Category: foreclosure

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Housing recovery may be in jeopardy; Allegations of foreclosure processing irregularities

by Dan Krell © 2010

For a housing market that seemed to have begun the healing process, the bandages appear to be unraveling. Recent reports of fraud during the foreclosure process as well as questions of mortgage note ownership have had several lenders, most recently Bank of America, freezing their foreclosure process until they can assure the foreclosure process is conducted legally and with integrity.

At first, everyone seemed shocked to learn of the alleged fraud involved in preparing foreclosure documents necessary to pursue a foreclosure. Some allege that the fraud, although not rampant within the industry, is systemic; it is a symptom of a high volume industry that is typically understaffed. Reports of robo-signing of thousands of documents per week (used to attest to the accuracy of the foreclosure documents) have become so vociferous that some state Attorney Generals are seeking investigations.

Most recently, news of a mortgage registry set up to facilitate the bundling and sale of mortgages on the secondary market cannot foreclose on delinquent home owners. The recent accounts of denying MERS (Mortgage Electronic Registration Systems) during the foreclosure process are just another blow to an already fragile housing market.

Much like allegations that foreclosure processing fraud is not new, the MERS situation should also not be a surprise. Way back in 1989, Henley Saltzburg (“Avoiding Legal Pitfalls”, Mortgage Banking; Apr 1989; 49, 7; pg. 38) highlighted documentation problems in secondary market by stating, “Incomplete or inaccurate documentation is a primary source of contractual litigation in the secondary market…” Furthermore, according to Steve Cook, of Real Estate Economy Watch, since 2006 Fannie Mae has ordered servicers to not name MERS as a plaintiff in foreclosure proceedings (“Straightening Out the MERS Mess”).

homeownerThe recent media coverage of these developments have people wondering about the short and long term affects on the housing market. Many fear that delaying the disposition of foreclosed properties by prolonging the foreclosure process may push home prices even lower. Even Mark Zandi, chief economist at Moody’s Analytics, was quoted in an October 4th Wall Street Journal article (Robbie Whelan. “U.S. News: Foreclosure? Not So Fast”) describing the current foreclosure situation as a “…growing mess in the foreclosure process…” and will be looking to a now prolonged housing recovery.

Industry experts are looking to clear up these matters as soon as possible. Fannie Mae Executive Vice President, Terry Edwards, issued a statement on October 1st saying that “steps” are being taken in coordination with regulators to ensure that servicers adhere to “the exact requirements of the law” as well as strengthen the review and due diligence procedure to protect borrowers’ rights while conducting the default process.

To highlight this crisis, the Senate Banking Commission Chair, Senator Chris Dodd (D-CT) announced that the commission will hold a hearing on November 16th to investigate allegations of impropriety in mortgage servicing and foreclosure processing.

Although some home owners are not fighting their lenders during the foreclosure process, some are clearly taking advantage of the foreclosure freeze by attempting to renegotiate their mortgage terms with the actual note holders. However, if you’ve purchased a foreclosure or short sale or you’re considering doing so- consult with your title attorney to ensure that your owner’s title insurance covers claims that may arise from such disputes.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 11, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

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Shadow inventory dictates direction of housing market

by Dan Krell © 2010

Housing markets are not out of the woods yet. To know where housing is headed, you need to follow the “shadow inventory.” It is estimated that the shadow inventory will be dictating the direction of the housing market for the next twelve to thirty-six months; and contrary to some recent optimistic reports, it could get ugly.

“Shadow inventory,” simply put, is the term used to describe properties that are not yet for sale, but is expected to be listed for sale. The term is loosely used and generally refers to homes that are already owned by banks as well as homes in the process of foreclosure. However, some analysts broaden the scope of the term to also include homes that have seriously delinquent mortgages and/or in the process of a short sale.

Alarms about a threatened housing recovery due to the nationwide shadow inventory have been ringing since early 2010. Although recent reports of increased sales have been undeniably due to home buyer tax credits, economists doubt that any gains in the housing market will carry into July (one qualification for the home buyer tax credit is to close by June 30th). Even Lawrence Yun, Chief Economist for the National Association of Realtors, stated in a May 24th NAR press release (Realtor.org) that although there was an expected increase in existing home sales in April, sales will “temporarily fall back” when the home buyer tax credit expires.

