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Thursday, January 20, 2011

Fannie Mae and Freddie Mac Delinquency Rates Decline Slightly

Fannie Mae and Freddie Mac Delinquency Rates Decline But Only Slightly
The serious delinquency rate of Fannie Mae loans decreased to 4.50% in November from 4.52% in October.  Similarly, Freddie Mac loans that the serious delinquency rate decreased to 3.84% in December from 3.85% in November. (Note: Fannie reports a month behind Freddie).   Loans that are seriously delinquent are "three monthly payments or more past due or in foreclosure".
Freddie Mac Seriously Delinquent Rate

Tuesday, January 18, 2011

Big Banks Face Fines on Role of Servicers


U.S. Regulators have reviewed mortgage-servicing practices in the nation and found serious problems with internal controls and staffing levels at the companies.  These findings are likely to result in formal enforcement action against more than a dozen major financial institutions.
The penalties against Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co. and 11 other home-loan servicers being investigated since last fall could include fines and changes in how the companies operate. The regulators found numerous breakdowns in procedures for payment collection, loan modifications and foreclosures.
While regulators haven't agreed on exact details of the punishment, some banks could be notified within days of the enforcement action being taken against them.
In testimony prepared for a Senate Banking Committee hearing Thursday, John Walsh, acting head of the Office of the Comptroller of the Currency, which oversees most of the nation's biggest banks, said the probe found "critical deficiencies and shortcomings" in document procedures, oversight of outside law firms and other areas.


A review of 2,800 foreclosures also uncovered a "small number" of wrongful sales that shouldn't have occurred, since the borrowers were on military deployment, filed for bankruptcy-court protection shortly before the foreclosure or had been approved for a trial loan modification, Mr. Walsh said.
"By emphasizing timeliness and cost efficiency over quality and accuracy, examined institutions fostered an operational environment that is not consistent with conducting foreclosure processes in a safe and sound manner," Mr. Walsh said in his remarks. The problems violated state laws and had "an adverse affect on the functioning of mortgage markets and the U.S. economy as a whole."
Loan-servicing firms are likely to cite the outcome as proof of their insistence since the robo-signing mess erupted last fall that paperwork problems haven't caused an epidemic of mistaken foreclosures. Still, the penalties and operational changes being imposed by regulators will be embarrassing and expensive. Regulators want to "get closure on this pretty quickly," said one person familiar with the discussions.
State attorneys general say their investigation of foreclosure practices is entering a critical phase. Iowa Attorney General Tom Miller, who is heading the multistate investigation, said in a statement that the states "are making every effort to work with these federal agencies in hopes of a coordinated settlement." But Mr. Miller added that many of the bank practices under review are violations of state law. Regardless of any federal action, the states "intend to fully pursue all state claims and remedies," he said.
The wide swath of U.S. agencies that has been scrutinizing mortgage servicers or involved in meetings with industry officials also includes the Justice Department, Department of Housing and Urban Development, Federal Housing Finance Agency and newly formed Bureau of Consumer Financial Protection.
Banking regulators' specific enforcement actions wouldn't preclude, and could be one part of, the broader settlement this group may pursue against banks.
Last week, Federal Reserve Governor Sarah Bloom Raskin said preliminary results of the review "indicate that widespread weaknesses exist in the servicing industry." The problems "pose significant risk to mortgage servicing and foreclosure processes, impair the functioning of mortgage markets, and diminish overall accountability to homeowners," she added.
Bank of America, J.P. Morgan and Wells Fargo declined to comment.
In addition to fines, federal regulators have been considering new rules aimed at correcting what U.S. officials have concluded are deficiencies in how borrowers are treated during the loan-modification process. The requirements could include a code of conduct for home-loan servicers, a "single point of contact" for troubled borrowers and procedures for how banks handle loan modifications and foreclosures simultaneously.
People involved in the talks cautioned that no agreement has been reached, partly because of differences between various agencies about the size of penalties and the scope of procedural changes that are needed.
OCC officials have proposed relatively modest fines, according to people familiar with the situation. Officials from the Bureau of Consumer Financial Protection and FDIC have pushed for larger penalties that could include compensation for borrowers or forcing mortgage servicers to consider reducing loan balances, these people said.
U.S. officials are trying to make sure that the forthcoming enforcement actions by federal banking regulators don't give servicers any wiggle room to resist additional punishment by U.S. or state regulators by arguing that the servicers already satisfied their primary banking regulator's demands.
The OCC conducted a separate investigation of the Mortgage Electronic Registration Systems, an electronic-lien registry set up by the mortgage industry to handle documentation on loans bundled into pools and sold as securities. That probe is on a separate track, and it isn't clear when it will be finished, people familiar with the situation said.
MERS's legal standing has faced criticism from some judges, who raised questions about the company's practice of certifying bank executives to handle foreclosures by naming them "vice presidents" of MERS.
On Wednesday, MERS issued a series of corporate-governance changes that will overhaul those processes. For example, servicers that use MERS will be required to foreclose in their own names, not in that of MERS.

Monday, January 3, 2011

Shadow inventory threatens housing recovery


Shadow inventory threatens housing recovery
When the growing glut of foreclosed homes hits the market over the next couple of years, any potential economic recovery will be delayed once again. There were 1.7 million homes either owned by the bank or in some stage of foreclosure at the end of the third quarter of 2010, according to a recent report by Standard & Poor's. It would take 44 months, at the current rate of sales, to sell them off -- a 25% increase from the beginning of 2010. (S&P does not count home loans backed by Fannie Mae and Freddie Mac.) 


This so-called "shadow inventory" may depress home values and delay the housing market recovery. "The problem is you have all these properties coming down the pipeline that are nearly certain to hit the market. That's going to be a negative for the supply-demand equation," said Diane Westerback, Managing Director for S&P and an author of the report. S&P defines shadow inventory as properties whose borrowers are (or recently were) 90 days or more delinquent on their mortgage payments, ones currently or recently in foreclosure or that are back in the hands of the banks.

Data through Sept. 30 from the Mortgage Bankers Association, which tracks about 80% of the market, suggests there are more than 2 million Americans seriously delinquent on their mortgages and another 2 million bank-owned homes. Plus, RealtyTrac reported last week that a million homes were repossessed in 2010. Westerback said the biggest contributor to the longer shadow inventory is that banks are taking far longer to foreclose on homes than they once did. There are several reasons for that. One is that banks have struggled to keep up with the sheer volume. Last year there were nearly 2.9 million homes that received some kind of foreclosure notice. Many foreclosures have also been delayed as banks make greater efforts to save homes by modifying mortgages. Gathering all the paperwork and working out a deal with all the parties takes time. The banks have gotten better at this, according to S&P, with modified loans less likely to re-default. In early 2008, 80% to 85% of these loans re-defaulted. By the third quarter of 2009, that had dropped to a 50% to 55% rate.
Of the 20 separate markets S&P analyzed, Miami was the only market of the 20 that S&P analyzed where shadow inventory did not did expand during the first three quarters of 2010.  In Minneapolis, it rose 61% between Dec. 31, 2009 and Sept. 30, 2010, to 35 months from 21. Las Vegas went up 48% to 30 months supply, and Portland, Ore. jumped 47% to 45 months. In New York, foreclosures are relatively moderate, but many have gotten stuck in the pipeline. As a result, the state now has the longest shadow inventory list, with nearly 10 years worth of homes. Boston's shadow inventory is at 62 months and Miami's is 60.