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"When they did a securitization and registered it, they were creating a structure that would hold mortgages that hadn't been made yet or purchased yet," Ackelsberg says.
Because Lehman needed loans quick, then, brokers were more willing to set up loans with people who were in the financial margins, he says.
And there was no incentive to take the long view, Weiser says. "Everyone in the whole system, from the homeowner to the CEO of Lehman, was rewarded on short-term performance, rather than on whether or not these loans would survive over the long term," he says.
According to Zinner, the system rested on a shaky foundation. "Although these securitization trusts were based on many unaffordable and unsustainable mortgages, it didn't crumble right away because the companies were gouging so much out of the consumer, they still had a high rate of return," he says. "The drop in housing prices gave it the final push."
The foreclosure letter that went to Philip Grant came from Lehman subsidiary, Aurora Loan Services.
Lehman purchased Aurora in 1997 and moved its headquarters from Nebraska to Colorado. Once in the Lehman stable, Aurora rapidly expanded its portfolio and eventually held an $80 billion mortgage portfolio, making it one of the largest loan-servicing companies in the country.
Aurora was also one of the largest loan originators, meaning that some portion of the bad loans, which led to Lehman's downfall, were issued by its own subsidiary.
Aurora officials recently put up a statement on its website, declaring the company was not part of the Lehman Brothers bankruptcy. "There are no changes to the way we service your loan or do business with you," the company says, next to a photo of a white couple in a majestic home. (In the wake of Lehman's collapse, Aurora is now for sale and is considered one of Lehman's better assets.)
Elsewhere on the website, the company says: "Please remember that we are here to listen to your situation and help you understand your options." The site claims: "Aurora will work with you to assess your current financial situation and partner with you to outline the best program to help you resolve the situation."
And: "We routinely work with customers who are having difficulty in making their mortgage payments to explore alternatives to foreclosure that would enable them to stay in the home."
Despite these rosy assertions, an industry survey in 2007 by Moody's found that companies like Aurora were only modifying a tiny percentage of their loans. The Center for Responsible Lending reported in January that foreclosures were outstripping modifications by 7 to 1, and 13 to 1 among subprime loans.
The Center for Responsible Lending wrote in 2007 that the sheer magnitude of the problem may have overwhelmed servicers like Aurora. In addition, their parent companies may have been cutting back just at the time that they needed extra staff to handle the demand. Plus, it cost them money to do a modification.
In federal courts around the country, people like Grant are suing Aurora, alleging that the company acted improperly in foreclosing on their homes. And Internet bulletin boards are thick with irate complaints about the company.
The letter that Aurora sent to Grant said he was behind on his payments, and the company was going to foreclose on his four-family house in Bed-Stuy.
Grant was indeed behind—but only by a few weeks, he says. Moreover, he had already mailed in the payments that would bring him up to date.
He contacted Aurora to plead his case, but, incredibly, the company refused to accept the payments. Instead, company officials moved ahead with the foreclosure. No matter what he did, Grant says, Aurora would not work with him to resolve the debt.
"I had the money, and I sent them the money, but they didn't want it," he says. "It's like they would rather have had the house back."
Grant tried to contact Aurora, but he was passed from one voice mailbox to another. He then wrote a letter. "It was impossible to speak with a real person," he says.
Grant's initial move was to complain to the Office of Thrift Supervision. "They did absolutely nothing," he says. "I got a letter back basically saying, 'You better cooperate with whatever they say.' "
Grant, though, took it to a judge, who immediately tossed the case because Aurora did not hold title.
Aurora then purchased the title from Lehman Brothers for $10 and initiated another foreclosure action.
"There were four or five court dates, but they just dragged it along," Grant says. "It was all about a contrived default. They seem to be in the business of foreclosing on people."
Grant started writing to Lehman directly, hoping for a resolution. Lehman simply forwarded the letters to Aurora. Eventually, Grant sued in federal court. The case is pending.
Aurora filed foreclosure lawsuits against just two Brooklyn homeowners in 2005. So far this year, the firm has sued 90 homeowners in the borough, court records show.
In Lehigh, Utah, Christofferson, the excavator with three kids, says that he didn't even hear the name "Lehman Brothers" until after the house he owned was taken from him by Aurora.