Archive for January, 2009
Connecticut Attorney General Richard Blumenthal is the latest regulator to crackdown on foreclosure "rescue" scams — an increasingly troublesome issue among servicers who specialize in managing troubled mortgages, according to a number of HousingWire's sources — through proposed legislation announced Tuesday at a press conference, where he also said he is investigating several debt reduction entities for misleading consumers.
"Like quicksand, these supposed debt rescue schemes sink consumers deeper in distress the more they struggle," Blumenthal said. "We must rescue families from false rescuers, who offer lead-filled lifelines."
The AG's proposal, An Act Concerning Foreclosure Rescue Debt Reducers, would compel debt reducers to provide advance disclosures that "clearly and conspicuously explain their services, and prohibit advance fees," according to the Attorney General's Office.
Under the legislation, specifically speaking, debt reduction services would have to provide an analysis of the consumer's debt, including the likelihood that the debt can be reduced or foreclosure avoided, and a three-day right of cancellation. "My legislative proposal would ban the worst practices of these predators: profit-making organizations, deceptive pitches, advance fees and exploitive contracts," the AG said.
The legislation would also authorize the Banking Commissioner to investigate and reduce debt reducer fees that are excessive when compared to common industry fees and in relation to the consumer's financial benefit of such services.
Texas Attorney General Greg Abbot, along with Sen. Craig Estes (R-Wichita Falls) announced in December, they too were proposing new restrictions on foreclosure prevention consultants — other states, including California, are considering putting similar legislation into place as well. See Full Story.
The unfortunate reality is as the number of struggling homeowners increases, the number of scam artists looking to profit from homeowners seeking to avoid foreclosure also rises. "Rescue predators pitch a variety of financial snake oil — promises to stop foreclosure and save homes…but deliver only hardship," Blumenthal said.
Blumenthal and other regulators alike have decided it's time to step-in, often through new legislation, in order to protect their citizens.
"My office will use existing law to fight any debt reducer that deceives consumers but stronger laws are vital," Blumenthal said.
Write to Kelly Curran at kelly.curran@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
The U.S. Treasury Department on Tuesday released a Congressional report detailing the expenditures so far through the Troubled Asset Relief Program. What the report left out was information regarding the funds promised but not yet paid. For instance, when detailing the automakers' bailout, the report is careful to list the all of the various funds given (and promised) to General Motors Corp. (GM: 24.37 -1.42%) and GMAC LLC, but fails to mention the $4 billion also promised to Chrysler LLC.
Although the report lacks the large-scale details of just how $350 billion was allocated since Oct. 28, 2008 — when the capital injections began — it includes lots of minutiae. The smallest purchase made under the Capital Purchase Program occurred on Dec. 23 when the Treasury bought $1.8 million in preferred stock from Chula Vista, Calif.-based Seacoast Commerce Bank. The largest purchases made under the Capital Purchase Program occurred on Oct. 28, when the Treasury injected $25 billion each into JPMorgan Chase & Co. (JPM: 37.21 -0.75%), Wells Fargo & Co. (WFC: 29.60 +1.89%) and Citigroup Inc. (C: 30.87 +1.61%), which would later on Dec. 31 receive an additional $20 billion through the Targeted Investment Program. And, of course, there was American International Group Inc. (AIG: 25.25 +0.44%) which, on Nov. 25, gobbled up $40 billion to repay an earlier Federal Reserve loan and keep afloat.
"These investments have improved the capitalization of these institutions, which is essential to improving the flow of credit to businesses and consumers and boosting the confidence of depositors, investors, and counterparties alike," the report read, in part. "With higher capital levels and restored confidence, banks can continue to play their vital role as lenders in our communities, a necessary requisite for economic recovery and a return to prosperity."
