Archive for January, 2009
Housing markets in key major metropolitan areas endured their worst Oct. in at least eight years — and perhaps longer, as the number of distressed property sales managed to push recorded home prices downward further and a number of key MSAs saw sales volume drop sharply. According to a report from New York-based real estate data and analytics firm Radar Logic, Inc., released Tuesday morning, home prices and sales volumes 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 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.
Home sales across the 25 MSAs tracked by the firm declined by 14.9 percent during October, but sales in Sun Belt cities remained elevated relative to Oct. 2007 as "motivated sales" grew rapidly, weighing heavily on prices. As a result, eight of the ten MSAs with the largest year-over-year increases in sales volume were also among the ten MSAs that experienced the greatest year-over-year price declines.
Motivated sales refer to foreclosure auction sales and liquidity-driven sales by financial institutions and foreclosure service firms. The New York firm's data is the basis for the Residential Property Index, or RPX, used as the basis for futures trading in housing markets; the company's pricing metrics are normalized to price-per-square foot.
"Motivated sales continue to be a major factor in most markets tracked by the RPX," said Michael Feder, CEO of Radar Logic. "Until action, if any, out of Washington becomes clear, it is difficult to know if this is a long-term phenomenon or if it will work its way through and, as a result, prices will begin to recover."
For the fourth month in a row, Milwaukee, WI was at the top of the 25 MSAs tracked by the firm in October. Home prices in Milwaukee were 5.3 percent higher than they were a year before, making Milwaukee the only MSA tracked by Radar Logic to experience year-over-year price appreciation in October. San Francisco was at the bottom of the rankings, in contrast, with 34.4 percent year-over-year price decline per-square-foot. Detroit, Las Vegas, Phoenix, San Diego and Seattle saw their largest month-over-month price declines since January 2000, as well, Radar Logic said.
Some good news? If there was any, it's this: while motivated sales have grown a whopping 193 percent across the 25 MSAs tracked by the firm between Jan. 1 and Oct. 31, the rate of growth slowed over the first three quarters and actually turned negative in October, when 18 of 25 MSAs saw motivated sales decrease.
Slower growth in distressed property sales could portend some help for housing prices, considering that the composite price for motivated sales was between 32 percent and 39 percent lower than the composite price for other sales. But it's unclear just how much of that slowing rate reflects voluntary or involuntary foreclosure moratoria that were just beginning to take effect three months ago.
Write to Paul Jackson at paul.jackson@housingwire.com.
The chief of the Federal Reserve Bank of St. Louis thinks monetary policy as we know it is dead. Gone. Kaput. No longer alive, after the Fed recently targeted an effective federal funds rate of zero to 0.25 percent in its most recent policy statement on Dec. 16.
"The fact is, monetary policy defined as movements in short-term nominal interest rates is coming to an end, at least for now," St. Louis Fed president James Bullard wrote in a recent bimonthly review published by the bank. "It's a funeral for a friend."
Strong words, but perhaps also stark message for financial market participants over what Fed policy will look to do over the months ahead. Bullard acknowledged the Japanese experience, where nominal interest rates fell to zero and the country felt the strong crack of crushing deflation that led to a so-called "lost decade" — and argued that quantitative measures are likely needed to fight what he suggested is a risk of long-term inflation. (Fed-speak uses esoteric terms like "quantitative easing," but it's simpler than it sounds: quantitative refers to the money supply, while easing refers to increasing — so quantitative easing is flooding the market with money, in the hopes that some of it gets lent out.)
Bulllard argues that more attention will need to be paid to controlling inflation going forward, as a result of recent Fed policy of increasing the money supply; but he also argues that deflation is just as credible a threat for financial markets — particularly for mortgage markets.
"Deflation, should it occur in the United States, might be particularly challenging because some of our current core problems are in housing markets, where contracts are written in nominal terms," he wrote. "An unexpected deflation would make those contracts more expensive for borrowers."
