by JON PRIOR
Foreclosure filings increased from last year in 133 of 206 metropolitan statistical areas tracked in the third quarter, or 65%, according to RealtyTrac.
The Seattle area had the highest increase. There, foreclosure filings, which include notices of default, pending cases, notices of foreclosure sale and repossessions, increased 71% from the third quarter of 2009. Chicago was second with a 35% increase followed by Houston, Texas at 26%.
California, Florida, Nevada and Arizona accounted for 19 of the top-20 foreclosure rates in the country. The only exception was Boise City, Idaho, which was 14th.
Las Vegas posted the highest rate in the third quarter, where one in every 25 housing units received a filing, more than five times the national average. The 32,288 filings is down 20% from last year.
Cape Coral-Fort Meyers, Fla. was second with a one in 35 foreclosure rate. Filings there reached 10,352, down 22%. One in 36 houses in Modesto, Calif. received a filing in the third quarter for the third highest rate, but it was an 18% drop from a year ago.
Miami, Fla. posted the highest total number of foreclosures in the third quarter, at more than 58,600 filings. It's an increase of 9% from last year and up 25% from the previous quarter.
“The underlying problems that are causing homeowners to miss their mortgage payments — high unemployment, underemployment, toxic loans and negative equity — are continuing to plague most local housing markets,” said James Saccacio, CEO of RealtyTrac. “And these historically high foreclosure rates will continue until those problems are resolved.”
URL to original article: http://www.housingwire.com/2010/10/28/foreclosures-increase-in-65-of-msas-in-3q-realtytrac
Sunday, October 31, 2010
Friday, October 29, 2010
The Real Estate Market and New Sales Agents
Just wanted to let everyone know that the Real Estate Market is very active right now. I'm so happy that the month of October has been very busy and that I see our London Agents making things happen.
I also wanted to welcome aboard these new sales agent; Brandy Tschappler, Brandy come to us from New Homes, Kellie Matina formerly of ERA Power Properties in Hanford, Erik Abram formerly of Chapman Real Estate, Linda Navarro formerly of Docter & Docter R. E., Tammy Katuin & Kathy Patterson formerly of The R.E. Network, Phillip Frias formerly of All State Homes. Welcome
I also wanted to welcome the follow new agents to the business. These people have passed their Real Estate License exam in October. Tammy Burgess working out of Merced office, Jasmin Goncalves also working out of our Merced office, Anthony Bishop will be working in our Fresno office, Brain Jensen also working out of our Fresno office, Harlan Garcia will be working out of our Kingsburg office, Chris Horton & Conner Herring will be working out of Fresno office and Ray Lopez he will be working out of our Clovis office.
Welcome aboard to all of you and go get'em!!!
I also wanted to welcome aboard these new sales agent; Brandy Tschappler, Brandy come to us from New Homes, Kellie Matina formerly of ERA Power Properties in Hanford, Erik Abram formerly of Chapman Real Estate, Linda Navarro formerly of Docter & Docter R. E., Tammy Katuin & Kathy Patterson formerly of The R.E. Network, Phillip Frias formerly of All State Homes. Welcome
I also wanted to welcome the follow new agents to the business. These people have passed their Real Estate License exam in October. Tammy Burgess working out of Merced office, Jasmin Goncalves also working out of our Merced office, Anthony Bishop will be working in our Fresno office, Brain Jensen also working out of our Fresno office, Harlan Garcia will be working out of our Kingsburg office, Chris Horton & Conner Herring will be working out of Fresno office and Ray Lopez he will be working out of our Clovis office.
Welcome aboard to all of you and go get'em!!!
Thursday, October 28, 2010
Markets' 'liquid courage' sapped
Source: Barrons
LIQUID COURAGE. If you're not acquainted with the term, or more improbably never experienced it, it is the lowering of inhibitions from the consumption of alcohol that allows one to approach strangers you find attractive or confront others whom you think have threatened or insulted you.
At the time, your actions seem reasonable, even suave in the former instance or justified in the latter. Only later, when the euphoric effects of the source of the liquid courage have worn off, does the stupidity of your bravado become evident to you (although it was apparent to everyone else.)
Besides the hangover, the after-effects of the ill-advised encounters will be all too obvious. Brawls leave cuts and bruises while boozy assignations result in worse regrets. As the country song of some years back (well before political correctness) sums them up, "I've never gone to bed with an ugly woman, but I've sure woke up with a few."
For the past two months, global markets have rallied on the courage of the liquidity they expect to come pouring forth after the two-day meeting of the Federal Open Market Committee next Tuesday and Wednesday. Since Fed Chairman Ben Bernanke began suggesting in his speech in Jackson Hole, Wyo., that additional monetary stimulus may be needed to stave off deflation and lower stubbornly high unemployment, so-called risk markets have rallied, adding about $1.7 trillion to the wealth of holders of U.S. stocks.
That inflation of asset values was based on expectations of QE2, the second phase of quantitative easing consisting of the purchase of, coincidentally enough, of $1.7 trillion of Treasury, agency and agency mortgage-backed securities, embarked upon in March 2009. Expectations of the size of QE2 have ranged as high as $2 trillion, as suggested by Goldman Sachs' economists over the weekend, to a virtual regatta of smaller vessels, consisting of a few hundred billion at a time.
The latter seems to be tack that the skippers at the Fed have chosen for QE2. According to Wednesday's Wall Street Journal the central bank appears to have settled on a compromise of several hundred billions of dollars in Treasury purchases, a middle ground between those calling for a trillion-dollar-plus buy and those who want nothing.
As I pointed out in the print edition of this column in this week's Barron's while the anticipated influx of liquidity had boosted the stock market, it simultaneously had the offsetting effects of driving down the dollar and sending commodity prices jumping. The 13% spurt in the Standard & Poor's 500 since late August has been nearly matched by the rise in the price that I'm paying at the gasoline pump.
Moreover, in just one of the perceptive, indeed searing, observations made by Jeremy Grantham—the "G" in GMO, the highly regarded institutional money manager—in his most recent investment commentary, ultra-low interest rates may provide no stimulus whatsoever to the economy. The loss of income to retirees, who need it, offsets the benefits to big corporations, which don't need the ability to borrow cheaply. (To get the full scope of Grantham's scathing assessment of Fed monetary manipulation, go to www.gmo.com.)
Moreover, QE2 (or the anticipation of its arrival) has ceased to produce its intended effect—a reduction in bond yields. Observes Uwe Parpart, Cantor Fitzgerald's keen-eyed Asia strategist, the Treasury 10-year note yield has increased to 2.72% from 2.33% on Oct. 8. "What the bond market is tell the Fed is: you can't have it both ways, on one hand ramping up QE and wishing for higher inflation and at the same time wanting rates to stay ultra-low," he writes in a note to clients Wednesday.
With the Fed likely to dump less hooch in the monetary punchbowl, risk markets reversed course Wednesday. The stock market ran into resistance right at its April highs while bonds continue to slump but the dollar's slide paused, as Barrons.com technical guru, Michael Kahn, points out in his Getting Technical column.
Bartender Ben Bernanke may not be pouring as generously as the slightly tipsy markets had been hoping. The markets may thank him the next morning.
URL to original article: http://www.housingwire.com/2010/10/28/markets-liquid-courage-sapped
LIQUID COURAGE. If you're not acquainted with the term, or more improbably never experienced it, it is the lowering of inhibitions from the consumption of alcohol that allows one to approach strangers you find attractive or confront others whom you think have threatened or insulted you.
At the time, your actions seem reasonable, even suave in the former instance or justified in the latter. Only later, when the euphoric effects of the source of the liquid courage have worn off, does the stupidity of your bravado become evident to you (although it was apparent to everyone else.)
Besides the hangover, the after-effects of the ill-advised encounters will be all too obvious. Brawls leave cuts and bruises while boozy assignations result in worse regrets. As the country song of some years back (well before political correctness) sums them up, "I've never gone to bed with an ugly woman, but I've sure woke up with a few."
For the past two months, global markets have rallied on the courage of the liquidity they expect to come pouring forth after the two-day meeting of the Federal Open Market Committee next Tuesday and Wednesday. Since Fed Chairman Ben Bernanke began suggesting in his speech in Jackson Hole, Wyo., that additional monetary stimulus may be needed to stave off deflation and lower stubbornly high unemployment, so-called risk markets have rallied, adding about $1.7 trillion to the wealth of holders of U.S. stocks.
That inflation of asset values was based on expectations of QE2, the second phase of quantitative easing consisting of the purchase of, coincidentally enough, of $1.7 trillion of Treasury, agency and agency mortgage-backed securities, embarked upon in March 2009. Expectations of the size of QE2 have ranged as high as $2 trillion, as suggested by Goldman Sachs' economists over the weekend, to a virtual regatta of smaller vessels, consisting of a few hundred billion at a time.
The latter seems to be tack that the skippers at the Fed have chosen for QE2. According to Wednesday's Wall Street Journal the central bank appears to have settled on a compromise of several hundred billions of dollars in Treasury purchases, a middle ground between those calling for a trillion-dollar-plus buy and those who want nothing.
As I pointed out in the print edition of this column in this week's Barron's while the anticipated influx of liquidity had boosted the stock market, it simultaneously had the offsetting effects of driving down the dollar and sending commodity prices jumping. The 13% spurt in the Standard & Poor's 500 since late August has been nearly matched by the rise in the price that I'm paying at the gasoline pump.
Moreover, in just one of the perceptive, indeed searing, observations made by Jeremy Grantham—the "G" in GMO, the highly regarded institutional money manager—in his most recent investment commentary, ultra-low interest rates may provide no stimulus whatsoever to the economy. The loss of income to retirees, who need it, offsets the benefits to big corporations, which don't need the ability to borrow cheaply. (To get the full scope of Grantham's scathing assessment of Fed monetary manipulation, go to www.gmo.com.)
Moreover, QE2 (or the anticipation of its arrival) has ceased to produce its intended effect—a reduction in bond yields. Observes Uwe Parpart, Cantor Fitzgerald's keen-eyed Asia strategist, the Treasury 10-year note yield has increased to 2.72% from 2.33% on Oct. 8. "What the bond market is tell the Fed is: you can't have it both ways, on one hand ramping up QE and wishing for higher inflation and at the same time wanting rates to stay ultra-low," he writes in a note to clients Wednesday.
With the Fed likely to dump less hooch in the monetary punchbowl, risk markets reversed course Wednesday. The stock market ran into resistance right at its April highs while bonds continue to slump but the dollar's slide paused, as Barrons.com technical guru, Michael Kahn, points out in his Getting Technical column.
Bartender Ben Bernanke may not be pouring as generously as the slightly tipsy markets had been hoping. The markets may thank him the next morning.
URL to original article: http://www.housingwire.com/2010/10/28/markets-liquid-courage-sapped
The government’s incredible shrinking mortgage mod program
Source: ProPublica
The U.S. government's effort to help struggling homeowners is approaching a standstill, and the number of homeowners in ongoing mortgage modifications could start shrinking in several months if current trends continue, according to a ProPublica analysis of Treasury Department data.
A year and a half into the program, the number of homeowners defaulting on their modified loans has been fast approaching the number of new modifications. In September, for example, banks modified almost 28,000 loans, but nearly 10,000 homeowners fell out of the program because they defaulted on their modified payments. Taken together, the programs' growth has slowed by almost a quarter each month since May.
The administration launched its foreclosure-relief effort last spring, looking to help 3 to 4 million homeowners by modifying their mortgages to have affordable monthly payments. Only 467,000 homeowners are in modifications that are still ongoing.
URL to original article: http://www.housingwire.com/2010/10/27/the-government%e2%80%99s-incredible-shrinking-mortgage-mod-program
The U.S. government's effort to help struggling homeowners is approaching a standstill, and the number of homeowners in ongoing mortgage modifications could start shrinking in several months if current trends continue, according to a ProPublica analysis of Treasury Department data.
A year and a half into the program, the number of homeowners defaulting on their modified loans has been fast approaching the number of new modifications. In September, for example, banks modified almost 28,000 loans, but nearly 10,000 homeowners fell out of the program because they defaulted on their modified payments. Taken together, the programs' growth has slowed by almost a quarter each month since May.
The administration launched its foreclosure-relief effort last spring, looking to help 3 to 4 million homeowners by modifying their mortgages to have affordable monthly payments. Only 467,000 homeowners are in modifications that are still ongoing.
Alan White, a law professor at Valparaiso University, said the problem isn't the rate at which homeowners are redefaulting, which is low compared to other modifications, but rather the shrinking number of new modifications given out by banks. "We need to be modifying 10 times as many a month," he told us.
Across the country, over 5 million mortgages are more than 60 days overdue or in foreclosure, according to Lender Processing Services.
Banks have had a poor record of modifying mortgages under the government program. (Check out our graphical breakdown of each bank's performance.) Homeowners report Kafka-esque experiences of lost paperwork, miscommunication and dashed hopes in trying to get help preventing foreclosures. We've recently chronicled homeowner experiences in a series of profiles and a questionnaire. Investors who own mortgages are dismayed as well. The Treasury Department has yet to penalize a single mortgage servicer since the program launched last spring.
"You start with a program that's not well designed and a lack of will to enforce the program, and this is what you're getting," says White.
The pipeline for permanent modifications also continues to dwindle. There are now fewer than 175,000 active trial modifications, down from almost 260,000 in July. Nearly half of the active trials are at least six months old.
We contacted Treasury to ask about the slowing of the program, and they haven’t responded yet. We'll update this post when we hear back.
Two mortgage servicers, Bank of America and Aurora, have seen their numbers of active permanent modifications decrease in the past month. Bank of America's dropped by about a thousand modifications, and Aurora's fell by over 2,500 modifications.
In a press release, Bank of America said that the drop came from a combination of defaulted modifications, servicing transfers and repaid mortgages. Only 428 mortgages have been repaid to the more than 100 mortgage servicers participating in the federal program. Aurora did not respond to ProPublica's request to comment.
Update: Treasury said it is working to reach as many eligible homeowners as it can and has expanded alternative options for borrowers that do not qualify for the modification program.
URL to original article: http://www.housingwire.com/2010/10/27/the-government%e2%80%99s-incredible-shrinking-mortgage-mod-program
Wednesday, October 27, 2010
Real house prices, price-to-rent ratio
Source: Calculated Risk
URL to original article: http://www.housingwire.com/2010/10/26/real-house-prices-price-to-rent-ratio
Yesterday CoreLogic reported that house prices declined 1.2% in August, and this morning S&P Case-Shiller reported widespread price declines in August (really an average of June, July and August).
Click on graph for larger image in new window.
This post looks at real prices and the price-to-rent ratio, but first here is a graph of the two Case-Shiller composite indexes, and the CoreLogic HPI (NSA).
All three indexes are above the lows of early 2009, but it appears that prices are now falling - and I expect all three indexes to show new lows later this year or in early 2011.
Price-to-Rent
In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.
Here is a similar graph through August 2010 using the Case-Shiller Composite 20 and CoreLogic House Price Index.
This graph shows the price to rent ratio (January 1998 = 1.0).
Recent reports suggest rents might have bottomed, but this suggests that house prices are still a little too high on a national basis.
Real House Prices
The third graph shows the CoreLogic house price index and the Case-Shiller Composite 20 index through August 2010 in real terms (adjusted with CPI less Shelter).
These indexes are still above the 2009 lows in real terms, but it is getting close, and I expect new real price lows sometime in the next few months.
This isn't like in 2005 when prices were way out of the normal range by these measures, but it does appear prices are still a little too high. And with high levels of inventory, prices will probably fall some more.
URL to original article: http://www.housingwire.com/2010/10/26/real-house-prices-price-to-rent-ratio
Tuesday, October 26, 2010
Do investors expect too much from Bernanke?
Source: The New York Times
The 5-year TIPS spread
URL to original article: http://www.housingwire.com/2010/10/26/do-investors-expect-too-much-from-bernanke
Do Investors Expect Too Much From Bernanke?
Financial markets seem convinced that quantitative easing will be highly effective at solving at least one problem: inflation running well below the Fed’s 2-percent-or-so target. The chart above shows the difference between interest rates on 5-year inflation-protected bonds (which are now negative) and rates on unprotected bonds; implicitly, the market forecast of inflation over the next five years has risen half a point.
But I really don’t understand this. Granted that QE2 will probably have some positive effect, hopefully bigger than analysis based on the debt-maturity equivalence suggests. Still, the prospect remains that we’ll face multiple years of high unemployment — or, if you prefer, a protracted large output gap (PLOG). And history is clear on what that means: declining inflation:
My guess, then, is that the markets are overreacting; they’re thinking, “The Fed is printing money!”, while forgetting that this ultimately matters, even for inflation, only to the extent that it seriously reduces unemployment.
URL to original article: http://www.housingwire.com/2010/10/26/do-investors-expect-too-much-from-bernanke
Obama housing scorecard: Market fragile with signs of stabilization
by KERRY CURRY
The U.S. housing market remains fragile but is showing some signs of stabilization, according to the Obama administration's 2010 October housing scorecard.
Rates for 30-year, fixed-rate mortgages remain at all-time lows, helping 7.1 million homeowners refinance since April 2009 and resulting in $12.7 billion in homeowner savings, the scorecard noted.
On the minus side, home sales have declined with the expiration of the homebuyer tax credit, although home prices have shown some indication of stabilization.
The Department of Housing and Urban Development and the Treasury Department compiled data for the monthly scorecard.
More than 3.52 million modification arrangements were started between April 2009 and the end of August 2010 — nearly triple the number of foreclosure completions during that time. These included more than 1.3 million trial Home Affordable Modification Program starts, more than 510,000 Federal Housing Administration loss-mitigation and early-delinquency interventions, and more than 1.6 million proprietary modifications under HOPE Now.
At nine months, almost 90% of homeowners remain in their permanent HAMP modification, with 11% defaulted, according to the data.
The scorecard shows that the number of existing homes on the market is below its 2008 peak, but data indicate that the number of units held off the market is on the rise.
Data in the scorecard also show that the recovery in the housing market continues to be tepid.
