Major investment groups are currently spending hundreds of millions buying rental homes. Watch today’s video as I share why this will impact your local market and how you can profit!
Category: Title Companies
List of Title Companies
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Take Action: Cost for FHA loans to rise next week!
A new survey is projecting an increase in new home sales by 2014. Watch today’s video as I explain why opportunity now exists for anyone wanting to make $$ in real estate. And, we are doing HARP 2.0 refinances in-house now!
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Forget Mega-Millions … You can win the Home Loan Lottery!
Did you know that you are 20,000 times more likely to be in a car accident, than to win the lottery? But … almost everyone who calls about my Home Loan Lottery wins up to tens of thousands off their home loan … without paying any more monthly … Watch for details!
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How to use “Gift Funds” to buy your next home!
Did you know that your relative, fiance, domestic partner, or even employer can “gift” you the money needed for your down-payment and closing costs? Watch today for details!
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FHA costs rising in April – and HARP 2.0 refi program just got better!
If you need an FHA loan to buy a home or refinance, then you have until April 6th to call me, before the cost goes up. Plus, we have new updates on the HARP 2.0 government refi program, and it’s good news! Watch today’s video for details.
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Today’s solar flare may affect housing – really?
Today, the Earth is facing a direct blow from the Sun … and I’m not talking about warm temps. Plus, Congress is looking to raise home loan fees yet again … watch video for details!
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Buyer’s market forming – and why your mortgage rate doesn’t matter!
Big housing market shift has created more competition for those that want to buy homes. Watch for details, and I will also explain why the lowest interest rate isn’t always the best deal for you!
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Buy your next home WITHOUT selling your current one first!
Many people believe the only way they can buy a new home, is by selling their existing one first. Not necessarily true, and your dream home might just be a phone call away!
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Should you take the lowest rate, or lower closing costs?
Let’s clear up some common confusion … are you better off with the lowest interest rate, or should you take a slightly higher rate with much lower closing costs? I explain in today’s video.
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What are “normal” closing costs for home loans?
Many people ask me how much closing costs are, to figure out what the best deal is for their home loan. In today’s video I detail what’s normal and how to avoid paying too much!
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America’s Credit and Housing Crisis: New State Bank Bills, Marketoracle.co.uk
Seventeen states have now introduced bills for state-owned banks, and others are in the works. Hawaii’s innovative state bank bill addresses the foreclosure mess. County-owned banks are being proposed that would tackle the housing crisis by exercising the right of eminent domain on abandoned and foreclosed properties. Arizona has a bill that would do this for homeowners who are current in their payments but underwater, allowing them to refinance at fair market value.
The long-awaited settlement between 49 state Attorneys General and the big five robo-signing banks is proving to be a majordisappointment before it has even been signed, sealed and court approved. Critics maintain that the bankers responsible for the housing crisis and the jobs crisis will again be buying their way out of jail, and the curtain will again drop on the scene of the crime.
We may not be able to beat the banks, but we don’t have to play their game. We can take our marbles and go home. The Move Your Money campaign has already prompted more than 600,000 consumers to move their funds out of Wall Street banks into local banks, and there are much larger pools that could be pulled out in the form of state revenues. States generally deposit their revenues and invest their capital with large Wall Street banks, which use those hefty sums to speculate, invest abroad, and buy up the local banks that service our communities and local economies. The states receive a modest interest, and Wall Street lends the money back at much higher interest.
Rhode Island is a case in point. In an article titled “Where Are R.I. Revenues Being Invested? Not Locally,” Kyle Hence wrote in ecoRI Newson January 26th:
According to a December Treasury report, only 10 percent of Rhode Island’s short-term investments reside in truly local in-state banks, namely Washington Trust and BankRI. Meanwhile, 40 percent of these investments were placed with foreign-owned banks, including a British-government owned bank under investigation by the European Union.
Further, millions have been invested by Rhode Island in a fund created by a global buyout firm . . . . From 2008 to mid-2010, the fund lost 10 percent of its value — more than $2 million. . . . Three of four of Rhode Island’s representatives in Washington, D.C., count [this fund] amongst their top 25 political campaign donors . . . .
Hence asks:
Are Rhode Islanders and the state economy being served well here? Is it not time for the state to more fully invest directly in Rhode Island, either through local banks more deeply rooted in the community or through the creation of a new state-owned bank?
Hence observes that state-owned banks are “[o]ne emerging solution being widely considered nationwide . . . . Since the onset of the economic collapse about five years ago, 16 states have studied or explored creating state-owned banks, according to a recent Associated Press report.”
2012 Additions to the Public Bank Movement
Make that 17 states, including three joining the list of states introducing state bank bills in 2012: Idaho (a bill for a feasibility study), New Hampshire (a bill for a bank), and Vermont (introducing THREE bills—one for a state bank study, one for a state currency, and one for a state voucher/warrant system). With North Dakota, which has had its own bank for nearly a century, that makes 18 states that have introduced bills in one form or another—36% of U.S. states. For states and text of bills, see here.
Other recent state bank developments were in Virginia, Hawaii, Washington State, and California, all of which have upgraded from bills to study the feasibility of a state-owned bank to bills to actually establish a bank. The most recent, California’s new bill, was introduced on Friday, February 24th.
All of these bills point to the Bank of North Dakota as their model. Kyle Hence notes that North Dakota has maintained a thriving economy throughout the current recession:
One of the reasons, some say, is the Bank of North Dakota, which was formed in 1919 and is the only state-owned or public bank in the United States. All state revenues flow into the Bank of North Dakota and back out into the state in the form of loans.
Since 2008, while servicing student, agricultural and energy— including wind — sector loans within North Dakota, every dollar of profit by the bank, which has added up to tens of millions, flows back into state coffers and directly supports the needs of the state in ways private banks do not.
Publicly-owned Banks and the Housing Crisis
A novel approach is taken in the new Hawaii bill: it proposes a program to deal with the housing crisis and the widespread problem of breaks in the chain of title due to robo-signing, faulty assignments, and MERS. (For more on this problem, see here.) According to a February 10th report on the bill from the Hawaii House Committees on Economic Revitalization and Business & Housing:
The purpose of this measure is to establish the bank of the State of Hawaii in order to develop a program to acquire residential property in situations where the mortgagor is an owner-occupant who has defaulted on a mortgage or been denied a mortgage loan modification and the mortgagee is a securitized trust that cannot adequately demonstrate that it is a holder in due course.
The bill provides that in cases of foreclosure in which the mortgagee cannot prove its right to foreclose or to collect on the mortgage, foreclosure shall be stayed and the bank of the State of Hawaii may offer to buy the property from the owner-occupant for a sum not exceeding 75% of the principal balance due on the mortgage loan. The bank of the State of Hawaii can then rent or sell the property back to the owner-occupant at a fair price on reasonable terms.
