Speaker 1: The Consumer Financial Protection Bureau and twenty two states have
Speaker 1: sued Aquan Financial, a mortgage servicer that performs tasks like
Speaker 1: collecting mortgage payments on behalf of the banks that actually
Speaker 1: lend the money, among other things. The CFPV says that
Speaker 1: Aquan routinely mishandled millions of mortgage accounts, and that the
Speaker 1: software Aquan uses to manage mortgages is deeply flawed, adding
Speaker 1: errors regularly to borrowers accounts. Aquan disputes the allegations and
Speaker 1: has called the lawsuit politically motivated. But this isn't the
Speaker 1: first time that it's been in hot water with the CFPV,
Speaker 1: and it's facing some very serious lawsuits right now. With
Speaker 1: us to talk about the litigation against Aquan is Robert Hockett,
Speaker 1: a professor at Cornell University Law School. Bob explained to
Speaker 1: us exactly what the CFPV says that Aquin did wrong here. Sure, sure,
Speaker 1: So it's great to be with you. Thanks for having
Speaker 1: me on again. Essentially, if you go back to one
Speaker 1: thing I might help listeners as if they remember back
Speaker 1: at the so called robosigning scandals where a lot of
Speaker 1: banks were getting in trouble for supposedly UH filling out
Speaker 1: or filling dot filling out documents kind of fraudulently in
Speaker 1: order to begin to foreclose on homes which UH mortgages
Speaker 1: were sort of getting laid on their payments. One of
Speaker 1: the reasons that was alleged for that was that basically
Speaker 1: they were just such a big upswing in foreclosures in
Speaker 1: the wake of the crisis that the banks simply couldn't
Speaker 1: handle it. They simply couldn't keep up with all of
Speaker 1: the servicing requirements that they had to keep up with,
Speaker 1: so a lot of the banks began to unload a
Speaker 1: lot of these servicing rights to affirm like Aquan and
Speaker 1: Aquin purported to be a specialist at handling this kind
Speaker 1: of stuff. They supposedly have the right software, the right techniques,
Speaker 1: so they could kind of do all of this stuff
Speaker 1: in the right way on the up and up. They
Speaker 1: could kind of manage each particular mortgage account well and
Speaker 1: take in the payments. They could do readjusting of a
Speaker 1: monthly payments if necessary. Um, they could basically handle it
Speaker 1: all in a much more efficient way. Was to claim.
Speaker 1: What the CFPB and what twenty two states are saying
Speaker 1: is that Aquin has proved no better at this than
Speaker 1: the banks were said to be doing back in the
Speaker 1: idea is first of all, but the software that they're
Speaker 1: using is not capable of tracking all of the various
Speaker 1: functions that have to be tracked in servicing these many
Speaker 1: many loans. UH. They're claiming that auqwin is failing to
Speaker 1: record payments that mortgagers are actually making on some of
Speaker 1: these loans. They're saying that auqwin is failing to make
Speaker 1: various tax payments and other sorts of payments that have
Speaker 1: to be made out of the escrow accounts associated with
Speaker 1: particular mortgages, and that in consequence, UM something like one
Speaker 1: and a half million homeowners have been harmed already. So
Speaker 1: a number of states UH states have sued as as
Speaker 1: you know as a CFBVS sued, and a bunch of
Speaker 1: states have also issued seas and asists orders, essentially saying
Speaker 1: that aukwin has to stop UH taking on any more
Speaker 1: servicing business until it can sort of prove or sort
Speaker 1: of get under wraps the business that is currently claiming
Speaker 1: to be handling Bob. The Consumer Financial Protection Bureau said
Speaker 1: that Aquin allegedly foreclosed illegally on at least to thousand homeowners.
Speaker 1: Don't they have to go through a court proceeding and
Speaker 1: prove some facts before they can foreclose illegally and don't
Speaker 1: have to verify whether the debt was valid. They do.
Speaker 1: But but here's the different states have different degrees of friction.
Speaker 1: You might say that they put up in the way
Speaker 1: if it would be forecloser. In some states it's a
Speaker 1: lot easier and faster for to foreclose than in others.
Speaker 1: What's more, if Akwin, for example, UM was sort of
Speaker 1: proving that it had the right to foreclose by producing
Speaker 1: certain documents that might have been you know, robosigned, if
Speaker 1: I can use that word again, that you know, basically
Speaker 1: referring to what the banks were accused of around seven
Speaker 1: years ago UM, and then some of those foreclosures could
Speaker 1: definitely be suspect, even though uh Ackwin sort of complied
Speaker 1: with the sort of the letter of the law, or
Speaker 1: appears to have complied with the letter of the law. Bob,
Speaker 1: you know, this isn't the first time the CFPB has
Speaker 1: got after Akwin and went after them in two thousan
Speaker 1: over what sound very similar kinds of allegations of mismanagement
Speaker 1: of accounts. How is it that this didn't get cleared
Speaker 1: up when not when the CFPB went after them the
Speaker 1: first time? Well, I mean that that is uh, the
Speaker 1: sixty four thousand dollar question, right. I mean, one would
Speaker 1: have thought that Awkwin would have been put on notice
Speaker 1: ben uh, and that they would have gotten their act together. Um.