"Foreclosure completions continue to move upward and a large supply of homes are being held off the market," the scorecard notes. "While the recovery will take place over time, the administration remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market."
URL to original article: http://www.housingwire.com/2010/10/25/obama-housing-scorecard-market-fragile-with-signs-of-stabilization
The U.S. housing market remains fragile but is showing some signs of stabilization, according to the Obama administration's 2010 October housing scorecard.
Rates for 30-year, fixed-rate mortgages remain at all-time lows, helping 7.1 million homeowners refinance since April 2009 and resulting in $12.7 billion in homeowner savings, the scorecard noted.
On the minus side, home sales have declined with the expiration of the homebuyer tax credit, although home prices have shown some indication of stabilization.
The Department of Housing and Urban Development and the Treasury Department compiled data for the monthly scorecard.
More than 3.52 million modification arrangements were started between April 2009 and the end of August 2010 — nearly triple the number of foreclosure completions during that time. These included more than 1.3 million trial Home Affordable Modification Program starts, more than 510,000 Federal Housing Administration loss-mitigation and early-delinquency interventions, and more than 1.6 million proprietary modifications under HOPE Now.
At nine months, almost 90% of homeowners remain in their permanent HAMP modification, with 11% defaulted, according to the data.
The scorecard shows that the number of existing homes on the market is below its 2008 peak, but data indicate that the number of units held off the market is on the rise.
Data in the scorecard also show that the recovery in the housing market continues to be tepid.
"Foreclosure completions continue to move upward and a large supply of homes are being held off the market," the scorecard notes. "While the recovery will take place over time, the administration remains committed to its efforts to prevent avoidable foreclosures and stabilize the housing market."
URL to original article: http://www.housingwire.com/2010/10/25/obama-housing-scorecard-market-fragile-with-signs-of-stabilization
Monday, October 25, 2010
Financial system trust down with Dodd-Frank dissatisfaction
by CHRISTINE RICCIARDI
Trust in the financial system and real estate market is gradually depleting, according to the Chicago Booth/Kellogg School Financial Trust Index results. The survey found trust index to be 25% for the third quarter of 2010, a 1% drop from from the all-time high in June.
The Financial Trust Index is a quarterly survey conducted by Social Science Research Solutions, a branch of AUS and ICR/International Communications Research. The results come from 1,005 phone interviews nationwide.
The authors of the report, both business professors, attribute the lack of trust in the financial industry to the passage of Dodd-Frank, saying that the bill did not meet consumer expectations with regard to reform. The survey found that only 12% of respondents are satisfied with the Dodd-Frank Act while 54% are dissatisfied.
“A primary consequence of the 2008 financial crisis was a large drop in trust Americans had in financial institutions, and we’re seeing a continued decline despite reform enacted to combat this sentiment,” said Paola Sapienza, a professor of finance at the Kellogg School of Management at Northwestern University. “Interestingly, Americans who declared themselves satisfied with the Dodd-Frank Bill trust banks 8% more, but unfortunately only a minority is happy with the legislation.”
Americans trust every sector of the financial system less than they did last quarter except for banks. The percentage of people that trust banks rose to 43% from 39% last quarter.
According to the data, 14% of Americans trust the stock market, down from 18% last quarter; 28% of Americans trust mutual funds, down from 32% in June; and 14% of people trust large corporations, down from 17% last quarter. This is the lowest the index has been for the stock market and mutual fund sector. Only 13% of Americans trusted large corporations in March.
For the first time this year, the majority of homeowners expect home prices in their neighborhood to drop over the next 12 months. Approximately 30% expect a decrease, up from 20% in June and 21% in March. Twenty-three percent of homeowners expect an increase in home prices, down from 26% in June and 31% in March.
URL to original article: http://www.housingwire.com/2010/10/22/financial-system-trust-down-with-dodd-frank-dissatisfaction
Trust in the financial system and real estate market is gradually depleting, according to the Chicago Booth/Kellogg School Financial Trust Index results. The survey found trust index to be 25% for the third quarter of 2010, a 1% drop from from the all-time high in June.
The Financial Trust Index is a quarterly survey conducted by Social Science Research Solutions, a branch of AUS and ICR/International Communications Research. The results come from 1,005 phone interviews nationwide.
The authors of the report, both business professors, attribute the lack of trust in the financial industry to the passage of Dodd-Frank, saying that the bill did not meet consumer expectations with regard to reform. The survey found that only 12% of respondents are satisfied with the Dodd-Frank Act while 54% are dissatisfied.
“A primary consequence of the 2008 financial crisis was a large drop in trust Americans had in financial institutions, and we’re seeing a continued decline despite reform enacted to combat this sentiment,” said Paola Sapienza, a professor of finance at the Kellogg School of Management at Northwestern University. “Interestingly, Americans who declared themselves satisfied with the Dodd-Frank Bill trust banks 8% more, but unfortunately only a minority is happy with the legislation.”
Americans trust every sector of the financial system less than they did last quarter except for banks. The percentage of people that trust banks rose to 43% from 39% last quarter.
According to the data, 14% of Americans trust the stock market, down from 18% last quarter; 28% of Americans trust mutual funds, down from 32% in June; and 14% of people trust large corporations, down from 17% last quarter. This is the lowest the index has been for the stock market and mutual fund sector. Only 13% of Americans trusted large corporations in March.
For the first time this year, the majority of homeowners expect home prices in their neighborhood to drop over the next 12 months. Approximately 30% expect a decrease, up from 20% in June and 21% in March. Twenty-three percent of homeowners expect an increase in home prices, down from 26% in June and 31% in March.
URL to original article: http://www.housingwire.com/2010/10/22/financial-system-trust-down-with-dodd-frank-dissatisfaction
Friday, October 22, 2010
California home sales drop 17% in September: DataQuick
by JON PRIOR
California new and existing home sales totaled 33,176 in September, down 17.5% from a year ago and 3.1% from the previous month, according to the San Diego-based real estate provider DataQuick.
Despite record low mortgage rates, the entire housing market is still waiting for new demand to replace the boost from the homebuyer tax credit that expired in April.
While transactions are down, prices are still up for the 11th month in a row, following more than two years of straight declines.
The median price on a California home was $265,000, a 5.6% increase from last year and a 1.9% bump from the previous month. The trough came in April 2009 at $221,000. The peak was $484,000 in early 2007.
Of the existing home sales completed in September, 35.8% were properties that had been foreclosed on in the last year, down from 41.7% a year ago and flat from the previous month. Foreclosure accounted for more than 58% of the market in February 2009, the all-time high.
Homeowners made an average $1,055 monthly payment in September, down more than 60% from the peak in June 2006.
URL to original article: http://www.housingwire.com/2010/10/21/california-home-sales-drop-17-in-september-dataquick
California new and existing home sales totaled 33,176 in September, down 17.5% from a year ago and 3.1% from the previous month, according to the San Diego-based real estate provider DataQuick.
Despite record low mortgage rates, the entire housing market is still waiting for new demand to replace the boost from the homebuyer tax credit that expired in April.
While transactions are down, prices are still up for the 11th month in a row, following more than two years of straight declines.
The median price on a California home was $265,000, a 5.6% increase from last year and a 1.9% bump from the previous month. The trough came in April 2009 at $221,000. The peak was $484,000 in early 2007.
Of the existing home sales completed in September, 35.8% were properties that had been foreclosed on in the last year, down from 41.7% a year ago and flat from the previous month. Foreclosure accounted for more than 58% of the market in February 2009, the all-time high.
Homeowners made an average $1,055 monthly payment in September, down more than 60% from the peak in June 2006.
URL to original article: http://www.housingwire.com/2010/10/21/california-home-sales-drop-17-in-september-dataquick
How Joseph Lents dodged foreclosure for eight years and started a movement
Source: Bloomberg
In 2002, an accountant in Boca Raton, Florida, named Joseph Lents was accused of securities-law violations by the U.S. Securities and Exchange Commission. Lents, who was chief executive officer of a now-defunct voice- recognition software company, had sold shares in the public company without filing the proper forms. Facing a little over $100,000 in fines and fees, and with his assets frozen by the SEC, Lents stopped making payments on his $1.5 million mortgage.
The loan servicer, Washington Mutual Inc., tried to foreclose on his home in 2003 but was never able to produce Lents’s promissory note, so the state circuit court for Palm Beach County dismissed the case. Next, the buyer of the loan, DLJ Mortgage Capital, stepped in with another foreclosure proceeding. DLJ claimed to have lost the promissory note in interoffice mail. Lents was dubious.
“When you say you lose a $1.5 million negotiable instrument -- that doesn’t happen,” he said in an interview in Bloomberg Businessweek’s Oct. 25 issue.
DLJ claimed that its word was as good as paper. But at least in Palm Beach County, paper still rules. If his mortgage holder couldn’t prove it held his mortgage, it couldn’t foreclose.
Eight years after defaulting, Lents still hasn’t made a payment or been forced out of his house. DLJ, whose parent, Credit Suisse Group AG, declined to comment for this story, still hasn’t proved its ownership to the satisfaction of the court. Lents’s debt has grown to about $2.5 million, including unpaid taxes, interest and penalties.
The Lents Defense
As the stalemate grinds on, Lents has the comfort of knowing he’s no longer alone. When he began demanding to see the IOU, he says, “I was looked upon like I had leprosy. Now, I have probably 20 to 30 people a month come to me” asking for advice. Lents is irked when people accuse him of exploiting a loophole. “It’s not a loophole,” he says. “It’s the law.”
The Lents Defense, as it might be called, doesn’t work everywhere. Thousands of Floridians have lost their homes in lightning-fast “rocket dockets.” In 27 other states, judges don’t even review foreclosures, making it harder for homeowners to fight back. Now, allegations of carelessness and outright fraud in foreclosures have become so widespread that attorneys general in all 50 states are investigating. So are the feds.
Even if the documentation problems turn out to be manageable -- as Bank of America Corp. and others insist they will be -- the economy will still suffer long-term consequences from the loose underwriting that caused the subprime-housing bubble.
$1.1 Trillion
According to an Oct. 15 report by JPMorgan Chase & Co.’s securities unit, some $2 trillion of the $6 trillion in U.S. mortgages and home-equity loans that were securitized during the height of the bubble, from 2005 through 2007, are likely to go into default. The report says the housing bust will ultimately cause losses of $1.1 trillion on those bonds.
While banks and investors take their hits, millions of homeowners continue to be punished by unaffordable mortgage payments and underwater home values. Laurie Goodman, a mortgage analyst at Amherst Securities Group LP in New York, said in an Oct. 1 report that if government doesn’t step up its intervention, more than 11 million borrowers are in danger of losing their homes. That’s one in five people with a mortgage.
“Politically,” she wrote, “this cannot happen. The government will attempt successive modification plans until something works.”
Fight Over Losses
Wall Street’s unspoken strategy has been to kick mortgage losses down the road until an economic recovery reinflates the housing market. The faulty-foreclosure crisis has forced the issue back into the present tense, triggering a fight over who will bear the brunt of those losses. The list of combatants -- all of whom are trying to minimize their share of the damage -- is long: homeowners, lenders and mortgage brokers, loan servicers, underwriters of mortgage-backed securities and buyers of those securities, title insurers, ratings firms, and the federally controlled mortgage buyers Fannie Mae and Freddie Mac.
While JPMorgan predicts that bondholders will absorb most of the estimated $1.1 trillion loss, they may succeed in foisting about $55 billion on banks. If the bank losses turn out to be steeper than JPMorgan and most other analysts expect, taxpayers may be asked to inject more capital into the financial institutions. Fannie Mae and Freddie Mac, already wards of the state, might require more capital as well, the Federal Housing Finance Agency said in an Oct. 21 report.
Careless Lending, Recordkeeping
The past five years of rising foreclosures, to the highest rate since the Great Depression, have exposed the carelessness with which banks lent money. The banks figured they could always seize ownership and resell at a profit, assuming they hadn’t already dumped the loan on an unwary investor. And they wouldn’t let technicalities impede the process. The website 4closurefraud.com, which is operated by the Carol C. Asbury Save My Home Law Group, has links to documents from Nassau County, New York, in which someone entered “BOGUS” as the grantee for the mortgage, or the party entitled to foreclose.
During the housing boom, transactions were flowing so fast that banks couldn’t keep up with the paperwork. The mortgage industry depended on a digital overlay of its own invention, Mortgage Electronic Registration Systems, a database whose owners include Fannie Mae, Freddie Mac, Bank of America, Citigroup Inc.’s CitiMortgage, JPMorgan’s Chase Home Mortgage, Wells Fargo & Co. and title insurers. No matter who bought the loan, MERS was purported to be the mortgagee, or party that would foreclose if a borrower stopped paying.
Assault on the System
Of all newly issued U.S. mortgages, 60 percent list MERS -- a unit of Reston, Virginia-based MERSCorp that has no employees of its own -- as the mortgagee.
“It’s a total attack on the public system,” says Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City who has consulted in cases against MERS.
As MERS sped up loan processing, it created a giant legal hairball. According to Peterson, state judges in Kansas, Arkansas and Maine have said that MERS has no standing in foreclosure proceedings under their states’ laws if they can’t produce the promissory note. In early October, a federal judge in Oregon blocked Bank of America as trustee from foreclosing on a home in the MERS system.
Karmela Lejarde, a MERS spokeswoman, says its standing has always been upheld, “either in the initial court proceeding or upon appeal.”
Judges also resent that would-be foreclosers show up in court representing themselves as vice presidents of MERS even though they work for various loan servicers. Fixing the paperwork won’t be easy because many of the notes have been lost or even deliberately shredded.
Documents Destroyed
The Florida Bankers Association told the state Supreme Court last year that in many cases “the physical document was deliberately eliminated to avoid confusion immediately upon its conversion to an electronic file.”
Beyond the losses to banks, investors and homeowners from the housing crisis, there is an incalculable psychic cost of a legal system that may well have let banks skirt the law.
“The whole financial system is becoming a lot less transparent,” says Hernando de Soto, a Peruvian economist who has written on the importance of well-defined property rights. “You can’t size up risk anymore.”
It’s a perfect October day on the Jacksonville, Florida, campus of Lender Processing Services Inc., and Greg Whitworth, a division president, is rallying a crowd of 200 employees inside a big white tent on the sun-drenched banks of the St. Johns River.
Year of the Megas
“We are killing our competition!” Whitworth says. The company is celebrating what it calls “the Year of the Megas” -- key customers Bank of America, Wells Fargo and JPMorgan Chase -- with a picnic of Mediterranean chicken salad, lemon cooler cookies and sweet tea.
LPS, as the company is known, is the biggest U.S. mortgage- and-foreclosure outsourcing firm. Last year its revenue from default services climbed to $1.1 billion. Its nearest rival, Santa Ana, California-based CoreLogic Inc., takes in less than half of that.
One gray patch hovers over the celebration: The back-office technology provider’s runaway success means it is tangled up in the foreclosure crisis.
“I was thinking about the dark clouds over the company,” Joe Nackashi, the chief information officer, tells the crowd. “Sure, we have made mistakes. But I don’t want to let that cloud this day.”
Plumbing Breaks
LPS supplies much of the digital plumbing for the convoluted home-finance system. At the start of 2010, it said its computer programs were handling 28 million loans with a total principal balance of more than $4.7 trillion -- or more than half the nation’s outstanding mortgage balances. With 8,900 employees and revenue of $2.4 billion, it sells software and manpower to most of the largest U.S. lenders and loan servicers.
“The banks were not prepared for this volume of foreclosures, and that has played to the company’s advantage as the outsourcer,” says Brett Horn, associate director of equity research at Chicago-based Morningstar Inc.
The industry uses LPS computer programs and sometimes LPS employees to code, store and transfer many mortgage records. When things work smoothly, mortgage servicers rely on LPS software to help monitor payments. When homeowners fall behind, LPS helps assemble the information needed to foreclose.
Assembly Line
As described in an in-house newsletter published in September 2006 by Fidelity National Foreclosure Solutions, a predecessor of LPS, a single 18-person “document execution” team brings Henry Ford’s mass-production techniques to the foreclosure business.
“The document execution team is set up like a production line, ensuring that each document request is resolved within 24 hours,” the newsletter said. “On average, the team will execute 1,000 documents per day.”
That was four years ago, when the foreclosure rate was a quarter what it is now. It was when some of those documents proved difficult to track down that trouble set in. If a foreclosure lawyer working on behalf of a bank or servicer asked LPS for an errant mortgage, some company workers may have gone to extremes to keep the foreclosure assembly line moving, according to prosecutors and plaintiffs’ lawyers. The Florida attorney general’s office has alleged that in some cases, corners may have been cut, signatures forged and documents backdated. Industry employees have said in sworn depositions that “robo-signers” executed paperwork without reviewing it.
Florida Investigation
The U.S. Attorney’s Office in Tampa and the state of Florida are investigating whether LPS and affiliated companies have fabricated documents and faked signatures. LPS employees “seem to be creating and manufacturing ‘bogus assignments’ of mortgage in order that foreclosures may go through more quickly and efficiently,” the Florida Attorney General’s Office says in an online description of its civil investigation. “We’re concerned that people might be put out of their houses unfairly and unjustly,” Bill McCollum, the attorney general, told Bloomberg Businessweek.
In a third investigation, the U.S. Trustee Program, the branch of the Justice Department that polices bankruptcies, is looking into whether LPS is “improperly directing legal action” to hasten foreclosures, according to a 2009 opinion issued by the bankruptcy court in Philadelphia. A Trustee spokeswoman declined to comment.
“The system is so organized that there is a company, Lender Processing Services, who allegedly has created the means to systemize fraud,” U.S. Representative Alan Grayson, a Florida Democrat, said Sept. 29, on the House.
Fee Splitting
Foreclosure-defense lawyers have filed suit against LPS in Mississippi and Kentucky, seeking class-action status and accusing the company of improperly splitting fees with pro- foreclosure lawyers. LPS fell 33 percent this year through yesterday in New York Stock Exchange composite trading. That compares with the 12 percent increase by the Standard & Poor’s 400 Midcap Index.
