Blown Mortgage » Industry Mortgage Tips

Is Trust Returning to the Mortgage Industry?

Jay Hammond — Wed, 01 Jul 2009 16:12:57 +0000

“The economy is based on trust,” said Dean Johnson, associate professor of finance at Michigan Technological University in Houghton, Michigan.

In situations like the recent housing bubble, or even the stock market collapse of 1929, where markets were driven by debt and fueled by the false expectation that values can only increase, trust can be a very fragile thing.

“One little blip and everything started to unwind,” Johnson said. “The particulars are different, but the basics are familiar.”

Trust, however, seems to be coming back, according to Johnson. If people are cautious and not spending money, the government and financial industry must take action to encourage capital liquidity. During the first half of 2009, this is exactly what they have been doing. And if the effects have not been as immediate as some would like and others needed, at least their efforts are beginning to take effect.

Why does Johnson believe trust is returning? He points to the Volatility Index, or VIX, which measures investors’ expectations of how volatile the stock markets will be. The VIX reached all-time highs in 2008.

“People think of it as the fear gauge,” Johson explained. “it’s encouraging that the VIX, though still high be historical standards, is down about 60 percent from what it was at its peak in November.”

Other, more recent, signs that trust is being rebuilt in the American housing/real estate markets and the financial industry include:

USA Today reports that while the construction market remains weak the housing market may be improving slightly. Residential construction reportedly dropped to the lowest level since December 1995. Pending homes sales increased slightly in May, according to the National Association of Realtors (NAR).
Proposed legislation to create a Consumer Financial Protection Agency is making progress at the federal level, according to the Washington Post. The Post reports that the Treasury Department’s proposal for a new federal agency to consolidate the plethora of state and federal regulators responsible for overseeing the lending industry arrived on Capitol Hill on Tuesday.
At the end of June, Fannie Mae, which is still under the conservatorship of the federal government, reported its mortgage portfolio grew at a compound annual rate of more than 35 percent in May. A report from Dow Jones appearing in the Wall Street Journal indicates a large jump in the issuing of mortgage-backed securities offset continued rises in single-family and multi-family mortgage delinquencies.

Notes of caution, however, are also being heard. Yale University economist and co-founder of the S&P/Case-Schiller home-price index, Robert Schiller told Bloomberg: “At this point, people are thinking the fall is over. The market is predicting the declines are over.” At the same time he is “not optimistic that we’re going to see any sharp rebound.”

Johnson agrees with Schiller.

“It’s still a risky market,” Johnson stresses. “This is the first time in history that you’ve been better off if you’d put your money under a mattress 10 years ago. But hopefully, this indicates that the financial markets are returning to normal.”

Of course this doesn’t mean the housing market or the financial industry will be returning to the halcyon days of pre-mortgage crisis days anytime soon. It doesn’t matter how badly investors, bankers, consumers, lenders, the government or the world at large want it.

“There’s no easy fix,” Johnson concluded. “We have to take our medicine. It took 20 years to create the over-leverage and it will take time to undo that.”

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Recovery? Mortgage apps down, prime delinquencies up

Constantine von Hoffman — Wed, 01 Jul 2009 14:33:17 +0000

Today is the day the recovery starts, at least according to those peering into the rosiest-colored crystal balls. The Wall Street Journal dug up these great examples:

Most forecasters seem to expect growth to be weak for a few quarters, but then rebound back to trend in the second half of 2008… –Lehman Brothers research note, Dec. 12, 2007

What is shaping up as the deepest and longest recession since the 1930s will end in the second half of 2009. –Wells Fargo press release, Dec. 19, 2008

And what news did we wake to on this glorious July 1?

First, mortgage application dropped 30% last week. The report from the Mortgage Bankers Association says this is a the lowest the rate has been at in seven months. Biggest reasons for this are people’s concerns about their jobs and mortgage rates. Currently the 30-year fixed is averaging 5.34%.

Second, delinquency rates for the LEAST RISKY MORTGAGES more that doubled in the first quarter compared to the same period in ‘08.

Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.

