Mortgage Law Blog, LLC

Alphonso Jackson, the increasingly embattled Secretary of the Department of Housing and Urban Development announced his resignation today effective April 18, 2008.

As HUD’s website did not announce the resignation as of the time of this posting, it is not yet clear who will act in Jackson’s place until a replacement (if any) can be formally made.

The announcement comes just a little more two weeks after HUD announced an ambitious RESPA reform proposal that has come under intensifying criticism.  Comments on the proposal are currently scheduled for May 13, 2008, though there have been calls already for HUD to extend that deadline.

Jackson’s letter of resignation to the President suggested he was stepping down for personal and family reasons.  For interesting background on certain events preceding the announcement, see the related Wall Street Journal article here (subscription required), or the Washington Post article here (registration required).

Tags: HUD & FHA, Mortgage Banking - General by the Editor
No Comments »

In two unrelated Federal Trade Commission cases, discount retailer TJX and data brokers Reed Elsevier and Seisint have agreed to settle charges that each engaged in practices that, taken together, failed to provide reasonable and appropriate security for sensitive consumer information.

In typical manner, the settlements require that the companies take comprehensive information security for 20 years.

Click here for the full press release and for copies of the Consent Orders.

Tags: Consumer Protection, Federal Trade Commission, Mortgage Banking - General, Security Breach by the Editor
No Comments »

This is a reminder.  Today is the early registration deadline for the Mortgage Bankers Association’s Reverse Mortgage Lending Conference. 

The Conference is April 10-11 in San Diego, CA.

On its website, the MBA gives the following synopsis:

MBA’s Reverse Mortgage Lending Conference 2008 provides a unique forum for real estate finance professionals to participate in advanced discussions about originator and equity investor interests in reverse mortgages. The program also provides up-to-date information regarding new technology being developed to help reverse mortgage lenders operate more efficiently.

Conference participants get a one-of-a-kind opportunity to network with industry partners and peers, to exchange ideas about one of the latest innovations available and to increase business opportunities in a down market.

Topics covered will include:

•  Ginnie Mae’s new HECM securitization program
• Improvements to the reverse mortgage product by HUD, Fannie Mae and Ginnie Mae
• New variations of reverse mortgages designed to fill gaps in the market
• Analytics and factors that drive loan pricing
• Updates that affect reverse mortgage originations, underwriting, loan servicing, closing, compliance and backroom operations
• Reverse mortgage marketing and consumer outreach

For more information, and a conference brochure, click here.

Tags: Association Activities, Conferences & Events, Mortgage Banking - General, Reverse Mortgages by the Editor
No Comments »

The Federal Trade Commission has issued an advisory opinion responding to questions posed by the U.S. Foreclosure Network. 

The questions generally inquire whether the Fair Debt Collection Practices Act prohibits a debt collector in the foreclosure context from discussing settlement options in the collector’s initial or subsequent communications with the borrower.

The first issues addressed are:

Does a debt collector violate the FDCPA when he, either in conjunction with the sending of a “validation notice” pursuant to Section 809(a) of the FDCPA or subsequent to such notice, notifies a consumer of settlement options that may be available to avoid foreclosure?

In its opinion, the FTC stated that “there is no per se violation of Section 809(a) of the FDCPA if a debt collector includes information in these communications.  However, the conclusion does not prevent a finding that the communications, on a case-by-case basis, violate the FDCPA if they overshadow or are inconsistent with the disclosures of the consumer’s right to dispute the debt.

The second issue addressed is:

Does a debt collector commit a false, misleading or deceptive act or practice in violation of Section 807 of the FDCPA when he presents a consumer with information about settlement options available to the consumer to avoid foreclosure?

The FTC opinion provides that there is no per se violation of Section 807 in presenting such information.  However, particular information could be found on a case-by-case review to violate the Act if it contained a false or misleading representation or omission of material fact.

The FTC’s press release can be found here.  A copy of the opinion can be found here.

Tags: Consumer Protection, Debt Collection, FDCPA, Federal Trade Commission, Foreclosure, Loan Modifications/Workouts, Mortgage Banking - General, Regulations, Unfair or Deceptive Acts by the Editor
No Comments »

As legislators and bureaucrats try to find ways to address the housing “crisis,” something quiet but noticeable is beginning to take shape off in the distance - stability.

