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  1. Opposition Grows to Bank of America Settlement

    By on July 13, 2011

    Both Gretchen Morgenson of the New York Times and Karen Freifeld of Bloomberg are reporting this morning that New York Attorney General Eric Schneiderman may challenge Bank of America’s proposed $8.5 billion settlement with investors that hold bad mortgage securities issued by B of A.  Schneiderman’s office sent letters to 22 investment firms seeking information about the proposed settlement.  It seems possible that pending investigation, Schneiderman’s office may object to the deal.

    The settlement covers hundreds of mortgage pools that were issued by failed lender Countrywide, which was purchased by Bank of America in 2008.  The problem is that the investors that agreed to the settlement only hold about a quarter of the interest in these securities.  The settlement would not allow any investors to opt out and sue Bank of America on their own, and would extinguish any outstanding claim from any investor.

    The settlement would settle putback and chain of title liability between B of A and Bank of New York Mellon (BNYM), acting as trustee for 530 mortgage trusts.  The deal was criticized in many quarters for giving Bank of America broad indemnity for too little money.  Additionally, some of the investors who were not involved in the negotiations were suspicious of the secretive nature of these negotiations.

    According to Morgenson’s article in the Times, the settlement covers securities with outstanding principal of $174 billion, making this settlement seem like a pretty good deal for Bank of America.  At least one investor, Walnut Place LLC has filed a petition contesting the settlement.  Walnut Place conducted its own investigation of mortgage backed securities it purchased from Countrywide and found that hundreds of the loans contained within those securities were not of good quality.  Walnut Place claims that upon presenting Bank of New York Mellon (the trustee for the trusts created by Countrywide) with evidence that Countrywide breached liabilities and warranties BNYM refused to sue to make Countrywide repurchase these defective loans: “As it has in many cases in which it has been presented withevidence of Countrywide’s breaches, BNYM did nothing.”

    Continue Reading…

    Category: Mortgage Rates

  2. Connecticut AG Criticizes Bank of America’s Foreclosure Mitigation Efforts

    By on May 27, 2011

    Connecticut Attorney General George Jepsen ripped Bank of America’s foreclosure/mortgage modification practices in Connecticut in a letter to BofA CEO Brian Moynihan.  Jepsen claimed that Connecticut residents “continue to experience significant difficulties due to Bank of America’s failure to devote adequate resources to loss mitigation”.

    Bank of America had imposed a moratorium on Connecticut foreclosures as a result of the robo-signing scandal.  This moratorium is about to be lifted, and Jepsen said that the bank has no “credible plan” to deal with the increase in foreclosure volume and mortgage modification requests.  Further, Jepsen said that “Despite having had  more than two years to ‘right-size’ your staff and establish effective procedures and systems, Bank of America has so far not prevented even the most common consumer complaints.”

    Jepsen is just the latest state Attorney General to take some form of action against mortgage lenders or servicers.  In the past several weeks, the AGs for California and New York have begun investigating the mortgage and banking industries.  The AG for Illinois subpoened Lender Processing Services and Nationwide Title Clearing.  The Utah AG has accused BofA’s subsidiary ReconTrustCo. of violating that state’s foreclosure laws.

    The onslaught of state investigations and accusations would seem to suggest that the 50 state joint investigation into foreclosure and mortgage fraud is unlikely to reach a settlement, and frankly, I think that is for the best.  Initially I had hopes that the investigation would be successful, but those hopes diminished as the lead investigators backed off promises to pursue criminal charges against those who committed fraud.  It is going to be interesting to see where this situation goes.

     

    Category: Mortgage Rates

  3. Bank of America Settles with Freddie and Fannie at a Steep Discount

    By on January 4, 2011

    I’m a day late on this one and a dollar short on this one, but the blog was down yesterday and I couldn’t let this story go without comment.

    According to a Bloomberg article “BofA Resolves Fannie Mae, Freddie Mac Loan-Putback Dispute“ published yesterday, Bank of America settled mortgage putback claims with Fannie Mae and Freddie Mac – at a steep, steep discount.   Personally, I think this headline from Mortgagenewdaily.com more accurately describes the situation: “BofA Settles GSE Buyback for Pennies on the Dollar“.  Here’s a dismaying excerpt from the article:

    “Tim Rood, managing director, The Collingwood Group, LLC said that the settlement looks like “a good deal for Bank of America.  It got to settle for pennies on the dollar but at the end of the day it might not be in the best interests of the taxpayers.”  He noted that the Enterprises don’t have the available capital to cover losses in excess of the $3 billion they are getting.  “I’m concerned,” he said, “about the precedent it sets for the market. Will this deal made available to lenders of all sizes?”

