Archive for September, 2009
Mortgage fraud cases increased nearly 63% from the Federal Bureau of Investigation’s (FBI) fiscal year 2008 to fiscal year 2009 through July 3, agency director Robert Mueller testified Wednesday to the Senate Judiciary Committee.
The cause for the rise in cases is two-fold, Mueller said: The housing crisis gave more opportunities to those looking to commit fraud, and the bureau has stepped up its mortgage fraud enforcement.
Most cases involve losses of more than $1m. The FBI assigned 300 special agents, and convened 15 task forces and 59 working groups to investigate mortgage fraud.
The FBI’s improved its efforts with the use of new technology that identifies patterns that can detect potential fraud, Mueller said, adding the FBI focuses its investigations on industry insiders.
“It is industry insiders who, in many instances, facilitate mortgage fraud,” he said. "By focusing on these facilitators we expect to maximize our finite resources."
But the FBI isn’t the only government agency working to curb fraud. Treasury Department secretary Tim Geithner on Thursday announced enhanced collaboration between his department, the departments of Housing and Urban Development (HUD) and Justice (DOJ), the Federal Trade Commission (FTC) and the Financial Crimes Enforcement Network (FinCEN), along with state attorneys general, in combating mortgage fraud.
Geithner said the agencies’ efforts include, “alerting financial institutions to emerging schemes, stepping up enforcement actions and educating consumers to help those in financial trouble avoid becoming the victims of a loan modification or foreclosure rescue scam.”
Keeping consumers informed and vigilant is considered key to fighting mortgage fraud, according to a joint statement of the Treasury and other regulators.
“Today's challenging economy presents an opportunity for con artists who prey upon financially distressed consumers,” FTC chairman Jon Leibowitz said.
“If you're worried about keeping your home," he added, "avoid any company that asks for a large fee in advance, guarantees that they'll stop a foreclosure or modify a loan, or tells you to stop paying your mortgage company and to pay them instead.”
Write to Austin Kilgore.
City National Bank provided a $20m revolving line of credit to the city of Riverside, Calif. to help fund the city's effort to stabilize neighborhoods with vacant, foreclosed and abandoned homes.
The credit, which nearly triples the city's available funding for such efforts to $31.5m, allows the city to leverage federal and local dollars to acquire more homes, according to a release.
The Housing Authority of the City of Riverside acquires and sells distressed properties through the Neighborhood Stabilization and Targets of Opportunity programs that provide grants to cities for the purchase, rehabilitation and sale of foreclosed or vacant properties.
The available funding includes $5m from the city’s Redevelopment agency and a $6.5m grant from the US Department of Housing and Urban Development (HUD).
So far, Riverside acquired 20 residential properties with an additional 16 in the early stages of rehabilitation. Almost 4.5% of all local housing units in Riverside foreclosed between July 1, 2007 and May 13, 2009 totaling more than 4,400 properties.
"This is an outstanding example of using public and private resources to address a serious public issue," said Breck Fleming, senior vice president and manager of City National Bank's Riverside Commercial Banking Services.
Write to Jon Prior.
An ongoing bankruptcy case involving General Growth Properties (GGP: 15.96 +0.19%) presents implications for the way a corporate bankruptcy will view special purpose entity (SPE) subsidiaries.
The bankruptcy proceeding has in particular called into question the remoteness and separateness of SPEs used in the commercial mortgage-backed securities (CMBS) market and throughout structured finance, according to independent credit rating agency DBRS.
A recent ruling by the US Bankruptcy Court for the Southern District of New York could potentially "undermine the strength of bankruptcy remoteness and could have a devastating impact on the CMBS and structured finance markets," DBRS said in weekly commentary.
GGP, a publicly-traded real estate investment trust (REIT), filed for bankruptcy protection under Chapter 11 in April and then filed bankruptcy petitions for 166 "bankruptcy remote" SPE subsidiaries. GGP also replaced the independent directors of the SPEs before voting on whether to file for bankruptcy.
The move spurred motions to dismiss by five of the secured lenders of the SPEs, according to DBRS. The lenders claimed the filings were premature due to the remoteness of the SPEs and the fact they were not in financial distress at the time. They called for the filings to be dismissed on bad faith.
DBRS said the Delaware Supreme Court recently decided, however, that it is appropriate for independent directors of an SPE to consider the corporate group's interests when deciding whether to file a bankruptcy petition, and that directors of a solvent SPE are obligated to protect the company's — and its shareholders' — interests, not only those of the secured lenders.
But the Bankruptcy Court in New York denied the motions to dismiss filings on the grounds of baid faith, possibly bearing significant repercussions within strucutred finance, according to DBRS.
"One of the pillars of structured finance is the reduction of risk related to the bankruptcy of a corporate parent through the deliberate isolation of assets in a bankruptcy remote SPE," DBRS said.
