Thursday, March 31, 2011

60 Minutes and the foreclosure crisis: What Sentinel readers already knew

The foreclosure crisis, MERS, issues of standing, robo-signing, fraudulent notarizations and more!

This Sunday on "60 Minutes"

Foreclosures 
As more and more Americans face mortgage foreclosure, banks' crucial ownership documents for the properties are often unclear and are sometimes even fraudulent - a condition that's causing lawsuits and hampering an already weak housing market. Scott Pelley reports.


Readers of The Hallmark Abstract Sentinel are well aware of the crisis that is currently consuming the housing market in the form of foreclosures that can't get done or that may have gotten done and face reversal.

Why? It all comes down to paperwork done incorrectly and a small company in size, but huge in impact by the name of Mortgage Electronic Registration System or MERS. As we have discussed here in the past, questions have arisen concerning the rights of the party's trying to foreclose on a property to actually do so. This is a question of legal standing.

As a result of the legal issues surrounding foreclosures the process has been slowed to a crawl and in some cases halted all together. This has had the effect of maintaining a huge shadow inventory of property's that at some point in the future will be taken back by the lender and have to be sold.

There are additional problems that surround the investments that pooled thousands of mortgages and then sold them around the world. These were known as collateralized mortgage obligations or CMO's. They also went by a variety of other names as well such as mortgage backed securities. Many of these were rated AAA although they should not have been based on the mortgages inside. Due to this some holders of the investments are fighting to have the originators "buy-back" the investments, opening the originating firms up to potentially billions of dollars of exposure and losses.

There are also questions over whether the structure and use of MERS with these REMICS (Real Estate Investment Conduits) was in some way was a violation of the Pooling and Servicing Agreements or PSA. This could have multiple ramifications including bringing the tax structure into question.

Hear more about the story Sunday on 60 Minutes.

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Friday, March 25, 2011

The loan modification/foreclosure debate

To modify or foreclose? That is the lenders question!

Is it better for a lender to modify or to foreclose on a delinquent borrower?

We've all heard the argument over whether it pays for a lender to modify the loan of an in-trouble borrower (regardless of what they are supposed to do). Does the borrower more often than not fall behind under the modified terms and re-default?

This chart from the Center for Responsible Lending shows that for the lender and for the borrower (based on a net present value analysis at various re-default rates) the modifications seem to be beneficial and should most likely be done more often.

A more detailed analysis can be found here.

What stuff will the buyer and the seller in a transaction need to collect?

In a real estate transaction both the buyer and the seller need to collect a lot of stuff!

There is nothing greater than the anxiety surrounding a real estate transaction for the buyer and for the seller. In order to help alleviate some of the dread entailed in the process, it would be helpful if they knew before the process even started what they will need and the information that they are going to have to collect.

In this way both they and their attorney can focus on getting the deal done in as short a period of time as possible. While this list is certainly not complete, it is a good start.