LPS executives acknowledge slip-ups, but nothing amounting to fraud. In a federal securities filing in February, the company said it had “identified a business process that caused an error in the notarization of certain documents, some of which were used in foreclosure proceedings.” LPS says it fixed the problem and closed the subsidiary in Georgia where it occurred.
As for the processing team described in the in-house newsletter, Michelle Kersch, an LPS spokeswoman, says the company decided such affidavit-execution services were “not an appropriate use of resources,” and ended them in September 2008. Still, LPS “signs a limited number of documents for clients,” including assignments of mortgage, she said.
Isolated Errors
“We are dealing with sensationalism versus facts,” Jeffrey S. Carbiener, the company’s chief executive officer, told analysts in an Oct. 6 conference call. “Isolated instances of errors” are bound to occur, but they “are now being brought out and pointed back to that robo-signing, making it sound like a large percentage of these transactions are invalid. That is just simply not the case.” He called the class-action suits “fishing expeditions.”
To keep the paperwork moving, LPS uses a variety of incentives. Top-performing workers receive monthly “Drive for Pride” awards that sometimes include $500 in company stock and a spot in an underground parking garage. LPS also devised a coding system to grade outside foreclosure attorneys based on their speed in completing tasks. Fast-acting attorneys receive green ratings; slower lawyers are labeled yellow or red and may receive fewer assignments.
Fidelity National
“Bill will move quickly and expect you to be there to pull your weight,” says Jerry Mallot, executive vice president of the Jacksonville Regional Chamber of Commerce. “I wouldn’t call the environment at his company kind and genteel.”
Bill is William P. Foley II, a 65-year-old West Point graduate, real estate lawyer and wealthy vintner. He made a fortune assembling the country’s largest title-insurance company, beginning with his purchase in 1984 of Fidelity National Title. By 2003, Fidelity National, then based in Santa Barbara, California, had $10 billion in annual revenue and 32 percent of the U.S. title-insurance market. Frustrated by the high cost of operating in California, Foley was convinced by Mallot and then-Florida Governor Jeb Bush, an occasional golfing companion, to relocate to Jacksonville. A spokeswoman said Foley, who left the LPS board last year, wasn’t available to comment.
Growing Dismay
Spun off in 2008, LPS is one of the city’s largest employers, with 2,400 local workers. Its headquarters is in a 12-story office building on palm-lined Riverside Avenue, part of a complex that also houses Fidelity National Financial, the original title insurer, and Fidelity National Information Services, a 2006 spinoff now called FIS.
Foley and his wife, Carol, split time between a home in Jacksonville’s Ponte Vedra Beach, a ranch in Whitefish, Montana, and California, where Foley owns seven wineries. His compensation last year from LPS and the Fidelity National companies was $45.9 million, according to company filings.
The growth of LPS and other foreclosure outsourcing has dismayed even some professionals deeply involved in the process. Judge Diane Weiss Sigmund of the U.S. Bankruptcy Court in Philadelphia last year published an unusual 58-page opinion scrutinizing LPS because, she said, she wished “to share my education” with others in the system “who may be similarly unfamiliar with the extent that a third-party intermediary drives the Chapter 13 process.”
‘Slavish Adherence’
Her opinion described an attempt by the multinational bank HSBC Holdings Plc to foreclose on the home of Niles and Angela Taylor, who had filed for bankruptcy protection from their creditors. Judge Sigmund ruled the bank’s outside attorneys mistakenly tried to take the Taylors’ home because of three disputed flood-insurance payments totaling $540. She blamed lawyer incompetence, exacerbated by a “slavish adherence” to an LPS computer system called NewTrak.
What bothered the judge, she wrote, was the way HSBC and its lawyers entrusted “the NewTrak system [with] the management of its defaulted loans in bankruptcy. ... With the HSBC data uploaded to an LPS system, LPS responds to the perceived needs of retained counsel. ... The retained counsel does not address the client directly.”
Overreliance on LPS contributed to six months of unnecessary hearings, the judge wrote. After she ordered the parties to settle the issue in person, they did so in just an hour. HSBC acknowledged that the property didn’t require flood insurance after all, and the truce cleared the way for resolution of the Taylors’ bankruptcy plan.
No Punishment
Judge Sigmund, who has since retired, scolded one of HSBC’s outside lawyers for being too “enmeshed in the assembly line” of managing foreclosures and ordered her to take extra ethics training. The judge instructed HSBC to remind all of its lawyers in writing not to defer excessively to computerized data systems. LPS, the judge added, didn’t deserve punishment because the outsourcer had merely provided tools that others misused.
McCollum, the Florida attorney general, suspects that in other cases LPS is more than an innocent facilitator. In April, he says a homeowner contacted his office, alleging that LPS paperwork had been “forged in some way.” His office opened a civil investigation. While McCollum, a Republican, would not provide specifics, subpoenas his office issued on Oct. 13 demand information on six employees of an LPS subsidiary called Docx.
Multiple Titles
The attorney general’s office is investigating whether the employees had the authority to execute mortgage documents for lenders and servicers. One employee, Linda Green, at various times identified herself as a vice president or representative of more than a dozen different banks and mortgage companies, according to the subpoena.
“Docx has produced numerous documents, called assignments of mortgage, that even to the untrained eye appear to be forged and/or fabricated as the signatures of the same individual vary wildly from document to document,” the attorney general’s office says on its website.
LPS disclosed in February that the Tampa U.S. Attorney’s Office is “reviewing the business processes” of the Docx unit. April Charney, a senior attorney with Jacksonville Area Legal Aid and an outspoken critic of LPS, says she was contacted by a federal prosecutor about the company earlier this year. The prosecutor informed her in April, she adds, that the Justice Department was seeking depositions from LPS and Docx employees.
LPS says it shut the Docx unit in April and is cooperating with investigators.
Good for Business
“We feel like we have taken all appropriate corrective actions,” Carbiener, the CEO, told analysts on Oct. 6. “We don’t feel like this is going to have or will have a material impact on our financial results.”
The foreclosure chaos could be good for business, he said. Dogged by foreclosure-defense attorneys and government investigations, lenders and servicers will have to retrace their steps.
“Those services that we provided initially we’ll provide again,” Carbiener said. “For those loans that are held in review, we have the opportunity to earn additional revenues.”
The big banks continue to insist that documentation problems are the legal equivalent of rounding errors.
On Oct. 18, Bank of America, which suspended foreclosures in all 50 states, played down that suspension and said it would resubmit foreclosure affidavits in 23 states after completing a speedy review of 102,000 files. Citigroup said its foreclosure process was “sound.”
‘Blip’
JPMorgan Chase Chief Executive Officer Jamie Dimon told investors on Oct. 13, “If you’re talking about three or four weeks, it will be a blip in the housing market.” He added, “If it went on for a long period of time, it will have a lot of consequences, most of which will be adverse on everybody.”
Ohio Attorney General Richard Cordray on Oct. 19 expressed deep skepticism that Bank of America had managed to complete its internal review in just 2 1/2 weeks, saying, “I would caution that they still have significant financial exposure in many, many cases.”
Even if the homeowners deserve to be foreclosed on, paperwork problems could stand in the way. Mark J. Grant, a managing director for structured finance at Dallas-based Southwest Securities, wrote on Oct. 18 that what may lie ahead is a “Whangdepootenawah,” a word from Ambrose Bierce’s Devil’s Dictionary meaning “disaster; an unexpected affliction that strikes hard.”
‘Retching in the Streets’
Grant wrote, “I doubt that you have followed the contagion down the path to the end because if you had, if anyone had ... there would be a lot more retching in the streets and on Wall Street’s trading desks.”
Even if the IOUs can be straightened out quickly, the fighting won’t stop. Quoting unnamed sources, the Washington Post reported on Oct. 19 that the Obama administration’s Financial Fraud Enforcement Task Force is investigating whether financial firms committed federal crimes in filing fraudulent court documents to seize people’s homes.
Meanwhile, a high-stakes fight is breaking out between the banks that made loans and the investors who bought them. A shot was fired on Oct. 18 when a group of major investors claimed that Bank of America’s Countrywide Home Loan Servicing had failed to live up to its contracts on some of more than $47 billion worth of Countrywide-issued mortgage bonds. The group said Countrywide Servicing has 60 days to correct the alleged violations, such as failure to sell back ineligible loans to the lenders. According to people familiar with the matter, the group includes Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York.
Loss Estimates
For banks that have just started making money again after near-death experiences in 2008, mortgage losses could delay the return to good health. Chris Gamaitoni, an analyst for Compass Point Research & Trading, a Washington financial advisory firm, estimates losses for the big banks of $134 billion from having to buy back bad loans from private investors and another $27 billion in losses from buying back loans from Fannie Mae and Freddie Mac. Other estimates are lower--from $20 billion to $84 billion--in part because those analysts are less certain than Gamaitoni that investors will succeed in court.
Bank of America, the nation’s largest lender, has resorted to tough tactics in resisting repurchases of bad loans. Facing pressure from Freddie Mac, one of the two government-controlled mortgage-finance companies, to buy back money-losing home loans with problems like inflated appraisals, overstated borrower income, or inadequate documentation, Bank of America issued a blunt threat, according to two people with direct knowledge of the incident.
Never in Writing
If Freddie Mac didn’t back off its demands for the buybacks, Bank of America officials said, the bank would take more of the new, more profitable mortgages it is originating these days to rival Fannie Mae, these people said. Freddie and Fannie, known as GSEs for government-sponsored entities, need a steady supply of healthy new loans to climb out of their financial hole.
The claimed threat from Bank of America, which wasn’t put into writing, according to one of these people, was taken seriously enough that it has been discussed at several Freddie Mac board meetings, including in mid-October. Some officials have urged the Federal Housing Finance Agency -- the government conservator that has controlled Fannie and Freddie since they were bailed out in 2008 -- to confront Bank of America and prevent it from trying to play one against the other, which may be infuriating but is not illegal.
The Dilemma
“If the tactic worked, I’d be shocked and appalled,” said Thomas Lawler, a former portfolio manager at Fannie Mae and now an economic consultant. “The GSEs are supposed to be run now to minimize losses to the taxpayers. Freddie ought to ignore the threat.”
FHFA Acting Director Edward J. DeMarco declined to comment, as did officials of Freddie Mac. Bank of America, based in Charlotte, North Carolina, also declined to comment.
For policy makers, the dilemma is this: Enormous losses will cause problems wherever they end up. They could further harm Fannie and Freddie, which insure the vast majority of the nation’s mortgages and have already received almost $150 billion in taxpayer support. Or, if Fannie and Freddie succeed in pushing the burden back to the banks, the losses could cripple some of the major institutions that have just emerged from a government bailout.
Buyback Requests
Bank of America faces $12.9 billion in buyback requests, and mortgage insurers have asked for the documents on an additional $9.8 billion on which they may consider seeking repurchases, according to regulatory filings. Bank of America has put aside $4.4 billion for buybacks, and CEO Brian T. Moynihan says the costs will be manageable.
“The Treasury is very aware that they can’t push too hard on this because if you do push too hard it might put the companies in negative capital again,” says Paul J. Miller, an analyst at FRB Capital Markets in Arlington, Virginia. “There’s a lot of regulatory forbearance going on.”
Aside from ignoring banks’ bad debts, the federal government hasn’t done much to fix the crisis. Both houses of Congress easily passed a bill this year that would have undermined centuries of law by requiring every state to recognize MERS-type electronic records from other states. Only a pocket veto by President Barack Obama kept it from becoming law.
One option, opposed by Obama and most Republicans in Congress but favored by Senate Majority Leader Harry Reid and others, is a national moratorium on foreclosures. It would last until regulators assure themselves that lenders have straightened out their foreclosure procedures.
Proposals
Opponents say it would delay the recovery of the housing market by preventing qualified buyers from getting their hands on foreclosed homes. Supporters of the idea, such as Dean Baker, co-director of the Center for Economic and Policy Research in Washington, say there are plenty of already foreclosed homes available for sale and thus no urgent need to add to the supply.
Goodman, the Amherst Securities analyst, says banks need to reduce the principal that people owe on their homes so they have an incentive not to walk away. “Ignoring the fact that the borrower can and will default when it is his/her most economical solution is an expensive case of denial,” Goodman writes. If the home whose mortgage was reduced happens to regain value, 50 percent of the appreciation would be taxed, she says. Meanwhile, to discourage people from sitting tight in homes while foreclosure proceedings drag on, she would have the government tax the benefit of living in the home rent-free.
Speed Is Needed
CitiMortgage is testing an innovative alternative based on the legal procedure known as “deed in lieu of foreclosure.” The owner turns the deed over to the bank without a fight if the bank promises not to foreclose, lets the family stay in the house after the agreement for six months and gives relocation assistance.
In a New York Times blog post on Oct. 19, Harvard University economist Edward Glaeser suggested federal assistance to overwhelmed state and local courts, as well as $2,000 vouchers for legal assistance to low-income families that can’t afford to fight foreclosures. Bloomberg News columnist Kevin Hassett, who is director of economic policy studies at the American Enterprise Institute in Washington, wrote in his Oct. 18 column that the newly created Financial Stability Oversight Council should make the foreclosure mess its first big project, “take authority for solving it, and do so as swiftly as possible.”
Speed is essential. The longer it drags on, the more the foreclosure crisis corrodes Americans’ faith in their financial and legal systems. A pervasive sense of injustice is bad for the economy and democracy as well. Take Joe Lents. The Boca Raton homeowner hasn’t made a mortgage payment since 2002, but he perceives himself as a victim. “I want to expose these guys for what they’re doing,” Lents says. “It’s personal now.”
URL to original article: http://www.housingwire.com/2010/10/21/how-joseph-lents-dodged-foreclosure-for-eight-years-and-started-a-movement
In 2002, an accountant in Boca Raton, Florida, named Joseph Lents was accused of securities-law violations by the U.S. Securities and Exchange Commission. Lents, who was chief executive officer of a now-defunct voice- recognition software company, had sold shares in the public company without filing the proper forms. Facing a little over $100,000 in fines and fees, and with his assets frozen by the SEC, Lents stopped making payments on his $1.5 million mortgage.
The loan servicer, Washington Mutual Inc., tried to foreclose on his home in 2003 but was never able to produce Lents’s promissory note, so the state circuit court for Palm Beach County dismissed the case. Next, the buyer of the loan, DLJ Mortgage Capital, stepped in with another foreclosure proceeding. DLJ claimed to have lost the promissory note in interoffice mail. Lents was dubious.
“When you say you lose a $1.5 million negotiable instrument -- that doesn’t happen,” he said in an interview in Bloomberg Businessweek’s Oct. 25 issue.
DLJ claimed that its word was as good as paper. But at least in Palm Beach County, paper still rules. If his mortgage holder couldn’t prove it held his mortgage, it couldn’t foreclose.
Eight years after defaulting, Lents still hasn’t made a payment or been forced out of his house. DLJ, whose parent, Credit Suisse Group AG, declined to comment for this story, still hasn’t proved its ownership to the satisfaction of the court. Lents’s debt has grown to about $2.5 million, including unpaid taxes, interest and penalties.
The Lents Defense
As the stalemate grinds on, Lents has the comfort of knowing he’s no longer alone. When he began demanding to see the IOU, he says, “I was looked upon like I had leprosy. Now, I have probably 20 to 30 people a month come to me” asking for advice. Lents is irked when people accuse him of exploiting a loophole. “It’s not a loophole,” he says. “It’s the law.”
The Lents Defense, as it might be called, doesn’t work everywhere. Thousands of Floridians have lost their homes in lightning-fast “rocket dockets.” In 27 other states, judges don’t even review foreclosures, making it harder for homeowners to fight back. Now, allegations of carelessness and outright fraud in foreclosures have become so widespread that attorneys general in all 50 states are investigating. So are the feds.
Even if the documentation problems turn out to be manageable -- as Bank of America Corp. and others insist they will be -- the economy will still suffer long-term consequences from the loose underwriting that caused the subprime-housing bubble.
$1.1 Trillion
According to an Oct. 15 report by JPMorgan Chase & Co.’s securities unit, some $2 trillion of the $6 trillion in U.S. mortgages and home-equity loans that were securitized during the height of the bubble, from 2005 through 2007, are likely to go into default. The report says the housing bust will ultimately cause losses of $1.1 trillion on those bonds.
While banks and investors take their hits, millions of homeowners continue to be punished by unaffordable mortgage payments and underwater home values. Laurie Goodman, a mortgage analyst at Amherst Securities Group LP in New York, said in an Oct. 1 report that if government doesn’t step up its intervention, more than 11 million borrowers are in danger of losing their homes. That’s one in five people with a mortgage.
“Politically,” she wrote, “this cannot happen. The government will attempt successive modification plans until something works.”
Fight Over Losses
Wall Street’s unspoken strategy has been to kick mortgage losses down the road until an economic recovery reinflates the housing market. The faulty-foreclosure crisis has forced the issue back into the present tense, triggering a fight over who will bear the brunt of those losses. The list of combatants -- all of whom are trying to minimize their share of the damage -- is long: homeowners, lenders and mortgage brokers, loan servicers, underwriters of mortgage-backed securities and buyers of those securities, title insurers, ratings firms, and the federally controlled mortgage buyers Fannie Mae and Freddie Mac.
While JPMorgan predicts that bondholders will absorb most of the estimated $1.1 trillion loss, they may succeed in foisting about $55 billion on banks. If the bank losses turn out to be steeper than JPMorgan and most other analysts expect, taxpayers may be asked to inject more capital into the financial institutions. Fannie Mae and Freddie Mac, already wards of the state, might require more capital as well, the Federal Housing Finance Agency said in an Oct. 21 report.
Careless Lending, Recordkeeping
The past five years of rising foreclosures, to the highest rate since the Great Depression, have exposed the carelessness with which banks lent money. The banks figured they could always seize ownership and resell at a profit, assuming they hadn’t already dumped the loan on an unwary investor. And they wouldn’t let technicalities impede the process. The website 4closurefraud.com, which is operated by the Carol C. Asbury Save My Home Law Group, has links to documents from Nassau County, New York, in which someone entered “BOGUS” as the grantee for the mortgage, or the party entitled to foreclose.
