| | March 09, 2010 | | CMBS delinquency index results from Fitch Ratings | Five-year loans originated in 2005 will continue to have difficulty refinancing this year as liquidity remains limited. In many cases, sponsors will have to either contribute additional equity in order to refinance their loans or look to the servicers for extensions and modifications The 29 basis-point (bp) increase in delinquencies to 6.26 percent at the end of February was driven in large part by upcoming maturities from U.S. commercial mortgage-backed securities (CMBS) deals originated in 2005, according to the latest U.S. CMBS delinquency index results from Fitch Ratings.
“Five-year loans originated in 2005 will continue to have difficulty refinancing this year as liquidity remains limited,” said Mary MacNeill, managing director at Fitch. “In many cases, sponsors will have to either contribute additional equity in order to refinance their loans or look to the servicers for extensions and modifications.”
Fitch said approximately 30 percent of the newly-delinquent loans were from 2005 transactions. Furthermore, the four largest newly-delinquent loans, ranging in size from $65 million to $112 million, are from this period. Three of these four loans are already past their 2010 maturity dates and are now categorized as non-performing matured loans.
Because these three non-performing loans are office properties, this property type had a greater bp increase than the overall average increase for the first time. Fitch recorded a month-to-month movement of 45 bps for office properties, notably higher than the overall index of 29 bps. In addition, multifamily, increasing 64 bps, and industrial, jumping 43 bps, also exceeded the overall index change.
Current delinquency rates by property type are as follows:
- Office – 3.5 percent
- Industrial – 4.16 percent
- Retail – 5.09 percent
- Multifamily – 8.97 percent
- Hotel – 16.61 percent
According to Fitch, when the Peter Cooper Village/Stuyvesant Town loan hits 60 days delinquent, the overall index will increase 60 bps and multifamily will increase by more than 400 bps.
The delinquency index includes 2,505 loans totaling $28.5 billion of the Fitch-rated universe of approximately 42,000 loans comprising $452.6 billion that are at least 60 days delinquent or in foreclosure. The index excludes Fitch-rates loans that are 30 to 59 days delinquent, which currently total $3.2 billion.
In addition to the increased rate of delinquency, Fitch also reported that nine CMBS loans were transferred to special servicing during the period of February 25 to March 4. The individual loans ranged from an outstanding balance of $84 million to $20 million.
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| | March 07, 2010 | | Strategic defaults tripled between 2005 % 2008 -- 5,100 to 17,250 According to Experian | With more than 500,000 households in Michigan owing more on their mortgages than the homes are worth, thousands of Michigan residents are choosing to abandon their homes and walk away, even if they can afford to continue making payments.
The number of people who have engaged in such strategic defaults more than tripled between 2005 and 2008 -- from 5,100 to 17,250, according to a report by Experian-Oliver Wyman, a credit reporting and consulting firm.
Mark Zandi, chief economist for Moody's Economy.com, said he expects the problem to get worse this year and next. "As people struggle to make ends meet, they will say this just doesn't make sense" about continuing to make payments, he said.
The trend is being fueled by the large number of underwater mortgages -- those where the bank is owed more than what a sale might net a homeowner. Michigan is fourth in the nation in underwater mortgages, with 38.5% of homes -- or 532,774 -- underwater.
Those who walk away often do so after failing to negotiate a loan modification or a short sale. Sometimes they need to move out of state for a better-paying job, but they can't sell their house.
"The good, straight people of the world will feel, 'How can I walk away?' " said Southfield real estate attorney John E. Jacobs. But with an economy still struggling, he and other experts said, the stigma of defaulting on a mortgage even if one can still pay is disappearing.
"When things are that bad, your moral compass, and the obligation to make payments that most people feel, has to give," Jacobs said.
Walking away
Sondra Malone, 35, bought a house in Eastpointe in 2005 with an adjustable-rate mortgage. The $1,200-a-month payment on the house, along with high heating bills, an expensive SUV payment and other family expenses, quickly buried her in debt.
At the same time, the bottom was falling out of the housing market with record foreclosures dragging down home values. Malone was soon underwater on her mortgage. She owed $116,000 on a house she listed for $99,000 in 2007.
After trying to work out a lower payment with her bank, and trying to sell her house, Malone rented a condo in Sterling Heights and walked away from her house in 2007.
"I didn't know what else to do," said Malone, a social worker. "I'm embarrassed."
Malone said she has been through too much to worry about the lender coming after her. Soon after walking away, she had to deal with major health issues. And she lost her mother last year.
"They'd better go after a whole lot of other people," said Malone, adding that the foreclosure is now on her credit report. "When you have 10,000 or 20,000, what's one?"
Walking away is a phenomenon becoming more common in Michigan.
It's a national trend, too, fueled by underwater mortgages, in which people owe more to their lending institution than their house is worth.
More than one out of three properties in the state with a mortgage is underwater. In metro Detroit, 47.4% of properties with a mortgage, or 131,262, were underwater as of December, reports First American CoreLogic, a real estate data firm based in Santa Ana, Calif. Michigan ranks fourth in the nation with 38.5% of properties -- or 532,774 -- with a mortgage underwater.
For some, there's no exit
If you're staying put and can afford your mortgage, an underwater mortgage might not be a problem. But it's trapping those who want to move for a new job, have lost income or want to downsize.
One Birmingham homeowner has made payments on his underwater mortgage despite a 40% pay cut. He has eliminated dining out and travel. He raided his 13-year-old son's college fund to stay afloat.
The man, who requested anonymity, now has a job offer in Colorado that he can't take. Since he works in financial services, he can't default on his $470,000 mortgage on a house now worth $220,000.
"I'm not abandoning my house," he said. "I can't leave for another job, and no one will buy it for what I owe."
As strategic defaults rise, so do foreclosures and the number of vacant homes, causing property values to fall further. That in turn is leading many communities to slash services and lay off employees to make up for lower tax bases.
"There is no easy way to deal with it," said Warren Mayor Jim Fouts.
Warren, which is proposing a 20% pay cut for union workers, saw home prices in the metro area last year fall 9.8%, according to Real Estate One data.
The cost could grow
If the walkaway problem continues to grow, it could be calculated into the formulas that set mortgage rates.
"If it becomes a widespread problem, I think we can all expect to pay the price of higher mortgages in the future with less availability," said Charles Ed Haldeman Jr., CEO of Freddie Mac, who addressed the Detroit Economic Club in January.
Nationally, strategic defaults were up 128% in 2008 compared with 2007, according to Experian-Oliver Wyman, the credit reporting company and international management consulting firm that partnered on the report. In Michigan, strategic defaults tripled from 2005 to 2008, the latest year available.
One Whitmore Lake homeowner walked away after his bank pulled his business line of credit. He had spent more than 20 years building up his semi-trailer business. Last summer, his bank called in his business line of credit even though he never had missed a payment, something that has happened to many other small business owners in the past year as lenders analyzed these loans. Many had homes as collateral, and with their value falling below what was owed in some cases, the credit lines were called in to be paid in full.
The man's $400,000 lakefront home was collateral. In the midst of a short sale, he found another house for much less and walked away from the old one. His wife's name was not on the mortgage, so she was able to get a new mortgage in her name.
The homeowner ended up filing for bankruptcy, in part to avoid his lender coming after him for what was owed on his mortgage. His credit was so damaged, he's having a tough time starting a new business. His sister has helped him with loans.
"Everything I've worked for the last 20 years is gone," he said. "Now I'm a dirtball. I can't even go and get a used car."
The number of underwater mortgages -- and of people who decide to walk away -- is expected to grow over the next two years as rising foreclosures continue to push down home prices.
While states such as Arizona and Florida saw more dramatic home price declines than Michigan, they have not had the same economic issues. Michigan has lost hundreds of thousands of automotive jobs and struggled to attract new industries. As a result, the state continues to lose population, which dims hope that its housing crisis will end soon.
"There is not a ready supply of buyers waiting to gobble up these properties," said Rick Sharga, senior vice president of RealtyTrac Inc., a foreclosure Web site.
Exit can make financial sense
A rising chorus has begun to extol the virtues of shedding negative equity by walking away. In a report, University of Arizona law professor Brent T. White said some people are realizing that it can make financial sense to walk away. They no longer feel ashamed.
"When you are living in a $200,000 house and can buy the same house for $70,000 cash, why not just walk away?" he asked. "If there has ever been a time that you can let your credit go and it's acceptable, it is now."
Adding to the problem is that homeowners become frustrated when they reach out to their lenders for loan modifications that don't materialize. In December, the current admisistration -- displeased with the speed at which banks are rewriting at-risk home loans -- said banks would face financial sanctions if they didn't get more modifications done.
Through January, about 116,000 homeowners nationwide had received permanent mortgage modifications. The number with temporary modifications -- about 940,000 -- represents 28% of the 3.4 million homeowners the Treasury Department estimates are eligible.
Banks have said they've been slow to process loan modifications because the process is complicated. The borrower must show some type of hardship to even be considered for a modification. Also, the homeowner must have income. That's been a problem in high-unemployment states such as Michigan, where many borrowers are disqualified because they don't have jobs.