According to the numbers the Treasury reported to Congress, total TARP expenditure comes to $262.9 billion. That's $187.5 billion in invested in 214 U.S. financial institutions through the Capital Purchase Program, a $40 billion preferred stock purchase from AIG, a $20 billion purchase in preferred stock and warrants from Citigroup on Dec. 31, and up to $15.4 billion total invested in GM and GMAC (some of that is still pending). The Treasury also reported some TARP administrative expenses — a $0.7 million compensation for personnel services and a $3.9 million expenditure in non-personnel services expenses — through Dec. 31, 2008. Even with the administrative fees accounted for, the Treasury is still lacking some transparency in reporting exactly where all of its $350 billion has gone, although it has acknowledged in the past its funds had been depleted.
"As a result of this decision, Treasury effectively has allocated the first $350 billion from the TARP," the Treasury said in a media statement regarding the automakers' bailout. "The actual disbursement of this amount is subject to approval of bank capital applications, many of which remain with the regulators and will not reach Treasury for review until early next year."
Overdrawn TARP account
It's a given at this point in U.S. history that the government will always exist under a mountain of deficit (the Congressional Budget Office estimated Wednesday that the government will run a $1.2 trillion budget deficit in 2009, according to a MarketWatch bulletin). With an economy based on consumerism and Americans' insatiable appetite for debt, it's only natural that Treasury secretary Henry Paulson's TARP gifts would exceed the actual amount in his $350 billion coin purse. The only question now is, by how much? And where did all those funds go?
According to a mid-December article on CNNMoney.com, the allocations only totaled $348.4 billion, to just within $1.6 billion of the remaining TARP funds lining Paulson's pockets. After the $6 billion pledged to GMAC upon receiving its go-ahead to become a bank holding company, the Treasury's TARP allocations had come to $354.4 billion, according to a Washington Post article last week. The $91.5 billion discrepancy between what the Treasury reported and what it really has allocated is more than just a bank error or a failure to carry the one in calculations.
Of course, the argument by some is that Paulson has only promised $354.4 billion, but has yet to pay out all of the funds. The reasoning seems to be he can promise all the capital injections he wants on the understanding that he will some day have the money. Either Paulson will argue successfully for the release of the other $350 billion in funds, or he will be forced to break promises he's already made.
Of import here is the simple fact Paulson has promised more funds than he has has in his coin purse, and lawmakers have consistently said the remainder of the TARP funds will not be released without specific action by the Treasury to help out the everyday homeowner. At the moment, the Federal Reserve seems to be doing more for mortgages with its recent rate cuts (with the idea cheap money will circulate down into mortgage finance) and its plan to purchase illiquid mortgage-backed securities, which it began doing Monday. Such was the original intent of the TARP funds granted to the Treasury before Paulson announced in November the strategy had changed to a focus on non-bank capital.
So by now, ineffectual Treasury action and double standards should no longer surprise when Paulson announces he's temporarily bailed out the automakers' balance sheets and in the process promised aid beyond his means. The next step will likely be a plea to Congress for additional funds — a bailout for the bailout, as it were.
"As previously indicated, Treasury will work with Congress and the President-elect's transition team on the appropriate timing for release of the remainder of the TARP funds to support financial market stability," the Treasury said in the press release regarding GMAC's bailout. It was a short reminder that the Treasury was aware it was exceeding its spending limit but, in the traditional American fashion, it would worry about that later.
Write to Diana Golobay at diana.golobay@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
Private National Mortgage Acceptance Company, LLC — that's PennyMac to you and I — said Wednesday morning that investment funds managed by its affiliate, PNMAC Capital Management, LLC, had recently completed the purchase of $558 million in residential mortgage loans from the Federal Deposit Insurance Corporation. The loans were formerly held by the First National Bank of Nevada, closed by the Office of the Comptroller of the Currency in July; the FDIC was named receiver.
The transaction is the first structured sale of a non-construction residential mortgage loan portfolio by the FDIC to date, PennyMac said in a press statement. Details of the transaction, including any loss-sharing arrangement, were not disclosed.