“Existing Home-Sales Rise as Prices Plummet.  Gain Takes Some by Surprise,” reads the headline of the Business Section of the Washington Post (registration required).  The article notes:

Sales of existing homes increased unexpectedly in February as bargain hunters took advantage of a bloated supply and the biggest drop in single-family-house prices in at least 40 years.

Industry experts said that the increase was good news but warned that it was far too soon to declare a turnaround in a struggling sector that has weighed heavily on the nation’s economy.

Click here for the full article. 

“Wave of Foreclosures Drives Prices Lower, Lures Buyers,” reads the headline of today’s Wall Street Journal.  The story notes:

A glut of foreclosed homes of historic proportions is starting to drive down U.S. home prices faster as lenders put more properties on the market and buyers show signs of interest. . . .

On Monday, new data suggested that pressures like these are starting to drive prices low enough to attract some buyers back into the market. Sales of previously occupied homes jumped 2.9% in February from the month before, the National Association of Realtors said, the first increase since July. . . .

Until recently, all of this distressed property has been encouraging potential buyers to stay on the sidelines in anticipation of lower prices later. But Lawrence Yun, chief economist of the National Association of Realtors, says the latest data show that sales are perking up in some areas where owners of foreclosed homes have become more aggressive about their pricing. . . .

A VP of a national nonprofit investing in housing for low-income people noted in the WSJ article, “[t]his is both a crisis and an opportunity.” Clusters of empty, foreclosed homes attract criminals and hurt neighborhoods by undercutting property values for everyone.  The article points out, however, “[b]ut foreclosures also can help bring prices in high-cost areas down to levels that are affordable to teachers, fire fighters and other middle-class buyers who may have been priced out of the market during the housing boom.”

Click here for the full article.

The correction may be painful, but it will be a lot less painful and less costly than gumming up the works with well-intended but misguided bailouts and reactionary regulation. 

That’s an economic stimulus you can bank on.

Tags: Bailouts, Economic Stimulus, Foreclosure, Industry Involvement, Mortgage Banking - General, Regulations by the Editor
No Comments »

A fascinating mix of articles today pit the role of government and the private sector against each other in taking on risk and competing for funds and profits.

Deep thinkers on the Hill and elsewhere are calling for government to step in and purchase distressed assets.  At the same time, savvy investors are diving in to purchase distressed assets at fire-sale prices.  (Mortgage Law Blog also invites readers to consider its earlier posting regarding a conference on this very type of issue).

For example, a Bloomberg article today reports, in part: 

Forget lower interest rates. For the Federal Reserve to keep the financial markets from imploding it needs to buy troubled mortgage bonds from banks and securities firms, say the world’s biggest Treasury investors.

 

Even after cutting rates by 3 percentage points since September, expanding the range of securities it accepts as collateral for loans and giving dealers access to its discount window, the Fed has been unable to promote confidence.  The difference between what the government and banks pay for three- month loans doubled in the past month to 1.95 percentage points.

 

The only tool left may be for the Fed to help facilitate a Resolution Trust Corp.-type agency that would buy bonds backed by home loans, said Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co.  While purchasing some of the $6 trillion mortgage securities outstanding would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, it would put taxpayers at risk.

 

“An RTC-type structure is interesting, and it may not be that much of a burden on taxpayers in the long run,” said Barr Segal, a managing director at Los Angeles-based TCW Group Inc. who helps oversee $80 billion in fixed-income assets. The government should purchase the mortgages and reissue “debt that’s backed by the U.S. government and there you go, you’ve unclogged the drain,” he said.

 

* * *

 

A March 13 proposal by Senator Christopher Dodd and Congressman Barney Frank that the Federal Housing Administration insure refinanced mortgages after lenders reduce the loan principal to make payments more affordable to homeowners “is the next step,” Senator Charles Schumer, a New York Democrat, said in a Bloomberg Television interview on March 19. It’s a “broader step, but not as broad as RTC,” he said.

Click here for the full Bloomberg article. 

Contrast this position with an article in the Wall Street Journal (subscription required) regarding a new company being established to purchase distressed mortgages:

For 27 years, former Countrywide Financial Corp. President Stanford Kurland made a fortune helping to build a mortgage-lending empire.