Speaker 1: I think there are a couple of possible explanations. They're
Speaker 1: sort of good faith, I mean, there are sort of
Speaker 1: charitable explanation and possible I'm sorry, there are some possible
Speaker 1: explanations that are sort of charitable and others that are less.
Speaker 1: So let's start with the charitable. The charitable explanation might
Speaker 1: be that they said that, yeah, we'll get our act together,
Speaker 1: we'll sort of get back on the straight arrow, will,
Speaker 1: we'll fix these problems, uh, And that they really tried, um,
Speaker 1: but that they underestimated the magnitude of the problem and
Speaker 1: so didn't succeed in sort of fully handling it. Another
Speaker 1: possibility is that they were in fact acting to correct
Speaker 1: the problems of the CFPB notified them about, but that
Speaker 1: in the meanwhile they kept taking on additional servicing rights
Speaker 1: so that the full portfolio and that they were dealing
Speaker 1: with continued to grow. And so even the improvements that
Speaker 1: they made in might not have suffice given the fact
Speaker 1: that the original basis of those problems was itself growing. Right.
Speaker 1: I mean, one thing we have to remember is that
Speaker 1: the number of mortgages that they've been servicing, the full
Speaker 1: portfolio I think, grew by something like a factor of
Speaker 1: eight eightfold from what to now or two thousand nine
Speaker 1: until now. So it's a very rapid growth rate in
Speaker 1: their portfolio of mortgages to handle. So even if they
Speaker 1: were which is again four years ago, even if they
Speaker 1: were beginning to get there their house in order, so
Speaker 1: to speak, it might have been that that was not
Speaker 1: enough because the problem was in effect growing very rapidly
Speaker 1: even as they were trying to get a handle on it,
Speaker 1: as it had developed up Bob. So, the CFPB, the
Speaker 1: state of Florida, and twenty one other state agencies are
Speaker 1: suing them or resuring cease and decease desist orders against
Speaker 1: the company. Yeah, it has said it will vigorously defend itself.
Speaker 1: What is its defense? I really, I frankly can't imagine
Speaker 1: what it could be. I really can't. I'm very I mean,
Speaker 1: I'm surprised by this particular attitude. I would have thought
Speaker 1: that they would have been exhibiting some kind of contrition um,
Speaker 1: some sort of plea to the effect that, well, you know, please,
Speaker 1: you know, work with us here where we really are trying.
Speaker 1: We're doing our best. But but the problem is that
Speaker 1: the thing has you know, that the portfolio has grown
Speaker 1: so rapidly that even as we are making improvements, were
Speaker 1: still having trouble keeping up. That would have struck me
Speaker 1: as the right sort of tone to take. Instead by
Speaker 1: striking a defiant tone and saying, oh, this is just
Speaker 1: a CFPB sort of getting out of control, I think
Speaker 1: it's an amazingly stupid strategy to tell you the truth,
Speaker 1: because when you've got half of the states of the
Speaker 1: Union making the same claim, trying to scapegoat the CFPV
Speaker 1: just isn't gonna it's it's not gonna fly right. Nobody's
Speaker 1: gonna buy that. Nobody's gonna find that convincing. With half
Speaker 1: the states in the Union are alleging the same uh,
Speaker 1: that the same wrongs uh and and acting in the
Speaker 1: same way as the CFPV, I can't see what kind
Speaker 1: of defense they could possibly offer that would be consistent,
Speaker 1: at least with a defiant tone that they're striking, Bob.
Speaker 1: If you know, a lot of people probably when they
Speaker 1: get their bills from these mortgage servicing companies are kind
Speaker 1: of surprised. You take out a mortgage with a bank
Speaker 1: and suddenly this other company who you never heard of
Speaker 1: before is obviousing your mortgage, and you can end up
Speaker 1: in a situation like we have allegedly with Aquin here.