(Hat tip to Implode/Explode)

These are just the latest evidence of the new wave of foreclosures. A month ago Mark Hanson of the Field Check Group wrote that the price-collapse we have been seeing in low- to mid-priced homes is now spreading to the mid- to high-priced sectors.

Mid-to-high end [Notice of Disclosure] and foreclosure counts stand between 35% and 40% of total counts but account for only about 20% of total sales. This means that foreclosure-related pipeline supply is 100% greater than demand in this segment. This is a major supply/demand imbalance that will bring serious trouble to this market over the near-term. Especially considering that this particular foreclosure related supply only makes up approx 10% of total mid-to-high end supply with Ma and Pay Organic homeowner once again making up the rest.

(Hat tip to the Financial Armageddon blog.)

Given Mr. Hanson’s impressive track record I am inclined to believe his predictions and wonder why Lehman Bros., Wells Fargo, et al., can’t do as well. Probably has something to do with his lack of a vested interest.

So the much vaunted recovery continues to recede farther into the distance. Surprise, surprise, surprise.

Constantine von Hoffman is a veteran business journalist and social media consultant. He write the blog CollateralDamage, a satirical look at marketing and business.

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New Report Links Foreclosures and Homelessness

Jay Hammond — Tue, 30 Jun 2009 16:24:53 +0000

“Local reports indicate that homelessness is on the rise and this report [Foreclosure to Homelessness] gives us insight into the role that foreclosures may be having on that increase,” said Nan Roman, president of the National Alliance to End Homelessness.

The Foreclosure to Homelessness: The Forgotten Victims of the Foreclosure Crisis report released last week provides insight into how foreclosures have affected homeless populations around the country. Based on surveys completed by 178 organizations across the U.S. that provide services to individuals and families experiencing homelessness it was determined that the nation’s homeless population has been directly impacted by foreclosure and that the is likely to increase along with the number of foreclosures. Nearly 80 percent of the respondents reported that at least some of their clients became homeless due to foreclosure. The leading self-reported reasons for homelessness, however, remain financial obstacles like job loss, addiction and evictions, according to additional information gathered by the Alliance to End Homelessness.

“The results of this survey make clear that foreclosures are a major factor in the increase of homelessness in the United States,” National Low Income Housing Coalition (NLIHC) President Shelia Crowley said.

Conducted earlier this year between January 15 and February 21, the data collected by the survey reflects the previous 12-month period. Other key findings include:

Housing providers (including emergency, transitional and permanent housing) estimated that 5 percent of their clients experienced homelessness as a result of foreclosure compared to 10 percent of all respondents.

34 percent of responding organizations indicated none of their clients were homeless as a result of foreclosure however 14 percent of those surveyed estimated that most of their clients were homeless due to foreclosure.

Those experiencing homelessness due to foreclosure tended to be renters – not owners.

Most of those facing homelessness because of foreclosure, whether renters or owners, did not seek legal advice in foreclosure proceedings.

The most common living situations among those made homeless by foreclosure included staying with family or friends and emergency shelters.

“We’re grateful that since the time this data was collected, federal actions have provided communities with resources to prevent and end homelessness, in the form of stimulus dollars and renter protections.”

The 40-page report was released by the Alliance along with the National Coalition for Homelessness, the National Health Care for the Homeless Council (NHCHC), the National Association for the Education of Homeless Children and Youth (NAEHC), the National Law Center on Homelessness and Poverty (NLCHP), the National Low Income Housing Coalition (NLIHC) and the National Policy and Advocacy Council on Homelessness (NPACH).

Another study, Renters in Crisis by Shelia Crowley and Danilo Pelletiere of the National Low Income Housing Coalition and Maria Foscarinis of the National Law Center on Homelessness & Poverty, that is also cited in the Foreclosure to Homelessness report, revealed the following facts regarding renters and foreclosures:

In 2008, one of every five properties in foreclosure were rental properties. Many had multiple units.

An estimated 40 percent of families facing eviction due to foreclosure are renters.

Seven million households living on very low incomes (31 to 50 percent of the Area Median Income) are at risk of foreclosure.