One Plymouth resident walked away from his house last year when a loan modification failed to materialize. He and his wife bought the house three years ago for $190,000; it's now worth $100,000. Then they had a baby, the wife lost her job and the husband went from a salaried information technology employee to a contract one with reduced hours.
"People said we were crazy," said the man, who requested anonymity.
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| | March 06, 2010 | | FDIC Closes banks in four states | U.S. bank regulators closed four banks in as many states on Friday, bringing the number of failures so far this year to 26 as deteriorating loans continued taking a toll on financial institutions.
The largest of the four was Sun American Bank of Boca Raton, Florida, which had approximately $535.7 million in total assets and $443.5 million in total deposits, the Federal Deposit Insurance Corp (FDIC) said.
Regulators also closed Centennial Bank of Odgen, Utah, Waterfield Bank of Germantown, Maryland, and Bank of Illinois of Normal, Illinois.
FDIC Chairman Sheila Bair has said she expects bank failures to remain high through 2010, even as the economy improves, because the bank industry is continuing to recognize loan losses and clean up their balance sheets.
Regulators closed 140 banks in 2009, up from 25 in 2008 and only 3 in 2007.
The industry's woes are moving from residential loans and complex securities to more conventional types of retail and commercial loans hit hard by the recession.
The 12 branches of Sun American Bank will reopen on Monday as branches of First-Citizens Bank & Trust Company of Raleigh, North Carolina, which is assuming the deposits and purchasing essentially all the assets, FDIC said.
However, FDIC was unable to find a buyer for Centennial Bank so checks will be mailed on Monday to retail depositors for their insured funds, the agency said.
The bank had approximately $215.2 million in total assets and $205.1 million in total deposits. An estimated $1.8 million of those funds were uninsured, but that number could change as more information becomes available, FDIC said.
It encouraged customers with more than $250,000 in their accounts at Centennial to call the FDIC at 1-800-889-4976 to set up an appointment to discuss their deposits.
The FDIC also had to create a new depository institution to take over the operations of Waterfield Bank.
It said the new institution, also called Waterfield Bank, will remain open until April 5 to allow depositors access to their insured funds and time to move their accounts.
Waterfield Bank had $155.6 million in assets and $156.4 million in deposits. After April 5, the FDIC will mail checks to customers who have not closed their accounts or transferred their funds to another institution.
It estimated uninsured funds in Waterfield at about $407,000, but said that could change.
Heartland Bank and Trust of Bloomington, Illinois, agreed to assume the deposits of Bank of Illinois, whose two branches will reopen on Saturday as branches of Heartland.
FDIC said Bank of Illinois had $211.7 million in assets and $198.5 million in deposits. Heartland paid the FDIC a premium of 3.61 percent to assume the deposits and agreed to purchase essentially all of the failed bank's assets, FDIC said.
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| | March 06, 2010 | | Foreclosure Crisis driven by subprime loans |
As mandated by the Housing and Economic Recovery Act of 2008, HUD recently released a report to Congress addressing the root causes of the foreclosure crisis and made recommendations on actions that should be taken to mitigate the crisis and help prevent similar crises from occurring in the future.
In its report, HUD said most of the initial increase in foreclosures was driven by subprime loans. These inherently risky loans have accounted for a much larger share of the mortgage market in recent years, and foreclosure rates among these loans have grown rapidly. In addition Alt-A loans, another fast-growing segment of the market, have experienced higher delinquency and foreclosure rates, HUD said.
In both subprime and Alt-A market segments, foreclosures have grown most rapidly among adjustable rate loans. However, as the economy deteriorated in 2008 and 2009, the level of foreclosures among prime fixed-rate loans also rose, “further exacerbating the crisis,” HUD said.
In an option-theoretic view, the primary factor driving defaults is the value of the home relative to the value of the outstanding mortgage. While a lack of equity in a home is strongly associated with foreclosures, HUD said most borrowers become delinquent due to a change in their financial circumstances that makes them unable to meet their monthly mortgage obligations. These so called “trigger events” commonly include job/income loss, health problems, or divorce.
As a result, foreclosures are most accurately thought of as being driven by a two-stage process. First, a trigger even reduces the borrower’s financial liquidity, and then a lack of home equity makes it impossible for the borrower to either sell their home to meet their mortgage obligation or to refinance into a mortgage that is affordable given their change in financial circumstances.
From its analysis of literature, HUD also concludes that the sharp rise in mortgage delinquencies and foreclosures is fundamentally the result of rapid growth in loans with a high risk of default. Mortgage industry participants appear to have encouraged borrowers to take on these “riskier” loans due to the high profits associated with originating these loans and packaging them for sale to investors, and existing evidence suggests that some borrowers did not understand the true costs and risk associated with these loans.
In addition, HUD said there is a general recognition that fraud on the part of mortgage brokers and borrowers may have had a significant contribution to the foreclosure crisis. BasePoint Analytics, a private firm specializing in detecting mortgage fraud, has estimated that 9 percent of loan delinquencies are associated with some form of fraud.
Another common factor alleged to have contributed to the foreclosure crisis is the Community Reinvestment Act (CRA), passed by Congress in 1997 with the goal of encouraging banks to meet the credit needs of the communities in which they have branches. Critics of the CRA claim that the wave of risky lending was generated in no small part by banks being pushed into taking these loans to meet their CRA requirements. However, HUD said a variety of empirical evidence supports the view that CRA’s requirements played little or no role in producing the foreclosure crisis.
Many of the same critics raising questions about CRA’s role in producing the foreclosure crisis also argue that federal regulations requiring the government-sponsored enterprises (GSEs) to devote a sizeable share of their lending to low- and moderate-income borrowers played a significant role in fostering the growth of risky lending. HUD said the GSEs certainly contributed to the growth of the subprime market, but there was clearly substantial demand for these securities from a wide variety of investors.
The causes of the foreclosure crisis are numerous, and as a result, there is a growing consensus regarding the need for policy changes to mitigate the current crisis and help prevent a similar predicament in the future.
To begin with, HUD said there is a need to enhance the ability of consumers to make appropriate choices in the mortgage market. This would include expanding the range of consumer counseling and assistance efforts. While this is likely to be helpful, HUD said it may also be important to more forcefully counteract aggressive marketing practices and to consider banning inherently deceptive loan features.
Many consumer advocates recommend limiting or banning yield spread premiums, which provide brokers and loan officers with incentives to sell borrowers higher prices loan. They also suggest prohibiting prepayment penalties, which lock borrowers into high-priced loans and expose them to high fees if they need to refinance or sell their home.
In addition to greater consumer protections, many also argue that improvements are needed in the general regulatory structure overseeing the origination and financing of mortgages. In large measure, the nation’s regulatory mechanisms have been focused on the wrong parts of the system, and to realign regulation with today’s organization and financial services, uniformity of regulation is needed across the lending practices of all segments of the mortgage industry and its regulators, HUD said.
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| | March 04, 2010 | | Home Affordable Modification Program (HAMP) | Almost a year into HAMP, too many homeowners facing foreclosure are having difficulty getting their loans modified. In our view, this is due mainly to a lack of sufficient capacity and expertise in the industry to handle the volume
Based on his company’s experience and success with the federal program, Ocwen President Ronald M. Faris proposed enhancements to HAMP in testimony before Congress. Ocwen believes these enhancements – which include principal writedowns and requiring underperforming servicers to outsource their HAMP processes – would make the program more effective and provide relief to a wider scope of distressed homeowners.
Testifying before a House Oversight subcommittee, Faris said HAMP is a “well designed response to the mortgage crisis” and commended “the Treasury Department for its aggressive implementation of the program.” But he also offered up several recommendations to improve the program.
Faris urged the administration to make principal reductions a bigger part of the modification equation. “Principal reduction modifications are needed to overcome the ‘negative equity’ problem,” Faris testified. “This is a primary driver of defaults on mortgages and re-defaults on modified mortgages.”
He explained that in Ocwen’s experience, negative equity increases the chance of a re-default by 1.5 to 2 times, and noted that approximately 15 percent of all Ocwen’s loan modifications involve some element of principal reduction.
Faris also told lawmakers, “Almost a year into HAMP, too many homeowners facing foreclosure are having difficulty getting their loans modified. In our view, this is due mainly to a lack of sufficient capacity and expertise in the industry to handle the volume.”
Faris argued that too many servicers are not producing the results needed to achieve the program goals. He said the Treasury should be empowered to redirect servicing for loans held by companies that aren’t performing up to par, and outsource their HAMP initiatives to those companies that have the capacity to execute trial mods and convert them to permanent solutions.
Ocwen’s president also petitioned for the administration to drop the debt-to-income (DTI) ratio used in HAMP configurations below 31 percent. Faris says one out of every four HAMP applicants is rejected for failing to meet this standard.
“HAMP should instead use a flexible ‘residual income approach’ to determine a payment that the homeowner can actually afford,” Faris told the subcommittee. “Alternatively, there should be either an across-the-board DTI of 28 percent or a sliding-scale DTI that varies based on the number of dependents.”
