Thursday, June 30, 2011

More Information on the Bankruptcy Court "Game Changer" in Distressed Real Estate

Many have made comments to my blog or emailed me separately in regard to my blog about a recent bankruptcy appellate case that could potentially revolutionize loan modifications, forensic audits, short sales, deficiency judgments etc. I wanted to review the case with colleagues prior to discussing it further. Last evening, I met with prominent tax and bankruptcy attorneys. I traveled from the Giant Litter box (Las Vegas) to Palm Desert, California and another traveled from Phoenix to Palm Desert to discuss this case – it is that significant.
The case is In re Veal and it involved AHMSI and Wells Fargo. It was a Ninth Circuit Appellate panel (BAP). It is significant to note that the appellate panel consisted of judges from California (Riverside vicinage), Montana and Arizona. The case affects much more than just debtors in bankruptcy.
I will summarize the 46 page opinion and the impact that it may have.
Essentially, the first part of the decision indicated that since Wells Fargo could not prove that it had the original note; it did not have standing to enforce its right to foreclose upon the property. In bankruptcy, the creditors are prevented from any action against the person, but they can readily proceed against the property, IF they have a perfected security interest in the property. This is referred to as “relief from the automatic stay”. It is routinely granted because it is a right that a secured creditor has. In this case, since Wells could not prove that it had the original note, they did not have standing and the automatic stay remained in place and Wells could no proceed against either the debtor or the property!!

The second impact is potentially even greater!! The court appeared to rule that a lender can only proceed against the secured interest to the extent of its VALUE and not the amount owed. In other words, if a borrower owes $400,000 but the property is worth $200,000, this court is ruling that the lender can only seek to collect $200,000 under its secured interest. At this could put an end to deficiency issues.

We also discussed ways that a borrower can argue against the “forgiveness of debt” issue on a short sale. WOW, this could be huge….collective thought really stimulates great results.

Wednesday, June 29, 2011

Ya Wanna Know What is Wrong with Health Care??

Ok, this does not have much of anything to do with real estate, but it needs to be said! Says ME! A friend is having surgery so I asked if there is anything that I can do! The response was that a prescription needed to be picked up for post surgical protocol. OK, no problem, I will pick it up. Well it seems that there was a problem with the insurance card. Pharmacist claimed that a new card was issued for the patient.

OK, that was the FIRST problem. The prescription was renewed online 12 hours earlier yet no one from the pharmacy bothered to call and see if the plan member had received a new card.

I get to the 24 hour CVS and the pharmacist tells me that he cannot get an approval because a new insurance card had been issued. Great! It is 1 AM and I dare not call the patient who is getting up in 3 hours.

Well, I thought that I would ask..."how much is the prescription". Pharmacist replies, $11.99! Great, I will just pay for it! WELL, that started a 20 minute debacle. Changing something int eh computer...RE-FILLING the prescription (WHY??). Pharmacist returns with the prescription and I HAD to ask..."how much would the co-pay have been?? He replied, "$15". THAT is what is wrong with health care in this country. Exhibit A. Not to mention that the pharmacist stated that this happens all of the time!!! Great!

Saturday, June 25, 2011

Set Phasors on Stun

Yesterday, I spoke with a listing agent in Sacramento. My client and I were speaking with her about an offer on a listing. It is a short sale and the owner must sell because a sale date is approaching. We discussed the parameters of the offer that would be forthcoming in a day or so. Everything was great. The listing agent was happy and my client believed that he would be able to get a short sale approval.
Today, I receive an email from the listing agent and she advises that her BROKER decided that she would not participate in this transaction!! WHAAAAT!!! It is a cash transaction by an investor…the widowed home owner wants and needs to get out of the house!! Where in the script does it say that the broker can decide “not to participate”. In fact, there is a strong and legally supportable argument that the broker is violating her duty to the homeowner by injecting her personal opinion into a legal and financial matter. The offer was not even going to be submitted to the owner!!
Unfortunately, this type of disdain for investors is foolish and legally actionable. NAR reports that 30% of transactions today are with investors. Agents and brokers should not be taking positions on such matters because it is rarely a good idea to inject personal or emotional feelings into a real estate transaction. Especially when it is a CASH offer and likely to be approved by the lender..AND there is a sale looming.
Naturally, I am going to go around the broker and contact the home owner and advise her of the offer and the fact that the agent’s broker was blocking the transaction. I can imagine her reaction. I will also be submitting the offer through another agent and the broker better allow it to be submitted to the owner!!