Renters received important new federal protections when President Obama signed the Helping Families Keep Their Homes Act in May 2009. The Act states that tenants must be given at least 90 days notice to vacate once a property has been foreclosed on and have the right to occupy the premises until the end of any term entered into under a bona fide lease agreement made prior to the notice of foreclosure is given unless the property will become the owner’s primary residence. Further, the Act protects renters receiving Section 8 assistance by preventing eviction during the term of their lease just so the new owner can sell the property. These and other provisions, while helpful, will not completely solve the problems renters and tenants face during foreclosure.

To assist tenants facing foreclosure, NLIHC has teamed up with the National Housing Law Project (NHLP) to create a toolkit for renters facing eviction due to foreclosure. The toolkit, which is available on the NLIHC website, includes a copy of the law, a one page explanation of its provisions, a question and answer document for tenants, sample letters to send to landlords, judges and public housing agencies and a webinar explaining the new law.

“Under the law, these blameless victims of the foreclosure crisis are now protected,” said Crowley. “The toolkit provides tenants and their advocates with the information necessary to protect families from being evicted unlawfully.”

Some activists and advocates for the homeless have promoted the idea of moving homeless families and individuals into empty properties that are in foreclosure. In April 2009, Real Estate Pro Articles detailed some of the efforts to allow homeless persons to occupy vacant homes occurring around the country. The New York Times also explored this issue back in February 2009. Since April, however, stories about this alternative have largely vanished from media and the blogoshpere although the release of this new report may revitalize interest.

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New Commercial Real Estate Lending Index Introduced

Jay Hammond — Mon, 18 May 2009 20:56:23 +0000

“Commercial Real Estate lending conditions will likely deteriorate further after a sharp drop in the first quarter of 2009, creating both new opportunities and challenges for community banks,” said Chris Nichols, CEO of Banc Investment Group the capital markets group of Pacific Coast Bankers’ Bancshares. “CRE lending conditions were impacted by a perfect storm of economic uncertainty, tighter credit, failing consumer confidence and substantially higher unemployment. Of particular note was the reversal of fortunes in the multifamily market, which had been fairing well, but turned negative in the first quarter.”

That is the conclusion drawn by the BIG CRE Index. Launched this month, the BIG CRE Index is the nation’s only forward-looking benchmark of the relative strength of commercial real estate (CRE) market conditions. The BIG CRE Index is published quarterly and focuses on the four major commercial real estate sectors – multifamily, office, retail and industrial – in America’s largest metro areas.

According to the CoStar Group, the so-called stress tests administered to banks by the Federal Reserve indicate that under worse case scenarios the 19 largest banks in the country could see commercial real estate losses of $53 billion in 2009 and 2010. This represents only 8.5 percent of all commercial real estate loans.

The initial BIG CRE Index reveals that CRE conditions worsened during the first quarter of 2009, falling nearly 11 percent to 80.58. The baseline period was defined as April 30, 2007.

Retail:

The retail sector index fell more than 11 percent to 78.36 from 88.07 in the fourth quarter of 2008. The retail sector has declined more than 20 percent from the 103.50 level seen during the second quarter of 2007.
Vacancy rates for neighborhood shopping malls soared to 9.5 percent.
Vacancy rates in regional malls rose to a record high of 7.9 percent.
Overall, 63 out of the 76 markets for which data was collected experienced a rise in vacancy rates. All but one posted negative rent growth.
Rent fell by 1.8 percent declining more in the first quarter of 2009 than the 1 percent decrease measured for all of 2008.

Office:

The office sector fell 10.62 percent during the first quarter of 2009 to 82.72 down from 92.55 during the previous quarter.
The office sector was hurt by the consolidation and downsizing in the financial services sector.
Office vacancy rates rose sharply during the first quarter of 2009 and now stand at 15.2 percent.
During the first quarter, 12.3 million square feet of office space was completed having vacancy rates of between 50 and 60 percent compared to the 30 to 40 percent vacancy rates of 2007 and 2008.
Nationally, rents declined by 2.3 percent.

