Daily Archives: August 14, 2014

THE STEEP LOSSES OF MORTGAGE-BACKED TRUSTS

From 2004 through 2007, several trillion dollars in American residential mortgage loans were bundled into pools, usually with about 5,000 loans in each pool. Investors, including many pension funds, bought shares in the income stream (the monthly mortgage payments) from these loan pools. This huge investment in private equity funds in residential mortgages ended very badly for most investors and also for millions of homeowners who lost their homes to foreclosures by strangely-named trusts. In many states, the mortgage crisis continues in 2014, with trusts on the brink of insolvency, neighborhoods plagued by abandoned trust-owned homes, and foreclosure rates actually increasing from the 2013 rates.

An examination of the foreclosure results shows that foreclosures did not provide significant relief to the massive unpaid debt problem of the loan pools. In every case in a study of 500 foreclosures by trusts, the foreclosed home sold for significantly less than the amount of the final judgment. In many cases, the foreclosed homes sold for much less than the original loan sold to the trust.

Whether sold at a county auction to third parties, or bought by the trust, then sold to a third-party by the trust, these homes sold for very low prices relative to their mortgage amounts. In most communities, home prices were steadily declining from 2008 to 2012, but these homes lost value at a much greater rate than the decline in sales prices for existing single-family homes in the same county.

The trusts’ very poor foreclosure re-sale results are attributable in part to the poor maintenance of many of the homes. In many cases, the homes were vacant for two to five years. Homeowners often vacated when the foreclosure actions were begun, but the trusts were often very slow to foreclose. During this litigation period, the homes were often vacant and unmaintained and frequently vandalized. Appliances, cabinets and fixtures were often removed from these homes.

The delays in foreclosure were often also attributable to the trusts and servicers themselves and their default management decisions. Trusts and servicers frequently selected just a few law firms to handle their foreclosures and paid these firms the bulk of their fees upfront, at the time the foreclosure was commenced, providing an incentive to file foreclosures, but not to complete the foreclosures.

The cases were most often commenced without filing a copy of the endorsed note and mortgage assignments at the commencement of the action. This was done even though the Pooling and Servicing Agreements for most trusts specifically provided that the original, endorsed note and assignments were to be furnished to the servicer in the event of a default. The foreclosing law firms often substituted mortgage assignments made at the time of default for the original loan documents held by the document custodians of the trusts. These documents further clouded the legal standing of the trusts to foreclose, delaying the completion of the foreclosures.

In thousands of cases, even after a final judgment of foreclosure was obtained, the trusts and servicers delayed the sale of the foreclosed homes, repeatedly cancelling sales at a time when home prices were declining monthly.

There is also significant evidence of re-sales for less than fair market value. In many cases, the foreclosed homes were purchased at auction by the trusts for $10 or $100, because no other bidders bid on the property. The trusts then sold these properties to third-party purchasers who resold the properties within the next 30-180 days at a profit of $10,000 to $60,000.

Foreclosures have also left a massive multi-trillion dollar problem of deficiency judgments looming on the U.S. economic horizon.

500 randomly selected foreclosures by trusts in Palm Beach County, FL, were included in the study. All the foreclosure cases were filed after January 1, 2007. The study was limited to cases where a final judgment was entered on behalf of the bank-trustee and where the foreclosed home was bought by a third-party at the county clerk’s auction, or bought by the plaintiff bank-trustee, then resold to a third party.

 

500 FORECLOSED HOMES

Final Judgment Compared to Re-Sale Prices

AGGREGATE FINAL JUDGMENT AMOUNT: $168,191,055

AGGREGATE SALES PRICE AFTER FORECLOSURE: $56,888,607

LOSS PER 500 HOMES: $111,302,448

-Ÿ If this one pool of 500 loans lost $111,302,448 in foreclosures, and this loss was representative of the losses per each bundle of 500 foreclosures (not yet determined), the total loss for 12 million foreclosures would be approximately $2.7 trillion dollars.

Ÿ- In a pool of 10,000 homes, with initial values of $5 billion, foreclosures of 75% (7,500) of these homes by 2014, at a loss of $110 million per 500, would result in a loss of $1.65 billion to that pool.

Ÿ- In all of the 500 cases, the sales price after foreclosure was less than the amount of the Final Judgment, making the former homeowners potentially liable for billions of dollars in deficiency judgments.

The sales price was taken from the property appraiser’s records. In cases where a third-party bought the property at the county clerk’s auction, this is the amount listed on the Certificate of Title. In cases where the plaintiff-bank bought the property (often for $10 or $100), and the bank subsequently sold the property to a third-party, the sales price from the deed of this third-party sale was used, with the interim bid by the plaintiff-bank at auction disregarded.

In 462 of the 500 cases, the Final Judgment was over $100,000 greater than the subsequent sales price.

In 226 of these 462 cases, the Final Judgment was over $200,000 greater than the subsequent sales price.

In 88 of these 226 cases, the Final Judgment was over $300,000 greater than the subsequent sales price.

