If you thought the Friends of Angelo program, via which Countrywide gave very favorable mortgage terms to assorted Congresscritters, was pretty bald-faced, you ain’t seen nothin’ yet.

It appears the best way to get a deep principal mod in America is to represent a clear and present danger to the mortgage industrial complex.

The object lesson was Arizona Senate bill 1259, which passed 28-2 and created heart palpitations in bank offices all over the US (see the text here). It would have required that banks disclose chain of title and required that the foreclosing party reimburse legal fees when the plaintiff failed to prove ownership. Ouch!

A full bore effort was mounted to kill it. As the bill’s Senate sponsor, Senator Reagan, wrote (hat tip Matt Weidner):

I was told the bill was DOA in the House before it even got out of the Senate. It was “double-assigned” meaning it had to pass two committees instead of just one. In addition, the Chair of the Banking and Insurance committee in the House did not like the bill and was not going to give it a hearing, meaning the bill was dead. By the way, it is completely within the right of any committee chair to kill a bill.

But it gets better. Martin Andelman uncovered a seamy part of this story. A realtor who also audits trustee sales, one Darrell Blomberg, was keen to revive the bill and enlisted Representative Carl Seel. But weirdly, Seel was late to the legislative session and thus missed his opportunity to offer the amendment as planned.

This seems pretty innocent, right? Think twice. From Andelman (hat tip April Charney):

When Rep. Seel was asked what had happened to prevent him from showing up on time to propose the amendment, he explained that he had decided not to propose it because he was told there was no chance of it being adopted… something about it not being “germane,” whatever that means. One thing though… from what Darrell explained to me, Carl Seel must have been in a very good mood the day of his unexpected tardiness, because even though he had been previously turned down twice for his own loan modification, two days before he showed up too late to propose the amendment, Ocwen granted him a PRINCIPAL REDUCTION that reduced his mortgage to $88,000 from roughly $190,000… that’s a reduction of approximately 56% give or take a few points one way or the other. Now that is lucky, was all I could think to say. Really lucky, considering it was Ocwen, a servicer I’ve been told is among the most difficult when it comes to modifying loans. In fact, it’s almost like being the single-ticket-lottery-winner-three-days-in-a-row kind of lucky, wouldn’t you say? So, how did Darrell know about the fortuitous timing of Mr. Seel’s generous principal reduction?

It’s quite simple really… Seel hired him to help him with his loan. You see, according to Darrell Blomberg, Rep. Seel had asked him to conduct an audit of Seel’s trustee sale in an effort to postpone his own home’s sale, which had been scheduled after his servicer denied his loan modification application for the second time. And Darrell had forwarded the results of his examination to Ocwen in a letter outlining several discrepancies in an attempt to delay the sale date. As a result of that close involvement, Darrell says he personally saw the paperwork indicating both the trustee sale was being cancelled and that the significant principal reduction was being granted as part of Seel’s loan modification. He even went over it with Seel, telling him he hadn’t seen many… if any… like this one.

If you are in Arizona, demand an ethics investigation. This isn’t even subtle. And it won’t be hard to find plenty of industry insiders like Blomberg who will attest that the Ocwen mod isn’t just irregular, it’s unheard of.