Bankers struggling to deal with faulty foreclosure paperwork just got hit with another major headache. New York State Attorney General Eric Schneiderman, recently tapped by President Obama to head a new task force to investigate mortgage fraud, sued three major U.S.
Three major banks and Virginia-based
MERSCORP, Inc. and its subsidiary Mortgage Electronic Registrations Systems
( MERS ) were sued Friday by the state of New York. The suit, filed by the state's Attorney
General Eric T. Schneiderman , charges that the creation and use of a privately
national electronic registration system, MERS, "has resulted in a wide range of deceptive and fraudulent foreclosure
filings in New York state and federal courts, harming homeowners and
undermining the integrity of the judicial foreclosure process." Further, the lawsuit charges that the
employees and agents of the three banks, Bank of America, J.P. Morgan Chase,
and Wells Fargo , acting as "MERS certifying officers," have
repeatedly submitted court documents containing false and misleading information
that made it appear that the foreclosing party had the authority to bring a
case when in fact it may not have. The
suit also names additional defendants for some of the charges including loan
servicing subsidiaries of the three banks.
The
lawsuit, filed in the Supreme Court of the State of New York, Kings County levies
the following charges :
MERS was created to allow financial
institutions to evade country recording fees, avoid the need to publicly record
mortgage transfers and facilitate the rapid sale and securitization of
mortgages. MERS members log all of their
transfers in a private electronic registry rather than in the local county
clerk's office.
MERS is a shell company with no
economic interest in any mortgage loan.
It is the nominal "mortgagee" of the loan in the public records and
remains as such regardless of how often the loan is sold or transferred among
its members.
MERS has few or no employees but
serves as the mortgagee for tens of millions of mortgages. It has indiscriminately designated over
20,000 MERS member employees as MERS "certifying officers" expressly
authorizing them to assign MERS mortgages and execute paperwork to foreclose on
properties and submit claims in bankruptcy proceedings while failing to
adequately screen, train, or monitor their activities. Assignments were often automatically
generated and "robo-signed" by individuals who did not review the
underlying property ownership records, confirm the documents' accuracy, or even
read the documents. MERS certifying
officers have regularly executed and submitted in court mortgage assignments
and other legal documents on behalf of MERS without disclosing that they are
not MERS employees, but instead are employed by other entities, such as the
mortgage servicer filing the case or its counsel.
Use of the private database to
record property transfers has eliminated homeowners' and the public's ability
to track them through the traditional public records system. This data base is plagued with inaccuracies
and errors which make it difficult to verify the chain of title or the current
note-holder. In addition, as a result of these
inaccuracies, MERS has filed mortgage satisfactions against the wrong property.
This "bizarre and complex end-around
of the traditional recording system" has saved banks more than $2 billion in
recording fees and allowed the banks to securitize and sell millions of loans, "often
misrepresenting the quality and nature of the mortgages being transferred."
The creation and use of the MERS
System by the Defendant Servicers and other financial institutions has resulted
in a wide range of deceptive and illegal practices, particularly with respect
to the filing of New York foreclosure proceedings in state courts and federal
bankruptcy proceedings.
The lawsuit estimates that MERS
members have brought over 13,000 foreclosures against New York homeowners
naming MERS as the foreclosing property when in many cases MERS lacks the
standing to foreclosure. Even when
foreclosures were not initiated in MERS name, proceedings related to their
registered loans often included deceptive information.
The lawsuit seeks a declaration that
the alleged practices violate the law, as well as injunctive relief, damages
for harmed homeowners, and civil penalties. The lawsuit also seeks a court
order requiring defendants to take all actions necessary to cure any title
defects and clear any improper liens resulting from their fraudulent and
deceptive acts and practices.
On January 24 the U.S. Court of
Appeals for the 11 th Judicial Court upheld an appeal from MERS that
contended a lower court had erred in finding that a homeowner had been
improperly foreclosed on by MERS on the grounds that:
1). The assignment of the security deed was
invalid because MERS, as nominee of a defunct lender could not assign the
documents of its own volition.
2.
The "splitting" of the mortgage and
the note rendered the mortgage null and void and therefore notices of
foreclosure were invalid as not coming from a secured creditor.
The New York suit differs slightly from
the facts in Smith V. Saxon Mortgage ,
but if Schneiderman wins his case, it could be that the legitimacy of MERS will
ultimately have to be decided by the U.S. Supreme Court. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
Treasury Secretary Timothy Geithner told
the Financial Stability Oversight Council that the financial system is getting
stronger and safer and that much of the excess risk-taking and careless
financial practices that caused so much damage has been forced out. However, he said, "These gains will erode
over time if we are not able to put our full reforms into place."
He outlined the basic framework has been
laid, with new global agreements to limit leverage, rules for managing the
failure of a large firm and the new Consumer Financial Protection Bureau (CFPB)
up and running, and the majority of the new safeguards for derivatives markets proposed. Geithner ticked off the major accomplishments
of reform.
First, banks now face much
tougher limits on risk which are critical to reducing the risk of large
financial failures and limiting the damage such failures can cause. The focus in 2012 will be "on defining the
new liquidity standards and on making sure that capital risk-weights are
applied consistently."
The new rules are tougher on
the largest banks that pose the greatest risk and are being complemented by
other limits on risk-taking such as the Volcker Rules and limits on the size of
firms and concentration of the financial systems. These will not apply only to banks but to
other large financial institutions that could pose a threat to financial system
stability and this year the Risk Council will make the first of these
designations.
Second, the derivatives market will,
for the first time, be required to meet a comprehensive set of transparency
requirements, margin rules and other safeguards. These reforms are designed to move
standardized contracts to clearing houses and trading platforms and will be
complemented with more conservative safeguards for the more complex and
specialized products less amenable to central clearing and electronic
trading. These reforms, the balance of
which will be outlined this year, will lower costs for those who use the
products, allow parties to hedge against risk, but limit the potential for
abuse, the Secretary said.
Third, is a carefully designed set
of safeguards against risk outside the banking system and enhanced protections
for the basic infrastructure of the financial markets:
Money market funds will have new
requirements designed to limit "runs."
Important funding markets like the
tri-party repo market are now more conservatively structured.
