Outcome: Successfully Withdrawn
Our corporation is one of the largest servicers of subprime and other alternative housing loans with servicing rights of about $54 billion of subprime loans as of the end of June and with other purchases from Fremont General in June and about $1.2 billion of loans and servicing rights from Popular Inc in September.
The Mortgage Metrics Report of the Office of Thrift Supervision and the Office of the Comptroller of the Currency for major servicers under their supervision shows over 11 % of subprime loans were seriously delinquent. Of these seriously delinquent loans of lenders supervised by them, 5.9% received loan modifications, 5.7% payment plans, and 7.2% foreclosures. Problems with Alt-A loans were at about half this subprime level but still significant.
Such foreclosures have hurt the economy through the large increase in vacant housing and the further decline of housing values, causing financial problems to local communities. For example, Vallejo City (CA) is filing bankruptcy as the result of the large numbers of vacant houses.
Lenders, especially those like Countrywide that extensively use brokers, have faced complaints of deceptive methods and predatory lending practices in the process of making their loans. As a result State Attorneys General and banking authorities of 11 states brought suit against Countrywide, now a part of Bank of America, on the basis of these complaints. As a result, Bank of America has agreed to a nationwide homeownership retention program focusing particularly on subprime, Option ARM, and hybrid loans and calling for loan modification wherever possible and relocation assistance for borrowers whose loans cannot be modified and face foreclosure.
Loan modification under this agreement seeks whenever possible to make loans affordable by reducing the loans costs plus insurance and taxes to 34% of borrower income through various mechanisms including interest rate reductions and interest caps in the near term
The State Attorneys General have sent letters to 16 major servicers, including Goldman Sachs’ Litton Home Servicing, stating:
“Given the significant losses associated with foreclosures, and your fiduciary duty to maximize the return for your investors, we believe that every major servicer of subprime loans should adopt these types of programs as soon as possible. We believe that doing so is in the best interest of homeowners, servicers, investors and the economy at large.”
Since Litton Servicing of Goldman Sachs services large numbers of subprime loans, many of which were brokered loans and may be of predatory nature, we believe Goldman Sachs should implement as far as possible the suggestions on loan modifications given by the State Attorneys General
The board of directors should develop a loan servicing policy providing for the development of programs such as those put forth by the State Attorneys General in order to remedy borrowers for past predatory loan practices, help prevent future ones, reduce losses associated with foreclosures, and increase return to investors; and then report periodically to shareholders on its progress.