Wells Fargo, U.S. Bank slapped in court over improper foreclosures

The highest court in Massachusetts has invalidated foreclosures initiated by Wells Fargo Bank and U.S. Bank, saying the banks failed to prove in court that they they owned the mortgages and thus had legal standing to seize the homes.

The ruling Friday in twin cases involved mortgages that were sold off and pooled with other loans in complex processes to create mortgage-backed securities, a type of bond widely traded by investors worldwide.

It's another setback for the home lending industry, which has been rocked by such disclosures as "robosigning" -- the practice at big banks of having employees certify in court to facts underlying foreclosures without taking the time to read the supporting paperwork.

Lenders including Bank of America Corp., JPMorgan Chase & Co. and Ally Financial Inc.'s GMAC Mortgage unit say they have been redoing the paperwork in those robosigning cases and are proceeding with the foreclosures.

But the issue of whether ownership was properly transferred to firms foreclosing on securitized mortgages appears potentially more problematic. It could affect states such as California, where foreclosures generally are allowed without court approval.

While the foreclosures at issue in Friday's ruling were made in the names of Wells Fargo and U.S. Bank, neither of those banks had written the mortgages involved. Instead, they were acting as trustees, or financial caretakers, for pools of loans made and serviced by other lenders.

The ramifications of Friday’s ruling by the Supreme Judicial Court in Boston were unclear. A trade group for the mortgage securities industry said the problems merely involved improper paperwork and not the procedures used. But shares of Wells Fargo & Co. and and other participants in the mortgage securitizing and customer-service business traded sharply lower before recovering somewhat later in the day.

U.S. Bancorp spokeswoman Teri Charest said that since the bank was only the trustee for the pool of loans at issue, not the owner of the mortgage, the ruling would not affect its bottom line. Wells Fargo did not immediately respond to a request for comment.

Walter H. Hackett, a Walnut attorney who has represented aggrieved homeowners in mortgage cases, said the principles involved in Massachusetts may well apply in California.

Hackett said he hoped such rulings would make it easier for distressed borrowers to obtain loan modifications while the mortgage ownership issues are sorted out. He cautioned homeowners, though, not to interpret the court's opinion as a "free house" ruling absolving delinquent borrowers of their debts.

Christopher Whalen, co-founder of the bank research firm Institutional Risk Analytics, saw less significance in the ruling, calling it "media hype over substance."

"It will be a mess for banks but in general is not nearly as big a deal as other issues," he said.

-- E. Scott Reckard, January 7, 2011
source: http://latimesblogs.latimes.com/money_co/2011/01/wells-fargo-us-bank-foreclosure-massachusetts.html

Lenders to monitor borrowers for life of loan

In a kind of crisis intervention, IndiSoft is working on computer programs that track borrower behavior so that if a life-changing event occurs, steps can be taken to ensure timely payments are made.
The day is coming when lenders will no longer turn their clients loose after they leave the closing table, never to be heard from again unless someone misses a payment or two.

Think of it as crisis intervention. Rather than waiting for previously solid borrowers to ask for help, lenders will monitor their borrowers over the life of their loans, looking for signs of trouble before borrowers even realize a problem is at hand.

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It won't happen this year, or even next. Lenders are too busy right now cleaning up the current mess of bad loans. But Sanjeev Dahiwadkar, president and chief executive of IndiSoft, a Columbia, Md., mortgage-technology company, believes it won't be too long before lenders begin keeping tabs on their customers for as long as their loans are on the books.

"That ship has already started sailing," Dahiwadkar says. "Historically, servicers have always waited for problems to materialize before trying to do something about them. But they are going to be watching their portfolios much more closely in the future."

IndiSoft writes computer programs for the default-management business, the underbelly of the lending community that works to turn nonperforming loans into performing assets. The company's clients include everyone who has a stake in saving problem loans: the investor that purchases the loan from the funding lender, the servicer that collects the payments on behalf of the investor and the insurance company that promises to cover part of the investor's losses should the borrower stop paying.