International trade repositories are
being developed for derivatives, including credit default swaps.
Designated financial market utilities
will have oversight and requirements for stronger financial reserves;
Fourth; there will be a stronger set
of protections in place against "too big to fail" institutions . The key elements are:
Capital and liquidity rules with
tough limits on leverage to both reduce the probability of failure and prevent
a domino effect;
New protections for derivatives,
funding markets, and for the market infrastructure to limit contagion across
the financial system;
Tougher limits on institutional size;
A bankruptcy-type framework to
manage the failure of large financial firms.
This "resolution authority" will prohibit bailouts for private
investors, protect taxpayers, and force the financial system to bear the costs
of future crisis.
Fifth, significantly stronger
protections for investors and consumers are being put in place including the
CFPB which is working to improve disclosures for mortgages and credit cards and
developing new standards for qualified mortgages. New authorities are being used to strengthen protections
for investors and to give shareholders greater voice on issues like executive
compensation.
Geithner pointed to the failure of
account segregation rules to protect customers in the MF Global disaster as proof
of the need for more protections and said that the Council will work with the
SEC and the Commodity Futures Trading Council on this problem.
Moving forward, reforms must be
structured to endure as the market evolves and to work not just in isolation
but to interact appropriately with each other and the broader economy. "We
want to be careful to get the balance right-building a more stable financial
system, with better protections for consumers and investors, that allows for
financial innovation in support of economic growth."
First, he said, we have to make sure
we have a level playing field at home; that financial firms engaged in similar
activity and financial instruments that have similar characteristics are
treated roughly the same because small differences can have powerful effects in
shifting risk to where the rules are softer.
A level field globally is also important, particularly with reforms that
toughen rules on capital, margin, liquidity, and leverage, as well as in the
global derivatives markets. "In these areas we are working to discourage
other nations from applying softer rules to their institutions and to try to
attract financial activity away from the U.S. market and U.S. institutions."
It is necessary to align the
developing derivatives regimes around the world; preventing attempts to soften
application of capital rules, limiting the discretion available to supervisors
in enforcing rules on risk-weights for capital and designing rules for
resolution of large global institutions. Also, because some U.S. reforms are different
or tougher from rules in other markets, there needs to be a sensible way to
apply those rules to the foreign operations of U.S. firms and the U.S.
operation of foreign firms.
The U.S. also needs to move
forward with reforms to the mortgage market including a path to winding down
the government sponsored enterprises (GSEs.)
The Administration has already outlined a broad strategy, Geithner said,
and expects to lay out more detail in the spring. The immediate concern is to repair the damage
to homeowners, the housing market, and neighborhoods. The President spoke this week about the range
of tools he plans to use. Our ultimate goals
are to wind down the GSEs, bring private capital back into the market, reduce
the government's direct role, and better target support toward first-time
homebuyers and low- and moderate-income Americans.
Geithner said the new system must
foster affordable rentals options, have stronger, clearer consumer protections,
and create a level playing field for all institutions participating in the
system. For this to happen without
hurting the broader economy and adding further damage to those areas that have
been hardest hit, banks and private investors must come back into the market on
a larger scale and they want more clarity on the rules that will apply.
Credit availability is still a problem
and there is a broad array of programs in place to improve access to credit and
capital for small businesses. As
conditions improve, it is important that we remain focused on making sure that
small businesses, a crucial engine of job growth, have continued access to
equity capital and credit.
Many Americans trying to buy a home
or refinance their mortgage are also finding it hard to access credit, even for
FHA- or GSE-backed mortgages. The Administration has been working closely
with the FHA and FHFA to encourage them to take additional measures to remove
unnecessary barriers and they are making progress. They will probably outline additional reforms
in the coming weeks.
Bank supervisors, in the normal
conduct of bank exams and supervision, as well as in the design of new rules to
limit risk taking and abuse, must be careful not to overdo it with actions that
cause undue damage to the availability of credit or liquidity to markets.
Geithner said the U.S. financial
system is getting stronger , and is now significantly stronger than it was
before the crisis. Among the achievements:
Banks have increased common equity
by more than $350 billion since 2009.
Banks and other financial
institutions with more than $5 trillion in assets at the end of 2007 have been
shut down, acquired, or restructured.
The asset-backed commercial paper
market has shrunk by 70 percent since its peak in 2007, and the tri-party repo
market and prime money market funds have shrunk by 40 percent and 33 percent
respectively since their 2008 peaks.
The financial assistance we provided
to banks through TARP, for example, will result in taxpayer gains of
approximately $20 billion.
The Secretary said the strength of
the banks is helping to support broader economic growth, including the more
than 3 million private sector jobs created over 22 straight months, and the 30
percent increase in private investment in equipment and software.
Broadly, the cost of credit has fallen significantly since late 2008 and early
2009. Banks are lending more, with commercial and industrial loans to
businesses up by an annual rate of more than 10 percent over the past six
months.
He concluded by saying that no
financial system is invulnerable to crisis, and there is a lot of unfinished
business on the path of reform. The reforms are tough where they need to
be tough. "But they will leave our financial system safer, better able to
help businesses raise capital, and better able to help families finance safely
the purchase of a house or a car, to borrow to invest in a college education,
or to save for retirement. And they will protect the taxpayer from having
to pay the price of future crisis." ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
HOPE NOW, the voluntary private
sector alliance of mortgage industry stakeholders, recently concluded a two day
conference in Washington which focused on assistance to military homeowners and
foreclosure mediation.
One group of servicers, investors,
and housing counselors met with regulators, investors, and members of the
military to discuss ways of reaching military families facing foreclosure
because of their unique situation which includes Permanent Change of Station
and other issues. A second group of HOPE NOW stakeholders met with judges,
attorneys, and several state housing agencies to discuss best standards related
to foreclosure mediation.
John Dalton, President of the
Housing Policy Council, former Secretary of the Navy, and a panelist at the
conference said "The current housing crisis has created a separate set of
challenges for homeowners in the military . In order to assist these families,
the Housing Policy Council,... developed several documents, including one that
outlines a single point of contact for personal finance managers, housing
relocation managers and JAGs (military attorneys) as they work together to save
homes for families serving our country."