During the housing boom, transactions were flowing so fast that banks couldn’t keep up with the paperwork. The mortgage industry depended on a digital overlay of its own invention, Mortgage Electronic Registration Systems, a database whose owners include Fannie Mae, Freddie Mac, Bank of America, Citigroup Inc.’s CitiMortgage, JPMorgan’s Chase Home Mortgage, Wells Fargo & Co. and title insurers. No matter who bought the loan, MERS was purported to be the mortgagee, or party that would foreclose if a borrower stopped paying.
Assault on the System
Of all newly issued U.S. mortgages, 60 percent list MERS -- a unit of Reston, Virginia-based MERSCorp that has no employees of its own -- as the mortgagee.
“It’s a total attack on the public system,” says Christopher L. Peterson, a law professor at the University of Utah in Salt Lake City who has consulted in cases against MERS.
As MERS sped up loan processing, it created a giant legal hairball. According to Peterson, state judges in Kansas, Arkansas and Maine have said that MERS has no standing in foreclosure proceedings under their states’ laws if they can’t produce the promissory note. In early October, a federal judge in Oregon blocked Bank of America as trustee from foreclosing on a home in the MERS system.
Karmela Lejarde, a MERS spokeswoman, says its standing has always been upheld, “either in the initial court proceeding or upon appeal.”
Judges also resent that would-be foreclosers show up in court representing themselves as vice presidents of MERS even though they work for various loan servicers. Fixing the paperwork won’t be easy because many of the notes have been lost or even deliberately shredded.
Documents Destroyed
The Florida Bankers Association told the state Supreme Court last year that in many cases “the physical document was deliberately eliminated to avoid confusion immediately upon its conversion to an electronic file.”
Beyond the losses to banks, investors and homeowners from the housing crisis, there is an incalculable psychic cost of a legal system that may well have let banks skirt the law.
“The whole financial system is becoming a lot less transparent,” says Hernando de Soto, a Peruvian economist who has written on the importance of well-defined property rights. “You can’t size up risk anymore.”
It’s a perfect October day on the Jacksonville, Florida, campus of Lender Processing Services Inc., and Greg Whitworth, a division president, is rallying a crowd of 200 employees inside a big white tent on the sun-drenched banks of the St. Johns River.
Year of the Megas
“We are killing our competition!” Whitworth says. The company is celebrating what it calls “the Year of the Megas” -- key customers Bank of America, Wells Fargo and JPMorgan Chase -- with a picnic of Mediterranean chicken salad, lemon cooler cookies and sweet tea.
LPS, as the company is known, is the biggest U.S. mortgage- and-foreclosure outsourcing firm. Last year its revenue from default services climbed to $1.1 billion. Its nearest rival, Santa Ana, California-based CoreLogic Inc., takes in less than half of that.
One gray patch hovers over the celebration: The back-office technology provider’s runaway success means it is tangled up in the foreclosure crisis.
“I was thinking about the dark clouds over the company,” Joe Nackashi, the chief information officer, tells the crowd. “Sure, we have made mistakes. But I don’t want to let that cloud this day.”
Plumbing Breaks
LPS supplies much of the digital plumbing for the convoluted home-finance system. At the start of 2010, it said its computer programs were handling 28 million loans with a total principal balance of more than $4.7 trillion -- or more than half the nation’s outstanding mortgage balances. With 8,900 employees and revenue of $2.4 billion, it sells software and manpower to most of the largest U.S. lenders and loan servicers.
“The banks were not prepared for this volume of foreclosures, and that has played to the company’s advantage as the outsourcer,” says Brett Horn, associate director of equity research at Chicago-based Morningstar Inc.
The industry uses LPS computer programs and sometimes LPS employees to code, store and transfer many mortgage records. When things work smoothly, mortgage servicers rely on LPS software to help monitor payments. When homeowners fall behind, LPS helps assemble the information needed to foreclose.
Assembly Line
As described in an in-house newsletter published in September 2006 by Fidelity National Foreclosure Solutions, a predecessor of LPS, a single 18-person “document execution” team brings Henry Ford’s mass-production techniques to the foreclosure business.
“The document execution team is set up like a production line, ensuring that each document request is resolved within 24 hours,” the newsletter said. “On average, the team will execute 1,000 documents per day.”
That was four years ago, when the foreclosure rate was a quarter what it is now. It was when some of those documents proved difficult to track down that trouble set in. If a foreclosure lawyer working on behalf of a bank or servicer asked LPS for an errant mortgage, some company workers may have gone to extremes to keep the foreclosure assembly line moving, according to prosecutors and plaintiffs’ lawyers. The Florida attorney general’s office has alleged that in some cases, corners may have been cut, signatures forged and documents backdated. Industry employees have said in sworn depositions that “robo-signers” executed paperwork without reviewing it.
Florida Investigation
The U.S. Attorney’s Office in Tampa and the state of Florida are investigating whether LPS and affiliated companies have fabricated documents and faked signatures. LPS employees “seem to be creating and manufacturing ‘bogus assignments’ of mortgage in order that foreclosures may go through more quickly and efficiently,” the Florida Attorney General’s Office says in an online description of its civil investigation. “We’re concerned that people might be put out of their houses unfairly and unjustly,” Bill McCollum, the attorney general, told Bloomberg Businessweek.
In a third investigation, the U.S. Trustee Program, the branch of the Justice Department that polices bankruptcies, is looking into whether LPS is “improperly directing legal action” to hasten foreclosures, according to a 2009 opinion issued by the bankruptcy court in Philadelphia. A Trustee spokeswoman declined to comment.
“The system is so organized that there is a company, Lender Processing Services, who allegedly has created the means to systemize fraud,” U.S. Representative Alan Grayson, a Florida Democrat, said Sept. 29, on the House.
Fee Splitting
Foreclosure-defense lawyers have filed suit against LPS in Mississippi and Kentucky, seeking class-action status and accusing the company of improperly splitting fees with pro- foreclosure lawyers. LPS fell 33 percent this year through yesterday in New York Stock Exchange composite trading. That compares with the 12 percent increase by the Standard & Poor’s 400 Midcap Index.
LPS executives acknowledge slip-ups, but nothing amounting to fraud. In a federal securities filing in February, the company said it had “identified a business process that caused an error in the notarization of certain documents, some of which were used in foreclosure proceedings.” LPS says it fixed the problem and closed the subsidiary in Georgia where it occurred.
As for the processing team described in the in-house newsletter, Michelle Kersch, an LPS spokeswoman, says the company decided such affidavit-execution services were “not an appropriate use of resources,” and ended them in September 2008. Still, LPS “signs a limited number of documents for clients,” including assignments of mortgage, she said.
Isolated Errors
“We are dealing with sensationalism versus facts,” Jeffrey S. Carbiener, the company’s chief executive officer, told analysts in an Oct. 6 conference call. “Isolated instances of errors” are bound to occur, but they “are now being brought out and pointed back to that robo-signing, making it sound like a large percentage of these transactions are invalid. That is just simply not the case.” He called the class-action suits “fishing expeditions.”
To keep the paperwork moving, LPS uses a variety of incentives. Top-performing workers receive monthly “Drive for Pride” awards that sometimes include $500 in company stock and a spot in an underground parking garage. LPS also devised a coding system to grade outside foreclosure attorneys based on their speed in completing tasks. Fast-acting attorneys receive green ratings; slower lawyers are labeled yellow or red and may receive fewer assignments.
Fidelity National
“Bill will move quickly and expect you to be there to pull your weight,” says Jerry Mallot, executive vice president of the Jacksonville Regional Chamber of Commerce. “I wouldn’t call the environment at his company kind and genteel.”
Bill is William P. Foley II, a 65-year-old West Point graduate, real estate lawyer and wealthy vintner. He made a fortune assembling the country’s largest title-insurance company, beginning with his purchase in 1984 of Fidelity National Title. By 2003, Fidelity National, then based in Santa Barbara, California, had $10 billion in annual revenue and 32 percent of the U.S. title-insurance market. Frustrated by the high cost of operating in California, Foley was convinced by Mallot and then-Florida Governor Jeb Bush, an occasional golfing companion, to relocate to Jacksonville. A spokeswoman said Foley, who left the LPS board last year, wasn’t available to comment.
Growing Dismay
Spun off in 2008, LPS is one of the city’s largest employers, with 2,400 local workers. Its headquarters is in a 12-story office building on palm-lined Riverside Avenue, part of a complex that also houses Fidelity National Financial, the original title insurer, and Fidelity National Information Services, a 2006 spinoff now called FIS.
Foley and his wife, Carol, split time between a home in Jacksonville’s Ponte Vedra Beach, a ranch in Whitefish, Montana, and California, where Foley owns seven wineries. His compensation last year from LPS and the Fidelity National companies was $45.9 million, according to company filings.
The growth of LPS and other foreclosure outsourcing has dismayed even some professionals deeply involved in the process. Judge Diane Weiss Sigmund of the U.S. Bankruptcy Court in Philadelphia last year published an unusual 58-page opinion scrutinizing LPS because, she said, she wished “to share my education” with others in the system “who may be similarly unfamiliar with the extent that a third-party intermediary drives the Chapter 13 process.”
‘Slavish Adherence’
Her opinion described an attempt by the multinational bank HSBC Holdings Plc to foreclose on the home of Niles and Angela Taylor, who had filed for bankruptcy protection from their creditors. Judge Sigmund ruled the bank’s outside attorneys mistakenly tried to take the Taylors’ home because of three disputed flood-insurance payments totaling $540. She blamed lawyer incompetence, exacerbated by a “slavish adherence” to an LPS computer system called NewTrak.
What bothered the judge, she wrote, was the way HSBC and its lawyers entrusted “the NewTrak system [with] the management of its defaulted loans in bankruptcy. ... With the HSBC data uploaded to an LPS system, LPS responds to the perceived needs of retained counsel. ... The retained counsel does not address the client directly.”
Overreliance on LPS contributed to six months of unnecessary hearings, the judge wrote. After she ordered the parties to settle the issue in person, they did so in just an hour. HSBC acknowledged that the property didn’t require flood insurance after all, and the truce cleared the way for resolution of the Taylors’ bankruptcy plan.
No Punishment
Judge Sigmund, who has since retired, scolded one of HSBC’s outside lawyers for being too “enmeshed in the assembly line” of managing foreclosures and ordered her to take extra ethics training. The judge instructed HSBC to remind all of its lawyers in writing not to defer excessively to computerized data systems. LPS, the judge added, didn’t deserve punishment because the outsourcer had merely provided tools that others misused.
McCollum, the Florida attorney general, suspects that in other cases LPS is more than an innocent facilitator. In April, he says a homeowner contacted his office, alleging that LPS paperwork had been “forged in some way.” His office opened a civil investigation. While McCollum, a Republican, would not provide specifics, subpoenas his office issued on Oct. 13 demand information on six employees of an LPS subsidiary called Docx.
Multiple Titles
The attorney general’s office is investigating whether the employees had the authority to execute mortgage documents for lenders and servicers. One employee, Linda Green, at various times identified herself as a vice president or representative of more than a dozen different banks and mortgage companies, according to the subpoena.
“Docx has produced numerous documents, called assignments of mortgage, that even to the untrained eye appear to be forged and/or fabricated as the signatures of the same individual vary wildly from document to document,” the attorney general’s office says on its website.
LPS disclosed in February that the Tampa U.S. Attorney’s Office is “reviewing the business processes” of the Docx unit. April Charney, a senior attorney with Jacksonville Area Legal Aid and an outspoken critic of LPS, says she was contacted by a federal prosecutor about the company earlier this year. The prosecutor informed her in April, she adds, that the Justice Department was seeking depositions from LPS and Docx employees.
LPS says it shut the Docx unit in April and is cooperating with investigators.
Good for Business
“We feel like we have taken all appropriate corrective actions,” Carbiener, the CEO, told analysts on Oct. 6. “We don’t feel like this is going to have or will have a material impact on our financial results.”
The foreclosure chaos could be good for business, he said. Dogged by foreclosure-defense attorneys and government investigations, lenders and servicers will have to retrace their steps.
“Those services that we provided initially we’ll provide again,” Carbiener said. “For those loans that are held in review, we have the opportunity to earn additional revenues.”
The big banks continue to insist that documentation problems are the legal equivalent of rounding errors.
On Oct. 18, Bank of America, which suspended foreclosures in all 50 states, played down that suspension and said it would resubmit foreclosure affidavits in 23 states after completing a speedy review of 102,000 files. Citigroup said its foreclosure process was “sound.”
‘Blip’
JPMorgan Chase Chief Executive Officer Jamie Dimon told investors on Oct. 13, “If you’re talking about three or four weeks, it will be a blip in the housing market.” He added, “If it went on for a long period of time, it will have a lot of consequences, most of which will be adverse on everybody.”
Ohio Attorney General Richard Cordray on Oct. 19 expressed deep skepticism that Bank of America had managed to complete its internal review in just 2 1/2 weeks, saying, “I would caution that they still have significant financial exposure in many, many cases.”
Even if the homeowners deserve to be foreclosed on, paperwork problems could stand in the way. Mark J. Grant, a managing director for structured finance at Dallas-based Southwest Securities, wrote on Oct. 18 that what may lie ahead is a “Whangdepootenawah,” a word from Ambrose Bierce’s Devil’s Dictionary meaning “disaster; an unexpected affliction that strikes hard.”
‘Retching in the Streets’
Grant wrote, “I doubt that you have followed the contagion down the path to the end because if you had, if anyone had ... there would be a lot more retching in the streets and on Wall Street’s trading desks.”
Even if the IOUs can be straightened out quickly, the fighting won’t stop. Quoting unnamed sources, the Washington Post reported on Oct. 19 that the Obama administration’s Financial Fraud Enforcement Task Force is investigating whether financial firms committed federal crimes in filing fraudulent court documents to seize people’s homes.
Meanwhile, a high-stakes fight is breaking out between the banks that made loans and the investors who bought them. A shot was fired on Oct. 18 when a group of major investors claimed that Bank of America’s Countrywide Home Loan Servicing had failed to live up to its contracts on some of more than $47 billion worth of Countrywide-issued mortgage bonds. The group said Countrywide Servicing has 60 days to correct the alleged violations, such as failure to sell back ineligible loans to the lenders. According to people familiar with the matter, the group includes Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York.
Loss Estimates
For banks that have just started making money again after near-death experiences in 2008, mortgage losses could delay the return to good health. Chris Gamaitoni, an analyst for Compass Point Research & Trading, a Washington financial advisory firm, estimates losses for the big banks of $134 billion from having to buy back bad loans from private investors and another $27 billion in losses from buying back loans from Fannie Mae and Freddie Mac. Other estimates are lower--from $20 billion to $84 billion--in part because those analysts are less certain than Gamaitoni that investors will succeed in court.
Bank of America, the nation’s largest lender, has resorted to tough tactics in resisting repurchases of bad loans. Facing pressure from Freddie Mac, one of the two government-controlled mortgage-finance companies, to buy back money-losing home loans with problems like inflated appraisals, overstated borrower income, or inadequate documentation, Bank of America issued a blunt threat, according to two people with direct knowledge of the incident.
Never in Writing
If Freddie Mac didn’t back off its demands for the buybacks, Bank of America officials said, the bank would take more of the new, more profitable mortgages it is originating these days to rival Fannie Mae, these people said. Freddie and Fannie, known as GSEs for government-sponsored entities, need a steady supply of healthy new loans to climb out of their financial hole.
The claimed threat from Bank of America, which wasn’t put into writing, according to one of these people, was taken seriously enough that it has been discussed at several Freddie Mac board meetings, including in mid-October. Some officials have urged the Federal Housing Finance Agency -- the government conservator that has controlled Fannie and Freddie since they were bailed out in 2008 -- to confront Bank of America and prevent it from trying to play one against the other, which may be infuriating but is not illegal.
The Dilemma
“If the tactic worked, I’d be shocked and appalled,” said Thomas Lawler, a former portfolio manager at Fannie Mae and now an economic consultant. “The GSEs are supposed to be run now to minimize losses to the taxpayers. Freddie ought to ignore the threat.”
FHFA Acting Director Edward J. DeMarco declined to comment, as did officials of Freddie Mac. Bank of America, based in Charlotte, North Carolina, also declined to comment.
For policy makers, the dilemma is this: Enormous losses will cause problems wherever they end up. They could further harm Fannie and Freddie, which insure the vast majority of the nation’s mortgages and have already received almost $150 billion in taxpayer support. Or, if Fannie and Freddie succeed in pushing the burden back to the banks, the losses could cripple some of the major institutions that have just emerged from a government bailout.
Buyback Requests
Bank of America faces $12.9 billion in buyback requests, and mortgage insurers have asked for the documents on an additional $9.8 billion on which they may consider seeking repurchases, according to regulatory filings. Bank of America has put aside $4.4 billion for buybacks, and CEO Brian T. Moynihan says the costs will be manageable.
“The Treasury is very aware that they can’t push too hard on this because if you do push too hard it might put the companies in negative capital again,” says Paul J. Miller, an analyst at FRB Capital Markets in Arlington, Virginia. “There’s a lot of regulatory forbearance going on.”
Aside from ignoring banks’ bad debts, the federal government hasn’t done much to fix the crisis. Both houses of Congress easily passed a bill this year that would have undermined centuries of law by requiring every state to recognize MERS-type electronic records from other states. Only a pocket veto by President Barack Obama kept it from becoming law.
One option, opposed by Obama and most Republicans in Congress but favored by Senate Majority Leader Harry Reid and others, is a national moratorium on foreclosures. It would last until regulators assure themselves that lenders have straightened out their foreclosure procedures.
Proposals
Opponents say it would delay the recovery of the housing market by preventing qualified buyers from getting their hands on foreclosed homes. Supporters of the idea, such as Dean Baker, co-director of the Center for Economic and Policy Research in Washington, say there are plenty of already foreclosed homes available for sale and thus no urgent need to add to the supply.