Arizona Senate Bill 1451, which just passed the Senate Banking Committee 6 to 0, would do something similar for homeowners who are current on their payments but whose mortgages are underwater (exceeding the property’s current fair market value). Martin Andelman callsthe bill a “revolutionary approach to revitalizing the state’s increasingly water-logged housing market, which has left over 500,000 ofArizona’s homeowners in a hopelessly immobile state.”
The bill would establish an Arizona Housing Finance Reform Authority to refinance the mortgages of Arizona homeowners who owe more than their homes are currently worth. The existing mortgage would be replaced with a new mortgage from AHFRA in an amount up to 125% of the home’s current fair market value. The existing lender would get paid 101% of the home’s fair market value, and would get a non-interest-bearing note called a “loss recapture certificate” covering a portion of any underwater amounts, to be paid over time. The capital to refinance the mortgages would come from floating revenue bonds, and payment on the bonds would come solely from monies paid by the homeowner-borrowers. An Arizona Home Insurance Fund would create a cash reserve of up to 20 percent of the bond and would be used to insure against losses. The bill would thus cost the state nothing.
Critics of the Arizona bill maintain that it shifts losses from collapsed property values onto banks and investors, violating the law of contracts; and critics of the Hawaii bill maintain that the state bank could wind up having paid more than market value for a slew of underwater homes. An option that would avoid both of these objections is one suggested by Michael Sauvante of the Commonwealth Group, discussed earlierhere: the state or county could exercise its right of eminent domain on blighted, foreclosed and abandoned properties. It could offer to pay fair market value to anyone who could prove title (something that with today’s defective title records normally can’t be done), then dispose of the property through a publicly-owned land bank as equity and fairness dictates. If a bank or trust could prove title, the claimant would get fair market value, which would be no less than it would have gotten at an auction; and if it could not prove title, it legally would have no claim to the property. Investors who could prove actual monetary damages would still have an unsecured claim in equity against the mortgagors for any sums owed.
Rhode Island Next?
As the housing crisis lingers on with little sign of relief from the Feds, innovative state and local solutions like these are gaining adherents in other states; and one of them is Rhode Island, which is in serious need of relief. According to The Pew Center on the States, “The country’s smallest state . . . was one of the first states to fall into the recession because of the housing crisis and may be one of the last to emerge.”
Rhode Islanders are proud of having been first in a number of more positive achievements, including being the first of the 13 original colonies to declare independence from British rule. A state bank presentation was made to the president of the Rhode Island Senate and other key leaders earlier this month that was reportedly well received. Proponents have ambitions of making Rhode Island the first state in this century to move its money out of Wall Street into its own state bank, one owned and operated by the people for the people.
Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com and http://EllenBrown.com.
Ellen Brown is a frequent contributor to Global Research. Global Research Articles by Ellen Brown
© Copyright Ellen Brown 2012
Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.
http://www.marketoracle.co.uk/Article33365.html
Related articles
- Move Our Money: Should we create more state banks? (energybulletin.net)
- New State Bank Bills Address Credit and Housing Crises (webofdebt.wordpress.com)
- North Dakota bank eyed by cash-hungry politicians (sfgate.com)
- Rhode Island drops Fordham 78-58 (newsok.com)
- Structural Reform: The Case for Public State Banks (beavercountyblue.org)
- Rhode Island En Route To Upgrading Crappy Civil Unions To Real Gay Marriages (queerty.com)
- Forget Texas, check out North Dakota (skydancingblog.com)
- Economic struggles spur calls for public banking (usatoday.com)
- A legislative solution for RI’s compassion centers? (wrnihealthcareblog.wordpress.com)
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Real Estate News On The National Scene, by Phil Querin, Q-Law.com
The credit and real estate meltdowns, coupled with the subsequent foreclosure crisis, caused many politicians, all with differing motives, to shift into high legislative gear. Without commenting on motivation, which is an admittedly fertile area for discussion, let’s take a look at the national legislative scene to see what has occurred[1], and whether things are better today than in 2008.
MERS. I am addressing this issue at the beginning, primarily to get it out of the way. I for one am suffering from “MERS Fatigue,” which is a malady afflicting many of us who watch and wait for something new to occur on this front.
It’s important to understand that MERS, which is the catchy acronym for the “Mortgage Electronic Registration System”, was never a creature of statute. It was born and bred by the lending and title industries in the late 1990s, for reasons that most people already know. But because of its national scope – affecting approximately 60% of all home mortgages – MERS bears mentioning here.
Despite all the national attention, the MERS controversy is really one that can only be resolved on the local level, since real estate recording and foreclosure statutes occur on a state – not national – level. In Oregon, although there have been several federal court rulings, MERS’ legality is still up in the air. This is because the local federal judges, who are supposed to follow Oregon law, have no binding Oregon appellate court precedent to follow when it comes to MERS. The result is that there have been divergent federal court rulings. And, the topic is so contentious at the Oregon legislature that there is little political appetite to tackle the problem, since few can agree on a solution.
So, the news is that there is no news. It will take months for the one state court case currently on appeal to find its way to the Oregon Court of Appeals or Supreme Court. And, although there is a slight chance of a breakthrough in the upcoming session, 2012 does not appear to be a year in which we will see a legislative answer.
Fannie and Freddie. Since the fall of Lehman Brothers in 2008, these two Government Sponsored Enterprises or “GSEs” have come under government ownership and control. For a summary of the issues from the Congressional Budget Office, go to the link here. Since the private secondary mortgage market effectively disappeared between 2007-2008, this means that today, there is no viable buyer of residential loans except the federal government. To some observers, depending on their political bent, this is a good thing; but to others, it’s bad.
One thing is certain; as long as the federal government, through Fannie and Freddie, dictate borrower qualifications, LTVs, and conforming loan limits[2], the conventional mortgage market will continue to be tight. This does not bode well for higher end homes, especially. Unfortunately, we don’t have to go back very far in time to remember what happened in the “private label” secondary mortgage market (i.e. non-GSE market) where home loans were handed out like party favors, and those who should never have qualified did.
While there is much talk about doing away with Fannie and Freddie, it is unlikely any time soon. However, what is occurring, albeit slowly and somewhat quietly, is a move to shift some of the GSEs’ loans to the private sector, where the risk would not be backed by the federal government. If this works, perhaps more will follow. While there may be some investors for such loans, it is likely that without a governmental safety net, the nascent private secondary market will demand a higher rate of return to offset the higher risk.
In the meantime, the loans of choice appear to be through the FHA. While the paperwork may be daunting, the LTVs are good and the bar to borrower qualification is much lower and more flexible than conventional loans.