It is hard enough to complete transactions today…but such ignorance makes it much worse….and an agent will lose commission on this for NO reason other than the broker’s ignorance of her responsibilities, duties and the law.

Friday, June 24, 2011

Federal Home Financing Agency Finds Neglect at Fannie and Freddie

Fannie Mae and Freddie Mac have ignored fraud and been complacent about enforcement. According to a federal audit by the Federal Home Financing Agency (FHFA) and its Office of the Inspector General (OIG), the government-controlled agencies have not been particularly accountable when it comes to dealing with distressed borrowers. In fact, the audit found that “the federal agency has let complaints alleging fraud, abuse and waste…slip through the cracks with no oversight of their resolution.” In fact, FHFA even failed to refer “potentially criminal allegations” to law enforcement authorities. The FHFA has promised to remedy these issues, nearly three-quarters of which are directly related to Fannie Mae and Freddie Mac. Apparently, all of the complaints were sent to two former public relations staff members and there was no oversight of the resolution process. In fact, supervision and processing were so badly handled that the OIG said that it could not even gain a “true grasp on the scope or number of complaints received or resolved.”

Steve Linick, FHFA’s inspector general, says that the situation must be remedied immediately. “Millions of Americans have been touched by the housing crisis,” he said, adding that their “complaints deserve timely and responsible action by the FHFA”. Meg Burns, senior associate director in the Office of Congressional Affairs and Communications did not disagree with Linick but did point out that FHFA has a “limited mandate to deal with consumer issues.” However, FHFA has agreed with OIG recommendations and will follow them, she said. So, more good news on the troublesome twins, Fannie and Freddie! Should any of this come as a surprise to us?? It is this type of behavior that leads me to conclude that the government is part of the problem and not likely to be part of the solution. More bureaucracy is rarely the answer and at this point, no one even knows what agency is responsible for what situations!!

Thursday, June 23, 2011

Update on Bankruptcy Appellate Court Ruling on the "Produce the Note" Defense

As a follow up to my blog from last evening, I am reviewing the recent Bankruptcy Appellate Panel (BAP) decision that has far reaching implications on all short sales. I am reviewing the decision with several colleagues because this will have a substantial impact on foreclosure and short sales.
Our collective review indicated that it is clear that this decision means that lenders will no longer get relief from the automatic stay in bankruptcy unless or until they prove that they possess the original note and thus have standing to sue (or get relief from the automatic stay). This case will be cited by attorneys in all foreclosure defenses (not just in bankruptcy). This is especially true because the decision was from a federal appellate court.
HOWEVER, as I discussed the case with a colleague and reviewed the decision further…it appears that there may be ground breaking additional news. The language in the decision seems to indicate that a lender may only foreclose up the to the value of the collateral and NOT the amount owed!! This will put HUGE pressure on lenders to modify existing loans and approve short sales. As an example, let’s assume that a home owner is in default on a $400,000 note and that the property value is about $200,000. Reasonable assumptions. Under this new decision, the lender can only foreclose up to the property value or $200,000. Deficiency judgments would be a thing of the past and lenders would have to write down values etc. Lenders would have to consider lower short sale offers too.
I will be presenting more about this on a syndicated radio show in the future and will be posting more information as well. Yes, this is a bankruptcy court opinion but it is from a federal court and an appellate court. Since my father was an appellate court judge, I have the deepest respect for the appellate courts.