Goodman, the Amherst Securities analyst, says banks need to reduce the principal that people owe on their homes so they have an incentive not to walk away. “Ignoring the fact that the borrower can and will default when it is his/her most economical solution is an expensive case of denial,” Goodman writes. If the home whose mortgage was reduced happens to regain value, 50 percent of the appreciation would be taxed, she says. Meanwhile, to discourage people from sitting tight in homes while foreclosure proceedings drag on, she would have the government tax the benefit of living in the home rent-free.
Speed Is Needed
CitiMortgage is testing an innovative alternative based on the legal procedure known as “deed in lieu of foreclosure.” The owner turns the deed over to the bank without a fight if the bank promises not to foreclose, lets the family stay in the house after the agreement for six months and gives relocation assistance.
In a New York Times blog post on Oct. 19, Harvard University economist Edward Glaeser suggested federal assistance to overwhelmed state and local courts, as well as $2,000 vouchers for legal assistance to low-income families that can’t afford to fight foreclosures. Bloomberg News columnist Kevin Hassett, who is director of economic policy studies at the American Enterprise Institute in Washington, wrote in his Oct. 18 column that the newly created Financial Stability Oversight Council should make the foreclosure mess its first big project, “take authority for solving it, and do so as swiftly as possible.”
Speed is essential. The longer it drags on, the more the foreclosure crisis corrodes Americans’ faith in their financial and legal systems. A pervasive sense of injustice is bad for the economy and democracy as well. Take Joe Lents. The Boca Raton homeowner hasn’t made a mortgage payment since 2002, but he perceives himself as a victim. “I want to expose these guys for what they’re doing,” Lents says. “It’s personal now.”
URL to original article: http://www.housingwire.com/2010/10/21/how-joseph-lents-dodged-foreclosure-for-eight-years-and-started-a-movement
Thursday, October 21, 2010
Why government shouldn't block home foreclosures
Source: National Legal and Policy Center
If one word best summarizes the current housing market, "foreclosure" would be it. Despite record-low interest rates, American homeowners are losing their properties with greater frequency than at any time since the Great Depression. Yet banks and other financial institutions, until very recently on track to seize 1.2 million homes by the end of this year, are facing growing pressure to impose "voluntary" nationwide moratoria on foreclosure repossessions and sales. If they don't do the job themselves, say critics, government should do it. Several major lenders in fact have ceased property seizures in the wake of widespread revelations of foreclosures lacking proper documentation. The calls for action are understandable. Yet a moratorium, rather than restore integrity to our financial system, would further imperil it.
Few would deny that the foreclosure crisis is real and getting worse. Monthly data released last Thursday by the Irvine, Calif.-based RealtyTrac indicates that 102,134 bank repossessions of residential properties took place in September. This was the first time in which seizures exceeded 100,000, capping a Third Quarter that saw 288,345 repos. Overall foreclosure filings for the three-month period - repossessions, default notices and sale notices - were 930,437, up 4 percent from the Second Quarter. Put another way, 1 in 139 homeowners nationwide received a foreclosure filing notice during the Third Quarter; in Nevada, the national leader, the figure was 1 in 29. And this is in spite of a $75 billion federal initiative, Home Affordable Modification Program (HAMP), launched a year and a half ago by the Obama administration to prevent such an outcome.
Granted, this trend has natural limits. Barring a sharp rise in the unemployment rate - not out of the question - foreclosures eventually will drop to historic patterns. But this particular cycle presents a new challenge: Many foreclosed homes lack a marketable title. In other words, nobody knows for certain who owns them. It's a by-product of massive securitization, with now-collapsed secondary mortgage giants Fannie Mae and Freddie Mac serving as conduits between lenders and investors. Court documents in a number of states show that much of the paperwork transferring ownership of individual mortgages to investor-controlled financial pools has been lost, ignored or even forged. Of the nearly $11 trillion in outstanding mortgage debt in this country, about two-thirds has been transformed into tradable securities. Mortgage securitization is a global phenomenon. Yet even if the problem were fully contained within the U.S., it still could prove overwhelming if title issues aren't resolved. "If the basic principles of property law have been violated here...it may be extremely difficult to fix," remarked an anonymous source connected to financial industry regulation.
This logjam of broken chains of title could prove calamitous for the housing market because distressed properties now account for roughly one in four home sales. Huge numbers of potential bank-owned homes for sale could be thrown into limbo. Roughly 5 million homes in this country currently are in some stage of the foreclosure process. Fully 600,000 seized homes haven't been placed up for sale yet, notes RealtyTrac. Even a temporary foreclosure freeze would cut deeply into sales next spring, the prime home buying season. And lenders would stand to lose tens of billions, if not hundreds of billions of dollars, over the long run. Banks, already having seen their stock prices sink, are preparing for the worst. JPMorgan Chase announced last Wednesday that it had set aside $1.3 billion in reserves for litigation.
Because foreclosure is a legal as well as financial process, it is time-consuming, especially in states requiring a court order for a lender to take possession. The mortgage meltdown merely has added to substantial waiting times. Whereas the process nationwide took on average 302 days to complete in 2005, it now takes 478 days. In Florida, a state requiring a court order, the average current waiting time is 573 days. It's almost axiomatic that the longer the wait, the more troubled homeowners will have an incentive to give the lender the keys or remain in their dwelling without making payments. This is especially true if the home is "underwater" i.e.; the outstanding mortgage balance exceeds the market value. Deutsche Bank this August released data projecting that 20 million U.S. homeowners will be in this situation by the end of 2011, up from around 14 million. Steep declines in house prices are a good indicator of the concentration of underwater homes. In Florida and California, the two leading foreclosure states in volume, average home prices dropped by more than 50 percent during 2007-09. Very few recent buyers in such states can expect to come out ahead if they are looking to sell today.
Mortgage lenders/servicers, aware time is money, know that the faster they can take possession of distressed properties, the faster they can place them on the market. Overeager lenders, by various accounts, unfortunately have taken legal shortcuts, rubber-stamping documents (‘robo-signatures') without bothering to review them. In states requiring court action, such as Florida, foreclosure cases are known colloquially as the 'rocket docket.' Lenders' outsourced legal help have dispensed with cases in almost assembly-line fashion. The Plantation, Fla.-based law firm of David J. Stern, for example, assigned a team of employees to handle 12,000 foreclosures for Fannie Mae, Freddie Mac and Citigroup, receiving $1,300 per unchallenged action. The firm is now under investigation by Florida authorities for potential fraud. Tammy Lou Kapusta, the senior paralegal in charge of the operation, admitted in a September 22 deposition: "The girls would come out on the floor not knowing what they were doing. Mortgages would get placed in different files. They would get thrown out. There was no real organization when it came to the original documents." Some employees of various Florida mortgage processors have admitted in testimony that they did not know what a mortgage was, couldn't define "affidavit," and knew they were lying when they signed foreclosure-related documents.
Paperwork shoddiness has triggered a wave of litigation nationwide. Various individual and class-action homeowner suits are claiming that mortgage lenders and servicing firms have used phony documents to execute foreclosures. In December 2009, an employee of GMAC Mortgage (Ally Financial Inc.) stated in a deposition that his team signed about 10,000 documents a month without determining their accuracy. And a lawsuit filed in Louisville federal court on behalf of Kentucky homeowners alleges that the Mortgage Electronic Registration Systems (MERS), a Reston, Va.-based intra-bank mortgage transfer service, conspired to create false documentation.
The clouding of title to properties could clog the courts for years to come. "This is going to become a hydra," said Peter Henning, a professor at Wayne State Law School in Detroit. "You've got so many potential avenues of liability. You don't even know the parameters of this yet." Likewise, Richard Kessler, a Sarasota, Fla. attorney, states: "Defective documentation has created millions of blighted titles that will plague the nation for the next decade." Kessler conducted his own survey revealing errors committed in about three-fourths of all foreclosure-related court filings. Global securitization of mortgage finance has muddied the chain of title to possibly millions of American homes. The resultant lawsuits could involve countless homeowners, investors, title insurers, lenders and government agencies.
In the face of such a scenario, some lending institutions have backtracked. Bank of America early this month suspended tens of thousands of foreclosure sales in the 23 states requiring court approval. Ally Financial and JPMorgan Chase soon imposed foreclosure suspensions of their own in these states. On October 8, Bank of America extended its moratorium to all 50 states and the District of Columbia; Ally Financial, JPMorgan Chase and PNC Financial Services soon joined. But on Monday, October 18, Bank of America, servicer for about one in five U.S. home mortgages, reversed course, announcing it would resume foreclosures in the 23 states requiring judicial approval after finding no cases of proceedings brought forth in error. Company CEO Brian Moynihan earlier had tried to calm nerves: "We haven't found any foreclosure problems. What we're trying to do is clear the air and say we'll go back and check our work one more time."
He hasn't found much sympathy among government officials. Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif., each have called upon lenders to freeze foreclosure actions in all 50 states until they can sort things out. Rep. Edolphus Towns, D-N.Y., chairman of the House Committee on Oversight and Government Reform, has made a similar demand. Senate Banking Committee Chairman Christopher Dodd, D-Conn., has announced he will hold hearings starting on November 16. President Obama on October 7 vetoed a bill sponsored by Robert Aderholt, R-Ala., requiring local courts to accept notarized interstate foreclosure documents. Federal Housing Administration (FHA) Commissioner David Stevens has asked agency-approved mortgage servicers to conduct immediate audits of all foreclosure operations. Attorneys general from all 50 states, though stopping short of calling for a moratorium, have launched a joint investigation into document fraud. And the Federal Housing Finance Agency, chief regulator for the mortgage industry, while announcing foreclosures can continue, are calling upon lenders to fix the document morass immediately.
Several nonprofit organizations also are pressing for a moratorium. Representatives from the NAACP, the National Council of La Raza and other civil rights groups joined union spokesmen at an October 7 press conference to demand action. "If we don't take drastic measures now, we can expect millions of additional foreclosures in the coming years, with a disproportionate number of them involving Latino and African-American families," said Wade Henderson, president of the Leadership Conference on Civil and Human Rights. There is a certain irony in such words. It was aggressive pressure by organizations such as his that proved instrumental in persuading lenders to expand mortgage credit availability to minority borrowers who couldn't afford it.
There can be little doubt that millions of homeowners are in way over their heads or that many mortgage lenders, inundated by paperwork, have valued speed over accuracy during the foreclosure process. The calls for a moratorium are understandable. Defective title chains serve to depress the entire housing market. Buyers may well pull out of ongoing deals. "All the buyers are scared to buy," recently observed Fort Myers, Fla. real estate agent George Messeha. But a moratorium would create far more problems than it would solve. This approach should be avoided for several reasons.
First, a foreclosure ban effectively would sever legal obligations between borrower and lender, providing distressed borrowers with the equivalent of amnesty. Borrowers, realizing the lack of negative consequences, would have more reason than ever to avoid making payments. A moratorium thus would constitute a huge subsidy from the honest to the dishonest - and expand the ranks of the latter. Even if "temporary," such a move would diminish the sanctity of contracts. Pending business deals, housing-related or not, could be shelved. A moratorium would undermine the integrity of rule of law, without which markets cannot function.
Second, a moratorium will disrupt financial markets, maintaining the imbalance between supply and demand. As mortgages more than ever are packaged into marketable securities - that's what triggered the financial meltdown in the first place - there will be a capital flight from housing, making funds for purchase, construction and renovation more difficult to obtain. Institutional investors such as pension, insurance, equity and hedge funds may avoid the housing market altogether. Any number of them may demand compensation for losses. Some already have taken action. A group of institutional bond holders this Monday wrote a letter to Bank of New York Mellon Corp. and Bank of America, citing BoA's "failure to observe and perform, in material respects" its role as servicer for 115 separate bond transactions. The group holds a combined $16.5 billion of the $47 billion generated by these deals. And last Friday, JPMorgan Chase bond analysts estimated that future losses from loan repurchases (or "buybacks") failing to meet seller promises could reach anywhere from $55 billion to $120 billion. Preventing primary lenders from foreclosing will exacerbate this problem in the future because it would fail to address the fact that people would continue to live in homes they can't afford. These bonds are based on an assumption of repayment.
Third, a foreclosure ban would hasten the decline of neighborhoods wracked by foreclosure. Housing industry columnist Kenneth Harney recently explained: "(A)lthough you might not be delinquent on your mortgage, the bank-owned house down the street that hasn't gone to foreclosure sale - and for months - might not be resold for an extended period to new owners who would make needed repairs and capital improvements. If the house becomes a long-term eyesore, it could negatively affect neighborhood property values." Now foreclosures do adversely affect surrounding property values. Research by Dan Immergluck (Georgia Tech) and Geoff Smith (Woodstock Institute); Robert Cotterman (U.S. Department of Housing and Urban Development); and University of Texas at Dallas economists Tammy Leonard and James Murdoch has demonstrated as much. But taking no action would be a far worse alternative. Foreclosure is a formality. It is an effect as well as a cause of local decay. And large numbers of people moving in who can't afford even to pay off a mortgage, much maintain their properties up to housing code standards, is the catalyst for decay. Property value declines, while almost inevitable, at least can be contained where foreclosure is swift and certain.
Fourth, a ban would invite greater federal intrusion in the housing market -as if enough intrusion hasn't taken place already. For the first half of 2010, 89 percent of all new home mortgages were federally-guaranteed in some way, notes industry periodical Inside Mortgage Finance. That's up from 30 percent in 2006. Several months ago the Federal Reserve System completed a first-ever purchase of mortgage-backed securities - $1.25 trillion worth - to prop up house prices. Government displacement of the market may well be the unstated purpose of a foreclosure freeze. Advocates of such a strategy know that if properties can't be put back on the market, they are unlikely to generate mortgage payments, even if occupied. That gives lenders an extra incentive to dump this inventory onto public agencies, especially Fannie Mae and Freddie Mac, which were placed under federal conservatorship two years ago and have received at least $160 billion (so far) in taxpayer bailout funds. What do Fannie Mae and Freddie Mac have to lose by buying properties? If they lose money, they can be compensated, if not by the lenders, then by the government. They have been virtually the only companies willing to buy distressed mortgages from lenders during the current crisis.
The foreclosure meltdown is a product of excessive enthusiasm for promoting homeownership and securitizing high-risk mortgages. The underlying source of the crisis is the false idea that Americans have a right to become homeowners, even if lacking in creditworthiness. Get set for a replication of the crisis, too, once the provisions of the Dodd-Frank financial reform legislation fully kick in. The law's new Consumer Financial Protection Bureau, informally headed by Harvard law professor-turned-populist warrior Elizabeth Warren, is not likely to be impressed by mortgage industry pleading. And the law contains a host of affirmative action mandates for mortgage lending. Since blacks and Hispanics long have exhibited significantly higher rates of default and foreclosure than whites, civil rights groups will seize upon any racial disparities as a pretext to step up pressure on lenders, Congress and regulatory agencies to keep the money flowing to favored constituencies.
The federal government and the states by all means should investigate foreclosure fraud, recklessness and incompetence. There is ample evidence that mortgage lenders, deluged by paperwork, have been conducting foreclosures without due diligence. And if individual homeowners have been falsely evicted from their homes, they should have full recourse to sue. The real estate title industry, mired in practices dating back more than a century, could use some updating. But barring foreclosures would produce far more harm than good. It would remove millions of homes currently or potentially in foreclosure from market transactions, drive up market prices generally, and enable people who haven't made a mortgage payment in months, even years, to continue living as freeloaders. A mortgage, in the end, is a contract. Eliminating liability for upholding a contract is the antithesis of sound law and sound economics.
URL to original article: http://www.housingwire.com/2010/10/20/why-government-shouldnt-block-home-foreclosures
If one word best summarizes the current housing market, "foreclosure" would be it. Despite record-low interest rates, American homeowners are losing their properties with greater frequency than at any time since the Great Depression. Yet banks and other financial institutions, until very recently on track to seize 1.2 million homes by the end of this year, are facing growing pressure to impose "voluntary" nationwide moratoria on foreclosure repossessions and sales. If they don't do the job themselves, say critics, government should do it. Several major lenders in fact have ceased property seizures in the wake of widespread revelations of foreclosures lacking proper documentation. The calls for action are understandable. Yet a moratorium, rather than restore integrity to our financial system, would further imperil it.
Few would deny that the foreclosure crisis is real and getting worse. Monthly data released last Thursday by the Irvine, Calif.-based RealtyTrac indicates that 102,134 bank repossessions of residential properties took place in September. This was the first time in which seizures exceeded 100,000, capping a Third Quarter that saw 288,345 repos. Overall foreclosure filings for the three-month period - repossessions, default notices and sale notices - were 930,437, up 4 percent from the Second Quarter. Put another way, 1 in 139 homeowners nationwide received a foreclosure filing notice during the Third Quarter; in Nevada, the national leader, the figure was 1 in 29. And this is in spite of a $75 billion federal initiative, Home Affordable Modification Program (HAMP), launched a year and a half ago by the Obama administration to prevent such an outcome.
Granted, this trend has natural limits. Barring a sharp rise in the unemployment rate - not out of the question - foreclosures eventually will drop to historic patterns. But this particular cycle presents a new challenge: Many foreclosed homes lack a marketable title. In other words, nobody knows for certain who owns them. It's a by-product of massive securitization, with now-collapsed secondary mortgage giants Fannie Mae and Freddie Mac serving as conduits between lenders and investors. Court documents in a number of states show that much of the paperwork transferring ownership of individual mortgages to investor-controlled financial pools has been lost, ignored or even forged. Of the nearly $11 trillion in outstanding mortgage debt in this country, about two-thirds has been transformed into tradable securities. Mortgage securitization is a global phenomenon. Yet even if the problem were fully contained within the U.S., it still could prove overwhelming if title issues aren't resolved. "If the basic principles of property law have been violated here...it may be extremely difficult to fix," remarked an anonymous source connected to financial industry regulation.