Faris also suggested that additional funding be made available to housing counseling groups. “Grass-roots organizations… are providing much needed homeowner outreach and counseling. We urge financial support for any HUD-certified counseling organization assisting homeowners through a successful permanent modification under HAMP,” he said.
According to Faris, Ocwen’s success in modifying mortgages for distressed homeowners lies in offering affordable and sustainable loans, which in turn results in more cash flow for investors than they would get from a foreclosure.
He pointed out that Ocwen has invested over $100 million in research and development to build loan servicing technology that incorporates behavioral science for effective customer communication and is also scalable for high volumes.
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| | February 27, 2010 | | Chase surpasses Countrywide/Bank of America | In an eye-catching report Wednesday, the nonprofit news outfit ProPublica said 97,000 homeowners have been stuck in trial loan modifications for more than six months under the government's anti-foreclosure program, which was supposed to generate permanent modifications after three months.
What's astonishing is a finding by ProPublica reporter Paul Kiel, who has been bird-dogging this issue, that 60,000 of those 97,000 borrowers have their mortgages with JPMorgan Chase & Co.
Chase has the third largest number of loans potentially eligible for government-sponsored modifications, just behind Wells Fargo & Co. but far back of Bank of America Corp., according to a U.S. Treasury Department report Thursday on the government program. (The report lists Wachovia Corp., now part of Wells Fargo, separately.)
A Treasury spokeswoman didn't respond immediately to a phone call and e-mail seeking comment.
Chase spokesman Thomas A. Kelly said he hadn't seen the ProPublica report. However, he said the New York bank "calls borrowers up to 36 times, sends up to 15 mailings and then knocks on their doors twice to try and get the documents we need." The bank explained its difficulties in obtaining documentation in a December press release, Kelly said.
Kelly said he didn't know how other banks handle loan modifications so he couldn't say whether Chase for some reason has more than average trouble in getting documentation from its borrowers. Chase's portfolio includes numerous loans originated by Washington Mutual Inc., one of the most aggressive lenders during the easy-money days of the housing boom.
The current administration sponsored anti-foreclosure program committed $75 billion in government funds to subsidizing workouts on troubled home loans. Borrowers participating in it have complained frequently about banks losing documents, repeatedly asking for the same documents, and failing to make trial modifications permanent, a problem examined in a Los Angeles Times story in November.
The trial modifications were supposed to become permanent if the borrowers made reduced payments for three months and documented their finances. But Chase and other banks have contended the borrowers aren't providing needed paperwork, especially proof of income.
In response, the Treasury Department recently changed its policies to allow the banks to gather documents before launching a trial. That new stance came with a hardening of tolerance for endless "trial" modifications. The Treasury said the new-style modifications would have to be made permanent immediately after the borrowers made three payments at the lower rate. It said loan servicers who don’t abide by the guidelines could face financial penalties.
According to ProPublica, which said it analyzed data provided by the Treasury, nearly half a million homeowners have been in loan mod limbo for more than three months. The report also had this interesting observation about a risk of trial modifications:
Because a homeowner is not making a full payment, the balance of the mortgage grows during the trial period, putting someone who was behind when the trial began even further behind if it fails. The homeowner can be in worse shape if the modification fails since she’s been making the trial payments instead of saving for the possibility of foreclosure.
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| | February 26, 2010 | | Seventy-one of 281 banks lost money in 2009 |
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| | February 26, 2010 | | Reduce delinquent loans and improve financial performance | Two Madison-area banks and a bank in Iron River are under orders to increase capital, reduce delinquent loans and improve their financial performance, regulators disclosed Friday.
Evergreen State Bank in Stoughton, Cambridge State Bank in Cambridge and Security State Bank in Iron River all are accused of "unsafe and unsound banking practices" in consent orders from the Federal Deposit Insurance Corp. and the Wisconsin Department of Financial Institutions.
Among other actions required by the orders, the banks must develop management plans, have greater participation from their boards of directors, maintain higher-than-normal capital ratios and make no loans to borrowers already in arrears.
FDIC records show that Evergreen State Bank, which with $284 million in assets is the biggest of the three, lost $3.5 million in 2009 after a $2.4 million loss in 2008. At the end of last year, 6.77% of its loans were classified as noncurrent, up from 4.09%.
Cambridge State Bank lost almost $2 million in 2009 after posting a $989,000 profit in 2008. At year's end, 4.62% of its loans were noncurrent, up from 3.51% a year earlier. Cambridge State Bank has assets of $112 million.
Security State Bank lost more than $4.8 million in 2009. In 2008, it lost $210,000. According to FDIC data, 16.19% of Security State Bank's loans were noncurrent as of Dec. 31, up from 7.14% in 2008. Security State Bank has assets of about $115 million.
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| | February 26, 2010 | | Fannie Mae lost $74.4 billion in 2009 | |
Fannie Mae, the mortgage-finance company under federal conservatorship, said it will seek $15.3 billion in aid from the U.S. Treasury after posting a 10th straight quarterly loss.
A fourth-quarter net loss of $16.3 billion, or $2.87 a share, pushed the company to request its fifth draw on an unlimited lifeline from the government, Washington-based Fannie Mae said in a filing today with the Securities and Exchange Commission.
Fannie Mae, which posted $120.5 billion in losses over the previous nine quarters, has taken $59.9 billion in federal aid since April. Its shares, which peaked at $87.81 in December 2000, closed at 99 cents today in New York Stock Exchange composite trading. The Treasury owns 79.9 percent of Fannie Mae’s outstanding common shares.
Washington-based Fannie Mae, which owns or guarantees about 28 percent of the $11.8 trillion U.S. home-loan market, has been hobbled by a three-year housing slump that wiped 28 percent from home values nationwide and led to record foreclosures. Fannie Mae lost $74.4 billion for the 12 months ended Dec. 31, compared with $59.8 billion in 2008.
“Our financial results for 2009 reflected the continued adverse impact of the weak economy and housing market, which has resulted in record mortgage delinquencies and contributed to our recording significant credit-related expenses and net losses during each quarter of the year,” Fannie Mae said in the filing today.
Avoiding Receiver
Fannie Mae’s borrowings from Treasury will total $76.2 billion after the next payout, carrying with it an annual dividend cost of $7.6 billion, which the company said it will repay by borrowing more money from the Treasury. “This amount exceeds our reported annual net income for all but one of the last eight years, in most cases by a significant margin,” the company said.
The company said the ability to tap continuing cash infusions from the Treasury this year “is critical to keeping us solvent and avoiding the appointment of a receiver.”
The loss in the fourth quarter was driven in part by a $5 billion writedown on low-income housing tax credits that the Treasury Department barred the company from selling. Rival Freddie Mac took a $3.4 billion charge for the same reason.
Losses at Fannie Mae are likely to grow with rising unemployment and costs to implement the current administration's plan to reduce foreclosures, the company said.
Housing Slump
Fannie Mae and McLean, Virginia-based Freddie Mac survived last year on investments the government made in the companies after regulators put them in conservatorship in September 2008. The Treasury on Christmas Eve removed a $200 billion limit on each company, extending unlimited backing through 2012.
The two companies own or guarantee more than $5 trillion in U.S. residential debt, and were responsible for as much as 75 percent of the new mortgages made last year.
A record 3 million U.S. homes will be repossessed by lenders this year as unemployment and depressed home values leave borrowers unable to sell or make their house payments, according to a RealtyTrac Inc. forecast last month. Last year there were 2.82 million foreclosures, the most since the Irvine, California-based company began compiling data in 2005.
Fannie Mae and smaller rival Freddie Mac were chartered by the government primarily to lower the cost of homeownership by buying mortgages from lenders, freeing up cash at banks to make more loans. The companies make money by financing mortgage-asset purchases with lower-cost debt and by charging fees to guarantee securities they create out of home loans from lenders.
Treasury Borrowings
Fannie Mae’s net worth, or the difference between assets and liabilities, was negative $15.3 billion as of Dec. 31, compared with negative $15 billion on Sept. 30 and negative $10.6 billion on June 30, according to company statements.
For the fourth quarter, Fannie Mae decreased reserves for future credit losses to $64.9 billion last quarter from $65.9 billion in the previous quarter.
The amount of nonperforming loans that Fannie Mae guarantees for other investors rose to $174.6 billion from $163.9 billion in the third quarter, according to the filing. Fannie Mae also owned $41.9 billion in non-performing loans as of Dec. 31, up from $34.2 billion in the third quarter.
The fair value of Fannie Mae’s assets was negative $98.8 billion last quarter, compared with negative $90.4 billion at the end of September.
Future of Companies
The Obama administration will wait until next year to seek legislation that addresses the future of Fannie Mae and Freddie Mac, Treasury Secretary Timothy F. Geithner told the House Budget Committee on Feb. 24.
“We are going to propose reforms to the Congress next year to try to make sure we bring about fundamental change in the housing market and get ourselves in a position where the government is playing a less risky, but more constructive role in supporting housing markets,” Geithner said. “That’s going to be a difficult set of reforms.”
The Treasury and the companies’ regulator, the Federal Housing Finance Agency, blocked Freddie Mac and Fannie Mae from selling their low-income housing tax credits, which can only be recognized if the companies expect to be profitable.