The documents, he said, will be implemented across the armed forces.
Faith Schwartz, Executive Director,
HOPE NOW said that her organization, in cooperation with the military, has
identified at least four military bases for face to face outreach events during
the first half of the year and additional bases may be added during 2012. "We look forward to the opportunity to assist
military families and we hope to help solve gaps in the process that will be
addressed through specialized outreach activities and streamlined processes,"
she said.
Schwartz added, "We are also
encouraged by the efforts of our members to improve the foreclosure mediation
process and create standards that allow for quicker resolutions and better
communication between servicers and homeowners." ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
NFL stars past and present are not exactly hurting when it comes to palatial digs big enough to host the neighbors Super Bowl Sunday. Which one of these guys would you like to score an invite from?
CoreLogic and Lender Processing Services
(LPS) have each released their most recent Home Price Indices . CoreLogic's HPI covers December; LPS's covers
the month of November. Here is a quick
review of each.
LPS found that the average home price
for transactions during November was $199.000, down 0.6 percent from the
October average. This is the fifth consecutive
month that this index has declined.
Preliminary information on December sales indicates that the HPI might
have lost another 0.8 percent during that month.
When the market peaked in June 2006 the
total value of the U.S. housing inventory covered by LPS was $10.8
trillion. The value has declined 30.6
percent to $7.5 trillion since that time.
Price changes were consistent across the
country, increasing in 13 percent of the ZIP Codes in the database. Higher priced homes had somewhat small price
declines than those in the middle and low price categories with the range from
high to low covering only 13 basis points.
CoreLogic issues two sets of indices,
one including sales of distressed properties, the other excluding those
sales. The HPI for all sales decreased
1.4 percent in December and was down 4.7 percent on an annual basis, the fifth
year in a row that this HPI has declined.
The Index covering market sales was 0.9 percent higher than in December
2010 which, Core Logic says, gives an indication of the impact distressed sales
are having on the market. The HPI excluding distressed sales posted its first month -over-month
gain since last July, rising 0.2 percent.
Of
the top 100 Core Based Statistical Areas as measured by population, 81 showed
year-over-year declines in November compared to 80 that were down on a monthly
basis in November compared to October. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
Homeowners who refinanced their homes during the fourth
quarter of 2011 either refinanced for about the same amount or actually brought
cash to the table according Freddie Mac.
Fewer than 15 percent of those who refinanced during the quarter
increased their loan amount by 5 percent or more. This is the lowest percentage of "cash-out"
borrowers in the 26 years that Freddie has been tracking the statistics. During those 26 years covering 1985 to 2010
the average percentage of cash-out borrowers was 46 percent.
Thirty-seven percent of refinancing homeowners took out new
loans of approximately the same size as the old loan but nearly half (49
percent) actually brought cash to the table, reducing the amount of the new
loan to a median ratio of .74 of the old loan.
The percentage of "cash-in" borrowers is also a 26-year record.
The fourth quarter figures are a stark contrast to the
pattern of refinancing during the last years of the housing boom. During
eight consecutive quarters (Q4 of 2005 to Q3 of 2007) cash-out loans exceeded
80 percent of all refinancing and in none of those quarters did more than 8
percent of homeowners reduce the size of their mortgages when refinancing.
Borrowers who refinanced achieved a new interest rate about
1.4 percentage points lower than their old mortgage, a 26 percent improvement. These borrowers will save a median of $2,700
during the first year if they have a $200,000 loan.
The 15 percent who did cash out took an estimated $5.5
billion in net equity out of their homes, representing 3.0 percent of the total
refinanced. This was down from $5.6
billion and 3.7 percent in the third quarter.
Adjusted for inflation this was the lowest level since the third quarter
of 1995. During the peak period for
cash-out refinancing, the second quarter of 2006, homeowners cashed out $83.7
billion through refinancing, 31.1 percent of the total value of all transactions.
Freddie Mac said that the mortgages refinanced had been in
place for a median of four years and the underlying collateral had decreased in
value by a median of 4 percent during that time. The Freddie Mac House Price Index shows about
a 23 percent decline in its U.S. series during that four year period. Thus, Freddie Mac says, "Borrowers who refinanced in
the fourth quarter owned homes that had held their value better than the
average home, or may reflect value-enhancing improvements that owners had made
to their homes during the intervening years."
This statement does not seem to recognize the possibility these
borrowers had been able to refinance solely because their homes had held value
and thus self-selected their loans for analysis. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
Four
former investment bankers and traders from the Credit Suisse Group were charged
by the Securities and Exchange Commission (SEC) Wednesday violating multiple
sections of the Securities Exchange Act of 1934 while trading in subprime
mortgage bonds . The indictments allege
the four engaged in a complex scheme to fraudulently overstate the prices of $3
billion of the bonds during the height of the subprime credit crisis.
The
four are Kareem Serageldin, the group's former global head of structured credit
trading; David Higgs, former head of hedge trading; and two traders, Faisal Siddiqui and Salmaan
Siddiqui. According to the complaint
filed in U.S. District Court for the Southern District of New York, Serageldin
oversaw a significant portion of Credit Suisse's structured products and
mortgage-related businesses. The traders reported to Higgs and Serageldin.
The SEC charges that the four
deliberately ignored specific market information showing that prices of the
subject bonds were declining sharply, pricing them instead in a way that
allowed Credit Suisse to achieve fictional profits, and, through the traders,
changing bond prices in order to hit daily and monthly profit target and cover
losses. The scheme was driven in part by
the prospect of lavish year-end bonuses and promotions. The scheme hit its peak at the end of 2007.
"The
stunning scale of the illegal mismarking in this case was surpassed only by the
greed of the senior bankers behind the scheme," said Robert Khuzami, Director
of the SEC's Division of Enforcement and a Co-Chair of the newly formed Residential
Mortgage-Backed Securities Working Group , "At precisely the moment investors
and market participants were urgently seeking accurate information about
financial institutions' exposure to the subprime market, the senior bankers
falsely and selfishly inflated the value of more than $3 billion in
asset-backed securities in order to protect their bonuses and, in one case,
protect a highly coveted promotion."