The Consumer Finance Protection Bureau. In recognition of Wall Street’s role in the credit and mortgage meltdowns, Congress established the Consumer Financial Protection Bureau (CFPB) through the Dodd-Frank Wall Street Reform and Consumer Protection Act. On July 21 of this year, it was opened for business. This is no ordinary federal agency. It is a super agency, responsible for regulating many, many areas of consumer finance and mortgage loans.[3]
Elizabeth Warren, a Harvard law professor and Presidential Advisor, was the driving force behind the Agency’s creation. She was a zealous advocate for the consumer. Unfortunately, the political reality was that she may have been too zealous. Instead of being appointed director, Richard Cordray, former Ohio Attorney General, was appointed to head the agency. However, his nomination is currently tied up in Congress, and he may not be confirmed. Many Republicans oppose the idea of so much power being wielded by a single person rather than a board of Senate-confirmed appointees. So as it stands, the CFPB – this mega agency that was created to oversee so many aspects of consumer law – has a website, is hard at work making manuals and processing paperwork, yet has no director to oversee enforcement of anything.
Risk Retention, Skin in the Game, and the QRM. Mindful of the risks created when banks used their own safety net capital to trade in high risk loans, known as “proprietary trading,” the 2010 Dodd-Frank Act enacted Section 619, which placed severe restrictions on the ability of banks to use their funds to place risky bets (known as the “Volker Rule”). Billions of dollars of these bets failed in 2008, leading up to the massive government bailouts that taxpayers funded. What is the status of the Volker Rule today? It’s still out for public comment, with banks arguing that the Rule will reduce their revenues and thereby force them to increase the cost of loans to borrowers. Given that big banks are still suffering the reputational fallout from the bailouts, the Volker Rule -with most of its teeth – may actually become law. When? Who knows.[4]
Also mindful of the risks created through sloppy underwriting of securitized loans, Dodd-Frank sought to require that banks retain a 5 percent interest in the risk of loss on those loans. This risk retention rule has been referred to as “skin in the game,” and was intended to require banks to share a portion of the risks they securitized to others. Instead of investors taking on the entire risk of a slice of securitized loans, banks would have to hold back 5% on their own balance sheet.
However, the law made a major exception; it provided that through rule making, a standard be set for certain loan types with statistically lower default rates for which risk retention would be unnecessary. This exception became known as the “Qualified Residential Mortgage” or “QRM.” The QRM rules were intended to impose high standards for documentation of income, borrower performance, low debt-to-income ratios and other quality underwriting requirements. Although they were to be the exception, not the rule, today, most lenders want these standards to be flexible rather than inflexible, so that there is more wiggle room for their loans to qualify as QRMs and thereby remain exempt from risk retention. The argument in favor of looser loan standards is the fear that an inflexible QRM exemption will impair access to home loans by low and moderate income borrowers. This debate continues today, and there is some reason to believe that these rules will be substantially diluted before becoming law.
PCQ Editorial Comment: It was not so long ago that certain banks criticized borrowers of 100% home financing as creating “moral hazard” – i.e. they took risks because they had no financial risk of default since they had no down payment to lose. Today, the concept of “moral hazard” seems to have been forgotten by those same banks opposing risk retention rules. They now expect their borrowers to have “skin in the game” – hence the higher down payment rules – but deny the need to do so themselves. “Pot meet Kettle.”
Conclusion. So, notwithstanding the fact that this country teetered on the brink of disaster in 2008, the politicians’ rush to legislate has continued to move at a snail’s pace. Query: Is the American consumer really better off today than in 2008?
[1] This article will not cover Mortgage Assistance Relief Services (“MARS”), since the much ballyhooed national law was never intended to apply to Realtors®, even though that realization did not come soon enough to avoid all sorts of unnecessary industry handwringing and forms creation. All of the Oregon-specific legislation has been discussed in my prior articles.
[2] On September 30, 2011, Fannie’s high loan limits for certain high housing cost parts of the country expired. In portions of California, this may result in otherwise qualified buyers having to wait a year or two to save for the additional down payments.
[3] Here is a listing of its responsibilities: Board of Governors of the Federal Reserve: Regulation B (Equal Credit Opportunity Act); Regulation C (Home Mortgage Disclosure); Electronic Fund Transfers (Regulation E); Regulation H, Subpart I (Registration of Residential Mortgage Loan Originators); Regulation M (Consumer Leasing); Regulation P (Privacy); Regulation V (Fair Credit Reporting); Regulation Z (Truth in Lending); Regulation DD (Truth in Savings); FDIC: Privacy of Consumer Financial Information; Fair Credit Reporting Registration of Residential Mortgage Loan Originators; Office of the Comptroller of the Currency: Adjustable Rate Mortgages Registration of Residential Mortgage Loan Originators; Privacy of Consumer Financial Information; Fair Credit Reporting; Office of Thrift Supervision: Adjustments to home loans; Alternative Mortgage transactions; Registration of Mortgage Loan Originators; Fair Credit Reporting; Privacy of Consumer Financial Information; National Credit Union Administration: Loans to members and lines of credit to members; Truth in Savings; Privacy of Consumer Financial Information; Fair Credit Reporting Requirements for Insurance; Registration of Mortgage Loan Originators; Federal Trade Commission: Telemarketing Sales Rule; Privacy of Consumer Financial Information; Disclosure Requirements for Depository Institutions Lacking Federal Depository Insurance; Mortgage Assistance Relief Services; Use of Pre-notification Negative Option Plans; Rule Concerning Cooling-Off Period for Sales Made at Homes or at Certain Other Locations; Preservation of Consumers’ Claims and Defenses; Credit Practices; Mail or Telephone Order Merchandise Disclosure Requirements and Prohibitions Concerning Franchising Disclosure Requirements and Prohibitions Concerning Business Opportunities Fair Credit Reporting Act Procedures for State Application for Exemption from the Provisions of the Fair Debt Collection Practices Act; Department of Housing and Urban Development: Hearing Procedures Pursuant to the Administrative Procedure Act; Civil Monetary Penalties; Land Registration Purchasers’ Revocation Rights; Sales Practices, and Standards Formal Procedures and; Rules of Practice Real Estate Settlement Procedures Act; Investigations in Consumer Regulatory Programs. For source, link here.
[4] It is rumored that Morgan Stanley and Goldman Sachs, both of whom changed their charters from securities firms to become “banks”, in order to be eligible for taxpayer funded bailout money, are now considering exiting that status, precisely so they will not have to comply with the Volker Rule – if it passes.
Related articles
- Higher Fannie, Freddie Loan Limits – Back From the Dead? (blogs.wsj.com)
- Fair Game: Fannie Mae and Freddie Mac, Still the Socialites (nytimes.com)
- U.S. may require more mortgage insurance Obama, FHFA outline possible help for underwater borrowers, by Ronald D. Orol, MarketWatch (oregonrealestateroundtable.com)
- Higher Mortgage Caps – Back from the Dead? (blogs.wsj.com)
- Fannie and Freddie Will Let Mortgage Servicers Hire Own Attorneys (legaltimes.typepad.com)
- How Do I Know If My Mortgage Loan Is Fannie Mae or Freddie Mac? (thinkup.waldenu.edu)
- How Do I Know If My Mortgage Loan Is Fannie Mae or Freddie Mac? (thinkup.waldenu.edu)
- How Do I Know If My Mortgage Loan Is Fannie Mae or Freddie Mac? (thinkup.waldenu.edu)
- How Do I Know If My Mortgage Loan Is Fannie Mae or Freddie Mac? (thinkup.waldenu.edu)
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Refinancing your Underwater Fannie Mae home loan
The Fannie Mae DU Refi Plus home loan program is extended through this year and into 2012. This program may be able to help you refinance if you owe more than your home is worth. Check out this quick video:
The Fannie Mae DU Refi Plus – Basics
First of all, you need to make sure that your current loan is owned by Fannie Mae. You can check that at Fannie Mae’s website. All you need is your full address.