Industrial:

The industrial sector of the index decline by nearly 17 percent during the first quarter of 2009 to 29.80. During the fourth quarter of 2008 the sector stood at 83.96. The sector is down more than 31.5 percent from the 101.91 reported during the second quarter of 2007.
The Index predicts the domestic warehouse market will soften as a result of weakness in the domestic shipping business.
Inventory is building up in coastal ports as less consumer spending decreases demand, a condition expected to further impact the industrial sector in coming quarters.

Multifamily:

The multifamily sector of the index dropped more than 6 percent to 91.43 in the first three months of 2009 from the 97.42 level of the final quarter of 2008. The sector is off only 3.81 percent from the second quarter 2007.
Vacancy rates rose to 7.2 percent during the first quarter.
Rent growth for the quarter was negative 1.1 percent.
Compared to the second quarter of 2007, the multifamily sector actually improved slightly during 2008. The economic downturn began making itself felt in the sector during the first quarter of 2009 as the number of vacancies increased while rents declined. Construction continued at a steady pace while net absorption rates dropped.

The quarterly percentage change in the Big CRE Index takes into account both macro economic factors and the specific default probabilities of each category such as employment, income, rents, vacancy and absorption rates. Movements of the Index are expresses as percent changes rather than changes in index points. Point changes are affected by the level of the BIG CRE Index in relation to the baseline period (second quarter 2007). Percentage changes are not.

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Unintended Conquences: Housing Discrimination Spikes as Crisis Continues

Jay Hammond — Tue, 05 May 2009 22:00:38 +0000

“Fair housing advocates have been warning the federal government for a decade, to no avail, about the damage that abusive lending would bring,” said Shanna L. Smith, President and CEO of the National Fair Housing Alliance (NFHA). “For too long, HUD and the Justice Department have stood by while people and neighborhoods of color have been targeted for predatory loans and stripped of equity. As we look forward to working with the new Administration to bring in an era of change, the change must begin with HUD’s and Justice’s fair housing enforcement programs..”

On Friday, May 1, the NFHA released the 2009 Trends Report indicating that fair housing complaints handled by private groups increased 17 percent to 20,173 in 2008. This represents 66 percent of all national complaints. The 93 fair housing organizations processed almost twice as many cases last year as U.S. Department of Housing and Urban Development or HUD (2,123 cases), the U.S. Department of Justice (33 cases), and 107 state and local government agencies (8,429 cases) combined.

Private fair housing centers reported seeing more cases of discrimination in mortgage lending than ever before, as well. HUD handled only 60 fair lending complaints compared to the 1,500 reported by private fair housing organizations. The DOJ (Department of Justice) brought just one fair mortgage lending case.

Results of the 2009 Annual Survey of Consumer Financial Services Law, published in the February 2009 edition of Business Lawyer, also indicates that several new housing finance lawsuits and criminal cases have bee filed recently. These include a variety of class action suits alleging racial discrimination under both the Equal Credit Opportunity and Fair Housing Acts. In addition, two of these cases have utilized information collected under Home Mortgage Disclosure Act (HMDA) to support claims of discrimination in mortgage lending, indicating HMDA could be a useful tool for fair housing advocates. According to the report published in Business Lawyer “It is notable in light of current concerns about predatory lending practices that some of the new cases combine allegations of mortgage fraud with racial discrimination claims under several different theories of liability, a feature that was absent in the previous auto finance class action litigation and the DOJ mortgage practices cases.”

The NFHA findings reveal that housing discrimination has spiked during the mortgage crisis for two reasons:

the worsening foreclosure crisis
Internet advertising that violates fair housing laws

The mortgage crisis has put HUD and government agencies like Fannie Mae and Freddie Mac in the position of having to oversee a growing number of programs and organizations at a time when desperation is leading many home and property owners to do everything they can to hang onto property and maintain occupancy levels.

“HUD is in the awkward position of policing its own programs and partners for fair housing violations,” said Henry Cisneros, former secretary of HUD, calling for the creation of a new and independent fair housing enforcement agency published in the December 10, 2008 issue of American Banker. “It depends on various entities to carry out its policies ad at the same time is also responsible when acting as a fair housing enforcers to investigate the very same entities for their housing discrimination…There’s a built-in conflict of interest.”