The rise of fiscal policy
As the influence of monetary policy wanes — something that every mortgage market participant should be cognizant of, relative to monetary policy's historic effect upon mortgage rates — Bullard suggests that fiscal policy is rising to renewed prominence after years of being shunned by most major economists. (For those unfamiliar with the difference, monetary policy refers to the management of the nation's money supply; fiscal policy refers to the management of spending, usually via taxes.)
"To the extent there are stabilization goals—goals requiring time-critical policy interventions—the usual idea is that certain types of tax cuts might be beneficial,but that otherwise the effort is best left to monetary policy," Bullard suggests. "Not least in this thinking is that the Fed can act relatively quickly, while the political process tends to be much slower and more cumbersome."
Of course, as Bullard notes, 2008 proved that notion at least somewhat wrong, with Congress passing sweeping stimulus and intervention policies not once, but twice during the year. Fannie Mae (FNM: 0.00 N/A) and Freddie Mac (FRE: 0.00 N/A) were taken over by the government; tax rebates were pushed through to consumers; and that's not to mention the $700 billion blank check given to the U.S. Treasury via the TARP legislation. And you can expect much more of that in 2009, if reports of the stimulus package being considered by Obama and his advisors are correct.
"While the Fed will continue to be innovative in providing liquidity to markets through existing facilities and possibly some new programs, an important part of the response to ongoing financial market turmoil will come from fiscal policy intervention," Bullard wrote. "This runs counter to much of the thinking in macroeconomic policy circles over the past two decades."
Which, in many ways, seems oddly appropos. After all, what we're seeing in the nation's primary and secondary mortgage markets runs counter to much of the traditional thinking that has existed in mortgage banking for the past few decades, too. That a need to re-examine our assumptions about mortgage banking is coinciding with a need to re-examine our assumptions about the financial markets should suggest just how far-reaching a crisis that began with subprime mortgage really has become.
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.
The latest round of economic stimulus currently being crafted by Senate Democrats is likely to include controversial legislation allowing so-called "cram-downs" of mortgage debt in bankruptcy, according to a Reuters report Monday evening. The proposal, long opposed by key lobbyists in the mortgage industry, would allow judges to reduce mortgage debt on primary residences as part of a bankrupt borrower's debt restructuring plan.
House Democrats are likely to unveil legislation on bankruptcy reform that allow cram-downs Tuesday morning, Reuters reported; Rep. Brad Miller (D-NC), a member of the House Financial Services Committee, is set to introduce the bankruptcy reform bill, the news agency said. House Democrats are counting on the support of Sen. Richard Durbin (D-IL), who in November re-introduced similar legislation to reform bankruptcy law in order to allow for cram-downs.
Democrats, including Durbin in particular, have long advocated allowing judges to modify principal amounts of mortgages on primary residences in Chapter 13 bankruptcy cases filed by debtors; currently, such modifications are precluded by law. In contrast, Republicans and most industry groups have strongly opposed so-called ‘debt cram-down’ proposals for mortgages, saying that allowing cram-downs would add to the costs of a mortgage for most consumers and swell the ranks of borrowers filing for bankruptcy protection.
Senate Democrats tried and failed to get cram-down provisions included in the Housing and Economic Recovery Act of 2008 during July; and they tried again during bargaining over the Emergency Economic Stabilization Act, as well. President-elect Barack Obama, however, has said repeatedly that his administration will make passing cram-down legislation a priority when he takes office in January.
"Economic conditions have only worsened since we last debated this plan," Miller told Reuters, in an interview. "Until we stop the slide in foreclosures and falling home prices, the economy will get worse still."
But the top lobbyist at the Mortgage Bankers Association, Francis Creighton, told the news service that allowing cram-downs would lock "the pendulum" of credit "at an overly restrictive point." The mortgage lobbying group has said that it believes allowing cram-downs would boost mortgage rates by 1.5 to 2 percent, according to Congressional testimony in Oct. 2007 by MBA chairman David Kittle.
