered by Mr. Lavalle shows that billions of dollars of notes are so-called
missing.
131. Another fact is that the note that is referenced above in the Hartly Lord case is from the
identical sales transacton from Savings of America to EMC to State Street and various trusts that
EMC has kept hidden. EMC could not prove
132. Evidence also shows that in certain bankruptcies and foreclosures, more than one party has
claimed an interest as a creditor.
133. The industry uses the servicer as the henchman, yet they are not the owners or holders in due
course of the note. They are only agents, yet they are testifying and stating in state and Federal
courts that they are the creditors and no other parties have an interest.
134. As can be seen by the Lord case, these are out and out bold face lies and frauds and perjury
upon the courts.
135. In the Lord case, EMC and State Street could not prove or show possession or payment for the
note. A note valued in the hundreds of thousands was discharged.
136. Now, the law firm of Echevarria & Associates in Tampa, Florida, which is known to engage in
fraudulent practices, is lobbying to get the law changed in Florida.
137. Another motive and intent for EMC, Ocwen, Fairbanks and others, is to foreclose on homes
that have large amounts of equity in them so that as one EMC employee was quoted as saying “we
can buy low and sell high.”
138. EMC, Ocwen, Fairbanks, Litton and other special servicers” as part of their compensation get to keep
the “net liquidation proceeds.” This means that any net difference between the price paid to the investor for
the foreclosure and then the price that the property is sold for at a profit gets to go to the servicer.
139. As such, there is much incentive for these servicers to extort money form borrowers using aggressive
collection techniques.
140. Anthony and Matilde Pew purchased a home in Dallas, Texas and took out a mortgage with Savings
of America. A complete history of the findings pertaining to their loan can be found in the Predatory Bear
report listed above.
141. From the inception of the loan, Savings of America loan officers, executives, management and the
company itself defrauded the Pews as well as countless numbers of other borrowers through over two
dozen fraudulent and predatory lending and servicing practices.
142. These practices, that were later discovered, identified and documented by Nye Lavalle in his research
efforts, target hundreds of thousands of elderly, minority and disadvantaged Americans to strip the equity
from their homes and extort payments far exceeding what is right and customary to financially boost and
engineer their earnings and smooth public earnings reports to the SEC.
143. Such false reporting and subsequent discovery by the Nye Lavalle of wide spread fraud in the
mortgage securitization industry places the financial system in America at risk in addition to U.S.
taxpayers, pension, mutual and trust funds that purchase such mortgage backed securities and has
been the recent subject of criticism by US. Senators, The Federal Reserves’ Alan Greenspan and
Warren Buffet in public disclosures and testimony.
144. Most recently, Freddie Mac and Fannie Mae have admitted major accounting misstatements in
public SEC filings in the billions of dollars and are being investigated for civil and criminal
violations. Regulatory, class action and private lawsuits have also been filed against many
mortgages companies by HUD, the FTC, DOJ and private consumers. A major component of Nye
Lavalle’s discovery were the schemes on how Fannie Mae, Freddie Mac and major banks and Wall
Street firms were conspiring together via the use of various "cash management," "cash flow
management," "balance sheet management," and other "financial engineering" schemes were are in
reality only fancy words for cooking the books.
145. Nye Lavalle’s knowledge came to him via inside sources at major banks, mortgage companies
and ratings agencies who did not like what their companies were doing and/or did not like what had
occurred to Nye Lavalle and his family.
146. This knowledge of major law and accounting firms engaging in these practices have been
subsequently confirmed in the Enron bankruptcy case and the ratings firms were chastised by
Congress for their knowledge and complicity as well as the bankruptcy trustee’s report in the Enron
case that did not only implicate Arthur Anderson, but Enron’s law firm Vison & Elkins, Kirkland &
Ellis and others.
147. The selling of assets from a company’s left hand to their right hand comes with the creative
input of outside counsel and accountants. Yet, these very firms have full and complete knowledge
of side agreements, recourse provisions and pledges as well as case law that goes against the very
grain of such opinions.
148. In essence, the Mr. Lavalle’s knowledge came years before the knowledge obtained in Enron,
and mirrored directly his allegations of corporate corruption and accounting abuses in the use of off
balance sheet accounting, special purposes enterprises and vehicles and in particular the writing of
true sale legal and accounting opinions that major law and accounting firms knew were not worth
the letterhead they were written on,
149. In fact, Mr. Lavalle had also stated since the late nineties that he believed that Freddie Mac and
Fannie Mae were complicit in much of the mortgage abuse in the nation and that he had evidence of them
cooking their books.
150. The true sale opinion letters, such as those used by Enron, allow companies, to hide and place debt
off the balance sheet in various mortgage and asset backed securitization transactions using off-shore trusts
and special purpose enterprises, that in reality are a sham financing of receivables that should be on
balance sheet since side, implicit and not publicly disclosed recourse agreements exist between the parties.
151. Such abuses are now the focus of investigation by the U.S. Congress, state legislatures, the SEC,
U.S. justice department and dozens of state and local jurisdictions across the nation. Even Alan Greenspan
and the Federal Reserve in recent testimony before Congress are now warning of the "systemic risk" posed
by the GSEs that Mr. Lavalle first warned of over four years ago. Prominent regulators, economists and
investors, such as Warren Buffet, are publicly warning and debating the use of these various financial
derivative products as posing a major threat to the U.S. economy. Mr. Buffet has called them the “real
weapons of mass destruction.”
As a productive first step, we’d request that each board member, executive and legal counsel that this report
is addressed to examine and adopt the following Mortgage Servicing Best Practices and recommendations.
First and foremost, a National Compliance Center that is a non-profit organization should be established and
funded by a variety of sources and entities that include: Fannie Mae, Freddie Mac and their foundations; the
MBAA; major servicers and banks; investment community and ratings agencies; consumer groups,
advocates and law firms and private foundations.
This non-partisan organization should be governed by a board of directors composed equally by advocates
and industry representatives.
The center should oversee compliance on all levels of the mortgage banking industry from financial reporting
to mortgage servicing and predatory lending issues. It should be a functional part of the industry. To avoid
costly litigation for borrowers and lenders alike, a dispute resolution board and a non-binding arbitration
solution should be offered [not mandated] to any borrower not happy with the ultimate offer of resolution.
The first step would be for both the borrower and lender to submit their positions and stances about the
dispute as well as what they would propose for resolution. After a review of the facts and additional fact
finding if necessary, a non-binding settlement proposal would be submitted to the borrower and servicer for
acceptance. At worst case, it would be a starting point for resolution.
Fees to borrowers and lenders would be developed based on the complexity of the matter; the value or the
property; the amount of the outstanding principal balance and the financial resources of each party.
The NCC would maintain procedures and training for servicers, lawyers and advocates alike.
It would also conduct research for servicers and investors to update best practices procedures.
It is estimated that an initial budget of $5 million would be required to fund the center.
The following are proposed best practices for your firm to consider and enact:
MORTGAGE SERVICING BEST PRACTICES
Mortgage servicing problems not only affect borrowers, but also affect the mortgage banking and
investment communities. A lack of proper disclosure and deception can fuel the potential for fraud,
abuse and potential liability for investors and government.
Predatory lending and servicing practices can impact and impair the reputation of lenders, servicers
and investors which could lead to systemic risk and injury to mortgage banking secondary markets.
As such, we believe that it is in the interests of consumers, investors, shareholders, bondholders and
government to insure that mortgage transactions and servicing are fair, reasonable and transparent to
everyone.
Such transparency will quickly identify anyone abusing the system, consumers, lenders and investors
so that such abuses can be immediately rectified to protect the company, borrowers and the market.
As such, [name of lender/bank] agrees to adhere to the following Mortgage Servicing Practices and
shall direct our servicing operations or any other entity servicing a mortgage on our behalf or in our
capacity as a fiduciary to any trust that is being serviced that all master Servicers, Servicers, Sub-
servicers and Special Servicers adhere to and comply with the following practices:
SERVICING TRANSFER, ACQUISITION & ASSIGNMENTS
1. Servicers shall employ adequate quality control and due diligence procedures in accordance with
the latest guidelines to be issued by the National Compliance Center.
2. Proper due diligence and data integrity shall be performed to assure that data received
from a prior servicer is accurate and complete including nth number random selection of
accounts for loan level information verification against actual loan documents.
3. Copies of due diligence reports shall be supplied to the National Compliance Center and stored
for a minimum of 4 years so those systematic patterns of abuse may be identified.
4. Any fraud, error, misapplication or problem found on any loan in due diligence shall be
immediately corrected and the loan shall be properly adjusted, recalculated and amortized.
5. Any error, misapplication or fraud found shall be reported to the National Compliance Center and
to the borrower as well to the industry database at MARI.
6. Data checkpoints shall include critical data fields relating to the accurate servicing of the loans.
Data fields to be verified include items such as first payment date, maturity date, term, late charge,
assessment controls, lien position, property address information, etc.
7. “Hello letters” will be sent to the borrower alerting them of the transfer of servicing and providing
toll free telephone numbers for contacting Customer Service.
8. Additionally, the letter will advise the borrower where to send future payments so the servicing
transfer does not impact the status of their account. RESPA requires the letters to be sent within
15 days of the loans being boarded to the new servicer’s system. Servicers will send welcome
letters within 24 hours after transfer.
9. Transfers of servicing shall occur according to current RESPA guidelines. However, in addition to
the transfer of servicing, the following information shall be provided to the borrower with this notice
or soon thereof within 30 days of any assignment.
10. If the servicer owns the note and mortgage and is keeping it in their portfolio, then the
borrower shall be notified of this fact in the Transfer of Servicing letter.
11. If the servicer is acting as a master servicer, servicer, special servicer or sub-servicer on
behalf of any pool of securitized mortgages, the servicer shall notify the borrower of the
actual trust name as well as the name of the trustee for the trust and their contact
information.
12. The borrower shall be notified of any subsequent assignments of any beneficial rights to
the borrower’s mortgage obligation, whether publicly recorded or not, or tracked in any
internal computerized or electronic system including, but not limited to, Mortgage
Electronic Registration Systems.
13. The “Hello” letters will provide information regarding amount due (including a specific breakdown
of any amounts other than principal and interest) and allow the borrowers to dispute the
information provided to the Servicer.
14. All assignments of mortgages and notes that are endorsed shall first be endorsed on the
front of the note until there is no visible room left and then on the back of such note until
there is no place for an endorsement stamp to be placed
15. All endorsements shall be signed and dated on the date of endorsement.
16. If an endorsement is left blank, as is the policy of Fannie Mae, Freddie Mac and others, an
explanation for why such endorsement is left blank shall be provided to the borrower.
17. Only when there is no room left on the front and back of a mortgage, shall an allonge be
allowed to be used and attached to the physical note or mortgage itself.
18. Borrowers shall have the right to request and be provided the names and contact number
of all servicers, sub-servicers, special servicers, trusts, trustees, investors and document
custodians that service or hold their mortgage in any manner.
DISPUTE RESOLUTION
1. When a dispute arises between a borrower and Servicer and a validation of debt is requested,
the servicer shall audit the loan to insure that all payments have been properly applied, interest
calculated, principal reduced, escrow calculated and fees assessed or charged.
2. When a breakout is requested by a borrower of charges or fees assessed to a loan or