Connecticut Introduces an Excellent Foreclosure Mediation Program

Connecticut lawmakers hope to help distressed homeowners deal with lenders who negotiate loan modifications while foreclosing at the same time. The state law makers are implementing a mandatory eight-month stay on foreclosure processes when homeowners enter mediation with a lender. “This is an effort to let the mediation process play itself out and give them space,” said state representative William Tong (D-Stamford). Tong is co-chair of the state legislature Banks Committee. This effort is designed to supplement the state’s groundbreaking foreclosure mediation program, which is run by the state judicial branch and is mandatory for homeowners facing foreclosure. State senator Bob Duff (D-Norwalk) believes that the 8-month stay is necessary because although “a lot of people were able to work things out within three months…there were some very difficult cases out there and those took longer”. The state has argued that this massive regulation is necessary because foreclosures are hurting home values too much in the state. I believe that this is an excellent response to a challenging problem, but I think that it needs to be implemented for reasons other than declining home values. It should be implemented due to the inherent unfairness of putting home owners through a lengthy loan modification process and later deny any relief after nine months to a year of cooperation by the distressed home owner.
Connecticut also recently attempted to cut MERS out of the equation in property transactions by passing a bill requiring foreclosing entities to register properties directly with town clerks or face fines. This also is a well though-out response to a difficult situation. Hopefully, more states will follow the lead of Connecticut. I also should comment that the many states require mediation or offer it to home owners in foreclosure.. the problem is that most state mediation plans place little leverage in lenders. Frequently, lenders do not even appear and the “representative” attending the mediation does not have authority – so what is the point?? Still, medication has been a very valuable tool. New York, and New Jersey have excellent medication programs and Florida has a very weak one.

Bankruptcy Decision has GREAT Implications for Home Owners in Foreclosure

A federal bankruptcy judge has ruled that a lender must prove that it has the original note in order to receive relief from the automatic stay in bankruptcy and proceed against the real estate. This has potentially HUGE repercussions in all foreclosures and certainly all foreclosures in bankruptcy.

The "produce the note" affirmative defense in one in which a home owner in foreclosure alleges as a defense to the foreclosure lawsuit that the lender does not have the legal right to sue ("standing") because they cannot prove that they have the original note. Many courts (in my experience it is about 50/50) will dismiss a foreclosure lawsuit when a bank cannot produce the original note. There was a lot of publicity last year about banks alleging that they had the original note when in fact they did not. In legal parlance that is referred to as a misrepresentation. In my world it is called a lie!! LOL

In bankruptcy, the second a petition is filed, all assets are under the exclusive jurisdiction of the bankruptcy court (judge and/or trustee). Lenders routinely seek relief from the automatic stay in order for them to proceed against the actual real estate under the collateral (mortgage or deed of trust). Courts routinely grant relief from the stay because as a matter of law, the lender is entitled to pursue relief against the asset. However, this decision now requires that a lender prove that they have standing - prove that they do have the original note. This will be a problem in a significant number of cases and it will certainly slow the process down.

The ruling will have an impact on all foreclosures as attorneys will cite the bankruptcy case in furtherance of the affirmative defense of "produce the note". Trust me, this decision has far broader implications than many believe
I will relate a bizarre outcome that I had in the OTHER Orange County..Orange County, Florida. I had an investor client that owned two condominium units in the same complex. Same price, same lender, purchased at the same time. Both went into foreclosure at the same time. Naturally, two separate actions had to be filed and two different judges were assigned. In both cases, the lender (Wells Fargo) could not find the original notes and we pleaded the affirmative defense that the bank did not have standing to sue because they could not prove that they held the note.

I filed Motions to Dismiss once Wells Fargo admitted that they could not produce the original notes. Same brief filed, identical facts. You can guess what happened. Judge A granted the Motion to Dismiss and threw out the foreclosure suit and Judge B denied the Motion to Dismiss. This is how it is folks....both decisions are legally supportable.

Tuesday, June 21, 2011

Federal Government Meddling in Robo Signer Settlement

For something completely different, it appears that the federal government is over stepping its boundaries again. Representatives of the House have drafted a letter requesting copies of “any and all” communications between Elizabeth Warren and any state attorneys general since September 2010. The group is concerned that Warren has gone “far beyond the mere offering of advice” and that she may be unduly influencing the demands of the Attorney Generals in their negotiations with banks toward a settlement to resolve the robo-signer debacle. She is the White House adviser setting up the Consumer Financial Protection Bureau. In one email that has already been released, Warren’s division expressed concern that a $5 billion settlement with major banks would be “too low.” The figure has now risen to around $20 billion.
The crux of the issue appears to revolve around the fact that Warren is actively participating in settlement negotiations when her bureau will not even officially begin operations until July 21 of this year. Furthermore, she is not the director of the bureau, as the president has not yet appointed anyone to this position. The letter will be sent to Treasury Secretary Timothy Geithner. House Representatives such as Spencer Bacchus (R-AL) have been concerned about Warren’s level of input for several months, bringing it up first in March subcommittee meetings, where Warren insisted that “the bureau provided advice when asked.”
There must be some resolution to the bank errors from the robo signer fiasco, but why can’t they craft a solution that helps home owners?? Our experience with TARP should indicate that the government is not capable of resolving the crisis anytime soon. Punishing the banks is not likely to help distressed home owners. The banks were clearly part of the problem…but after all, it was the federal government (President Clinton) that required banks to lend on the sub-prime market and it is no surprise that many of these loans have gone into default.