 

Now, as parts of the mortgage market collapse, Mr. Kurland and some former colleagues have a new plan — make another fortune on the way down.

 

[Today], the group will announce the launch of Private National Mortgage Acceptance Company LLC, or PennyMac, an investment firm formed as a joint venture between asset manager BlackRock Inc., under Chief Executive Laurence Fink, and Boston investment firm Highfields Capital Management.

 

PennyMac seeks to raise more than $2 billion to buy distressed mortgages on the cheap, work with borrowers to restructure them, and then resell them as performing mortgages at a profit.

 

A number of bottom-fishers are already wading into the mortgage market, but PennyMac is taking a different approach from most. Rather than buying slices of mortgage-backed securities, which are claims to pools of mortgages, PennyMac plans to buy whole mortgage loans — the old-fashioned mortgages that banks routinely owned before the mortgage-securitization business came along.

 

PennyMac executives believe that troubles with whole loans are a big shoe to drop for the mortgage market, with a massive unwinding steadily under way. PennyMac executives figure that a lot of these mortgages will be sold at big discounts as banks and thrifts clean up their balance sheets.

 

* * *

 

The PennyMac approach could be risky, particularly if it dives in too early and purchases loans that continue to drop in price, or if the firm can’t restructure the loans with terms that will ultimately lure buyers. This could leave the firm holding the bag on troubled loans, ultimately leaving its investors with losses.

 

“I would say the greatest risk is a very deep and very elongated recession” without “a rebound of residential housing over a very long cycle,” says Mr. Fink. While “we don’t believe” that will happen, we’re also not suggesting we know “the bubble is over or the bottom has been reached,” he says.

 

Despite a rebound in the mortgage bond market in recent days amid major steps by the Federal Reserve to restore confidence, PennyMac expects further problems as $1 trillion in bank-held jumbo, subprime and other loan holdings stand to become nonperforming.  It thinks whole-loan losses have barely begun to materialize, and a new wave of problems is coming as certain loans with low initial “teaser” rates reset to higher rates, squeezing borrowers’ ability to pay.

 

Already, serious delinquency and foreclosure rates are reaching new highs by some measures, and are likely to get worse as home prices continue to fall, the economy slows, and unemployment rises.

 

Other big players are getting in the business of acquiring distressed mortgages and restructuring them.  Goldman Sachs Group Inc., for instance, recently bought Litton Loan Servicing to help identify distressed mortgage-loan portfolios.  Back in the 1980s, Litton became successful servicing loans in Texas that were struggling with residential real-estate woes like today.

 

PennyMac considered buying one of the loan servicers, but decided most had their hands full working with existing borrowers and growing liabilities to mortgage investors.  PennyMac will be buying mortgages in various degrees of distress.  The prices of certain second-lien debt, which stands behind others to collect proceeds should a borrower default, have tumbled below a penny on the dollar. Other better-quality mortgages coveted by PennyMac trade at 80 cents to the dollar.  While PennyMac is hoping to resell some mortgages in a few months, executives there say they can hold mortgages for years, if necessary, as it identifies buyers.

Click here for the complete WSJ article. 

If the government intends to be a good steward of public funds, it seems fair and important to ask such questions as:  (i) why government should take on substantial risks if the private sector is willing to do so, (ii) will the government do a better job of taking on this risk, (iii) why the government should take the chances of being left “holding the bag on troubled loans” as the PennyMac executives readily admit is a clear possibility, and (iv) whether the public is better suited to “hold mortgages for years, if necessary, as it identifies buyers.” 

These and related questions demand serious attention before the government runs headfirst and blind into a minefield. 

Tags: Bailouts, Economic Stimulus, Legislation, Mortgage Banking - General by the Editor
No Comments »

The Chairman of the House Financial Services Committee, Barney Frank (D-MA), yesterday proposed a number of far-reaching policy changes designed to address issues in the housing industry.

