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Posts Tagged ‘legislation’
Friday, August 21st, 2009
 A federal judge in Manhattan ruled yesterday that the Helping Families Save Their Homes Act of 2009 did not exempt Countrywide from investor lawsuits. Countrywide had argued that the federal legislation automatically voided its pledge to buy back loans from investors if those loans were modified for troubled borrowers. The Helping Families Save Their Homes Act of 2009 was meant to help encourage servicing companies to modify loans, in part by providing some protection under liability arising from loan changes.
However, many of the mortgages owned by Countrywide (which has since been purchased by Bank of America), are owned by investors. The investors receive interests and principal payments from borrowers over the life of the loans. When the loans are modified, these payments are typically reduced. The investors are arguing that when Countrywide and Bank of America agreed to modify the loans, they breached their contract with the investors.
The ruling in the case said that the legislation did not prevent Countrywide’s investors from trying to enforce their rights under the mortgage servicing contracts. It would be up to the investors to prove that Countrywide’s pooling and servicing agreement requires it to repurchase the loans the bank modifies. The case would be in state court, outside of federal jurisdiction. Countrywide wanted the case to take place in federal court, due to the law being a federal law.
This case has some interesting implications. Right now, the Obama Administration has made it their priority to modify mortgages for borrowers, attempting to help the over 13% of homeowners who are currently delinquent on their mortgages. However, this case shows that even if the servicing companies and lenders agree, other parties, such as investors and hedge funds, may object. Certaintly there are bound to be losers from the housing bust and subprime mortgage crisis- the question is who will bear the brunt of the blow. As individuals argue in their self interest, it appears dangerously likely that the good of the collective whole will suffer.
Tags: Bank of America, Countrywide, home loans, investor, investors, lawsuits, legislation, lender, lenders, loan, loan suit, loans, Mortgage, mortgages, ruling, servicing companies, subprime mortgage crisis, The Helping Families Save Their Homes Act of 2009
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Wednesday, August 19th, 2009
 Appraisers are under pressure to inflate property values. Over the last two days, both the New York Times and the Wall Street Journal have published lengthy articles on the effects of the new Home Valuation Code of Conduct on appraisers. The Home Valuation Code of Conduct, which went into effect May 1, has made lenders responsible for ordering appraisals and negotiating with appraisers. As a result, appraisal companies are complaining that they are being paid less to do more work. In addition, appraisers are often required to travel farther to appraise homes, raising questions as to whether they are familiar enough with the area to provide a valid appraisal. A case highlighted in the Wall Street Journal article was that of a homeowner in Palm Beach Gardens, FL where the appraiser drove 44 miles to evaluate the home and came back with an appraisal that was around $70,000 less than the second appraisal. Furthermore, while the fees the appraisers are being paid have been decreasing, the cost to the consumer has risen by $100 in the past year, with most of the proceeds going to middle men.
Another concern raised by the industry is that being hired by lenders puts more pressure on the appraisers to return with a value that makes the deal possible. Appraisers need to keep the lenders happy to stay employed. If they demand fees that are higher than another appraiser or produce an unfavorable result, the lender may look elsewhere. As a result, some feel that the legislation risks putting ethical appraisers out of business.
Appraisal issues are common in reverse mortgages, and many of the issues raised in the article extend through both the conventional and reverse mortgage industries. As appraisals travel farther, there are more opportunities for mistakes. As appraisers worry about their fees and costs ride, the burden on consumers grows. Thus while the legislation has attempted to curb price inflation in appraisals and reduce the conflicts of interest, it appears to have arguably caused more problems than it has solved. Some in Washington are trying to get the legislation postponed until 2011.
Tags: appraisal, appraisals, appraiser, appraisers, Home valuation code of conduct, legislation, lender, lendsers, Mortgage, mortgages, New York Times, reverse mortgage, reverse mortgages, Wall Street Journal, Washington
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Friday, August 7th, 2009
 US Rep. Barney Frank (D-MA) In the wake of a meeting between mortgage servicers and representatives of the US Treasury Department last week, US Rep. Barney Frank (D-MA), chair of the Financial Services Committee, threatened to revisit the “cram down” legislation that had failed in the Senate last year. The legislation, which passed the House last year and is supported by the President, would allow bankruptcy judges to rewrite mortgage contracts when homeowners file for bankruptcy. While it remains to be seen what effect this would have on both the mortgage companies, and the borrowers, some believe that borrowers would be granted a great deal of relief from bankruptcy judges if the cramdown legislation were passed.