"We are excited about investing in and managing mortgages in this unique transaction where we share in the economics with the FDIC," said Stanford Kurland, PennyMac's chairman and CEO, and a former executive at Countrywide Financial.
Mortgage servicing of the loan portfolio will be performed by PennyMac Loan Services, LLC, a wholly-owned subsidiary of PennyMac; the company said it will apply the FDIC's loan modification programs, as part of the terms of acquisition.
PennyMac was formed in March 2008 by BlackRock, Inc. (BLK: 187.49 -0.20%), Highfields Capital, and a management team of mortgage industry veterans led by Kurland to address the ongoing dislocations in the U.S. mortgage market. The company has a $2 billion war chest to use towards buying distressed residential mortgage assets.
More than a few huge hedge funds and distressed asset specialists are lining up captive servicing operations, of course, with the distinct goal of buying distressed mortgages and then actually keeping the borrower in their home. Beyond PennyMac, another such example is San Diego-based National Asset Direct, which owns its own servicing shop called iServe Servicing; Marathon Asset Management, LLC, which boasts more than $20 billion in assets, is also buying up distressed mortgages and is also pumping the mortgages it buys to its own captive servicing operation, Phoenix-based Marix Servicing, LLC.
Most fund-captive servicers are also aggressively competing for business from third-party investors, as well; a number of new breed servicers have stepped in to compete for this business as well, including Dallas-based Acqura Loan Services.
Investor sources tell HW they expect a brisk transaction volume among investors in residential mortgages during 2009; look for full coverage of investor trends in an upcoming HousingWire Magazine feature. Don't subscribe? Click here to start getting the only independent monthly covering the entire mortgage market.
Write to Paul Jackson at paul.jackson@housingwire.com.
Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.
One of my favorite catch-phrases from last year comes courtesy of Calculated Risk — if you aren't reading that blog, you should be. And it look like we've got another case of a market participant taking a loss they didn't see coming even a few months ago.
United Community Banks Inc. posted $76 million in loan loss provision, with $56 million in net charge-offs, during Q3. And they said at the time as follows:
… we certainly don't see a recurrence of the third quarter charge-off level in the immediate future.
You know what's coming next, right? Uh-huh. A Q4 loan loss provision of $85 million, with an expected $74 million in charge-offs, per a warning released by the firm yesterday evening. Whoocoodanode, indeed.
But it also underscores how enduring the nation's real estate crisis is, as the loss provision and charge-offs are coming out of construction portfolios at the Georgia-based bank. If UCBI can't quite get it right, I think perhaps its an early indicator of what we might want to be thinking about as we look at the upcoming Q4 2008 earnings season, too.
Application volume fell 8.2 percent, seasonally-adjusted, according to data released Wednesday morning by the Mortgage Bankers Association; yet, it appears that while the number of total applications fell, the number of households looking to obtain a loan actually increased.
The MBA's weekly application index found a 12.3 percent drop in refinancing application activity, while purchase apps increased 7.3 percent; all figures are adjusted for the holiday-shortened New Year's week. Yet, while composite application index totals fell at the MBA, the MAX index — which tracks the number of households applying for a mortgage, rather than the number of applications — found a 5 percent weekly rise in household applications, seasonally-adjusted.
Much of the increase in household applications came outside of California, as well, according to New York-based Mortgage Maxx, LLC, which publishes the MAX data and provides prepayment estimates to numerous secondary mortgage market participants. A California MAX index found a 4.5 percent drop in applications within the Golden State for the week ended Jan. 2.
Lenders have been faced with a veritable refinancing boom in recent weeks, leading the MBA's app index to soar as borrowers flooded the market with applications. The picture being painted by the data this week suggests that refi activity likely remained strong, although borrowers looking to refinance (or purchase) submitted fewer applications per household in their effort to obtain a new loan.