For his part, the current push represents the second time at bat from Miller, who has long pushed for cram-downs; he co-sponsored a proposed bill to allow for cram-downs in 2007, a measure that Kittle characterized at the time as "a sledgehammer attack" on secured lending.
Write to Paul Jackson at paul.jackson@housingwire.com.
The Federal Reserve Bank of New York said on Monday morning that it had begun buying mortgage-backed securities guaranteed by Fannie Mae (FNM: 0.00 N/A), Freddie Mac (FRE: 0.00 N/A) and Ginnie Mae as part of an earlier announced $500 billion program. The Fed had announced on Nov. 25 that it would initiate a program to purchase up to $100 billion GSE direct obligations and $500 billion MBS backed by the agencies in an effort to replace waning demand from foreign and other more traditional buyers of mortgage bonds.
MBS prices popped in very early trading Monday, as a result — the FNMA 30-yr 4.5 was seen trading at 101.20 at one point early Monday morning, up 20/32 — before retreating slightly to a more modest gain (prices were +16/32 when this story was published). Longer-term Treasuries, however, saw prices fall (and yields rise) amid speculation that the government will look to sell $50 billion in Treasuries this week as part of an effort to lessen the recession's bite. The yield on the 10-year note had increased seven basis points, or 0.07 percentage point, to 2.41 percent by 10am EST Monday morning, Bloomberg reported.
In an announcement over the holidays, the Fed suggested that its purchase program will run through the second quarter — a much tighter window than most analysts had projected. "When the Fed initially announced the plan to buy agency MBS in November, they indicated that $500 billion agency MBS will be purchased in 'several' quarters and the market interpreted 'several' quarters to mean that these purchases will occur in no less than four quarters," analysts at Bank of America (BAC: 7.29 -0.14%) wrote last week. "Obviously, this change in language indicates a lot stronger short-term support to the agency MBS market than originally assumed."
“The potential size of the Fed’s purchase program can take down most of the 2009 agency MBS net supply,” analysts Derek Chen and Nicholas Strand at Barclays Capital said in a research report. Both Chen and Strand believe the Fed program could drive primary mortgage rates down to 4.5 percent, stimulating further refinancing activity, although a huge refi boom — last seen in 2003 — isn’t likely without looser underwriting.
Under the program, only fixed-rate agency MBS securities are eligible assets for the program, including 30-year, 20-year and 15-year securities. The program does not include CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents, a program information sheet said; the Fed will trade in specified pools, TBA transactions, and in the dollar roll market. BofA strategists last week had singled out the use of dollar rolls as "a positive development for the pass-through market, as it will bring back some semblance of normalcy to the roll market in 2009."
Of course, the challenge here is funding the MBS purchase program, which the government has said it intends to do by printing more money; as we noted last week, we agree with other strategists who have suggested that such an approach should have market participants focused on a potential inflationary response towards the back half of next year, as a result. Printing money does have a cost associated with it, after all.
Write to Paul Jackson at paul.jackson@housingwire.com.
You know it's bad when a home builder is forced to sell its own properties — the model homes it uses to attract buyers — and sign leases on them instead. In the midst of a boom in residential mortgage refinancing activity and recent efforts to stave off foreclosures through voluntary modification programs and foreclosure moratoriums, it sounds reasonable that struggling home owners are either refinancing out of their current mortgages or getting out of the home owning sector and back into the renter's market in order to make ends meet. Apparently, such is now the case with at least one luxury home builder.
An Irvine, Calif.-based residential land development and home building company announced Friday it had sold 17 model homes for $25 million — that's an average $1.47 million each — to an unnamed investor who turned around and leased the homes back to the company. California Coastal Communities, Inc. (CALC: 0.00 N/A) said it received $22.5 million up front for the transaction with an additional $2 million deferred payment and a $500,000 reserve payable for conversion of the model homes for sale to home buyers after the eventual termination of the lease.