SEC
explained that it was not charging Credit Suisse in the scheme because the
wrongdoing was isolated; Credit Suisse reported the violations to the SEC,
voluntarily terminated the four, implemented internal controls to prevent
additional misconduct, and cooperated with SEC in the investigation. The SEC said that the four named in the
complaint also cooperated in the investigation and that assistance was provided
by the FBI, the U.S. Attorney's Office for the Southern District of New York
and the United Kingdom Financial Services Authority. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
Saying that the housing crisis struck right at the
heart of what it means to be middle class, President Barack Obama has begun to
flesh out the housing-related proposals he made in his State of the Union
speech last Tuesday. He spoke this
morning at Falls Church, Virginia about his housing plans, some pieces of which
have already been put into effect by the Departments of Justice (DOJ),
Treasury, and Housing and Urban Development (HUD) in the eight days since they
were first announced. The President spoke only briefly and most of the
information about his proposals comes from a Fact Sheet released by the White
House just before his speech.
The most ambitious part of the Administration's
housing plan is the expansion of several existing programs to streamline
refinancing for homeowners with existing high interest rate government or
Fannie Mae/Freddie Mac mortgages. The President wants to extend these
opportunities to homeowners with standard conforming non-FHA, VA, or GSE
mortgages through a new program run through FHA. To be eligible the homeowner would have meet
a few simple criteria:
Borrowers will need to have been
current on their loan for the past 6 months and have missed no more than one
payment in the 6 months prior.
Borrowers must have a current FICO
score of 580 to be eligible, a requirement met by approximately 9 in 10 borrowers.
The loan
they are refinancing is for a single family, owner-occupied principal residence.
A
streamlined application process will make it simpler and less expensive for
both borrowers and lenders. Borrowers
will not be required to submit a new appraisal or tax return, merely verify
current employment. Those who are not
employed may still be eligible if they meet the other requirements and present
limited credit risk, however, a lender will need to perform a full underwriting
of those borrowers.
The President's plan includes
additional steps to reduce program costs, including working with Congress to establish
risk-mitigation measures including requiring lenders interested in refinancing
deeply underwater loans to write down the balance of these loans before they
qualify. There would be a separate fund created for the program to help
the FHA track and manage the risk involved and ensure that it has no effect on
the operation of the existing Mutual Mortgage Insurance (MMI) fund. The estimated $5 to $10 billion cost of the program would be paid by a fee on the
largest financial institutions based on their size and the riskiness of their
activities
There were
also some changes suggested for GSE refinancing programs . President Obama said he believed the steps he
proposes are within the existing authority of the FHFA but the GSEs have not
acted so he is calling on Congress to:
Eliminate appraisal costs for all borrowers by using mark-to-market
accounting or other alternatives to manual appraisals where Automated Valuation
Models cannot be used to determine loan-to-value ratios.
Direct the GSEs to require the same
streamlined underwriting for new servicers as they do for current servicers to
unlock competition and lower borrowing costs.
Extend streamlined refinancing to
all GSE borrowers including those with significant equity in their home.
There are also proposals to streamline refinancing for
borrowers in the USDA and FHA housing programs but the White House noted that
the current FHA-to-FHA streamlined refinancing program has met with some
resistance from lenders who are afraid to make loans that might compromise their
FHA approved lender status. FHA is
removing these loans from their "Compare Ratio" process which should open the program
up to more borrowers.
Borrowers utilizing either the Home
Affordable Refinancing Program (HARP) or the new FHA-based program would be
given an alternative to allow them to rebuild the equity in their home. This option would require refinancing into a
20 year mortgage and the homeowner would continue to make the old mortgage
payment. The excess money would be
applied directly to principal that, along with the shorter term would allow the
homeowner to quickly rebuild equity. To
encourage borrowers to make this choice (which also reduces lender risk) the
administration is proposing legislation to provide for the GSEs and FHA to
cover the loans' closing costs.
A
Homeowner Bill of Rights proposed by the Administration would apply to the mortgage
servicing system which the White House said "is badly broken and would benefit
from a single set of strong federal standards."
Among the items proposed for this Bill of Rights are:
Simple,
Easy to Understand Mortgage Forms
Disclosure of all known fees and
penalties
No conflicts of interest between
servicers and investors or servicers and junior lien holders.
Assistance
for at-risk homeowners to include early intervention, continuity of contact,
and time and options to avoid foreclosure.
Safeguards
against inappropriate foreclosure including the right of appeal, certification
of proper process.
The President plans to include $15 billion in his Budget for
a national effort to hire construction workers to rehabilitate hundreds of
thousands of vacant and foreclosed homes and businesses . Similar to the Neighborhood Stabilization
Program, Project Rebuild will enlist expertise and capital from the private
sector, focus on property improvements, and expand property solutions like land
banks. The Budget will also provide $1
billion in funding for the Housing Trust Fund to finance the development of
affordable housing for extremely low income families while providing jobs in
the construction industry.
Other initiatives which the
President talked about this morning or which were covered in the White House
Fact Sheet have already been launched in the last few days including a joint
investigation with the states into mortgage origination and servicing abuses, expansion
of eligibility criteria for HAMP and increased incentives for lenders in the
program to reduce principal balances, and a pilot sale announced to transition
foreclosed properties into rental housing in certain highly distressed
communities which was announced by HUD this morning
The White
House said that, while the government cannot fix the
housing market on its own, the President believes that responsible homeowners
should not have to sit and wait for the market to hit bottom to get relief when
there are measures at hand that can make a meaningful difference, including
allowing these homeowners to save thousands of dollars by refinancing at
today's low interest rates.
Conventional wisdom holds that the
President's proposals will be "dead on arrival" when they reach Congress and,
in fact the reaction of Speaker
of the House John Boehner to the speech was, "How many times are we going to do
this? How many times are we going to
suggest programs to help people who can't make payments on their
mortgages? The programs don't work."
A
kinder assessment was released in a statement from David H. Stevens, President
and CEO of the Mortgage Bankers Association.
Stevens commented specifically on the Homeowner Bill of Rights saying
the Association agrees that a single national set of standards "can help
provide confidence and certainty in the real estate market for borrowers,
lenders, and servicers alike."