The Treasury found that an agreement Fannie Mae had to sell about half of its credits would have cost taxpayers more than the company would gain from the deal, according to a November letter to that company.
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| | February 26, 2010 | | Too little too late? | The current administration, under intense pressure to help millions of people in danger of losing their homes, is considering a ban on foreclosures unless they have first been examined for potential modification, according to a set of draft proposals.
That would raise the stakes from the current practice, which strongly encourages lenders to evaluate defaulting borrowers for a modification but does not make it mandatory.
Meg Reilly, a Treasury Department spokeswoman, said Thursday that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.” The proposal was first reported by Bloomberg News.
Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the government’s modification program, said even if the proposal came to pass, it would not be “a major change. We think there is a large public relations element to this.”
The government could use some favorable public relations for its modification program, which has been deemed disappointing.
Begun a year ago, the program was meant to help as many as four million homeowners but has fallen considerably short of those goals. The Treasury Department has said 116,297 loans have been permanently modified and more than 800,000 more are in trial programs.
The Mortgage Bankers Association said its members were already doing what the administration was considering.
“Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted,” said John Mechem, the trade group’s vice president for public affairs.
Any enhancements the government made to the modification program would be unlikely to stem many foreclosures, said Howard Glaser, a prominent housing consultant.
The modification program was designed for people who had subprime loans, he said, not for borrowers with high-quality loans who are unemployed. Tweaking the interest rate for an unemployed family does not provide enough help.
The Mortgage Bankers Association announced this week their own plan for reducing foreclosures: Lenders and loan servicers would reduce unemployed borrowers’ payments for up to nine months while they looked for new jobs.
The banking group said the servicers would need special loans from the Treasury to pay for the program. The administration has not commented publicly on the proposal.
“The real strategy in Washington now is to pray for an improving economy so these issues will resolve themselves,” Mr. Glaser said. “At the end of the day, a strong jobs market will prevent the generation of new foreclosures.”
There was some positive news in that regard last week, when the mortgage bankers said the number of borrowers entering default unexpectedly declined in the fourth quarter. But on Thursday, the government reported that home prices sank 1.6 percent in December, a fresh sign that the real estate market is nowhere near healed.
Some quick history on the Treasury Department:
The Treasury Department traces its history back to the tumult of the opening days of the Revolutionary War, when a cash-strapped Continental Congress decided in 1775 to issue paper money backed by nothing more than the promise of eventual repayment in coin, and enlisted residents of Philadelphia to number and count the bills. The department was formally created by Congress in 1789. The first Secretary of the Treasury was Alexander Hamilton, who shortly after being appointed took the bold move of proposing that the federal government assume the wartime debt of the states and pay them off in full.
In the more than 200 years since, Hamilton's heirs have at times been among the most powerful figures in government, for better or worse. During the Civil War, Salmon P. Chase created the "greenback" paper currency that fueled the North's victory; Andrew W. Mellon helped bring on the Great Depression by his advice to President Hebert Hoover to cut spending and raise taxes during an economic downturn; after World War II, Henry Morgenthau, Jr., helped create a new system of international finance by leading the conference that created the International Monetary Fund and the World Bank.
President Clinton relied heavily on the advice of Robert E. Rubin, setting aside his desire for an economic stimulus package in favor of a mix of spending cuts and tax increases in 1993. Neither of President Bush's first two secretaries of the treasury, Paul O'Neill and John W. Snow, played much of a role in shaping administration policy, and both were pushed from office. Their successor, Henry M. Paulson Jr., saw his role increase along with the severity of the ills facing Wall Street after the mortgage market collapsed beginning in 2007. Since taking office in January 2009, Treasury Secretary Timothy F. Geithner has played a central role in developing the Obama administration's policies on stemming foreclosures and stabilizing the banking system.
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| | February 25, 2010 | | Potential large wave of foreclosures expected | Housing recovery remains fragile, with significant downside risk posed by high unemployment and elevated delinquency rates | – | Charles E. Haldeman, Jr. |
Freddie Mac reported Wednesday that it lost $7.8 billion, or $2.39 per diluted common share, in the fourth quarter of 2009. The three-month results pushed the GSE’s full year net loss to $25.7 billion, or $7.89 per diluted common share.
It’s a smaller deficit, though, when compared to the previous year’s numbers. Freddie posted a $23.9 billion loss in the fourth quarter of 2008, and $50.1 billion for all of 2008.
For the third consecutive quarter, the mortgage financier said it doesn’t need any additional capital from the Treasury to continue operating. Freddie Mac’s net worth at December 31, 2009 was $4.4 billion, compared to a net worth deficit of $30.6 billion at December 31, 2008. With this figure now on the positive side, Freddie said no additional taxpayer dollars are required at this time.
But Freddie Mac officials signaled that might change soon, noting that once the effects of new industry-wide accounting rules for securitizations are realized, it will likely warrant a request to the Treasury for more funding, possibly as early as next month.
The GSE’s chief executive also warned that conditions could worsen with a “potential large wave of foreclosures” still expected.
Charles E. Haldeman, Jr., Freddie Mac’s CEO, said, the housing recovery remains fragile, with significant downside risk posed by high unemployment and elevated delinquency rates.
Freddie Mac said in its financial report that during the fourth quarter and full-year 2009, the company experienced further deterioration in its single-family guarantee portfolio. Loans 90 days or more past due hit 3.87 percent at the end of the fourth quarter, compared to 3.33 percent at the end of the third, and 1.72 percent at the end of 2008.
Freddie said the increase was due in part to a slowing of the foreclosure process, as a result of the Home Affordable Modification Program (HAMP) and other loss mitigation programs, as well as extended statutory foreclosure timelines in many states and servicer capacity constraints.
Single-family net charge-offs increased to $2.4 billion in the fourth quarter of 2009, compared to $2.2 billion in the third quarter of 2009. Single-family net charge-offs were $7.6 billion for the full-year 2009, compared to $2.7 billion for the full-year 2008.
The GSE’s REO business lost $88 million in the fourth quarter of 2009, compared to income of $96 million for the third quarter of 2009. Freddie said it reflected lower recoveries of property write-downs in the fourth quarter compared to the third. REO operations posted a $307 million loss for all of 2009, compared to $1.1 billion loss in 2008. Freddie Mac said the smaller loss was because of stabilization in home prices during 2009, compared to the sharp price declines that characterized 2008.
According to Haldeman, Freddie Mac purchased one out of every four home loans originated last year, helped approximately 1.8 million borrowers lower their mortgage payments, and more than a quarter million families avoid foreclosure.
Although he cautions that another surge of foreclosures threatens, Haldeman said, “We start 2010 with some early signs of stabilization in the housing market, with house prices and home sales likely nearing the bottom sometime in 2010. We expect that low mortgage rates, relatively high affordability and the homebuyer tax credit will help continue to fuel the recovery.”
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| | February 24, 2010 | | FDIC Watch list up 27% | By the end of last year, 702 banks’ names had landed on the FDIC’s “problem list.” That’s up 27 percent from the 552 insured institutions on the list just three months earlier. In a statement, the FDIC called the increase “expected.” The total amount of assets held by these “problem” institutions was $402.8 billion as of the end of Q409.
The FDIC noted that 45 institutions failed during the fourth quarter period, bringing the total number of failures for the 2009 calendar year to 140, the most in a single year since the height of the savings & loan crisis. So far in 2010, 20 institutions have gone under.
The banks on the FDIC’s problem list are thought to be at risk of collapse. The 702 that sit there now are the most since 1993. The number of banks under the agency’s watchful eye has grown significantly since the recession began. In the fourth quarter of 2007, just 76 financial institutions were on the list.
The FDIC does not publish its “problem list” for fear of the stigma that would be attached to those names, and the agency notes that a large percentage are able to get back on their feet.
The federal agency’s own wallet has taken quite a hit from the growing tally of bank failures, with its deposit insurance fund falling into the red last year. The fund decreased by another $12.7 billion during the fourth quarter of last year, falling to negative $20.9 billion as of December 31. However, the FDIC noted that it in addition to the insurance fund, it has a $44 billion contingent loss reserve set aside, which combined with the fund balance brings the agency’s total reserves to $23.1 billion.
To handle what’s expected to be an even larger number of failed institutions over the next couple of years, the FDIC board approved a measure last November that required most insured institutions to prepay three years worth of deposit insurance premiums – almost $46 billion – at the end of 2009.
There were a few positives in the FDIC’s report. The agency said insured institutions reported an aggregate profit of $914 million in the fourth quarter of 2009, a $38.7 billion improvement from the $37.8 billion net loss the industry sustained in the fourth quarter of 2008.
“Consistent with a recovering economy, we saw signs of improvement in industry performance,” said FDIC Chairman Sheila C. Bair. “But as we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problem assets.”
Among other factors contributing to the year-over-year improvement in quarterly earnings, the FDIC noted that realized losses on securities and other assets were $8.7 billion lower than 12 months earlier and net interest income was $1.7 billion higher.