"The sale and leaseback of the model homes at our Brightwater project increases our liquidity and improves our company's financial position during this extraordinarily difficult time in the housing market," said company CEO Raymond Pacini in a press statement.
The company used $10.2 million of the sale proceeds to make repayments to its investor and reduce the payments that will be due in 2009. With another $10.7 million paid to reduce the balance outstanding under its revolving credit agreement — which allows the company to re-borrow the funds — the company boasts just $16 million in total liquidity. Though not a relatively large number to begin with, the company's liquidity appears neutralized altogether when taken in beside the outstanding inventory at a single community.
The company reported the backlog of inventory at its Brightwater community, where the models were sold, stands at seven — that's seven homes, not seven months — with a combined value of $16.6 million. Although the company sold seven Brightwater homes during the fourth quarter 2008 at an average of $2.1 million, it only "delivered" 40 in all of 2008 — and that total includes the sales of the models. So, the company's backlog of inventory at Brightwater alone accounts for roughly a third of the its total business for fiscal year 2008, not accounting for the models sold and leased back.
"The continuing loss of consumer confidence during the financial crisis worsened in mid-September, and coupled with the moribund state of the residential mortgage market, has negatively impacted our new orders in the fourth quarter," Pacini said. "We are hopeful that the federal government's measures, designed to revive the mortgage market and restore consumer confidence, will enhance our efforts as we begin the 2009 selling season."
The Federal Reserve Bank of New York said on Monday morning that it had begun buying mortgage-backed securities guaranteed by Fannie Mae (FNM: 0.00 N/A), Freddie Mac (FRE: 0.00 N/A) and Ginnie Mae as part of an earlier announced $500 billion program. In an announcement over the holidays, the Fed suggested that its purchase program will run through the second quarter 2009– a much tighter window than most analysts had projected — and the government has said it intends to pay for the program by printing more money, which may likely lead to inflation and other negative responses.
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.
We've wasted no time in ramping up our magazine coverage via HousingWire Magazine for 2009. With 11 issues planned for this year, we're getting started with a bang — the Jan/Feb issue, our last bi-monthly issue before we begin monthly publication, is going to begin hitting subscriber's mailboxes this week through next. If you don't subscribe, here's what you need to know: the magazine focuses on in-depth analysis and trends, as well as investigative reports, moreso than the leading-edge news we cover daily on our website.
And we've been getting RAVE reviews for our work in the first two issues from subscribers.
In the Jan/Feb issue about to hit mailboxes is an exclusive look at what lies ahead for the nation's economic and housing markets, and what it means for mortgage banking this year. A dear colleague, Christopher Whalen over at Institutional Risk Analytics, contributes an insightful analysis of current market conditions and weighs in on where banking liquidity — and mortgage lending — is likely to center itself in the months ahead. We've also got interviews with many of the nation's leading economic thinkers on the search for housing's bottom, including Wellesley College economics professor Karl Case, namesake of the Case-Shiller home price indices; and an insightful take on economic change from New York-based history professor Mike Weston.
Beyond that, some of the other content in the upcoming issue:
- an inside look at the motivations behind foreclosure moratoria, and a look at whether they really work
- an analysis (by the inimitable Linda Lowell) of just how the Treasury and Federal Reserve have tried to bully mortgage rates downward
- an inside look at how cities are managing a growing number of vacant properties before, during, and after foreclosure
- a look at the technology behind the mass loan modification push
- an insider's look at how foreclosure law firms have been cashing in via private equity
That's just for starters. If you don't subscribe to the magazine yet, it's a great way to get the New Year off to an informed start — and a great way to support what we do each and every day over here at HW central. Click here to get a one-year subscription.
