Archive for August, 2009
A task force in Florida is urging the use of foreclosure mediation and other case management techniques to achieve settlement at the beginning of a case rather than late in the case. The recommendations would help borrowers become current on their mortgages sooner and would keep the foreclosure pipeline free of unnecessary cases.
The managed mediation program called for by Florida's Task Force on Residential Mortgage Foreclosure Cases force would be free of charge to borrowers and would place all foreclosure cases on residential properties into mediation unless the plaintiff and borrower agree otherwise.
The task force stipulated that under its plan, vacant and abandoned properties would be exempt from the mediation requirement and expedited through the foreclosure process. The task force also distinguishes other foreclosure cases on non-borrower-occupied or tenant-occupied properties where mediation would involve several parties.
The 15-member residential mortgage foreclosure task force, set up by a late-March administrative order, compared the foreclosure pipeline like a traffic-jammed highway out of a town under hurricane evacuation in its report this week (which can be downloaded here).
"The Task Force has looked for ways to create off-ramps to get traffic off the road, in the form of managed mediation to resolve cases at the beginning instead of at the end; and in the use of expedited proceedings in cases involving vacant or abandoned property," the report reads, in part. "The traffic left on the road must be coordinated to keep it moving safely and as swiftly as possible through the use of the limited case management resources available to a judicial system where every spare staff slot has already been cut."
But there are certain situations, the task force acknowledged, in which workout may be impossible and foreclosure inevitable. In such cases, the plaintiff retains every right to repossess the asset through foreclosure.
"[T]here is significant concern about demonization of lenders within the plaintiff’s bar," the report said. "In the view of these attorneys, the cases are simple: One party provided money, the other promised to repay the money. They didn’t. As a result, the lender has the right to take their house."
Write to Diana Golobay.
The rate of existing homes sales increased between Q109 and Q209 in 39 states, according to a survey by the National Association of Realtors (NAR).
The seasonally adjusted annual rate of national sales of existing single-family homes and condos rose to 4.76m units in Q209, up 3.8% from 4.58m units in Q109, but is 2.9% lower than the 4.9m unit pace in Q208.
NAR chief economist Lawrence Yun said the sales gains appear to be sustainable.
“With low interest rates, lower home prices and a first-time buyer tax credit, we’ve been seeing healthy increases in home sales, which are a hopeful sign for the economy,” he said in a statement. “There have been sustained sales gains in Arizona, Nevada and Florida, as well as diverse areas such as Maryland, the District of Columbia and Nebraska. More recently, we’ve seen strong double-digit gains in Idaho, Utah, New Mexico, Washington, Hawaii, New York, New Jersey, Maine, Vermont, Wisconsin, Indiana, South Dakota and Montana.”
Yun believes continued increases home sales will promote activity in the overall economy.
“Given the need for related goods and services, each home sale pumps an additional $63,000 into the economy – that’s how the housing engine traditionally pulls us out of recession,” he said. “In addition, sales are drawing down inventory and that will help stabilize home values, which in turn will lessen foreclosure pressure and boost credit availability for other sectors of the economy.”
But median home prices continued to decline in 129 of 155 metropolitan statistical areas (MSA) from Q109 to Q209.
The national median existing single-family home price was $174,100, down 15.6% from Q208. Distressed sales made up 36% of Q209 transactions.
But NAR president Charles McMillan said there is a sliver lining to the continued decline in prices — increased affordability.
“Housing affordability is hovering near record highs and there’s a wide selection of homes,” he said.
Write to Austin Kilgore.
[Update 1: Adds comments from Prospect manager]
Prospect Mortgage announced it opened a regional headquarters in Schaumburg, Ill.
The Sherman Oaks, Calif.-based company added it will open new branches in the Chicago area and in Wisconsin and northwest Indiana.
Last year, Prospect made a splash in the industry when it announced it had inked a deal to take over the majority of the retail mortgage branches of failed Indymac Bancorp. When the deal was announced, Prospect said it acquired more than 60 branch offices nationwide and 750 of Indymac’s retail employees, including loan officers.
