I am beginning to get the picture that Caliber Home Loans, as servicer for a number of securitized trusts, may be engaged in “stealth foreclosures” on a grand scale.  Why do I think that. Well, I have one case that fits the bill, but that one case seems like it is probably one of many just from one securitized trust.  I have written before that Caliber Home Loans is effectively a servicing arm for Lone Star Funds, a private equity vehicle packaging up billions of dollars worth of troubled mortgages.  Loan Star has packaged lots of funds, but the most recent significant ones are LSF 8 Master Participation Trust and LSF 9 Master Participation Trust.

What is a Stealth Foreclosure, and why is it bad?  In a stealth foreclosure, a previous owner of a loan sells the loan during a foreclosure case. What should happen is the new owner should intervene as a party and replead the case. The new owner should also engage in loss mitigation (mortgage modifications, etc.)  Intervening in a mortgage foreclosure case and engaging in another round of loss mitigation naturally slows down the foreclosure process, but if that’s a problem, there’s no law saying any mortgage buyer has to buy loans that are already in foreclosure.  From the point of view of the homeowner, and probably society as a whole, slowing down the case is probably good, especially if the previous lender didn’t engage in good faith loss mitigation in the first place – a practice which is all too common.  The stealth foreclosers may just be allowing the previous owners to run the foreclosure because they are lazy, but they also could be holding back because there could be problems with the transfers to the new owners. Problems with these transfers could give the homeowners defenses to the foreclosure – but not if they don’t know the people foreclosing on them have already sold the loans.

To put things in perspective, understand how companies like the LSF Master Participation Trusts get a huge chunk of their loans. They buy the loans from HUD auctions.  HUD gets the loans when it pays off on FHA insurance contracts.  At this point, the original lender has been paid off and has avoided a large loss on the contract thanks to federal mortgage insurance.  When HUD auctions the loan the new buyers buy at a huge discount, perhaps paying 70% the original amount of the loan.  As a matter of public policy, HUD could have offered a 30% subsidy to the original lender to offer to the borrower, or HUD could have offered the 30% subsidy direclty to the borrower.  Insstead, the hedgefund owned mortgage pool gets the loan subsidy.  The loan pool then has the opportunity to cut a deal with the homeowner at a significant discount to keep the homeowner in the home.  Instead of doing so, they seem to be just going through with the foreclosures and putting the home on the market.  All of the delays, evictions and distressed sales are driving down the home values in many neighborhoods, even for folks that never got behind on their mortgages at all.   In other words, it isn’t a hardship to require the new loan buyers to engage in loss mitigation, these buyers have already received a huge subsidy either at taxpayers’ or mortgage insurance payers’ expense.

To allow these opportunist mortgage funds to engage in stealth foreclosures continues the harmful economic trends that have become commonplace, the trend toward commonized costs and privitized profits.

If you have a loan that has been taken over by Caliber Home Loans which is already in foreclosure by another lender.  I suggest that you contact Caliber and demand that the new owner intervene in the foreclosure case. If they do not, you should file a complaint with the Consumer Financial Protection Bureau.  Tell the CFPB that your new and old lenders are conspiring to do a stealth foreclosure. contact a consumer attorney in your area through the National Association of Consumer Advocates at www.consumeradvocates.org or www.naca.net.