Lender Processing Services, Inc. (LPS: 16.78 +1.39%), the Jacksonville-based provider of integrated mortgage industry technology, announced Monday it had completed the renewal process on a multi-year contract with U.S. Bank Home Mortgage. The two have partnered for 25 years, according to a press statement, and U.S. Bank will continue to use LPS' Mortgage Servicing Package (MSP) to automate its servicing operations, from loan setup to investor accounting to default management. U.S. Bank also utilizes LPS' appraisal services and several other platforms.
"MSP has proven to be a reliable, stable and scalable servicing platform," said Robert Smiley, executive vice president of U.S. Bank. "The future direction of LPS' solutions matches and complements our need for processing solutions, and we look forward to leveraging additional LPS solutions in our organization." www.lpsvcs.com
Partnership gives mortgage bankers a discount
Carson, Calif.-based Document Systems Inc. (DSI) on Monday announced it had partnered with Lenders One Mortgage Cooperative, a national alliance of mortgage bankers. The union will provide Lenders One members access to DSI's DocMagic initial disclosures and closing documents at a discounted rate. "Our members will improve customer service and their competitive advantage in the marketplace with the quality and innovation of products provided from this relationship," said Lenders One CEO Scott Stern. www.docmagic.com
MDA offers HVCC-compliant appraisal platform
MDA Lending Solutions last week announced the development of its Managed Appraisal Platform, an electronic portal that will give mortgage lenders independence from third-party appraisers while remaining compliant with the newly-implemented Home Value Code of Conduct (HVCC). The Wilmington-Del.-based information solutions provider to the mortgage industry designed the platform with "anticipated changes in appraisal regulation" in mind, according to a company press statement.
"HVCC is meant to improve the objectivity and accuracy of appraisals by ensuring the fulfillment process is free from pressure on the appraiser," said MDA president Mike Dealy. "Our HVCC-compliant Managed Appraisal Platform offers wholesale lenders and brokers a way to quickly access compliant appraisals while addressing regulatory issues concerning conflicts of interest." www.mdasolutions.com
Institution aims to prevent foreclosures through Realtor training
The Distressed Property Institute last week said it will continue to train certified Realtors in the art of short sales, a situation in which the lender accepts the selling price of the home, whether the mortgage balance is higher or not. The efforts of the Institute should help Realtors assist struggling homeowners avoid foreclosures going into 2009, according to a press release.
"Seven out of 10 people go into foreclosure without any professional intervention," said Judy Reed, a Virginia Beach-based Realtor with Re/Max Allegiance, in a joint statement with the Institute. "They don't know that they have options. The knowledge that I've gained from the Distressed Property Institute gave me the knowledge to help these homeowners." www.cdpe.com
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.
First American Outsourcing and Technology Solutions, a member of The First American Corporation (FAF: 14.98 +0.07%), said Monday that a new auditing solution designed to reduce the cost and risk of servicing, acquiring and selling ARM portfolios has been rolled out. The platform, in development for the past few months, identifies data issues with existing ARM portfolios, and can “scrub” loan-pool acquisitions during the transfer and boarding process or as pre-sale due diligence.
First American executives suggested that the new service goes so far as to fix errors, rather than merely identify them — specifically, the solution can re-amortize and repair loan files and customer histories, and automatically generate corrected borrower loan statements. This enables millions of dollars in potential servicer savings by avoiding costly fees and penalties, First American said in a statement.
The move into ARM auditing and analysis underscores where much of the mortgage business is headed these days: forensics and risk management work, designed to limit losses for servicers and their investors, or prevent unexpected losses in portfolio acquisition or other related investments. "Industry-wide, as much as $350 billion of unsecuritized ARMs are still held in portfolios,” said Scott Brinkley, executive vice president at First American Outsourcing and Technology Solutions.
“Whether they are traded or retained by the servicer, there are significant data issues that can result in incorrect rate adjustments, defaults, foreclosures and lawsuits."
