Posted by kevin on December 31, 2012 under Foreclosure Blog | 
With the advent of the mortgage crisis and subsequent recession, the Federal Reserve increased purchases mortgaged backed securities. The purpose was to reduce interest rates and, hopefully, to get the economy moving by keeping interest rates low. Interest rates on mortgages have fallen to under 3.4% on a fixed rate 30 year loan. However, in a recent WSJ article, it states that according to some economists, interest rates should be down to about 2.8% based on the historic price relationships between mortgage rates and yields on MBS’s. Who is gloming the difference? You guessed it, our friendly bankers.
Traditionally, according to the WSJ article, the spread between the bank’s cost of obtaining money and the rate they charge has been about half a percent or 50 basis points. In 2008, the spread increased to 1% or 100 basis points. In October, when the Fed launched its new round of buying MBS’s, the spread increased to 1.6%. Now, supposedly, it is at 1.3%. So, at the height of the spread, the banks were making a 200% profit on the spread. Now, the profit on the spread is down to a meager 160%.
Why? The article appears to say that the banks expenses are up in today’s mortgage industry so they cannot pass the benefit of the Fed action to the borrowers. But it also says that the more volume is moving through an industry whose workforce has shrunk significantly. Wait a minute. More volume means more work, and, theoretically, more revenue. Less workforce means less expense. So, the banks need to take a larger spread because income has increased and expenses have decreased. Or is it, the banks need a bigger spread because they are not getting the volume of loan applications because they refuse to hire adequate staff.
Well, thank goodness the Fed has come along again to provide profits to the Banks with no guarantee of a pass through to the public. It is just like 2009 when the banks used the TARP money to buy government securities (a risk free arbitrage) and refused to lend money out to small business but instead gave out record bonuses
I can understand that there might be some added expense in underwriting a given loan since one aftereffect of the mortgage crisis is that banks must actually perform underwriting that complies with the law (as opposed to giving anyone with a pulse a mortgage). That takes more time. But the bulk of the additional time is spent by the borrower or the mortgage broker who has to put together all those extra pieces of paper and jump through all those additional hoops in order to get a re-fi.
I am not the only one who thinks that the banks are making a windfall at the expense of the Fed, and, ultimately, the taxpayer. A Fed study indicates that banks earn more on mortgages today than from 2005-8, and that commercial banks reported record income from mortgages for the third quarter of 2012.
What does this mean? Well, the sad fact is that the government continues down the wrong path in trying to put an end to the housing crisis which will probably drag on for another 3-5 years. What the Fed is doing now (did in TARP and in the Obama bailout) is like giving gifts to recalcitrant children with the hope that they behave properly. That is not a winning strategy for overwhelmed parents or overwhelmed central banks.
For the borrower, understand that your mortgage lender is not your friend no matter how many mailings you receive that your lender understands your problem and wants to help. If you have a problem with your loan that is going to end in bankruptcy or foreclosure, understand that your lender is your adversary and conduct yourself appropriately. That means getting proper, experienced legal representation early on in the game. Develop a realistic strategy and follow though.
Posted by kevin on December 26, 2012 under Foreclosure Blog |
In the last blog, we focused on mortgage modifications and pointed out that lenders (or more probably servicers) can be less than straightforward in their dealings with borrowers or their representatives. Well, the lenders do not just jerk around the little guys; they do it across the board.
In conjunction with the AG/DOJ investigation of the mortgage industry’s servicing operations which led to the $25B settlement, the Office of Inspector General investigated servicer operations at the 5 “Too Big to Fail” Banks for the time period October 1, 2008 to September 30, 2010. The OIG report documented questionable practices used by servicers including employing foreclosure “mills” and “robosigning” sworn documents in thousands of cases.
What the reports also stated was that all five of the lenders (BOA, WF, JPM-Chase, Citi and Ally) hampered the investigation of the OIG. At Ally, the bank’s attorneys refused to allow OIG investigators to interview responsible personnel. Ally failed to produce documents in a timely manner, and when it did, Ally provided incomplete information. WF intially refused to produce 9 persons for questioning, but relented on the condition that WF management and attorneys attend the interview as facilitators.
Chase management provided explanation statements to bolster shaky testimony of employees and limited access to verifying documents. BOA attorneys refused to allow employees to answer certain questions posed by OIG, conferred with employees before they answered a question (presumably during the hearing) and did not turn over requested documents.
In addition to the stonewalling, the OIG report indicated (what everyone in NJ knows) that foreclosure law firms working for the servicers improperly prepared and signed documents.
So, if you are trying to get a modification in Bergen County and have been danced around the floor by your servicer who has led you to believe that it is your lender, just remember- the big banks have done and continue to play games with federal and state regulators. In NJ, until the distinguished judges put their foot down, the people and the judicial system both will continue to suffer at the hands of the lenders.
Posted by kevin on December 17, 2012 under Foreclosure Blog |
I meet with people every week who complain that they spent months getting jerked around by servicers and still could not get an affordable, permanent modification on their mortgage loan. They turn to a mortgage modification company with equally poor results. They read in newspapers or blogs that modification companies are scamming the public because they take fees up front and do not get the mod. The prospective client believes they were ripped off because the government tells them that a reputable mod company will get you a permanent mod and not charge you if they fail. In fact, some state statutes require that.
