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  1. “Massive Fraud” Alleged in Suit Against B of A’s Countrywide Financial

    By on January 25, 2011

    Recently I’ve discussed the many lawsuits that borrowers are bringing against lenders for alleged wrongful foreclosures.  Lawsuits in Massachusetts, Utah, Maryland, New York, and Massachusetts again are putting lots of pressure on lenders in the ongoing robo-signing foreclosure mess.

    Now we are starting to see lawsuits from investors in mortgage-backed securities, who are understandably upset that their AAA-rated safe mortgage backed securities turned out to be, well,  not-so-safe.  MBIA, TIAA-CREF, New York Life, Dexia Holding, and other major investors are filing suit against Bank of America’s Countrywide Financial (which was acquired by Bank of America in 2008 for $4 billion).  The investors allege that Countrywide committed “massive fraud” when it sold the group hundreds of millions of dollars worth of bad mortgage backed securities.  This could be really bad news for B of A and other big lenders. From the complaint:

    “This action concerns a massive fraud perpetrated by Defendant Countrywide Financial and certain of its officers and affiliates against the Plaintiffs, which are investors in mortgage-backed securities (MBS) issued by Countrywides subsidiaries. The Plaintiffs are institutional investors that wanted conservative, low-risk investments and thus bought Countrywide MBS (the Certificates) that were represented to be backed by mortgages issued pursuant to specific underwriting guidelines and rated investment-grade (primarily AAA). In purchasing the Certificates, the Plaintiffs and their investment managers relied on term sheets, prospectuses and other materials prepared by and provided to them by the Defendants, which made representations about the Countrywide Defendants purportedly conservative mortgage underwriting standards, the appraisals of the mortgaged properties, the mortgages loan-to-value (LTV) ratios, and other facts that were material to Plaintiffs investment decisions. Plaintiffs and their investment managers also relied on Defendants public statements concerning the Countrywide Defendants adherence to prudent underwriting guidelines and careful credit analysis. These representations by Defendants were recklessly or knowingly false when made. In reality, Countrywide was an enterprise driven by only one purpose to originate and securitize as many mortgage loans as possible into MBS to generate profits for the Countrywide Defendants, without regard to the investors that relied on the critical, false information provided to them with respect to the related Certificates.”

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    Category: Mortgage Rates

  2. Fed Governor Warns of Bank Liabilities From Mortgage Repurchases

    By on December 1, 2010

    This morning Federal Reserve Governor Daniel Tarullo testified in front of the Senate Banking Committee.  He spoke at great length about foreclosures, mortgage servicers, and mortgage modification.  However, we have covered those topics at great length on this blog, and there are very few new revelations in the testimony.  I thought the more interesting portion of the testimony was regarding the risks that mortgage repurchases (or putbacks) pose to major lenders.

    Mortgage repurchase agreements are indemnification clauses that purchasers of mortgage backed securities put in purchase contracts.  These clauses stipulate that the buyer can force the seller to buyback the securities in the event that the underwriting (or other origination processes) for the underlying mortgages was defective and the mortgages defaulted.  Many investors in mortgage backed securities are currently looking into the possibility of pursuing mortgage buybacks against major lenders for violating purchase agreements.

    According to Tarullo:

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    Category: Mortgage Rates

  3. Mortgage Putbacks Could Cost Banks More Than $100 Billion

    By on November 29, 2010

    Just a brief update here on what seems to be a pretty slow news day:

    According to Paul Miller of FBR Capital Markets (via this Bloomberg Businessweek article), mortgage putbacks could end up costing lenders between $54 and $106 billion.  Within the article he comments that he does not think losses will be as severe as many expect, and that even under the worst case scenario, the losses would be manageable.

    Mortgage repurchase agreements are indemnification clauses that purchasers of mortgage backed securities put in purchase contracts.  These clauses stipulate that the buyer can force the seller to buyback the securities in the event that the underwriting (or other origination processes) for the underlying mortgages was defective and the mortgages defaulted.  Many investors in mortgage backed securities are currently looking into the possibility of pursuing mortgage buybacks against major lenders for violating purchase agreements.
    I’ve heard far-ranging estimates for what lenders’ liabilities due to mortgage putbacks could be.  Most estimates seem to come in between $50-200 billion.  I suspect that this liability, along with that from bad second mortgages, could be far more damaging than Miller suggests.
    Category: Mortgage Rates

  4. More Cities Considering Bulldozing Foreclosed and Abandoned Homes

    By on November 18, 2010

    If you have been following the real estate market at all for the last few years, you know that home prices have plummeted since the market peaked in 2006/7.  On average, home values are 25 percent off their peak values.  In fact, according to an article from the Boston Globe, we are on pace to eclipse the home price declines that occurred during the Great Depression.  Simply put, the situation is not good.