The problem is that there is no reason that a borrower should have to declare bankruptcy to get their mortgages modified or refinanced. And as more and more homeowners fall behind on mortgages, find themselves with motgages that are greater than the value of their homes, or both, the number of homeowners either unable or unwilling to make their mortgage payments will only increase. We talked yesterday about the problem of upside down homeowners encompassing about 32% of homeowners. The category of homeowners potentially in need of a refinance or modification is even larger.
And so while there are times when it might be useful for bankruptcy judges to be able to rewrite mortgage contracts, hopefully the government and the mortgage industry can work together to make mortgage modifications a more workable reality before the “cram down” legislation becomes necessary.
Tags: bankruptcy, Barney Frank, Congress, cramdown legislation, government, house, legislation, modification, Mortgage, mortgages, refinance, Senate
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Thursday, July 30th, 2009
 In the beginning of July, New Hampshire passed HB610, a bill banning yield spread premiums (YSPs) and including more restrictions about cross-selling. The bill goes into effect tomorrow, and, as it does, Generation Mortgage announced to its brokers that it is pulling out of the state. The bill was passed to help ensure that brokers are not compensated extra for selling borrowers higher interst loans (which is an even larger concern on the forward mortgage side).
However, lenders trying to avoid HB610 and similar legislation may be out of luck– the Federal Reserve is trying to push the mortgage industry to pay originators in the form of a flat fee, though some experts believe that compensation based on interest rate would still be allowed. If the federal legislation goes through, lenders will be hard-pressed to find states that allow YSPs. Even if the legislation does not pass, the debate and abuse on the forward mortgage side makes similar state legislation more likely.
Tags: Federal Reserve, forward mortgage, forward mortgages, generation mortgage, HB610, legislation, Mortgage, mortgage industry, mortgages, New Hampshire, reverse mortgage, reverse mortgages, yield spread premiums, YSP
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Monday, June 1st, 2009
 A recent New York Times article focuses on Fannie Mae’s HomeSaver Advance Program, a now-deemphasized program that gave borrowers up to 15,000 in unsecured personal loans to cover missed mortgage payments. However, 70% of the borrowers who took out these loans defaulted. This instance helps highlight the importance of financial counseling. The article closes with the example of a New York City program that makes foreclosure avoidance loans available to borrowers who have undergone counseling. This program has given out 15 loans so far, none of which have defaulted.
Reverse mortgage counseling has come under fire recently, and several states have been debating whether to pass legislation requiring counseling before all reverse mortgage transactions. It is often argued that counseling is necessary in order to ensure that the senior borrower understands the reverse mortgage transaction, but if one looks closely, it appears that counseling has the potential to do a lot more than that. As counselors at the NRMLA Orlando Road Show explained, the purpose of counseling is partly to make sure that the borrower will still have enough money to live on after the reverse mortgage. The financial counseling portion of the reverse mortgage counseling process is perhaps underestimated, but it articles such as the one referenced above help show that financial counseling may be another way to help homeowners avoid foreclosure–and ensure that the steps they take in the short term will not penalize them in the long run.
Tags: borrowers, counseling, counselors, fannie mae, financial counseling, foreclosure, foreclosure avoidance loans, foreclosure prevention, foreclosures, homeowners, HomeSaver Advance Program, legislation, loan, loans, Mortgage, mortgages, New York Times, NRMLA, reverse mortgage, reverse mortgages
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Friday, May 1st, 2009
 A piece of legislation supported by President Barack Obama failed in the Senate yesterday. The measure, which would have allowed judges to reduce the value of some mortgages in bankruptcy proceedings, failed 45-51. The WSJ called it Obama’s first big legislative defeat. The bill had previously passed in the House.
The bill would have allowed a bankruptcy judge to reduce a mortgage to reflect a home’s market value — known as a “cramdown.” Banks such as Bank of America, Wells Fargo, and Citigroup, had supported the legislation, even as community bankers and two major credit-union groups opposed it.
Tags: Bank of America, bankruptcy, Citigroup, legislation, Mortgage, President Barack Obama, reverse mortgage, Senate, Washington, wells fargo
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A federal judge in Manhattan ruled yesterday that the Helping Families Save Their Homes Act of 2009 did not exempt Countrywide from investor lawsuits. Countrywide had argued that the federal legislation automatically voided its pledge to buy back loans from investors if those loans were modified for troubled borrowers. The Helping Families Save Their Homes Act of 2009 was meant to help encourage servicing companies to modify loans, in part by providing some protection under liability arising from loan changes.