The MBA reported that interest in both conventional and government loans remained strong last week, up 2.3 percent and 19.2 percent, respectively. Refinance share of overall applications fell from 82.9 percent to 79.8 percent of all applications received by reporting lenders, according to the Washington-based industry group.
The question, of course, is how long lenders will see this surge in borrower interest; relatedly, it's questionable if even strong household demand for a mortgage translates into funded mortgages, given tighter underwriting standards. Brokers informed HousingWire Tuesday, however, that they were locking loans at 4.5 percent — a level that seems likely to drive further increases in application activity for at least the next few weeks, if rates remain at that level.
"The success of initial apps to new loans has been disintegrating all during the past year," said MAX publisher Paul Descloux. "Though the MAX is correctly measuring initial demand, the ultimate outcome for successful new mortgage originations may in fact be much lower."
He suggested that agency CPRs — CPRs measure prepayment rates and are fundamental to secondary mortgage market participants in buying and selling bonds — could easily double from current levels, yet "still be considered historically tame."
For more information, visit http://www.mortgagebankers.org and http://www.mortgagemaxx.us.
Write to Paul Jackson at paul.jackson@housingwire.com.
If you do nothing else today, I recommend taking a look at this, via the NYT's DealBook. It's becoming pretty clear that GMAC got a sweet deal in taking money from the government, despite efforts from lawmakers and regulators to suggest that the taxpayer handout came under duress and with onerous terms.
Consider:
Unlike other Treasury investments under the TARP, Treasury is not receiving warrants convertible into common equity of GMAC and so will receive no upside. Instead, the best Treasury can do on this deal is be paid back its investment plus interest. In addition, the 5 percent warrant value is below the 15 percent in value that other TARP recipients had to agree to and the program requirements specify.
That's just for starters. The GMAC deal essentially gives the freshly-flush financier a competitive edge in free market government-controlled competition, too:
The day after the completion of the infusion, General Motors announced “Significant New Loan Financing as Low as 0% APR” and GMAC lowered its credit score for financing to 621, which is one point above what is generally considered a subprime loan. Both entities asserted that these new offers were made possible by the government bailout. Of course, the sales that G.M. reaps on the government’s financing subsidy will come at the expense of Ford and the transplant automakers. Notably, Ford has refused government funds so far and is now being penalized at taxpayer expense. How about them apples?
I'm not a huge fan of Ford, personally, but it has to hurt to decide to go it alone and then see a competitor blow by you in a government-sponsored ride. A Ford representative sent a tweet to me the other day noting that the company had increased its market share over the past three quarters and performed better than the rest of the Big 6 in sales during a literally HORRIBLE December (feel free to follow me over at Twitter via @pjackson). Worse yet, all of the taxpayer money now put at risk is likely to really be at risk, if you follow the reasoning of analysts like Christopher Whalen over at Institutional Risk Analytics.
Whalen thinks the infusion of fresh capital into GMAC changes little about the future outlook for a company that is literally bleeding cash:
At the end of Q3 2008, the $211 billion asset business was imploding, to put it generously. Revenue and assets were down from a year ago, and GMAC LLC showed an operating loss of $2.6 billion in Q3 and $5.5 billion for the nine months ended September 30, 2008. Add $6 billion in fresh TARP funds and you buy a couple of quarters more operating losses – maybe.
… As in the case of the conversions by Goldman Sachs, Morgan Stanley and American Express, the GMAC transformation into a BHC does not solve the underlying business issues that somebody, at some point in time, must address.
An emerging fiscal policy of strong market intervention, married with quantitative easing on the monetary policy side of the fence, will still likely have little power in the end to stop an entire financial market from operating otherwise rationally: in other words, home prices will correct, risk will be repriced, and well-managed firms will earn their way out of this mess. As Whalen notes, intervention ultimately won't solve for poorly run companies that made bad choices; likewise, all the extra money in the world won't stop banks from deleveraging, or home prices from reaching some semblance of balance in line with household incomes.