  1. ID (e.g., driver’s license, state-issued ID, passport). Who must produce it? Buyers and sellers. Why? Uh, hello!?! Lender wants to know that you are who you say you are, buyers, and the title insurance company wants to make sure, sellers, that you actually have the right to sell the home. Funny enough, this commonly goes unrequested until you get to the closing table, when the notary requests to see it before signing, but some mortgage brokers and even some real estate brokers and agents may ask to see it earlier on.
  2. Paycheck Stubs. Who must produce it? Any buyer financing their purchase with a mortgage. Sellers, usually only in the case of a short sale. Why? Buyers’ purchase price ranges are determined, in part, by their income. And short sellers have to prove an economic hardship.
  3. Two months’ bank account statements. Who must produce it? Buyers getting financing; sellers selling short. Why? Buyers’ lenders now require proof of regular income and proof that the down payment money is your own. Short sellers? It’s all about the hardship.
  4. Two years’ W-2 forms or tax returns. Who must produce it? Mortgage-seeking buyers and short selling sellers. Why? Banks want to see a stable, long-term income. They also limit you to claiming as income the amount on which you pay taxes (attn: all business owners!). And in short sales, again, they want documentation of every single facet of your finances.
  5. Updated everything. Who must produce it? Buyer/mortgage applicants. Why? Because things change, and because the time period between the first loan application and closing can be many months - even years! - on today’s market. During the time between contract and closing it’s not at all unusual for underwriters to demand buyers produce updated mortgage statements, checks stubs, and such - and its quite common for them to call your office the day before closing to request a last minute verification of employment!
  6. Quitclaim deed. Who must produce it? Married buyers purchasing homes they plan to own as separate property. Married sellers selling homes that they own separately, or joint owners selling their interests separately. Why? With the Quitclaim Deed, the other spouse or owner signs any and all interests they even might have had in the property over the the selling owner, making it possible for the title insurer to guarantee clear, undisputed title is being transferred in the sale.
  7. Divorce decree. Who must produce it? Buyers and sellers who need to document their solo status or the property-splitting terms of their divorce. Why? Again, to ensure that the seller has the right to sell. Recently single buyers might need to prove that they shouldn’t be held to account for their ex’s separate debts or credit report dings.
  8. Gift letters. Who must produce it? Buyers using gift money toward their down payment. Why? The bank wants to be sure the gift came from a relative, and is their own money to give. They also want the relative to confirm in writing that it’s a gift, not a loan - a loan would need to be factored into your debt load.
  9. Compliance certificates. Who must produce it? Usually sellers, but sometimes buyers, by contract. Why? Some local governments require various condition requirements be met before the property is transferred, like some cities which require a sewer line be video scoped and repaired, cities which require a checklist of items be met before a certificate of occupancy be issued (usually relevant to brand new and really old homes, the latter of which are often subject to lead paint concerns) and energy conservation ordinances which require low-flow toilets and shower heads to be installed. Ask your real estate pro for advice about which, if any, such ordinances apply in your area.
  10. Mortgage statements. Who must produce it? Any seller with a mortgage. Why? the escrow holder or title company will need to use them to order payoff demands from any mortgage holder who has to get paid before the property’s title can be transferred.C
Courtesy of Trulia


Thursday, March 24, 2011

Foreclosure takes an emotional toll as well as a legal and financial one

Foreclosure and ALL its potential ramifications beyond simply losing a home

Whenever I receive a new article from Mandelman Matters I know that it will at the very least be informative and sometimes, as it was this morning, an important read for a variety of other reasons.

Having recently taught a CLE class on the impact that the foreclosure crisis could have on title insurers, my research was not only extensive but instructive as well. Foreclosure has its legal and financial impact without question, but potentially other, far reaching impacts as well.

The following article was originally posted in 2009, but as the author says it is important to read it again. I agree!

The Psychology and Politics of Foreclosure

"... Losing a home to foreclosure is something most people never forget. It’s an event likely to stay with you for the rest of your life. It’s certainly not something most people think will happen to them… until it does. And it can happen to anyone at any stage of life, young, old, rich, poor… all can find themselves at risk. As the off-color colloquialism says about life… stuff happens. Although many people might not readily agree, foreclosures are statistically a “there-but-for-the-grace-of-God-go-I” type of situation.

Of course, there are times when more stuff happens to more people, and today is obviously an example of such times. The economic conditions that we’re experiencing today are causing more foreclosures than at any time since the 1930s. When housing prices began to collapse a couple of years back, no one could have seen just how far things would go, and how difficult it would be to bring our economy back to life, as we’ve known it.

One of the causalities of our accelerating economic downturn has been a shared understanding of its cause. Some blame our politicians, some blame Wall Street’s bankers, some blame the Federal Reserve, and we’ve all heard that it was the sub-prime borrowers themselves that are the root cause of our recession.

