As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosures may be taking advantage of imperiled borrowers.
Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.
Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.
“Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers’ calculation and collection practices leave families vulnerable to foreclosure,” said Katherine M. Porter, associate professor of law at the University of Iowa.
In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help troubled borrowers save their homes, Ms. Porter found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.
In one example, Ms. Porter found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower’s loan.
Ms. Porter’s analysis comes as more homeowners face foreclosure. Testifying before Congress on Tuesday, Mark Zandi, the chief economist at Moody’s Economy.com, estimated that two million families would lose their homes by the end of the current mortgage crisis.
Questionable practices by loan servicers appear to be enough of a problem that the Office of the United States Trustee, a division of the Justice Department that monitors the bankruptcy system, is getting involved. Last month, It announced plans to move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees or fail to account properly for loan payments after a bankruptcy has been discharged.
On Oct. 9, the Chapter 13 trustee in Pittsburgh asked the court to sanction Countrywide, the nation’s largest loan servicer, saying that the company had lost or destroyed more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007.
The trustee, Ronda J. Winnecour, said in court filings that she was concerned that even as Countrywide misplaced or destroyed the checks, it levied charges on the borrowers, including late fees and legal costs.
“The integrity of the bankruptcy process is threatened when a single creditor dishonors its obligation to provide a truthful and accurate account of the funds it has received,” Ms. Winnecour said in requesting sanctions.
A Countrywide spokesman disputed the accusations about the lost checks, saying the company had no record of having received the payments the trustee said had been sent. It is Countrywide’s practice not to charge late fees to borrowers in bankruptcy, he said, adding that the company also does not charge fees or costs relating to its own mistakes.
Loan servicing is extremely lucrative. Servicers, which collect payments from borrowers and pass them on to investors who own the loans, generally receive a percentage of income from a loan, often 0.25 percent on a prime mortgage and 0.50 percent on a subprime loan. Servicers typically generate profit margins of about 20 percent.
Now that big lenders are originating fewer mortgages, servicing revenues make up a greater percentage of earnings. Because servicers typically keep late fees and certain other charges assessed on delinquent or defaulted loans, “a borrower’s default can present a servicer with an opportunity for additional profit,” Ms. Porter said.
The amounts can be significant. Late fees accounted for 11.5 percent of servicing revenues in 2006 at Ocwen Financial, a big servicing company. At Countrywide, $285 million came from late fees last year, up 20 percent from 2005. Late fees accounted for 7.5 percent of Countrywide’s servicing revenue last year.
But these are not the only charges borrowers face. Others include $145 in something called “demand fees,” $137 in overnight delivery fees, fax fees of $50 and payoff statement charges of $60. Property inspection fees can be levied every month or so, and fees can be imposed every two months to cover assessments of a home’s worth.
“We’re talking about millions and millions of dollars that mortgage servicers are extracting from debtors that I think are totally unlawful and illegal,” said O. Max Gardner III, a lawyer in Shelby, N.C., specializing in consumer bankruptcies. “Somebody files a Chapter 13 bankruptcy, they make all their payments, get their discharge and then three months later, they get a statement from their servicer for $7,000 in fees and charges incurred in bankruptcy but that were never applied for in court and never approved.”
Some fees levied by loan servicers in foreclosure run afoul of state laws. In 2003, for example, a New York appeals court disallowed a $100 payoff statement fee sought by North Fork Bank.
Fees for legal services in foreclosure are also under scrutiny.
A class-action lawsuit filed in September in Federal District Court in Delaware accused the Mortgage Electronic Registration System, a home loan registration system owned by Fannie Mae, Countrywide Financial and other large lenders, of overcharging borrowers for legal services in foreclosures. The system, known as MERS, oversees more than 20 million mortgage loans.
The complaint was filed on behalf of Jose Trevino and Lorry S. Trevino of University City, Mo., whose Washington Mutual loan went into foreclosure in 2006 after the couple became ill and fell behind on payments.
Jeffrey M. Norton, a lawyer who represents the Trevinos, said that although MERS pays a flat rate of $400 or $500 to its lawyers during a foreclosure, the legal fees that it demands from borrowers are three or four times that.
A spokeswoman for MERS declined to comment.
Typically, consumers who are behind on their mortgages but hoping to stay in their homes invoke Chapter 13 bankruptcy because it puts creditors on hold, giving borrowers time to put together a repayment plan.
Given that a Chapter 13 bankruptcy involves the oversight of a court, the findings in Ms. Porter’s study are especially troubling. In July, she presented her paper to the United States trustee, and on Oct. 12 she outlined her data for the National Conference of Bankruptcy Judges in Orlando, Fla.
With Tara Twomey, who is a lecturer at Stanford Law School and a consultant for the National Association of Consumer Bankruptcy Attorneys, Ms. Porter analyzed 1,733 Chapter 13 filings made in April 2006. The data were drawn from public court records and include schedules filed under penalty of perjury by borrowers listing debts, assets and income.
Though bankruptcy laws require documentation that a creditor has a claim on the property, 4 out of 10 claims in Ms. Porter’s study did not attach such a promissory note. And one in six claims was not supported by the itemization of charges required by law.
Without proper documentation, families must choose between the costs of filing an objection or the risk of overpayment, Ms. Porter concluded.
She also found that some creditors ask for fees, like fax charges and payoff statement fees, that would probably be considered “unreasonable” by the courts.
