Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.
But private banks own $50.4 billion worth of REO properties, too, according to the Federal Deposit Insurance Corp., and millions of these homes are sitting vacant.
Sturzenegger described how their idea would work.
"We and Fannie Mae are looking at programs where you can capture somebody before the REO process and offer a deed-for-lease. We would go to the customer and say, 'We'll do a short sale. Will you be interested in leasing your property back? We're still going to sell the property. You will no longer be the owner. But you can be a tenant now in that same property and save you from moving on,'" he said.
Under a new federal foreclosure review program, major servicers must hire independent consultants to search for foreclosure errors and provide financial compensation if the reviewers find damages.
Fourteen mortgage servicers have been tasked with hiring reviewers to look over the foreclosures they processed in 2009 and 2010, after an audit by the Office of the Comptroller of the Currency found widespread evidence of shoddy home repossessions.
Lenders are insisting on higher credit scores and more documents than required by the Federal Housing Administration and government-backed Fannie Mae and Freddie Mac. Quicken Loans Inc. and Vision Mortgage Capital are among firms saying they are increasing scrutiny of would-be borrowers in response to pressure to cover losses incurred on U.S.-backed housing debt.
You’ve got to take measures now to protect yourself,” John B. Johnson, chief executive officer of Birmingham, Alabama- based MortgageAmerica Inc., said during a panel discussion this month. Demands that lenders repurchase bad mortgages from Fannie Mae and Freddie Mac are “casting a pall over the market. I fear that it will face a much longer recovery because of this.
Lenders’ contracts with Fannie Mae and Freddie Mac allow them to force buybacks of mortgages if the loan originators fail to properly vet debt, such as by accepting inflated borrower incomes or appraisals. Flawed paperwork can lead to pressure from Fannie Mae and Freddie Mac even on performing mortgages.
Pressure from the GSEs has “definitely stanched the flow of credit to the mortgage market, but we had clearly gone too far,” said Richard Eckert, an analyst in San Francisco at securities firm B. Riley & Co. who wrote research on subprime lenders during the housing boom and then joined a hedge fund betting against property loans during the collapse. “We’ve got to return to some kind of happy balance.”
Read it allBank of America Corp. (BAC) has scaled back mortgage lending as CEO Brian T. Moynihan prepares for new capital requirements and grapples with demands that it compensate investors including Fannie Mae and Freddie for losses.
Bank of America Corp. (BAC) should face fraud proceedings after its Countrywide unit submitted faulty data to back up claims for reimbursement on federally insured mortgages, according to an audit by a U.S. watchdog.
Half of 14 loans reviewed had “material underwriting deficiencies” concerning borrowers that resulted in more than $720,000 in losses, according to a Sept. 30 report from the Department of Housing and Urban Development’s inspector general. Kelly Anderson, a HUD regional inspector general, recommended the agency pursue legal remedies against Charlotte, North Carolina-based Bank of America, the biggest U.S. lender.
“Countrywide did not properly verify, analyze, or support borrowers’ employment and income, source of funds to close, liabilities and credit information,” Kelly wrote in the audit. “This noncompliance occurred because Countrywide’s underwriters did not exercise due diligence in underwriting the loans.”
In one instance, Countrywide said a borrower earned $6,192 a month when pay stubs reflected income of $4,377. In other cases, Countrywide failed to properly review bad loans to ensure they met HUD’s guidelines before submitting claims, the department said.
In a 35-page response to HUD dated July 19, Bank of America Senior Vice President Linda Jacopetti acknowledged that “oversights may have occurred in some instances” and said the unit didn’t intentionally disregard FHA guidelines. There were “isolated occurrences in a handful of cases among thousands of FHA loans originated” in that time, she said.
Lemar Wooley at HUD and Michael Zerega of the inspector general office declined to comment on the report.
Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it.
In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71.
It turned out that at a foreclosure sale, his former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest.
The result was a foreclosure hangover that homeowners rarely anticipate but increasingly face: a "deficiency judgment."
Forty-one states and the District of Columbia permit lenders to sue borrowers for mortgage debt still left after a foreclosure sale. The economics of today's battered housing market mean that lenders are doing so more and more.
aggressive pursuers of deficiency judgments, a review of court records in several states shows.
At Suncoast Schools Federal Credit Union in Tampa, Jim Simon, manager of loss and risk mitigation, says the institution has a responsibility to its members, and that means trying to recoup losses by going after loan deficiencies. He calls such legal action the credit union's "last arrow in the quiver."