But IndyMac's branches were primarily located on the east and west coasts, with minimal presence in the Midwest. Prospect wants to change that, the lender's new regional manager Joe Perry told HousingWire.
Perry said Prospect's increased presence in the Midwest will fill the gap in its coverage, particularly in the Chicago market.
To do that, Perry is joined by two additional new managers to lead the expansion — senior sales force market development manager Cliff Theriault and special financing division market manager Mary Bane.
Prospect is backed by private equity fund Sterling Partners, which has more than $4bn of capital under management, the lender said.
Write to Austin Kilgore.
A US district judge this week decided not to take action on a lawsuit filed against Countrywide Financial by investors in mortgage-backed securities.
The suit claims Countrywide's decision to modify mortgage loans up to $8.4bn violates contracts held by investors in the securitizations where some of those loans live. The investors involved in the suit are asking that Countrywide purchase any loan it intends to modify out of the respective securitization and absorb the losses taken on modifications.
Countrywide, whose operations were acquired by Bank of America (BAC: 7.29 -0.14%) raised concerns under the Truth-in-Lending Act (TILA) and tried to have the case heard in federal court rather than the state court where the case was filed. The judge recently issued a decision to not take action on the case, instead referring it back to New York State Supreme Court.
"Although defendants deny it, by arguing that [the Truth-in-Lending Act] requires a different interpretation of the contract, defendants are raising a federal defense," Howell's decision reads, according to industry reports. "A federal defense has never been sufficient for federal question jurisdiction."
The judge's decision, not a ruling on the case, should cast no doubt on a servicer's legal authority to modify mortgage loans, according to the Center for Responsible Lending (CRL).
"Loan modifications are essential to turning around the current financial crisis, and the number of modifications continues to be dwarfed by the number of foreclosures," the CRL said in a media statement late Thursday. "We hope that servicers, who are already using 'investor refusal' as a scapegoat for denying modifications, will not use the purely procedural decision in this case as a further excuse to refuse to modify loans."
Write to Diana Golobay.
Disclaimer: The author held no investments when this story was published.
July’s year-over-year Illinois home sales fell off only 0.1%, and marked the sixth consecutive month of sales increases in 2009, according to the Illinois Association of Realtors.
There were 11,407 homes sold in July 2009, compared to July 2008 sales of 11,417 and June 2009 sales of 10,944 homes, a month-over-month increase of 4.2%.
The July 2009 median home price was $169,000, down 13.8% from July 2008 ($196,000), but 1.2% higher than June 2009 ($167,000).
While prices have continued to rise over the past six months, it could be due in part to state legislation enacted earlier this year that extends the time it takes a lender to foreclose on a borrower by nearly three months. With foreclosures delayed and fewer foreclosure properties on the market for sale, buyers are funneled into higher-priced houses until foreclosures continue to move through the system.
“This remains a market seeking stability,” Pat Callan, president of the Illinois Association of Realtors said in a statement. “Those seeking to buy in 2009 and take advantage of the low mortgage interest rates and lower prices are seeing good opportunities in this market. We are near the 100-day mark before the first-time homebuyer tax credit expires Dec. 1.”
In the Chicago Metropolitan Statistical Area (MSA), July 2009 home sales of 7,427 were up 0.3% from July 2008 sales of 7408 and up 4% from June 2009 sales volume of 7,140. The Chicago MSA median price was $213,500 in July 2009, down 16.3% from $255,000 in July 2008 and up 1.7% from $210,000 in June 2009.
“Chicago continues to show a leveling of the marketplace as we see distressed properties being absorbed.” David Hanna, president of the Chicago Association of Realtors, said in a statement. “With that said, we are a long way from seeing a stable real estate market in Chicago, and we face challenges surrounding lending that do not take into account real local market conditions.”
Write to Austin Kilgore.
Investors put in bids for $2.28bn in loans to purchase so-called "legacy" commercial mortgage-backed securities (CMBS) on Thursday.
The bids, made through the Federal Reserve's Term Asset-Backed Securities Loan Facility for CMBS, came in at 340% of the $668.94m of bids in the July 16th facility.
Thursday's legacy CMBS-eligible TALF facility bears rates of 3.03% on fixed 3-year loans and 3.9% on fixed 5-year loans. The facility closes August 28.