Not surprisingly, these fees may contribute to the other problem identified by her study: a discrepancy between what debtors think they owe and what creditors say they are owed.
In 96 percent of the claims Ms. Porter studied, the borrower and the lender disagreed on the amount of the mortgage debt. In about a quarter of the cases, borrowers thought they owed more than the creditors claimed, but in about 70 percent, the creditors asserted that the debt owed was greater than the amounts specified by borrowers.
The median difference between the amounts the creditor and the borrower submitted was $1,366; the average was $3,533, Ms. Porter said. In 30 percent of the cases in which creditors’ claims were higher, the discrepancy was greater than 5 percent of the homeowners’ figure.
Based on the study, mortgage creditors in the 1,733 cases put in claims for almost $6 million more than the loan debts listed by borrowers in the bankruptcy filings. The discrepancies are too big, Ms. Porter said, to be simple record-keeping errors.
Michael L. Jones, a homeowner going through a Chapter 13 bankruptcy in Louisiana, experienced such a discrepancy with Wells Fargo Home Mortgage. After being told that he owed $231,463.97 on his mortgage, he disputed the amount and ultimately sued Wells Fargo.
In April, Elizabeth W. Magner, a federal bankruptcy judge in Louisiana, ruled that Wells Fargo overcharged Mr. Jones by $24,450.65, or 12 percent more than what the court said he actually owed. The court attributed some of that to arithmetic errors but found that Wells Fargo had improperly added charges, including $6,741.67 in commissions to the sheriff’s office that were not owed, almost $13,000 in additional interest and fees for 16 unnecessary inspections of the borrowers’ property in the 29 months the case was pending.
“Incredibly, Wells Fargo also argues that it was debtor’s burden to verify that its accounting was correct,” the judge wrote, “even though Wells Fargo failed to disclose the details of that accounting until it was sued.”
A Wells Fargo spokesman, Kevin Waetke, said the bank would not comment on the details of the case as the bank is appealing a motion by Mr. Jones for sanctions. “All of our practices and procedures in the handling of bankruptcy cases follow applicable laws, and we stand behind our actions in this case,” he said.
In Texas, a United States trustee has asked for sanctions against Barrett Burke Wilson Castle Daffin & Frappier, a Houston law firm that sues borrowers on behalf of the lenders, for providing inaccurate information to the court about mortgage payments made by homeowners who sought refuge in Chapter 13.
Michael C. Barrett, a partner at the firm, said he did not expect the firm to be sanctioned.
“We certainly believe we have not misbehaved in any way,” he said, saying the trustee’s office became involved because it is trying to persuade Congress to increase its budget. “It is trying to portray itself as an organ to pursue mortgage bankers.”
Closing arguments in the case are scheduled for Dec. 12.
Copyright 2007 The New York Times Company
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With home foreclosures on the rise, buying a property in default may seem a sure route to profit or, at least, a cheap way to get a home. It can be. But it is not an endeavor for the shallow of checkbook or faint of heart.
Even though the number of foreclosures is at the highest since the Mortgage Bankers Association began keeping records in 1979, they are concentrated in a few states and still represent fewer than 2 percent of all mortgages. And while foreclosures can be deals, not all are bargains.
"I've seen a lot of my clients and fellow investors fall to the wayside and get into trouble because they don't necessarily take the time to analyze what they're getting into," said Josh Kluver, who runs the Minneapolis offic! e of Sellitsunday.com, a real estate company that focuses on buying and selling foreclosures.
Kluver said that lenders are usually interested primarily in maximizing their profits and limiting future liability, so they're not likely to make improvements or guarantee the condition of the property. That means that when you buy a foreclosure you're often buying a property "as-is."
Pitfalls vary. There are buyers who bid too much in an auction frenzy. There are buyers who cannot inspect the property beforehand and find out later that it is missing items such as copper wiring, toilets and cabinets. Or, a property may have a cloudy title, which may leave the buyers responsible for thousands of dollars in unexpected debts, say real estate agents, foreclosure investors, mortgage bankers and lawyers.
The likelihood of making money on foreclosures has not necessarily increased with the rise in foreclosures. Certainly ba! rgains exist, and the occasional unsophisticated buyer has got! ten a gr eat deal in the past, fixed the house up, lived in it and sold it several years later for great profit. But making money can be trickier now that the market has soured because prices have not yet bottomed out in some regions.
Not an easy way to make a living
Brad Rozansky, a real estate agent in Bethesda, Md., cautioned against thinking that buying and selling foreclosures is an easy way to make a living. "I have plenty of customers who have lost $20,000, $30,000 or $40,000 on a house," he said.
Many investors have a real estate or construction background. Others sign up for classes. After taking a seminar in buying foreclosures, Todd Vela, a salesman for a nutritional supplement wholesaler, bought two houses nearing foreclosure last fall not far from his home in Grand Rapids, Mich. He said he paid about $20,000 for a dilapidated four-bedroom house in a neighborhood where other properties are worth triple that. He said the house needs $25,00! 0 in repairs, including a new roof and new kitchen, and he hopes a contractor will buy it as-is for about $40,000, though he would take less. On the second home -- an 1,800-square-foot four-bedroom -- he paid about $60,000 and made $5,000 in cosmetic improvements. He hopes to sell it for about $90,000. Even though Vela has not been able to sell either house, he remains upbeat about buying foreclosed properties and intends to resume shopping once he sells one of his investments.