Yet it appears that such strong intervention and a willingness to flood the markets with capital just might help poorly run companies — and, yes, I think GMAC fits that bill — temporarily leapfrog past competitors that had until recently been seen regularly running past them in the open market. At least, until the run out of cash again. Ditto for the housing market, where a growing determination to stop foreclosures at all costs seems increasingly likely to confer below-market rates and better loan terms to the most troubled of borrowers, rather than to the healthiest.
Pending home sales continued to decline in November, according to data released Tuesday by the National Association of Realtors. An index of sales contracts on existing U.S. homes fell 4 percent in November from the previous month and 5.3 percent from the prior year. The index seen in October, originally reported at a 0.7 decline to 88.9, was revised to an index of 85.7, indicating a much steeper decline than estimated at the time. Indices fell across the nation with pending home sale declines of 7.2 percent in the Northeast region, 6.7 percent in the Midwest, 2.4 percent in the West and 2.2 percent in the South.
In the face of bleak numbers, NAR economists urged Congressional action on a possible real estate-focused stimulus plan that would offer incentives to borrowers and "unclog the mortgage pipeline."
“It’s crucial for Congress and the new administration to move quickly to remove impediments and offer home buyers the incentives they need to tap into today’s historic low mortgage interest rates,” said NAR president Charles McMillan, a broker at Dallas-based Coldwell Banker Residential Brokerage.
In the mean time, home prices and sales volumes have continued to decline, according to data released Tuesday by New York-based real estate data and analytics firm Radar Logic Inc. Prices and sales volume decreased more in Oct. 2008 than in any other Oct. since the company’s data set began in Jan. 2000. Home prices among the company’s 25-city metropolitan statistical area (MSA) index fell fell 2.7 percent in October alone, the largest decline recorded by the company. Five MSAs saw their largest month-over-month price declines, Radar Logic said in a press statement, while 13 MSAs saw their largest year-over-year declines.
As bad as it sounds, things may have to get worse before they get better, according to a survey of 25 economists conducted in December by the Bureau of National Affairs Inc. (BNA) The survey results, released last week, suggest a general consensus that the recession will last another six months before easing, and that recovery in the financial markets will be slow.
"The gradual resumption of growth starting in the third quarter is likely to hinge on the success of the federal government’s massive economic stimulus and financial intervention efforts," BNA analysts said in a press statement. Economists surveyed indicated a belief the Federal Reserve will maintain the historic low target for key interest rate — now holding at a range of zero to 0.25 percent — before raising it at the end of 2009. Because of the Fed's efforts, the survey respondents indicated inflation is likely to remain low, while core inflation will slow.
And, while the BNA survey suggests federal economic stimulus may help resolve the financial crisis, the survey's respondents warn there are likely hurdles to a full recovery. "Major risks to the economy include uncertainty about the extent of bad investments in mortgage and other securities," BNA analysts wrote.
Write to Diana Golobay at diana.golobay@housingwire.com.
On Wednesday, the Financial Accounting Standards Board is expected to vote on a change to the rules governing guidance for certain beneficial interests in asset securitizations. FSP EITF 99-20-A would amend rules for “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Assets” (issued as an Emerging Issues Task Force 99-20 guidance, effective after March 15, 2001).
Normally, even small changes to accounting guidance can take FASB months or years to bring forward — and usually require comment periods of at least 15 days. But this change was proposed on Dec. 15, and the Board agreed to issue an exposure draft (reluctantly, according to many accounts of the open meeting) under an expedited process to make the new treatment available for reporting of the final quarter of 2008. Given the timetable, the draft was released Dec. 19, and comments closed Dec. 30.
The rule was rushed through the FASB process apparently at the bidding of the Securities and Exchange Commission. For example, last October, in the course of resolving impairment issues created by the hybrid (debt-equity) nature of perpetual preferred securities, SEC Chief Accountant Conrad Hewitt asked FASB to “expeditiously address issues that have arisen in the application of the OTTI model in Statement 115.”