Much of that work has traditionally been done via on-site auditors who comb over loan files, Brinkley said. The goal behind First American's ARM auditing and repair platform is to reduce the need for on-site audits and manual data scrubbing — all of which is wonderful, truly. But the fact that the industry is just now getting to a point where a product like this is rolled out underscores both the complexity of the data involved, as well as the relative lack of interest previously given to servicing and other post-origination activities.
That said, the fact that First Am's innovation here is coming to market at all suggests that such sentiment is changing — good news for anyone who cares about seeing the mortgage business ultimately move itself forward.
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 the central themes that I've written about extensively over the course of the past few years here at HousingWire is that the current mess isn't the result of any one single group — there are, of course, now no less than 25 books out there that you can buy that provide some detail on these sort of claims. But the one group that has clearly been given a free hall pass, at least thus far, are consumer advocacy organizations.
In June of last year, HW published commentary that shed light on just how involved many advocacy groups really were in driving the push towards greater homeownership, particularly in lower-income geographies and minority-heavy neighborhoods. I suggested then that the push towards ever-greater homeownership, particularly in minority communities, was aided and abetted in most cases by the very same groups now indignantly suing lenders for so-called "reverse redlining."
On Monday, the Wall Street Journal caught up with this theme in a story that looks at how homes were marketed to the Hispanic community as part of the Bush administration's vision for the "ownership society." The story focuses on California Rep. Joe Baca, chairman of the Congressional Hispanic Caucus, but the message within is a bit broader: that many of the so-called advocacy groups now indignant about lending practices in their communities actually helped push their constituents into the muck to begin with.
Consider:
Between 2000 and 2007, as the Hispanic population increased, Hispanic homeownership grew even faster, increasing by 47%, to 6.1 million from 4.1 million, according to the U.S. Census Bureau. Over that same period, homeownership nationally grew by 8%. In 2005 alone, mortgages to Hispanics jumped by 29%, with expensive nonprime mortgages soaring 169%, according to the Federal Financial Institutions Examination Council.
An examination of that borrowing spree by the Wall Street Journal reveals that it wasn't simply the mortgage market at work. It was fueled by a campaign by low-income housing groups, Hispanic lawmakers, a congressional Hispanic housing initiative, mortgage lenders and brokers, who all were pushing to increase homeownership among Latinos.
A spokesperson for the Center for Responsible Lending told the Journal that "lenders were seeking out those borrowers and charging them through the roof." Perhaps, but it was also often done hand-in-hand with community groups, and those through-the-roof fees were often charged at the hands of brokers that represented the interests of the communities they allegedly served: agents and brokers, for example, that were members of the National Association of Hispanic Real Estate Professionals.
Consider that in Sept. of 2004, ACORN — an advocacy group for low and moderate income families — and Citi jointly touted a partnership to push mortgages out into minority-led neighborhoods. “With this agreement, ACORN will be able to expand our mission of strengthening communities by helping low- and moderate-income families, including new immigrants to this country, become homeowners,” said Maude Hurd, ACORN president, in a press statement at the time.
We now know all too well how that sort of effort turned out.
As for the CRL itself, a review of the group's available press statements back to 2003 show the group focusing primarily on mandatory arbitration clauses, as well as the fees and prepayment penalties charged by subprime lenders, during the run-up in housing. No focus was given by the group to "reverse redlining" at the time, nor did the group look to warn consumers of the dangers of community groups pushing high-cost loans within their own neighborhoods.
The Journal article also looks at how seller-funded down-payment assistance was used to market loans to Hispanics; as HW readers likely well know, the DPA program was killed by legislation last year, after such loans came to comprise one-third of the FHA's loan book and defaulted at three times the rate of other FHA-endorsed loans.