"I've been good on picking up properties, but I haven't been good on an exit strategy," said Vela, who paid cash. "I've had to hold them longer than I originally liked. That's O.K. That's part of the game. It's affected my holding times but not my profit."
Foreclosures are being fueled by falling property prices in some areas, people who can no longer afford their mortgages and a liquidity squeeze that makes refinancing impossible for some homeowners.
Already this year, len! ders have foreclosed on 355,624 homes, according to Foreclosures.com. Preforeclosure filings -- including notices of default and notices of foreclosure auction -- continue to increase. In the first eight months of this year, 731,244 preforeclosures were filed nationwide, at a monthly rate double that of a year earlier, according to the president of Foreclosures.com, Alexis McGee.
According to Foreclosures.com, foreclosures have been concentrated in a handful of states this year: California, Florida, Illinois, Texas and New Jersey. Specialists say that by the time prices start rising again, 2 million to 4 million homes may have been subject to foreclosure.
In the second quarter of this year, an estimated 620,000 mortgages, or 1.4 percent of 44.3 million mortgages, were at some stage of the foreclosure process, according to the Mortgage Bankers Association, though only a fraction of that number will actually go into! foreclosure. As a percentage of all mortgages, the record was 1.51 percent in the first quarter of 2002. While stark, the recent figures are not so surprising considering that homeownership is at a record high.
Buyers learn about foreclosures in different ways -- some through relationships with banks or in-the-know lawyers. Since lenders want to maximize their return, they often outsource listings to an agent or hire an auction company. If they cannot get rid of the houses that way, they would prefer to sell to professional buyers rather than someone just looking for a place to live.
Trolling the multiple listing service
Others use real estate agents and troll the multiple listing service. Many longtime buyers, however, say that by the time a property has reached the multiple listing service, at least 10 potential buyers have passed on it, so it will not be a great deal. A few monitor lenders' default notices filed at local courthouses an! d then contact homeowners facing default. Contacting people in! prefore closure, however, can require hundreds of calls for just one deal since few people at the other end of the line want to chat about their financial woes, and most are suspicious of scams.
Other seasoned buyers look at newspaper ads or buy online lists. Some will opt for auctions. Prices at bank auctions can be higher than those at county sales, but bidders at bank auctions can usually inspect a property ahead of time, expect a clear title and may not have to pay cash, McGee said.
Jesse Kaye, a real estate agent who works with developers and investors in the Washington, D.C., area, took a training seminar in foreclosure buying but said he decided it was not a practical part-time job.
"Obviously making $30,000 to $50,000 is an opportunity everyone would like to get in on, but if it were that easy, everyone would be doing it," he said. "If you're looking to get into foreclosure, make it a long-term deal and adapt. If not, just look for a good property! , take 10 percent off the asking price and make a few offers."
Star Tribune Staff Writer Jim Buchta contributed to this story.
Foreclosure pickings are plentiful, but not easy
Hillary Chura, New York Times
Foreclosing on Christmas
For one Boyle Heights family, the mortgage meltdown has brought tough choices this yuletide.
By Robert J. LopezLos Angeles Times Staff Writer
December 24, 2007
For the Debora family, the holiday season usually means making tamales and opening presents under the Christmas tree.
But there's no Christmas tree this year. Probably no tamales either.
The four family members are trying to save their Boyle Heights home from foreclosure.
"It doesn't feel like Christmas," Maria Debora said in Spanish on a recent afternoon, as she stacked presents on her living room table.
To make ends meet, the 53-year-old grandmother is baby-sitting in the morning and working afternoons as a teacher's aide at a nearby preschool. At night and on weekends, she cuts hair at a beauty shop. She also sells shoes, making a $4-dollar profit per box.
"We're trying whatever we can do," said the woman, who lives with her two adult children and a nephew.
The family's plight is similar to that of many families caught in the nationwide mortgage meltdown, especially those in heavily Latino neighborhoods.
Nearly half of the Latinos who purchased homes in 2005 relied on sub-prime and near-prime loans, compared with about one-fifth of white home buyers, according to a study last year by the Federal Reserve.
"It only makes sense that they are harder hit," said Kathleen Day, a spokeswoman for the Center for Responsible Lending, based in Washington, D.C.
The Deboras were renters for more than 30 years. But as home prices were peaking in June 2005, a well-dressed man knocked on their door one day. He was a real estate agent.
They were wasting their money, he said; they could combine their paychecks to buy a home with no down payment. He had the perfect place: a three-bedroom, two-bath home that needed a little work.
"He painted a pretty picture," said son Dario Debora, 27, who pitched in money with his mother and cousin to cover $5,000 in closing and other costs for the faded stucco home, wedged on a hillside near Whittier Boulevard.
They were advised to get two loans on the home, for which they paid $340,000. The first required a monthly interest-only payment of $1,436, and the second $655. Maria Debora said she asked whether two loans was a good idea, but the agent told them not to worry because they could refinance in just six months.
Because Maria's nephew, Miguel Lopez, had the best credit, he signed the loan papers.
"We were so happy. We never had our own house," Maria Debora said.
About a year after moving in, they tried to get a new loan but were told they didn't qualify. Still, they didn't worry. They could cover the mortgage -- or at least they thought they could.
About five months ago, they began receiving letters warning them that they were not making their full payments. "We kept getting late charges," Dario Debora said.