Currently, IndiSoft's technology comes into play the day a borrower stops paying. But Dahiwadkarsays the company is working on programs that monitor borrower behavior so that if a life-changing event such as a divorce or layoff occurs, an IndiSoft client can take whatever steps are necessary to make sure the borrower continues to make timely payments as promised.

The client might choose to simply monitor a particular loan more closely than it would otherwise, perhaps sending a friendly reminder a few days after a payment is due rather than waiting until it is 30 or 60 days late. Or it could take bolder steps such as calling the borrower to make sure that all is well and offering help right away instead of when the borrower is 90 days behind.

Right now servicers are so overwhelmed trying to work through the millions of mortgages that are in some stage of the foreclosure process that slow-paying or minimally late-paying loans are getting little or no attention.

Worse, most borrowers tend to stick their heads in the sand when they get behind, figuring that they'll solve their problems on their own. But even when borrowers call in an attempt to avert a potential crisis, short-handed servicers typically relegate them to the end of the line because they have their hands full with more extreme situations.

Eventually, though, the foreclosure mess will clear. And when that happens, Dahiwadkar believes that stakeholders will become far more proactive in managing risk than they are now. Instead of reacting to problems as they occur, he says, they will look for a pattern of behavior — clues, if you will — that indicate a problem is on the horizon.

This goes far beyond the latest underwriting wrinkle of reevaluating a would-be borrower's credit just before the mortgage closes to make sure that the person hasn't taken out any other loans or run up other bills that would impinge on the ability to make house payments. And it could go way beyond monitoring for life events such as a major medical issue.

For example, the lender might ask you to sign a document at settlement that gives the servicer the right to run periodic credit reports to see whether you are having any difficulty paying your bills. If the servicer knows you've missed a couple of credit card payments or you are late on your auto loan, it might call to find out what's up.

But permission to monitor your credit goes even deeper than that. If all of a sudden you start paying your bills on the 15th of the month instead of the first, for example, programs developed by IndiSoft or other technology companies will alert the servicer, which can then step up its surveillance.

"There are different ways to analyze risk," Dahiwadkar says. "A change in behavior is something to be cautious about. So if a payment pattern changes, it could be a trigger for putting a loan on a 'watch' list."

Then, if you don't seem to be handling your finances well, the company might offer credit counseling so you don't also fall behind on your mortgage. Or if you've been laid off, the servicer could offer to rework your loan or allow you to miss a few payments until you get back on your feet.

But Dahiwadkar says servicers and other stakeholders will be watching their borrowers' behavior much more closely so they also can separate those who are truly experiencing financial difficulties from deadbeats simply refusing to pay.

If someone stops paying the mortgage but continues to make credit card payments on time or takes on new debt — a second mortgage, for example, a car loan or a loan from a finance company — the IndiSoft executive says, "It's pretty certain you are dealing with a borrower who is not paying because he doesn't want to, not because he can't."

December 10,2010, by lsichelman@aol.com, Distributed by United Feature Syndicate.

Copyright © 2010, Los Angeles Times

Home prices in many U.S. markets hit bottom

Home prices in many U.S. markets hit bottom in the third quarter, but some large metropolitan areas, particularly in Florida, are still in trouble, according to data from Local Market Monitor.

The real estate analytics company said home price data may be skewed because of recent halts of foreclosure sales as servicers reviewed possible documentation problems.

Local Market Monitor reported a "definite bottom" in Southern California, specifically the San Francisco Bay area, where the average home price stands at $642,159, a 17% drop from the peak in the third quarter of 2006. Analysts forecast that price to hold over the next year and possibly increase 1% over the next two years.

Home prices in Washington, D.C., Minneapolis, Honolulu and Boston also bottomed out in the third quarter.

The biggest drop over the next year is set to occur in the Daytona Beach, Fla. area, where Local Market Monitor said prices should drop another 11%. A number of other Sunshine State cities — Jacksonville, Lakeland, Ocala, Orlando and Cape Coral — should all see prices drop by 5% or more over the next year.