    I think Barry Ritholtz of The Big Picture summed it up best here:

    “A premium of $1.28 billion was paid to Freddie Mac to resolve $1 billion in claims currently outstanding. But the kicker is that the deal also covers potential future claims on $127 billion in loans sold by Countrywide through 2008. That amounts to 1 cent on the dollar to Freddie Mac.

    Imagine if you had a $500,000 mortgage, and you got to settle it for $5,000 — that is the deal B of A appears to have gotten from Freddie Mac”.

    Frankly, I find this precedent simultaneously unsurprising and infuriating.  It is unsurprising because this sort of corporate favoritism seems to happen all the time.  It is infuriating because if a lot of these Countrywide loans go bad, you and I will be on the hook for the losses.

    Category: Mortgage Rates

  4. Fannie and Freddie Could Force Banks to Repurchase $175b Worth of Bad Mortgages

    By on August 20, 2010

    Interesting piece of news from Fitch Ratings via Bloomberg Businessweek yesterday.  According to Fitch, Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo may be on the hook for up to $175 billion worth of bad loans they sold to Fannie Mae and Freddie Mac.

    The report states that Fannie Mae and Freddie Mac collectively hold about $355 billion worth of bad mortgages on their balance sheets.  Fitch states that it is “conceivable” that as much as $175 billion of the mortgages may be eligible for repurchase.

    Fannie Mae and Freddie Mac are the largest purchasers of mortgages in the United States.  They own or back more than 95 percent of U.S. mortgages.  When Fannie or Freddie purchase mortgages from loan originators and lenders, they insert buyback clauses in the contracts that stipulate if the mortgage defaults and turns out to be inadequately underwritten or documented, the originator or lender can be forced to repurchase the mortgage.

    A quote from the article:

    “Fitch is concerned that a more aggressive request for loan repurchases could potentially expose banks with large mortgage origination operations to future losses that have not been previously incorporated into Fitch’s existing exposures, and effectively into current ratings”.

    As this story develops I will post further updates here.

    Category: Mortgage Rates

  5. Bank of America’s Countrywide to Pay $108 Settlement in FTC Case

    1 By on June 7, 2010

    bank-of-america-may-sell-mortgage-assets-following-countrywide-financial-buyout

    One of the biggest fines ever dished out by the Federal Trade Commission was slapped on the nation’s former top mortgage lender Monday, when Countrywide Home Loans, Inc., agreed to pay $108 million and settle its case that it ripped off struggling homeowners through exorbitant fees and overcharges.

    “The $108 million represents one of the largest judgments imposed in an FTC case, and the largest mortgage servicing case,” the FTC said. “Countrywide deceived homeowners who were behind on their mortgage payments into paying inflated fees – fees that could add up to hundreds or even thousands of dollars.”

    The money from the settlement will be used to help reimburse homeowners who were overcharged by Countrywide, prior to its acquisition by Bank of America in July 2008.

    “Life is hard enough for homeowners who are having trouble paying their mortgage. To have a major loan servicer like Countrywide piling on illegal and excessive fees is indefensible,” FTC Chairman Jon Leibowitz issued in a released statement. “We’re very pleased that homeowners will be reimbursed as a result of our settlement.”

    The FTC alleged that Countrywide duped delinquent homeowners who were behind on their mortgage payments into paying excessive fees by forming subsidiaries which handled the contracting for maintenance and other services to protect the lender’s investment once borrowers were late on their payments. The contractors would jack up their fees to Countrywide, who then charged the struggling homeowners with the excessive amounts.

    The FTC outlined, “the company’s strategy was to increase profits from default-related service fees in bad economic times. As a result, even as the mortgage market collapsed and more homeowners fell into delinquency, Countrywide earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue.”

    Just over two years ago, prior to the Bank of America acquisition, Countrywide was recognized as the top mortgage servicer in the United States with more than $1.4 trillion in its portfolio.