He said they thought it was a mistake. After calling the lender, he understood: The larger of the two loans had an adjustable-rate mortgage.
Family members said the agent never explained that the payments would increase. They turned to another agent, who advised them to sell the home for $390,000 and use the profit to buy a new place.
They tried, but there were no takers.
Unable to make the combined $3,000 mortgage payment and in default on the adjustable-rate loan, the family now faces foreclosure.
The number of default notices and foreclosures in Boyle Heights remains lower than in some other parts of Los Angeles. But six homes here have gone through foreclosure so far this year, according to DataQuick Information Systems, and 76 had received notices of default through October, according to RealtyTrac, an Irvine-based real estate information firm. No foreclosures occurred in Boyle Heights last year.
Experts say that any foreclosure here is devastating because the neighborhood has one of the city's lowest rates of homeownership and has few available rental units.
"It has a deeper impact because the housing situation overall is already in a crisis," said Isela Gracian, who directs organizing for the nonprofit East L.A. Community Corp., which conducts workshops to help residents avoid foreclosure.
Stucco and cinder-block starter homes are for sale on many streets. Some are vacant, their yards overrun by weeds, marked by signs proclaiming, "O% de enganche": no down payment.
A reporter calling to interview an agent about one home was repeatedly interrupted and asked whether he wanted to be "pre-qualified" to purchase the property for little or no down payment. "You sure you don't want to buy it?" the agent asked.
The Bush administration recently announced a plan asking lenders to voluntarily freeze low introductory rates for borrowers who are not behind on mortgage payments. And the Federal Reserve is proposing stricter oversight of lenders.
But these measures won't help the Debora family because they are late on their payments, and any plan will not be finalized for at least several months.
Dario Debora said he was laid off from his job as an X-ray technician last month. His cousin is trying to fill the gap by sending money from Texas, where he is working temporarily as a truck driver. Maria Debora is working her four jobs.
Records show that the family owes nearly $10,000 in back payments on the adjustable-rate loan, which has been turned over to a collection agency.
The family has until about the first week of February before a trustee sale is scheduled.
A spokeswoman for Litton Loan Servicing, which is overseeing the loan, said in an interview that the company would be willing to work with the family.
"Not all hope is lost just yet," said Donna Marie Jendritza. "We'd love to talk to them."
Maria Debora said the family would like to work out a deal but is worried that the financial slide is unstoppable at this point.
"Of course we want to keep it," she said. "But it depends on what they offer."
Meanwhile, her 8-year-old grandson wanted to know why she didn't have a Christmas tree this year.
"You want a tree? Or you want tennies for Christmas?" she replied.
robert.lopez@latimes.com
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Copyright 2007 Los Angeles Times |
Economist: Housing slide may last years
NEW YORK - The US housing market's skid is nowhere near over and could last another five or even 10 years, says one of the most-watched housing economists.Robert Shiller, a Yale University economist and codeveloper of Standard & Poor's S&P/Case-Shiller Home Price indexes, said declines in home values in the most vulnerable markets could double the losses recorded thus far.
What's more, Shiller, who is also cofounder and chief economist of the financial firm MacroMarkets LLC, said predictions for a bottom within the next year or so are probably wrong, with price declines in 2008 possibly worse than those seen this year.
"There is a probability of a continuing decline for a period of years, bringing prices in many cities down in the 10s of percent," Shiller said.
"The bottom is hard to predict," he said. "I do not see it imminent, and it could be five or 10 years, too."
Shiller is famous as author of the best-selling book "Irrational Exuberance," which sounded alarms about overblown stock market valuations just before the dot-com bubble burst in early 2000. More recently, he has been a leading voice of worry about what had been a red-hot residential real estate market until 2005, saying the market for houses had become infected with "an investor psychology."
"The housing situation that we got in is unique in history because there was an investor psychology that developed that was stronger than we have ever seen before," Shiller said. "We have seen housing bubbles many times in history, but they have been much more local than this one."
Areas most vulnerable to home depreciation are those that rose the most during the market's heyday, plus those at the center of the crisis in the subprime mortgage market, Shiller said. California and Florida are high on this list.
The index he developed with Wellesley College economist Karl Case has become Wall Street's preferred gauge of home prices.
Compared with the Office of Federal Housing Enterprise Oversight index, the S&P/Case-Shiller index includes homes financed with a broader range of loans, including subprime and jumbo mortgages. The government index only measures homes bought with so-called conforming mortgages, or those permitted to be purchased by Fannie Mae and Freddie Mac.
The S&P/Case-Shiller Home Price indexes showed further declines in the prices of existing single-family homes in August, marking the eighth straight month of negative annual returns and the 21st of decelerating returns.
The 10-City composite index's annual decline of 5.0 percent in August was the biggest monthly drop since June 1991. The biggest on record was an annual decline of 6.3 percent in April 1991.
In August, the 20-City composite had an annual decline of 4.4 percent.
MONDAY, Dec. 17, 2007, 11:10 a.m.
By Paul Gores
M&I faces $195 million bad loan write-off
Marshall & Ilsley Corp. (MI) announced some good news and bad news today about its fourth-quarter earnings report, which is due to be released next month.The good news: M&I will have a tax-free $526 million gain in the fourth quarter from the spinoff of its subsidiary, Metavante Technologies Inc. (MV)
The bad news: The bank may have to write off up to $195 million in bad loans, which is a thirteen-fold increase from the same time last year, because of deterioration in the real estate market. M&I said it also might add another $235 million to its reserve for potentially bad debt, up from $18.3 million.