He
also commended the administration for "recognizing that more can be done to get
our housing market on track. The programs announced today will give lenders and other
stakeholders additional tools to help borrowers and foster a renewed confidence
in our real estate finance system."
Video Included
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The Mortgage Bankers Association ( MBA ) provided its annual
assessment of The State of the Mortgage Industry in a press conference Wednesday
afternoon. Michael Young, MBA Chairman
said that the states that have been hardest hit by the housing crisis are and
will continue to deal with the aftermath but there are signs that in much of
the nation 2012 will bring a recovering market.
One bright spot , Young said, is that the turmoil in the
single family market has actually helped the multi-family sector; the rental
market has tightened and more lenders have moved into the sector, especially
life insurance companies. In the
residential market, he said, the one topic that is discussed everywhere is the
lack of financing and what can be done about it.
David H. Stevens, MBA President and CEO said that lack of
financing can be traced to a single factor, market uncertainty. Part of it is uncertainty about international
markets and how they might ultimately impact the domestic situation but there
is also a tremendous amount of uncertainty about regulation. Dodd-Frank, he said, has 300 regulations that
have yet to be fully promulgated and the new Consumer Financial Protection
Bureau (CFPB) and other regulators all have or are considering regulations
about how loans can be provided and serviced.
There is uncertainty surrounding repurchases as well and while MBA
believes lenders should be held accountable for their mistakes, they should not
be held accountable for the loans performance if it failed solely due to
changing economic circumstances. For
that reason MBA supports a time limit on the repurchase obligation.
Addressing three areas in particular , he said, would
decrease a lot of the insecurity. New
regulations regarding Qualified Mortgages (QM) and Qualified Residential
Mortgages (QRM) are eminent and QM will in effect, define what loans get
made. Mortgages which do not meet QM as
laid out by CRPB will simply not get made because lenders will feel there is
too much liability involved. MBA supports certain parts of the QM such as
the requirement for full documentation but other parts such as the point and
fee cap lack flexibility and will disproportionately affect the pricing of small
loans.
Most of all, he said, the proposed regulations are too general. There needs to be specificity in the
underwriting standards such as in the definition of what constitutions "ability
to repay." Without a bright line in the
regulations that enable a safe harbor for lenders, he said, any lending is
going to be restricted on the margins and any loans that fall into the gap
between QM and QRM will see significant price adjustments to reflect the
liability.
While MBA also supports risk retention and much of the
intent of the QRM such as eliminating no-docs and interest only and other
exotic loans, regulators are going beyond the intent of Congress by adding debt
to income and loan-to-value ratios. The
requirement for a 20 percent down payment will create a dual class system under
QRM, with lower income borrowers, unable to amass the down payment; forced into
FHA loans while there will be a private market for upper income borrowers. Stevens said MBA will be "very aggressive" in
making sure these changes to QRM are pulled back.
Another area of uncertainty is the 50-state settlement with
servicers . Borrowers don't care about
their servicers until they get into trouble with their mortgages but then the
multiple state and federal laws that govern servicing cause stress for the
borrowers and for servicers and investors as well. The settlement may provide a framework for
national standards which would remove some of the uncertainty in this area. In the same vein, Stevens said that President
Obama's new fraud task force must be careful to avoid redundancy with other
investigations and carefully measure how it impacts borrowers or it could
create trepidation among lenders and further reluctance to lend.
The present structure of the mortgage market with 90 percent
of lending having some government involvement through the GSEs or FHA is simply
unsustainable , Stevens said. The private
sector must be brought back into the market and the major players in the
industry are close to agreement on what the future of the secondary market
should look like. This is very close to
a model proposed by MBA some years ago which would have the following
characteristics:
Transactions would be funded with private
capital from a broad range of sources.
The federal government should have a role in
promoting stability and liquidity in the core mortgage market. This role should be in the form of an
explicit credit guarantee on a class of mortgage-backed securities and the
guarantee would be paid for by risk-based fees.
Taxpayers and the system itself should be
protected through limits on the mortgage products covered, the types of
activities undertaken, strong risk-based capital requirement, and actuarially
fair payments into a federal insurance fund.
In answer to a reporter's question about the chances of
President Obama's streamlined refinancing program being approved, Stevens said
it would be an uphill climb. FHA is
legislatively limited to loans with a maximum LTV of 97.5 percent so to go as
high as 140 percent which Steven's said he expected the legislation to attempt
will require full approval of Congress.
Jay Brinkmann, Senior Vice President and Chief Economists said
he expects jobs to be created at about a 150,000 per month pace in 2012 but
this will be uneven by location and dependent on an individual's education. The length of unemployment hit a record high
in November and persons with a high school education or less are remaining
unemployed longer than those with a college degree.
According to Brinkmann, mortgage originations will drop from
$1.26 trillion in 2011 to $992 billion in 2012 with most of the loss coming in
refinancing. The purchase market will be
largely unchanged or will rise slightly.
This does not, however, reflect any changes that might be made in the
HARP program or any unforeseen outside events. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
The Attorney General of Oregon announced
today that he will join in the so-called 50-state Attorneys General settlement
with five major financial institutions that operate the large servicing
organizations. The settlement arose out
of a multi-state investigation of alleged improprieties the servicers'
management of delinquent loans and foreclosures.
Attorney General John Kroger said in a
prepared statement that "The Oregon Department of Justice is deeply committed
to protecting consumers. In assessing
any potential consumer protection settlement I compare the benefits of the
settlement with potential benefits that might accrue in the future if we chose
to litigate rather than settle. I have
made that assessment in this case, and I am confident that signing this
agreement is in the best interest of Oregon consumers."
Several attorneys general have remained
in settlement talks while pursuing litigation on their own while at least one, California's
Kamala Harris, withdrew from the settlement saying it provided inadequate
redress to the homeowners of her state.
Kroger said that the settlement
agreement penalizes banks which engaged in wrongful practices and brings badly
needed relief for homeowners. However,
because the release in the agreement is narrowly drafted, Oregon will be able
to pursue both multi-state and independent investigations of illegal
securitization and other practices. "Simply
put," he said, "I am not confident we could get a better agreement on this
limited set of issues if we litigated for several more years."