collected form a loan, the servicer shall provide the borrower with the following:
1. The amount of the charge;
2. The reason and policy for the charge;
3. The particular clause in their note, mortgage or deed of trust that authorizes such
charge, if requested;
4. The name and address and/or invoice and cancelled check if requested for the
charge placed upon the borrower’s account.
3. Historical audits shall be performed on daily simple interest (“DSI”) loans setting the standard
for quality assurance of payment postings. Mortgage loans have been typically amortized
using a standard calculation of monthly interest regardless of the date the payment was
received. When required by the note, DSI amortization methodology shall be used. This
methodology calculates and accumulates interest on a daily basis.
DISPUTE RESOLUTION
Prior to foreclosure proceedings being initiated, the servicer shall take the following actions:
1. Review and make certain that all disputes have been resolved to the borrower’s satisfaction and
that there are no disputes regarding the following specific servicing areas:
1. Payment(s) Missing/Misapplied
2. Unexplained Increase In Payment of P&I
3. Unexplained Increase In Escrow Payment
4. Wrong Payoff Amount
5. Failure To Produce Payoff Statement
6. Misc. Charges Applied To Account
7. Failure to Answer RESPA QWR Letter Issues
8. Failure To Report Or Fix Credit Bureau Issues
9. Force Placed Insurance Issues
10. Tax Escrow Issues
11. Forbearance Plan Issues
12. Bankruptcy Plan Issues
13. Disputes With Prior Servicers
14. Unapplied/Suspense Balance Issues
15. Prior Servicer Disputes
16. Promise to Pay Issues
2. Servicer will not attempt or charge, assess or collect late charges or fees after mortgage has been
accelerated;
3. Servicer will not attempt or charge, assess or collect from the borrower legal fees and expenses
related to a borrower suing the servicer or prior servicer for servicing disputes or to protect their
legal interests;
4. Servicer will not reject any payments from borrower if after review and audit of the account, the
amount tendered brings the account within 90 days of being past due;
5. Prior to foreclosure, the servicer will let the borrower know what the last appraisal and BPO
amounts were on the borrower’s property and if the borrower has more than 20% equity on a loan
of over $100,000 or over $30,000 equity on a larger loan, the servicer shall inform the borrower
that amount of equity the borrower stands to lose
6. Employees, executives, law firms and REO vendors of the servicer and their families and friends
shall not be allowed to bid or purchase homes being foreclosed on by the servicer.
CUSTOMER SERVICE
1. Call center hours will be Monday through Friday from 7am to 8pm (eastern) to accommodate
borrower calls across the country.
2. Additionally, the call center will be open from 8am to 5pm (eastern) on Saturday; however, on
the second Saturday of every month, Servicer may close at 12pm (eastern).
3. Call recording software will be employed to capture phone calls for quality control monitoring.
4. Any employee found to yell, scream, swear or unreasonable threaten a borrower shall be
dismissed.
5. Collectors shall be compensated with bonuses, however no bonus shall be paid or incentive
provided for the amount of money brought in by the collector.
6. Bonuses for positive customer service compliments and letters shall be encouraged.
7. Tapes of all calls between borrowers and servicing personnel shall be stored, indexed,
cataloged and for four years;
8. The borrower may request to have the call taped or taped the call himself and the servicer
shall not disconnect any borrower who has informed them that the call is being tape-recorded;
9. Call abandonment rates shall be closely monitored and reports of such rates provided to the
National Compliance Center for review and analysis.
10. Borrowers calling in shall be informed of the approximate waiting time to speak to the next
representative if more than one minute. During any wait time, consumer information about
their loan and rights and these servicing guidelines shall be played as to inform the borrower
as to his or her rights;
11. Calls will be reviewed and scored and the Customer Service Representatives (CSR) will be
trained based on the call results. Each CSR shall have at least three calls per week monitored
and scored with an increase to a minimum of seven within 3 months;
12. Bilingual CSR’s shall be certified in Business Spanish.
13. The voice response (IVR) function shall have a selection for a Spanish-speaking
representative.
14. A Borrower Satisfaction Survey developed by the National Compliance Center and the Pew
Research Foundation shall be administered to a random sample of borrowers in each pool of
mortgages and such sample shall be selected on an nth borrower basis in numbers
determined by the National Compliance Center and Pew Research Foundation. The sample
and survey shall be administered at direct cost by the National Compliance Center and the
Pew Research Foundation.
15. Servicers shall foster a “one call resolution” as the primary tenet of Customer Service.
16. Trained Dispute Response Units shall be utilized to resolve disputes while the borrower is on
the phone;
17. If further research or an audit is necessary, then the investigation and response shall occur
within a reasonable time frame, typically around 20 days. If further time and research is
necessary,
18. A payment booklet will be prepared and sent to any borrower, upon request and payment of a
nominal fee, when the monthly P&I and escrow payment is at a fixed rate.
19. Qualified written requests will be addressed and each question responded to within the
required legal time frames without charge to the borrower;
20. The National Compliance Center and AAMA have developed the attached detailed QWR letter
that each servicer should be able to respond to with the information contained in their systems.
21. Standardized responses for various types of loans may be developed as templates to assist
servicing representatives to answer the questions, however difficult they may be, of borrowers.
22. In lieu of the actual response, a booklet in easy to understand language may be supplied to the
borrower along with copies of all servicing records that answer the borrowers questions and a
key code to guide the borrower on how to determine the information requested from the
enclosed documents;
23. The Servicer will seek to achieve most resolutions within 30 days of receipt of the written
borrower letter, with a goal of reducing that number to 20 days or less at the earliest possible
date. A return telephone call is also made to ensure the borrower understands the resolution if
the issue is not resolved in the borrower’s favor.
24. A Quality Control Team will be responsible for reviewing telephone calls and written
correspondence to assure quality in the communication with the borrower.
25. Workforce management software shall be implemented and remain in effect to assist in
forecasting customer service staffing needs and to assure timely call accommodation and
reduce overall and unnecessary hold times. This is used in conjunction with “real time
adherence” which allows real time monitoring of call volume and CSR availability.
26. All customer service policies and procedures will be available and updated online on the
Servicer’s Intranet. This will provide all The Servicer’s staff with easy access to Servicer’s
policies and procedures enabling better and quicker service.
27. Customers will be provided with Monthly Mortgage Statements that have been redesigned to
make the Statement easier to read and understand. Each statement will be provided with a
“How to Read Your Monthly Statement” brochure. This brochure provides step-by-step
instructions for reading the Statement and provides frequently asked questions and answers
most borrowers have regarding their Statement.
28. Inbound calls from borrowers that are less than 30 days delinquent will be routed to customer
service instead of collections.
29. Servicers shall implement a quality audit process that reviews planned credit bureau reporting
prior to submission to the credit reporting agencies.