M&I chief executive Mark Furlong said, however, that the bank is "well positioned to weather the downturn in the real estate market." As part of the Metavante spinoff, M&I received a capital infusion of almost $1.7 billion.
"Despite the challenging market conditions, we are fortunate to have one of the strongest capital positions in the industry," Furlong said.
Milwaukee's M&I, with about $60 billion in assets, is the largest bank based in Wisconsin.
New mortgage bailout plan: Do you qualify?
As the Bush administration unveils its plan to help homeowners, we look at the proposal's details.
By BusinessWeek.com
By BusinessWeek.com
On Dec. 6, Treasury Secretary Henry Paulson, with the support of President George W. Bush, unveiled a plan to aid certain homeowners who face the prospect of higher mortgage rates in the next few years. Paulson worked with banks and other mortgage companies to develop the initiative, and thanked them for their involvement. "We have worked through an evolving process to help minimize the impact of the housing downturn on homeowners, neighborhoods and the U.S. economy," he said.
While the plan is ambitious and is designed to bring stability to the shaken economy, it will affect only a narrow slice of homeowners in the U.S. "This is not a silver bullet," said Paulson. Here are some answers to questions you may have.
Can you get your mortgage payments lowered because of the bailout?
It depends. If you've got an adjustable-rate mortgage, you may qualify under certain conditions. If you've got a standard mortgage with a fixed interest rate, you're not affected.
Which adjustable-rate mortgage holders are affected?
Only a small group. To qualify, you need to have received your loan sometime between Jan. 1, 2005, and July 31, 2007, and you need to be facing a reset of your interest rate sometime between Jan. 1, 2008, and July 31, 2010. If you're within this range, you may be eligible to have your interest rate frozen, so you can keep your current, lower rate for five years.
While the plan is ambitious and is designed to bring stability to the shaken economy, it will affect only a narrow slice of homeowners in the U.S. "This is not a silver bullet," said Paulson. Here are some answers to questions you may have.
Can you get your mortgage payments lowered because of the bailout?
It depends. If you've got an adjustable-rate mortgage, you may qualify under certain conditions. If you've got a standard mortgage with a fixed interest rate, you're not affected.
Which adjustable-rate mortgage holders are affected?
Only a small group. To qualify, you need to have received your loan sometime between Jan. 1, 2005, and July 31, 2007, and you need to be facing a reset of your interest rate sometime between Jan. 1, 2008, and July 31, 2010. If you're within this range, you may be eligible to have your interest rate frozen, so you can keep your current, lower rate for five years.
Who qualifies within that range?
The bailout is really designed for homeowners who could run into trouble if their mortgage payments are raised sharply and face the prospect of losing their homes. If you're well enough off that you can afford the higher mortgage payments after a reset, you won't qualify. And if you're in bad enough shape that you can't handle the current low interest rate, you won't qualify. For example, if you've already fallen behind on your mortgage payments, you're not eligible for the rate freeze.
Do you need to live in your home to qualify?
Yes. The plan excludes people who don't live in the homes for which they have mortgages so that speculators can't benefit.
Why is there going to be a bailout?
Bush, Paulson, and the rest of the administration are concerned about the fallout from the housing slump. If many people fall behind on their mortgages and have to give up their houses, there will be a series of negative repercussions. First, tens of thousands of Americans could be forced to leave their homes. They would lose whatever equity they had. Consumer spending more broadly would likely slow, hurting the economy overall. In addition, home prices could fall even more quickly than they are now. That could hurt consumer confidence well beyond those people directly affected.
Is the bailout going to be enough?
It depends on your definition of enough. The deal will add some stability to the housing market, but it won't stop all the problems in the troubled sector. The same day Bush unveiled his plan, the Mortgage Bankers Association. said that foreclosures had reached a record high in the third quarter. The share of mortgages that have entered foreclosure hit 0.78% in the quarter, up from the previous high of 0.65% set in the previous quarter. At the same time, delinquencies for all mortgages rose to 5.59%, from 5.12%, in the second quarter. None of the people who are delinquent or facing foreclosure will be helped by the plan.
The deal almost certainly won't stop the decline in housing prices. Investors are betting that there will be double-digit declines in home prices in nine of 10 major markets over the next year. The only exception is Chicago, and there the estimate is for a 5.6% drop in home prices.
So why not go further?
Some Democrats are criticizing the Bush administration on that exact point. Sen. Hillary Clinton, D.-N.Y., among others, is arguing for a more ambitious approach, including at least a seven-year freeze on interest rates.
Who stands in the way of such an effort?
Investors in mortgages and mortgage-backed securities. If homeowners are going to pay less on their mortgages than originally planned, then somebody is going to lose money. These aren't just fat cats on Wall Street—although many such firms have invested in these securities—they're also pension funds for teachers, firefighters, and police, as well as mutual funds whose clients include all sorts of individual investors. They probably even include homeowners who are facing the prospect of higher payments on their adjustable-rate mortgages.
The bailout is really designed for homeowners who could run into trouble if their mortgage payments are raised sharply and face the prospect of losing their homes. If you're well enough off that you can afford the higher mortgage payments after a reset, you won't qualify. And if you're in bad enough shape that you can't handle the current low interest rate, you won't qualify. For example, if you've already fallen behind on your mortgage payments, you're not eligible for the rate freeze.