The Internet has long posed a problem for fair housing, in part because of the Communications Decency Act (CDA) of 1996 shields Internet service providers (ISPs) and web sites from the laws that prohibit discriminatory advertising for housing in newspapers and magazines. Just a quick search this week by Elizabeth Razzi of the Washington Post yielded multiple examples of discriminatory advertising. The situation persists despite the recognition by at least one court, the Ninth Circuit, that “there is no reason inherent in the technological features of cyberspace why First Amendment and defamation law should apply different in cyberspace that in the brink and mortar world.” That opinion was quoted in the article Rethinking the Communications Decency Act: eliminating statutory protections of discriminatory housing advertisements on the Internet” published in the Federal Communications Law Journal back in December 2007.

“Ads that we have seen like ‘Indoor pets ok, no kids’ are a clear violation of federal law and are simply unacceptable,” said Smith, explaining that the majority of ads discriminate against families with children. “As more and more people turn to the Internet for information, we anticipate hundreds more complaints from around the country.”

It is difficult to say whether the upsurge in discrimination in housing and housing finance is the result of intentional efforts to discriminate, the inevitable outcome predatory lending practices and mortgage fraud or simply the effect of uninformed advertisers, real estate agents, mortgage brokers and consumers. In an effort to combat unintentional discrimination the National Association of Realtors (NAR) launched the FHA Toolkit to educate consumer about FHA-insured loans, as well as offering realtors a free strategic planning workshop, Leading with Diversity, and the At Home with Diversity certification. Fair housing workshops have also been offered by a variety of sponsors in increasing numbers across the country. They were especially prevalent during April which was National Fair Housing Month in the U.S.

The Fair Housing Act prohibits housing discrimination on the basis of race, color, national origin, religion, sex, family status and disability. It also covers all housing transactions and services including advertising, rentals, sales, lending and insurance as well as harassment.

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Homeowners Rights: What are they?

Jay Hammond — Tue, 03 Mar 2009 14:43:33 +0000

Is your state unfriendly towards homeowners? Probably. Further, most states are particularly unfriendly towards homeowners being foreclosed upon.

A new report from the National Consumer Law Center (NCLC) reveals that three out of five states allow for so-called fast-track foreclosures without any court oversight. In addition, the report, titled “Foreclosing A Dream: State Laws Deprive Homeowners of Basic Protections” found that 33 states do not require direct notification of homeowners when a lender begins the foreclosure process. As a result, state foreclosure laws may actually be contributing to the current foreclosure crisis.

“The bottom line is that most state laws are not part of the foreclosure crisis solution today; the are a big part of the problem,” explains John Rao, NCLC staff attorney and co-author of the report. “Most Americans not well-versed in property law would assume that homeowners have greater rights than renters, or at least equal rights. The stark reality is that while most states updated their landlord/tenant laws decades ago to give renters basic due process protections in the eviction process, no similar reform effort has been made to assist homeowners in the foreclosure process. Many state foreclosure laws were enacted in the 19^th and 20^th centuries and have gone largely unchanged since that time. These laws came into effect at a time when the residential mortgage industry, to the extent it existed at all, bore no relation to what exists today. Significantly, these laws pre-date the enormous changes in the mortgage market that began in the 1980’s”

Changing laws at the state level to protect homeowner rights will not bring an end to the financial crisis, according to NCLC experts. It will, however, help to slow the pace of foreclosures giving other efforts such as the Obama Administration’s stimulus and housing plans time to take effect and for the effect to be felt by ordinary Americans.

“The foreclosure crisis continues to spin out of control. Modernization and improvement of state foreclosure laws can significantly help blunt the impact of the crisis on individual homeowners and communities,” said Geoff Walsh, staff attorney and co-author, National Consumer Law Center. “The method by which homes are foreclosed in this country is almost exclusively controlled by state law. States have historically decided under what circumstances a homeowner can lose a home to foreclosure and what procedure a mortgage holder must follow. This traditional role for states presents a tremendous opportunity for state policymakers to take a fresh look at their foreclosure laws. While reform of state laws will not end the current foreclosure crisis, it can significantly reduce the number of foreclosures.”