COLLECTIONS
1. Servicers shall maintain extended office hours to accommodate borrowers’ needs as discussed
herein. Borrowers shall be encouraged to telephone the Servicer at any time during call center
hours to discuss loan issues and resolve delinquencies and problems.
2. No calls will be placed to the borrower before 8am or after 9pm (borrower local time).
3. No calls will be placed to the borrower at the borrower’s place of employment unless the borrower
authorizes such in a taped phone call or by writing or e-mail
4. Collectors may follow scripts provided to begin the call, identify the borrower, state the Servicer’s
name and advise the purpose of the call.
5. Collectors shall identify the borrower using first and last name and refer to the borrower as Mr./Ms.
for the remainder of the call.
6. Collectors will identify themselves using their full name or Mr./Ms. and their last name.
7. Collectors will focus not only on the payments due, but also on the borrower’s reason for default.
8. Any servicing problem or dispute provided by the borrower shall be noted in the servicing system
and coded accordingly and sent to quality control for review.
9. Borrowers shall be informed to place their dispute in writing and provided a web address where
sample QWR letters are located for various disputes.
10. Collectors will utilize active listening skills to determine why the borrower fell past due and will be
trained to ask follow-up questions, and clarify the details of the borrower’s situation.
11. If a borrower falls into specific hardship areas. The collector will refer borrowers to Delinquency
Resolution Program (“DRP”) resolutions where such programs will address a borrower’s
circumstances.
12. Collectors will offer real solutions that may help the borrower locate additional income or
resources and educate the borrower on the benefits of making payment (e.g., restore credit
bureau reporting rating, avoid additional fees).
13. Collectors will also make appropriate referrals to non-profit Consumer Credit Counseling Services
and Housing Counseling Organizations to assist in addressing debt and credit issues.
14. Under no circumstance are collectors allowed to use threatening, abusive, profane,
condescending, or antagonist language toward the borrower.
15. If a borrower is unable to afford paying the total amount due, collectors shall attempt to schedule a
series of payments over succeeding months equal to the amount past due or will otherwise refer
the borrower for a DRP resolution.
16. If a borrower is unable to afford a payment arrangement for the total amount due before month
end, the collector shall calculate and offer a repayment plan that spreads the payment over 90
days. This option allows the borrower to make a series of payments that will bring the account up-
to-date. The goal of the repayment plan is to help the borrower avoid fees and ultimately avoid
foreclosure.
17. If such a plan is unaffordable or otherwise unworkable given the borrower’s circumstances, the
collector will refer the borrower for a DRP resolution.
18. The Servicer will record collector calls to borrowers and randomly monitor those calls for quality
control
19. The Servicer shall have a strict compliance program and disciplinary measures, including
termination, for collectors who fail to meet the highest standards in customer service.
20. Collectors shall have the ability to waive late fees if the borrower is experiencing a hardship such
as natural disaster, disability, involuntary income impairment, divorce, etc.
21. Supervisors, Managers and Directors can waive fees including, late fees, NSF, EZ Pay/SpeedPay
and interest on advances.
22. Collectors will set hold dates to avoid calling borrowers who have a legitimate issues and disputes
that are in the process of being resolved.
23. Collectors shall connect the borrower to other departments to address particular issues and such
response times shall be within three minutes. If longer, the collector shall get the borrrower’s
number and have the specific department contact the borrower at a convenient time.
24. Collectors may suspend early collection activity for borrowers that have a consistent pay history
and who have raised a dispute.
25. Initial collection letters will be sent no sooner than the 17 th day of delinquency when late charges
are assessed. (Other collection letters may be required to be sent pursuant to contractual
requirements based on whether a loan is in a certain mortgage pool.) However, there shall be no
fee for such letter at any time.
26. Upon the transfer of a loan from a prior servicer, Servicers shall not assess any fees or initiate the
foreclosure process or assess late charges for a period of 60 days after loan boarding since it may
take a few months for the payments to come to the new Servicer.
This should help reduce unnecessary late charges and other fees from being assessed.
LATE FEES
1. Any late fee or charge that is tied to a percentage of the mortgage payment that is late, shall
be deemed to be a liquidated damage claim for expenses related to such payment being late.
2. As such, servicers shall be prohibited from assessing or charging any fee, other than the late
fee for such actions and services that are requested by the investor or other servicers such as
BPO fees, appraisal fees, inspection fees, demand letter fees, collection fees, and any fee
related to delinquency or collection status.
3. Late fees shall be assessed and carry over until payment in a separate bucket and shall never
be deducted from a borrower’s account
4. Servicers may not report a borrower as delinquent for the non-payment of late fees or other
assessed charges if they are current in the payment of their regular monthly principal and
interest payments.
5. Servicers may not subtract late fees or charges from a borrower’s payment until all current and
past due principal and interest payments have been applied first.
6. Servicers may not pyramid late fees or charges.
7. Late fees will be assessed to a borrower’s account initially on the 17 th day of delinquency.
8. Servicers may not foreclose on a borrower for unpaid late fees, if all principal and interest
payments are current.
9. Late fees charged will conform to the note and follow state restrictions.
BPO, APPRAISAL & INSPECTION FEES
1. BPO and appraisal fees are not the responsibility of the borrower. These fees requested by the
investor and servicer to determine the market value of the property for valuation of serving rights,
mortgage pools and investor reporting shall not be assessed or charged to the borrower under
any circumstance.
2. Property inspections shall not occur on a monthly basis unless and until there is no phone, written
or direct contact with the borrower for more than 60 days after delinquency or the property has
been determined to be abandoned.
3. In such cases, the property inspection may not be used in any manner whatsoever to make a
collection call or request for payment. If a collection call or request for payment is made, then the
cost for the inspection fee shall be borne by the servicer as part of the liquidated damage
provision of the late fee/charge clause.
4. If the borrower or a family member of the borrower occupies the property, then Property
inspections may not be taken more than once every 90 days if the account is delinquent.
SUSPENSE/UNAPPLIED ACCOUNTS
1. Money placed into any suspense or unapplied account shall be placed into a non-interest bearing
account and monies deposited there shall be applied to a borrower’s account no longer than 5
days.
2. All monies contained in the suspense account shall first be applied to payments of outstanding
and current principal, interest and escrow payments first and then to any amounts due for any
other assessed fee or charge.
3. Upon application of the amounts in suspense, the posting date and corresponding interest applied
shall be based upon the date of receipt of the payment by the servicer or an agent or lock box of
the servicer and not any date thereafter.
4. On the monthly statement, an explanation of suspense and unapplied activity shall be given and
an explanation of why any amounts was placed into suspense at any time.
TAXES & INSURANCE