The Attorney General said further
information on the agreement would be forthcoming but he released the following
highlights:
An estimated $30 million to the State of Oregon.
An estimated $100 to $200 million in relief to
distressed Oregon homeowners including "underwater" borrowers
and homeowners facing foreclosure.
Tough new servicing standards that protect all
homeowners from unfair and unscrupulous servicing practices.
The agreement is not final and must
be submitted to a federal judge for approval. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
Watch the speect live - click read more link below.
In his State of the Union address, President Obama laid out a Blueprint for an America Built to Last, calling for action to help responsible borrowers and support a housing market recovery. While the government cannot fix the housing market on its own, the President believes that responsible homeowners should not have to sit and wait for the market to hit bottom to get relief when there are measures at hand that can make a meaningful difference, including allowing these homeowners to save thousands of dollars by refinancing at today’s low interest rates. That’s why the President is putting forward a plan that uses the broad range of tools to help homeowners, supporting middle-class families and the economy. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
The Federal Housing Finance Agency ( FHFA ) announced
today the first step in a new initiative to convent foreclosed properties (REO)
in the hardest-hit metropolitan areas to rentals. The Real Estate Owned Initiative
is a joint endeavor of the Departments of Treasury, and Housing and Urban
Development (FHMA's parent), the Federal Deposit Insurance Corporation, and the
government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
The first phase of the program will encourage
investors interested in participating to "pre-qualify" to bid on property in
the pilot phase of the program and any subsequent phases with the understanding
these properties would be held as rentals for a specified period of time. The
expectation is that the rental period will provide relief for local housing
markets suffering under the large inventories of foreclosed and often vacant
and/or deteriorating housing as well as providing additional options to some
tight rental markets.
During the
pilot phase, Fannie Mae will offer pools of various types of assets including
rental properties, vacant properties and non-performing loans for sale. The first transaction will be announced in
the near-term.
There has
been a lot of discussion in recent weeks about the value of linking REO
inventory reduction to rentals as one way of speeding recovery of the
market. Much of the talk was driven by a
white
paper prepared for Congress by the Federal Reserve which focused on the
issue and the probable cost. It said in
part; "An REO to rental program
that relies on sales to third-party investors will be more viable if the
cost-pricing differential (i.e. the discount offered to investors) can be
narrowed which might be done by (a) structuring sales as competitive auctions;
(b) making sales packages more attractive to a variety of investors. A third option suggested by the Fed, providing
investors with the debt financing, does not appear to be part of the current
strategy.
FHFA said it had received more than 4,000 responses
for a Request for Information posted last summer which sought input on options
for selling single-family REO held by the GSEs and FHA. The pre-qualification step announced today will
require potential investors to meet minimum criteria including, but not limited
to the financial ability to acquire the assets, sufficient experience and
knowledge to analyze and bear the risks of the opportunity, and agreement to
keep certain information about the REO and related matters confidential. FHHFA said the agency wants to ensure that
investors have the financial capacity and operational knowhow to manage
properties in such as way as to stabilize communities hard-hit by the housing
crisis.
"This is
an important step toward increasing private investment in foreclosed properties
to maximize value and stabilize communities," said FHFA Acting Director Edward
J. DeMarco . "I am grateful for the collaborative effort by the many
stakeholders including investors, nonprofit organizations, and state and local
government officials, who have worked together on this Initiative."
FHFA said
it continues to look for ways to improve its sales to owner occupants and small
investors who constitute the majority of the market for Fannie Mae and Freddie
Mac and who buy at close to market value.
The pilot phase is to determine the type of assets, size and location of
pools, and the service and support necessary to appeal to investors who will
best work to stabilize communities while maximizing the return to the sellers
and improving home values in impacted markets.
Interested investors can obtain information about pre-qualification
at http://www.homepath.com/structuredsales.html .
Read the full FHFA announcement here. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
The
Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey
reported that mortgage applications as measured by its Market Composite Index
were down 2.9 percent on a seasonally adjusted basis during the week ended
January 27 but increased 9.0 percent from the previous week on an unadjusted
basis.
The
seasonally adjusted Purchase Index was down 1.7 percent while it increased 17.1
percent on an unadjusted basis from the week ended January 20 and was 4.3
percent lower than during the same week in 2011. The Refinance Index decreased 3.6 percent
from the previous week.
All
of the four week moving averages were higher for the week. The seasonally adjusted Market Index rose
4.11 percent, the seasonally adjusted Purchase Index was up 2.48 percent and
the Refinance Index increased 4.22 percent.
Applications for
refinancing represented 80.0 percent of all applications, down from 81.3
percent the previous week. Applications
for adjustable-rate mortgages (ARMs) had a 5.6 percent market share compared to
5.3 percent a week earlier.
Refinancing
applications in December increased in every U.S. state according to MBA and,
despite multiple holidays only 12 states had fewer purchase applications than
in November. In Connecticut refinancing
applications increased 80.1 percent from November and Maine saw a 30.8 percent
increase in applications for home purchase mortgages.
Purchase Index vs 30 Yr Fixed
Click Here to View the Purchase Applications Chart
Refinance Index vs 30 Yr Fixed
Click Here to View the Refinance Applications Chart
Rates fell for all
fixed rate mortgages (FRM) compared to the previous week. The average contract interest rate for
30-year conforming FRM (balances under $417,500) decreased to 4.09 percent with
0.41 point from 4.11 with 0.47 point. Rates for jumbo mortgages (those with
balances over $417,500) decreased from 4.39 percent to 4.33 percent while
points increased from 0.40 to 0.41. This
is the lowest rate for the 30-year jumbo mortgages since MBA started tracking
them one year ago.
FHA backed 30-year
FRM rates decreased one basis point to 3.96 percent with points increasing to
0.61 from 0.57. Rates for the 15-year
FRM were down from 3.40 percent with 0.40 point to 3.36 percent with 0.41
point. The effective rate of all of the
mortgage products listed above also decreased.
The sole rate increase was for the 5/1 ARM which increased on average to 2.94 percent with 0.39 point
from 2.91 percent with 0.41 point. The
effective rate also increased.