"Our 12 month forecast is still very modest, because the job situation is still weak, but it won't be a surprise if home prices in these markets actually do better," according to the report.

Local Market Monitor reported three Texas areas, Austin, Forth Worth and Dallas, have seen good job growth and "have the potential to beat forecasted price increases over the next year."
-Housing Wire, Dec. 10th, 2010

FTC clamps down on mortgage modification scammers

Criminal enterprises posing as do-gooders who promise to get you out of the mortgage jam you're in: They claim they can persuade your lender to cut your monthly payments, forgive all penalties, slash your interest rate and even get your loan balance reduced. If your lender won't cooperate, they say they'll perform "forensic audits" on your mortgage and convince a court that your entire loan transaction should be canceled because of technical mistakes in the paperwork.
Bogus firms always insist on getting your money upfront — often thousands of dollars — and then do little or nothing.
The agency plans to ban almost all upfront payments, institute mandatory disclosure rules and place new restrictions on lawyers.
-Kenneth R. Harney, November 28, 2010, L.A.Times

Appraisal Reforms 2010: New Rules

Beginning October 19, 2010, residential mortgage appraisal rules will get a major overhaul due to the passage of the Dodd-Frank financial reform legislation over the summer. The Home Valuation Code of Conduct (HVCC) is out and a new set of appraisal rules and standards are in.
The Dodd-Frank legislation has triggered several major appraisal changes, including: Broad Appraisal Reforms, which replace the Home Valuation Code of Conduct. Title XIV, the Mortgage Reform and Anti-Predatory Lending Act, creates enforceable appraisal independence standards within the Truth in Lending Act and amends other requirements, with significant penalties for non-compliance.
Like the HVCC, the new standards prohibit parties in mortgage transactions from influencing appraisal outcomes. Unlike HVCC, the new law doesn't bar loan originators from ordering appraisals, and demands that “customary and reasonable” fees be paid to appraisers – or risk TILA penalties for an unfair and deceptive act. Appraisal management companies will be subject to registration and state and federal oversight for the first time. The new rules apply more broadly than the previous Fed standards.

FNMA Nothing Down?

found at http://affordable homeownership.info
Washington -- A policy change last week by the giant mortgage investor Fannie Mae symbolized a market transformation of huge importance to home buyers across the country. By adding zero down payment mortgages to its standard line of product offerings for the first time, Fannie Mae closed the door on an era: From colonial times through the last century, conventional home mortgages took various forms, but they always required a cash contribution by the home buyer - the mandatory down payment.
The down payment served to assure the lender that the buyer had a personal investment in the property and would be strongly motivated to pay off the debt. In the 1980s and '90s, however, down payments began to shrink. Private mortgage insurers were willing to provide back-up coverage to lenders that allowed them to offer 10 percent, 5 percent and, more recently, 3 percent down payments.

Smaller down payments, in turn, helped fuel the unprecedented housing boom of the past decade, pushing the national rate of home ownership to its current historical high of around 67 percent. Houses that were impossible for young couples to buy with 20 percent cash out of pocket became readily affordable with 5 percent down.
Last fall, Fannie Mae's competitor, Freddie Mac, announced that it would push the envelope to the next level and buy zero down payment home loans as a standard product, but Fannie cautiously held back until last week. Now, virtually anybody anywhere in the country with a good credit history can buy a house with no cash down. Fannie Mae's program is aimed at first-time buyers. The maximum loan is $275,000. The buyers needn't invest any money in the house itself, but they have to be able to cover closing costs of 3 percent.

Even the closing costs don't have to be from their own pockets, however. It can be a gift or an unsecured loan from a family member or a nonprofit agency, assistance from an employer or a grant from a local government agency. All the buyers have to do is contact any of the thousands of mortgage lenders who do business with Fannie Mae. The key criterion for applicants is a good credit history.
People who don't pay their rent on time, who max out on multiple credit cards or who fail to pay their auto or student loans need not apply. Fannie and Freddie's programs represent just part of the zero down payment opportunities now available to aggressive shoppers. Hundreds of lenders, including most of the biggest and best-known mortgage companies, offer other types of nothing-down plans. Lenders using private mortgage insurance make standard loans as high as $375,000 that represent 103 percent of the price of the house.