You also need to be on time with your mortgage payments. If you are behind in your mortgage, you will need to discuss loan modification or other options with your lender.
The biggest impediment when discussing the DU Refi Plus program is the issue of mortgage insurance. The best case scenario is if you do not have mortgage insurance on your current home loan.
If you need to figure out your options when it comes to refinancing your home in Oregon or Washington, shoot me an email. You may not always like the answer, but knowing is better than the alternative.
Thanks for taking a minute to check this post out!
Jason Hillard – homeloanninjas.comMortgage Advisor in Oregon and Washington MLO#119032
a div of Pinnacle Capital Mortgage Corp
503.799.4112
1706 D St Vancouver, WA 98663
NMLS 81395 WA CL-81395
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Oregon’s Shadow Inventory – The “New Normal”?, by Phil Querin, Q-Law.com
The sad reality is that negative equity, short sales, and foreclosures, will likely be around for quite a while. “Negative equity”, which is the excess by which total debt encumbering the home exceeds its present fair market value, is almost becoming a fact of life. We know from theRMLS™ Market Action report that average and median prices this summer have continued to fall over the same time last year. The main reason is due to the volume of “shadow inventory”. This term refers to the amorphous number of homes – some of which we can count, such as listings and pendings–and much of which we can only estimate, such as families on the cusp of default, but current for the moment. Add to this “shadow” number, homes already 60 – 90 days delinquent, those already in some stage of foreclosure, and those post-foreclosure properties held as bank REOs, but not yet on the market, and it starts to look like a pretty big number. By some estimates, it may take nearly four years to burn through all of the shadow inventory. Digging deeper into the unknowable, we cannot forget the mobility factor, i.e. people needing or wanting to sell due to potential job relocation, changes in lifestyle, family size or retirement – many of these people, with and without equity, are still on the sidelines and difficult to estimate.
As long as we have shadow inventory, prices will remain depressed.[1] Why? Because many of the homes coming onto the market will be ones that have either been short sold due to negative equity, or those that have been recently foreclosed. In both cases, when these homes close they become a new “comp”, i.e. the reference point for pricing the next home that goes up for sale. [A good example of this was the first batch of South Waterfront condos that went to auction in 2009. The day after the auction, those sale prices became the new comps, not only for the unsold units in the building holding the auction, but also for many of the neighboring buildings. – PCQ]
All of these factors combine to destroy market equilibrium. That is, short sellers’ motivation is distorted. Homeowners with negative equity have little or no bargaining power. Pricing is driven by the “need” to sell, coupled with the lender’s decision to “bite the bullet” and let it sell. Similarly, for REO property, pricing is motivated by the banks’ need to deplete inventory to make room for more foreclosures. A primary factor limiting sales of bank REO property is the desire not to flood the market and further depress pricing. Only when market equilibrium is restored, i.e. a balance is achieved where both sellers and buyers have roughly comparable bargaining power, will we see prices start to rise. Today, that is not the case – even for sellers with equity in their homes. While equity sales are faster than short sales, pricing is dictated by buyers’ perception of value, and value is based upon the most recent short sale or REO sale.
So, the vicious circle persists. In today’s world of residential real estate, it is a fact of life. The silver lining, however, is that most Realtors® are becoming much more adept – and less intimidated – by the process. They understand these new market dynamics and are learning to deal with the nuances of short sales and REOs. This is a very good thing, since it does, indeed, appear as if this will be the “new normal” for quite a while.
Related articles
- Pre-Foreclosure Short Sales Jump 19% in Second Quarter by Carrie Bay, DSNEWS.com (oregonrealestateroundtable.com)
- Pre-Foreclosure Short Sales Jump 19% in Second Quarter (bingrealtygroup.wordpress.com)
- Home shadow inventory shrinks in July: CoreLogic (marketwatch.com)
- Housing crisis is not over (lansner.ocregister.com)
- Short Sale Mindset (velindapeyton.com)
- What is a Short Sale? And Other Commonly Asked Questions (mickeyknowsphilly.com)
- RealtyStore Reports First-Half 2010 Closes with More REO Foreclosure Inventory — REO Inventory Increases Expected through Q4 (prweb.com)
- Preferred Method of Home Liquidation by Banks – Short Sales Better Than Foreclosures (johnmurphyreports.com)
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Promoting Housing Recovery Parts 1 and 2, by Patrick Pulatie
Previously, I have posted articles regarding housing and foreclosure issues. The purpose was to begin a dialogue on the steps to be taken to alleviate the foreclosure crisis, and to promote housing recovery. Now, we need to explore how to restart lending in the private sector. This will be a three part article, with parts I and II herein, and III in the next post.
To begin, we must understand how we got to the point of where we are today, and whereby housing became so critical a factor in the economy. (This is only an overview. I leave it to the historians to fill in all the details.)
Part One – Agreeing On The Problems
Historical Backdrop
At the beginning of the 20th century, the U.S. population stood about 76,000,000 people. By the end of 2000, the population was over 310 million. The unprecedented growth in population resulted in the housing industry and related services becoming one of several major engines of wealth creation during the 20th century.
During the Depression, large numbers of farm and home foreclosures were occurring. The government began to get involved in housing to stop foreclosures and stimulate housing growth. This resulted in the creation of an FHA/Fannie Mae– like program, to support housing.
WWII led to major structural changes in the U.S., both economically and culturally. Manufacturing and technological changes spurred economic growth. Women entered the work force in huge numbers. Returning veterans came back from the war desiring to leave the rural areas, begin families, and enter the civilian workforce. The result was the baby boom generation and its coming influence.
From the 1950s through the 1970s, the US dominated the world economically. Real income growth was occurring for all households. Homeownership was obtainable for ever increasing numbers of people. Consumerism was rampant.
To support homeownership, the government created Fannie Mae and Freddie Mac so that more people could partake in the American Dream. These entities would eventually become the primary source of mortgages in the U.S. F&F changed the way mortgages were funded, and changed the terms of mortgages, so that 30 year mortgages became the common type of loan, instead of 5 to 15 year mortgages.