{Escrowed & Non-Escrowed}
1. All taxes shall be paid timely and accurately to maximize all allowable discounts for early payment
on escrowed accounts. If taxes are not paid in such a fashion, the servicer will pay all penalties,
interest and fees.
2. The Servicer will pay taxes for borrowers with delinquent taxes on non-escrowed accounts only
after first contacting the borrower and informing the borrower that delinquent taxes are to be paid.
3. Payment of delinquent taxes on non-escrowed accounts will occur 60 days prior to the last day to
redeem the property before tax sale.
4. After such payment, the servicer will send the borrower a letter stating the date on which the taxes
were paid and the amount of the taxes paid.
5. Subsequent statements shall reflect such payments and any necessity for the borrower to pay
such tax amount on a monthly basis as part of any escrow account established.
6. Servicers will also timely and accurately pay insurance premiums for escrowed accounts.
7. If a servicer receives a cancellation notice from an insurance carrier, the servicer shall contact via
phone the agent and if necessary the homeowner 15 days prior to the expiration of coverage
[including any grace period].
8. If payment has not been made, then the servicer shall pay the borrower’s insurance policy and not
force place one of it’s own.
9. The amount of the policy shall be placed into an escrow account for the borrower.
10. If the borrower’s insurance is not paid timely in established escrow accounts, then the servicer
shall pay all penalties, interest, or fees.
11. If a Servicer has not received updated insurance information on an escrowed account by 15 days
prior to the expiration of the coverage, a call will be placed to the agent, or, if necessary to the
homeowner, to assure the continuation of coverage.
12. Under no circumstance is force placed insurance coverage to be taken unless and until the
existing carrier refuses to insure the borrower for cancellation other than non-payment of
premiums and the borrower has not secured another insurance carrier prior to cancellation.
13. If force placed insurance coverage is obtained by the Servicer on the borrower’s property then the
borrower shall be notified within seven days of the coverage being taken and be informed of:
1. The amount of coverage and limits thereof;