Monday, June 20, 2011

Chinese Drywall Becoming a HUGE and Costly Problem

I have been working on many short sales, Deeds in Lieu (DIL) and foreclosure defenses in Florida. I recently encountered an almost brand new home that contained “Chinese drywall”. We received an estimate to replace the toxic drywall with new drywall and the price exceeded $100,000! This is a huge problem that is not receiving a lot of media coverage. Perhaps because the affected (infected) areas are mostly Florida, Alabama, Mississippi, Louisiana, Virginia and Southeast Texas homes.

As hard as it may be to believe, there is actually a Chinese Drywall Complaint Center (CDCC) and they are now claiming that Fannie Mae and other lenders are “dumping toxic Chinese drywall home foreclosures on completely innocent or unknowing U.S. home buyers,” the Chinese Drywall Complaint Center (CDCC) alleges that the foreclosure crisis will just “get worse” if as-is foreclosures are not controlled. CDCC also accuses lenders of “securities fraud on a massive scale.” The CDCC believes that the Chinese drywall will appear in other areas of the country as well.
Chinese drywall is an imported drywall that was used in some U.S. homes between 2003 and 2008. The drywall appears to cause problematic symptoms in home inhabitants like irritated, itchy eyes and skin, difficulty breathing and premature cough and headaches. The drywall also causes premature deterioration of metal components like air conditioner coils and electrical wiring. Currently, the federal government has no approved method of remediation for the situation and many homeowners have opted to move or have all of the drywall removed (a complete renovation) in order to deal with the problem.
It seems likely that lenders would argue that dealing with problem aspects of a property like Chinese drywall is an inherent part of buying a property as-is, and the CDCC does not necessarily disagree. They allege that there is not adequate awareness of the issue out there and that it makes selling as-is foreclosures in drywall-“infected” areas a fraudulent process. Great huh?? LOL

Sunday, June 19, 2011

Reverse mortgage Update..Now Bank of America and Wells Fargo Terminate Programs

Several days ago I mentioned that Wells Fargo pulled out of the reverse mortgage market. They will continue to service existing loans, but no longer source new loans. Wells Fargo represented about 25% of the reverse mortgage market.
Bank of America very quietly pulled out of the reverse mortgage market the prior week. Together, Wells Fargo and Bank of America represented a significant 43% of the reverse mortgage market.
Reverse mortgages allow seniors 62 years of age and older to tap into their home equity by allowing the bank to make payments on their home and pay them a monthly stipend. The homeowner is still responsible for property taxes and homeowner’s insurance. However, since lenders cannot assess homeowners’ ability to maintain these two obligations and with property taxes on the rise even as property values fall, BofA and Wells have decided that the gamble is too risky for the banks. Currently between 4 and 5 percent of active reverse mortgages are in technical default, which means they have failed to pay property taxes, insurance or both.
Additionally, when the lender does gain possession of the property upon the death of the homeowner (which usually happens, although the estate does usually get a grace period in which they can pay off the loan), there is no guarantee that the lender will be able to sell the property and recoup the money loaned out – much less make a profit. Greg Gwizdz, a national home sales manager for Wells, cites difficulties gauging home values as a major part of the decision to exit the market.
It is uncertain whether other lenders will follow this trend and terminate their reverse mortgage programs. Logically, Bank of America and Wells Fargo have created an opportunity for other lenders to capitalize on their departure. It is clear that reverse mortgages are viewed as a problem area for lenders and this is unfortunate for those that would benefit by the programs.