Do you need to live in your home to qualify?
Yes. The plan excludes people who don't live in the homes for which they have mortgages so that speculators can't benefit.
Why is there going to be a bailout?
Bush, Paulson, and the rest of the administration are concerned about the fallout from the housing slump. If many people fall behind on their mortgages and have to give up their houses, there will be a series of negative repercussions. First, tens of thousands of Americans could be forced to leave their homes. They would lose whatever equity they had. Consumer spending more broadly would likely slow, hurting the economy overall. In addition, home prices could fall even more quickly than they are now. That could hurt consumer confidence well beyond those people directly affected.
Is the bailout going to be enough?
It depends on your definition of enough. The deal will add some stability to the housing market, but it won't stop all the problems in the troubled sector. The same day Bush unveiled his plan, the Mortgage Bankers Association. said that foreclosures had reached a record high in the third quarter. The share of mortgages that have entered foreclosure hit 0.78% in the quarter, up from the previous high of 0.65% set in the previous quarter. At the same time, delinquencies for all mortgages rose to 5.59%, from 5.12%, in the second quarter. None of the people who are delinquent or facing foreclosure will be helped by the plan.
The deal almost certainly won't stop the decline in housing prices. Investors are betting that there will be double-digit declines in home prices in nine of 10 major markets over the next year. The only exception is Chicago, and there the estimate is for a 5.6% drop in home prices.
So why not go further?
Some Democrats are criticizing the Bush administration on that exact point. Sen. Hillary Clinton, D.-N.Y., among others, is arguing for a more ambitious approach, including at least a seven-year freeze on interest rates.
Who stands in the way of such an effort?
Investors in mortgages and mortgage-backed securities. If homeowners are going to pay less on their mortgages than originally planned, then somebody is going to lose money. These aren't just fat cats on Wall Street—although many such firms have invested in these securities—they're also pension funds for teachers, firefighters, and police, as well as mutual funds whose clients include all sorts of individual investors. They probably even include homeowners who are facing the prospect of higher payments on their adjustable-rate mortgages.
| Bush Says Administration Working to Solve Subprime Mortgage Problems | |
| 04 December 2007 |
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| President Bush answers reporters' questions during press conference at White House, 04 Dec 2007 |
During a nationally televised news conference Tuesday Mr. Bush said his administration is working on the mortgage issue, but he is reluctant to bail out lenders.
Administration officials have expressed concern that a wave of foreclosures could worsen the housing slump and increase chances the economy will fall into recession.
Monday, Treasury Secretary Henry Paulson said officials are negotiating with banks and others seeking a deal to ease the subprime crisis. The proposed agreement might keep interest rates from rising on subprime mortgages for a while, but the length of time is said to be a key point of discussion.
Over the past several years, banks have increased the number of mortgage loans to "subprime" borrowers with poor credit. In about two million cases, borrowers got low interest rates for the first couple of years. But the deal also allows lenders to boost interest rates and the monthly mortgage payments when the low "teaser" rate expires. Higher payments are boosting the number of borrowers who cannot repay their loans.
Economists calculate that about 100,000 borrowers face interest rate "resets" each month for the next two years.
Housing crisis to spare state
Economies of Wisconsin cities won't be adversely affected, mayors' report says
By AVRUM D. LANK
alank@journalsentinel.com
Posted: Nov. 27, 2007
Fallout from the mortgage crisis will be minimal in Wisconsin, in stark contrast to much of the rest of the country, according to a report released today by the U.S. Conference of Mayors.Although national economic growth will be slashed by about $166 billion because of the crisis, none of that decline will come from Wisconsin, says the report, which was prepared for the mayor's group by Global Insight Inc.
In fact, the report says the gross metropolitan product of every city in the state will increase next year by just as much as if the crisis had not happened.
Gross metropolitan product, or GMP, measures the total value of all goods and services produced in an area.
Of the national loss, $10.4 billion will be in the New York City area, with Los Angeles losing $8.3 billion and Chicago losing $3.9 billion. The study includes Kenosha County in the Chicago area. The gross metropolitan product of the Minneapolis area, which includes parts of west-central Wisconsin, was not expected to lose anything because of the crisis.
"In 2008, the (national) economy will grow at a rate of 1.9%, a full percentage point lower than would have been the case without the mortgage crisis," the report says. "While our forecast scenario does not project a recession, 128 metros are pushed into sluggish real GMP growth of less than 2% in 2008" due to the mortgage crisis.
However, the economies of Wisconsin cities are expected to grow between 2.3% and 3.4%.
The result is better in Wisconsin because area prices and mortgage values did not climb as much or as rapidly as in other parts of the country, said Jim Diffley, who prepared the report for Global Insight.
Wisconsin "had a more moderate swing up and hence a more moderate swing down," he said.
Global Insight found that the change in gross metropolitan product due to the mortgage crisis in individual metropolitan areas of Wisconsin consistently was less than 0.3%. For that reason, Diffley reported no change.
The areas studied, and the gross metropolitan product change expected next year, included Appleton (2.7%), Duluth-Superior (2.6%), Eau Claire (2.8%), Fond du Lac (3.1%), Green Bay (2.9%), Janesville (3.3%), La Crosse (3.1%), Madison (3.4%), Milwaukee (2.5%), Oshkosh (2.7%), Racine (2.3%), Sheboygan (2.6%) and Wausau (2.6%).