2. The terms for repayment of the coverage;
3. The dates of coverage
14. Once coverage is placed, if at any time within the coverage dates the borrower secures insurance
on their property, then the Servicer will cancel such coverage on the date it receives notice of
such cancellation and adjust the borrower’s account accordingly.
15. A credit for the unused portion of the insurance shall immediately be reflected upon the borrower’s
advance or escrow account on the date of notice to the servicer and not on the date of actual
refund or adjustment by the force placed insurance carrier.
16. Any additional payment to escrow or an advance balance demanded by the servicer previously
shall be immediately readjusted prior to the next monthly billing statement to reflect the new and
current payment information.
17. When a Servicer does not receive updated insurance information at the expiration of a borrower’s
insurance coverage on a non-escrowed account, a series of calls and letters will be attempted to
confirm insurance.
18. If force placement of insurance is necessary due to the current carrier of the borrower refusal to
reinsure, even after payment, the following steps will be performed if the previous step was
unsuccessful at obtaining insurance information.
19. Timing of the calls and letters shall be as follows:
• Ten days after the lapse or, after a new loan boards, a call will be placed to the
borrower’s agent or insurance carrier.
• First letter will be sent at 15 days.
• Second letter will be sent at 40 days.
• First call to the borrower will be made at the 50 th day. If the borrower does not answer,
the Servicer will leave a message if practicable, concerning how to provide information
necessary to confirm insurance.
• Policy will be issued on the borrower’s behalf and a certified letter will be sent to the
borrower at day 60 advising him of the placement of the policy and the amount of the
annual premiums.
• Premium will be billed; payment analysis performed; and Notice of New Payment sent
to borrower between days 70 and 80.
• Second call to the borrower will be made before the 90 th day.
• New payment becomes effective between the 120 th and 150 th day after the initial
lapse in insurance coverage.
• Upon proof of insurance coverage by the borrower, the following actions will occur:
• Refund of all premiums paid during the overlapping coverage period will be processed
within 5 days.
• Additionally, any other fees or charges to the borrower’s account during the overlapping
coverage period will be removed.
• Borrower’s payment will be returned to the original amount within 10 days of the
cancellation.
MORTGAGE SUNSHINE & MOONLIGHT PROVISION
1. A major complaint by borrowers is the ability to get information and documentation from
servicers regarding their loans. Such documentation includes master account histories,
2. As a fundamental right, a borrower should be entitled to receive, inspect and review any
document, data or information in his or her mortgage file whether that information be in original
paper form, electronically scanned form or in ASCII text and data in a computerized database,
servicing or accounting system.
3. Upon request and the payment of a reasonable fee, borrowers shall be provided with all
information in their mortgage file.
4. Key and chief among such a request would be the master ledger and servicing records
of their account with an appropriate key code for the current servicer’s records and
system and each prior servicer and their records and systems.
5. This is vital should the borrower wish to secure an independent audit of their account
by a mortgage-auditing firm.
6. Furthermore, the borrower shall be entitled upon request or upon a RESPA QWR letter to the
servicer to receive the following:
• All bills, invoices, payments, ledgers, and cancelled checks and other such supporting
documentation for any charge, fee, credit, debit or assessment to a borrower’s account;
• The complete chain of title of assignment of any rights to the borrower’s note or
mortgage regardless of whether publicly recorded or not.
• All BPOs, Inspection and appraisal reports done on the borrower’s property by current
and past servicers;
• All current endorsements on the borrower’s mortgage and/or promissory note;
SERVICING
1. Borrowers shall be entitled to know all companies that are servicing their loan as well
as their respective roles. No effort should be made by any servicer to disguise the
actual entity that the borrower may have personal, written or telephonic contact with.
2. As such, all current and past contact information on all Master Servicers, Servicers,
Sub-Servicers, Special Servicers, Document Custodians and Trustees should be
provided to the borrower upon request.
3. In addition, if a sub-servicer or special servicer is servicing a borrower’s account and