The new issue CMBS-eligible TALF facility garnered no bids Thursday, marking the second new issue facility to pass without bids.
The Fed initiated the TALF program to stimulate lending by allowing private investors to purchase securities with a matching government investment. The reach of the program into CMBS aimed to aid price discovery and provide liquidity for the commercial mortgage market, which faces a credit crisis of its own.
The Fed and Treasury Department this week answered industry calls for an expanded deadline, pushing the legacy and new issue CMBS TALF through March 31. They were set to expire December 31, raising concerns among industry players that said more time was necessary for the programs to have a lasting effect.
Lisa Pendergast, a managing director at Jefferies & Co., told HousingWire last week it was likely the Fed would have to extend at least one of the programs, although she said the new issue program looked more promising at the time.
The lack of investor participation on the new issue CMBS TALF is not lost on Pendergast, who noted commercial mortgage originations remain low.
“The challenge to the Federal Reserve,” Pendergast said, “is to try to stimulate the origination of commercial mortgages, keeping in mind the many challenges posed by the sector, including a lending environment in which credit fundamentals continue to deteriorate and the almost impossible task of efficiently hedging a pool of commercial mortgages during the aggregation stage prior to securitization.”
Write to Diana Golobay.
The year-over-year housing price decline decelerated to its lowest level of the year in June, but that doesn’t mean housing is about to hit bottom, according to officials at First American CoreLogic, a division of The First American Corp (FAF: 14.98 +0.07%).
National housing prices decreased 7.8% in June 2009 compared to June 2008, according to First American’s Loan Performance Home Price Index (HPI).
First American said home prices have improved 3.3% during the first six months of the year, but a number of artificial variables contributed to the moderation of year-over-year declines. Home prices are up in part due to the decline of distressed sales, rather than an increase in traditional real estate transactions.
“If the decline in distressed sales is sustainable, and not simply a result of recent foreclosure moratoriums, this could be the first step toward recovery, which will then be followed by outright price increases that will result in continued upward price trends,” First American said in a release.
While an increase in modifications has kept some homes off the foreclosure auction block, an continued decline doesn’t seem likely because various foreclosure moratoria are winding down, First American senior economist Sam Khatner told HousingWire.
“We know one of the reasons the number of REO sales has been declining is because of the market interventions that have occurred in the past year or so,” Khatner said. “The distressed is there still and the distressed is there because home prices are declining and also the unemployment rate has been rising over the past year.”
First American’s researchers believe more than 15.2m mortgagors are underwater, representing nearly one-third of the nation’s mortgage market.
Khatner said First American expects home prices won’t bottom out until the end of 2010. He also said subsidies like the first-time homebuyer tax credit and artificially low interest rates won’t be around forever, and will contributed to continued lower prices down the road.
“You have a lot of moving parts to this thing, and you have all these subsidies, the interventions, all this public policy that’s distorting some of this stuff,” Khatner said. “At some point, they’re going to have to be pulled back.”
Write to Austin Kilgore.
A new form of lawsuit against mortgage lenders is evolving amid the tight credit environment. Rather than alleging lenders made misleading or predatory loans, consumers are now filing suit over lenders refusing to extend credit.
A Zion, Ill. homeowner, Pascal Majon, is suing JP Morgan Chase (JPM: 37.21 -0.75%) over alleged fraud to deny homeowners access to funds through their previously approved home equity lines of credit (HELOCs).
The servicing rights of Majon's mortgage, originated by Washington Mutual Bank, transferred to Chase after it bought WaMu's banking subsidiaries. Chase then froze Majon's home equity line of credit, citing a decline in the value of his home.
"In reality, Majon's home did not decline in value," according to a press statement out of KamberEdelson, the law firm representing Majon.
The complaint states Chase failed to identify valuation methods or provide the dollar amount of the property's new value or percent of value decline.
"In an attempt to limit their exposure to the risk of collapse in the United States housing market and rid themselves of less-profitable loans, Defendants have broken contractual promises to their HELOC account holders by reducing or freezing these customers' credit limits without first reasonably assessing the value of each affected property," the complaint reads, in part.