The industry’s provisions for loan losses totaled $61.1 billion in the quarter, a decline of $10.0 billion, or 14.1 percent, compared to the fourth quarter of 2008. The FDIC said this marked the first time since the third quarter of 2006 that quarterly loss provisions have been below year-earlier levels.
The FDIC noted that indicators of asset quality continued to deteriorate during the fourth quarter, although the pace of deterioration slowed for a third consecutive quarter. Insured banks and thrifts charged off $53.0 billion in uncollectible loans during the quarter, up from $38.6 billion a year earlier, and noncurrent loans and leases increased by $24.3 billion during the fourth quarter. At the end of 2009, noncurrent loans and leases totaled $391.3 billion, or 5.37 percent of the industry’s total loans and leases.
As a result of losses, banks have pulled back on loans and leases for the sixth consecutive quarter, with balances these loans dropping by $128.8 billion in Q4. Loans to commercial and industrial (C&I) borrowers declined by $54.5 billion and real estate construction and development loans declined by $41.5 billion.
Referring to more stringent lending standards and lower real estate values, Bair said, “Resolving these credit market dislocations will take time. We encourage institutions to lend using a balanced approach. Institutions should neither over-rely on models to identify and manage concentration risk nor automatically refuse credit to sound borrowers because of those borrowers’ particular industry or geographic location.”
The FDIC also reported that banks’ investments in mortgage-backed securities (MBS) increased by $44.8 billion, or 3.3 percent, last quarter.
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| | February 23, 2010 | | According to First American CoreLogic | Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners Negative equity continues to diminish the severity of foreclosure for many homeowners. Numerous industry studies show that borrowers become more likely to default on their mortgage or simply walk away from the debt obligation when they owe more on the home than it is worth. Despite that home values appear to be stabilizing in some markets, the number of underwater homeowners continues to grow.
According to a new study released by First American CoreLogic Tuesday, more than 11.3 million residential properties were in negative equity at the end of 2009. That equates to 24 percent of all homes in the United States with mortgages, up from 23 percent, or 10.7 million homes, at the end of last year’s third quarter. All told, the nation’s homeowners are a combined $801 billion underwater.
First American says an additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.
“Negative equity is a significant drag on both the housing market and on economic growth. It is driving foreclosures and decreasing mobility for millions of homeowners,” said Mark Fleming, chief economist with First American CoreLogic. “Since we expect home prices to slightly increase during 2010, negative equity will remain the dominant issue in the housing and mortgage markets for some time to come.”
According to First American’s analysis, negative equity continues to be concentrated in five states, where property values have plummeted significantly since the housing bubble burst.
As of the end of last year, Nevada had the highest percentage negative equity, with 70 percent of all of its mortgage properties underwater. It was followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (35 percent).
Among the top five states, the average negative equity share was 42 percent, compared to 15 percent for the remaining states. In numerical terms, California (2.4 million) and Florida (2.2 million) had the largest number of negative equity mortgages accounting for 4.6 million, or 41 percent, of all negative equity loans.
Last week, the current administration promised $1.5 billion to housing finance agencies in these states, which can be used to develop mortgage assistance programs to help underwater borrowers negotiate with lenders to write down mortgages.
First American says the rise in negative equity is closely tied to increases in pre-foreclosure activity and is a major factor in changing homeowner default behavior. Once negative equity exceeds 25 percent, or the mortgage balance is $70,000 higher than the current property value, owners begin to default with the same propensity as investors, the company explained.
Those conclusions don’t bode well when juxtaposed with the current market figures. The segment of borrowers that are 25 percent or more underwater account for over $660 billion, or 82 percent, of all negative equity. The average equity for an underwater borrower in Q4 was -$70,700, up from -$69,700 in Q3 2009.
On the other end of the scale, about 23 million, or 49 percent, of all homeowners with a mortgage have at least 25 percent equity in their home, and some 12 million have at least 50 percent equity in their home.
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| | February 23, 2010 | | Limits higher than Freddie Mac, Fannie Mae & FHA | The meltdown sent interest rates soaring and availability shrinking, but rates are declining and lenders are more willing to make loans that top the limits for Freddie Mac, Fannie Mae and the FHA.
Phil Kelly had 18 more months to go before the fixed rate on his $2.5-million mortgage became adjustable.
But when Kelly, a former computer executive living in Rancho Santa Fe, learned he could knock his interest rate down by a full percentage point by refinancing, he went for it.
"It's always tough to pick the exact bottom or top of anything," Kelly said. "But I think this rate is about as low as you're going to get."
Rates on jumbo mortgages -- loans of more than $729,750 in counties with the highest-cost housing -- shot up during the financial crisis as lenders and loan investors shunned anything tainted with even a whiff of higher risk. Rates on big mortgages were especially high relative to those on smaller loans.
But in a boon for borrowers in California's expensive housing markets, the jumbo-loan market is starting to return to normal.
Two weeks ago, the average interest rate on 30-year fixed-rate jumbos dropped to 5.79%, a nearly five-year low, according to rate tracker Informa Research Services of Calabasas. It edged up to 5.88% on Tuesday, still very attractive by historical standards. The average is down from well above 7% in late 2008.
Rates are even lower on so-called hybrid adjustable mortgages, on which the rate is fixed for, say, five years and then adjusts annually. Kelly's new loan is a five-year hybrid adjustable identical to his old one, except that he's paying about 5%, down from 6%.
Banks are also relaxing slightly some of their requirements for jumbo loans. That's an encouraging sign because the market for jumbos, in contrast with the rest of the mortgage business, isn't being propped up by Uncle Sam.
The lower rates and somewhat easier terms reflect newfound confidence among banks in the housing market. That's because, by definition, jumbos are too big to be bought by Freddie Mac and Fannie Mae or to be insured by the Federal Housing Administration. Plus, the private market for mortgage-backed bonds dried up when the meltdown hit. So lenders making jumbo loans these days must be willing to take the risk of keeping them in their portfolios.
The maximum amounts for Freddie Mac and Fannie Mae "conforming" mortgages, and for FHA mortgages, are set by Congress. The cutoff for single-family homes was $417,000 from 2006 until February 2008, when lawmakers increased it temporarily to $729,750 in certain high-cost areas, including Los Angeles, Orange and Ventura counties. Conforming loans top out at $500,000 in Riverside and San Bernardino counties and $697,500 in San Diego County.
The increased upper limits, which have been extended until the end of this year, have created a three-tier system in expensive areas, mortgage professionals say: loans of up to $417,000, which are the easiest to obtain and carry the lowest rates; "conforming jumbos" from $417,000 to $729,750, which are somewhat harder to get and have slightly higher rates; and true jumbos, with the toughest standards and highest rates.
In the boom years of 2005 and 2006, interest rates were typically no more than a quarter of a percentage point higher on jumbo loans than on conforming loans, according to Informa Research. That widened as the mortgage meltdown intensified and home prices dropped in late 2007. The spread ballooned to nearly 1.7 percentage points in early 2009 after the entire credit system froze.
But this year the rate spread has narrowed to less than a percentage point. It could shrink more if conforming-loan rates rise as expected after the Federal Reserve wraps up a $1-trillion-plus program to support the market for conforming loans next month.
In addition to lower rates, down-payment requirements are being relaxed in some cases. For example, to write a jumbo loan in coastal areas of Los Angeles and Orange counties, Wells Fargo Home Mortgage looks for a 20% down payment or that percentage of equity, down from 25% last year, said Brad Blackwell, a national mortgage sales manager at the lender.
The reason: Wells believes high-end home prices are stabilizing in those coastal counties. But the bank still requires higher down payments in the Inland Empire and other battered housing markets such as Florida, Nevada and Arizona, where prices for jumbo-size homes don't appear to be stabilizing, he said.
Jumbo loans remain much harder to get than before the credit crunch and recession. Borrowers typically must have a credit score of at least 700, compared with boom-era minimums in the 600s, though Laguna Niguel mortgage broker Jeff Lazerson said at least one lender was again making sub-700 jumbos available.
What's more, unless their down payments are very large, borrowers must provide evidence of high income, have sizable bank accounts as a cushion against the unforeseen and occupy the houses themselves.
But there are clear signs that the jumbo market has loosened. One is an increasing availability of "stated income" loans -- those that don't require proof of income -- of as much as $2 million to borrowers with at least a 40% down payment, said mortgage broker Gary Bluman, owner of Real Estate Resources in Brentwood.
Also, instead of a true jumbo loan, some "piggyback" second loans are available again to help certain borrowers with 25% down payments pay for high-priced homes, Lazerson said.
Of course, adjustable, stated-income and piggyback loans were big contributors to the mortgage meltdown. But such provisions are less risky if a borrower has 25% to 40% equity.
Despite the confidence in the market that such terms imply, lenders and mortgage investors are still dealing with piles of bad jumbos made during the boom.
Delinquencies of 60 days or more on prime jumbo loans that were packaged into securities jumped to 9.6% in January, up from 3.7% a year earlier, Fitch Ratings reported this month.
The jumbo delinquency rate in California climbed to 11.3% from 4.1% a year earlier.