    Category: General

  6. Bank of America Implements Principal Reduction Program to Help Stem Mortgage Defaults

    By on June 2, 2010

    bank_of_america1

    With the number of borrowers who are walking away from mortgages on the rise, Bank of America unveiled a principal forgiveness plan aimed at modifying some home loans eligible for its National Homeownership Retention Program.

    The plan is being offered to home owners who are considerably underwater on their mortgage (meaning they owe significantly more than their homes are actually worth), and whose loan is under consideration for modification through the government’s Home Affordable Modification Program (HAMP). Although the plan operates in conjunction with HAMP, the government’s principal reduction plan isn’t in place yet, but is slated to be running later this year.

    The Bank of America program employs principal reduction as the first step toward reaching HAMP’s affordable payment target of 31 percent of household income when modifying certain NHRP-eligible mortgages – ahead of lowering the interest rate and extending the term. The reduced principal balance will be a non-interest bearing forbearance amount, and the homeowner may earn forgiveness of the forborne amount by remaining in good standing on payments.

    The NHRP enhancement was implemented in mid-May. Customers are required to submit required documentation of financial information for consideration in determining eligibility and underwriting the modification plan. Upon completion of these review processes, the first trial modification offers under the program may be ready in the second half of June.

    NHRP-eligible loans include subprime, Pay-Option ARM and prime-quality two-year hybrid ARM loans originated by Countrywide on or prior to January 1, 2009, if the amount of principal owed exceeds the current property value by at least 20 percent and the loan is 60 days or more past due.

    “Our tests have shown that many homeowners who are severely underwater on their mortgages will respond positively to a modification offer that includes reduction of their principal balance, increasing the rates of acceptance of HAMP trial modification offers, conversion to permanent modifications and long-term success of the homeowner,” said Jack Schakett, credit loss mitigation executive for Bank of America Home Loans.

    Schaket also said the number of strategic defaulters – people who can afford to make their mortgage payments but are choosing not to do so – is at a number higher than “we have ever experienced before.”

    By some estimates, roughly 30 percent of all foreclosures in recent months have been strategic defaults, and the average person in default is now staying in their homes for 438 days before being evicted.

    Category: Mortgage Rates

  7. Treasury to Sell 1.5 Billion Shares of Citigroup Stock

    By on April 26, 2010

    Treasury to Sell 1.5 Billion Shares of Citigroup Stock

    The Treasury Department, under advisement of Morgan Stanley, will sell up to 1.5 billion shares of stock in banking giant Citigroup. Currently, the federal government owns roughly 7.7 billion shares of Citi stock, which is worth approximately $4.70 a share. By selling 1.5 billion shares, the government will likely produce a lofty profit of more than $2 billion.

    The U.S. government obtained a controlling interest of the mortgage conglomerate when $45 billion in bailout funds were made available in 2008 through the Obama administration’s Troubled Asset Relief Program (TARP). Citi has since repaid $20 billion to the government, while the Treasury Department converted the remaining $25 billion in preferred shares into 7.7 billion common shares, netting a taxpayer profit of approximately $30.5 billion.

    The move by the Treasury Department is the latest effort to reduce the federal government’s support of the major banking institutions that received taxpayer bailouts as a result of the recession and the housing crisis.

    Although the Treasury Department did not disclose when the stock sales would begin, it did indicate it would proceed “in an orderly fashion under a prearranged trading plan with Morgan Stanley …” Morgan Stanley is expected to be granted the authorization to sell additional Citi shares once the initial1.5 billion shares have been sold.

    Other banks to receive TARP funds, including Wells Fargo, JP Morgan Chase and Bank of America, have already paid back their funds to the Treasury Department. In an interview with CNN television on Sunday, Treasury Secretary Tim Geithner said, “We’re putting TARP out of its misery.”

    Robert Hyder

    Follow Total Mortgage on Twitter

    Category: Stimulus

  8. Foreclosure versus Short Sale: The Lesser of Two Evils

    5 By on April 1, 2010

    Foreclosure versus Short Sale: The Lesser of Two Evils

    As home values continue to deteriorate and homes sink deeper and deeper underwater, short sale transactions are quickly becoming the latest trend in the housing market. A short sale is when a mortgage lender permits a homeowner to sell a property for less than the principal balance owed on the mortgage loan. As prevalent as short sales have been on distressed properties recently, they are about to become much more common. The Obama administration is set to implement a new plan that will pay an incentive mortgage lenders and borrowers to complete short-sale transactions. The new program, tabbed Home Affordable Foreclosure Alternatives (HAFA), is scheduled to take effect on Monday, April 5 and will alleviate the unfortunate setback for distressed homeowners.