Relief for Distressed Home Owners...DELAYED

There was a settlement in various matters between the real estate industry lenders and the federal government. The lenders were to provide an action plan for handling loan modifications and foreclosures. The plan was due this week, However, the lenders received a 30-day extension for submitting their plans. The extension was the result of a decision made by the federal justice department. Mortgage servicers were supposed to submit their plans for dealing with contacting struggling home owners, handling loan modifications in good faith and adjusting other problematic aspects of the foreclosure process.
However, the Office of the Comptroller of Currency (OCC) and the Federal Reserve – key players in the bank settlement in mid-April that was met with so much criticism after the robo-signer fiasco – have said that the lenders can have another 30 days. The extension comes at the request of the Justice Department. The Justice Department is currently working with state attorney generals and several other federal agencies to reach a separate settlement with more severe terms than that of the OCC’s settlement. The OCC has insisted from the beginning that its settlement and that of the Justice Department would “dovetail” rather than be in conflict or undermine each other.
Lenders will have until July 13 to submit their plans now, which the attorneys general hope will lead to an advantage for their side in negotiations. Tom Miller, state attorney general of Iowa and leader of the Attorney General probe, has stated multiple times that the settlement will include billions of dollars in fines and, ideally, principal reductions as well. Any movement in loan modifications and/or foreclosure policies will be much needed relief in the industry. Loan modifications have slowed to a crawl and frustration levels with the process are high. Foreclosure relied has been inconsistent at best. Hopefully, mid-July will provide some relief for home owners in distress.

Saturday, June 18, 2011

A Real Estate Career Alternative: Real Estate Appraiser

Probably one of the most well-known but seldom talked about careers in real estate is that of a real estate appraiser. Appraisers provide professional, objective opinions about the market value of a piece of real estate. There are many reasons to get an appraisal, including if a property owner wants to obtain a loan, change their property taxes, insure a property, settle an estate, establish value or, of course, sell their property. In order for an appraisal to be useful, it must, ultimately, “reflect a credible estimate of value”. Appraisers are responsible for identifying the end-users of the appraisal, including who requested the appraisal, as well as the intended use and the purpose of the report. They also must include a full description of the property including location attributes, physical attributes, legal attributes and economic attributes as well as easements, restrictions, encumbrances, leases, reservations, covenants, contracts, declarations, special assessments, ordinances and division of interest in the property. All of these items and many other small details are used to create as comprehensive a picture of the value of the property as possible.
By now, being an appraiser probably sounds like a pretty interesting job, but it is also probably clear that you need an attention to detail. Appraisers must be certified in the state in which they wish to work and may work for corporations or individuals. Presently, there are many new restrictions on appraisers thanks to the real estate market crash, so make sure that if you decide to become involved in this business you understand exactly how, for whom and in what capacity you can legally work. Real estate appraisers can be salaried or work on contract or commission. They can make more than $100,000 a year and often work flexible but long hours. There is a higher demand for real estate appraisers than ever and there will be a lot more work in the future. Most appraisers are pretty busy today so be patient with them!

Friday, June 17, 2011

More Disturbing News for Real Estate Values

There is more disturbing news regarding the real estate industry and the anticipated turn around ion values. Many have predicted that the bottom has been reached and that prices will soon begin to rise – even by the end of this year. I have consistently maintained that values in certain areas will rise but that in general, values will continue to fall for quite some time. My opinion is based upon the realization that there is approximately 36 months’ worth of shadow inventory being held out of the market by lenders. This means that if not one new home comes into the market, there is sufficient inventory to satisfy demand for over three and a half years when you consider the current inventory and shadow inventory. It is simple supply and demand economic theory. How can prices recover when demand is somewhat constant (arguably) and supply is continuing to rise?? The only example of this NOT happening is oil prices where supply continues to rise and demand drops, yet prices rise. This is due to heavy manipulation of the markets and OPEC’s short sided view of making as much money as possible.
According to one prominent economist, 6.5 million new households will have to be formed before the excess housing inventory in the country will be absorbed. Brendan Lowney is a macroeconomist for Forest Economic Advisors in Massachusetts. He has estimated excess home inventories at 2.5 million, which is creating downward pressure on home prices and pushing more homes underwater. Lowey believes that the formation of an average 1.3 million new households per year will clear much of the excess inventory, and that this process will take about five years to complete. Only then, he says, will the housing recovery truly begin. Is it realistic to assume 1.3 million ne households per year??
This paints a bleak picture for sellers for the next few years. As one Fox Business columnist put it, “[the] housing recovery begins when foreclosures turn to closings”. Jay Butler, associate professor of real estate at Arizona State University, elaborated on that theme, pointing out that the key to the housing recovery is when “the housing market is driven by owner-occupants, not foreclosed properties. Other analysts add that jobs are the key, since high unemployment has made would-be homeowners reluctant to take on new payments – especially in a time when real estate is no longer perceived to be a “sure-fire” investment