In 44 of these 226 cases, the Final Judgment was over $400,000 greater than the subsequent sales price.

In 17 of these 44 cases, the Final Judgment was over $500,000 greater than the subsequent sales price.

In 10 cases, the difference between the Final Judgment and the subsequent sales price was over $600,000.

In 107 of the 500 foreclosures, the resale price was less than 20% of the Final Judgment amount.

Read on.

Ryan & Maniskas, LLP Announces Class Action Against Ocwen Financial Corp.

And another Ocwen lawsuit…

WAYNE, Pa., Aug. 14, 2014 /PRNewswire/ —  Ryan & Maniskas, LLP announces that a securities fraud class action lawsuit in the United States District Court for the Southern District of Florida against Ocwen Financial Corporation (“Ocwen” or the “Company”) OCN +3.43%on behalf of investors who purchased or otherwise acquired the common stock of the Company during the period from May 2, 2013 through August 11, 2014 (the “Class Period”).

Ocwen shareholders may, no later than October 14, 2014, move the Court for appointment as a lead plaintiff of the Class.  If you purchased shares of Ocwen and would like to learn more about these claims or if you wish to discuss these matters and have any questions concerning this announcement or your rights, contact Richard A. Maniskas, Esquire toll-free at (877) 316-3218 or to sign up online, visit:www.rmclasslaw.com/cases/ocn .  You may also email Mr. Maniskas atrmaniskas@rmclasslaw.com .

Read on.

Banks Mull Bailing on Libor in Loans as ICE Adds Licensing Fees

Some banks may stop using Libor as a benchmark for interest rates on loans because of new licensing fees being charged by Intercontinental Exchange Inc., which this year took over administering the measure, according to the American Bankers Association.

ICE introduced licensing agreements on July 1 for referencing the benchmark used to create more than $300 trillion of securities, loans and derivatives, including a usage license that ranges from $8,000 to $40,000 a year. Previously, Libor was free except for companies wanting to redistribute the rates, which paid an annual fee to the British Bankers’ Association.

“There’ve been a number of banks saying they may stop using Libor,” Denyette DePierro, senior counsel at ABA, said in a phone interview. While it’s not clear how broadly ICE (ICE) will apply the new fees, they appear to be triggered by essentially all uses of the benchmark — from a bank having a single old loan on their books to them choosing to participate in syndications or signing derivatives agreements, she said.

“Everybody’s kind of waiting to see what ICE is going to do, and, from a cost-benefit perspective, do you continue with Libor or not?” said DePierro, whose organization lobbies on behalf of the $14 trillion U.S. banking industry.

The way Libor is constructed came under scrutiny in recent years as regulators across the world probed banks and brokers over allegations traders manipulated key market benchmarks for profit. At least nine firms, including UBS AG (UBSN), the Royal Bank of Scotland Plc and ICAP Plc, have been fined more than $6 billion for manipulating benchmark interest rates such as Libor, according to data compiled by Bloomberg.

Read on.

Chase Bank Will Pay $34M To End TCPA Class Action

case Information

Case Title

Gehrich v. CHASE BANK, USA, N.A.

Case Number

1:12-cv-05510

Court

Illinois Northern

Nature of Suit

890(Other Statutory Actions)

Judge

Honorable Gary Feinerman

Law360, New York (August 14, 2014, 2:26 PM ET) — Chase Bank USA will pay $34 million to settle a class action alleging it violated the Telephone Consumer Protection Act by placing calls to consumers’ cellphones without consent, according to documents filed in Illinois federal court Tuesday.

U.S. District Judge Gary Feinerman preliminarily approved a settlement, under which each class member will receive between $20 and $40, to settle the litigation alleging Chase and JP Morgan Chase Bank NA placed calls and sent texts or voice alerts to consumers’ cellphones through automatic dialers.

“The settlement agreement…

Source: Law360

Wells Fargo ups commissions to spur loan production

Despite seeing an increase in loan originations in the second quarter, Wells Fargo’s (WFC) loan production volume has been falling as the refinance boom has cooled.

In advance of Wells Fargo releasing its second quarter earnings last month, Kroll Bond Rating Agency wrote in its Q2 2014 Bank Earnings Preview that the large banks may be forced to change the way operate in the face of decreasing mortgage activity.

In its report, KBRA wrote that Wells Fargo may find it “difficult” to turn a profit in the current environment. “Given the decline in mortgage lending volumes experienced by WFC and other large banks, as well as the zero-rate policy of the FOMC, it may be difficult for the bank to deliver positive revenue growth in 2014 and beyond.”

But Wells Fargo has decided not to sit on its hands and has taken steps to increase its diminishing loan volume. According to a report from Bloomberg, Wells Fargo has increased its loan officers’ top commission rate to 70 basis points, up from the previous commission rate of 63 basis points. The changes took effect on July 1.

That means an employee who completes $1.6 million of loans in a month would earn a base commission of $11,200, up from $10,080.

“By adjusting those tiers we created a lot of desire for the loan officers to go out and get that extra production,” Franklin Codel, who oversees mortgage origination for San Francisco-based Wells Fargo, said in a phone interview. “This creates that little extra incentive.”