Fewer housing starts
Even so, housing starts statewide will fall to about 20,200 next year, down 12% from this year's estimate of 22,600, Diffley said.Nationally, however, the report expects a 20% decline in new-home building by the second quarter of 2008.
Last year, 28,000 houses were built in Wisconsin.
Without the mortgage crisis, about 23,500 homes would have been built in Wisconsin next year, Diffley said.
The resources that would have gone into building those extra 3,300 houses will be used for other economic activity, meaning that overall, the mortgage crisis will result in no loss of gross metropolitan product, he said.
House prices to be stable
Diffley said house prices will remain stable in Wisconsin next year whereas without the credit crunch and economic slowdown caused by the mortgage crisis, they would have increased 2% to 3%. Nationally, home prices will fall 7% in 2008, the report says. Across the country, the study predicts a loss of $1.2 trillion in property values for homeowners by 2008.Of that, $676 billion was due to a bubble in home prices, with the rest due to foreclosures and other results of the mortgage crisis, the report says.
Many of the foreclosures are coming from people unable to refinance mortgages that had low rates, followed by large balloon payments two or three years later, the report says.
"I am hopeful that the impact of predatory mortgage lending will not reach the point here it has in other parts of the country," Milwaukee Mayor Tom Barrett said in a statement in response to the report.
Diffley's prediction tracks with a report last week from the Wisconsin Realtors Association. That report found that in the third quarter, home prices rose 2.4% statewide to a median of $170,000, compared with $166,000 a year earlier.
NAMB Opposes Elimination of Yield Spread Premium
Posted By Paige On October 25, 2007 @ 1:44 pm In Finance and Economy | Comments Disabled
RISMEDIA, Oct. 26, 2007-The National Association of Mortgage Brokers (NAMB) expressed “grave concerns” over a proposal to eliminate the Yield Spread Premium (YSP) paid to mortgage brokers. In its current form, the Mortgage Reform and Anti-Predatory Lending Act of 2007 introduced to Congress October 22 by Rep. Bradley Miller (D-N.C.) and co-sponsored by 16 members of the House including Financial Services Committee Chairman Barney Frank (D-Mass.), could be interpreted to do away with this important tool, which allows borrowers flexibility to adjust the amount of cash required at closing.
Testifying before the Financial Services Committee, NAMB President-Elect Marc Savitt said YSP and other forms of indirect compensation to loan originators are beneficial to borrowers who do not want to pay any points at closing, or are able to pay only some of the fees up front. “It helps many consumers who are ready to own a home but have to overcome the hurdle of significant closing costs, or for customers that choose to realize the savings of keeping their cash and financing their costs through their loan rate,” he said.
Savitt explained that YSP is no different than other forms of indirect compensation such as service release premium (SRP) and gain on sale, which is how this same fee is reported by banks and other lenders. In all cases, originators are paid by either the lender or the investor/secondary market in return for services performed and the value of the loan.
“Indirect compensation is a legitimate and legal way for borrowers to forgo paying their closing costs up front and instead, finance those costs through the interest rate,” he said. But rules issued by HUD in 1992 drew an “artificial line” that required originators to disclose YSP on the good faith estimate and again on the HUD-1 but shielded SRP and gain on sale from similar scrutiny.
“A ban on indirect compensation will eliminate cost-effective loan options for thousands of consumers, increasing costs significantly,” Savitt said. “A ban only on the broker’s compensation will destroy small business mortgage originators in this country, resulting in fewer market participants, less competition and ultimately higher prices for consumers.”
Savitt’s testimony praised other aspects of the bill, particularly its even-handed approach to requiring all mortgage originators, regardless of where they work, to be licensed, undergo criminal background checks, and meet minimum education requirements.
Since 2002, NAMB has called for increased educational requirements and mandatory testing for all originators, and has supported a national registry. Calling it the greatest consumer protection against bad actors, Savitt said, “A national registry that includes all originators will aid significantly in the effort to fight mortgage fraud uniformly across all segments of the industry, and will stop bad actors from remaining in or entering the industry.”
For more information, visit [1] www.NAMB.org.
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Sub-prime crisis claims boss of biggest bank
Charles Prince steps down at Citigroup, which confesses that as much as $11 billion of additional losses may be coming.
By Walter HamiltonLos Angeles Times Staff Writer
1:24 PM PST, November 5, 2007
NEW YORK — The sub-prime mortgage crisis claimed its second Wall Street chief executive in less than a week on Sunday as Charles Prince, the embattled head of Citigroup Inc., stepped down. The nation's largest banking company warned it might also suffer a whopping $11 billion of additional mortgage-related losses.
Although many investors wanted Prince out, word of deepening write-offs sent the stock tumbling again today. Citigroup's shares closed down $1.83, or 4.8%, to $35.90. The stock has plummeted 36% this year.
Citigroup named as chairman former Treasury Secretary Robert E. Rubin, the current head of its executive committee. Win Bischoff, the chief of Citigroup's European unit, was made interim CEO.
The changes bring to a close the stormy tenure of Prince, a Southern California native and USC graduate, who announced his departure at an emergency board meeting.
"Given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as chief executive officer is to step down," Prince, 57, said in a statement.
Citigroup's disclosure that it would write off $8 billion to $11 billion was a stunner. "It's a huge number," said Jeff Arricale, manager of the T. Rowe Price Financial Services mutual fund.
