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FTC Cracks Down On Foreclosure Fraud Operation
By Michael Kling on March 16, 2011

As many homeowners continue to have trouble meeting their mortgage payments, foreclosure scams have proliferated.

Saying it is cracking down on foreclosure scams, the Federal Trade Commission (FTC) broke up a national operation based in Florida that it says targeted financially distressed consumers using direct mail, the Internet, and telemarketing. These borrowers were falsely promised loan modifications.

Giving an idea of how pervasive these foreclosure scams are, the state of Florida foreclosure prevention website, the Hardest Hit Fund, begins by warning about copycat websites. Website visitors, the Hardest Hit Fund website warns, should verify that the website is the official site before providing personal information. Application for and participation in the program is free.

According to the FTC, the scam operation promised loan modifications even to homeowners whose lenders had already denied their modifications or who had already received foreclosure notices. The scam artists charged up to $2,600, typically ask for half of the fee up-front, claiming a success rate of up to 100 percent. Continue Reading…

Category: foreclosures
Both Small And Large Banks Blast Foreclosure Settlement From State AGs
By Michael Kling on March 14, 2011

A proposed foreclosure settlement from state attorneys general is drawing attacks from different quarters, including both small and large banks and House Republicans.

Community banks are blasting the proposal from state AGs and federal regulators as stealth cramdown legislation.

Prompted by investigations into shoddy foreclosure practices, the “term sheet” would define how major banks offer foreclosure alternatives and complete foreclosures. Among other actions, it would require banks to cut mortgage balances as a first option and open the door to mortgage balances to be reduced in bankruptcies.

The settlement “will likely cause additional upheaval and confusion,” according to the Independent Community Bankers of America, a trade group representing small banks. “In fact, the term sheet appears to be de facto regulation done outside of both the Congress and the established rule making process thus opening a back door to cramdown.”

In a cramdown, a bankruptcy judge forces the lender to write down the borrower’s mortgage balance. Continue Reading…

Category: foreclosures
Mortgage Writedowns Will Make Housing Markets Worse, Argues Bank of America Chief
2 By Michael Kling on March 9, 2011

Writing down the principal mortgage balances of troubled homeowners as proposed by state attorneys general is a bad idea and would make matters worse, said Bank of America CEO Brian T. Moynihan. Reducing principal balances for some borrowers would be unfair to homeowners who continue to pay their mortgages despite having mortgages larger than their home values, Moynihan said in an article in The New York Times. It would also encourage homeowners now paying their bills to default on their mortgages, he said. That would cause home values to fall even more.

Mortgage writedowns are just one aspect of the proposed settlement between state attorneys general and the five largest banks that would change everything how banks handle home foreclosures and loan modifications. As American Banker magazine noted, the settlement, “if implemented as proposed, “would fundamentally change the relationship between servicers, investors and borrowers.”

Imagine faxing your loan modification to the bank from Wal-Mart for free. Or tracking your loan modification through an online portal. Those are just some of the services and requirements the “term sheet” proposes.

Banks are not obligated to accept the proposal, but they probably prefer reaching one settlement rather than working with all 50 states plus numerous federal agencies. In addition, they probably wish to put the foreclosure scandal behind them. Negotiations will continue over the coming months, and the outcome will probably be less stringent on banks. Iowa Attorney General Tom Miller, who leading the talks, said he hopes an agreement will be reached in a couple of months. Continue Reading…

Category: foreclosures
California Earmarks $2 Billion For Anti-Foreclosure Effort
By Michael Kling on March 9, 2011

The state of California is giving out nearly $2 billion through its “Keep Your Home California” initiative to help homeowners avoid foreclosure.

The program, offered through the California Housing Finance Agency, is open to low- and moderate-income homeowners. To be eligible, the property must be owner-occupied, and the current principal balance must be under $729,750. There’s another catch. Your mortgage servicer must agree to participate in the program. At least the CalHFA website has a clear description of eligibility requirements and income limits for counties and a list of participating services.

The funds are left over federal Troubled Asset Relief Program funds that the state must use or give back to the federal government. Other states, including Arizona, Oregon and Florida, have rolled out similar programs.

State officials have said the initiative might help over 100,000 homeowners including up to 25,000 with negative equity. Some may argue that even $2 billion is not enough to solve the problem. Others will probably object to using taxpayer money to help homeowners who have made bad financial decisions. Continue Reading…

Category: foreclosures
Banks Consider Wide-Ranging Settlement On Foreclosures And Loan Modifications
By Michael Kling on March 8, 2011

Major banks are considering how to respond to demands from state and federal officials to revamp their foreclosure and mortgage servicing practices.