Follow what drives changes in mortgage rate each day with Mortgage Rate Watch from MND.
All rates quoted
are for 80 percent loan to value loans and points include the origination fee.
Michael
Fratantoni, MBA's Vice President of Research and Economics said of the week's
results, "The Federal Reserve surprised the market last week by indicating
that short-term rates were likely to stay at their current low-levels until the
end of 2014. Longer-term treasury rates dropped in response, and mortgage
rates for the week were down slightly as a result. Although total application volume dropped on
an adjusted basis relative to last week, refinance volume remains high, with
survey participants reporting that the expanded Home Affordable Refinance
Program (HARP) contributed to roughly 10 percent of their refinance
activity."
MBA's weekly
survey covers over 75 percent of all U.S. retail residential mortgage
applications, and has been conducted since 1990. Respondents include
mortgage bankers, commercial banks and thrifts. Base period and value for
all indexes is March 16, 1990=100. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
Residents still talk about the night of the naked dancing girl. They describe how she grooved au naturel on their block in Stillwater, Okla., as another kegger raged at a rental house nearby.
While building their home goods business, Richard and Victoria MacKenzie-Childs also repaired a 1790s farmhouse. Now the 42-acre, whimsical, property is for sale.
Home prices continued to fall in November according to the
S&P/Case-Shiller Home Price Indices released this morning. Both the 10-City and the 20-City Indices were
down 1.3 percent in November compared to the previous month and for the second
month in a row19 of the cities also saw their prices inch lower. Phoenix was the only one of the 20 to post a
gain in November.
The year-over-year price declines in November widened from those in October. The 10-City and 20-City Composites were down
3.6 percent and 3.7 percent respectively from November 2010 to November 2011
compared to the -3.2 percent and -3.4 percent annual rate of change in
October. Thirteen of the cities in the
larger index also saw a large drop in annual prices than they had in October.
Atlanta had the worst performance with its annual return down 11.8 percent. Atlanta's prices fell 2.5 percent in November
following a 5.0 percent decline in October, 5.9 percent drop in September and
2.4 percent loss in August. As was the
case in October, only two cities, Detroit and Washington, DC saw an improved
annual rate, but in both cases that annual increase was lower than their
October number.
David Blizer, Chairman of the Index Committee at S&P Indices said,
"Despite continued low interest rates and better real GDP growth in the fourth
quarter, home prices continue to fall.
Annual rates were little better as 18 cities and both Composites were
negative. Nationally, home prices are
lower than a year ago. The trend is down
and there are few, if any signs in the numbers that a turning point is close at
hand."
The 10-City Composite is now about 1.0 percent above its crisis low reached
in April 2009 and the 20-City is 0.6 percent above the low it reached in March
2011. Both Composites are close to 33
percent off of their 2006 peak levels.
As of November average home prices across the U.S. are back to mid-2003
levels.
"It's not telling us much we don't know. A lot of people fell into the trap of looking at the upturn in housing starts at the end of the year and mistaking that for a turnaround in the housing market. That's absolutely premature." - Andrew Wilkinson, Chief Economic Strategist, Miller Tabak & Co., New York.
...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
One World Trade Center, the skyscraper that’s being constructed at New York City’s Ground Zero, may now be the most expensive new office tower in the world.
The listing alone is enough to make most New Yorkers green with envy: a 2,400 square foot, 2 bedroom, 3.5 bath penthouse with floor to ceiling windows overlooking the Hudson River.
The
Federal Housing Finance Agency ( FHFA ) issued a statement late Monday refuting a
story from ProPublic and NPR
that a complicated investment strategy utilized by Freddie Mac had influenced
it to discourage refinancing of some of its mortgages. FHFA confirmed that the investments using
Collateralized Mortgage Obligations (CMOs) exist but said they did not impact
refinancing decisions and that their use has ended. ( the NPR Story )
Freddie Mac's charter calls for
it to make home loans more accessible, both to purchase and refinance their
homes but the ProPublica story, written by Jesse
Eisinger ( ProPublica) and Chris Arnold ( NPR ) charged that the CMO trades "give Freddie a powerful incentive to do
the opposite , highlighting a conflict of interest at the heart of the company.
In addition to being an instrument of government policy dedicated to making
home loans more accessible, Freddie also has giant investment portfolios and
could lose substantial amounts of money if too many borrowers refinance."
Here,
in a nutshell, is what the story (we are quoting from an "updated" version)
says Freddie has been doing.
Freddie
creates a security (MBS) backed by mortgages it guarantees which was divided
into two parts. The larger portion, backed
by principal, was fairly low risk, paid a low return and was sold to investors. The smaller portion, backed by interest
payments on the mortgages, was riskier, and paid a higher return determined by
the interest rates on the underlying loans.
This portion, called an inverse floater , was retained by Freddie Mac.
In
2010 and 2011 Freddie Mac's purchase (retention) of these inverse floaters rose
dramatically, from a total of 12 purchased in 2008 and 2009 to 29. Most of the mortgages backing these floaters had
interest rates of 6.5 to 7 percent.
In
structuring these transactions, Freddie Mac sells off most of the value of the
MBS but does not reduce its risk because it still guarantees the underlying
mortgages and must pay the entire value in the case of default. The floaters, stripped of the real value of
the underlying principal, are also now harder and possibly more expensive to
sell, and as Freddie gets paid the difference between the interest rates on the
loans and the current interest rate, if rates rise, the value of the floaters
falls.
While
Freddie, under its agreement with the Treasury Department, has reduced the size
of its portfolio by 6 percent between 2010 and 2011, "that $43 billion drop in
the portfolio overstates the risk reduction because the company retained risk
through the inverse floaters ."
Since
the real value of the floater is the high rate of interest being paid by the
mortgagee, if large numbers pay off their loans the floater loses value. Thus, the article charges, Freddie has tried
to deter prospective refinancers by tightening its underwriting guidelines and
raising prices. It cites, as its sole
example of tightened standards that in October 2010 the company changed a rule
that had prohibited financing for persons who had engaged in some short sales
to prohibiting financing for persons who had engaged in any short sale, but it
also quotes critics who charge that the Home Affordable Refinance Program
(HARP) could be reaching "millions more people if Fannie (Mae) and Freddie
implemented the program more effectively."