Many of these loans went to minorities, especially as the private-party market for subprime mortgage credit began to falter. California's Baca last October sponsored legislation in an attempt to revive seller-funded DPA; the WSJ reported that his introduction of the legislation managed to coincide with a $25,000 gift by Ameridream, a non-profit that specialized in providing DPA funding, to a charitable group established by Baca. Both parties told the Journal that the contribution had nothing to do with the introduction of the legislation, which has since stalled after making it out of a key committee vote in September.
Regardless of what may or may not be the truth behind DPA programs, however, the point here is this: the entire push to grow homeownership centered largely (but not entirely) on the astronomical growth of the previously-untapped subprime market — and many subprime borrowers are minorities, meaning the collapse of subprime is an event that has been felt in many minority communities, including among Hispanics.
The number of abuses that took place in originating loans in this market sector is wide-ranging, and clearly involves lax lending standards and aggressive lending policies. But many of those now fingering blame upon lenders shouldn't allow community groups to whitewash history; after all, many such groups had a direct role in enabling — and, in some cases, profiting from the push into subprime mortgages.
Write to Paul Jackson at paul.jackson@housingwire.com.
It was bound to happen: as the number of troubled homeowners has increased exponentially, so too have the number of profiteers looking to prey on a homeowner's desire to avoid foreclosure. Foreclosure rescue scams — always a threat in long-depressed areas in Ohio and Michigan — are now among the fastest-growing areas of problems for servicers who specialize in managing troubled mortgages, according to various sources in the market that have spoken with HousingWire.
Texas Attorney General Greg Abbott in December introduced a unique proposal that would place new restrictions on foreclosure prevention consultants — something that other states, including California, are considering putting into place as well.
“At a time when regulators, policy makers and stakeholders are working to help struggling families, unscrupulous operators are scheming to profiteer at homeowners’ expense,” Abbott said. “Too many scam artists attempt to target homeowners with large fees and the false promise that they could help Texans avoid foreclosure on their homes."
Abbott, who proposed the Foreclosure Rescue Fraud Prevention Act alongside state sen. Craig Estes, R-Wichita Falls, says states need more power to crack down on bad actors in the foreclosure prevention space. The Act would require foreclosure prevention consultants to provide customers a written, plain language contract memorializing their services agreement. It would also require that these consultants obtain their customers’ written consent, in the form of a signature, before beginning any services or accepting any fees. An additional requirement mandates a written disclosure statement instructing homeowners to contact an attorney or a housing counselor before signing mortgage rescue agreements.
“While most homeowners may never feel the threat of home foreclosure, it is an issue that can impact all of us when it strikes our neighbors, friends, and family,” Estes said. “This issue has impacted constituents in my district and across the state, we are here today to send a very clear signal that these actions by unscrupulous mortgage foreclosure consultants will not be tolerated.”
The written agreements mandated by the proposed law would apply to both foreclosure prevention consulting and equity purchase contracts. Both types of agreements would have to include plain language cancellation procedures.
In addition to new disclosure requirements, the proposal would place new limits on equity purchase agreements. To protect Texans’ interest in their homes, the law would require equity purchase agreement buyers to pay at least 82 percent of the property’s fair market value.
AG Abbott said that the issue of foreclosure rescue fraud came to the forefront for his office in a recent case involving Arizona-based Abell Mediation, Inc., and its president and vice-president, Elizabeth Cory and Michael Cory. Both were charged with fraudulently claiming that their company could save homeowners from imminent foreclosure; under a settlement agreement, the defendants were required to pay $1.55 million in fines and are permanently banned from conducting their business within Texas borders in the future.
Of course, foreclosure rescue scams aren't the only sort of fraud — or simple incompetence — being seen on the servicing side of the mortgage business these days. A fair number of companies now claim to have expertise in helping servicers perform bulk loan modifications, if the volume of press inquiries HousingWire has received to date are any indication. There's only one slight problem here: nobody has ever actually run a bulk loan modification program, prior to this crisis, since such programs didn't exist prior to recent announcements by lenders and servicers.
Write to Paul Jackson at paul.jackson@housingwire.com.