Speaker 1: Is there something that should be done, you know, at
Speaker 1: the governmental level or otherwise or by the banks in
Speaker 1: order to avoid this kind of situation because people don't
Speaker 1: have any control over who the mortgaging service company is. Yeah,
Speaker 1: I mean, I think that that's that's the sort of
Speaker 1: the perfect question to ask here, because in fact, what
Speaker 1: it highlights is a particular fact, and it's the fact
Speaker 1: that we haven't yet figured out how to deal with
Speaker 1: the fact that the whole country, the whole model of
Speaker 1: housing finance that we operate with in this country has
Speaker 1: fundamentally shifted over the last tent of twenty years. Right
Speaker 1: there used to be, as we know, right the very
Speaker 1: the person that landed with the institution that lent you
Speaker 1: the money that you used to buy your house, kept
Speaker 1: the loan for the duration of the loan, and you know,
Speaker 1: I had you had a personal relation with it, You
Speaker 1: knew who they were, knew who you were, you had
Speaker 1: a kind of a history. You could kind of work
Speaker 1: things out together if you were beginning to uh suffer
Speaker 1: financial hardships, and hence we're going to linquents on some
Speaker 1: of your payments. But as you know, in the lead
Speaker 1: up to two thousand and eight, we had a gradual
Speaker 1: shift to what's now known as the originate to distribute model,
Speaker 1: where the institution that originates loans doesn't plan to hold them. Instead,
Speaker 1: it sells the rights to collect on the loans to
Speaker 1: other institutions. And sometimes these things can change hands multiple times,
Speaker 1: and that makes it very difficult, for one thing, for
Speaker 1: the homeowners to know who the heck they're actually dealing with,
Speaker 1: and who they actually owe something to, and who might
Speaker 1: be in fact, just trying to scam them. And it
Speaker 1: turns out that it's apparently difficult for the services themselves
Speaker 1: even to kind of keep up with things because these
Speaker 1: things often change hands so rapidly. So the question is
Speaker 1: do we have to go back to the pre originate
Speaker 1: to distribute model basically originate to hold In other words,
Speaker 1: we want kind of maximum skin in the game again
Speaker 1: like we used to have, or is there some sort
Speaker 1: of middle ground that we can find that's between the
Speaker 1: older model on the one hand, and the currently you know,
Speaker 1: sort of just obviously unsiff stainable originate to distribute to distribute,
Speaker 1: to distribute to distribute model, which is what's proved so
Speaker 1: so unworkable. You know. The argument in favor of the
Speaker 1: latter is it supposedly makes housing finance cheaper, right, the
Speaker 1: cost of housing finances much lower because nobody feels that.
Speaker 1: The lenders know that they can unload the loans and
Speaker 1: so they're not going to be stuck with them, and
Speaker 1: they charge less in the way of interest. But the problem,
Speaker 1: of course is we actually had sort of too much
Speaker 1: mortgage credit. It was sort of too much of a
Speaker 1: good thing. That's why we had a housing bubble in
Speaker 1: the first place. So clearly we need something between the
Speaker 1: two extremes, at least if we don't, in fact go
Speaker 1: all the way back to the originate to hold model. Bob.
Speaker 1: Every time I see these lawsuits continuing about mortgage companies
Speaker 1: and mortgage service companies, I asked the same question of myself,
Speaker 1: which is haven't we learned anything from the financial crisis? Yeah? Yeah,
Speaker 1: it seems like we learned something for about twenty minutes
Speaker 1: or maybe for eighteen months um, and then almost as
Speaker 1: quickly as um, things begin to kind of recover in
Speaker 1: scare quotes, the original causes of the crisis in the
Speaker 1: first place begin to be forgotten. But you would have thought,
Speaker 1: in this particular case, given that the magnitude of the
Speaker 1: crisis first and the fact that it was so concentrated
Speaker 1: on housing finance as for another thing, that at the
Speaker 1: very least we would at least remember, right how to
Speaker 1: you know, how to do housing right, even if we,
Speaker 1: you know, are still sort of arguing about what to
Speaker 1: do about derivatives or what to do about uh financial
Speaker 1: market utilities or repo markets or what have you. But
Speaker 1: it seems that we we've apparently haven't even figured out
Speaker 1: yet what to do about housing. And I guess you see.
Speaker 1: Another reflection of this, of course, is in Congress itself,
Speaker 1: because Congress for at least five years now has been
Speaker 1: figuring out what to do with Fannie and Freddie. Do
Speaker 1: we want to sort of restore them to what they
Speaker 1: were before? Two We've got there's clearly gonna be more
Speaker 1: for us to have you on the air to talk about,
Speaker 1: but we're running out of time, so I want to
Speaker 1: thank Bob Hockett of Cornell Law School for being with
Speaker 1: us here today on Bloomberg Law. That's it for this
Speaker 1: edition of Bloomberg Law. Will be back tomorrow thanks to
Speaker 1: Technical director Christa Comey and producer David Sucherman. Coming up
Speaker 1: on Bloomberg Radio, Bloomberg Markets with Carol Master and Corey Johnson. Carol,
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Speaker 1: CEO really making? We're gonna do that. Stay tuned for
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