Storm clouds were beginning to appear on the horizon at the same time. Japan, Korea, Germany, and other countries had now come out of their post war depressions. Manufacturing and industrial bases had been rebuilt. These countries now posed an economic threat to the U.S. by offering improved products, cheaper labor costs, and innovation. By the end of the 1970s, for many reasons, US manufacturing was decreasing, and service related industries were gaining importance.
In the 1980s and 1990s, manufacturing began to decline in the U.S. Service Industries were now becoming a major force in the economy. With the end of the Cold War in 1989, defense spending began to decline dramatically, further depressing the economy.
In the early 1990s, F&F engaged in efforts to increase their share of the mortgage market. They freely admitted wanting to control the housing market, and took steps to do so, undermining lenders and competition, and any attempts to regulate them.
In 1994, homeownership rates were at 64% in the US. President Clinton, along with Congress and in conjunction with Fannie and Freddie, came out with a new program with the intent to promote a 70% homeownership rate. This program was promoted even though economists generally considered 64% to be the maximum amount of homeownership that an economy could readily support. Above 64%, people would be
“buying” homes, but without having the financial capabilities to repay a loan. The program focused upon low income persons and minorities. The result was greater demand for housing and homeownership, and housing values began to increase.
Lenders and Wall Street were being pushed out of the housing market by F&F, and had to find new markets to serve. F&F did not want to service the new markets being created by the government homeownership programs. The result was that Wall Street would naturally gravitate to that market, which was generally subprime, and also to the jumbo market, which F&F could not serve due to loan amount restrictions. This was the true beginning of securitized loan products.
The events of 9/11 would ultimately stoke the fires of home ownership even further. 9/11 occurred as the US was coming out of a significant recession, and to keep the country from sliding back into recession, the Fed lowered interest rates and kept them artificially low until 2003. Wall Street, recognizing the promise of good financial returns from securitized loans, freed up more and more capital for banks and mortgage bankers to lend. This led to even greater demand for homes and mortgages.
To meet the increased demand, home construction exploded. Ancillary services did well also, from infrastructure, schools, hospitals, roads, building materials, and home decor. The economy was booming, even though this was “mal-investment” of resources. (Currently, as a result of this activity, there are estimated to be from 2m to 3.5m in excess housing units, with approximately 400k being added yearly to housing stock.)
It did not stop there. Buyers, in their increasing zeal, were bidding for homes, increasing the price of homes in many states by 50 to 100,000 dollars more than what was reasonable. The perception was that if they did not buy now, then they could never buy. Additionally, investors began to purchase multiple properties, hoping to create a home rental empire. This led to unsustainable home values.
Concurrently, the Fed was still engaged in a loose money policy. This pumped hundreds of billions of dollars into the housing economy, with predictable results. With increasing home values, homeowners could refinance their homes, often multiple times over, pulling cash out and keeping the economy pumped up artificially. A homeowner could pull out 50,000 to 100,000 dollars or more, often every year or two, and use that money to indulge themselves, pretending they had a higher standard of living than what existed. The government knew that this was not a reasonable practice, but indulged in it anyway, so as to keep up an appearance of a healthy economy. Of course, this only compounded the problem.
The end result of the past 40 years of government intervention (and popular support for that intervention) has been a housing market that is currently overbuilt and still overvalued. In the meantime, real wages have not increased since the mid 1990s and for large numbers of the population, negative income growth has been experienced. Today, all segments of the population, homeowners especially so, are saddled with significant mortgage debt, consumer debt, and revolving credit debt. This has led to an inability on the part of the population to buy homes or other products. Until wage and debt issues are resolved, employment increases, and housing prices have returned to more reasonable values, there can be no housing recovery.
Current Status
As all know, the current status of housing in the US is like a ship dead in the water, with no ability to steer except to roll with the waves. A recap:
Private securitization once accounted for over 25% of all mortgage loans. These efforts are currently nonexistent except for one entity, Redwood Trust, which has issued one securitized offerings in 2010 and one in 2011. Other than this, Wall Street is afraid to invest in Mortgage Products (to say nothing of downstream investors).
Banks are unable to lend their own money, which represented up to 15% of all lending. Most banks are capital impaired and have liquidity issues, as well as unknown liabilities from bad loans dating to the bubble.
Additionally, banks are suffering from a lack of qualified borrowers. Either there is no equity in the home to lend on, or the borrowers don’t have the financial ability to afford the loan. Therefore, the only lending that a bank can engage in is to execute loans and sell them to Fannie Mae, Freddie Mac, or VA and FHA. There are simply no other options available.
F&F are buying loans from the banks, but their lending standards have increased, so the loan purchases are down. F&F still distort the market because of government guarantees on their loans (now explicit instead of implicit), and they are still able to purchase loans above $700k, which was implemented in response to the housing crisis.
F&F are still having financial issues, with the government having bailed them out to the tune of $140b, with much more to come.
VA is buying loans and doing reasonably well, but they serve a tiny portion of the market.
FHA has turned into the new subprime, accepting credit challenged borrowers, and with loan to values of 95% or greater. Default rates on FHA loans are rising significantly, and will pose issues for the government when losses absorb all FHA loss reserves, which may have already happened (depending on how you look at the accounting).
The Mortgage Insurance companies are financially depressed, with PMI being forced to stop writing new policies due to loan loss reserves being depleted. Likely, they will cease business or be absorbed by another company. Other companies are believed to be similarly in trouble, though none have failed yet.
The US population is still overburdened with debt. It is believed that the household consumer debt burden is over 11%, for disposable income. This is far too high for effective purchasing of any products, especially high end. (There has been a lessening of this debt from its high of 14% in 2008, but this has primarily been the result of defaults, so most of those persons are not in a position to buy.)
Patrick Pulatie is the CEO of LFI Analytics. He can be reached at 925-522-0371, or 925-238-1221 for further information. http://www.LFI-Analytics.com, patrick@lfi-analytics.com.
Related articles
- Buffett says – “Blow Up a Lot of Houses!” (belpointe.com)
- Who are Fannie Mae and Freddie Mac? (seattletimes.nwsource.com)
- Government Officials Weigh New Refi Program, Carrie Bay, DSNEWS.com (oregonrealestateroundtable.com)
- Janis Bowdler: Latino Losses Jeopardize America’s Economic Future (huffingtonpost.com)
- Land Banks (axsmithlaw.wordpress.com)
- Fannie Mae promises to keep families in homes, but instead pressures banks to foreclose (seattletimes.nwsource.com)
- Housing refinance proposal unfair to most homeowners (thehill.com)
- Fannie Mae Conservator Sued by Pension Funds Over Recovery Limit (businessweek.com)
- NYT: US may back refinance plan for mortgages (msnbc.msn.com)
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Government Officials Weigh New Refi Program, Carrie Bay, DSNEWS.com
Word on the street is that the Obama administration is sizing up a new program to shore up and stimulate the housing market by providing millions of homeowners with new, lower interest, lower payment mortgage loans. According to multiple media outlets, the initiative would allow borrowers with mortgages backed by Fannie Mae and Freddie Macto refinance at today’s near record-low interest rates, close to the 4 percent mark, even if they are in negative equity or have bad marks on their credit.