Among the state level reforms suggested in the NCLC report are:

Mandate judicial supervision over foreclosure proceedings of all residential mortgages. Currently, 30 states and the District of Columbia allow mortgage holders to bypass the courts and due process to move directly to take away and auction off homes belonging to homeowners the mortgage lender alleges have fallen behind in their payments. By allowing mortgage holders to bypass the courts and use non-judicial procedures to take homes away from their owners creates enormous barriers for homeowners who want to assert legal claims or raise defense against lenders, servicers and mortgage holders. The NCLC recommends that states either abandon the power of sale method and require judicial foreclosure or they should incorp0rate essential due process protections into the existing non-judicial procedure.

Require mortgage holders to consider loss mitigation, including loan modification and other workout alternatives, as a condition to allowing foreclosure of a home. In every state but two (California and Connecticut), mortgage holders can move directly to foreclosure without being required by state law to consider or discuss ways to avoid loss of the home with homeowners. States have broad authority to set conditions upon a mortgage holder’s right to foreclosure. For example, states have always had the authority to require mediation in certain categories of disputes and could require mediation in home foreclosure cases.

Require that homeowners be given a right to cure a default by catching up on missed payments, without penalty, at least 60 days before a mortgage holder demands immediate full payment of the entire mortgage balance and before beginning any foreclosure proceeding. Mortgage holders in 29 states have no obligation under state law to stop a foreclosure once a foreclosure proceeding has begun even if the homeowners comes up with the funds to catch up on the delinquent payments and all incurred penalties and fines. According to the NCLC report, homeowners should be sent a notice that clearly informs them that before the end of the designated time period, they can stop the foreclosure by paying up the installments they are behind without payment of any default related costs or fees.

Guarantee homeowners the right to reinstate the mortgage by paying the arrearage and costs up to the time of a foreclosure sale. Nearly half of the states have enacted statues that provide for this right to reinstate a mortgage after the holder demands payment of the entire loan balance (acceleration). Such laws are cost neutral for the mortgage holder because borrowers typically pay all reasonable foreclosure costs incurred up to the time of reinstatement. State law should mandate a form of notice to homeowners that provides detailed information about the foreclosure process and steps the homeowner can take to avoid foreclosure, including the right of reinstatement and loan modification options.

Require that homeowners be personally served with the notice of sale or foreclosure complaint. There is no requirement that homeowners in 33 states or the district of Columbia be personally served with a foreclosure notice or legal documents that start a court foreclosure case. State laws should, according to the NCLC, require that no matter which type of foreclosure proceeding is permitted, the mortgage holder must provide proof of personal service of the legal documents which both commence the foreclosure proceeding and schedule the sale, or the mortgage holder must document repeated good faith attempts to make personal service on the homeowners.

Create and adequately fund programs that provide emergency financial assistance to homeowners facing foreclosure. At least eight states (Connecticut, Maryland, Minnesota, New Jersey, North Carolina, Pennsylvania and Washington) already have statewide programs offering assistance to homeowners experiencing temporary financial difficulties such as loss of employment, illness, disability, death, divorce or legal separation.

Prohibit mortgage holders from pursuing homeowners for deficiency judgments after foreclosures. Mortgage holders in 36 states and the District of Columbia can currently pursue so-called “deficiency claims,” in which the mortgage holder seeks to reclaim the difference between the amount owed on the loan and the price at which the foreclosed property was sold, against homeowners even after the foreclosed home has been sold at auction. Deficiency judgments can drive former homeowners into bankruptcy or burden them with an insurmountable debt obligation. Deficiency judgments can also create an unfair windfall for mortgage holders and reward them when their lack of marketing and publicity leads to a foreclosure sale at a winning bid far below market value. All states should simply enact outright bans on deficiency judgments after home foreclosures, according to the NCLC.

In addition to modernizing the homeowner “unfriendly” laws cited above, the NCLC also advocates improving foreclosure legislation by:

Providing homeowners with a statutory right to redeem and reacquire title to their home, for a fixed period of time after a foreclosure sale. “Redemption” after a foreclosure sale allows a homeowner a fixed period of time in which to set the foreclosure sale aside and regain title to the home by paying the sale price, interest and costs of the sale. The payment compensates the mortgage holder or other purchaser for their financial outlay. The right to redeem after a sale should uniformly apply to all residential mortgage foreclosures.