"By permitting the SPEs to be part of the GGP bankruptcy proceeding, the Court has called into question whether the intended structuring of the transaction can achieve one of its primary objectives," the ratings agency added. "Further, the potential of such a ruling to be applied to the broader structured finance markets would compromise the integrity of securitization structures and dramatically increase the risks inherent to SPE 'secured' lending."
Most of the SPEs involved in the filings retained a "performing" status and were able to meet their debt service requirements at the time of GGP's filing . From a structured finance perspective, this calls into question their status of financial distress. DBRS said that by including these performing SPEs in the bankruptcy case as financially distressed, the Court implies a broad application of "financial distress" to a spectrum of market participants.
The Court acknowledged the secured lenders have certain rights under bankruptcy law, DBRS noted, particularly the in the receipt of payments of interest and principal on the debt of the SPEs from cash flows related to the assets held by the SPEs.
"While it is a positive factor that the secured lenders in GGP are receiving cash flow, it does not address how other courts might handle the matter," DBRS said.
Write to Diana Golobay.
Fannie Mae (FNM: 0.00 N/A) selected Santa Ana, Calif.-based risk management software developer Veros Real Estate Solutions to provide the technology for the government-sponsored enterprise (GSE) Collateral Data Delivery (CDD) system.
The CDD system will enable lenders to electronically submit full appraisal reports prior to loan delivery, per a new Fannie regulation that takes effect March 1, 2010. Veros will build, maintain and support the system.
“Veros is honored to serve as the technology provider in this significant project to increase appraisal quality across the mortgage industry,” said Darius Bozorgi, president and CEO of Veros.
“Fannie Mae is taking the leadership position in efforts that are long past due for capturing and analyzing collateral data,” he added.
Write to Austin Kilgore.
Canadian hotel real estate investment trust (REIT) InnVest announced it refinanced a $177m mortgage backed by 40 hotel properties.
The refinanced loan has a three-year term and an interest rate of 7.5% and is expected to close in 30 days. The original loan was set to mature in July 2010.
“We are pleased to have achieved this hotel financing in the current lending environment. Our priority continues to be to proactively strengthen our balance sheet and liquidity during this challenging period,” said InnVest president and CEO Kenneth Gibson. “Having addressed this maturity, InnVest does not have any significant debt maturities until 2011.”
The REIT said its portfolio of 145 properties containing 19,000 guest rooms is the largest hotel portfolio in Canada. It has an interest in the country’s largest hotel franchisor, Choice Hotels Canada, and operates hotels under a variety of brands, including Comfort Inn, Holiday Inn, Radisson, Hilton, Sheraton Suites and Best Western.
Write to Austin Kilgore.
US housing starts, the number of privately owned homes that have begun construction, reached a seasonally adjusted annual rate of 598,000 in August, a 1.5% jump from July.
Starts remain down 29.6% from August 2008, according to a study by the US Department of Housing and Urban Development (HUD).
Privately owned housing completions in August dropped 5.5% from July to 760,000, marking a 25.3% decrease from August 2008 when the completion rate reached more than 1m.
Despite the slowdown in completions, housing starts are approaching a bottom if they have not reached one already, according to Brad Hunter, the chief economist at Metrostudy.
Metrostudy does a complete count of starts, inventory, move-ins and lot supplies in 84 US metropolitan statistical areas.
“Many builders have not only reduced excess inventory but now are actually reporting such low inventory that they need to start more homes to replace those they’ve just sold,” Hunter said.
Hunter also noted the impending expiration of tax incentives for home purchases leading to a slow recovery from that bottom if those incentives are not extended.
Write to Jon Prior.
Average interest rates on 30-year mortgages declined in two weekly surveys.
Freddie Mac’s (FRE: 0.00 N/A) weekly survey put the average rate for a 30-year fixed-rate mortgage (FRM) at 5.04% with an average 0.7 point for the weekend ending Sept. 17, down 3bps from the week prior when the 5.07% and down from the same week one year ago, when it was 5.78%.
Bankrate.com’s survey of major US banks and thrifts put the average 30-year FRM rate at 5.4% with an average 0.34 point, down 1bp from last week, and down from 6.15% one year ago.
Freddie Mac said the five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) rate was 4.51% with an average 0.5 point, up from one week ago, when it was 4.51%. Freddie Mac also calculated the average one-year ARM at 4.58% with an average 0.5 point, down from last week’s rate of 4.64%.
Bankrate.com said the average rate for a 15-year FRM increased 1bp to 4.75% from last week while the benchmark 5/1 ARM declined 5bps to 4.89%.
