Editor's Note, July 25, 2012: This and other BankThink opinion columns written by Joel Sucher bearing this note, published between October 2011 and June 2012, mentioned the law firm of Stephen J. Baum, Litton Loan Servicing, or both. The columns should have disclosed that Baum's firm, working on behalf of Litton, had attempted to foreclose on the writer's property in 2009. American Banker's editors were unaware of this history at the time the columns were published.
The portrait Greg Smith paints of his former employer, Goldman Sachs, as a profit-trumps-all-operation where clients were referred to as "muppets," jibes with the firm's stewardship of Litton Loan Servicing.
Goldman owned Litton from 2007 to 2011. It's a period that most of Goldman's management team would rather forget. But Vicky Marler, a homemaker in Everett, Wash., can't put Litton behind her.
Trying to save her home and keep together a family, including her disabled husband (a veteran), two children and two grandkids, she applied four times to Litton Loan for a modification under the Home Affordable Modification Program. The answer was always the same: no.
After each rejection, she'd break down in tears, reading a litany of reasons for the denial – usually more paperwork required. She spent a fortune on postage and faxing. After one required batch of documents was sent, she'd get requests for another. Then another.
Finally, a note would arrive saying that 90 days had passed and her application materials were now out of date under HAMP regulations, so she'd have to start the whole process over again. Marler, who spends most of her free time as a Girl Scout leader, found that she had little free time left.
Hundreds of thousands of other Litton customers were getting the same HAMP runaround. A former Litton Loan executive, Chris Wyatt, claims to know why this all went down. Seemingly nobody in regulator-land wants to listen to his story.
The accusatory finger he points is aimed squarely in the direction of 200 West Street, the headquarters of Goldman Sachs, Litton's former owner.
Wyatt had worked at Litton since June 2001, well before Goldman's takeover in late 2007. As head of the Executive Resolution Team, Wyatt reviewed complaints about the servicing process. He was also the go-to guy for questions regarding loan modifications, and in the years prior to Goldman ownership he proudly stated that he was always open to make a deal with struggling homeowners.
After the takeover, however, he stood witness to Goldman's team of micro-managers flooding the halls of Litton's Houston headquarters, peeking in every nook and cranny, analyzing past servicing strategies (like loss mitigation and loan modifications) and instituting changes they felt would squeeze the most revenue out of their investment. Wyatt claims loss mit and loan mods were not on the agenda. Foreclosures was where the money was for Goldman, and when some states started talking about moratoriums in 2008, Wyatt says that Litton was ordered to push through any existing foreclosures before the states laid down the roadblocks.
Then came HAMP. Wyatt remembers that after Litton signed on for the Obama administration program in 2009, requests for modifications began to roll in faster than Black Friday shoppers at a Wal-Mart sale. Litton reps were totally overwhelmed. Goldman, says Wyatt, sent the word down: clear the backlog of requests before they melt down the system.
Goldman's hidden agenda was not so hidden anymore, and when Wyatt complained about a pattern of systematic modification denials under HAMP, he was told by a Goldman staff attorney to "quit beating the dead horse."
By mid-2010, Wyatt quit beating the dead horse, at least at Litton. He quit the company, too, and decided to seek other outlets for his complaints.
He first went the AG route, trying to catch the ear of the Texas Attorney General in December of 2010. Roberta Nordstrom's ear, unfortunately, was tin. Then, in December 2010, he hit a bit of pay dirt with Lisa Meyers at NBC. He was featured in a filmed interview as a "whistleblower," calling attention to the millions of homeowners who should have been saved from foreclosures by modifying their loans. Not once did he mention that he had worked for Litton or make any reference to Goldman. But when the interview went up on the NBC website in early May 2011, it caught the attention of a Goldman lawyer, Tony Villani. He fired off a threatening e-mail to Wyatt: "Without mentioning Litton by name, your comments in the article and video disclose confidential information learned while you were employed by Litton, and therefore are a violation of your confidentiality obligations. We reserve all our legal rights with regard to this violation."
Bad move. When the piece was re-broadcast on MSNBC's Dylan Ratigan Show on May 13, Meyers took delight in reading the note aloud, and offering her own little coda: "The way I read this e-mail, Dylan, it seems to suggest that the practices Wyatt told us were going on within the industry, may in fact, have been going on inside the company owned by Goldman Sachs."
Others at Litton felt the pain. An anonymous employee wrote a letter to the Federal Reserve Bank of New York, dated Feb. 9, 2011, describing a strategy that "denied hundreds of thousands eligible homeowners a loan modification through Hamp." The writer further stated that "in order to attempt to manage the volume of modification requests, one of the policies Litton and Goldman Sachs management developed was a 'denial sweep' strategy that systematically denied a modification to potential eligible homeowner without an actual review of the loan."
Shortly after Wyatt's appearance on MSNBC, the Financial Times ran a story citing the letter. The New York Fed couldn't sit on the tip any longer, and told the newspaper that it had the matter under "investigation."
Well, the investigation seemed to go into overdrive and the Fed quickly determined that the allegations did indeed have weight. Coincidentally, the big boys on West Street were trying to unload their troublesome servicer to a willing buyer, Ocwen Financial, so the Fed (along with the New York Department of Financial Services) put Goldman's feet to the fire, forcing the investment bank to sign a consent agreement to complete the horse trade.
Goldman was forced to repeat many, many, mea culpas, including but not limited to "we won't do it ever again." It also agreed to submit to the Fed a suggestion for an independent contractor Goldman would hire to examine Litton's shenanigans during the period 2009-2010.
It's now been more than five months since Goldman submitted a name to the Fed, which has yet to pass judgment. How independent could a Goldman selectee be? This issue has already been a red flag in similar audits now being conducted by banks and servicers under last year's federal consent agreements.
Vicky Marler's stress-laden saga continues with ongoing attempts to secure a loan mod with Litton's successor, Ocwen Financial. "I'm often ready to just call it quits," she says. "But then I wake up really, really pissed and say to myself, they're not going to take this house away."
Chris Wyatt, for his part, has knocked on quite a few regulators' doors. He's still waiting for a response. "At the end of the day, all I care about is giving homeowners a fair shot," he says.
A noble sentiment – but clearly one that doesn't inspire much enthusiasm from the Wall Street/Beltway complex.
Joel Sucher, a filmmaker with Pacific Street Films in Hastings-on-Hudson, N.Y., is working on "Foreclosure Diaries," a documentary about the financial crisis.
Editor's Note: After posting this story we received the following statement from Paul Koches, executive vice president and general counsel at Ocwen.
"When Ms. Marler's loan transferred to us, it was 37 months delinquent. We took a fresh look at her situation, and were able to work out a modification that reduces her monthly payment to a more affordable level and is also NPV positive for the loan owner. The modification includes both an interest rate and principle reduction. Her first trial payment is due April 1. We are delighted to have been able to work out this win/win result."