    There are many reasons that home prices are declining, but the chief reason is supply and demand.  Many parts of this country overbuilt during the bubble years.  There is a 10.7 month supply of homes on the market right now (compared to about six months of supply in a normal market).  There are also millions more houses in shadow inventory that have yet to come to the market.  There is also a paucity of demand for homes, due in part to continued high unemployment, and due in part to the acceleration of home purchases into the spring months as a result of the first time homebuyer tax credit.  Economics 101 tells us that when supply outstrips demand, prices will fall accordingly.  Price stability will not return to the housing market until the excess supply has been dealt with or until prices fall to match demand.

    There is an article today on Bloomberg by Brian Louis that details the efforts of some midwestern cities to raze some of these excess houses.  In many ways, these Rust Belt cities face unique challenges not seen in other parts of the country.  Part of the problem is the erosion of the manufacturing base in this country, which has caused many of the traditional sources of employment (i.e. auto manufacturing, steel manufacturing, etc) to leave these areas.  As a result, unemployment is especially high, and the populations of many of these cities have been steadily shrinking since the 1970-80s.

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    Category: Mortgage Rates

  5. Senate Foreclosure Hearing: “Robo-signing an Affront to State Courts”

    1 By on November 17, 2010

    Yesterday the Senate Banking Committee held a hearing looking into the foreclosure mess.  I really expected that it was going to be a bunch of political grandstanding, a la the Goldman Sachs hearing a while back.  I was pleasantly surprised that it was not a complete dog and pony show.  I was only able to watch about an hour and a half of it, so some of this is from memory, and the quotes are from some transcripts I found online.

    Among those who testified were Georgetown Law professor Adam Levitin, Iowa Attorney General Tom Miller, Diane Thompson from the National Consumer Law Center, Barbara Desoer from Bank of America, R.K Arnold from MERS, and David Lowman from Chase.

    AG Miller started off the hearings by dismissing outright the idea (frequently touted by banks) that robo-signing is a “technical issue”, saying that it is “an affront to state courts”.  I would go a little further and say that it is an affront to anyone with a modicum of respect for the concept of the rule of law.  Miller is one of the people who is leading up the joint attorneys general investigation into foreclosure fraud.

    The testimony from the bank and MERS representatives was mostly bank boilerplate talking points, to the extent I don’t really want to rehash it here.  They touted their records of modifying mortgages when possible, and sort of acknowledged they had made errors in the past, and that they would correct these errors moving forward, although they did not really say how this was going to happen.  They emphasized that foreclosure was the last resort (although this point was more or less obliterated later in the hearings).  Honestly, the highlight of the lender testimony came when a guy in the crowd interrupted David Lowman’s testimony, screaming that he was “a liar”.  A commotion ensued, and the spectator ended up being dragged away by police.

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    Category: Mortgage Rates

  6. COP: Robo-signing Foreclosure Mess Poses “Significant Harm” to Financial Institutions

    By on November 16, 2010

    The Congressional Oversight Panel (COP) released a report this morning “Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation“.  The findings were eye-opening and disturbing (for a complete background on the robo signing/foreclosure/securitization mess, check out this breakdown from Mike Konczal).

    The COP is looking into allegations that some major mortgage lenders and servicers might have:

    “bypassed legally required steps to foreclose on a home. The implications of these irregularities remain unclear, but it is possible that “robo-signing” may have concealed deeper problems in the mortgage market that could potentially threaten financial stability and undermine foreclosure prevention efforts”.

    Essentially, the COP lays out the best and worst case scenarios to see what the possible ramifications of this conflagration are.  Under the best case scenario, problems with documentation relating to foreclosure and securitization are simply procedural technicalities which are fixed, and everything continues as per usual.  This is the view that major lenders and servicers are taking.

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    Category: Mortgage Rates

  7. Many Freddie Mac HAMP Modifications End Up in Foreclosure

    By on November 4, 2010

    I am hopeful* that one of these days I will be able to write a story about the stunning success of a government sponsored mortgage modification program. Today is not that day.

    *Hopeful is probably not the right word.  I see precious little evidence that our elected officials can or will pass any sort of useful legislation to forestall foreclosures unless they fall backwards into it.

    I have hammered on government mortgage modification programs in this space over the last several months.  I believe they have been expensive, poorly-designed, and largely ineffectual.  The Home Affordable Modification Program (HAMP) is the most prominent of these programs and thus receives the most criticism.