The 27-page plan from state attorneys general and federal regulators covers the details of how the largest banks, including Bank of America, Wells Fargo and Citigroup, should handle loan modifications and foreclosures.

Under the code of conduct, banks would have to follow strict time lines for considering loan modifications, provide a single point of contact for borrowers seeking help, and write-down mortgage principal balances in some circumstances. The proposal would also forbid banks from starting foreclosure proceedings while considering a mortgage loan modifications. The proposal would also encourage banks to complete more loan modifications through the federal government’s Home Affordable Modification Program.

The idea is to have one settlement between all the states, federal regulators and major banks rather than a plethora of agreements that would create confusion. Iowa Attorney General Tom Miller told reporters at a press conference yesterday that a settlement could be reached in a couple months. The states and federal agencies are also considering penalties against the banks for shoddy foreclosure practices that emerged in the robo-signing scandal last year.

In the proposal, regulators get into the details of mortgage servicing. The New York Times noted that the attorneys general and the new federal Consumer Financial Protection Bureau would have to review training documents and videos for mortgage servicing employees. An article in The Wall Street Journal said bank executives and attorneys complained that the government is trying to mico-manage industry practices.

Banks could argue that the attorneys general and federal agencies have no right to set down standards without new legislation or regulations. They could protest that it is unfair to set new rules for them and not all banks and servicers, although the top five banks service 80 percent of home loans. Yet protesting could be difficult when goodwill to banks is zero and they’re being blamed for everything but bad weather.

Actions against banks could prolong economic doldrums, driving down their stock values and postponing a housing market recovery. If history is a guide, providing more loan modifications will usually only postpone foreclosures.

Yet many will probably argue that the settlement does not go far enough.

Category: foreclosures
Foreclosures Plague Rhode Island, $5.6b in Home Equity Lost Over Two Years
2 By Michael Kraus on March 3, 2011

There are big housing problems in the smallest state in the nation.

At the end of 2010, nearly one in ten homeowners with mortgages were in foreclosure or were seriously delinquent on their loans. Rhode Island has one of the top ten foreclosure rates in the nation, and the highest rate in New England, according to a new report from Housing Works Rhode Island. Housing Works is a “coalition of nearly 140 organizations working to ensure that all Rhode Islanders have a quality, affordable home.”

The reasons for the rash of foreclosures are sadly familiar, but exacerbated due to the lack of land in the state. From the report:

“The severe undersupply of affordable homes in the Ocean State made Rhode Island susceptible to the current foreclosure crisis. Increased home prices, coupled with a decreased supply of affordable homes, reduced family incomes and increased lending, resulted in increasingly risky behavior on the part of mortgage lenders and borrowers, particularly in the subprime market.

Rhode Island’s home prices began to increase dramatically after the year 2000. Between the first quarter of 2000 and the first quarter of 2006 home prices increased at the steepest rate in the state’s history, with an average increase of almost 21% just in 2003—the highest in the united States that year. This rapid rise in home prices, up to twice the increase in other New England states, contributed to the severe shortage of homes that our working families could afford.”

Rhode Islanders have lost $5.6 billion in home equity over the past two years (The median price of a single family home has dipped from $283,500 in 2006 to $210,000 at the end of 2010). Two-thirds of local revenues in Rhode Island are generated from property taxes. The decline in home values is putting extreme pressure on local budgets. To the point where every school teacher in Providence received a notice that they could be laid off before the next school year. To make matters worse, the unemployment rate in Rhode Island was 10.9% at the end of 2010, which is down from a peak of 13.4% earlier in the year, and is also the highest in New England.

The report concludes that Rhode Island needs to “invest in strategies that will ensure a long-term supply of affordable homes” in order to eventually stabilize the housing market, attract businesses, and stay competitive.

If you live in Rhode Island, I am curious to know your take on the situation. Let me know in the comments section below.

Category: Mortgage Rates
HSBC Suspends All U.S. Foreclosures in Light of “Certain Deficiencies”
1 By Michael Kraus on March 1, 2011

Quick update on the foreclosure/robo-signing front here:

HSBC, the largest bank in Europe, announced in its 2010 Annual Report and Accounts that it is immediately suspending all U.S. foreclosures to address deficiencies in its foreclosure processes (see pages 83 and 108 of the linked pdf). Per the report:

“Following the examination, our examiners issued supervisory letters noting certain deficiencies in our processing, preparation and signing of affidavits and other documents supporting foreclosures, and in the governance of and resources devoted to our foreclosure processes, including the evaluation and monitoring of third party law firms retained to effect our foreclosures… We have suspended foreclosures until such time as we have substantially addressed noted deficiencies in our processes.”