Although it is expected that home buyer demand will diminish in the absence of a home buyer tax credit, a sudden exponential growth of home inventory has the potential to erode not only home buyer confidence but home values as well. It is clear that such an inventory surge can wreak havoc, as evidenced by the foreclosure surge of 2007-2008; but analysts cannot agree on the extent of the problem. Estimates of shadow inventory range from a conservative 1 million units to an astounding 6 million units.

A Standard and Poors analysis published February 16, 2010 (The Shadow Inventory Of Troubled Mortgages Could Undo U.S. Housing Price Gains) made clear the correlation between property liquidation and home value depreciation. And although the reduced number of foreclosures in the past year was due in part to attempts in assisting home owners to keep their homes (through mortgage modification programs), the inevitability of liquidating $473.4 billion in loans (which is equated to 1.75 million homes) was temporarily delayed. It is possible that home prices may again begin to depreciate as these troubled loans are liquidated (standardandpoors.com).

First American Corelogic appears to concur (Home Price Index Report – April 2010) with the premise of the S&P’s report. Although Corelogic’s Loan Performance Home Price Index (HPI) revealed an increase from February 2009 to February 2010, the report states that market stabilization has been widely due to government intervention through foreclosure prevention programs, Federal Reserve purchases of mortgage backed securities, and home buyer tax credits. Due in part to the expected conclusion of Federal Reserve purchases of MBS and home buyer tax credits, the HPI forecast from February 2010 to February 2011 is projecting a decline (corelogic.com).

Housing will undoubtedly be affected by shadow inventory. However, the affects of shadow inventory disposition may largely depend on other economic factors and government intervention; which includes (but is not limited to) employment, interest rates and foreclosure prevention programs.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 24, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

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Foreclosure mediation

by Dan Krell © 2010

The 2010 regular session of the Maryland Legislature passed measures to assist and clarify issues regarding foreclosure. In addition to legislation that adds procedures to protect renters who live in homes in foreclosure, and clarifying that an individual must exercise the “power of sale” stated in a deed of trust – the requirement to provide a home owner the opportunity for mediation prior to a foreclosure sale will take effect July 1st, 2010.

Maryland H.B. 472: “Residential Property Foreclosure Procedures – Foreclosure Mediation” was the outcome of Governor O’Malley’s workgroup to explore the option of implementing a foreclosure mediation program to assist home owners stay in their homes while attempting to reduce the number of Maryland foreclosures. The bill was passed and recently signed into law.

The new law establishes additional rules for foreclosure filings as well as requirements to exhaust efforts assisting the home owner to retain their home, including mediation. As of July 1st, the new law requires any lender filing a notice of intent to foreclose (NOI), to provide the home owner an opportunity for loss mitigation (including mediation), as well as including additional foreclosure information.

To comply with the law, the NOI must either be accompanied by a preliminary or final affidavit for loss mitigation. The lender’s NOI will now include a statement recommending housing counseling; information on governmental foreclosure assistance; and an explanation of the Maryland foreclosure process (including time lines). Additionally, the NOI will be accompanied by a loss mitigation application; instructions for completing the loss mitigation application; a telephone number to call to confirm receipt of the application; a description of the eligibility requirements for the lender’s loss mitigation programs that may be applicable; and a preprinted envelope indicating the address of the person responsible for conducting loss mitigation on the lender’s behalf. Fees that are collected for the NOI will assist in funding mediation, housing counseling, and other foreclosure resources.

If the home in foreclosure is owner occupied, then the home owner can file a petition for mediation before the foreclosure sale date is scheduled. The request for mediation must be made within fifteen days of service or mailing of the final loss mitigation affidavit. The mediation will be conducted by the Office of Administrative Hearings (OAH), which has sixty days to schedule the mediation; the OAH has authority to extend mediation by no more than thirty days if needed. The OAH must report the outcome of the mediation either when the sixty days expires or after the expiration of any extension period that is granted. If no agreement is reached during mediation, the lender may schedule a sale date (which can be as early as fifteen days after the mediation hearing).

If mediation is requested by the home owner, the lender must be engaged in the process. The lender’s representatives who are present in mediation must have the authority to settle the matter or be able to readily contact someone who can. The home owner, when entering into mediation, may be accompanied by a housing counselor and/or an attorney.

