What do an insurance agent in Tennessee, a homemaker in Ohio, a private investigator from Wisconsin and a helicopter stunt pilot in Hollywood have in common? Well, for one thing, they've all participated in some fashion in Foreclosure Diaries, the documentary that my company, Pacific Street Films, has been producing, in fits and starts, since 2006.
When work first started on the film, the original tag was "Follow the Money," and the road seemed to lead towards a dark and confusing destination. There was all this talk in the industry about scads of money to be made in servicing "subprime" loans. There were seminars, conferences, it seemed all the rage.
The trajectory of the film, back then, seemed to be a journey into a mortgage-version of Heart of Darkness. Now, I've always had a visceral reaction to the term "subprime" -- implying something less than human -- and I believed that at the end of the road I'd find a Kurtz, a take-no-prisoners evil mastermind. At one point, I thought Kurtz could be John Devaney. Remember him? The short lived Wall Street wunderkind, raking in subprime generated cash, hand over fist, buying yachts and planes, mansions and art. His larger than life personae even provided an inspiration for a feature treatment I wrote called "Positive Carry," the title -- a paean to his slight-of-hand financial dealings and a nod to his yacht of the same name (his demise as a hedge fund manager was accompanied by some glee in the financial community).
Maybe Kurtz was Lew Ranieri, the father of "securitization," that vehicle for bundling mortgages. Certainly his work contributed to the evil alchemy that turned homeowner's misery into industry profits. By 2007, it was becoming evident that lots of folks across the country were being made miserable, but back then very few people in the press and even fewer in the courts were listening.
As research for the film continued in earnest, it was clear that the collateral damage -- homeowners facing foreclosure -- was at the heart of the story we wanted to tell. At that point we shifted the focus from villains to the heroes and changed the working title to "Tale of Two Streets."
First up was a mild mannered insurance agent, Bob Schmidt, who was fighting off a foreclosure initiated by Litton Loan Servicing and Deutsche Bank. It was also the first time we heard the term "mortgage servicing fraud," and the guy using it was an ex-marine, private investigator and foreclosure victim himself by the name of Gary Wait. Wait, who turned up in Tennessee to support the Schmidt's foreclosure resistance in May, 2007, discussed service tactics: not crediting homeowner payments, even when timely; levying unwarranted penalties by laying on so-called force-placed insurance charges; and, when monthly statements start demanding unconscionable payments, turning a deaf ear to any and all complaints. Then, after draining the homeowner of both cash and energy, foreclosure and eviction follows.
"They have unlimited pocketbooks and they pay attorneys to delay and stall," Bob Schmidt told us in an interview right before he was physically removed -- together with his wife and two boys -- in an eviction so brutal it's still tough to watch (and it's part of the trailer for the film). Not only did Bob Schmidt lose his house, but in his on-going fight for justice, his health lost out. He's been hospitalized numerous times, on one occasion, falling into a coma.
But the Schmidts were clear that they weren't throwing in any towel, and represent a growing segment of foreclosure victims who do fight back, despite the odds, and in this respect they're following a historical template that's repeated itself over and over, again and again, whether it's Jews rising up in the Warsaw Ghetto, or African Americans defying the authorities during the Jim Crow era. The Schmidts -- like others -- refuse to stay quiet now that the practices that cost them their home have become fodder for the press.
Others we've spoken to for the film share this crusading inclination. They point out that there's still more beneath the subprime iceberg that needs to be explored.
John Sarviss is one of those campaigning for a much broader investigation. As a veteran in the servicing fraud fight, he battled Litton Loan early in the millennium after finding all sorts of unexplained charges on his mortgage statement, including force-placed insurance. Sarviss, who flew helicopters in Vietnam, something he still does for Hollywood and the City of Los Angeles, has been shouting "fraud" to any AG who'll listen.
But perhaps the most poignant voice in Foreclosure Diaries is that of Kori Holden, who penned a letter in 2003, when she was 16, to the judge presiding over the foreclosure of her parent's home in Akron, Ohio. Her mother, Ann, a blue-collar homemaker, incensed over the what she believed were Litton's fraudulent practices also turned crusader, eventually joining up with MSfraud.org founder, Jack Wright, to use this long-running forum as an internet meeting place for others facing mortgage related problems (and, yes, Wright was also a victim).
Six years after we began production on the documentary, the foreclosure crisis is still running at full tilt. With further revelations it's become a three ring circus of sorts. Currently in Ring One, we have the force-placed insurance scam, currently the subject of an investigation by Benjamin Lawsky, heads of the NY Department of Financial Services. Ring Two features Fannie, Freddie and FHFA using "moral hazard" excuse-mongering in opposition to principal write-downs. And, in Ring Three we have former Litton Loan Servicing executive, Chris Wyatt, providing on-going insights into how Goldman Sachs (Litton's last owner of record) refused to modify qualified homeowner's loans under the administration's HAMP program.
If you want to include a fourth ring, we have the Fed's settlement with Goldman last September (that allowed it to unload Litton to Ocwen Financial) and that mandated a "third party auditor," selected by Goldman and approved by the Fed, to begin reviewing all 2009 and 2010 Litton foreclosures. Well, Goldman submitted a name to the Fed last October, but as of yet, the Fed has yet to announce the name nor give the proposed auditor a green light to begin the foreclosure reviews. Makes one wonder if something is remiss with the choice...
Have we heard the worst of the scandal? I doubt it, but the mortgage industry -- like a piece of plate glass -- has already been scored. Now, it's up to a fed-up constituency --the 99 percenters, politicians, prosecutors, or some combination of all three -- to shatter the glass and reveal the smoking guns. Hopefully, it will come soon enough to provide an ending for Foreclosure Diaries.