Bloomberg also reports that the new plan increases the commission rates on the lower tiers of its production scale.

The new plan also merges two lower tiers into one that pays 65 basis points rather than 48 or 58. So loan officers who handle $600,000 would earn a base commission of $3,900.

According to the Bloomberg report, Wells Fargo loan officers must complete or refer at least nine loans during a month or bring in $1.6 million in loans to achieve the highest commission level. Under the previous plan, the minimum threshold of loans to achieve the highest commission rate was 11.

Source: Bloomberg
 

Liar loans are coming back: Stated income loans make comeback as mortgage lenders seek clients

(Reuters) – Mortgage applicants who can’t provide tax returns or pay stubs to show their income are getting stated income loans again as companies such as Unity West Lending and Westport Mortgage chase customers they can no longer afford to ignore.

Lenders say these aren’t the same products as the so-called “liar loans” that were pervasive before the housing bust. Instead, the loans are going to borrowers such as small business owners or investors buying properties they intend to rent who can demonstrate an ability to repay, verifiable through bank or brokerage statements. Lenders said they look for enough assets to pay six to 12 months of payments, while also demanding high down payments to reduce the chance of default.

“This is not a return to the wild and wooly days of, if you fogged the mirror, you can have a loan,” said Paul Lebowitz, founder of Westport Mortgage. “They have a smarter edge to them now.”

Some rival lenders said the stated income loans on offer could be abused if borrowers fudge bank statements or don’t have enough money to repay the loan. None of the three biggest banks offer them. Sam Gilford, a spokesman for the Consumer Financial Protection Bureau, said the agency is concerned, though he wouldn’t say whether it is investigating them.

The CFPB’s rules don’t give specific minimums for assets required to demonstrate an ability to repay a mortgage, but critics said a year’s worth of payments for a three-decade loan may not be enough.

“It’s easier to falsify bank statements than income tax returns,” said Julia Gordon, director of housing finance and policy at the Center for American progress.

Read on.

Mary Jo White was Supposed to Turn Around the S.E.C. She Hasn’t.

Mary Jo White took the helm of the Securities and Exchange Commission amid high hopes that she could turn around the once-proud agency. More than a year into her tenure, she has disappointed a wide swath of would-be allies.

Over the last several weeks, I’ve been talking to fellow regulators, administration officials, current and former S.E.C. staff members, financial reform advocates and people on Capitol Hill whose opinions of Ms. White’s performance range from dissatisfied to infuriated.

Traditionally, the S.E.C. has been seen as something of a regulatory jewel.

“The commission’s reputation as tough, independent and public spirited is its lifeblood,” said Damon Silvers, the A.F.L.-C.I.O.’s policy director and a specialist in financial regulation. In Mr. Silver’s view, George W. Bush’s last chairman, Christopher Cox, damaged the morale and effectiveness of the agency, issues that remain unaddressed. If the S.E.C. is seen as no better, or even less effective than the Treasury and the Fed, he said that “means grave trouble for both the commission and the investing public.”

Look, this is not an easy job. Ms. White has struggled with a House of Representatives that is hostile to financial overhaul and is perennially wielding budget cuts. She has also had to deal with a divided and contentious commission, an enormous workload to put into effect Dodd-Frank and other rules and the constant threat of lawsuits challenging any rule that encroaches on Wall Street’s prerogatives.

Even so, the chairwoman has made some unnecessary foes while her agency has bungled several significant rules.

An Obama appointee, Ms. White seems most at odds not with her Republican commissioners, but with Kara M. Stein. Ms. Stein came from the office of Senator Jack Reed, Democrat of Rhode Island, and was an important architect of the Dodd-Frank rules. She should be Ms. White’s firmest ally, the in-house expert on policy, which isn’t the chairwoman’s forte. In recent months, Ms. Stein has been increasingly vocal in criticizing the S.E.C.’s ineffectual rules and weak enforcement and has cast dissenting votes. The unmistakable conclusion is that Ms. Stein believes the commission is taking a wrong turn.

She is not alone. Ms. White’s S.E.C. irritated the White House, the Treasury and the Financial Stability Oversight Council when it undermined the council’s authority on the question of whether to designate large asset managers as posing a potential risk to the financial system. The S.E.C.’s view — that the way to reduce systemic risks is through regulating products and practices, not the companies themselves — has some merit. But the regulators need to work together and not allow industries to exploit regulatory turf battles.

On yet another front, the S.E.C. is embroiled in a quiet battle with the Public Company Accounting Oversight Board, the accounting industry regulator created after the Enron-era scandals. The accounting board has hardly been a regulatory terror, but it’s been getting pushback from the S.E.C. for even modest initiatives.

For years, the board has pushed for the lead audit partner to have to sign company audits. Wow. Big Step. Put your name to your work. Sadly and predictably, the industry has fought it in what can only be interpreted as cowardly refuge in anonymity. And the S.E.C. leans toward the industry.

Read on.