Unhappiness with current OTTI (other-than-temporary impairment) guidance has been a persistent theme at recent roundtables on fair value accounting held by the SEC (pursuant to performing a study of mark-to-market accounting under Section 133 of the Emergency Economic Stabilization Act of 2008), and on issues raised by the credit crisis held jointly by FASB and IASB. Multiple, inconsistent models exist for determining whether a financial instrument is other-than-temporarily impaired. Worse, because holders are required to write an OTTI security down to fair value, the loss taken through earnings (and against capital) includes wide liquidity spreads and adverse interest rate changes, which could reverse during the anticipated holding period, along with any actual credit impairment.
The proposal eliminates language in EITF 99-20 that incorporates “cash flows that a market participant would use” in the procedure for measuring OTTI. Instead the holder is directed to follow the guidance in paragraph 15 of FAS 115.
In other words, confusion has been reduced. But the impact of the change is likely limited. First, the scope of EITF 99-20 is limited to regular interests in securitizations that are rated single-A or lower, interest-only interests and residual interests. Except for the residual interests held by large banks that sponsored private MBS and ABS, or interests brought back on the balance sheets of institutions that sponsored ABCP, SIV and other types of structured financing conduits, exposures to EITF 99-20 securities in regulated institutions should be limited by risk-based capital requirements.
The larger problem for banks, insurers and other regulated institutions lies with higher rated (at least at issue) MBS, ABS, CDOs and beneficial interests that were always within the scope of FAS 115. And paragraph 16 of FAS 115 offers only this criteria for determining if an impaired security (fair value below amortized cost) is OTTI:
For example, if it is probably that the investor will be unable to collect all amounts due according to the contractual terms of a debt security not impaired at acquisition, an other-than-temporary impairment shall be considered to have occurred.
More detailed guidance is available from the SEC. Management should use all available evidence to determine the realizable value of an investment, including “the length of time and the extent to which the market value has been less than cost.”
Reflecting this guidance, accountants and audit firms have developed bright line rules along the lines of “x percent decline for y months.” Additional information — an actual downgrade, for instance — might also be used. But in the current environment, steep declines in price from original cost are treated as evidence from market participants that credit risk has risen, and/or that the probability that amounts due will be paid has declined.
A couple of comments on the proposed changes, including a detailed letter from Wells Fargo, give examples of losses created by presuming OTTI from fair values derived from illiquid markets. For instance, Wells cites a triple-A class of a collateralized loan agreement (CLO) with credit support of 30 percent provided by subordinate classes. Moreover, 33 percent of the collateral is currently in cash. With only one credit in default, the cumulative default rate is 0.8 percent, and the resultant loss rate expected to be 0.4 percent. The November month-end broker mark was 22 points, for a 33 percent yield — levels that would automatically would trigger OTTI by independent auditors and result in roughly an 88 point write down (assuming the bond is a floater, acquired close to par).
Over 250 comment letters were received by the deadline, despite the fact that the comment period coincided with Boxing Day, Hanukkah, Kwanzaa, Los Posadas, Christmas Eve and Christmas Day, as one opponent, the Council of Institutional Investors noted. A small minority objected — typically on the grounds that the changes are a step back from fair value accounting, and the process did not allow an adequate comment period. Supporters were overwhelmingly banks, many sending substantially the same letter asserting the change is merely “a first step.”
A second step — at least from the point of view of financial institutions grappling with OTTI — is now on FASB’s agenda. At the Dec. 15 meeting, FASB also agreed to consider whether previously recognized OTTI losses on debt securities classified as held-to-maturity and available-for-sale could be reversed through earnings. This would more closely align impairment accounting for securities with that provided for loans and for held-to-maturity securities under International Financial Reporting Standards.
