Posted by kevin on October 22, 2014 under Foreclosure Blog | 
Well, on Tuesday (10/21), most newspapers indicated that the FHFA and major mortgage lenders had entered into an agreement in principal to loosen lending requirements. The announcement was made by FHFA boss, Mel Watt, at a speech before mortgage bankers in Las Vegas.
Las Vegas, that is precious. John Stewart’s writers could not have come up with a funnier story line.
To increase access to credit for lower income borrowers, Watt called for loan to value ratios of 95-97%. With only 3-5% down, borrowers have little skin in the game. If housing prices decline, they will be underwater. How is that different from 2008? One way it will not be different is Fannie and Freddie will insure the loans, therefore, the taxpayer will be bailing out lenders on defaulted loans.
The devil is in the detail as they say. So, we will see in the next few months what safe harbors are given to lenders.
When Dodd-Frank was promulgated, it included a specific provision that stated, in general terms, that a lender must grant a mortgage loan based primarily on the ability of the borrower to repay and not on the value of the collateral. The analysts railed on that such an onerous standard would kill the housing market. Well, my research indicates that the Dodd Frank standard is the fundamental definition of predatory lending, and has been around in Interagency guidelines, regulations, and OCC Advisory Letters since the mid 1990’s.
History has a tendency to repeat itself. I just did not think that it would happen so soon.
Posted by kevin on October 21, 2014 under Foreclosure Blog |
A recent WSJ article indicated that Fannie and Freddie on one side and the major mortgage lenders on the other side are close to an agreement to lower standards to provide mortgages to borrowers with weak credit. The article meanders through many issues- downpayment reduction, mortgage buybacks, fraud, foreclosure, opening credit markets for low income borrowers.
Pre-2008, lending standards were so loose that you could get a mortgage if you had a pulse. Why? A variety of reasons but one reason was that mortgage originators and securitizers were dumping their loans on investors so they had little risk and made lots of money in fees and in selling mortgage backed securities. Of course, as the number of defaults increased, the house of cards collapsed and with it the US economy. We are still mopping up the mess with foreclosures continuing.
Now, the President is pushing the banks to make loans if not to anyone with a pulse, then to people with less than decent credit ratings. Pre-2008, these were called subprime loans. Ed DeMarco, the head of the FHFA which oversees Fannie and Freddie, resisted this and also principal reduction on mods (not good). Now, Mel Watt is in charge of FHFA and supposedly pushing President’s agenda. The problem is how far to you push opening credit- too little and you do not get the economic benefit of an expanded housing market; too much and you get the same problems that you had in 2008.
On the other side you have the banks. They are looking for a safe harbor to make questionable loans. HAMP 1 is based on PITI (principal, interest, taxes, insurance and association fees) of 31% of gross income. HAMP II takes us, for the most part, up to 42%. Would not be surprised if banks are looking for some safe harbor in the 45% range.
My experience in handling foreclosure cases for borrowers over the last 5 years is that 45% is on the road to disaster. When you factor in that taxes rise (especially in States like NJ) 45% can grow to 50% in no time. Is that where we want to be?
Posted by kevin on October 11, 2014 under Foreclosure Blog |
I recently conducted a review of a borrower file to determine whether there were any defenses to a pending foreclosure action which at the final judgment stage. I noted that the homeowner received $600 from the Independent Foreclosure Review.
Brought back memories, so I searched my notes about this so-called review. Kudos to Naked Capitalism blog where I got most of my anecdotal information. Also, a nod to Prof Levitin from Georgetown The following is a piecing together of my notes:
The banks had agreed to hire the reviewers, pay them, coordinate their efforts, all presumably within the oversight of the Office of the Comptroller of the Currency (OCC). Then after a year and a half of spending $1.5 billion on this program of which little or nothing went to the homeowner victims of the banks’ foreclosure abuses, the banks persuaded the OCC that the reviews were not worthwhile.
2 Points.
1. Back in October 2011 as the Independent Foreclosure Reviews beginning, Georgetown Law Professor Adam Levitin wrote a long blog he called “Robosigning 2.0: Mortgage Foreclosure File Reviewers.” In it he reviewed and criticized a bank’s temp agency’s help-wanted ad for the reviewers. His main conclusions:
“I have seldom seen a document that says more about the… malarkey that the OCC and Fed are trying to pass off to cover for the banks than this job ad. I think it demolishes even the thin fiction that the OCC/Fed servicing consent orders are anything more than [fake] Potemkin villages. Instead, what we have here is nothing less than a federally-blessed Robosigning 2.0.”
“Bottom line here–it’s hard to take the OCC/Fed consent orders seriously when all they mean is that a marginally more skilled employee is reviewing the robosigners’ original work….”
2. Regretfully, what then actually happened as the banks proceeded to hire and work with these reviewers appears to be much worse even than Prof. Levitin anticipated. One former reviewer wrote a very long comment describing in great detail how the bank where was hired to conduct these reviews actively suppressed his and other reviewers’ efforts to find foreclosure errors and abuses, and to locate and compensate homeowners. Here are samples of what he wrote:
“We were supposedly independent contractors, but we worked directly under bank and lenders authority and supervision. Any findings we made were quality controlled by the bank. Any findings we made came directly under the scrutiny of the bank. Any arguments over our findings, and whether they should be changed or not could and often did result in termination from the program (meaning the reviewers got fired) without cause or warning and we had no recourse because we were contractors.”
“Other issues began to come up…The situation was becoming heated as Claim Reviewers (as we were called) began finding more and more issues of law, not to mention, incompetence, and immorality and poor judgment…[T]here were tensions building between Claim Reviewers and bank managers as the list of harm on borrowers grew. However, the bank and the OCC did find a solution. Take the questions out of the tests we were doing that asked about issues of law. So one test that had 2200 investigative questions (there are about a dozen tests for a file review) now became about 550 questions. Issues of law were removed.”
“At another of our group meetings we were told that if a borrower did not specifically cite the law or statute that was violated in their complaint that we were not to address a violation of law found in the file as it was now irrelevant to the issues at hand… The problem was that usually a borrower only had a feeling they got shafted somehow, but did not specifically know how. The complaint form also didn’t mention to the borrower that they had to be specific about issues of law. The form only asked generic questions about what happened. Now it was very evident that we were there as window dressing and not the compassionate heroes we thought we were.”
The problem was that the banks sold the OCC on the idea that the audits would vindicate the banks; however, as the reviewers got more into their work, they discovered that the opposite was true. At that point, the banks complained that the costs of the audits was prohibitive, and before you know it, the audits stopped. Many of my clients got checks with some sort of vague explanation of why. A joke.
