Posted by kevin on December 24, 2014 under Foreclosure Blog | 
MHA (Making Home’s Affordable) was set up by the government to induce lender’s to make deals with borrowers whether it be mortgage modification, dealing with second mortgages, short sales, deeds in lieu.
Oh excuse me, MHA may be about modifications, short sales and the like, but the inducement is not to the lender but the servicers. Not the guy that owns the mortgage, but the bean counter who collects the payments and sends them to the appropriate party.
What’s the big deal? Well, in defending foreclosure cases for the last 5 years, and reading pooling and servicing agreements, I have concluded that the interests of the servicer is many times in conflict with the interests of lenders or investors in securitized trusts. Investors and lenders usually fare better if they can work out a deal with the borrower. Servicers, on the other hand, seem to do better if there is a foreclosure.
That is why I was not too surprised to read the numerous stories about Ocwen getting hammered by the New York Superintendent of Financial Servicers. As part of the 150 million dollar settlement, William Erbay, the founder of Ocwen, is being forced out as CEO. Ocwen must come up with one hundred million in foreclosure relief and fifty million is going to be paid to Ocwen customers in NY. Do we have any governmental agency in NJ that protects borrowers? Heaven forbid. Moreover, Ocwen’s operations are to be monitored by an independent monitor for two years. Stock prices have fallen by 30% in that last week. Moreover, a $39 billion deal with Wells Fargo may be down the crapper.
What did Ocwen do? Basically, what most servicers do; that is, jerk around borrowers. However, Ocwen did it on a scale that made other servicers look like the JV (stealing a term from the Prez). For example, complaints against Ocwen were two times more frequent than complaints against BOA and 5 to 6 times more frequent than complaints against Wells Fargo. ( I have dealt with BOA and WF, and they are not what I would call “user friendly”).
Ocwen ran up costs by farming work out to affiliates which had strong ties to Ocwen and its executives. They backdated letters to borrowers which made it look like they were responding in accord with regulations under Dodd-Frank. According to Richard Cordray, the head of the CPFB, Ocwen took advantage of borrowers at every stage of the process. Another strategy attributed to Ocwen is that they would accept a package of documents and information from a borrower, wait 29 days, and then, instead of deeming the package complete for review by underwriter, Ocwen would send a deficiency letter to the borrower and request updates. What was not in the articles, but what I fear happened, was that Ocwen used the incomplete application as the basis for extracting additional monthly payments out of the borrowers during the so-called trial period. If you were to cross-check those payments against the servicing agreement, I would not be surprised to find out that the servicer kept a portion (if not all) of those payments.
Ocwen is not only servicer that plays games, but they got nailed. I would not be surprised if other servicers wind up on the wrong side of regulators in the future.
Merry Christmas.
Posted by kevin on December 19, 2014 under Foreclosure Blog |
If you owe money to a bank, say on a mortgage loan, and the bank accepts a short sale which nets them 200K but you owe 300K, then you have 100K of what is called “forgiveness of indebtedness” (FOI) income for which you may be required to pay taxes. Historically, the primary methods of getting around FOI income and the related taxes were to file bankruptcy or prove that you were insolvent at the time. In 2009, because of the mortgage meltdown, Congress eliminated FOI income on short sales, deeds in lieu of foreclosure, etc of primary residences- but not permanently.
That law ran out at the end of 2013. This left some of my clients who did short sales, etc in 2014 in financial limbo.
Well, the recent budget bill which passed in Congress last week extended the law which eliminates FOI taxes on primary residence for 2014. That is good news. In addition, taxpayers can deduct mortgage insurance premiums paid in 2014- private and public. Newspaper articles indicated that Congress was pushing for 2 years on these bills, but the Administration held out for 1 year.
There is a payback, sort of. When Ed DeMarco was head of the FHFA, he stedfastly refused to allow principal reductions on mortgages owed by or sold to investors through FNMA, Freddie Mac, FHA, VA. The media lamented that if only the president could get his guy, Mel Watt, into the position of head of the FHFA, then the government loans could be subject to principal reduction. Well, Watt is in, but there is still no principal reduction on the government loans. Moreover, the Mortgage News claims that since FOI income tax relief is being extended, Watt can use that trinket to avoid principal reduction. Let’s see how that plays out.
Posted by kevin on December 2, 2014 under Foreclosure Blog |
Prior to 2008, I viewed many appraisals with a bit a disbelief. The economy was growing at 3-4% but real estate prices in NJ were going up by 20%. Something had to give and it sure did.
When I started doing foreclosure defense work, I was shocked to see the mortgages that were being given out based on highly questionable income. How could a guy that worked as a manager at Home Depot get a $500,000 mortgage? Moreover, who, in their right mind, could believe that that person was making $10,000 per month? Welcome to the world of stated income loans.
Any sane person would conclude that the manager at Home Depot was not making $120,000 per year. One would think that an underwriter would come to that same conclusion. How, then, could the employer of that underwriter lend a half million dollars to that manager. If not based on income, it had to be based on the value of the collateral. Enter the appraiser.
More than a few appraisers were fudging their appraisals. The problem that I found was that it was difficult to get an expert to testify that another appraiser was playing games. A tight little group. At any rate, I was not able to go after any appraiser in my 5 years of foreclosure defense litigation.
That brings us up to an article in today’s WSJ about inflated appraisals. Banks are auditing loan applications, or so they say, and are seeing more and more questionable appraisals. As prices have leveled, appraisers are claiming that loan officers and real estate brokers are putting the heat on them to come up with values to justify the loans. Isn’t that fraud??? or predatory lending?? or both. The OCC and Freddie Mac are investigating.
The article goes on to say that surveys of real estate agents show that 31% lost deals because of low appraisals in March, 2012; 29% lost deals in March, 2013, but only 24% lost deals in March, 2014. Those numbers indicate that more and more appraisers are playing ball, but at the same time complaining that the real estate agents and bank officers are squeezing them
Finally, the article says that banks are turning to AMC’s (appraisal management companies) to assign appraisal work. This gets the loan officer (a source of pressure on the appraiser) out of the loop. However, appraisers now are complaining that the AMC’s are twisting their arms to come up with more favorable appraisals.
It’s funny. The appraiser blame loans officers, real estate agents and AMC for their own illegal activity. Sort of reminds me of my sons when they were little. Whenever I caught them doing something wrong, it was always someone else’s fault. More importantly, the question is what did the banking industry and their agents and the government learn from the 2008 meltdown. Looks like not much.