It
has discouraged refinancing by raising fees.
During Thanksgiving week in 2010, the article contends, Freddie quietly
announced it was raising post-settlement delivery fees. In November 2011, FHFA announced that the
GSEs were eliminating or reducing some fees but the Federal Reserve said that "more
might be done."
If
Freddie Mac has limited refinancing, the article says, it also affected the whole
economy which might benefit from billions of dollars of discretionary income generated
through lower mortgage payments. Refinancing
might also reduce foreclosures and limit the losses the GSEs suffer through defaults
of their guaranteed loans.
The
authors say there is no evidence that decisions about trades and decisions
about refinancing were coordinated. "The
company is a key gatekeeper for home loans but says its traders are "walled
off" from the officials who have restricted homeowners from taking advantage of
historically low interest rates by imposing higher fees and new rules."
ProPublica/NPR says that the
floater trades "raise questions about the FHFA's oversight of Fannie and
Freddie" as a regulator but, as conservator it also acts as the board of
directors and shareholders and has emphasized that its main goal is to limit
taxpayer losses. This has frustrated the
administration because FHFA has made preserving the companies' assets a
priority over helping homeowners. The
President tried to replace acting director Edward J. DeMarco, but Congress
refused to confirm his nominee.
The
authors conclude by saying that FHFA knew about the inverse floater trades
before they were approached about the story but officials declined to comment on whether the
FHFA knew about them as Freddie was conducting them or whether the FHFA had
explicitly approved them."
The
FHFA statement said that Freddie Mac has historically used CMOs as a tool to
manage its retained portfolio and to address issues associated with security
performance. The inverse floaters were
used to finance mortgages sold to Freddie through its cash window and to sell
mortgages out of its portfolio "in response to market demand and to shrink its
own portfolio." The inverse floater
essentially leaves Freddie with a portion of the risk exposure it would have
had if it had kept the entire mortgage on its balance sheet and also results in
a more complex financing structure that requires specialized risk management
processes. ( Full FHFA Statement )
The
agency said that for several reasons Freddie's retention of inverse floaters ended in
2011 and only $5 billion is held in the company's $650 billion retained
portfolio. Later that year FHFA staff
identified concerns about the floaters and the company agreed that these
transactions would not resume pending completing of the agency examination.
These
investments FHFA said did not have any impact on the recent changes to
HARP. In evaluating changes, FHFA
specifically directed both Freddie and Fannie not to consider changes in their
own investment income in the HARP evaluation process and now that the HARP
changes are in place the refinance process is between borrowers and loan
originators and servicers, not Freddie Mac. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
U.S. single-family home prices fell more than expected in November, highlighting a sector that still struggles to make a meaningful recovery, a survey shows.
Government-owned Freddie Mac has invested billions in financial instruments that profit when homeowners are stuck in high-interest mortgages, an investigation by ProPublica and NPR found.
The Federal Housing Finance Agency announced on Friday that it was extending
the Home Affordable Modification Program ( HAMP ) for another year - through December
13, 2013 - and that Freddie Mac and Fannie Mae would continue as financial
agents for Treasury in implementing the changes it then announced. The press release also said the two GSEs
would "extend their use of HAMP Tier 1 as the first modification option through
2013" and that they were already in alignment with HAMP Tier 2 and no further
changes were necessary.
However, the Treasury Department, which jointly
administers HAMP, simultaneously announced what appear to be some significant
changes in the program. Perhaps Timothy G. Massad, Assistant Treasury Secretary
for Financial Stability, was merely providing the English translation of
the FHFA press release or perhaps there is a division in the ranks. In either case, here is the information he
provided in his blog posting .
The Treasury Department intends to triple the incentives offered to
investors holding distressed loans to encourage them to participate in reducing
the principal for those loans. Under the
new guidelines, Treasury will pay from 18 to 63 cents on the dollar to
investors, depending on the degree of change in the loan-to-value ratio of the
individual loans.
While principal reduction has always been
available for modifying proprietary loans under the HAMP program (it even has
its own acronym, PRA) it has not been widely used. Of over 900,000 permanent modifications
completed since the program began, only 38,300 are classified as utilizing principal
reduction . As we have previously reported ,
FHFA has resisted all suggestions that the GSEs also include principal reduction
in their tools for dealing with distressed loans where borrowers are upside
down in their mortgages. According to
Massad, Treasury has notified FHFA that it will pay principal reduction incentives
to Fannie Mae or Freddie Mac as well if they allow servicers to forgive principal
in conjunction with a HAMP modification.
In its press release FHFA said of the
Treasury proposal :
"FHFA has
been asked to consider the newly available HAMP incentives for principal
reduction. FHFA recently released analysis concluding that principal
forgiveness did not provide benefits that were greater than principal
forbearance as a loss mitigation tool. FHFA's assessment of the investor
incentives now being offered will follow its previous analysis, including
consideration of the eligible universe, operational costs to implement such
changes, and potential borrower incentive effects."
Again,
according to Treasury, HAMP will be expanding its eligibility to reach a
broader pool of borrowers. An additional
evaluation process is being implemented that will allow servicers to recognize that
some borrowers who can afford their first mortgage payments still struggle because
of other debt. Some analyses of HAMP
have found that many borrowers could not qualify for a modification solely because
their housing expenses were already below the 31 percent ceiling allowed by
HAMP guidelines. This ceiling will now
be flexible enough to include secondary debt such as medical expenses or second
liens in the evaluation ratio.
Eligibility
will also be expanded to include properties that are tenant-occupied as well as
vacant properties that the owner intends to rent. According to Massad, this will serve to
further stabilize communities with high levels of vacant and foreclosed
properties as well as expanding the rental pool as has been suggested by the
Federal Reserve and others. ...( read more ) Forward this article via email: Send a copy of this story to someone you know that may want to read it.
How much residents of each state owe on their mortgages is an interesting statistic. For the most part, residents of the states with the highest average mortgage debt are not in trouble.
Home prices have fallen by a third since the 2006, creating tremendous bargains for home buyers. Mortgage rates are at rock-bottom lows, making houses more affordable than they have been in decades.