Wells Fargo Terminates Reverse Mortgage Program

Wells Fargo has announced that it will no longer originate reverse mortgages. The bank indicates that changed economic times no longer allow for the transaction that enables senior homeowners to use a portion of a home’s equity as collateral and repay the loan out of their estate upon death. Since the repayment of the loan is based on the estate’s ability to sell the property and pay off the balance, many lenders have expressed concern that reverse mortgages will actually go underwater, making them a loss for the lender who made the loan. However, Wells Fargo has cited its main concern as homeowners’ inability to make payments on taxes and insurance – usually the homeowners’ responsibility for the life of the homeowner and the reverse mortgage. “The reverse mortgage program was designed in a different time,” explained the lender in a public statement, adding that existing reverse mortgages will still be serviced and that the banks 1,000 reverse team members would still be able to apply for other positions within the bank’s operations.
Wells Fargo was the biggest originator of reverse home loans in the United States. These loans made up 2.2 percent of the lender’s consumer mortgage volume. The bank continued to lead the market up to the point when it decided to stop making the loans, with 25 percent of all reverse mortgage loans being made through Wells Fargo.
This certainly indicates a pessimistic view of the future housing market by the bank. The bank is concerned about future values and consequently and estate’s ability to sell a home for a balance sufficient to satisfy the obligation. It is disturbing to realize that the decision was made because the bank did not feel that current home owner’s with reverse mortgages will be able to pay the taxes and insurance! This was clearly a movie to limit future exposure for Wells Fargo and it may prove to be a prudent move. However, it is also a sign of troubling economic times ahead for real estate values.