“Interest rates for fixed-rate mortgages eased for the third consecutive week and remained at 3-month lows,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Interest rates for 30-year fixed-rate mortgages have averaged just above 5% through mid-September, which is roughly a percentage point below last year’s average and suggests that 2009 may reach a record annual low since the survey began in 1971.”
Write to Austin Kilgore.
LendingTree, a subsidiary of Tree.com (TREE: 5.68 +1.61%), announced an end to its business infringement lawsuit against Mortech.
Terms of the settlement will not be disclosed, according to a Mortech spokesperson.
LendingTree, a Web-based online mortgage aggregate, alleged that Mortech infringed on the two firm’s operating business agreement when the mortgage software developer made plans to partner with search engine company Google (GOOG: 579.98 +2.09%).
Mortech allegedly violated its contractual obligations with its plans to launch an online mortgage loan aggregate service similar to LendingTree’s with Google.
Mortech later responded that, in its opinion, the firm operates fairly in all aspects of its business.
Write to Austin Kilgore.
Pulte Homes (PHM: 7.79 -0.13%) topped JD Power and Associates 2009 US new home builder customer satisfaction study in half of the 24 markets surveyed.
Overall customer satisfaction improved for the second consecutive year, the marketing information services company reported. The most satisfied new home customers were in Orange/San Diego, Sacramento, Phoenix, Inland Empire, Calif., and Tampa, JD Power said.
The rate of customer-reported problems decreased in 2009 to an average 9.55 problems per home, down from 11.51 in 2008. The most commonly reported problems were issues with landscaping, heating and air conditioning problems and kitchen cabinet quality and finish.
“Fierce competition among home builders has led to a market where only the strongest companies have survived,” said Paula Sonkin, vice president of the real estate and construction industries practice at JD Power. “This is great news for new-home buyers-particularly first-time buyers-since builders are offering unprecedented high levels of quality, value and service at relatively low prices.”
The Pulte brands, which include Del Webb, DiVosta Homes and Pulte Homes, ranked highest in customer satisfaction among new-home builders in 12 markets.
In addition, JD Power and Associates said, other builders with highest rankings in their respective markets are Ashton Woods (which ties with Village Builders in the Houston market and is headquartered in Roswell, Ga.), Brookfield Homes (BHS: 0.00 N/A) (Fairfax, Va.), Centex Homes (Bloomfield Hills, Mich.), Darling Homes (DAR: 15.03 +0.47%) (Frisco, Texas), David Weekley Homes (which ties with Pulte Homes in the Austin market and is headquartered in Houston, Texas), K. Hovnanian (HOV: 2.67 0.00%) (Red Bank, N.J.), Lennar (LEN: 22.28 +0.68%) (Miami, Fla.), M/I Homes (MHO: 12.00 +4.71%) (Columbus, Ohio), Pardee Homes (Los Angeles, Calif.), Shea Homes (Walnut, Calif.), Standard Pacific Homes (SPF: 3.93 +0.77%) (Irvine, Calif.), and Village Builders (which ties with Ashton Woods in the Houston market and is headquartered in Houston, Texas.)
There are nine factors that drive overall customer satisfaction with builders, JD Power said, including workmanship/materials, builder's warranty/customer service staff, price/value, builder's sales staff, construction manager, home readiness, recreational facilities provided by the builder, builder's design center, and location.
Write to Austin Kilgore.
ACORN Housing released a video on YouTube, in which an employee from the housing counseling agency’s Philadelphia office describes an alleged encounter with filmmaker James O’Keefe.
ACORN — The Association of Community Organizers for Reform Now — has come under fire after O’Keefe released a series of online videos he said he filmed using undercover cameras while posing as a pimp. The videos appear to show ACORN Housing employees telling O’Keefe and an associate how to falsify Internal Revenue Service (IRS) documents and obtain a mortgage to open a brothel.
ACORN Housing's video response comes near the end of a week of press coverage. Earlier this week, the Senate voted to block ACORN and its subsidiaries from receiving federal funds in a pending appropriations bill.
In the video released Thursday, ACORN Housing office director Katherine Conway Russell said O’Keefe came to the group’s Philadelphia office in July.
“After asking several general questions, he [O’Keefe] then began to veer off into suspicious territory,” Russell said. “Unlike the videos that he has been showing on the Internet, we refused to help him and called the police and filed this report.”
On two occasions during the three-minute video, Russell holds up a document she said is a police report her office filed during the alleged incident with O’Keefe. The video is available to view below.
In a statement, ACORN Housing said its evaluating its policies and procedures in light of the incident and has suspended intake classes for first-time homebuyers until all housing counseling staff have been received additional training. A quality control team is in the process of visiting all ACORN Housing offices to ensure the retraining is implemented.
An e-mail to O’Keefe seeking comment was not immediately returned at the time this story was published.
Write to Austin Kilgore.
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