Posted by kevin on April 15, 2014 under Foreclosure Blog | 
Since the federal bailout of Fannie Mae and Freddie Mac (the GSE’s) in 2008, there has been a call for their overhaul. The question is, what is a suitable replacement?
Yesterday, there was an article by Ken Blackwell, former undersecretary of HUD and mayor of Cincinnati (how many n’s, how many t’s) and now a director at the Coalition for Mortgage Security. The stated purpose of the Coalition is to educate the public concerning housing policy and finance. The article says that the coalition wants to preserve the 30 year fixed rate mortgage.
In this article, Blackwell states that there is broad consensus in Washington that the GSE’s should be replaced by a private mortgage secondary market funded by private capital with a limited government role.
Blackwell has a bone to pick with the feds. He points out when the federal government bailed out Fannie and Freddie, it took 80% ownership interest. Now that the government has been paid back, it is claiming still 80% ownership but 100% of the profits of the GSE’s. In effect, the feds have screwed the shareholders of the GSE’s. By creating and maintaining such a policy, Blackwell claims that investors will be very reluctant to jump into any new private mortgage financing vehicle.
Implicit in the article, however, is that the Coalition fully expects the government to be there in case of future meltdown. So, the private market is not really a private market.
Yesterday, the WSJ ran an editorial relating to the reform of Fannie and Freddie. It discussed in some detail the Johnson/Crapo bill which would replace the GSE’s with multiple private mortgage bond issurers that would each have a taxpayer guarantees. To get those guarantees, the issurers would need to maintain (over time) a 10% capital level vis-a-vis aggregate mortgage loans.
The editorial rails on against provisions in the bill which encourage and subsidize loans to people who are not creditworthy. On the other end of the spectrum, the editorial states that while the median price for a home in the US was $189,000, a borrower could borrow as much as $625,000 and have that loan backed up by the feds. WSJ questions whether the government should be subsidizing the somewhat wealthy on their home purchases.
From my viewpoint, it appears that the politicians want to get rid of Fannie and Freddie while at the same time keeping Fannie and Freddie. Different groups want to dump the aspects of the programs they do not like, and keep the one’s they do like. Seems like a lot a work to end up pretty much at the same place.
Posted by kevin on April 11, 2014 under Foreclosure Blog |
Almost every client that has come in my door for the last five years has told horror stories about their treatment at the hands of servicers. I believe they are telling me the truth because servicers jerk me around almost as unmercilessly as they do borrowers. The prospective client believes that they have solid grounds for suing the servicer.
There may be some situations involving servicer improprieties in a Chapter 13 which rise to the level of a cause of action or sanctions. However, in NJ state courts, the borrower generally cannot go after the servicer unless a temporary modification was granted. Why? Because the courts have decided that the MHA program is a contract between the servicers and the government. So, borrowers, not being a part of the deal, lack standing to assert that the servicer is not following the rules. When the borrower is granted a temporary modification, however, many courts have found that there is an implied contractual relationship between the servicer and lender on the one side and the borrower on the other side. This gives the borrower standing to sue or raise defenses in a foreclosure.
What about FHA loans? Our argument is that they are an exception to the no standing argument. Why? Because when you an FHA loan, the borrower has to pay, at closing, a fairly hefty fee for MIP insurance. In addition, there is an insurance component built into each monthly payment for a good many years of the loan. Our position is that those payments gives the borrower standing to allege servicer issues.
For example, the FHA HAMP guidelines state that unemployed borrowers are eligible for a special forbearance. However, many times the servicer never offers this program, but goes right to foreclosure. Our position is that this is a violation of FHA guidelines. The servicer should offer a special forbearance before filing any foreclosure. If not, then the foreclosure case should be subject to dismissal for failure of the lender to fulfill a condition precedent.
I cannot say that I have found any case law supporting this position in New Jersey. However, the argument is compelling. I am waiting for the right borrower to test this theory.
Posted by kevin on April 7, 2014 under Foreclosure Blog |
The first rule is that HAMP, the government program for mortgage modifications, does not apply to government loans. If FANNIE or FREDDIE bought the loan (whether for their own portfolio or sold to investors), HAMP does not apply. We will deal with this in later blogs.
Other basics:
2. HAMP applies to first lien mortgages originated on or before January 1, 2009.
3. HAMP applies to condo’s, coop’s and manufactured housing if state lien law makes mortgage a lien on real estate.
4. The property securing the mortgage loan has not been condemned and is habitable.
5. Borrower has a documented financial hardship and does not have sufficient other assets to pay mortgage as currently stated.
6. Borrower agrees to escrow for taxes and insurance (if not doing already) prior to any trial period.
7. The unpaid principal balance prior to capitalization is not greater than $729,750 for 1 Unit, $934,200 for 2 Unit, $1,129,250 for 3 Unit and $1,403,400 for 4 Unit.
8. The mortgage is secured by a one to four unit property.
9. The borrower has submitted an initial package for modification on or before December 31, 2015 and the modification effective date is on or before September 30, 2016.
If you have followed my blogs, you know that I believe that HAMP is not bad on paper, but problematic in its implementation. Servicers still jerk people around, and borrowers cannot look to the courts for help unless they have a temporary modification. But, with the courts clamping down on defenses and looking the other way on evidence issues, it may be the best game in town at this point. So, look into it. Time is running out.