For now, the jumbo market remains limited to the volume of loans that banks are willing and able to keep on their books. But there is hope for a return to private outside funding.
Although no jumbos have been turned into securities for at least two years, packages of delinquent jumbos have begun to be sold again to "vulture" investors, a sign that the secondary market for the loans may revive, said Michael Fratantoni, vice president of research at the Mortgage Bankers Assn.
"The ice sheet," he said, "is starting to crack here and there."
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| | February 23, 2010 | | Consumers paying credit cards before mortgages | Now we?re starting to see at the high end of the marketplace, people with good FICO scores, having serious delinquency problems Consumers with high credit scores are more likely to default on mortgages than credit-card loans, said FICO, maker of the scoring formula most widely used by U.S. lenders.
In 2009, consumers with FICO scores from 760 to 789 defaulted on real estate loans at a rate 200 percent greater than credit-card loans, or 0.3 percent of consumers compared with 0.1 percent, the Minneapolis-based company said in a statement today. FICO considers borrowers who are more than 90 days delinquent to be in serious delinquency or default.
“This used to be a problem for subprime,” said Mark Greene, chief executive officer of FICO, in an interview Feb. 19 on Bloomberg Television in New York. “Now we’re starting to see at the high end of the marketplace, people with good FICO scores, having serious delinquency problems.”
Mortgages have historically been the first debt obligation consumers repay, Greene said in the interview. There’s been a change in the “payment hierarchy” and consumers with higher credit scores may be late with mortgage payments on second homes, which are viewed as investment properties, he said. Late mortgage payments by high-scoring consumers will persist for another six months to nine months, said Greene.
Homeowners also may be strategically defaulting, which is when they choose to stop making payments on homes that are usually valued at less than what they owe, according to Greene, 55, who joined Minneapolis-based FICO in February 2007. Strategic defaults rose 128 percent to 588,000 in 2008, according to Experian Plc, a Dublin-based credit-checking company, and Oliver Wyman, a New York-based consulting firm.
Overdue Loans
FICO analyzed data of more than 9 million consumers and 12.3 percent, or 1.1 million consumers, had scores from 760 to 789, said Craig Watts, a spokesman for the company. About 20 million U.S. consumers have FICO scores in that range, Watts said.
Home loans more than 90 days overdue -- the point at which lenders usually begin the process of seizing a property -- climbed to 5.09 percent in the fourth quarter compared with 4.38 percent the previous quarter, according to a report released Feb. 19 by the Washington-based Mortgage Bankers Association.
Scores based on models established by FICO, formerly known as Fair Isaac Corp., are used to gauge a consumer’s financial health. The numbers, which range from 300 to 850, affect the ability to get mortgages, credit cards and insurance products, as well as the rates borrowers pay for them.
750 Score
The FICO score is used by 90 percent of the 100 largest U.S. banks. Mortgage lenders use the scores, which rank borrowers according to the likelihood of default in the next 24 months, in more than 75 percent of all residential mortgage originations, according to FICO.
A score of at least 750, as well as steady income and a 20 percent down payment, is generally needed for the best mortgage rates, said Adam Levin, chairman and co-founder of San Francisco-based Credit.com.
The company’s fiscal first-quarter profit rose 46 percent to $17.7 million, or 37 cents a share, as a decline in revenue slowed, FICO said Jan. 27.
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| | February 22, 2010 | | IRS clarifies documentation taxpayers need in an effort to curtail widespread fraud in the program. | Despite blizzards that shut federal offices for days, the Internal Revenue Service issued new guidance Feb. 12 on the two tax credit programs that are powering the country's real estate markets -- the $6,500 credit for repeat buyers and the $8,000 first-time buyer credit.
The new IRS policy clarified documentation that taxpayers need to submit to successfully obtain either credit. When Congress revised the credit programs in November, it ordered the IRS to tighten its rules and monitoring to curtail widespread frauds that had emerged earlier in 2009.
These included fictitious home purchases in which people claimed and received $8,000 checks from the government on transactions that had never occurred. .
To avoid such abuses in the revised credit program -- which is scheduled to be available for qualified purchases closed through June 30 -- Congress directed the IRS to spell out documentation standards in detail and to install monitoring systems to spot fraud upfront. Among the keys to the monitoring system is that all documentation accompanying credit claims comply with the IRS' detailed rules.
Here's what the agency wants:
* A fully executed IRS Form 5405 (available at www.irs.gov) on which taxpayers provide information supporting their claim of eligibility, including income and home purchase date.
* A copy of the closing or settlement statement that proves the transaction took place. In instructions to taxpayers issued last month, the IRS said the statement should show "all parties' names and signatures, property address, sales price and date of purchase."
Normally this is the properly executed Form HUD-1, Settlement Statement. The problem, however, is that home closing and settlement customs vary from state to state, and sometimes the HUD-1 does not contain both the seller's and the buyer's signatures. In escrow states such as California both sets of signatures may not appear on the HUD-1 received by the buyer.
Buyers sign an estimated closing statement or an estimated HUD-1 "at the time they sign their loan documents," said Donna Grosso, president of the California Escrow Assn. Sellers have their "estimated closing submitted to them for their review and signature during or near the same time period as the buyer. We prepare the final closing statement or the final HUD-1 on the closing date," which is the date of recordation.
The IRS tried to address that issue Feb. 12. "In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law," the agency said. "The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return. In situations where the signature of the seller is not on the settlement document, the IRS advises the buyer to still sign the document."
Despite the fact that Form 5405 continues to require all parties' signatures on the HUD-1 or settlement document, the IRS is now essentially saying: Don't worry about it -- as long as your settlement statement conforms to prevailing local practices, we'll accept it.
What else does the IRS want to see on claims from home buyers? For repeat purchasers, the agency wants documentation that, before their latest purchase, they had lived in their former property for a consecutive five years out of the previous eight years. This may include property tax records, hazard insurance records or copies of annual mortgage interest statements filed with their federal taxes.
One caveat for filers: Because of the increased documentation and monitoring, IRS processing will take four to eight weeks. Don't expect your check overnight.
Click here for IRS Form 5405 Instructions
Click here for IRS Form 5405
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| | February 22, 2010 | | 15.9% of purchase transactions in January 2010 | Despite having a bad wrap for often being slow and problematic, short sales are quickly becoming a preferred method to dispose of distressed properties and avoid foreclosure.
According to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions, short sales accounted for a substantial 15.9 percent of home purchase transactions in January. This was well above the share of other distressed property activity – with damaged REO accounting for 13.4 percent of activity and move-in ready REO making up 13.8 percent.
The January figures represent a steady increase in short sale popularity. As recently as November of 2009, short sales accounted for 12.4 percent of the home purchase market, according to the Campbell report, behind move-in ready REO at 12.6 percent and nearly even with damaged REO transactions at 12.3 percent.
Short sales are an effective method of resolving mortgages in default, both for large lenders and for the government agencies supporting lenders’ efforts. Short sales typically result in lower lender losses and houses left in more saleable condition.
In addition, borrowers that agree to a short sale escape the bad credit marks of a foreclosure and can often buy another house with mortgage financing after only two years. For borrowers going though the foreclosure process, mortgage financing can be unavailable for a period of five to seven years afterward.
Short sale properties are most often purchased by first-time homebuyers, the January survey results revealed. Currently, mortgage servicer approval on offers for short sale properties can take several months, making these transactions difficult for current homeowners who often need to conduct not one, but two, transactions in quick succession to also sell off their current residence. In contrast, first-time homebuyers more often have flexibility around the timing of short sale closings.
“Short sales activity took a temporary dip in November around the expected expiration of the first-time homebuyer tax credit,” reported Thomas Popik, research director for the Campbell/Inside Mortgage Finance survey. “Few first-time homebuyers wanted to take the chance that their short sale transaction wouldn’t be approved by the November 30 deadline. But now that the tax credit has been extended, we see first-time homebuyers once again snapping up attractively priced short sales.”
The survey results showed that short sales typically sell for 91 percent of the listing price. In contrast, move-in ready REO sells for 99 percent of listing price, on average.
Short sales are becoming particularly attractive in some of the hardest-hit housing markets. 21.1 percent of all existing-home sales in the foreclosure-ravaged Las Vegas area last month were short sales.
Arizona lawmakers are currently considering a bill that would mandate realtors there learn short sale strategies. The state’s Short Sale Task Force is recommending that the Legislature require local agents to take 15 hours of short sale classes so they can successfully navigate the process.
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| | February 21, 2010 | | Fannie Mae approves 4 new mortgage insurers | The GSE's approvals officially launch our entry into the mortgage insurance business and enable us to begin supporting qualified borrowers
Fannie Mae has approved four new mortgage insurers to provide mortgage insurance for conventional first mortgage loans, according to a lender letter released Thursday.
The government-sponsored enterprise (GSE) said it is ready to accept loans from Essent Guaranty, Inc., MGIC Indemnity Corporation, PMI Mortgage Assurance Co. (PMAC), and Republic Mortgage Insurance Company of North Carolina (RMIC-NC).
Each insurer is approved in a limited number of states, which may change over time. To retain approval, all mortgage insurers are responsible for compliance with state limitations and must identify the insuring entity in each commitment and certification that is issued.