Belief in a Just World

As human beings, we need to understand the causes behind events that negatively impact our world in order to feel safe. When we don’t understand how or why something happened, when something appears

to have been a truly random occurrence, it frightens us terribly because we can’t plan to protect ourselves from such an event.

Melvin Lerner is a prominent social psychologist. In his 1980 book, “The Belief in a Just World: A Fundamental Delusion,” he argued that people want to believe in the inherent justice of the economic system in which they live, and want to believe that people who are suffering are responsible for their own situations. He conducted a series of experiments and provided empirical evidence showing that after an initial feeling of sympathy, people tend to develop negative views toward others who are suffering. And that’s the type of negative tendency that seems to be in play today.

So, perhaps it shouldn’t be surprising that instead of having sympathy for homeowners that are losing their homes to foreclosure, many people are blaming the homeowners themselves for their predicaments. It’s just an example of the general tendency that was documented by Melvin Lerner and other social psychologists many years ago..."

Read the full article at Mandelman Matters here.



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Monday, March 14, 2011

NY CLE presentation on the foreclosure crisis and the practice of law (Video)

Continuing Legal Education (CLE): "The effects of the foreclosure crisis on the practice of law: How to avoid the pitfalls"

On March 10, 2011, Hallmark Abstract Service was honored to participate in a CLE program that was produced jointly by the Westchester Women's Bar Association and the Puerto Rican Bar Association.

Attended by approximately 50 attorney's, the event included an introduction by Acting New York Secretary of State Ruth Colon and a discussion of attorney ethics by Maria Matos, Executive Secretary to the Office of Character & Fitness, New York State Supreme Court, Appellate Division, First Department, and Andral Brotman, former Deputy Chief Counsel to the New York State Appellate Division, First Department's Departmental Disciplinary Committee.

I was joined in discussing the foreclosure crisis by Kathleen Daly of Wilson, Elser, Moskowitz Edelman and Dicker LLP, and Dale Robyn Siegel of the Circle Mortgage Group.

The event was organized through the hard work of Stephanie Melowskey of NorthEast Community Bank and Jacqueline Hattar of Wilson, Elser.

In the coming days I am going to provide an overview of the topics that I covered including MERS, securitizations and potential ramifications on the title industry.




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Saturday, March 12, 2011

AG-Mortgage Servicers term-sheet; A non-starter?


March 7, 2011 a term-sheet for a settlement with the mortgage servicers was released by all the 50 states attorney's general.

A first blush analysis of this proposal made the reader think more of a light slap on the wrist than of any real punitive punishment. For example:

Of the 27 points presented most are items the servicers should already have been doing, and dealing with MERS which is at the center of the problem, is put off to some future date.

There is no discussion of criminality.

Issues relating to the use and performance of MERS are reserved for further discussion.

Affidavits and sworn statements, including their notarization, shall fully comply with all state law requirements.

Affidavits and sworn statements shall not contain information that is false or unsubstantiated.

Servicer shall have a general duty of good faith and fair dealing in its communication, transactions, and course of dealing with each borrower in connection with the servicing of the borrowers mortgage loan.

From Reuters, "Analysis: Mortgage settlement proposal likely doomed"

(Reuters) - A settlement proposal by state attorneys general with the five biggest U.S. mortgage servicers stands out less for what it contains than for what it omits -- terms for resolving the most difficult issues dividing regulators and the big banks.

The proposal, which calls for a dramatic increase in loan modifications, is intended as the basis for settling allegations of widespread wrongdoing by the big loan servicers in handling millions of foreclosures.

But the sharply conflicting interests of the banks, regulators, homeowners and investors in mortgage securities signal that chances are remote for any "global" settlement with the banks.

Failure to reach a comprehensive settlement would be bad for the housing market, homeowners, investors in mortgage-backed securities, and even the banks themselves.

"There are so many different parties involved that I question the doability of a global settlement," said Bert Ely, an independent banking consultant.