Editor's note: Linda Lowell is a 20-year-plus veteran of MBS and ABS research at a handful of Wall Street firms. She is currently principal of OffStreet Research LLC, and writes regularly at Market News International.
Underscoring just how divisive the nation's mortgage crisis has become, a new study released Tuesday morning finds that 51 percent of Americans oppose using Federal bailout funds to help pay the mortgages of homeowners who are in default; 43 percent, in contrast, favor helping borrowers in trouble.
The survey, conducted by Reecon Advisors, Inc. — a firm founded by well-known former National Association of Realtors chief economist David Lereah — found that opposition to using bailout money to help defaulters is greatest among men (58.3 percent), elderly (56.2 percent) and those living in the Northeast (56.1 percent). Support for helping defaulting homeowners is greatest among young people age 18 to 24 (69.1 percent) and those earning less than $20,000 a year (60.1 percent).
"These findings indicate that there are significant political barriers to proposals now being drafted in Congress to use some of the remaining $700 billion of bailout funds to help stem foreclosures by helping defaulting homeowners with their mortgages," said Lereah, who noted that the outcome of current housing proposals being debated by Congress could shape real estate "for many years to come."
The survey also found that consumer confidence in real estate is significantly higher than the stock market, despite the depression in property values. By a wide margin of 53.7 percent to 30.8 percent, those surveyed still think real estate is a better long-term investment than the stock market, considering the current economic situation. Confidence in real estate is highest in the South (58.6 percent) and West (58.4 percent), and among young people 18 to 24 (63.8 percent). The stock market, however, ranks highest with those aged 35-49 (34.7 percent).
Lereah was widely ridiculed by housing bears for cheerleading housing during the recent boom cycle, when he served as the chief economist at the NAR. After leaving the realtor-led lobbying group last year, the economist now says he has become much more bearish on real estate than he was earlier. "I was a public spokesman writing about housing having a good future," Lereah told Money Magazine in a recent interview. "I was wrong. I have to take responsibility for that."
"I never thought the whole national real estate market would burst," he told the magazine. Lereah now says he expects home prices to fall another 5 to 10 percent during 2009.
Write to Paul Jackson at paul.jackson@housingwire.com.
An investigation by New York Attorney General Andrew Cuomo into alleged predatory lending practices at GreenPoint Mortgage Funding, Inc. has led the crusading AG to take the state's first law enforcement action against mortgage brokers for predatory and discriminatory lending practices. The two brokers in question — HCI Mortgage and Consumer One Mortgage — admitted they charged higher fees to 455 black and Latino borrowers relative to their white counterparts, and agreed to pay $665,000 collectively in restitution to affected borrowers. Both brokerages operate more than 20 branch location in the state.
“The blatant discrimination in this case is as illegal as it is inexcusable,” said Cuomo in a press statement. “These customers were charged significantly higher fees for no reason other than being a minority."
Cuomo's office said in a statement that the AG's staff, in conjunction with the New York State Banking Department and unnamed fair lending experts, conducted statistical analyses of loans arranged by HCI Mortgage and Consumer One; the research found evidence Black and Latino borrowers were charged several thousand dollars more in up-front fees than White borrowers.
Latino borrowers who received a single home mortgage loan through HCI Mortgage paid on average 55 percent more in fees, or about $2680, than white customers, while African-American borrowers who received a single home mortgage loan were charged about 46 percent more in fees than white customers, or $2260 — disparities Cuomo's office said could not be explained by borrower, property, or loan characteristics, including credit score or loan amount.
Both companies did "substantial business with GreenPoint," Cuomo's office said. Representatives from both mortgage brokerage firms did not respond to a request for comment by the time this story was published.
A third company, U.S. Capital Funding, is also the subject of a Cuomo lawsuit after it did not agree to similar settlement terms; the company brokered roughly 300 loans in New York state during 2006 and 2007, the New York AG said.
Write to Paul Jackson at paul.jackson@housingwire.com.