This logjam of broken chains of title could prove calamitous for the housing market because distressed properties now account for roughly one in four home sales. Huge numbers of potential bank-owned homes for sale could be thrown into limbo. Roughly 5 million homes in this country currently are in some stage of the foreclosure process. Fully 600,000 seized homes haven't been placed up for sale yet, notes RealtyTrac. Even a temporary foreclosure freeze would cut deeply into sales next spring, the prime home buying season. And lenders would stand to lose tens of billions, if not hundreds of billions of dollars, over the long run. Banks, already having seen their stock prices sink, are preparing for the worst. JPMorgan Chase announced last Wednesday that it had set aside $1.3 billion in reserves for litigation.
Because foreclosure is a legal as well as financial process, it is time-consuming, especially in states requiring a court order for a lender to take possession. The mortgage meltdown merely has added to substantial waiting times. Whereas the process nationwide took on average 302 days to complete in 2005, it now takes 478 days. In Florida, a state requiring a court order, the average current waiting time is 573 days. It's almost axiomatic that the longer the wait, the more troubled homeowners will have an incentive to give the lender the keys or remain in their dwelling without making payments. This is especially true if the home is "underwater" i.e.; the outstanding mortgage balance exceeds the market value. Deutsche Bank this August released data projecting that 20 million U.S. homeowners will be in this situation by the end of 2011, up from around 14 million. Steep declines in house prices are a good indicator of the concentration of underwater homes. In Florida and California, the two leading foreclosure states in volume, average home prices dropped by more than 50 percent during 2007-09. Very few recent buyers in such states can expect to come out ahead if they are looking to sell today.
Mortgage lenders/servicers, aware time is money, know that the faster they can take possession of distressed properties, the faster they can place them on the market. Overeager lenders, by various accounts, unfortunately have taken legal shortcuts, rubber-stamping documents (‘robo-signatures') without bothering to review them. In states requiring court action, such as Florida, foreclosure cases are known colloquially as the 'rocket docket.' Lenders' outsourced legal help have dispensed with cases in almost assembly-line fashion. The Plantation, Fla.-based law firm of David J. Stern, for example, assigned a team of employees to handle 12,000 foreclosures for Fannie Mae, Freddie Mac and Citigroup, receiving $1,300 per unchallenged action. The firm is now under investigation by Florida authorities for potential fraud. Tammy Lou Kapusta, the senior paralegal in charge of the operation, admitted in a September 22 deposition: "The girls would come out on the floor not knowing what they were doing. Mortgages would get placed in different files. They would get thrown out. There was no real organization when it came to the original documents." Some employees of various Florida mortgage processors have admitted in testimony that they did not know what a mortgage was, couldn't define "affidavit," and knew they were lying when they signed foreclosure-related documents.
Paperwork shoddiness has triggered a wave of litigation nationwide. Various individual and class-action homeowner suits are claiming that mortgage lenders and servicing firms have used phony documents to execute foreclosures. In December 2009, an employee of GMAC Mortgage (Ally Financial Inc.) stated in a deposition that his team signed about 10,000 documents a month without determining their accuracy. And a lawsuit filed in Louisville federal court on behalf of Kentucky homeowners alleges that the Mortgage Electronic Registration Systems (MERS), a Reston, Va.-based intra-bank mortgage transfer service, conspired to create false documentation.
The clouding of title to properties could clog the courts for years to come. "This is going to become a hydra," said Peter Henning, a professor at Wayne State Law School in Detroit. "You've got so many potential avenues of liability. You don't even know the parameters of this yet." Likewise, Richard Kessler, a Sarasota, Fla. attorney, states: "Defective documentation has created millions of blighted titles that will plague the nation for the next decade." Kessler conducted his own survey revealing errors committed in about three-fourths of all foreclosure-related court filings. Global securitization of mortgage finance has muddied the chain of title to possibly millions of American homes. The resultant lawsuits could involve countless homeowners, investors, title insurers, lenders and government agencies.
In the face of such a scenario, some lending institutions have backtracked. Bank of America early this month suspended tens of thousands of foreclosure sales in the 23 states requiring court approval. Ally Financial and JPMorgan Chase soon imposed foreclosure suspensions of their own in these states. On October 8, Bank of America extended its moratorium to all 50 states and the District of Columbia; Ally Financial, JPMorgan Chase and PNC Financial Services soon joined. But on Monday, October 18, Bank of America, servicer for about one in five U.S. home mortgages, reversed course, announcing it would resume foreclosures in the 23 states requiring judicial approval after finding no cases of proceedings brought forth in error. Company CEO Brian Moynihan earlier had tried to calm nerves: "We haven't found any foreclosure problems. What we're trying to do is clear the air and say we'll go back and check our work one more time."
He hasn't found much sympathy among government officials. Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif., each have called upon lenders to freeze foreclosure actions in all 50 states until they can sort things out. Rep. Edolphus Towns, D-N.Y., chairman of the House Committee on Oversight and Government Reform, has made a similar demand. Senate Banking Committee Chairman Christopher Dodd, D-Conn., has announced he will hold hearings starting on November 16. President Obama on October 7 vetoed a bill sponsored by Robert Aderholt, R-Ala., requiring local courts to accept notarized interstate foreclosure documents. Federal Housing Administration (FHA) Commissioner David Stevens has asked agency-approved mortgage servicers to conduct immediate audits of all foreclosure operations. Attorneys general from all 50 states, though stopping short of calling for a moratorium, have launched a joint investigation into document fraud. And the Federal Housing Finance Agency, chief regulator for the mortgage industry, while announcing foreclosures can continue, are calling upon lenders to fix the document morass immediately.
Several nonprofit organizations also are pressing for a moratorium. Representatives from the NAACP, the National Council of La Raza and other civil rights groups joined union spokesmen at an October 7 press conference to demand action. "If we don't take drastic measures now, we can expect millions of additional foreclosures in the coming years, with a disproportionate number of them involving Latino and African-American families," said Wade Henderson, president of the Leadership Conference on Civil and Human Rights. There is a certain irony in such words. It was aggressive pressure by organizations such as his that proved instrumental in persuading lenders to expand mortgage credit availability to minority borrowers who couldn't afford it.
There can be little doubt that millions of homeowners are in way over their heads or that many mortgage lenders, inundated by paperwork, have valued speed over accuracy during the foreclosure process. The calls for a moratorium are understandable. Defective title chains serve to depress the entire housing market. Buyers may well pull out of ongoing deals. "All the buyers are scared to buy," recently observed Fort Myers, Fla. real estate agent George Messeha. But a moratorium would create far more problems than it would solve. This approach should be avoided for several reasons.
First, a foreclosure ban effectively would sever legal obligations between borrower and lender, providing distressed borrowers with the equivalent of amnesty. Borrowers, realizing the lack of negative consequences, would have more reason than ever to avoid making payments. A moratorium thus would constitute a huge subsidy from the honest to the dishonest - and expand the ranks of the latter. Even if "temporary," such a move would diminish the sanctity of contracts. Pending business deals, housing-related or not, could be shelved. A moratorium would undermine the integrity of rule of law, without which markets cannot function.
Second, a moratorium will disrupt financial markets, maintaining the imbalance between supply and demand. As mortgages more than ever are packaged into marketable securities - that's what triggered the financial meltdown in the first place - there will be a capital flight from housing, making funds for purchase, construction and renovation more difficult to obtain. Institutional investors such as pension, insurance, equity and hedge funds may avoid the housing market altogether. Any number of them may demand compensation for losses. Some already have taken action. A group of institutional bond holders this Monday wrote a letter to Bank of New York Mellon Corp. and Bank of America, citing BoA's "failure to observe and perform, in material respects" its role as servicer for 115 separate bond transactions. The group holds a combined $16.5 billion of the $47 billion generated by these deals. And last Friday, JPMorgan Chase bond analysts estimated that future losses from loan repurchases (or "buybacks") failing to meet seller promises could reach anywhere from $55 billion to $120 billion. Preventing primary lenders from foreclosing will exacerbate this problem in the future because it would fail to address the fact that people would continue to live in homes they can't afford. These bonds are based on an assumption of repayment.
Third, a foreclosure ban would hasten the decline of neighborhoods wracked by foreclosure. Housing industry columnist Kenneth Harney recently explained: "(A)lthough you might not be delinquent on your mortgage, the bank-owned house down the street that hasn't gone to foreclosure sale - and for months - might not be resold for an extended period to new owners who would make needed repairs and capital improvements. If the house becomes a long-term eyesore, it could negatively affect neighborhood property values." Now foreclosures do adversely affect surrounding property values. Research by Dan Immergluck (Georgia Tech) and Geoff Smith (Woodstock Institute); Robert Cotterman (U.S. Department of Housing and Urban Development); and University of Texas at Dallas economists Tammy Leonard and James Murdoch has demonstrated as much. But taking no action would be a far worse alternative. Foreclosure is a formality. It is an effect as well as a cause of local decay. And large numbers of people moving in who can't afford even to pay off a mortgage, much maintain their properties up to housing code standards, is the catalyst for decay. Property value declines, while almost inevitable, at least can be contained where foreclosure is swift and certain.
Fourth, a ban would invite greater federal intrusion in the housing market -as if enough intrusion hasn't taken place already. For the first half of 2010, 89 percent of all new home mortgages were federally-guaranteed in some way, notes industry periodical Inside Mortgage Finance. That's up from 30 percent in 2006. Several months ago the Federal Reserve System completed a first-ever purchase of mortgage-backed securities - $1.25 trillion worth - to prop up house prices. Government displacement of the market may well be the unstated purpose of a foreclosure freeze. Advocates of such a strategy know that if properties can't be put back on the market, they are unlikely to generate mortgage payments, even if occupied. That gives lenders an extra incentive to dump this inventory onto public agencies, especially Fannie Mae and Freddie Mac, which were placed under federal conservatorship two years ago and have received at least $160 billion (so far) in taxpayer bailout funds. What do Fannie Mae and Freddie Mac have to lose by buying properties? If they lose money, they can be compensated, if not by the lenders, then by the government. They have been virtually the only companies willing to buy distressed mortgages from lenders during the current crisis.
The foreclosure meltdown is a product of excessive enthusiasm for promoting homeownership and securitizing high-risk mortgages. The underlying source of the crisis is the false idea that Americans have a right to become homeowners, even if lacking in creditworthiness. Get set for a replication of the crisis, too, once the provisions of the Dodd-Frank financial reform legislation fully kick in. The law's new Consumer Financial Protection Bureau, informally headed by Harvard law professor-turned-populist warrior Elizabeth Warren, is not likely to be impressed by mortgage industry pleading. And the law contains a host of affirmative action mandates for mortgage lending. Since blacks and Hispanics long have exhibited significantly higher rates of default and foreclosure than whites, civil rights groups will seize upon any racial disparities as a pretext to step up pressure on lenders, Congress and regulatory agencies to keep the money flowing to favored constituencies.
The federal government and the states by all means should investigate foreclosure fraud, recklessness and incompetence. There is ample evidence that mortgage lenders, deluged by paperwork, have been conducting foreclosures without due diligence. And if individual homeowners have been falsely evicted from their homes, they should have full recourse to sue. The real estate title industry, mired in practices dating back more than a century, could use some updating. But barring foreclosures would produce far more harm than good. It would remove millions of homes currently or potentially in foreclosure from market transactions, drive up market prices generally, and enable people who haven't made a mortgage payment in months, even years, to continue living as freeloaders. A mortgage, in the end, is a contract. Eliminating liability for upholding a contract is the antithesis of sound law and sound economics.
URL to original article: http://www.housingwire.com/2010/10/20/why-government-shouldnt-block-home-foreclosures
Real estate brokers' pessimism in housing market reaches new low
by KERRY CURRY
Real estate brokers and agents are feeling negative about the outlook for the housing market, according to an index that measures current, short-term and long-term sentiment.
The U.S. Real Estate Confidence Index dropped by 8.42% in September over August to 4.42 on a scale of 1-10 with 1 being the worst and 10 the best. When compared to September 2009, sentiment plunged by 23.5%.
The seasonally adjusted index is at its lowest level since Vancouver-based Point2 began to track brokers' future expectations.
Point 2 began tracking U.S. agents' future expectations for the real estate market in June 2009. The RECI’s only three-month drop to date was recorded between December 2009 and February 2010.
Sentiment over current market conditions dropped to 3.94 on the scale, down 9.43% over last month and 22% over the same period a year ago.
The short-term outlook (three to six months), hit a new low, settling at 4.2, down nearly 10% over last month and 26% compared to September 2009.
The long-term outlook (six to 12 months) dropped for the third consecutive month and recorded a new low of 5.24.
The average of all three variables makes up the overall RECI score for the month.
Point2 said 1,139 brokers and agents completed the September survey.
URL to original article: http://www.housingwire.com/2010/10/20/real-estate-brokers-pessimism-in-housing-market-reaches-new-low
Real estate brokers and agents are feeling negative about the outlook for the housing market, according to an index that measures current, short-term and long-term sentiment.
The U.S. Real Estate Confidence Index dropped by 8.42% in September over August to 4.42 on a scale of 1-10 with 1 being the worst and 10 the best. When compared to September 2009, sentiment plunged by 23.5%.
The seasonally adjusted index is at its lowest level since Vancouver-based Point2 began to track brokers' future expectations.
Point 2 began tracking U.S. agents' future expectations for the real estate market in June 2009. The RECI’s only three-month drop to date was recorded between December 2009 and February 2010.
Sentiment over current market conditions dropped to 3.94 on the scale, down 9.43% over last month and 22% over the same period a year ago.
The short-term outlook (three to six months), hit a new low, settling at 4.2, down nearly 10% over last month and 26% compared to September 2009.
The long-term outlook (six to 12 months) dropped for the third consecutive month and recorded a new low of 5.24.
The average of all three variables makes up the overall RECI score for the month.
Point2 said 1,139 brokers and agents completed the September survey.
URL to original article: http://www.housingwire.com/2010/10/20/real-estate-brokers-pessimism-in-housing-market-reaches-new-low
Wednesday, October 20, 2010
RBS estimates 'foreclosure-gate' will cost big four banks $42.3 billion
by JACOB GAFFNEY
The Royal Bank of Scotland(RBS: 14.66 +0.14%) is estimating how much the recent robo-signing allegations and knock-on effect will have on the operations of the big four banks: Bank of America (BAC: 11.82 +0.17%), Citibank (C: 4.1114 +1.27%), JPMorgan Chase (JPM: 38.1734 +1.28%) and Wells Fargo (WFC: 25.785 +5.03%).
While several other sources put the estimations higher, RBS thinks these numbers are overestimated. Barclays(BCS: 18.4808 +2.39%) said earlier that the monetary damage due to reps and warranties alone could cost upward of $85 billion.
RBS puts its total cost estimation at $42.3 billion. That includes up to $4.3 billion in settlement fees with the state attorneys general offices, repurchases of $25 billion and claims for reps and warranty breaches at $25 billion.
"Outside of a discovery process, there is no systematic way of estimating how many loan file exceptions exist," states the securitized product strategy commentary released Tuesday.
"However, based on our understanding of industry practices in 2005 – 2007, we would guess that perhaps 1% – 3% of loan files may be materially and adversely incomplete as a result of original documents that were never conveyed to the custodian."
URL to original article: http://www.housingwire.com/2010/10/19/rbs-estimates-foreclosure-gate-will-cost-big-four-banks-42-3-billion
The Royal Bank of Scotland(RBS: 14.66 +0.14%) is estimating how much the recent robo-signing allegations and knock-on effect will have on the operations of the big four banks: Bank of America (BAC: 11.82 +0.17%), Citibank (C: 4.1114 +1.27%), JPMorgan Chase (JPM: 38.1734 +1.28%) and Wells Fargo (WFC: 25.785 +5.03%).
While several other sources put the estimations higher, RBS thinks these numbers are overestimated. Barclays(BCS: 18.4808 +2.39%) said earlier that the monetary damage due to reps and warranties alone could cost upward of $85 billion.
RBS puts its total cost estimation at $42.3 billion. That includes up to $4.3 billion in settlement fees with the state attorneys general offices, repurchases of $25 billion and claims for reps and warranty breaches at $25 billion.
"Outside of a discovery process, there is no systematic way of estimating how many loan file exceptions exist," states the securitized product strategy commentary released Tuesday.
"However, based on our understanding of industry practices in 2005 – 2007, we would guess that perhaps 1% – 3% of loan files may be materially and adversely incomplete as a result of original documents that were never conveyed to the custodian."
URL to original article: http://www.housingwire.com/2010/10/19/rbs-estimates-foreclosure-gate-will-cost-big-four-banks-42-3-billion
Jobless claims rise 2.8%; most analysts expected a decline
by JASON PHILYAW
Initial jobless claims rose 2.8% last week to 462,000, coming in well above most analysts' estimates.
The Labor Department said the seasonally adjusted figure of initial claims for the week ended Oct. 9 increased by 13,000 from the previous week's revised figure of 449,000.
Analysts surveyed by Econoday were projecting claims to drop by a few thousand to 443,000 with a range of estimates between 425,000 and 455,000. A Briefing.com survey put the number of jobless claims at 450,000, and economists polled by MarketWatch expected 444,000.
The four-week moving average rose for a the first time in almost two months to 459,000 claims from a revised average of 456,750, according to the Labor Department data.
The seasonally adjusted insured unemployment rate was once again 3.5%, down slightly from a revised 3.6%.
URL to original article: http://www.housingwire.com/2010/10/14/jobless-claims-rise-2-8-most-analysts-expected-a-decline
Initial jobless claims rose 2.8% last week to 462,000, coming in well above most analysts' estimates.
The Labor Department said the seasonally adjusted figure of initial claims for the week ended Oct. 9 increased by 13,000 from the previous week's revised figure of 449,000.
Analysts surveyed by Econoday were projecting claims to drop by a few thousand to 443,000 with a range of estimates between 425,000 and 455,000. A Briefing.com survey put the number of jobless claims at 450,000, and economists polled by MarketWatch expected 444,000.
The four-week moving average rose for a the first time in almost two months to 459,000 claims from a revised average of 456,750, according to the Labor Department data.