Under Fannie Mae’s approval, Walnut Creek, California-based PMAC, an existing subsidiary of PMI Mortgage Insurance Co. (PMI), may write new mortgage insurance business, if any, in 16 states in the event that MIC cannot.
“Fannie Mae’s approval of PMAC as an eligible mortgage insurer is an important step in our strategy of continuing to support our customers and the mortgage markets by continuing to write new mortgage insurance business throughout the United States,” said L. Stephen Smith, chairman and CEO of PMI.
RMIC-NC, headquartered in Winston Salem, North Carolina, is an affiliate of Republic Mortgage Insurance Company. Loans insured by RMIC-NC that are secured by properties in the state of New York may be delivered at any time to Fannie Mae.
According to the lender letter, all other loans insured by the new mortgage insurers are eligible for purchase by Fannie Mae if they have note dates on or after February 18, 2010.
The remaining two mortgage insurers, Essent and MIC, also received approval from Freddie Mac.
Freddie Mac has named Essent, headquartered in Radnor, Pennsylvania, as a qualified mortgage insurer and anticipates being ready to accept business from the company by April 1, 2010. Daniel Kelly, director of mortgage insurer relations at Freddie Mac said Essent’s entry comes at a time of real need in the market for mortgage insurance capacity.
“The GSEs’ approvals officially launch our entry into the mortgage insurance business and enable us to begin supporting qualified borrowers,” said Mark Casale, president and CEO of Essent. “We’ve heard from lenders, borrowers, and state regulators that there is a real need for a strong, new mortgage insurance company, and we’re pleased to support this critical segment of the housing finance market.”
Milwaukee-based MIC, a subsidiary of MGIC Investment Corporation, has been given approval by Freddie Mac to sell insurance in states where MGIC Investment’s current mortgage operation does not meet minimum capital requirements, according to an article on Jsonline.com. Its approval from Freddie Mac runs through December 31, 2012.
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| | February 21, 2010 | | Highest mortgage fraund 4Q 2009 | In the fourth quarter of 2009, California had the highest mortgage fraud risk, according the quarterly Mortgage Fraud Risk Report released Friday by Agoura Hills, California-based Interthinx, a provider of risk mitigation and regulatory compliance tools for the financial services industry.
With an index value of 222, California took the No.1 spot from Nevada, which had topped the rankings over the last five consecutive quarters. Nevada dropped to second place with an index of 220 and was closely followed by Arizona with an index of 211. Florida remained in fourth place with an index of 179, and Colorado was ranked fifth with an index of 153.
According to Interthinx, its fraud risk indices have proven to be a leading indicator of foreclosure activity. As a result, the company said regions that currently have high fraud risk indices are likely to have high foreclosure rates going forward, particularly if housing prices continue on their downward trajectory and if there is no significant improvement in general economic conditions.
The Mortgage Fraud Risk Report also included an analysis of national mortgage fraud and indices for the four most common types of mortgage fraud, including property valuation fraud, occupancy fraud, employment/income fraud, and identify fraud. The findings showed that most fraud types are on the rise.
Despite a 4 percent quarter-to-quarter decrease, the property valuation fraud risk index was up 40 percent over the fourth quarter in 2008 and jumped more than 100 percent from the same period in 2007. Interthinx said
this index will continue to be driven by schemes involving short sales, REO inventories, wholesale flipping, and refinancing by borrowers whose equity has been impaired by falling real estate values.
The occupancy fraud risk in the fourth quarter of 2009 rose 16 percent from the third quarter, marking the first significant increase in the index since the fourth quarter of 2006. The magnitude of the quarter-to-quarter increase suggests that occupancy fraud risk will be a serious issue going forward, Interthinx said. The company explained that this will be especially true as continuing price declines and “get-rich-quick” schemes lure investors back into the market and as builders face continuing difficulty in moving unsold inventory.
While employment/income fraud was down 29 percent over the previous year, it increased 3.4 percent from the third quarter — the first increase since the index peaked in the third quarter of 2007. Interthinx said it is too soon to tell whether this uptick signifies a rebound in employment/income fraud risk or whether it reflects a temporary “blip” associated with schemes involving the federal homebuyer tax credit.
Identity fraud, which is frequently used in mortgage fraud schemes in order to hide the identity of the perpetrators and/or to obtain a credit profile that will meet lender guidelines, was the only type of mortgage fraud that showed no increase in the quarterly report. According to Interthinx, the identity fraud risk index has remained relatively constant over the last two years, declining 2 percent from the previous quarter and 4 percent from a year ago.
Going Forward, Interthinx projects that if interest rates remain low, the predominant fraud type will continue to be related to property valuation, as speculative investors and “flipping” return to the market and as consumers attempt to refinance their mortgages despite reduced equity in their properties. Interthinx also expects a rebound in occupancy fraud, particularly in light of investor demand, fueled by ample inventories and the expected release of shadow inventory. In addition, the company said it is likely that the fraud risk index will continue to rise through 2011, as a wave of adjustable-rate mortgages recast for the first time.
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"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in integrated asset solutions for Commercial & Residential real estate
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| | February 16, 2010 | | 3727 N Keeler Avenue #3M Chicago IL 60641 | 
Short Sale Opportunity in Chicago IL
3727 N Keeler Avenue #3M Chicago IL 60641
2 Bedroom unit in Old Irving neighborhood. Totally redone throughout in 2007.
Cherry kitchen with granite, stainless appliances & hardwood flooring.
Monthly assessment is $151.75 and includes Water
Annual Cook County taxes are $3632.13 (Being appealed)
Click here for further detail
Click here for the public MLS data sheet
A & N Mortgage Services, Inc. is the preferred lender for this short sale opportunity
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets
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| | February 16, 2010 | | Standard & Poor (S&P) Report | The “shadow inventory” of bank-repossessed properties, as well as distressed mortgages facing foreclosure, will take nearly three years to clear at the current sales rate, according to a report from the credit rating agency Standard & Poor’s (S&P). The analysts add that during this period many servicers will likely shift their emphasis from mortgage modification to loan liquidation.
The “shadow inventory” of homes includes all delinquent loans and real-estate owned (REO) property that has not reached the market. REO property are foreclosed homes taken back by the bank for liquidation. As for the total amount of homes in the shadow inventory, Amherst Securities places the total at 7m. The Royal Bank of Scotland found 2.7m, and First American CoreLogic counted 1.7m.
S&P estimates the inventory to equal a 33-month supply of homes. Analysts added the estimate is actually conservative, as they did not assume homes not showing signs of distress would default and push the overhang of supply even further.
Furthermore, court delays, political pressure and servicing backlogs constricted the flow of foreclosures hitting the market to a trickle. These delinquent borrowers who have not received a foreclosure fuel the “rapidly” growing shadow inventory of properties, according to the report.
“Overall, it is our opinion that recent positive housing reports should not be construed as a sign that the distress in the residential housing market is abating, but rather should be attributed to the temporarily limited supply of homes on the market,” according to the report.
Another credit rating agency, Moody’s, showed that the underwhelming performance of the Home Affordable Modification Program (HAMP), which the US Treasury Department launched in March 2009 to give incentives to servicers for the modification of loans on the verge of foreclosure, will drive down housing prices another 8% from Q409 to the end of 2010.
According to the S&P report, homes are falling into serious delinquency faster than REO transactions are closing. The total balance of seriously delinquent loans reached well over $400bn through November 2009, while the balance of REO properties reached its peak in September 2008 and declined to $50bn. On average, $14.5bn of seriously delinquent loans or REO property liquidates each month. According to the report, it will take 29 months to clear this supply of homes:
The other four months worth of supply comes from re-defaults on delinquent loans currently cured – or brought back to current status through a loan modification. Following current trends, S&P analysts predict that 70% of the cured loans will re-default. The total balance of these re-defaulting loans and the current amount of serious distressed loans will reach $473.4bn, nearly 30% of the total outstanding balance on all privately securitized loans.
With the launch of HAMP, servicers shifted strategy from liquidation to modification. The amount of loans that progressed from seriously delinquent to REO fell to 28% in Spring 2009 from 58% in June 2008. In that time, seriously delinquent loans that cured went from 32% to 58%, according to the report. But analysts found that this shift was only temporary.
“We believe that the recent constriction in the supply of foreclosed homes on the market is a temporary one,” claim the analysts.
“Loan modifications and the observed extension of time distressed loans remained as such may simply have delayed the inevitable, creating the demonstrated shadow inventory of troubled loans,” they wrote. “Ultimately, the majority of the properties these distressed loans represent will likely have to be liquidated.”
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"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets | | |
| | February 13, 2010 | | Banks contemplate loan modification or foreclosure | This long-term solution to the housing crisis must be complemented by short-term tactical loan modification based on optimal principles
As a result of the current housing crisis, many homeowners have defaulted on their mortgage, and lenders must decide whether to complete a loan modification or start foreclosure proceedings.