After working in foreclosure defense since 2009, I can tell you that no modification company can live up to those standards unless they represent only the top tier of their customer base. Why? Because the mod companies have little or no control over the process. They are, in effect packagers of information. They are stuck with your situation as far as arrearages, whether you have a job and what your income is, and the value of your property. Then, they are stuck with the critieria and decisions of the servicers over whom they have absolutely no control.
If you spend 8 months of your time trying to get a mortgage mod and don’t get it, how could you expect that the modification company will get the process completed successfully in a couple of weeks? Moreover, how can you reasonably expect the mod company to do thousands of dollars of work for you for free or for a nominal fee on the outside chance that you get a permanent mod. I certainly would not want to roll dice based on a situation over which I have little or no control.
That being said, I would assume that there are legitimate modification companies out there. I also assume there are a lot of less than reputable mod companies out there who prey on desperate people in bad situations. But how can you know who is legit? Mod companies are not rated in Consumer Reports or Angie’s List. So, my advice is to be skeptical. Do not give a mod company a large upfront payment (I heard of people who have paid upwards of $8,000). Make sure that the money you fork over is in line with the work that is being performed. Ask for their statistics (produced not in-house but by third parties) of getting permanent mods . Check on line and with the BBB about complaints. Understand that even a good, honest mod company is not a magician.
Be realistic about what you can get. If you are out of work or get paid off the books, the chances of getting a mortgage mod are slim or none. Do not expect that a mod company can do any better.
Posted by kevin on December 8, 2012 under Foreclosure Blog |
Last week, the Wall St. Journal ran the above captioned editorial in which it chides the government for losing mortgage crisis cases which are directed against individual bankers. While admitting that the government has had some small success in suing banks (which settle without any admission of guilt or liability), WSJ states that when the Obama Administration tries to prosecute a specific individual for a specific crime, it turns out there was no crime.
To support its position, the WSJ then cited two civil cases brought by the SEC involving collateral debt obligations or CDO’s where the defendants got off. First, these were not criminal cases. Second, CDO’s are complex and pretty much involve high stakes gambling between big time players. It is a difficult case to prove that one billlionaire got taken advantage of by another billionaire, and who really cares. Not much jury appeal and little wonder why these cases are not winnable. These types of cases are bad examples to support a premise that no crimes were committed.
The editorial goes on to say that pundits are saying that the government should go after the CEO’s. WSJ’s retort is if you cannot prove criminality against the lower level guys that were supposedly doing the bad things, how could you nail the CEO’s who are removed by layers of buffers. Sort of sounds like Michael Corleone before the Senate committee in Godfather II.
The next point made by WSJ is that people are blaming incompetence at the SEC or at the Department of Justice. But WSJ finds no fault with the quality of the regulators.
Finally, the WSJ concludes by saying that the fact that Washington can’t find a real criminal should focus public attention back on the real crime. That was Beltway policy. In effect, the WSJ is blaming the entire housing crisis on the government.
Now, that is a pretty disingenuous editorial. Sort of reminds me why I gave up my New York Times subscription. Allow me to briefly retort.
First, there is a difference between criminal prosecutions and civil lawsuits. The main difference is the level of proof needed to win. In a criminal matter, the prosecutor must prove that the defendant is guilty beyond a reasonable doubt. That is a tough standard. Given the complexity of the underlying financial transactions, and the money that defendants have to spend on top notch lawyers, criminal cases are not easy to win. That is why you see that most of the cases brought are not by the Department of Justice, which handles criminal matters, but the SEC and the civil sections of AG’s offices which handle civil matters.
Second, does the WSJ really believe that the CEO’s of the major banks and investment houses did not know that their underlings were peddling bad paper to the public? I doubt it. They knew that the securitized trusts were putting hundreds of millions of dollars in the firm’s coffers during the heyday. You mean to say that the guys in the penthouse never discussed how the young hot shots were bringing in gazillions of dollars to the firm. I do not think so. (The real question is why didn’t the Justice Dept use Sarbannes Oxley to go after the CEO. That law makes CEO’s liable.)
Third, the SEC is not what it used to be, unfortunately. I was an intern at SEC Enforcement in the mid 1970’s. Stanley Sporkin was then Director of Enforcement. He was one tough guy who had no qualms about going after investment banks or commercial banks. SEC enforcement was feared and kept bankers in line. Now, SEC enforcement is headed up by the ex-general counsel of Deutsche Bank, a big time player in securitized trusts, CDO’s, and other derivatives. Now, I am not saying that the current director is rolling over for Wall St ( I’ll let other say that); however, he is no Stanley Sporkin. And the WSJ knows that.
Finally, the WSJ concludes by saying that the fact that Washington can’t find a real criminal should focus public attention back on the real crime. That was Beltway policy. In effect, the WSJ is blaming the entire housing crisis on the government.
There is an element of truth to this accusation. The government, by re-pushing the Community Redevelopment Act, by repealing Glass Steagall, by allowing Fannie Mae and Freddie Mac to threw out underwriting standards, by bailing out the banking system with TARP, by failing to allow Chapter 13 cramdown, and by allowing servicers to make a mockery out of HAMP, allowed the banksters to run wild. Just like Prohibition allowed Al Capone to establish a criminal empire. Yeah, there is political blame.
And that may be the real problem. When I was an intern at SEC, my boss told me that best way to investigate a complex situation was to follow the money. If you follow the money in the mortgage crisis, it seems like the bulk of it went to the banks. The federal government did not do that by accident. So, why would the federal government want to throw in jail the very people it invested in.