That means you put zero dollars down when you buy a $364,000 new house, and the mortgage also finances the closing costs, up to a total of $375,000. Andrew May, vice president of product development for United Guaranty Corp., Greensboro, N.C., says the typical zero-down home buyers his company insures are financially solid 35-year-olds buying their move-up or second home. They "want the flexibility to do what they want with their cash," he says. They prefer to invest it in assets with stronger profit potential than their house - their own business ventures, for instance, stock funds or retirement plans. "These (zero-downers) are people who understand the meaning of Ôopportunity cost,' " says May.
That is, they know that a mandatory down payment of 10 percent or 20 percent could potentially cost them substantial financial returns elsewhere. Given the choice between sinking their cash into their residence or into a higher-yielding business venture, they vote with their high-yield instincts: They go nothing-down. Other mortgage insurers also offer coverage on loans over 100 percent of home value.

The industry's biggest insurer, MGIC Investment Corp., will insure up to 103 percent for people whose FICO credit scores are above 700 and whose overall debt-to-income ratios do not exceed 41 percent. FICO scores are the dominant credit-evaluation tools used by American lenders. The acronym stands for Fair, Isaac & Co., the firm that developed the software that produces the scores. A 700 FICO, on a scale that runs from the 300s to over 900, is considered excellent credit. Is the zero-down mortgage option for you? For some people - young couples with good incomes but no savings - it may be the only way to buy the house they want.

For others, keep these points in mind: Zero-down is going to cost you more in mortgage payments every month, not just in higher principal and interest charges, but in mortgage insurance as well. In the event of a job loss or economic downturn, you could find yourself on the wrong side of the bargain, upside-down on your home debt: Your mortgage may be more than your house is worth, and you may be forced to sell for a loss.

Shopping around for title insurance can cut closing costs

Good reading about why you need an owner's title policy:
If you finance your home through the normal lending process, a title search will undoubtedly turn up any liens for delinquent property taxes, unpaid loans and unsettled claims by subcontractors for labor and materials.

Titles aren't exactly riddled with hidden defects, but problems sometimes arise. Some of the more common hidden deficiencies include forged deeds recorded in the name of a fictitious owner, conflicting wills filed by heirs of a previous owner who had bequeathed the property to more than one person and missing heirs who turn up years later with a legitimate claim to a house.

This is why mortgage companies insist on a search of the courthouse records. Before they lend anyone any money, lenders want to be sure that the seller really owns the property and that there is nothing to cloud the line of ownership.

One in three title searches reveals a problem — such as an unpaid contractor or a forgotten tax bill, according to the American Land Title Assn. And for the most part, those issues are resolved before closing a home sale.

Sometimes, though, something is overlooked or there's a problem that could not be found in a search of the public records. This is why lenders not only require title searches but also an insurance policy in place that protects the lenders' investment should a problem surface sometime down the road.

But most borrowers don't realize that they can shop for title insurance, just like they can shop for lenders. For the most part, buyers choose whomever their real estate agent suggests. And there's nothing wrong with that. After all, agents want a quick, clean closing as much as you do.

But if you are hoping to save some money, it often pays to look around for the best deal. Timothy Dwyer, founder of Entitle Direct, a new Web-based direct-to-consumer shopping channel, says borrowers can cut their title insurance premiums by an average of 35% by using his service.

We'll get back to that in a moment. First, although it is nearly impossible to generalize about title insurance, here are some things you need to know:

•There are two types of title insurance: the required loan policy that protects the lender and the owner's policy that protects the buyer. The borrower pays for the loan policy, but who pays for the owner's coverage depends on local custom. In much of the West the seller buys the policy for the buyer, but on the East Coast the buyer typically pays.