    Some details surrounding the new HAFA program include:

    •    $3,000 for borrowers to assist in relocation
    •    $1,500 for mortgage services to pay for associated costs of processing the short sale
    •    Up to $2,000 to investors that permit up to $6,000 in proceeds from a short sale to be allocated to subordinate lien holders
    •    Mortgage lenders must inform distressed homeowners of the lowest price they are prepared to accept
    •    Homeowners must present the mortgage lenders with a valid offer, and the mortgage lender must respond within 10 days

    In light of the recent developments on the government’s proposal to encourage a short sale as an alternative to foreclosure, mortgage lenders are in a hiring mode to handle the anticipated influx of business directly related to short sales. It will undoubtedly be a challenge for the mortgage lenders to handle the dramatic anticipated increase in short sale volume in such a short period of time. To put it into perspective, short sales represented nearly 20% of home sales in February, while the percentage was closer to 10% as recently as last November. HAFA certainly expects to generate a significant increase in short sales very quickly.

    One of the nation’s largest mortgage servicers, Bank of America, has more than doubled the number of short sales it has originated since the beginning of the year. This is an extraordinary turn of events since short sales pressure mortgage lenders to accept a discounted portion as payment in full. Previously reluctant to originate a short sale, mortgage lenders are now changing their views for two reasons.

    First, mortgage lenders are making less money on a foreclosed property than they would on a short sale.     While unemployment figures remain high and purchase applications continue to wane, it is far more costly for a mortgage lender to maintain a foreclosed property over time than to allow a homeowner to sell it for less than is owed. The other reason is fairly obvious. If the government is willing to pay a mortgage lender as an incentive to complete a short sale, that payment, however minor, will further cut into any loss the lender incurs.

    It is estimated that mortgage lenders stand to lose approximately 50% on a foreclosure, while they lose approximately 30% on a short sale.     Additionally, short sales are wiped from a mortgage lender’s portfolio, while a foreclosure can remain for an extended period of time. It is the hope that HAFA may facilitate the conclusion to the foreclosure crisis too many homeowners have endured.

    On the surface, HAFA appears to be just what the doctor ordered.

    Robert Hyder

    Follow Total Mortgage on Twitter

    Category: Mortgage Rate Trends and Analysis

  9. Bank of America to Offer Principal Reduction Plan

    1 By on March 24, 2010

    Bank of America to Offer Principal Reduction Plan

    According to an earlier report by Reuters, Bank of America is expected to announce a plan today that will forgive a portion of a borrower’s principal balance on their mortgage loan if they owe more than 120% of their home’s value. Additionally, the plan will include principal forgiveness on loans with negative amortization.

    As outlined by Reuters, the program will commence in May. The program entails Bank of America offering borrowers who remain current with their monthly mortgage payments a five-year, interest-free forbearance period. The intention of the five-year, interest-free forbearance period is to provide a strategic timeline in which homeowners have an opportunity to reduce the loan-to-value (LTV) of their home back to 100%.

    While the federal government’s efforts have largely been concentrated on keeping mortgage rates artificially low, Bank of America’s plan to reduce a homeowner’s principal balance is one of the first of its kind by an independent lender. Many homeowners are so deeply underwater that they are simply walking away from their mortgage obligations. By taking the initiative, Bank of America hopes to prevent the foreclosure crisis from intensifying. Regardless, many mortgage analysts are predicting the foreclosure dilemma will indeed amplify as we progress deeper into 2010, much to the chagrin of the federal government who has made little effort to thwart declining home values.

    During the housing economy’s heyday when obtaining a mortgage loan was nearly as easy as ordering a pizza, borrowers were lured into accepting mortgage loans with negative amortization. Negative amortization is the gradual increase in the principal balance when the monthly mortgage payment is not enough to cover the principal balance and interest due. This feature resulted in continually increasing principal balances, leaving homeowners deeper and deeper underwater. On loans with a negative amortization feature, Bank of America intends to reduce the principal balance to as low as 95% of a home’s value. Presumably scheduled to begin in May, Bank of America must first identify the borrowers who may be eligible for the program.

    Robert Hyder

    Follow Total Mortgage on Twitter

    Category: Stimulus

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