Thursday, June 16, 2011

Bank of America's New Restrictive and Un-American Short Sale Policy

Bank of America has initiated a new policy in regard to short sale approvals. BofA is now requiring an addendum to the short sale approval that requires a buyer to hold a property for thirty days prior to reselling. The addendum has raised some questions among the real estate community. David Sunlin, Senior Vice President and operations executive for short sales, deed in lieu, and real estate management for Bank of America explained the new policy. He explained, “ It’s entirely about fraud prevention. We want to ensure that the transaction is at arm’s length and that the property isn’t immediately flipped for a higher price without there being any repairs or upgrades. It’s not punitive in any way and has nothing to do with deterring any part of the transaction.”
Sunlin further explained, “first, there’s flipping, and then there are schemes in which parties collude or otherwise try to keep the home owner in the home or else pass along some kind of benefit to the home owner from the sale of the property. For example, the parties find a buyer at current market value [which is considerably lower than what the owner originally paid] and that buyer flips the property back to the home owner, or they allow the owner to stay in the home, or they feed the owner some cash out of the deal so that the owner can stay in the home. When you have losses that are on average in the hundreds of thousands of dollars, and in the vast majority of these cases those deficiencies [losses] are being waived [by the investor] to allow the sale to happen, it’s reasonable for us to want to know if there is a hardship, and if the owners were to receive cash payments on the side, arguably that money should go to the investor as the debt that’s being forgiven. In every case, that amount [to the investor] would be much less than the total amount of debt owed, so the investor isn’t made whole by any means. But if someone is saying, “Hey, do this and we’ll throw you five grand,” [that’s not appropriate]. We’ve certainly got programs that will help home owners as they exit. In fact, we’re getting ready to roll out a really nice information packet that we’re going to mail to delinquent customers that advises them of their options to avoid foreclosure and can connect them to some of our social services network partners. We certainly recognize people are in default and experiencing hardship. They need help. We want to be able to connect them to that help, and provide it directly to them as much as we can, but we certainly don’t expect them to use a short sale as a means to walk away with more cash or to purchase the property back at current pricing.”
Sunlin further comments “There are legitimate investors who buy properties and either want to rent them or they want to rehab them and resell them. There’s nothing wrong with that. What we’re looking at are the immediate flips, where somebody has already lined something up and shortly thereafter flips it for a much higher sales price after they’ve first purchased it for a lower price. This is an issue all the large servicers are interested in. And, in fact, the original idea for the addendum came from Freddie Mac, which requires it. They came to us and said, “We, as an investor, require you to do this.” And then we looked at it and thought it was a good practice, so we extended it to our entire portfolio that we service. It’s a small number of cases where we see this type of fraud, but any is too many and we want to put the spotlight on the bad guys and get everyone else moving forward as quickly as possible.
Sunlin: We’re attempting to maximize the recovery against the current market value. We’re not intentionally going to leave any dollars on the table for the investor. And, as everyone knows, valuation can be something of an inexact science. Professionals are going to disagree, within some range, as to what properties are worth. Fannie Mae and Freddie Mac both use their own BPO [broker price opinion] networks. Outside of that, we use full walk-in interior appraisals, so we get a pretty good indication of value. We’re going to use a model that looks at that and then determines if we’re mitigating the investor’s loss relative to the REO process. So, really, the only way someone could turn around and [immediately and legitimately] sell the property for more [than what we approve in the short-sale agreement] is if we didn’t necessarily get the most accurate value when we made that determination or if the next buyer that came along happened to have a more inflated opinion of what that property is worth. We might have thought it’s worth $150,000, but if someone else thinks it’s worth $200,000, then they might be willing to pay that amount. I would say that falls within the range of just variation in terms of value. But we don’t consciously allow things to discount very deeply from current market value. That in and of itself would be a red flag [that someone’s trying to flip the property]. We might be mitigating loss down to a certain level of discounting, but we would say that, if someone is willing to pay that within a short amount of time, then that is the market value. We all know market value is determined by what a buyer is willing to pay. We’re just trying to get as close to that value as possible, and obviously if anyone, whether they’re an institution or a private party, that sold a house found out the buyer flipped it for considerably more in a short amount of time, I’m sure they would regret that.
This policy is against all concept of capitalism and it is contrary to the stated goal of Bank of America; to “we want to be able to help home owners that need help”. They are making it harder to sell a property! Also, Mr. Sunlin is describing “flipping” as fraud!! Really?? There is no definition of fraud that I know of that would prohibit a buyer for immediately selling a property for a profit. Incidentally, the buyer could lose money on a transaction too!
Sure, we all want to limit fraud. It is a worthy goal. However, investors represent 30% of the transactions in this damaged market and policies that limit their ability to re-sell are un-American, legally unenforceable and in conflict with the Bank of America goals! The policy also will cost the bank money because THEY will be holding non income producing real estate for longer periods of time because the addendum will restrict and limit many transactions.
Finally, how is it fraud to for an investor to re-sell a property 29 days after close of escrow, but not fraud if the same property is sold or the dame price 31 days later?? This market cannot afford such policies.

Wednesday, June 15, 2011

California Appeals Court Rules in Favor of MERS in Foreclosure

Another court has weighed on the MERS debacle. The California Court of Appeals in the Second Appellate District declared that MERS (Mortgage Electronic Registration Systems, Inc) can be a beneficiary on a deed of trust and that Avelo Mortgage does need to possess the promissory note on the mortgage before beginning foreclosure proceedings. Some opine that the ruling sets a precedent in California that MERS can foreclose without having a promissory note in its possession. The decision was based on another California MERS decision in which the homeowner (Gomes) argued that MERS could not initiate foreclosure and the court determined that the deed of trust “explicitly provided MERS with the authority to do so.” The Gomes decision also included a note that MERS did not have to provide the homeowner with assurances that MERS was authorized to proceed with the foreclosure. There is a distinguishing feature here – the note in question contained specific language that the home owner agreed to by executing the document. The note contained, inter alia, “that Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but if necessary to comply with law or custom, MERS has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the property,” Judge Milton indicated that contractual language was the basis for the ruling.
When trying to interpret decisions such as this, there is a tendency to view the result and not the reason. However, it is important to note the reason because another situation may have different language and it is the language that controls the decisions. Many rush to judgment and view decisions such as this as “California rules that MERS is valid” and this is not the result of this decision.
At least in California, it looks like the courts may side with MERS, although the conflicts continue to be decided on a case-by-case basis. Another case in California with different language may be decided differently. Other states such as Oregon and New York – have tended to throw out MERS cases or even decide in favor of the homeowner.