    I am not the only one who is down on HAMP.  The Special Inspector General for the Troubled Asset Relief Fund (SIGTARP), Neil Barofsky, released his quarterly report on TARP for Congress at the end of October, and he blasted HAMP for falling “woefully short” of its goal of preserving homeownership.  He also accused HAMP of offering “little more than false hope” for many borrowers.

    Following on the heels of SIGTARP’s criticism of HAMP, The Congressional Oversight Panel released a report further damning the program, saying: “To date fewer than half a million homeowners have received permanent mortgage modifications through Treasury’s program, and as many as half of these borrowers will ultimately redefault and lose their homes”.

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    Category: Mortgage Rates

  8. Wells Fargo Finds Foreclosure Paperwork Problems

    1 By on October 28, 2010

    Another brief post here as I’m running out of things to say on the foreclosure fiasco.

    Who would’ve seen this coming?  Another major lender has discovered issues with its foreclosure processes.  According to a Washington Post article by Jia Lynn Yang, Wells Fargo admitted that it has found “flaws in its documents as well.”  Wells Fargo does not “believe that any of these instances led to foreclosures which should not have otherwise occurred.”

    While other major lenders (GMAC/Ally, Bank of America, and JP Morgan Chase) suspended some or all foreclosures temporarily in response to discovering defects in foreclosure processes, Wells Fargo was adamant that their foreclosure process was sound.  Upon further inspection, they found some documentation issues.  Now it is submitting further affadavits in 55,000 foreclosure cases in the 23 judicial foreclosure states.

    The foreclosure/robo-signing/securitization fiasco could potentially cost lenders tens billions of dollars.  We will likely see this issue play out in courtrooms for years to come.

    Category: Mortgage Rates

  9. SIGTARP: HAMP Fails to Preserve Homeownership, Offers “False Hope”

    1 By on October 26, 2010

    This morning, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released its quarterly report to congress.  The report is incredibly blunt and candid about the failures of TARP (which are myriad).  Neil Barofsky, the inspector general, blasted TARP for being opaque, misleading, and lacking goals, among other things.  There was a lot to say (the report runs 338 pages), but I would like to focus on what SIGTARP had to say about the Home Affordable Modification Program (HAMP).  If you have time, though, I highly recommend reading through the report.  The allegations about TARP and AIG are particularly damning.

    Lets start with this choice quote:

    “The most specific of TARP’s Main Street goals, “preserving homeownership,” has so far fallen woefully short, with TARP’s portion of the Administration’s mortgage modification program yielding only 207,000 (out of a total of 467,000) ongoing permanent modifications since TARP’s inception, a number that stands in stark contrast to the 5.5 million homes receiving foreclosure filings and more than 1.7 million homes that have been lost to foreclosure since January 2009.”

    SIGTARP does not mince words.  Here’s another good one:

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    Category: Mortgage Rates

  10. FBI Investigating Foreclosure Fraud

    11 By on October 20, 2010

    Another quick, link-heavy update here.  It certainly does not appear that the whole foreclosure mess is going away anytime soon:

    According to a Miami Herald/AP article, the FBI is beginning an investigation to see if any criminal laws were broken in foreclosure fraud fiasco.  This comes despite the fact that major lenders and servicers continue to insist that any issues here are merely procedural, technical issues.  Bank of America and GMAC/Ally recently resumed some foreclosures, saying they reviewed their processes.  Citigroup and Wells Fargo were insistent that their processes were sound and never suspended foreclosures  (just this morning reiterated that this position in a conference call).

    Legislators, judges, and analysts all seem less than convinced.  Attorneys general from all 50 states have started a joint investigation into allegations of fraud and other misconduct.  Additionally, a Washington Post article by Zachary Goldfarb suggests that:

    “Federal investigators are exploring whether banks and other financial firms broke U.S. law when using fraudulent court documents to foreclose on people’s homes, according to sources familiar with the effort”.

    Although the Obama Administration’s response to this crisis has been somewhat underwhelming (at least in this blogger’s opinion), HUD Secretary Shaun Donovan stated in a Huffington Post article that a “comprehensive review is underway and will respond with the full force of the law where problems are found”.

    I’m really not sure where this situation is going to go from here.  I am hopeful that a full investigation into these matters will uncover any wrongdoing, and if it is found, that rules and regulations will be put in place to make sure that something like this does not happen again.  The only thing to be sure of is that this mess is not going away, and appears to be getting larger by the day.

    What do you think is going to happen?  Let me know in the comments section below.

    Category: Mortgage Rates

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