Proposed changes include, according the Committee’s press release:

Consider Establishing A Financial Services Systemic Risk Regulator:  Congress should seriously consider establishing (or empowering the Federal Reserve to act as) a “Financial Services Risk Regulator” that has the capacity and power to assess risk across financial markets regardless of corporate form and to intervene when appropriate.  In exchange for potential access to the discount window for non-depository institutions, this regulator could have enhanced tools to receive timely market information from market players, inspect institutions, report to Congress on the health of the entire financial sector and act when necessary to limit risky practices or protect the integrity of the financial system.  Consideration should focus on how to:

Regulate Market Behavior Not Form.  Since the repeal of Glass-Steagall, a host of new players have emerged and old ones are doing new things.  To the extent that anybody is creating credit they ought to be subject to the same type of prudential supervision that now applies only to banks; 

Enhance Consumer Protection.  This crisis shows that consumer protection, safety and soundness and systemic risk are intertwined; 

Reform the Regulatory System:Consolidate the duplicative regulatory structure.

Reassess our Capital, Margin and Leverage Requirements (and the nature of “capital” itself).  This crisis has illustrated that seemingly well-capitalized institutions can be frozen when liquidity runs dry and particular assets lose favor.

Pledge to Monitor Auction Rate Securities & Municipal Bond Markets.  With cities’ ability to raise bond revenue compromised by bond insurers’ risky activities in the mortgage market, the Committee held hearings to hold insurers accountable.  To help ensure that auctions of municipal bonds do not fail due to these disruptions, Financial Services Committee members prompted the SEC to clarify that cities and certain educational and health care providers could bid in auctions of their own bonds.  In addition, Chairman Frank will continue to work with the Education and Labor Committee to monitor the student loan markets to ensure that students have access to credit for education; and 

Quick action on Mr. Frank’s comprehensive legislation to address the housing crisis.  Such legislation would (1) provide at least $10 billion in loans to states to address the foreclosure crisis; and (2) expand the FHA loan program to offer guarantees to refinance at-risk borrowers into viable mortgages.  In exchange for accepting a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay. 

 Committee Hearings are slated for the comprehensive legislation on April 9-10.

 Stay tuned…

Tags: Consumer Protection, Economic Stimulus, Foreclosure, Industry Involvement, Legislation, Mortgage Banking - General by the Editor
No Comments »

The Federal Financial Institutions Examination Council yesterday issued updated guidance for examiners, financial institutions, and technology service providers to identify business continuity risks and evaluate controls and risk management practices for effective business continuity planning.  The guidance is an update to the “Business Continuity Planning Booklet.”

Many in the industry view this agency’s guidance as useful for mortgage companies generally. 

This is true even though FFIEC is actually structured to assist institutions regulated by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

The FFIEC’s press release states in part: 

The revised booklet includes enhancements to the business impact analysis and testing discussions and addresses emerging threats and lessons learned in recent years. The booklet also stresses the responsibilities of each institution’s board and management to address business continuity planning with an enterprise-wide perspective by considering technology, business operations, communications, and testing strategies for the entire institution.

Key elements of the FFIEC’s December 2007 Interagency Statement on Pandemic Planning have been added to the booklet. A pandemic outbreak would present unique business continuity challenges. The methodologies detailed in the booklet provide a framework for financial institutions to develop or update their pandemic preparedness plans. All financial institutions should have plans that address how the institution will function during a pandemic event.

Other changes in the booklet highlight the importance of business continuity planning for all financial institutions, regardless of whether their systems are provided in-house or through third-party service providers, as well as the lessons learned from financial institutions that suffered damage from hurricanes Katrina and Rita. Electronic versions of the Business Continuity Planning Booklet and other IT Examination Handbook booklets are available at http://www.ffiec.gov/ffiecinfobase/html_pages/it_01.html.

The FFIEC IT Examination Handbook is a collaborative effort of the FFIEC’s Information Technology Subcommittee of the Task Force on Supervision. The Information Technology Subcommittee promotes uniform and effective information technology policies and supervisory programs for financial institutions and their service providers.

A copy of the full press release can be found here.

Tags: Business Continuity Planning, FDIC, Federal Bank Regulators, Federal Reserve, Mortgage Banking - General, NCUA, OCC, OTS, Regulations by the Editor
No Comments »

In an interesting development, activist group ACORN Housing Corporation last month announced it was opening a “non-profit” mortgage brokerage in Florida called Acorn Housing Affordable Loans, LLC.  The announcement states that additional offices will be opened in other states in the coming months.