Require judicial supervision over the accounting of foreclosure sale and proceeds and a prompt release of any surplus to borrowers. In many states, the accounting of sale proceeds and the distribution of any surplus left after payment of the mortgage debt are handled almost entirely by the mortgage holder or a private trustee, without any explicit procedures or formal court review.

“In recent months, a wave of foreclosures has swept million of American families from their homes. The magnitude of this crisis defies easy comprehension: more than 8 million American families are expected to lose their homes to foreclosure in the next four years. Much has been written about the financial and economic causes of this disaster. Much less notice has gone to another factor that has accelerated and multiplies this grave loss of homes and savings: antiquated state laws that in some ways afford fewer protections to homeowners than to renters,” the NCLC report concludes.

View the entire report online at http://www.consumerlaw.org/

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Mortgage fraud increases in 2008

Jay Hammond — Mon, 09 Feb 2009 15:47:49 +0000

The military in Iraq wasn’t the only thing surging in 2008. Mortgage fraud also reached a new high last year, according to the FraudBlogger Index. Federal investigators have identified an increase in frauds and schemes in the real estate business as well.

Mortgage fraud activity that might have otherwise gone undetected was uncovered as falling home prices and rising defaults pushed these crimes to the surface,” said MortgageDaily.com Publisher Sam Garcia. “Although Fraud is being uncovered at an increasing pace, the actual level of fraud on more recent originations has likely tumbled as production has dwindled and lenders have tightened guidelines.”

FraudBlogger reports that more than $5 billion in mortgage fraud cases were tracked during 2008. That’s up from $4 billion in 2007. Quarterly activity more than doubled in the fourth quarter over the previous quarter and was nearly 300 percent higher than the fourth quarter in 2007.

The ten states experiencing the most mortgage fraud in the final quarter of 2008 were:

California with $1,095,840,000
New York with $374,334,000
Florida with $344,634,286
Minnesota with $208,300,000
Nevada with $101,200,000
Virginia with $77,213,822
Texas with $70,000,000
Colorado with $50,800,000
Ohio with $41,469,500
Pennsylvania with $40,800,000

California jumped to the to the top of the list followed by New York, a newcomer to the top ten ranking. Much of California’s increase was tied around 11,000 mortgage fraud investigations reported by the U.S. Attorney in San Francisco.

In addition, special agents with the Internal Revenue Service (IRS) Criminal Investigation division investigate mortgage fraud. These agents an uniquely equipped to investigate such fraud and similar illegal activities because they are skilled financial investigators whose mission is to “follow the money” and collect evidence to prove applicable tax or money laundering violations. Once the investigation is complete, the IRS agents forward their investigation to the Department of Justice for criminal prosecution, if such a prosecution is warranted. The IRS can also take civil action if a criminal case is not warranted.

According to the IRS, 349 investigations were initiated during 2008, a slight increase over the 2007 level of 337. Recommended prosecutions increased more substantially to 263 in 2008 up from 217 the previous year. Indictments and informations experienced the greatest increase rising by more than 100 to 255 in 2008. There were 136 convictions reported in 2008 compared to 130 the year before. The number of sentences pronounced and the overall incarceration rate both declined in 2008 to 104 sentences and an incarceration rate of 82.7 percent. The number of average months served grew to 38 from 35, however that is still lower than the 47 months handed out in 2006.

Some of the common types of real estate fraud schemes identified by the IRS are:

Property Flipping – a buyer pays a low price for a property then resells it quickly for a much higher price. While this may be legal, it becomes a criminal act when it involves false statements to the lender.
Two Sets of Settlement Statements – One settlement statement is prepared and provided to the seller accurately reflecting the selling price of the property. A second, fraudulent, statement is given to the lender showing a highly inflated purported selling price. The lender provides a loan in excess of the property value, and after the loans are settled, the proceeds are divided among the conspirators.
Fraudulent Qualifications – Real estate agents assist buyers who would not otherwise qualify by fabricating their employment history of credit record.