Paul Miller, a bank analyst with FBR Capital Markets, said the banks ultimately might reach a settlement with requirements for loan modifications greatly watered down.

"The banks have a mess on their hands and they know that," Miller said. But he said that because banks fear the costs of the loan modifications the proposal would require, "I just don't see how banks can sign this document."

The AGs' 27-page proposal leaked out last week. Much of it deals with imposing what appear to be strict new standards of conduct for banks and requires far more loan modifications on terms that make it likely that homeowners can keep their homes. The settlement would be with Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup and GMAC/Ally Financial Inc.

Missing from the document, however, are proposals for make-or-break issues such as:

* The dollar amount of penalties the servicers would pay, and where money from the penalties would go. The document lists no amount, but a figure of at least $20 billion has been widely discussed.

* The extent of loan modifications required, particularly principal reductions cutting the basic amounts owed.

* Whether the banks and their personnel may get immunity from potential state and federal criminal prosecution for filing forged or fraudulent documents in foreclosure cases.

* A seemingly obscure but vital question -- what would happen with mortgages held in the name of the Mortgage Electronic Registration Service, a company established by the big loan servicers. MERS claims to hold the title to about half of all home mortgages, and vast numbers of foreclosure actions have been filed in MERS' name. But in recent months courts around the country have ruled that MERS lacks legal standing to foreclose. (A few courts, however, have ruled that it does.)

* A factor that has led to a sharp reduction in recent months in the number of foreclosures -- court rulings around the country holding that banks cannot foreclose when they are missing crucial, authentic documents proving ownership of the mortgages.

Foreclosure tracker RealtyTrac reported Thursday that foreclosures in February 2011 were down 27 percent from the same month last year. The report attributed nearly all of the decline to the court rulings, which have led banks to hold back on filing foreclosure cases.

BREEDING MORAL HAZARD?

In a press conference earlier this week, Iowa Attorney General Tom Miller, who led an investigation on behalf of the 50 states' attorneys general, predicted that a broad settlement could be reached within about two months.

Staff members of several AGs, who asked not to be identified, said that crucial issues were left out because differences among state and federal regulators remain so strong that they haven't been able to agree on proposals. The Office of the Comptroller of the Currency and the Fed didn't participate.

Miller said the agreement was worked out jointly with federal agencies including the Federal Deposit Insurance Corp, the newly created Consumer Financial Protection Bureau and Justice Department.

Bank opposition to the proposal emerged quickly. On Tuesday, Brian Moynihan, chief executive of Bank of America, the largest U.S. servicer, said at a meeting with analysts and investors that he opposes widespread principal reductions for homeowners in default.

Moynihan, executives at other banks and OCC officials contend that such modifications could be unfair to homeowners who have kept current with their payments. They also say it might induce some who can afford current payments to default in expectation that they would be able to negotiate a better deal.

MISSING DOCUMENTS STILL A PROBLEM

It is also unclear how any settlement between regulators and the banks could undo recent court decisions banning banks from foreclosing when they lack vital documents proving ownership of the mortgages.

In the chaos of the housing boom, many loan originators never bothered to pass on those documents to investor trusts that bought securitized mortgages.

Before the rulings the banks had tried to get around the problem by filing fake mortgage assignments, often drawn up just before or after a foreclosure proceeding began.

Joe Klein, an attorney with Legal Aid of Collier County, Florida, who represents large numbers of low-income homeowners, contends that almost without exception the mortgage assignments banks filed in his cases weren't authentic.

The court ruling could leave the status of hundreds of thousands of homes and mortgages in limbo indefinitely.

Legal experts say they doubt that a settlement between regulators and the banks could overcome the obstacles posed by the court decisions. Only an act of Congress could do that, they say. But there has been no sign of interest by lawmakers in taking on the issue.



More attorney fallout from the foreclosure crisis
















Freddie Mac is dropping one of the law firms in Florida that is under investigation for the handling of home repossessions.