contact is made via telephone or written communication, the sub-servicer shall identify
itself and provide the borrower it’s name and address upon request and the names,
addresses and phone numbers of the master servicer, servicer and trustee the sub or
special servicer is servicing the borrower’s account for.
CASHIERING/POSTING OF PAYMENTS
1. Any payment received by the borrower shall always be applied first to all past due payments of
principal, interest and escrow before any application to assessed charges for late fee.
2. Regardless of how made, and the lack of any written notice with the payment coupon, if the
borrower’s account is current and there are no outstanding payments or fees due, ANY
amount contained in the payment that is in excess of all then current and past amounts due
shall then be applied immediately toward the principal balance thereby reducing such
outstanding balance to the borrower. In no circumstance, shall such an amount be placed into
an unapplied or suspense account.
3. Mortgage payments that (singly or in the aggregate) are $25 or less of the expected principal
and interest (P&I) amount will be posted to the account and the shortage amount will be
advanced on behalf of the borrower. This will advance the borrower’s due date. This process
applies even if a borrower’s account has been reanalyzed and additional payments are owed
due to placement of insurance.
4. Payoffs short less than $100 will be posted. The shortage amount will be advanced to the
borrower. Reconveyance of the title will be processed as paid in full. An attempt will be made
to collect the shortage amount from the borrower.
5. End of day processing will be extended to 8:30pm (mountain time) on the day late charges are
typically assessed to give borrowers extra time to make a payment via SpeedPay, EZ Pay,
Western Union or other similar “instant debiting or credit service” and thereby avoid a late
charge.
6. Borrowers shall be able to arrange such payments either through the IVR unit or through a
web-based product accessed through the Servicer’s web site. Additionally, borrowers may
make check-by-phone arrangements with customer service on current accounts or collections
regarding delinquent accounts up to the point of foreclosure.
7. Check by Phone arrangements will be flexible and may be future dated to meet the borrower’s
financing needs.
8. Any charges for these services shall be disclosed to the borrower prior to the time of payment
and may be waived by the Servicer in the event of hardship.
9. Borrowers may have an automatic withdrawal payment option available at no