The biggest banks appear to have stayed largely on the sidelines as they deal with the foreclosure-paperwork mess. One big bank, J.P. Morgan Chase & Co., "may obtain a deficiency" judgment in foreclosure cases but will "often waive" the leftover debt when a homeowner agrees to a so-called short sale of a house for less than is owed on it, a bank spokesman says.
The other problem was that the company’s fraud investigation resources were balkanized. In addition to the company-wide fraud unit that Foster had taken over, many of the operating divisions, such as Countrywide’s subprime unit, had their own smaller investigative teams.
This didn’t make sense to Foster. It meant the smaller investigative teams reported to divisional sales executives who might be tempted to discourage aggressive fraud investigations in order to protect the flow of loans into the company’s production pipeline.
One of her first tasks was to oversee a fraud mitigation “reengineering” that would consolidate all fraud investigation within her unit. In June 2007, she presented the plan in a series of meetings with divisional presidents.
A few weeks later, she learned that the plan had been shelved. There was no explanation why, she says, only that it wasn’t the right time for a reorganization.Wow.....
After finding evidence of “cut and paste” document forgery, the team did a full sweep of the offices in question. On top of workers’ desks, Foster says, they found an unusual number of Wite-Out dispensers. And inside their desk drawers, she says, they found folders holding blank templates for account statements from various banks and brokerage firms, such as Bank of America and Washington Mutual.
In some of the offices, investigators found more than one fax machine. During interviews with investigators, workers admitted that the extra fax machine was used to simulate faked documents being sent in by borrowers, Foster says. To eliminate a paper trail, she says, branch staffers had programmed the sending fax machine so there was no banner identifying the fax number from which the transmission originated.
And the fate of the investigator at Country-wide when it merged with Bank of AmericaThe fraud seemed routine and the investigation showed “that the phony activities of these employees were known … and tolerated by management,” Foster later said in a witness statement in a Countrywide shareholders lawsuit in federal court in Los Angeles.
The phone rang at 8 a.m. It was a call she’d been expecting from a Bank of America human-resources official. She thought they would be discussing salary structure for her team members.
Instead, with the Bank of America official on the phone, two Countrywide officials walked into her office, turning it into a conference call. They presented her with a 16-page severance agreement.
Bank of America offered her a buyout totaling almost one year’s salary, nearly $230,000. The catch was that, to get the money, she had to agree to a gag order that would prevent her from talking about what she knew about the company’s practices. “I was just furious,” she says. When she refused to sign, she says, the buyout offer turned into a straight-up firing.
They asked for her ID badge and keys. Then Bank of America security operatives escorted her out of the building.
It was her 51st birthday.Read it all
On Oct. 1, the size of mortgages eligible for purchase by Fannie Mae and Freddie Mac will shrink. That isn't necessarily a big deal in most parts of the country; the new lower limit of $625,500 — down from today's $729,750 — still is big enough to cover most homes in almost all markets in the United States.
Furthermore, mortgage bankers are stepping up with new money to cover those bigger loans, reports Mortgage Daily. "Programs here and there are popping up," says publisher Sam Garcia. He reports that some new lenders, including TMS Funding and New Penn Financial LLC, are launching programs that will make mortgages as big as $2 million available to lenders with good credit scores and enough cash to keep up with the payments. And many existing mortgage lenders currently will make those so-called "jumbo" loans and just keep them in their portfolios instead of selling them.
But those loans will cost more. Currently the difference between rates on so-called conforming loans and private-made loans is about 0.64 percent. Over the last two years that spread has been as low as 0.48 percent and higher than one percent, says Garcia.
So in some pricey places, the new limits will really pinch borrowers. Those limits vary from market to market and are determined in part by local housing prices. In expensive housing markets where prices have fallen, the limits will drop the most. Hardest to be hit, according to a new analysis by Move.com, will be San Diego, where loans up until $697,500 qualify for Fannie and Freddie until Sept. 30. On Oct. 1, that limit drops to $546,250, a $151,250 difference.
In its annual analysis of mortgage data provided by thousands of financial institutions, the Fed found that lenders originated 7.9 million mortgages in 2010, down 12% from 2009. The only year they were lower in the past decade was 2008, when they hit 7.2 million. The Fed analyzed data from more than 7,900 mortgage lenders that are reported to regulators under the Home Mortgage Disclosure Act
AndThe lending drop in distressed areas stems in part from declines in loans to borrowers who don't use the homes as their primary residences, often investors. But the report also found a rising concentration of lower-income borrowers in those communities. Higher-income borrowers accounted for just 29% of all loans in those distressed neighborhoods last year, compared with 52% of loans in those neighborhoods in 2005. In less-distressed neighborhoods, higher-income borrowers accounted for half of all loans in 2005 and 43% of loans last year.