The plan, first reported by the New York Times, may not be seen as a win-win by everyone. The Times says it could face stiff opposition from the GSEs’ regulator, the Federal Housing Finance Agency (FHFA), as well as private investors who hold bonds made up of loans backed by the two mortgage giants.
The paper says refinancing could save homeowners $85 billion a year. It would also reach some homeowners who are struggling with underwater mortgages, which can disqualify a borrower from a traditional refinance, and those who fail to meet all the credit criteria for a refinance as a result of tough times brought on by the economic downturn.
Administration officials have not confirmed that a new refi program is in the works, but have said they are weighing several proposals to provide support to the still-ailing housing market and reach a greater number of distressed homeowners.
According to information sourced by Bloomberg, Fannie and Freddie guarantee nearly $2.4 trillion in mortgages that carry interest rates above the 4 percent threshold.
The details that have been reported on the make-up of the refi proposal mirror recommendations put forth by two Columbia business professors, Chris Mayer and R. Glenn Hubbard.
They’ve outlined the same type of policy-driven refi boom in a whitepaper that calls for Fannie- and Freddie-owned mortgages to be refinanced with an interest rate of around 4 percent.
They say not only would it provide mortgage relief to some 30 million homeowners – to the tune of an average reduction in monthly payments of $350 — but it would yield about $118 billion in extra cash being pumped into the economy.
Other ideas for housing stimulus are also being considered. One involving a public-private collaboration to get distressed properties off the market and turn them into rental homes has progressed to the point that officials issued a formal notice earlier this month requesting recommendations from private investors, industry stakeholders, and community organizations on how best to manage the disposition of government-owned REOs.
Treasury is also reviewing a proposal from American Home Mortgage Servicing that would provide for a short sale of mortgage notes from mortgage-backed securities (MBS) trusts to new investors as a means of facilitating principal reduction modifications.
There’s speculation that President Obama will make a big housing-related announcement in the weeks ahead as part of a larger economic plan.
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Pre-Foreclosure Short Sales Jump 19% in Second Quarter by Carrie Bay, DSNEWS.com
Image via Wikipedia Short sales shot up 19 percent between the first and second quarters, with 102,407 transactions completed during the April-to-June period, according to RealtyTrac. Over the same timeframe, a total of 162,680 bank-owned REO homes sold to third parties, virtually unchanged from the first quarter.
RealtyTrac’s study also found that the average time to complete a short sale is down, while the time it takes to sell an REO has increased.
Pre-foreclosure short sales took an average of 245 days to sell after receiving the initial foreclosure notice during the second quarter, RealtyTrac says. That’s down from an average of 256 days in the first quarter and follows three straight quarters in which the sales cycle has increased.
REOs that sold in the second quarter took an average of 178 days to sell after the foreclosure process was completed, which itself has been lengthening across the country. The REO sales cycle in Q2 increased slightly from 176 days in the first quarter, and is up from 164 days in the second quarter of 2010.
Discounts on both short sales and REOs increased last quarter, according to RealtyTrac’s study, but homes sold pre-foreclosure carried less of a markdown when compared to non-distressed homes.
Sales of homes in default or scheduled for auction prior to the completion of foreclosure had an average sales price nationwide of $192,129, a discount of 21 percent below the average sales price of non-foreclosure homes. The short sale price-cut is up from a 17 percent discount in the previous quarter and a 14 percent discount in the second quarter of 2010.
Nationally, REOs had an average sales price of $145,211, a discount of nearly 40 percent below the average sales price of non-distressed homes. The REO discount was 36 percent in the previous quarter and 34 percent in the second quarter of 2010.
Commenting on the latest short sale stats in particular, James Saccacio, RealtyTrac’s CEO, said, “The jump in pre-foreclosure sales volume coupled with bigger discounts…and a shorter average time to sell…all point to a housing market that is starting to focus on more efficiently clearing distressed inventory through more streamlined short sales.”
Saccacio says short sales “give lenders the opportunity to more pre-emptively purge non-performing loans from their portfolios and avoid the long, costly and increasingly messy process of foreclosure and the subsequent sale of an REO.”
Together, REOs and short sales accounted for 31 percent of all U.S. residential sales in the second quarter, RealtyTrac reports. That’s down from nearly 36 percent of all sales in the first quarter but up from 24 percent of all sales in the second quarter of 2010.
States with the highest percentage of foreclosure-related sales – REOs and short sales – in the second quarter include Nevada (65%), Arizona (57%), California (51%), Michigan (41%), and Georgia (38%).
States where foreclosure-related sales increased more than 30 percent between the first and second quarters include Delaware (33%), Wyoming (32%), and Iowa (30%).
Related articles
- Pre-Foreclosure Short Sales Jump 19% in Second Quarter (bingrealtygroup.wordpress.com)
- More short sales seen as lenders accepting less (sfgate.com)
- Foreclosure Sales Tick Up While Prices Slide (blogs.wsj.com)
- Foreclosures Continue to Weigh on Economy (abcnews.go.com)
- Foreclosures made up 31 pct. of home sales in 2Q (seattlepi.com)
- ‘Distressed’ homes discounted 37.4 percent in Seattle area (seattlepi.com)
- Foreclosures made up 31 pct. of home sales in 2Q (sfgate.com)
- Foreclosures in Oregon accounted for one of every three homes sold last quarter (oregonlive.com)
- Foreclosure Sales Six Times Higher Than In Healthy Housing Market (huffingtonpost.com)
- Foreclosures made up 31 pct. of home sales in 2Q (seattletimes.nwsource.com)
- Peter Fugaro Earns Certified Mortgage Banking (CMB) Designation from Mortgage Bankers Association (pr.com)
- Refinance applications for mortgages fall (csmonitor.com)
- Number of troubled mortgages on rise again (money.cnn.com)
- Despite Cheap Rates, Home Mortgage Application Fall To 15-Year Low (huffingtonpost.com)
- Delinquencies Rise, Foreclosures Fall in Latest MBA Mortgage Delinquency Survey (craigkamman.wordpress.com)
- Bank Says Move Them! (hapevilleaerotropolis.wordpress.com)
- Mortgage delinquency rate rises to 8.44%: MBA (marketwatch.com)
- Home mortgage applications fall to 15-year low (seattletimes.nwsource.com)
- US Mortgage Purchase Applications at 15-Year Low (craigkamman.wordpress.com)
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RATES WAY DOWN, APPS WAY UP… THAT’S GOOD, RIGHT?, by Diane Mesgleski, Mi–Explode.com
Last week mortgage applications rose a whopping 21.7% from the previous week according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. Great news for the industry to be sure. Great news for the housing market? Not so much, when you consider that the bulk of the applications are refinances, not purchases. Refis rose 31% from the previous week, while purchases remain low. Actually they dropped a skooch. Low purchase numbers mean continued stagnation in the housing market and continued increase in inventory as foreclosures continue to be added to the count. Which means lower values. Kind of a vicious cycle. Those of us in the mortgage biz were not surprised by last week’s numbers, since low rates spur refis and rising interest rates signal a purchase market. You don’t even need to understand the reason why, you just know that is how it works. It is comforting to know that something is working the way it always has.