The seasonally adjusted insured unemployment rate was once again 3.5%, down slightly from a revised 3.6%.
URL to original article: http://www.housingwire.com/2010/10/14/jobless-claims-rise-2-8-most-analysts-expected-a-decline
Tuesday, October 19, 2010
REOs reach record high in 3Q: RealtyTrac
by JON PRIOR
[Update: Corrects earlier version to reflect that the record was in the REO category and not in total foreclosure filings]
REOs reached a record high in September and the third quarter as lenders continue to work through the shadow inventory of distressed properties, according to RealtyTrac, which monitors the filings across the country.
Lenders took back 288,345 properties, a 7% increase from the previous quarter and up 22% from last year.
For the month of September, total foreclosures increased 3% from August to 347,420 properties. Banks repossessed 102,134 properties in September, the first time REO reached triple digits for a single month.
Foreclosures were filed on 930,437 properties in the third quarter, a 1% dip from last year but a 4% increase from the previous quarter. In the third quarter, one in 139 homes received a foreclosure filing, which includes default notices, scheduled auctions and bank repossessions (REO).
But as lenders work through the supply of serious delinquent loans, fewer are defaulting. RealtyTrac reported 269,647 default notices in the third quarter, down 22% from the peak in the third quarter of 2009.
“Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months,” said James Saccacio, CEO of RealtyTrac.
But Saccacio expects REO numbers to drop in the fourth quarter as several lenders work through recent foreclosure problems. Bank of America (BAC: 12.29 -0.41%), JPMorgan Chase (JPM: 38.33 +0.34%) and Ally Financial (GJM: 22.17 +0.50%) each suspended foreclosures in 23 states, where, according to RealtyTrac, 40% of all foreclosure activity takes place.
"If the lenders can resolve the documentation issue quickly, then we would expect the temporary lull in foreclosure activity to be followed by a parallel spike in activity as many of the delayed foreclosures move forward in the foreclosure process,” Saccacio said.
But if lenders aren't able to solve the problem quickly, the shadow inventory of distressed properties will grow, causing more pain to home prices.
For nearly four years, Nevada has posted the nation's highest foreclosure rate. In the third quarter, one in 29 homes received a foreclosure filing, a 1% increase from the previous quarter but down 20% from a year ago.
Arizona was second for the fifth straight quarter, with one in every 55 houses receiving a filing. Florida was third with one in 56 and California was fourth at one in 70 houses.
In terms of volume, California accounted for nearly 21% of the nation's foreclosure activity at 191,016 properties even though filings there are down 24% from last year.
URL to original article: http://www.housingwire.com/2010/10/13/foreclosures-reach-record-high-in-3q-realtytrac
[Update: Corrects earlier version to reflect that the record was in the REO category and not in total foreclosure filings]
REOs reached a record high in September and the third quarter as lenders continue to work through the shadow inventory of distressed properties, according to RealtyTrac, which monitors the filings across the country.
Lenders took back 288,345 properties, a 7% increase from the previous quarter and up 22% from last year.
For the month of September, total foreclosures increased 3% from August to 347,420 properties. Banks repossessed 102,134 properties in September, the first time REO reached triple digits for a single month.
Foreclosures were filed on 930,437 properties in the third quarter, a 1% dip from last year but a 4% increase from the previous quarter. In the third quarter, one in 139 homes received a foreclosure filing, which includes default notices, scheduled auctions and bank repossessions (REO).
But as lenders work through the supply of serious delinquent loans, fewer are defaulting. RealtyTrac reported 269,647 default notices in the third quarter, down 22% from the peak in the third quarter of 2009.
“Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months,” said James Saccacio, CEO of RealtyTrac.
But Saccacio expects REO numbers to drop in the fourth quarter as several lenders work through recent foreclosure problems. Bank of America (BAC: 12.29 -0.41%), JPMorgan Chase (JPM: 38.33 +0.34%) and Ally Financial (GJM: 22.17 +0.50%) each suspended foreclosures in 23 states, where, according to RealtyTrac, 40% of all foreclosure activity takes place.
"If the lenders can resolve the documentation issue quickly, then we would expect the temporary lull in foreclosure activity to be followed by a parallel spike in activity as many of the delayed foreclosures move forward in the foreclosure process,” Saccacio said.
But if lenders aren't able to solve the problem quickly, the shadow inventory of distressed properties will grow, causing more pain to home prices.
For nearly four years, Nevada has posted the nation's highest foreclosure rate. In the third quarter, one in 29 homes received a foreclosure filing, a 1% increase from the previous quarter but down 20% from a year ago.
Arizona was second for the fifth straight quarter, with one in every 55 houses receiving a filing. Florida was third with one in 56 and California was fourth at one in 70 houses.
In terms of volume, California accounted for nearly 21% of the nation's foreclosure activity at 191,016 properties even though filings there are down 24% from last year.
URL to original article: http://www.housingwire.com/2010/10/13/foreclosures-reach-record-high-in-3q-realtytrac
Friday, October 15, 2010
Mortgage Q&A: Even no-cost closing has costs
Source: Washington Times
One of the most important aspects of a refinance is making sure the borrower understands why he may need to write a check at the settlement table.
I get this question all the time: "If there are no closing costs with the refinance, why would I need a check at settlement?"
Let's use my zero-closing-cost refinance program as an example.
The answer is easy. Whether a borrower pays closing costs has nothing to do with whether he will have to write a check at settlement. Owing money at settlement is a function of the loan amount for which the borrower was approved.
Let's say I refinance a borrower whose existing balance is exactly $300,000. I lower his interest rate from 5.25 percent to 4.75 percent, and he pays no closing costs. One might think that if I make his new loan amount exactly $300,000, he would neither owe nor receive money at settlement because the new loan would be equal to the balance of the old loan. Unfortunately, it's not quite that simple.
Even though there are no closing costs, two items still need to be paid at settlement. One is interim interest, which is collected by both the old lender and the new lender. The amount each lender collects depends upon the size of the loan and on what day of the month settlement occurs, but the total interim interest shouldn't exceed much more than 30 or 35 days' worth.
Let's say I schedule my borrower for his $300,000 refinance to settle on Oct. 10. He comes to the table and sees the payoff amount to his old lender isn't $300,000, but $300,604.
My borrower objects because he confirmed a week earlier that the principal balance was, indeed, $300,000. The settlement agent explains that mortgage payments are made in arrears, rather than in advance. This means each mortgage payment covers the interest for the previous month.
When my borrower made his Oct. 1 payment, it covered interest due from Sept. 1 through Sept. 30. Because the refinance settlement date is Oct. 10 and the federally mandated rescission period extends the funding day to Oct. 14, the old lender is adding 14 days of interest to the balance.
Similarly, the new lender will charge about 17 days of interest at settlement. This is called "prepaid interest," and it covers the period from the settlement date to the end of the month.
So the sum of the old lender's accrued interest and the new lender's prepaid interest amounts to the mortgage payment that would be due Nov. 1. Because October's interest is paid at settlement, my borrower doesn't owe a payment on Nov. 1.
This is where the myth originates that a homeowner "skips a mortgage payment" when he refinances. That's nonsense. It's true that a payment isn't owed on the first day of the next month after a refinance, but it's not "skipped." It was either paid at settlement or added to the new loan amount.
The other cash item a borrower needs to be aware of is the escrow deposit. Almost all lenders require paying the real estate taxes and homeowner's insurance through an escrow account. The borrower pays into the escrow account each month as part of the mortgage payment - hence the term PITI, or principal, interest, taxes and insurance.
The new lender will collect several months' taxes and insurance to open the escrow account. This amount will be enough to ensure that the amount collected, plus future PITI payments, will be enough to pay the next tax and insurance bills. When the old lender is paid off, it must close any escrow account and return any monies to the borrower.
Here's what my client wishing to refinance his $300,000 mortgage can expect if he instructs me to make the new loan amount $300,000:
He will owe about $1,500 in interim interest, which covers the month of October. His first mortgage payment won't be due until Dec. 1.
He will owe several months' real estate taxes and homeowners insurance, which could total $3,000 or $4,000. If the old lender escrowed properly, a similar amount should be refunded about three weeks after settlement.
A good loan officer will explain this procedure carefully at the time of application to ensure there are no surprises.
URL to original article: http://www.housingwire.com/2010/10/01/mortgage-qa-even-no-cost-closing-has-costs
One of the most important aspects of a refinance is making sure the borrower understands why he may need to write a check at the settlement table.
I get this question all the time: "If there are no closing costs with the refinance, why would I need a check at settlement?"
Let's use my zero-closing-cost refinance program as an example.
The answer is easy. Whether a borrower pays closing costs has nothing to do with whether he will have to write a check at settlement. Owing money at settlement is a function of the loan amount for which the borrower was approved.
Let's say I refinance a borrower whose existing balance is exactly $300,000. I lower his interest rate from 5.25 percent to 4.75 percent, and he pays no closing costs. One might think that if I make his new loan amount exactly $300,000, he would neither owe nor receive money at settlement because the new loan would be equal to the balance of the old loan. Unfortunately, it's not quite that simple.
Even though there are no closing costs, two items still need to be paid at settlement. One is interim interest, which is collected by both the old lender and the new lender. The amount each lender collects depends upon the size of the loan and on what day of the month settlement occurs, but the total interim interest shouldn't exceed much more than 30 or 35 days' worth.
Let's say I schedule my borrower for his $300,000 refinance to settle on Oct. 10. He comes to the table and sees the payoff amount to his old lender isn't $300,000, but $300,604.
My borrower objects because he confirmed a week earlier that the principal balance was, indeed, $300,000. The settlement agent explains that mortgage payments are made in arrears, rather than in advance. This means each mortgage payment covers the interest for the previous month.
When my borrower made his Oct. 1 payment, it covered interest due from Sept. 1 through Sept. 30. Because the refinance settlement date is Oct. 10 and the federally mandated rescission period extends the funding day to Oct. 14, the old lender is adding 14 days of interest to the balance.
Similarly, the new lender will charge about 17 days of interest at settlement. This is called "prepaid interest," and it covers the period from the settlement date to the end of the month.
So the sum of the old lender's accrued interest and the new lender's prepaid interest amounts to the mortgage payment that would be due Nov. 1. Because October's interest is paid at settlement, my borrower doesn't owe a payment on Nov. 1.
This is where the myth originates that a homeowner "skips a mortgage payment" when he refinances. That's nonsense. It's true that a payment isn't owed on the first day of the next month after a refinance, but it's not "skipped." It was either paid at settlement or added to the new loan amount.
The other cash item a borrower needs to be aware of is the escrow deposit. Almost all lenders require paying the real estate taxes and homeowner's insurance through an escrow account. The borrower pays into the escrow account each month as part of the mortgage payment - hence the term PITI, or principal, interest, taxes and insurance.
The new lender will collect several months' taxes and insurance to open the escrow account. This amount will be enough to ensure that the amount collected, plus future PITI payments, will be enough to pay the next tax and insurance bills. When the old lender is paid off, it must close any escrow account and return any monies to the borrower.
Here's what my client wishing to refinance his $300,000 mortgage can expect if he instructs me to make the new loan amount $300,000:
He will owe about $1,500 in interim interest, which covers the month of October. His first mortgage payment won't be due until Dec. 1.
He will owe several months' real estate taxes and homeowners insurance, which could total $3,000 or $4,000. If the old lender escrowed properly, a similar amount should be refunded about three weeks after settlement.
A good loan officer will explain this procedure carefully at the time of application to ensure there are no surprises.
URL to original article: http://www.housingwire.com/2010/10/01/mortgage-qa-even-no-cost-closing-has-costs
Thursday, October 14, 2010
New home, no money down
Source: The Boston Globe
Jean Marie Sideris doubted she could buy a home near her job in Cambridge, because most lenders now insist on a hefty down payment for even a modest mortgage, and she did not have that much cash. But that was before Sideris, 33, found out about a state-sponsored program that requires only $1,000 toward closing costs.
Tweet 1 person Tweeted thisSubmit to DiggdiggsdiggYahoo! Buzz ShareThis In August, she became the owner of a $213,000, one-bedroom condominium, financed through MassHousing, the state’s affordable-housing bank.
“It made available places I wouldn’t have been able to buy,’’ Sideris said.
Home loans with little or no money down are viewed with skepticism these days, given that they were widely considered to have accelerated the nation’s foreclosure crisis by encouraging people to buy properties they could not afford long term. Most lenders have shied away from offering such mortgages in recent years. But a few government programs, such as the one sponsored by MassHousing, still exist.
“There is a path for low- and no-down-payment lending if you do it the right way,’’ said Thomas R. Gleason, executive director of MassHousing.
Gleason said 100 percent-financed mortgages serve qualified borrowers who don’t have tens of thousands of dollars to invest in a house, and provide a boost to the struggling housing market. The quasi-state agency, which is independently funded, began the program, Affordable Advantage, in July.
No-money-down borrowing represents a tiny fraction of the total number of mortgage loans in the state and country.
Under Affordable Advantage, borrowers must have a high credit score and minimal monthly debts, and agree to counseling on such matters as how they will manage monthly payments. So far, about 100 30-year, fixed-rate loans have been approved.
The program came under fire last month after critics said no-money-down borrowing could further damage the economy. It is made possible through an agreement with Fannie Mae, the troubled mortgage giant the federal government took over two years ago.
A top official at the Federal Housing Finance Agency, which oversees Fannie Mae, said recently that he plans to cancel the program after a contract between Fannie Mae and finance agencies — including MassHousing — expires in March. The loan product is available in three other states in addition to Massachusetts.
“I believe borrowers should have a down payment if they’re going to purchase a house,’’ said Edward DeMarco, acting director of the federal agency.
US Representative Barney Frank, a Newton Democrat and chairman of the House Financial Services Committee, agreed.
“I think a zero down payment is a mistake,’’ Frank said. “Homeownership is a good thing, but we make a mistake when we push the envelope too far. You don’t do people a favor.’’
Gleason said he would not fight a federal decision to cancel the program. Even without it, however, a small number of buyers may still qualify for similarly structured loans through programs sponsored by the federal government.
MassHousing decided to offer Affordable Advantage last summer after tweaking requirements to improve its success rate from a similar program started in 2002. The agency has provided 1,606 low- and no-down-payment loans over the past eight years, about 7 percent of its portfolio of home loans. The default rate during the second quarter of 2010 was 9.46 percent, about twice that of all the mortgages it services but well below the 13.3 default rate for loans guaranteed by the Federal Housing Administration, MassHousing reported.
Tweet 1 person Tweeted thisYahoo! Buzz ShareThis This summer, MassHousing tightened eligibility guidelines, requiring borrowers to have a credit score of a least 720 and to show a lower debt-to-income ratio. Affordable Advantage also includes income and price limits. For example, borrowers in Suffolk and Middlesex counties, including Boston, Cambridge, and Newton, can earn no more than $118,935 and can’t buy a single-family home that costs more than $417,000.
Such loan programs are not new. The US Department of Veterans Affairs, for instance, has been providing low- and no-down-payment loans to its members since 1944. More than 325,000 borrowers — about 2,000 in Massachusetts — took advantage of those terms last year, nearly double the number in 2008, according to the federal agency.
The agency’s mortgages help veterans buy and remain in their homes, said Bill White, acting assistant director for loan policy and valuation at the veterans department. Nationwide, about 7.8 percent of veterans defaulted on their loans during the second quarter of 2010, well below the default rate for loans guaranteed by the FHA, according to data provided by the Mortgage Bankers Association in Washington, D.C.
“We know our program works. We never relaxed credit guidelines,’’ White said. “I don’t see anything that would suggest dramatic changes are needed.’’
The Department of Agriculture-Rural Development has offered a no-down-payment loan option for more than 50 years. About 127,000 borrowers nationwide bought homes with the help of the USDA in fiscal 2009, according to federal officials. To qualify, borrowers must earn no more than 115 percent of the median income and live in remote areas.
The default rate has also been relatively low — about 12.2 percent in fiscal 2009, said Tammye Trevino, administrator of the Rural Housing Service, which is part of the Department of Agriculture.
“We see it as a way to provide decent, safe, and sanitary housing in rural areas where many times the access to capital is missing,’’ Trevino said.
Rachael Laurie, 28, and Heath Renaud, 38, financed a $220,000 home in Russell this month with a USDA-sponsored loan. The couple, who recently adopted three young children — two brothers and a sister — moved from an apartment in the same small town west of Springfield.
Laurie said they would not have been able to save enough money for a large down payment, but can easily afford monthly mortgage payments. Renaud works as a plant manager at a label company and earns about $50,000 a year. Laurie stays home with their children, including another child and three stepchildren who visit occasionally.
“We are so lucky this program is there for people like us,’’ she said.
URL to original article: http://www.housingwire.com/2010/10/11/new-home-no-money-down
Jean Marie Sideris doubted she could buy a home near her job in Cambridge, because most lenders now insist on a hefty down payment for even a modest mortgage, and she did not have that much cash. But that was before Sideris, 33, found out about a state-sponsored program that requires only $1,000 toward closing costs.
Tweet 1 person Tweeted thisSubmit to DiggdiggsdiggYahoo! Buzz ShareThis In August, she became the owner of a $213,000, one-bedroom condominium, financed through MassHousing, the state’s affordable-housing bank.
“It made available places I wouldn’t have been able to buy,’’ Sideris said.
Home loans with little or no money down are viewed with skepticism these days, given that they were widely considered to have accelerated the nation’s foreclosure crisis by encouraging people to buy properties they could not afford long term. Most lenders have shied away from offering such mortgages in recent years. But a few government programs, such as the one sponsored by MassHousing, still exist.
“There is a path for low- and no-down-payment lending if you do it the right way,’’ said Thomas R. Gleason, executive director of MassHousing.
Gleason said 100 percent-financed mortgages serve qualified borrowers who don’t have tens of thousands of dollars to invest in a house, and provide a boost to the struggling housing market. The quasi-state agency, which is independently funded, began the program, Affordable Advantage, in July.
No-money-down borrowing represents a tiny fraction of the total number of mortgage loans in the state and country.