And this is the incredible part. Traditionally, FHA were no more than 2% to 5% of the home loans for purchases.Refinancing has been particularly limited in five states that have seen the biggest home-price declines: Arizona, California, Florida, Michigan and Nevada. In those states, some 6.4% of borrowers with credit scores between 680 and 719 refinanced last year, compared with 9.7% of borrowers in the remaining 45 states
Any increase in FHA down payment requirements or the privatization of Fannie or Freddie means that these borrowers will have to tougher standards to get a loan. The long term goal is to privatize the government agencies and FHA is in financial trouble.The study illustrates the mortgage market's continued heavy reliance on government-backed mortgages. Federal agencies such as the Federal Housing Administration, which allows borrowers to make down payments of just 3.5%, accounted for more than half of all loans for home purchases in 2010. Fannie Mae and Freddie Mac accounted for nearly one-quarter of purchase loans and more than half of refinances.
Faulty mortgages and foreclosure abuses have cost the nation’s five biggest home lenders at least $65.7 billion, according to a tally by Bloomberg News, and new claims may push the industrywide total to twice that amount.
Banks typically made home loans and bundled them into securities sold to private investors and government-backed enterprises. They usually offered “representations and warranties” in which lenders promised to buy back the mortgages or cover losses if the loans turned out to be based on inaccurate or missing data on criteria such as the borrower’s income, the property’s value or whether it would be used as a primary residence.
“As large as that number is, it’s a small fraction of the overall economic damage that the crisis and these mortgages caused to the economy,” said Litan, who was on a commission that investigated the savings and loan crisis in the 1980s. “There were trillions of dollars of damage.”
Read it allThe FHFA lawsuit cited the prospectus for one mortgage- backed security underwritten by Bank of America entities, which said no loans were larger than the underlying value of the homes. In fact, 11 percent of loans sampled by the agency fit that description, the suit said. Another securitization said 4.45 percent of the homes weren’t owner-occupied, while the true percentage was 15.27 percent, according to the suit.
Bank of America Corp. (BAC), the largest U.S. mortgage servicer, failed to make a list of companies doing a satisfactory job of assisting homeowners struggling to pay their mortgage, according to Fannie Mae.
Of the 11 biggest servicers of Fannie Mae mortgages, Wells Fargo & Co. (WFC), Citigroup Inc. (C), Ally Financial Inc. and EverBank Financial Corp. are on track to receive satisfactory or better grades under a newly created customer service and foreclosure- prevention ratings system, the mortgage-finance company said in a statement. JPMorgan Chase & Co. (JPM), SunTrust Banks Inc. (STI), PHH Corp. (PHH), PNC Financial Services Group Inc. (PNC), OneWest Bank FSB and MetLife Inc. (MET) were the other companies that didn’t make the list.
Read it allLoan servicers interact with borrowers, collect mortgage payments and oversee foreclosures. More than 228,000 U.S. homeowners received foreclosure filings in August, the highest total since March, RealtyTrac Inc. reported today. Default notices rose 33 percent from July as lenders began to speed up processing of paperwork delayed by probes into documentation practices, the Irvine, California-based data service said.
Bank of America filed three times as many default notices on Orange County homeowners in August than the month before, helping to push the overall number of defaults in O.C. up 66 percent last month, according to new figures from DataQuick Information Systems.
Other lenders also increased their default filings – the start of the foreclosure process – although to a lesser degree. The B of A filings jumped 197 percent from July to August, compared to a 50.6 percent increase for all other lenders.
Read it allThe increase was exaggerated slightly because August had three more business days than in July. But the numbers are up dramatically even after adjusting for the difference.
The foreclosure numbers are down very slightly year-over-year, but only because August 2010 was one of the highest foreclosure months on record, and of course was just before the "robo-signing" scandal was uncovered. Delays in processing have artificially lowered the foreclosure numbers over the past year, so this new surge is likely addressing loans that have been long delinquent, but unaddressed.
he question of course is, is this a one month catch-up purge or will it continue at high levels for a while? And if the latter, will other banks follow suit quickly? Because if other banks see Bank of America pushing more loans to foreclosure, which will inevitably means more properties heading out for sale, they may want to get in before that glut of properties pushes prices down even further.
Read it all"This proves once again that "credit" as measured by legal defaults and foreclosures is not necessarily about borrowers missing payments, rather about what the servicers chose to do about it," notes Hanson.