Citigroup's stock sold off Friday after an analyst predicted that the company might write off an additional $4 billion on top of a $5.9-billion hit it took last month. That grim forecast now appears optimistic.
The new write-off underscores the fact that, almost a year into the sub-prime crisis, the brightest minds on Wall Street still are unable to get a handle on their companies' financial exposure. Citigroup blamed its new problems on the continued deterioration of the sub-prime securities market since the end of September.
Peter Schiff, head of brokerage Euro Pacific Capital in Darien, Conn., said he had no idea how much Wall Street would ultimately lose, "but it's going to be a ton."
Prince's departure cheered investors who had criticized his four-year stewardship, but it is unlikely to change Citigroup's fortunes in the near future, analysts said.
During the housing boom, Wall Street made enormous profits by turning mortgages -- many of them sub-prime home loans made to borrowers with shaky credit -- into bonds and a bevy of exotic securities.
The banks sold many of the securities to big investors but also held on to huge swaths, which have shriveled amid the housing crisis.
Will Prince's exit "make a major difference in the short term?" asked David Dreman, chairman of Dreman Value Management in Aspen, Colo. "I don't think so. Wall Street wants heads."
Citigroup revealed Sunday that it had about $55 billion in sub-prime-related assets and was setting up a special unit that would focus solely on whittling down those risky loans.
The resignation followed the ouster Tuesday of Stan O'Neal from the top job at Merrill Lynch & Co., which was triggered by the brokerage firm's $8.4-billion write-down tied predominantly to mortgage-related losses.
The propinquity of the two departures shows how the market for sub-prime securities has continued to darken in just the last few weeks.
Both men appeared secure in their positions after the sub-prime crisis erupted early this year and then deepened over the summer. Several companies indicated in the last two months that the bulk of the mortgage-related trauma had passed, but investors felt deceived when that proved untrue.
O'Neal left Merrill with a $161.5-million retirement package; Prince walks away with an estimated $99 million in vested stock holdings and a pension, according to an analysis by New York-based compensation consultant James Reda. Prince had already pocketed $53.1 million in salary and bonuses over the last four years, Reda said.
Prince would be leaving with far more money if not for Citigroup's dismal stock performance during his tenure, Reda said. He has more than 1 million stock options, but most are worthless because Citigroup shares have dropped 20% since he became CEO in October 2003.
Rubin was formerly co-chief of Goldman Sachs and served as President Clinton's Treasury secretary from January 1995 to July 1999.
However, his once-glowing reputation has been sullied by Citigroup's travails. Though Rubin has repeatedly stressed that he plays only a minor role in Citigroup's daily operations, he has been a chief advisor to Prince.
"Since joining Citigroup Mr. Rubin's performance has vacillated between disappointing to terrible," Richard Bove, an analyst at Punk Ziegel & Co., wrote in a note to investors.
Prince served for many years as the chief lawyer to Sanford Weill, a Wall Street legend who transformed a battery of disparate companies into a financial colossus. Despite Citigroup's gargantuan size and well-known brand name, Prince faced numerous obstacles when he succeeded his friend four years ago.
He never fully overcame several fundamental problems: The size of the company makes it unwieldy. Costs have long been considered too high. And the bank's North American consumer business has been a laggard.
The company had $2.35 trillion in assets as of Sept. 30, making it the largest bank in the U.S. It has about 300,000 employees and operates in 100 countries.
In the U.S. alone, it had 1,015 Citibank branches, 2,467 CitiFinancial branches and 803 Smith Barney brokerage offices as of Sept. 30.
Citigroup, said Arricale of T. Rowe Price, "gave us nothing on the upside and now they're giving us all the downside."
walter.hamilton@latimes.com
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Copyright 2007 Los Angeles Times
Borrowers Face Dubious Charges in Foreclosures
October 30, 2007
For More Information Contact:
Terri Goldbin 266-4223
Percy Brown 266-6558
NEW HOMEBUYER ASSISTANCE PROGRAM IN BASSETT ANNOUNCED
MADISON ... Mayor Dave Cieslewicz and Ald. Mike Verveer announced today a new acquisition and rehabilitation loan program to help homebuyers interested in living downtown. The new program called the Bassett Small Cap TIF Loan Program can assist potential borrowers in the Bassett area.
Highlights of the program are:
· 10-year forgivable loans up to $60,000.
· Loans at 0% interest.
· Property must be a current rental property that will be converted to owner-occupied.
· Property must contain no more than 3 units upon completion of project.
· Funds can be used for acquisition and/or rehabilitation.
· Borrower must invest a minimum down payment of 3% of purchase price.
”This pilot program will help convert downtown housing back to owner occupancy and it will help protect downtown’s historic building stock,” said Mayor Dave Cieslewicz. “If it works as predicted we will look to expand it in the future.”
Ald. Verveer concurred: “Ever since the adoption of the Bassett Master Plan in 1997, there has been a desire to provide funding for people who would like to buy and fix up an existing rental property to live in.”
The program was created through Tax Increment District (TID) 28 through funds generated by new development by thereby creating an opportunity to fund the acquisition and rehabilitation of rental properties to owner occupancy. The program complements other initiatives to enhance the quality of life in one of Madison’s strong downtown neighborhoods.
The funds are available on a first-come, first-serve basis through December 31, 2008. For more information go to our website www.cityofmadison.com/homeloansor call Terri Goldbin 266-4223 or Percy Brown 266-6558
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