Some readers an image of ACORN as a consumer activist organization partially famous for staging protests at the offices of lenders and other entities in the housing and lending industries. 

Some may be surprised to find ACORN a direct competitor in the mortgage lending business.  This is not new.

In the announcement, ACORN describes itself as:

the largest nonprofit (c) (3) housing counseling organization in the nation, providing one-on-one mortgage loan counseling, first-time homebuyer classes, post closure and loss mitigation services, and financial counseling for families. Since its inception, AHC has provided free, high-quality counseling services to 250,000 households across the country, more than 80,000 of which have become homeowners, generating more than $10 billion in mortgages. AHC has 39 affiliate offices located throughout the United States, with 130 full-time employees. AHC has also developed over 1,500 units of affordable single family and rental housing over the years, including more than 250 owner-occupied single-family homes, and 460 ownership units in small multi-family buildings in various cities around the United States. To date, AHC projects have leveraged over $100 million in affordable housing financing and subsidies.

These are impressive numbers.

Now, ACORN leaps in with both feet.  The front page advertisement on the website for Acorn Housing Affordable Loans, LLC states:

Welcome to the Acorn Housing Affordable Loans, LLC website. We are a non-profit mortgage broker, committed to finding you an affordable, low-cost mortgage product that meets your individual circumstances and requirements. Our experienced loan officers are extremely knowledgeable about the homebuyer education process and can help you meet your dreams of homeownership day.  

We will be there for you throughout the process, from application to closing, regardless of whether you are purchasing your first home or are seeking a refinance mortgage. We will treat you fairly, provide you with comprehensive advice and information that you can trust, and make sure that you are fully informed about every aspect of this most important financial transaction. All clients are provided with free pre-purchase homebuyer education counseling and at anytime throughout the life of your loan if you need help. Acorn Housing Affordable Loans can help you begin building wealth today, so call us!  

To good to be fiction.

Tags: Association Activities, Consumer Protection, Mortgage Banking - General by the Editor
No Comments »

The Department of Housing and Urban Development today published notice in the Federal Register that it has sent the Office of Management and Budget a request for comments on a new website that will collect complaints under the Real Estate Settlement Procedures Act of 1974. 

The website is planned to provide consumers and settlement service providers easy access to assist HUD in the enforcement of RESPA, and create efficiencies in processing complaints.

The submisson states in part:

Currently, the Office receives mailed complaints that provide for the complainant’s name and phone number, the name, address, and phone number of the alleged violator(s), along with a description of the alleged violation.  This information is accepted, but not solicited, by HUD and comes in voluntarily by regular mail.  This form of collection often times is incomplete and requires the complainant to mail additional support documentation before the case can be processed.

In fiscal year 2004, the Office of RESPA opened 1,246 cases and closed out 1,273.  With the development of the RESPA Website Complaint Questionnaire, it is expected that this number will increase the volume of complaints by providing a common website for consumers and settlement service providers to assist in the enforcement of RESPA.  The complaint questionnaire will be specific in its requested support documentation, which will reduce lead time in processing open cases.  Specifically, it will request that the complainant provide mandatory information on themselves and the alleged violator(s).  Further, specific complaint information is requested via a drop-down list that provides specific information of the alleged RESPA violations.  The website will create further efficiencies by automatically providing for an acknowledgement/confirmation letter that the complaint has been received, and provide a complaint number that will be sent to the complainant.  The complaint number will provide improved tracking and reduce duplicative efforts.  Further, if additional support documentation is required, the complainant can send this information along with a copy of the complaint confirmation letter to the consumer protection compliance specialist, which allows for better tracking and quicker processing.

This is an item to keep under watch, as Mortgage Law Blog anticipates that the new website will likely result in increased numbers of RESPA complaints submitted.  Such an increase very likely would result in increased compliance costs for companies in the mortgage industry.

Copies of the submission can be obtained from HUD, or by contacting the Mortgage Law Blog’s editor at garrislawyer@hotmail.com.   A HUD representative today advised that an additional public comment period is expected if the proposal is approved by OMB.

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
No Comments »