Analysts with the investment bank released an update to this strategy — which is known as the REBUILD proposal — estimating there are currently 6 million properties in REO, foreclosure or more than 90 days past due.
In its latest update, Morgan Stanley addressed some concerns raised about the proposal, namely that it would not be free-market based with the government-sponsored enterprises becoming landlords and growing their balance sheets. Or the idea that it would be unregulated, giving investors purchasing power at rock-bottom prices without ensuring they have a concern for rehabilitation or neighborhood property values.
"We believe the best solution lies somewhere in the middle, and instead of focusing on what we don’t want, we think it’s better to focus on what we do want, and figure out a way to reach those goals," analysts at Morgan Stanley said.
Read it all"In this case, we believe that the goal should be effective ownership and management of rental properties, while retaining some upside for taxpayers if everything works out and home prices recover," according to Morgan Stanley.
I am not talking about the value of the property -- those kinds of appraisal issues have been with us for some time now. Today, I am referring to the physical condition of the property.
FHA and VA have historically been more stringent than conventional lenders with respect to issues such as peeling paint, unpermitted additions, and non-fully functioning appliances. Nowadays, though, it seems just as likely that a real or perceived deficiency in the property’s physical condition may cause as much of a problem for a conventional loan as for one that is FHA or VA.
In California it has become common for a buyer to ask a seller to provide a four-page form known as the Seller Property Questionnaire (SPQ). The SPQ was created by the California Association of Realtors® (CAR). It is considerably more detailed and informative than the state-mandated Real Estate Transfer Disclosure Statement (TDS). Although not required by law, provision of an SPQ is often called for as part of the purchase agreement between buyer and seller. What is happening now is that, sometimes, underwriters are asking for a copy of the SPQ.
Why might this be a problem? Suppose the disclosure revealed a roof leak in one corner of the three-car garage. It would cost $1,500 to fix. The buyer appreciates the disclosure, but he doesn’t care because he is going to remodel the garage and put a loft room –with a new roof – over that corner. The underwriter says, “No, it must be fixed before we will approve the loan.”
In the past two years, Wells Fargo (WFC: 24.20 -4.08%) offered more than 4.4 million homeowners new low-rate loans and did more than 704,000 loan modifications for mortgages in its servicing portfolio, the bank said this week.
About 85% of its loan modifications were completed through Wells Fargo programs, while 105,404 modifications were handled through the government's Home Affordable Modification Program.
As of the second quarter, 93% of home loans in the company's servicing portfolio were current on payments. Fewer than 2% of owner-occupied loans in the servicing portfolio proceeded to foreclosure sale in the past year.
During July, 404,000 distressed borrowers received some type of counseling, with 10.9 million borrowers underwater, or owing more than the property is worth, nationwide, according to the Obama administration's August housing scorecard.
Read it allThe government cited statistics showing prime mortgages with a delinquency rate of 4.5%, compared to 33.2% among subprime loans and 12.2% for FHA loans. About 3.65 million existing homes were on the sales block in July.
Fannie Mae and Freddie Mac lost more than $30 billion, due partly to their purchases of mortgage-backed securities, when the housing bubble burst in late 2008. Those losses were covered mostly with taxpayers' money.
The agency filed suit against UBS in July, seeking to recover at least $900 million for taxpayers, and the individuals told the Times the new suits would be similar in scope.
A spokesman for the Federal Housing Finance Agency was not immediately available for comment.
Read it allThe Times said Bank of America, JP Morgan and Goldman Sachs all declined comment. A Deutsche Bank spokesman told the Times, "We can't comment on a suit that we haven't seen and hasn't been filed yet."
Mortgage modifications completed through private programs increased 11% in July, according to the Hope Now alliance of servicers, counselors and investors, but these workouts have proven less likely to last.
Roughly 56,000 mortgages made it through these private programs and into permanent status. Since 2007, servicers completed 4 million private modifications and roughly 763,000 permanent workouts through the government's Home Affordable Modification Program.
So far in 2011, private modifications are more than double those done through HAMP. Through July, roughly 422,000 workouts came through proprietary initiatives, compared to the 183,000 done through the Treasury's program as of June, according to Hope Now. The Treasury Department is expected to release its July numbers in the coming days, but it has averaged roughly between 30,000 and 35,000 permanent mods per month. If the trend holds in July, private programs would still outnumber HAMP more than 2-to-1.
Read it all"We are happy to see an increase in permanent proprietary loan modifications for the month of July," said Faith Schwartz, executive director for Hope Now.