If you choose not to take the owner's insurance you may be asked to sign a waiver, depending on your state. But you should realize that the loan policy won't protect you should a defect in the title present itself in the future.

If there is a claim, title insurers have two options. One is to cure the title defect by spending whatever it costs to correct the problem. If the defect can't be cured, the other option is to reimburse the insured for the difference between what the property was worth without the defect and what it's worth with the defect.

For example, assume there's a defect that can be fixed by spending $25,000. If the title insurer can establish that the value of the property with the defect is above the amount owed on the loan at the time the defect is discovered, the lender has suffered no loss. And if there is no loss, then in almost all cases the claim can be denied.

At the same time, however, the homeowner will now have a property with a title defect that reduces the value of the property if it is not cured.

Also, depending upon the nature of the title defect and the terms of the loan documents, the lender may require the owner to correct the title defect. Many deeds of trust contain a provision requiring the borrower/owner to warrant to the lender that the title to the property is "clean" and to maintain it that way for the life of the loan.

If the lender has this right and exercises it, the owner would be responsible for curing the defect. If you have an owner's policy, the title insurer would pay to rectify the problem. But if you have no coverage, you would have to pay out of your pocket whatever it costs in legal fees to make the defect go away.

•Insurance rates are one-time fees that are paid at closing and are set in different ways in different places. In Florida and Texas, each company is required to charge the same rate, so there may be a zero price differential. Thus, when shopping for title coverage, you will be shopping not for price but for service and competence of the closing agent.

Elsewhere, state regulators approve rate requests. Once a rate goes into effect, an insurer can lower its rate but never raise it.

•There are different rates for different situations. There's a basic rate for the lender's policy and a reduced simultaneous rate if lender's and owner's policies are issued together.

If you are refinancing, you won't need a new owner's policy because the one you bought at closing is good for as long as you and your heirs own the property. But even if you remain with the original lender, you will need a new lender's policy because the lender wants to be sure there are no new encumbrances on the property. However, you may qualify for a reduced refinance or reissue rate, depending on your state.

•Roughly 80% of the premium goes to the closing or escrow agent, who orchestrates the entire settlement. The agent researches the title, pays off the old lender and the seller, pays recording fees and taxes, files the necessary paperwork at the local courthouse and sends the buyer's down payment to the new lender. In addition, these agents charge a fee for closing the loan.

•Shopping for service is tough enough, but shopping for the cost of title insurance is nearly impossible. That is why former investment banker Dwyer started Entitle Direct, an online platform at http://www.entitledirect.com where consumers can shop for prices. The company is licensed in 35 states, including California, and the District of Columbia. It is seeking approval in eight more states.

Of course, if you go with Entitle, you will have to close with the agent selected by the company.

On a $750,000 house in California with a $600,000 mortgage, for example, Entitle charges $1,647 for both lender's and owner's policies issued simultaneously, whereas a competitor might charge $2,480. That's a difference of $833, or 34%.

lsichelman@aol.com By Lew Sichelman August 8, 2010

Distributed by United Feature Syndicate.

Copyright © 2010, Los Angeles Times

FHA loan cost is going up

FHA loan cost is going up on Sept 7th, 2010, unless you have an accepted contract by this date and your lender has a case number. (Case numbers can only be obtained if there is an address.)
Monthly mortgage insurance will increase from .50% to .90% for loans over 15 year term. (Despite the new ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans.)
In everyday terms, assuming a $200,000 mortgage, the math to a homeowner looks as follows:
* Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
* Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
* Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium
The news is not all terrible, however.
FHA has also said it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent.
On the same $200,000 mortgage, that would reduces closing costs by $2,500.
However, the potential for reduced seller paid closing costs from a maximum of 6% down to 3% will mean higher entry cost and higher monthly payments for minimum down buyers.
The California Tax Credit Application Deadline is August 15,2010. Funds are limited, and not all applicants will be accepted.
All in all, several compelling reasons for minimum down homebuyers to get into contract now!