10. Additional charge as well as the ability to send payments via Western Union, at any location
nationwide.
11. Servicers shall credit a borrower’s payment based on the date it was received, not the date it
was posted and such practice shall automatically waive any late fees incurred as a result of
any unforeseen payment posting delays.
12. On adjustable rate mortgages and mortgages where interest in accumulating on a daily basis,
Servicers shall insure that any delay in posting of payments shall not affect the amount of the
principal balance outstanding and that the application of all principal and interest payments to
take place to properly amortize the loan shall be based on the date the payment is received,
not on a future posting date.
13. Each Servicer’s Cashiering Department shall establish a research team dedicated to resolving
borrower payment issues such as missing or misapplied payments. This team will work closely
with the Customer Service research group and attempts to resolve issues raised by borrowers
related to payment application “on the spot.” In addition,
14. Payments made by certified mail, Federal Express or other delivery shall have the receipt
saved in the mortgage file to be scanned.
15. Records of all payments and checks that are received and shall be scanned so that a record of
all payments and the date they are received re available for all internal and external auditors
as well as the borrower upon request to conduct an independent audit.
PAYOFFS & RECONVEYANCE
1. Servicers will provide the borrower with a payoff quote over the phone and a final calculated
payoff written payoff quote within five days of the request.
2. A borrower shall be entitled to two payoff figures per year, free of charge. Additional payoff
“written” quotes shall be provided at an additional cost, not to exceed $25.
3. Such written payoff quotes may be sent via e-mail in a pdf file format to the borrower at a
designated e-mail address at no additional cost or via the U.S. mail.
4. If a borrower requests the payoff to be faxed, then the Servicer may charge a fee of up to
$5.00 for any fax requests.
5. If a borrower requests the payoff to be sent Federal Express, then the Servicer may charge a
fee of up to $2.50 plus the actual Federal Express charge.
6. To assure accurate payoff quotes, the original note and any riders shall be examined to
determine if a prepayment penalty is applicable. If so, the Servicer shall notify the borrower of
such a penalty, the amount of the penalty and the provision in the mortgage/note or rider that
authorizes such a penalty.
7. Furthermore, the Servicer shall review whether the lender’s and originator’s license status at
the time of loan origination was such that the lender could include the prepayment penalty, if
applicable and that the prepayment penalty was legal and in compliance with all local, state
and federal laws and regulations.
8. All fees or charges included in the payoff quote shall be confirmed prior to the quote being
issued to the borrower
9. Such fees and charges shall be itemized and broken down by category [i.e. attorney fees, late
fees, inspection fees, BPO fees, etc.]
10. The borrower shall be entitled to receive the backup documentation for such fees as provided
for herein.
11. No estimates for fees shall be allowed and only actual fees incurred or assessed may be
included.
12. Servicers shall itemize fees and charges on an ongoing-forward basis on each borrower’s
monthly statements;
13. Prior servicer advances that cannot be specifically itemized, detailed, supported and explained
may not be collected or included in monthly statements. payoff quotes or in bankruptcy proof of
claim filings.
14. Reconveyance processing shall utilize e-signatures for releases and assignments resulting in
an acceleration of processing.
15. The borrower is entitled to receive his original mortgage/note and deed stamped “PAID
IN FULL” within 30 days of payoff with all applicable chain of title endorsements on the
note and any allonges attached.
BANKRUPTCY
1. Upon receipt of bankruptcy notification, the Servicer will immediately suspend all collection
activity and contact with the borrower.
2. The borrower or their lawyer shall receive a letter from the Servicer confirming that the
Servicer acknowledges the bankruptcy filing and provide the borrower with a payment address.
3. Servicers shall send a notice of default to the borrower’s attorney 15 days prior to Initiating any
filings for motion for relief. This will ensure that there are no lost or Missing payment issues
that may have precipitated the default.
4. In any filing or motion with the Bankruptcy Court, the Servicer shall identify and
disclose all parties in interest including any applicable investors, trusts and/or trustees
involved in the borrower’s loan.
5. Upon request, the borrower and their attorney within 72 hours may inspect the actual
and ORIGINAL promissory note, mortgage and any document signed by the borrower in
actual ink with all corresponding endorsements and assignments in the chain of title.
6. Prior to filing a proof of claim in bankruptcy court, a Servicer must validate the claim to
insure it is accurate and correct and that payments have been properly applied, credited
and posted and that no other fees have been assessed or charged.
7. The proof of claim shall itemize and detail all amounts owed and claimed by the servicer.
8. Late fees after acceleration may not be included in such a claim.
9. Furthermore, if it is the intent of the Servicer to claim any attorney fees during the bankruptcy,
then such fees must be disclosed to the court and approved by the court in advance of any
such fees being incurred by the borrower.
10. In no event shall a Servicer ever, after the completion of bankruptcy, assess or attempt to
collect any attorney or other fees not approved by the bankruptcy court during bankruptcy at a
later date in time from the borrower.