Monday, June 13, 2011

As Housing Prices Fall...Home Equity Drops too

The housing market has never looked better for many people. However, if you are looking for equity then things have not looked so bleak since World War II. As a residential “double dip” in the market becomes a reality, Robert Schiller, co-founder of S&P Case-Schiller index, predicted that property values could decline from 10 to 25 percent more over the next five years. He believes that unemployment, a backlog of foreclosures that is dissuading builders from new construction and possible inflation will all combine to create the lowest home values seen since the Second World War We should note that Schiller does tend to be incredibly pessimistic, and that other experts like Brian Moynihan (a notorious optimist and Bank of America CEO), have said that additional declines in home equity are likely to be “incremental.” Schiller countered this by pointing out that if inflation picks up, “you could have flat nominal prices but still have it [equity] go down 20 percent.”

In 2001, average home equity, was more than 61 percent. This year in the first quarter, it was 38 percent according to a Federal Reserve report released last week. These are the lowest equity levels since 2002. However, most analysts agree – even if they disagree with each other – that making predictions is hard during this time period. “There is no precedent for this statistically, so no way to predict,” admitted Schiller. Household debt is actually decreasing, although this is due “entirely to a decline in mortgages” according to the Fed.

Thursday, June 9, 2011

Fannie Mae & Freddie Mac New Foreclosure Directives

Fannie Mae and Freddie Mac have received a new set of directives from the Federal Housing Finance Agency (FHFA) concerning their foreclosure process. The FHFA directives are designed to help the government-controlled GSEs manage their foreclosure processes in a timelier, less “painful” fashion. FHFA hopes to establish a “clear and consistent time frame to complete the foreclosure process” as well as standardized requirements for determining fees.

Once the rules go into effect, GSE loan servicers must not exceed the number of days in the time frame for foreclosures. The time frame can be determined by factoring in a number of features about the individual foreclosure. Unless documentation of a legitimate reason for delay of the foreclosure, such as bankruptcy, probate, military indulgence or certain legal actions, is provided to the FHFA before the time line for foreclosures has expired, the mortgage servicer in charge of foreclosures will face compensatory fees and fines.

The FHFA hopes to standardize and speed the foreclosure process through these new rules and regulations while making the experience less painful for homeowners at the same time.

Friday, June 3, 2011

Dodd-Frank Financial Reform Bill to Create Unrealistic Lending Guidelines

The president of the Mortgage Bankers Association (MBA), Dave Stevens and representatives from the National Housing Conference (NHC) and the Center for Responsible Lending (CRL) have joined forces – along with nearly 40 others – to fight “draconian requirements” proposed for the qualified residential mortgage (QRM) standards. Stevens, Ethan Handelman (NHC) and Ken Edwards (CRL) all claim that the new QRM standards mandated by the Dodd-Frank Financial Reform legislation will make mortgages too expensive and difficult to claim. Ultimately, says the group, not only will fewer people be able to get mortgages, but the rules will create “societal boundaries” that will result, essentially, in blatant discrimination
QRM standards are intended to force banks to keep their own “skin in the game” when making loans. Legislators hope that if banks share more equally in the risks associated with making loans that lenders will be more careful about the loans that they initiate. This would theoretically prevent another sub-prime crisis. A QRM mortgage is one that a lender would not have to hold a piece of but could sell the entire loan because the buyer is highly qualified and considered low risk. One of the major facets of a QRM loan is proposed to be the ability to make a 20 percent down payment. Stevens claims that the new regulations could lead to “long-term rental entrapment” for many Americans that he estimates would need at least ten years to save enough money to make that down payment. Other housing and consumer advocates argue that the issue is a civil rights issue and “falls around people of color,” making it a “class issue” as well.