The suit alleges Chase failed to provide homeowners with legally required notice and improperly discouraged them from seeking reinstatement by withholding critical information. In some cases, the complaint alleges, the home valuation for reinstatement was never supplied or homeowners were forced to pay for an appraisal to challenge the HELOC adjustment.
“These credit lines are safety nets," said Jay Edelson, whose firm filed the class action suit on Majon's behalf. "Knowingly suspending these accounts without justification and forcing customers to scramble to find alternatives — like high interest credit cards — is just the kind of thinking that got banks into the trouble they’re in in the first place. They act as if they’re accountable to no one.”
Chase declined to comment on pending litigation.
Write to Diana Golobay.
Disclaimer: The author held no relevant investments when this story was published.
Financial services technology solutions developer Fiserv (FISV: 63.05 -0.33%) unveiled updates to its loan servicing platform, which now complies with new Truth in Lending Regulation Z rules.
The new rules, which require an escrow account for taxes and insurance on home equity loans, take effect April 1, 2010.
"This regulatory change will present challenges for many financial institutions, so it is crucial that lenders are aware that the functionality that used to be exclusive to the traditional mortgage market — such as escrow — is now required on the consumer loan side," said Cathy Martin, an executive at Fiserv, in a media statement.
Regulation Z changes will require escrow accounts for high-cost first-lien mortgages, based on US Department of Housing and Urban Development (HUD) guidelines, Fiserv said. These types of loans bear higher rates than the average prime rate for a similar transaction on the date the rate is set.
Martin added: "[L]enders will need to know some basic escrowing procedures such as how to conduct an escrow analysis, how to prepare the initial and the annual escrow account disclosure statements, and how to keep the appropriate records for auditing and risk-mitigation purposes. Otherwise, they will face penalties."
Write to Diana Golobay.
During the course of my exploration of non-profit housing counseling groups, the efforts of which you can read about in the September edition of HousingWire, I learned a lot about the strategies of groups like the Association of Community Organizers for Reform Now (ACORN), its affiliate group ACORN Housing, the National Urban League (NUL), the Neighborhood Assistance Corporation of America (NACA) and the National Council of La Raza (NCLR).
I also learned about where these organizations hope to place their efforts as the country continues to navigate the recession.
Many readers have written in with strong opinions about these groups. A lawyer from Idaho called ACORN a "criminal enterprise" in response to a online story about the group’s protesting efforts.
It got me wondering what these alleged “criminals” are making. My review of tax records, specifically Internal Revenue Service’s (IRS) Form 990, revealed some interesting statistics about executive compensation.
So, do you think you can match the following salaries to the executives of the above mentioned non-profits who make them? And what do you feel represents an adequate compensation package for their work?
Go ahead, take a guess:
A) $66,515
B) $75,000
C) $274,862
D) $652,885
If you guessed A, you picked the salary of ACORN Housing executive director Mike Shea, according to the group’s 2007 Form 990 filing. But Shea wasn’t the highest paid employee that year. Bruce Dorpalen, the group’s national director of housing counseling and a founding father of the group, has that distinction. According to the same 2007 form, Dorpalen made $76,063.
If you guessed B, you picked NACA head Bruce Marks' salary. Marks also had a $6,152 expense account, according to the group’s 2007 Form 990. NACA declined to return my calls for the magazine story. But if you’re reading this, feel free to give me a call, Bruce, I still want to talk.
If you think the head of a community group is pulling in six figures, NCLR president and CEO Janet Murguia agrees with you. She leads the list of 10 NCLR employees who made more than $100,000, according to NCLR’s 2006 Form 990 filing. In all, NCLR spent more than $1.5m on salaries for its president and a myriad of vice presidents in 2006.
Taking the cake is NUL president and CEO Marc Morial, who made $652,885 according to the group’s 2007 Form 990 report. The former New Orleans mayor is the only compensated member on NUL’s roster of 52 officers, directors, trustees and key employees, but five other employees of the organization made between $174,000 and $243,000, according to the form, for more than $1.6m in salaries combined for the six highest paid employees.
Write to Austin Kilgore.
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