Information regarding the new Maryland foreclosure mediation law will be available to home owners through approved housing counselors as well as the MDHope Hotline (1-877-462-7555). Additional assistance and additional foreclosure resources are available from the Maryland Office of the Commissioner of Financial Regulation (www.dllr.state.md.us/finance/consumers/mortforeinfo.shtml).

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of May 10, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell


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The “right to rent”; an old idea is given new life

H.R. 5028 also known as the Right to Rent Act of 2010 was introduced April 15th by Representatives Raul Grijalva (D – AZ) and Marcy Kaptur (D – OH) as a means “To allow homeowners of moderate-value homes who are subject to mortgage foreclosure proceedings to remain in their homes as renters.”

According to Representative Grijalva’s press releases ([http://grijalva.house.gov/index.cfm?sectionid=13&parentid=5&sectiontree=5,13&itemid=582] and [http://grijalva.house.gov/uploads/R2R_2010.pdf]) , the bill is designed to allow homeowners facing foreclosure to rent the home back from the lender rather than being evicted while the bank is foreclosing. “The bill aims to give relief to middle-income homeowners, not speculators or people living in unaffordable mansions.” To qualify, the home must be the family’s primary residence for at least two years, the home must be equal to or below the median home price for the metropolitan area, and the mortgage must have been originated before July 1, 2007. Upon receiving a notice of foreclosure, the homeowner, may elect to rent for a term of up to five years at a rent determined by an appraiser.

The credit for the idea of “right to rent” along with the rules that seem eerily similar to those set forth by H.R. 5028 actually belongs to Dean Baker, the co-director of the Center for Economic and Policy Research. Mr. Baker’s idea of “right to rent” was introduced in 2007, when the idea was actually better suited to be implemented in helping distressed homeowners as well as reducing the impact of home value deterioration (http://www.guardian.co.uk/commentisfree/2007/oct/23/therightbailout).

The original article discussed the merits of keeping families in a home, maintaining the integrity of the neighborhood, all the while not requiring a government bailout:

“It is possible to help these families without any big bailouts or new bureaucracies…so that homeowners facing foreclosure will have the option to rent their home indefinitely at the fair market rent…The appraiser would determine the fair market rent…”

“This measure would ensure that current homeowners could at least keep a roof over their head…”

“This own to rent provision can be limited by both the date of issuance of the mortgage, and the value of the home…the own to rent option can be restricted to mortgages issued before July 1 2007…”

“To ensure that only less affluent homebuyers benefit, it can be restricted to homes that sold for less than the median price in an area…”

A variation of the “right to rent” was implemented by Fannie Mae in November 2009 and subsequently by Freddie Mac. Fannie Mae’s “Deed for Lease” program allows the homeowner to lease the home back from the lender for a twelve month period (the lease may be extended beyond the initial twelve months on a month to month basis) after giving the home back to the lender by completing a deed in lieu of foreclosure and meeting other criteria.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

by Dan Krell

© 2010

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Surprise findings about causes of foreclosure

Politics, Wall Street, predatory lending, and bad loans are just a few of the generalizations that the public has attributed to rising foreclosure rates. However, a Florida Realtors® research study on foreclosures found a much more complex story.

Earlier this month, the Florida Realtors® announced the findings of their “Face of Foreclosure” research project (floridarealtors.org). The project was designed to establish the impact of foreclosure on the Florida housing market and home owners, as well as to assist Florida’s Legislature to decide what intervention (if any) is needed by pinpointing the causes of foreclosure.

The report cited a positive correlation between unemployment and foreclosure in the Florida cities that were hardest hit by the foreclosure crisis. However, the study’s interviews of families who are in foreclosure did not reveal one cause for foreclosure; the study revealed a trend of multiple factors as the cause of their financial challenges.

In the April 6th 2010 press release, Florida Realtors® vice president of public policy, John Sebree, was quoted as saying that “Contrary to what some researchers have argued, many Florida homeowners were not driven into foreclosure by simply being trapped in bad loans, or losing their jobs or taking pay cuts.”…”In most cases, it was a combination of rising living costs, unemployment or decreased pay, health issues and other factors that caused homeowners to get into trouble. Simple answers and trite political responses just don’t tell the whole story.”

You can view the full report on the Florida Realtors® research webpage (floridarealtors.org/Research), click on the title “2010 Face of Foreclosure.”

by Dan Krell © 2010

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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