Under Affordable Advantage, borrowers must have a high credit score and minimal monthly debts, and agree to counseling on such matters as how they will manage monthly payments. So far, about 100 30-year, fixed-rate loans have been approved.
The program came under fire last month after critics said no-money-down borrowing could further damage the economy. It is made possible through an agreement with Fannie Mae, the troubled mortgage giant the federal government took over two years ago.
A top official at the Federal Housing Finance Agency, which oversees Fannie Mae, said recently that he plans to cancel the program after a contract between Fannie Mae and finance agencies — including MassHousing — expires in March. The loan product is available in three other states in addition to Massachusetts.
“I believe borrowers should have a down payment if they’re going to purchase a house,’’ said Edward DeMarco, acting director of the federal agency.
US Representative Barney Frank, a Newton Democrat and chairman of the House Financial Services Committee, agreed.
“I think a zero down payment is a mistake,’’ Frank said. “Homeownership is a good thing, but we make a mistake when we push the envelope too far. You don’t do people a favor.’’
Gleason said he would not fight a federal decision to cancel the program. Even without it, however, a small number of buyers may still qualify for similarly structured loans through programs sponsored by the federal government.
MassHousing decided to offer Affordable Advantage last summer after tweaking requirements to improve its success rate from a similar program started in 2002. The agency has provided 1,606 low- and no-down-payment loans over the past eight years, about 7 percent of its portfolio of home loans. The default rate during the second quarter of 2010 was 9.46 percent, about twice that of all the mortgages it services but well below the 13.3 default rate for loans guaranteed by the Federal Housing Administration, MassHousing reported.
Tweet 1 person Tweeted thisYahoo! Buzz ShareThis This summer, MassHousing tightened eligibility guidelines, requiring borrowers to have a credit score of a least 720 and to show a lower debt-to-income ratio. Affordable Advantage also includes income and price limits. For example, borrowers in Suffolk and Middlesex counties, including Boston, Cambridge, and Newton, can earn no more than $118,935 and can’t buy a single-family home that costs more than $417,000.
Such loan programs are not new. The US Department of Veterans Affairs, for instance, has been providing low- and no-down-payment loans to its members since 1944. More than 325,000 borrowers — about 2,000 in Massachusetts — took advantage of those terms last year, nearly double the number in 2008, according to the federal agency.
The agency’s mortgages help veterans buy and remain in their homes, said Bill White, acting assistant director for loan policy and valuation at the veterans department. Nationwide, about 7.8 percent of veterans defaulted on their loans during the second quarter of 2010, well below the default rate for loans guaranteed by the FHA, according to data provided by the Mortgage Bankers Association in Washington, D.C.
“We know our program works. We never relaxed credit guidelines,’’ White said. “I don’t see anything that would suggest dramatic changes are needed.’’
The Department of Agriculture-Rural Development has offered a no-down-payment loan option for more than 50 years. About 127,000 borrowers nationwide bought homes with the help of the USDA in fiscal 2009, according to federal officials. To qualify, borrowers must earn no more than 115 percent of the median income and live in remote areas.
The default rate has also been relatively low — about 12.2 percent in fiscal 2009, said Tammye Trevino, administrator of the Rural Housing Service, which is part of the Department of Agriculture.
“We see it as a way to provide decent, safe, and sanitary housing in rural areas where many times the access to capital is missing,’’ Trevino said.
Rachael Laurie, 28, and Heath Renaud, 38, financed a $220,000 home in Russell this month with a USDA-sponsored loan. The couple, who recently adopted three young children — two brothers and a sister — moved from an apartment in the same small town west of Springfield.
Laurie said they would not have been able to save enough money for a large down payment, but can easily afford monthly mortgage payments. Renaud works as a plant manager at a label company and earns about $50,000 a year. Laurie stays home with their children, including another child and three stepchildren who visit occasionally.
“We are so lucky this program is there for people like us,’’ she said.
URL to original article: http://www.housingwire.com/2010/10/11/new-home-no-money-down
Wednesday, October 13, 2010
Foreclosure mess exposes the rot from within
by PAUL JACKSON
Believe it or not, mortgage servicing is a noble industry. Or, at least, it’s supposed to be. Even in managing borrower defaults and repossessing property, there is something noble to the work, underneath it all — and it comes from following the law, enforcing contracts, ensuring that our nation’s system of property rights maintains its integrity for all Americans.
In many ways, for me, being involved in the machinery of servicing loans when I first started my career was sort of like being a financial cop; and it seemed to serve the same useful societal functions, too. There was purpose to the work that gave what we did meaning.
Call it youthful idealism. That idealism is now dead for me, for many reasons, including getting older and gaining a more realistic perspective on the industry I've been a part of.
I've come to realize that foreclosures aren’t just a cleansing mechanism, but a test of our nation’s real property laws. And as of late, we’ve been failing that test on a scale previously unimaginable by nearly anyone.
Anger and unease
Last week, I wrote about how our nation’s sacred system of protecting real property rights was being used as a weapon against us. How this came to pass, however, is an entirely different story.
Have you seen the anger and indignation of the American people? Just watch Jon Stewart and The Daily Show. Talk to a waitress while getting your next lunch. Speak with your hairstylist the next time you get a haircut. Most borrowers don’t expect to live in their homes for free: but they do expect the rule of law to be followed.
Most Americans, at their core, understand very well and in a very guttural sense that the rule of law exists to maintain order in our society.
And most who understand this can’t help but be offended as the news has continued to unfold regarding document missteps in the foreclosure process at some very large banks. One or two mistakes here or there are one thing. But enough mistakes to cause a major bank to halt foreclosures nationally? And other banks to halt foreclosures in a wide range of states? That’s another thing entirely.
I know many I speak to in the mortgage industry are extremely uneasy at the news that’s now been coming out, and I’d like to think that’s because they know this time is different — even if what’s allegedly been done doesn’t change the fact that a borrower has defaulted on their loan, and doesn’t change the fact that the bank is entitled to take back its secured interest in real property. Even if the borrower hasn't legally been damaged by any of it.
The rot from within
For years, mortgage servicing as an industry has been rotting from within, slowly but surely. Much of the industry has long confused rampant cost-cutting with process improvement, and has always been about moving as fast as possible — believing that moving faster was always the best approach to limiting investor losses. In an earlier column, I discussed the persona of “Chainsaw Al” and his cut-costs-at-all-costs mentality. That’s the mentality that has ruled this industry for decades now.
It’s this same mentality that has spawned massive, interconnected computer systems that manage attorneys and others based almost entirely on how quickly they can respond and perform certain “steps” — not that the computer systems themselves are the problem, of course. They merely reflect the reality of an industry that long ago threw due process out the rear window in the name of ‘process efficiency.’
I’ve seen first hand the sort of nonsense that passes as ‘efficiency’ in mortgage servicing, since I spent years working as part of the industry. I’ve seen bank clients demand that a law firm I once worked for proceed with an eviction prior to the expiration of a given notice period; and I’ve seen line staff at banks threaten attorneys with removing cases should the law firm fail to do their bidding, even if that bidding directly contravened existing laws. (And this was in 2004; I can't imagine what it's like now.) Beyond witnessing it myself, I’ve heard stories over the years from numerous attorneys that practice in the field about the nonsense their clients would demand of them.
The insults on top of injury here are as numerous as they are now part of the servicing industry’s very fabric. Attorneys that manage foreclosures often aren’t usually even referred to as legal counsel anymore, insofar as many banking personnel are concerned. The law firms have been flat-fee'd into “vendor” status, instead, no different than whatever vendor is delivering office supplies. And these attorneys are often also subjected to the indignation of having to go through vendor management departments just even to be able to begin working for a given bank.
Show me one other industry where this is how legal work gets done.
As a result, attorneys in mortgage servicing now compete on the degree to which they rank on the various computer systems used in the industry — almost all of which measure speed as the most critical (if not the only) variable. Too many “exceptions” holding up your foreclosure work? Not only is a law firm going to expend inordinate resources explaining the “exceptions” to a bank employee that may or may not understand the legal prudence behind a given delay, but that law firm’s grade will suffer. As will, in turn, their ability to earn future work.
The result is that the concept of risk — the core of any truly good lawyering, in any field of law — has largely become a lost art in an industry that should have been concerned most of all with managing it. The industry charged with protecting the sanctity of our nation’s property rights has instead allowed them to rot in the name of ‘process efficiency.’
Blame at the feet of the GSEs?
How did this happen? How did we find ourselves in a world where protecting property rights became secondary to worshiping at the altar of speed-at-all-costs?
Most attorneys that I speak to — at least, those with enough tenure to remember how the industry evolved — point to the GSEs as being largely responsible for creating this mess. (Which is supremely ironic, given that most consumers also blame the GSEs for their predicament in a more general sense.)
While it’s true that Fannie Mae and Freddie Mac both publish allowable foreclosure timelines, I’m not sure that’s really the root of the problem. Timelines are by their very nature central to the foreclosure process, since foreclosure law by its very nature largely establishes the shortest possible time frame for foreclosures to proceed. The GSEs’ allowable time guidelines merely reflect the state-level laws, and help ensure that a servicer doesn’t spend too much time trying to find a work-out at the expense of the investor. It’s supposed to be an art as much as a science.
But when banks decided to take the GSE guidelines as literal gospel, requiring that the law firms manage every case exactly to the published timelines or else, things began to change. Non-attorneys placed in management roles at banks and elsewhere were trained only on the importance of timelines, rather than the virtues of legal risk management. Many were thrown into servicing operations with marching orders to ‘manage process’ without really knowing what, exactly, they were supposed to be managing. So everything became about the timeline. And I mean everything.
There’s an old adage that says when all you have is a hammer, everything starts to resemble a nail. It applies in spades here.
Layer on top of this a surge in foreclosures so large that it has quite literally overwhelmed attorneys and servicers alike. With a series of bank managers that have now been trained to only understand timelines, and a glut of foreclosures now stuck in the system, law firms — ahem, make that vendors — found themselves having to answer to angry bank managers that wanted to know why so many of their files were stuck in “exceptions” and not hitting the timelines that the bank’s computer systems said they were supposed to.
But the result of these industry forces now seem apparent: in an effort to appease clients, and push speed at all costs, it appears some law firms cut corners in order to get from point A to point B as fast as they could. However they could do it. (I have to think this isn't every firm in the industry, as there are very good firms that take their legal work very seriously, too.)
None of that matters, however, in the end. As a reminder, from the Fourteenth Amendment to the U.S. Constitition (italics are mine):
“No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”
Some part of the default industry have clearly allowed their charge to protect this vital Constitutional right — to ensure that no person is deprived of property without due process of law — to literally rot on the proverbial vine. I don't claim to know which part.
That this rot is being exposed right now, however, just as our nation’s property rights are truly being tested by a real estate collapse of historic proportions, is a threat to those same rights. The only question left is how we choose to respond. To those lawyers and servicers in the industry who have worked so hard to protect the sanctity of the due process of law, often for so little thanks in return: you're needed now, more than ever before.
URL to original article: http://www.housingwire.com/2010/10/11/foreclosure-mess-exposes-the-rot-from-within
Believe it or not, mortgage servicing is a noble industry. Or, at least, it’s supposed to be. Even in managing borrower defaults and repossessing property, there is something noble to the work, underneath it all — and it comes from following the law, enforcing contracts, ensuring that our nation’s system of property rights maintains its integrity for all Americans.
In many ways, for me, being involved in the machinery of servicing loans when I first started my career was sort of like being a financial cop; and it seemed to serve the same useful societal functions, too. There was purpose to the work that gave what we did meaning.
Call it youthful idealism. That idealism is now dead for me, for many reasons, including getting older and gaining a more realistic perspective on the industry I've been a part of.
I've come to realize that foreclosures aren’t just a cleansing mechanism, but a test of our nation’s real property laws. And as of late, we’ve been failing that test on a scale previously unimaginable by nearly anyone.
Anger and unease
Last week, I wrote about how our nation’s sacred system of protecting real property rights was being used as a weapon against us. How this came to pass, however, is an entirely different story.
Have you seen the anger and indignation of the American people? Just watch Jon Stewart and The Daily Show. Talk to a waitress while getting your next lunch. Speak with your hairstylist the next time you get a haircut. Most borrowers don’t expect to live in their homes for free: but they do expect the rule of law to be followed.
Most Americans, at their core, understand very well and in a very guttural sense that the rule of law exists to maintain order in our society.
And most who understand this can’t help but be offended as the news has continued to unfold regarding document missteps in the foreclosure process at some very large banks. One or two mistakes here or there are one thing. But enough mistakes to cause a major bank to halt foreclosures nationally? And other banks to halt foreclosures in a wide range of states? That’s another thing entirely.
I know many I speak to in the mortgage industry are extremely uneasy at the news that’s now been coming out, and I’d like to think that’s because they know this time is different — even if what’s allegedly been done doesn’t change the fact that a borrower has defaulted on their loan, and doesn’t change the fact that the bank is entitled to take back its secured interest in real property. Even if the borrower hasn't legally been damaged by any of it.
The rot from within
For years, mortgage servicing as an industry has been rotting from within, slowly but surely. Much of the industry has long confused rampant cost-cutting with process improvement, and has always been about moving as fast as possible — believing that moving faster was always the best approach to limiting investor losses. In an earlier column, I discussed the persona of “Chainsaw Al” and his cut-costs-at-all-costs mentality. That’s the mentality that has ruled this industry for decades now.
It’s this same mentality that has spawned massive, interconnected computer systems that manage attorneys and others based almost entirely on how quickly they can respond and perform certain “steps” — not that the computer systems themselves are the problem, of course. They merely reflect the reality of an industry that long ago threw due process out the rear window in the name of ‘process efficiency.’
I’ve seen first hand the sort of nonsense that passes as ‘efficiency’ in mortgage servicing, since I spent years working as part of the industry. I’ve seen bank clients demand that a law firm I once worked for proceed with an eviction prior to the expiration of a given notice period; and I’ve seen line staff at banks threaten attorneys with removing cases should the law firm fail to do their bidding, even if that bidding directly contravened existing laws. (And this was in 2004; I can't imagine what it's like now.) Beyond witnessing it myself, I’ve heard stories over the years from numerous attorneys that practice in the field about the nonsense their clients would demand of them.
The insults on top of injury here are as numerous as they are now part of the servicing industry’s very fabric. Attorneys that manage foreclosures often aren’t usually even referred to as legal counsel anymore, insofar as many banking personnel are concerned. The law firms have been flat-fee'd into “vendor” status, instead, no different than whatever vendor is delivering office supplies. And these attorneys are often also subjected to the indignation of having to go through vendor management departments just even to be able to begin working for a given bank.
Show me one other industry where this is how legal work gets done.
As a result, attorneys in mortgage servicing now compete on the degree to which they rank on the various computer systems used in the industry — almost all of which measure speed as the most critical (if not the only) variable. Too many “exceptions” holding up your foreclosure work? Not only is a law firm going to expend inordinate resources explaining the “exceptions” to a bank employee that may or may not understand the legal prudence behind a given delay, but that law firm’s grade will suffer. As will, in turn, their ability to earn future work.
The result is that the concept of risk — the core of any truly good lawyering, in any field of law — has largely become a lost art in an industry that should have been concerned most of all with managing it. The industry charged with protecting the sanctity of our nation’s property rights has instead allowed them to rot in the name of ‘process efficiency.’
Blame at the feet of the GSEs?
How did this happen? How did we find ourselves in a world where protecting property rights became secondary to worshiping at the altar of speed-at-all-costs?
Most attorneys that I speak to — at least, those with enough tenure to remember how the industry evolved — point to the GSEs as being largely responsible for creating this mess. (Which is supremely ironic, given that most consumers also blame the GSEs for their predicament in a more general sense.)
While it’s true that Fannie Mae and Freddie Mac both publish allowable foreclosure timelines, I’m not sure that’s really the root of the problem. Timelines are by their very nature central to the foreclosure process, since foreclosure law by its very nature largely establishes the shortest possible time frame for foreclosures to proceed. The GSEs’ allowable time guidelines merely reflect the state-level laws, and help ensure that a servicer doesn’t spend too much time trying to find a work-out at the expense of the investor. It’s supposed to be an art as much as a science.
But when banks decided to take the GSE guidelines as literal gospel, requiring that the law firms manage every case exactly to the published timelines or else, things began to change. Non-attorneys placed in management roles at banks and elsewhere were trained only on the importance of timelines, rather than the virtues of legal risk management. Many were thrown into servicing operations with marching orders to ‘manage process’ without really knowing what, exactly, they were supposed to be managing. So everything became about the timeline. And I mean everything.
There’s an old adage that says when all you have is a hammer, everything starts to resemble a nail. It applies in spades here.
Layer on top of this a surge in foreclosures so large that it has quite literally overwhelmed attorneys and servicers alike. With a series of bank managers that have now been trained to only understand timelines, and a glut of foreclosures now stuck in the system, law firms — ahem, make that vendors — found themselves having to answer to angry bank managers that wanted to know why so many of their files were stuck in “exceptions” and not hitting the timelines that the bank’s computer systems said they were supposed to.
But the result of these industry forces now seem apparent: in an effort to appease clients, and push speed at all costs, it appears some law firms cut corners in order to get from point A to point B as fast as they could. However they could do it. (I have to think this isn't every firm in the industry, as there are very good firms that take their legal work very seriously, too.)
None of that matters, however, in the end. As a reminder, from the Fourteenth Amendment to the U.S. Constitition (italics are mine):
“No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”
Some part of the default industry have clearly allowed their charge to protect this vital Constitutional right — to ensure that no person is deprived of property without due process of law — to literally rot on the proverbial vine. I don't claim to know which part.
That this rot is being exposed right now, however, just as our nation’s property rights are truly being tested by a real estate collapse of historic proportions, is a threat to those same rights. The only question left is how we choose to respond. To those lawyers and servicers in the industry who have worked so hard to protect the sanctity of the due process of law, often for so little thanks in return: you're needed now, more than ever before.
URL to original article: http://www.housingwire.com/2010/10/11/foreclosure-mess-exposes-the-rot-from-within
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