HSBC says that it is in discussions with the Fed and the Office of the Comptroller of the Currency regarding cease and desist orders intended to address the deficiencies in the foreclosure processes. They say they cannot determine if additional fines or penalties will be imposed by regulators. They further warned investors that foreclosure documentation could be subject to increased scrutiny as a result of the regulatory investigations, and that additional delays in foreclosure could result after foreclosures resume.

The timing of this is odd to me. Back in October, HSBC’s CEO Irene Dorner claimed that the bank “[doesn't] have robo-signers, we don’t believe we have that issue.” At the time, many other lenders suspended foreclosures in response to the robo-signing crisis (these lenders have since resumed foreclosures). I can’t figure out what prompted the 180 degree turnaround over the course of four months. One would assume that HSBC, had they fully investigated the issue in October, would’ve found these deficiencies that were subsequently turned up by U.S. regulators.

Seems strange…what say you?

Category: Mortgage Rates
Big Banks Face Big Penalties For Foreclosure Flaws
By Michael Kling on February 28, 2011

Major banks, including Bank of America, Wells Fargo and Citigroup, may be penalized for foreclosure practices.

State attorneys general as well as federal regulators began investigating their foreclosure practices after banks were accused of foreclosing without the proper documents. In the robo-signing scandal, banks and their mortgage servicers approved foreclosures after only perfunctory checks of the paperwork.

How much the banks will be penalized is uncertain but the fines could be significant or, as they say in financial circles, “material.” Federal regulators and the states may seek $20 billion in penalties, according to Bloomberg.

In its regulatory filings, Bank of America stated that the investigations “could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, and result in significant legal costs.” Continue Reading…

Category: foreclosures
New Hampshire, California Uphold MERS Property Transfers, Foreclosures
By Michael Kraus on February 28, 2011

It seems increasingly likely that at some point the Supreme Court is going to have to make a ruling on the validity of real estate transfers and foreclosures through the Mortgage Electronic Registration System (MERS).

MERS is a system that was created in order to allow mortgage originators to more easily securitize mortgages and bundle them into mortgage backed securities. It enabled MERS users to avoid many of the transfer and recording fees that were typically charged by towns and counties under the paper system of transferring property. MERS is the subject of many ongoing lawsuits that seek to establish the legality of these transfers.

A ruling came down last Wednesday from the California Court of Appeals that said property transfers through MERS are legal. Judge Joan K. Irion wrote:

“Under California law, MERS may initiate a foreclosure as the nominee, or agent, of the noteholder.”

California has both judicial and non-judicial foreclosures. Lawyers said they intend to appeal the ruling. New Hampshire, which is a non-judicial foreclosure state, also upheld the validity of MERS transfers last week. Judge John Arnold of the Cheshire County Superior Court ruled:

“MERS’ status as nominee allows it to perform its core function of facilitating the tracking of mortgages… Contrary to the plaintiff’s assertions, the use of MERS as nominee is in and of itself neither fraudulent nor wrong.”

A court in Kansas has ruled similarly.

Continue Reading…

Category: Mortgage Rates
Nationwide Foreclosure Settlement In The Works Involves Loan Modifications
By Michael Kling on February 24, 2011

Federal agencies and state attorneys general are reportedly working on a comprehensive deal to force banks to write down principal balances and resolve foreclosure problems.

If an agreement is reached, the results could be huge. Banks would reduce billions of dollars worth of principal balances, and states would end their investigations of bank foreclosure practices, possibly allowing foreclosures to go ahead.

Both The Wall Street Journal and The Washington Post had articles on the possible deal in the works today. In additional to mortgage principal write downs, a settlement could cover fines for improper foreclosure proceedings being investigated by state attorneys general.

Reaching a settlement and getting the banks, federal agencies, and state attorneys general to agree would be difficult. The large number of people and the complex issues involved make the talks especially difficult.

Still, the Post said negotiations are getting closer to reaching an agreement.

The Wall Street Journal postulated that an agreement could help clear the backlog of foreclosures and help the housing market eventually recover. Continue Reading…

Category: foreclosures