What is not comforting is the bewildered Fed chairman, and many baffled economists who don’t understand why the present policies are not working. Even if rates could go lower it would not have an impact on the housing market. There is no lack of money to lend, there is a lack of qualified borrowers. And that situation is not improving with time, it is getting worse. At the same time Washington is tightening their stranglehold on lenders with ever increasing regulation, then wondering why banks are not lending. No matter what you believe should be the course, whether more regulation or less, you have to agree that government intervention has not and is not helping.
Has anybody else noticed, the only winner in this current climate are the Too Big To Fail banks? They have plenty of cash, since they cannot lend it. One article I read put it this way, their balance sheets are “healing”. Sounds so soothing you almost forget to be angry.
There is one other factor in the current housing crisis worth mentioning: the lack of consumer confidence. Nobody is going to buy a house when the prices are continuing to fall. And even in areas where the prices are stable, people have no confidence in the economy or in Washington’s ability or willingness to fix it. They are simply afraid to make the biggest investment of their lives in this climate. If our leaders would actually lead rather than play political games we might actually start seeing change.
But only if we give them another four years. No wonder Ben does not think that anything will get better until 2013….now I get it.
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- FBI: Mortgage fraud still prevalent, hard to catch (sfgate.com)
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The Meat of the Matter – In Re: Veal Analyzed, by Phil Querin, Q-Law.com
“When a note is split from a deed of trust ‘the note becomes, as a practical matter, unsecured.’ *** Additionally, if the deed of trust was assigned without the note, then the assignee, ‘having no interest in the underlying debt or obligation, has a worthless piece of paper.’” [In re Veal – United States Bankruptcy Appellate Panel of the Ninth Circuit (June 10, 2011)]
Introduction. This case is significant for two reasons: First, it was heard and decided by a three-judge Bankruptcy Appellate Panel for the Ninth Circuit, which includes Oregon. Second, it represents the next battleground in the continuing foreclosure wars between Big Banks and Bantam Borrowers: The effect of the Uniform Commercial Code (UCC”)on the transferability of the Promissory Note (or “Note”).
Remember, the Trust Deed follows the Note. If a lender is the owner of a Trust Deed, but cannot produce the actual Note which it secures, the Trust Deed is useless, since the lender is unable to prove it is owed the debt. Conversely, if the lender owns the Note, but not the Trust Deed, it cannot foreclose the secured property. [For a poetic perspective on the peripatetic lives of a Note and Trust Deed, connect here. – PCQ]
By now, most observers are aware that Oregon’s mandatory recording statute, ORS 86.735(1), has been a major impediment to lenders and servicers seeking trying to foreclose borrowers. Two major Oregon cases, the first in federal bankruptcy court, In re McCoy, and the other, in federal district trial court, Hooker v. Bank of America, et. al, based their decisions to halt the banks’ foreclosures, squarely on the lenders’ failure to record all Trust Deed Assignments. To date, however, scant mention has been made in these cases about ownership of the Promissory Note. [Presumably, this is because a clear violation of the Oregon’s recording statute is much easier to pitch to a judge, than having to explain the nuances – and there are many – of Articles 3 and 9 of the UCC. – PCQ]
Now we have In re: Veal, which was an appeal from the bankruptcy trial judge’s order granting Wells Fargo relief from the automatic stay provisions under federal bankruptcy law. Such a ruling meant that Wells Fargo would be permitted to foreclose the Veals’ property. But since this case arose in Arizona – not Oregon – our statutory law requiring the recording of all Assignments as a prerequisite to foreclosure, did not apply. Instead, the Veals’ lawyer relied upon the banks’ failure to establish that it had any right under the UCC to enforce the Promissory Note.
Legal Background. For reasons that do not need to be explained here, the Veals filed two contemporaneous appeals. One was against Wells Fargo Bank, which was acting as the Trustee for a REMIC, Option One Mortgage Loan Trust 2006–3, Asset–Backed Certificates Series 2006–3. In the second appeal, the Veals challenged the bankruptcy court’s order overruling their objection to a proof of claim filed by Wells Fargo’s servicing agent, American Home Mortgage Servicing, Inc. (“AHMSI”).
Factual Background. In August 2006, the Veals executed a Promissory Note and Mortgage in favor of GSF Mortgage Corporation (“GSF”). On June 29, 2009, they filed a Chapter 13 bankruptcy. On July 18, 2009, AHMSI filed a proof of claim, on behalf of Wells Fargo as its servicing agent. AHMSI included with its proof of claim the following documents:
- A copy of the Note, showing an indorsement[1] from GSF to “Option One”[2];
- A copy of the GSF’s Mortgage with the Veals;
- A copy of a recorded “Assignment of Mortgage” assigning the Mortgage from GSF to Option One; and,
- A letter dated May 15, 2008, signed by Jordan D. Dorchuck as Executive Vice President and Chief Legal Officer of AHMSI, addressed to “To Whom it May Concern”, stating that AHMSI acquired Option One’s mortgage servicing business.[3]
The Veals argued that AHMSI [Wells’ servicing agent] lacked standing since neither AHMSI or Wells Fargo established that they were qualified holders of the Note under Arizona’s version of the UCC.
In a belated and last ditch effort to establish its standing, Wells Fargo filed a copy of another Assignment of Mortgage, dated after it had already filed for relief from bankruptcy stay. This Assignment purported to transfer to Wells Fargo the Mortgage held by “Sand Canyon Corporation formerly known as Option One Mortgage Corporation”.
The 3-judge panel noted that neither of the assignments (the one from GSF to Option One and the other from Sand Canyon, Option One’s successor, to Wells) were authenticated – meaning that there were no supporting affidavits or other admissible evidence vouching for the authenticity of the documents. In short, it again appears that none of the banks’ attorneys would swear that the copies were true and accurate reproductions of the original – or that they’d even seen the originals to compare them with. With continuing reports of bogus and forged assignments, and robo-signed documents of questionable legal authority, it is not surprising that the bankruptcy panel viewed this so-called “evidence” with suspicion, and did not regard it as persuasive evidence.
- As to the Assignment of Mortgage from GSF (the originating bank) to Option One, the panel noted that it purported to assign not only the Mortgage, but the Promissory Note as well.[4]
- As to the Assignment of Mortgage from Sand Canyon [FKA Option One] to Wells Fargo[created after Wells Fargo’s motion for relied from stay], the panel said that the document did not contain language purporting to assign the Veals’ Promissory Note. As a consequence[even had it been considered as evidence], it would not have provided any proof of the transfer of the Promissory Note to Wells Fargo. At most, it would only have been proof that the Mortgage had been assigned.