The Marshall C. Watson Law firm

Will the removal of files from law firms around the country become more of the rule than the exception as improprieties continue to be exposed?

This from the blogs at The Palm Beach Post

Freddie Mac takes foreclosure files from Fort Lauderdale-based Marshall C. Watson law firm

by Kim Miller

Federal mortgage backer Freddie Mac is taking its foreclosure cases from the Fort Lauderdale-based Marshall C. Watson law firm, one of eight Florida firms facing state scrutiny for its handling of home repossessions.

Brad German, a spokesman for Freddie Mac, confirmed the removal of the cases this morning, but did not say why Watson will no longer be used.

“Going forward our servicers will be directing business to other counsel,” German said.

In a statement, the Marshall C. Watson law firm said the parting was a mutual decision made by both sides.

“Freddie Mac and our firm mutually decided to part ways,” that statement said. “The Freddie Mac portfolio was only a small portion of the firm’s business, representing less than ten percent. Our firm will continue to work with Freddie Mac to ensure the transition of files is expedited and smooth. We are operating as normal with respect to all other clients and as always remain focused on providing superior service.”

Freddie Mac’s designated counsel list, which shows which attorneys the group uses in each state, was updated for Florida yesterday to remove Waston’s name.

Marshall C. Watson is just the latest firm to lose its federal foreclosure business. The Law Offices of David J. Stern in Plantation was fired in the fall by both Freddie Mac and Fannie Mae. Stern said last week the office would stop doing all foreclosure work as of March 31, leaving as many as 100,000 cases stranded statewide.

The Fort Lauderdale firm of Ben-Ezra & Katz was fired in February by Fannie Mae and is in the process of transferring about 15,000 cases to new attorneys.

The Law Offices of Marshall C. Watson are still on Fannie Mae’s retained attorney network list.

Wednesday, March 9, 2011

MERS 101 (Video)

If you have heard anything about the foreclosure crisis, you've heard about MERS!

This video discusses some of the background of MERS, the Mortgage Electronic Registration System. With over one half of the nations mortgages "held" in its database, MERS is at the center of the controversy surrounding foreclosures.

Monday, March 7, 2011

Foreclosure statistics for January


Foreclosure statistics courtesy of Lender Processing Services (LPS)

Despite the fact that LPS may be subject to fines concerning its handling of foreclosures, the company still provides some excellent foreclosure statistics.

The are the LPS conclusions on foreclosures for the month ended January 2011.
  • Delinquency rates increased slightly as a large number of loans were transitioned out of foreclosure back into the seriously delinquent category.
  • New problem loan rates continued to improve. All states have experienced significant 12 month declines in new seriously delinquent loan inventory.
  • New foreclosures declined, however foreclosure inventory still increased and remains under pressure due to a low volume of foreclosure sales activity.
  • Foreclosure sales volume is increasing, but still remains very low with foreclosure starts outnumbering sales 3:1.
  • Foreclosure timelines continue to extend - the average loan in foreclosure has not made a payment in over 500 days.
  • Refinance activity declined significantly as increasing rates and several months of strong refinance volume have reduced remaining opportunities.
Total U.S. loan delinquency rate: 8.9 percent

Total U.S. foreclosure inventory rate: 4.16 percent

Total U.S. non-current* loan rate: 13.1 percent

States with most non-current* loans: Florida, Nevada, Mississippi, Georgia, New Jersey

States with fewest non-current* loans: Montana, Wyoming, Alaska, South Dakota, North Dakota

*Non-current totals combine foreclosures and delinquencies as a percent of active loans in that state.

Source: LPS




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Thursday, March 3, 2011

Foreclosure fraud: The Movie

MERS, LPS, Bogus assignments

This short clip provided and narrated by stopforeclosurefraud.com goes through one particularly egregious example shoddy/bogus/fraudulent documentation. This is just the tip of the iceberg that caused a bank the size of HSBC to freeze foreclosures.