Several mortgage fraud prosecutions have been widely publicized already in 2009. The most recent is the announcement last week by federal prosecutors and reported by the Associated Press (AP) that Christopher J. Warren of Sacramento was being charged in a mortgage fraud and investment scheme spanning Arizona, California, Florida, Illinois and at least one other state and totaling an estimated $100 million. Nor is it just new prosecutions that are being seen. The New York Law Journal reports that attorney Alexander M. Kaplan or Brooklyn, NY was recently convicted on 18 counts including conspiracy and bank, mail and wire fraud related to a subprime mortgage scam. He is scheduled to be sentence May 1, 2009. In Ohio, four people were convicted and sentenced last week in what the Columbus Post Dispatch calls “the largest mortgage fraud case ever prosecuted in central Ohio.”

Along with mortgage fraud, foreclosure fraud is also showing signs of growth as the economy slows and more homeowners find themselves struggling.

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Once there was a law that would have prevented all this

Constantine von Hoffman — Thu, 16 Oct 2008 13:31:58 +0000

Guest post from: Constantine von Hoffman, a veteran business journalist who writes the blog CollateralDamage.biz, a humorous look at marketing, business and his dog.

Once upon a time the US actually had a law in place that would have at least hindered the current mess. Not surprisingly, that legislation ? the Glass-Steagall Act ? came out of the Great Depression. Just as unsurprisingly it was repealed in 1999 at a time when lawmakers and business no longer thought that ?what goes up must come down? still applied to the economy.

Simply put, Glass-Steagall prevented the mingling of investment and commercial bank activities. If you did one, you couldn?t do the other. This happened because way back then it was thought that commercial banks were way too speculative – both with where they were investing their assets and also because they were buying stocks for resale to the public.

Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks.

Sound familiar?

In 1956 Congress ? back when it had something resembling a spine ? strengthened the act. They figured that insurance was also a high-risk activity that banks shouldn?t be in, so they banned them from underwriting insurance. <>

However by 1999 all was better and these things would take care of themselves! Here?s a terrifying quote explaining the thinking behind the repeal of Glass-Steagall: ?Big banks of the post-Enron market are likely to be more transparent, lessening the possibility of assuming too much risk or masking unsound investment decisions. As such, reputation has come to mean everything in today’s market, and that could be enough to motivate banks to regulate themselves.?

Or not.

Although one of the names on the repeal was Phil Gramm?s ? formerly Sen. McCain?s economic adviser ? this was truly a triumph of lobbying dollars buying bipartisanship.

All in favor of re-pealing the repeal will signal by saying, ?aye.?

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FAQs about FHA Modernization and the Stimulus Bill

Morgan — Sun, 24 Feb 2008 20:57:46 +0000

Thanks to reader Frank for sending this brief FAQ about the Federal Housing Administration’s Modernization bill and the Federal Stimulus Bill that was just passed. With all of the confusion around the changes proposed to FHA loan limits as well as the new conforming loan limits that will be in effect as a result of the stimulus package.

FAQ Regarding FHA Modernization

Q- Where are the new loan limits going to, and when?

A- Right now, the county loan limits are at 95% of the median home value within each individual county. The stimulus bill which President Bush passed, will raise these limits to 125% of the average median home value. A simple calculation would be to take the limit and multiply it by 1.315 (or raise it by 31.5%). We think the new loan limits will be accepted within a few weeks, and we will advise you immediately when we can close these new loan sizes.

Q- What’s the difference between the FHA Modernization act and the Stimulus Bill?

A- The FHA Modernization act is a bill that will modernize the current FHA guidelines including loan limits, tiered MIP, and may enhance current guidelines. This is currently in legislation, yet there is no time frame as to when this will go into effect. The stimulus package is an economic package which included the loan limits increasing for FHA until December 2008, however, the modernization act should put this in place for either a longer period of time, or with no termination date.

If you’ve got information or communications that help sort through the confusion send them our way and we’ll get them up to help spread the knowledge.

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FAQs about FHA Modernization and the Stimulus Bill