After considerable discussion about the principles of standing versus real party in interest, the 3-judge panel focused on the latter, generally defining it as a rule protecting a defendant from being sued multiple times for the same obligation by different parties.
Applicability of UCC Articles 3 and 9. The Veal opinion is well worth reading for a good discussion of the Uniform Commercial Code and its applicability to the transfer and enforcement of Promissory Notes. The panel wrote that there are three ways to transfer Notes. The most common method is for one to be the “holder” of the Note. A person may be a “holder” if they:
- Have possession of the Note and it has been made payable to them; or,
- The Note is payable to the bearer [e.g. the note is left blank or payable to the “holder”.]
- The third way to enforce the Note is by attaining the status of a “nonholder in possession of the [note] who has the rights of a holder.” To do so, “…the possessor of the note must demonstrate both the fact of the delivery and the purpose of the delivery of the note to the transferee in order to qualify as the “person entitled to enforce.”
The panel concluded that none of Wells Fargo’s exhibits showed that it, or its agent, had actual possession of the Note. Thus, it could not establish that it was a holder of the Note, or a “person entitled to enforce” it. The judges noted that:
“In addition, even if admissible, the final purported assignment of the Mortgage was insufficient under Article 9 to support a conclusion that Wells Fargo holds any interest, ownership or otherwise, in the Note. Put another way, without any evidence tending to show it was a “person entitled to enforce” the Note, or that it has an interest in the Note, Wells Fargo has shown no right to enforce the Mortgage securing the Note. Without these rights, Wells Fargo cannot make the threshold showing of a colorable claim to the Property that would give it prudential standing to seek stay relief or to qualify as a real party in interest.”
As for Wells’ servicer, AHMSI, the panel reviewed the record and found nothing to establish that AHMSI was its lawful servicing agent. AHMSI had presented no evidence as to who possessed the original Note. It also presented no evidence showing indorsement of the Note either in its favor or in favor of Wells Fargo. Without establishing these elements, AHMSI could not establish that it was a “person entitled to enforce” the Note.
Quoting from the opinion:
“When debtors such as the Veals challenge an alleged servicer’s standing to file a proof of claim regarding a note governed by Article 3 of the UCC, that servicer must show it has an agency relationship with a “person entitled to enforce” the note that is the basis of the claim. If it does not, then the servicer has not shown that it has standing to file the proof of claim. ***”
Conclusion. Why is the Veal case important? Let’s start with recent history: First, we know that during the securitization heydays of 2005 – 2007, record keeping and document retention were exceedingly lax. Many in the lending and servicing industry seemed to think that somehow, MERS would reduce the paper chase. However, MERS was not mandatory, and in any event, it captured at best, perhaps 60% of the lending industry. Secondly, MERS tracked only Mortgages and Trust Deeds – not Promissory Notes. So even if a lender can establish its ownership of the Trust Deed, that alone is not enough, without the Note, to permit the foreclosure.
As recent litigation has revealed, some large lenders, such as Countrywide, made a habit of holding on to their Promissory Notes, rather than transferring them into the REMIC trusts that were supposed to be holding them. This cavalier attitude toward document delivery is now coming home to roost. While it may not have been a huge issue when loans were being paid off, it did become a huge issue when loans fell into default.
So should the Big Banks make good on their threat to start filing judicial foreclosures in Oregon, defense attorneys will likely shift their sights away from the unrecorded Trust Deed Assignments[5], and focus instead on whether the lenders and servicers actually have the legal right to enforce the underlying Promissory Notes.
[1] The word “indorsement” is UCC-speak for “endorsement” – as in “endorsing a check” in order to cash it.
[2] Although not perhaps as apparent in the opinion as it could have been, there were not successive indorsements of the Veals’ Promissory Note, i.e. from the originating bank to the foreclosing bank. There was only one, i.e. from GSF to Option One. There was no evidence that the Note, or the right to enforce it, had been transferred to Wells Fargo or AHMSI. Ultimately, there was no legal entitlement under the UCC giving either Wells or its servicer, AHMSI, the ability to enforce that Note. The principle here is that owning a borrower’s Trust Deed or Mortgage is insufficient without also owning, or have a right to enforce, the Promissory Note that it secures.
[3] Mr. Dorchuck did not appear to testify. His letter, on its face, is clearly hearsay and inadmissible. The failure to properly lay any foundation for the letter, or authenticate it “under penalty of perjury” is inexplicable – one that the bankruptcy panel criticized. This was not the only example of poor evidentiary protocol followed by the banks in this case. However, this may not be the fault of the banks’ lawyers. It is entirely possible these were the documents they had to work with, and they declined to certify under “penalty of perjury” the authenticity of them. If that is the case, one wonders how long good attorneys will continue to work for bad banks?
[4] This is a drafting sleight of hand. Mortgages and Trust Deeds are transferred by “assignment” from one entity to another. But Promissory Notes must be transferred under an entirely different set of rules – the UCC. Thus, to transfer both the Note and Mortgage by a simple “Assignment” document, is facially insufficient, by itself, to transfer ownership of – or a right to enforce – the Promissory Note.
[5] The successive recording requirement of ORS 86.735(1) only applies when the lender is seeking to foreclose non-judicially. Judicial foreclosures do not contain that statutory requirement. However, to judicially foreclose, lenders will still have to establish that they meet the standing and real party interest requirements of the law. In short, they will have to deal head-on with the requirements of Articles 3 and 9 of the Uniform Commercial Code. The Veal case is a good primer on these issues.
Phil Querin
Attorney at Law
http://www.q-law.com/
121 SW Salmon Street, Suite 1100 Portland, OR 97204
Tel: (503) 471- 1334Related articles
- ‘Robo-signing’ foreclosures haven’t gone away (msnbc.msn.com)
- Banks Continuing Dubious ‘Robo-Signing’ Foreclosure Practices: Investigation (huffingtonpost.com)
- Oregon Foreclosures: The Mess That MERS Made, by Phil Querin, Q-Law.com (oregonrealestateroundtable.com)
- assingmment please?? 2932.5 with a side of Veal (timothymccandless.wordpress.com)
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Multnomahforeclosures.com: July 15th, 2011 Update.
Image via Wikipedia Multnomahforeclosures.com was updated with the largest list of Notice Defaults to date. With Notice of Default records dating back nearly 3 years.
If you are planning on investing in real estate, want to learn the status of the home you are renting/leasing or about to rent or lease you should visit Multnomahforeclosures.com.
All listings are in PDF and Excel Spread Sheet format.
Multnomah County Foreclosures
Multnomah County Foreclosures
http://multnomahforeclosures.com
Fred Stewart
Broker
Stewart Group Realty Inc.
http://www.sgrealty.us/
info@sgrealtyinc.com
503-289-4970 (Phone)Related articles
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OREGON REAL ESTATE ROUND TABLE 