2004 Report On Predatory Lending &amp Servicing Practices &amp Their Effect On Corporate Compliance, Conduct, Ethics &amp Accounting

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2004 Report On Predatory Lending &amp Servicing Practices &amp Their Effect On Corporate Compliance, Conduct, Ethics &amp Accounting

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REPORT ON PREDATORY LENDING & SERVICING PRACTICES & THEIR EFFECT ON CORPORATE

COMPLIANCE, CONDUCT, ETHICS & ACCOUNTING

29. http://www.msfraud.org/forum.htm http://www.msfraud.org/howtheysteal.html

MORTGAGE SERVICING BEST PRACTICES

SERVICING TRANSFER, ACQUISITION & ASSIGNMENTS

2. When a breakout is requested by a borrower of charges or fees assessed to a loan or

12. Bilingual CSR’s shall be certified in Business Spanish.

6. Servicers may not pyramid late fees or charges.

BPO, APPRAISAL & INSPECTION FEES

TAXES & INSURANCE

1. The amount of coverage and limits thereof;

19. Timing of the calls and letters shall be as follows:

MORTGAGE SUNSHINE & MOONLIGHT PROVISION

3. In addition, if a sub-servicer or special servicer is servicing a borrower’s account and

9. Borrowers may have an automatic withdrawal payment option available at no

PAYOFFS & RECONVEYANCE

8. Late fees after acceleration may not be included in such a claim.

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