Modifications result in a lowering of the present value of the loan, while foreclosing incurs deadweight costs that reduce the recovery value of the home, said Professor Sanjiv R. Das of the Leavey School of Business at Santa Clara University in his recent paper The Principal Principle: Optimal Modification of Distressed Home Loans. According to his research, foreclosure filings numbered 321,480 or approximately one out of every 400 homes in May 2009-up 18 percent from the year before, and it is estimated that loan modifications versus premature foreclosures will save $180 billion or 1 percent of GDP per year.
Loan modifications seem to be the clear choice, but that’s easier said than done. Das’ paper develops a framework for reducing foreclosure losses by loan modification and how best to implement this solution. He says an optimal loan modification must be cognizant of the borrower’s ability to pay and willingness to pay, and different prescription apply depending on the level of interest rates and home price volatility.
“Finding an optimal loan modification scheme requires an analysis of the game between the borrower and lender, where the lender chooses the modification scheme to maximize loan value by minimizing the value of the option to default held by the borrower, and the borrower chooses an optimal default strategy given loan parameters chosen by the lender,” Das wrote in his paper.
To analyze the optimal loan modification, Das used mathematical equations weighing risk, negative equity, borrower’s debt capacity, and servicer costs. His model showed that both rate reductions and maturity extensions are suboptimal, and found that writing down principal on the loan is better than either of these practices.
Das explained that current loan modification schemes that are being used focus on adjusting the loan terms to make the loan affordable on a monthly basis, but these modifications pay less attention to the borrower’s default incentives in the game between the lender and borrower. As a result, he argues that loan modifications via rate reductions and maturity extensions are suboptimal, leading to dissipation in loan value to the lender and resulting in a high probability of re-default by homeowners even after modification of their loans.
Although not a favored recipe and often prohibited by covenants, Das says loan write-downs (the Principal Principle) are mostly optimal.
He said the first step to completing an optimal loan modification lies in correctly determining the level of monthly service payment on the loan that are affordable to the distressed borrower, calibrating the loan to the borrower’s ability to pay. The next step involves the borrower’s willingness to pay.
There are many loan configurations that lead to the same monthly payment level, so Das shows how to select the one that is most favorable in maximizing the value of the loan to the lender. The analysis involves a value decomposition of the loan into a risk-free component, a default put option, and a component for expected deadweight foreclosure costs. The optimal loan configuration maximizes lender net value aggregated across all three components, Das said.
As part of his study, Das evaluated a recent innovation in mortgage restructuring which offers the borrower a reduced monthly payment in return for the lender taking a share of the upside of the home value. The shared-appreciation mortgage (SAM) or home equity fractional interest (HEFI) loan is conditional on the home value increasing above the loan value.
Through his comparative analysis, Das found that SAMs enhance the borrower’s ability to pay but may also increase willingness to re-default. He also found that SAMs delay immediate foreclosure, postpone imposition of the resultant deadweight costs, and discourage from adverse selection against lenders. Due to these positive results, Das believes the SAM is an important innovation that deserves more detailed analysis in future work.
Das’ theoretical analysis showed that principal write-down modifications maximize the willingness to pay, thereby maximizing the loan’s economic value to the lender. However, current practices aren’t following this method. He noted that he number of loan modifications increased almost three fold from 68,801 in the first quarter of 2008 to 185,159 in the first quarter of 2009. More than half of these modifications entailed reduced monthly payments, and two-thirds of the modifications were combination modifications, entailing changes to loan rates, maturity, and/or adjustments to principal, Das said.
“These modifications are opposite of what the theory describes,” he said. “As a consequence, the re-default rate evidenced is extremely high. Of the loans modified in Q1 2008, 68 percent were foreclosed or delinquent a year later.”
In manipulating the borrower’s willingness to pay, Das found that managing negative equity is vital. According to his source (Foote, Gerardi, Goette, and Willen) a 10 percent fall in house prices raises the probability of delinquency by more than 50 percent. In an analysis of a database from McDash Analytics of 30 million loans, it was found that while only 12 percent of loans had negative equity, these loans accounted for 47 percent of all foreclosures.
In short, Das found that banks would suffer fewer defaults among modified loans if they would shorten the duration of the loans they modify, rather than lengthening as they tend to do, and if they would forgive part of the loan, which many are unwilling to do. He said loan modifications have shied away from writing down principal simply because the accounting impact would be much more negative than with other types of iso-service loan modifications, but given the contagion effects that foreclosures have on other homes, it is even more important that the tide of foreclosures be stemmed by optimal write-downs.
Das said the prescription to write-down loan balances in a modification is bitter medicine for lenders, but it is better than the palliatives being attempted in current practice. “This long-term solution to the housing crisis must be complemented by short-term tactical loan modification based on optimal principles,” he said.
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"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets
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| | February 13, 2010 | | Property value down 50% | A great home with a toxic loan can have unfortunate consequences Recovery from the worst housing slump since the Great Depression is a slow and tortuous process in the Round Lake Illinois area.
"It's not pretty," said Alex, a local real estate professional. "Property values in the Round Lake area have dropped 40 to 50 percent and in some cases even more."
"Suffering" is the word used to describe homeowners who must sell. He recently met with a client in Round Lake Beach who was current on the mortgage for her townhouse and stayed current even after she lost her job, but fell behind after her credit card company hiked her interest rate by 49 percent. She had two mortgages on her property. One company refused to work with her. Another customer was turned down for a loan modification but approved for a refinance that would have netted a savings of just $50 a month.
"They're encouraging people to fall behind on payments, forcing them to go delinquent and forcing them into foreclosure,"
It's a rotten market for sellers, but good for first-time homebuyers or investors.
Carpenter Steve Beshel, 51, of Grayslake, has bought and rehabbed four homes in the area since last spring. He flipped one and he's renting the other three.
"I see an opportunity for myself," said Beshel. "I could see my workload was going to be low this year, because the market is so slow. I saw the opportunity to purchase, for ridiculously low prices -- $50,000 to $70,000 for three bedrooms, two baths. The hard part is getting the money to get the great deal. The bank has squeezed it so that it's nearly impossible."
Business has been flat for Tom, another local real estate professional in Round Lake Beach, who reports a small surge then a dip in home prices in the late third and early fourth quarters.
There's an "onslaught" of foreclosures and short sales cited by pressure from the government on banks last month not to flood the market with foreclosures. At a recent realtor association seminar, he and his colleagues commiserated over the effect of an estimated six to nine million potential foreclosures nationwide.
"We're looking at another five years of short sales before we're out of it," Tom said. "I don't have any problem with short sales. The biggest problem is getting the bank to respond."
It typically took three months to get an answer from a bank on a proposed short sale. A new government policy insists they must act in less than 30 days.
"I never could figure out why banks don't dedicate more time to short sales because they make more money on the house than in foreclosure, where you have frozen pipes, vandalism, deterioration, copper stripped out of the walls," he said.
Prospective buyers in short sales soon lose patience.
"They've been saying 'Screw it, I will wait till it comes back on the market in foreclosure and get it at a much lower price'".
The drop in home values is also translating into a decline in property taxes and continued pressure on village budgets. Round Lake Beach Mayor Rich Hill said at a recent chamber luncheon that he expected a downward trend for two more years.
Housing prices in Round Lake Beach hit a low in the spring of 2009 when the average home price was $100,917, Hill said. The village is working to educate residents on how to get help to either modify or refinance their mortgages. It has bought 12 hopeless cases -- houses in such bad condition they won't sell -- under a government program, hired a contractor to rehab them and put them back on the market.
"One eyesore in a community can drag down value of all the houses," Hills said.
There was a glimmer of hope in January, when "normal" houses began to come on the market.
"But sellers still have to discount their asking price," he said. "A year ago they were in shock. Now they've had time to swallow the bad news."
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets | | |
| | February 12, 2010 | | Wisconsin Housing and Economic Development Authority WHEDA | WHEDA's lending presence is a foundational element to Wisconsin's overall housing stability Wisconsin's affordable housing agency, which stopped making mortgage loans 17 months ago when the financial crisis left it unable to sell its mortgage bonds, plans to return to the market March 1, 2010 with a new loan product.
The new product from the Wisconsin Housing and Economic Development Authority, or WHEDA, is linked to a current administration initiative in which the U.S. Treasury will purchase securities of Fannie Mae that are backed by mortgage-revenue bonds issued by WHEDA and housing finance agencies in other states. WHEDA said it will be the first state housing finance agency to offer it.
WHEDA plans to release details about the new loan offering Friday at 11 a.m. at the WHEDA offices in Madison. The announcement will be Webcast live at www.wheda.com.
Until the markets for mortgage-related bonds froze in October 2008, WHEDA was able to raise money for its below-market interest rate mortgages to first-time buyers by selling mortgage-revenue bonds to investors. It was handling about $10 million in mortgages per week, and had been the lender of first choice for many buyers who qualified.
WHEDA Director Antonio Riley will be joined at the announcement Friday by Steve Hansen of Associated Bank, who is president of the Wisconsin Mortgage Bankers Association.
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets | | |
| | February 11, 2010 | | Banks face up to $300 billion in losses on commercial loans | If hundreds more community banks go under, the effect would be to ... dump sand in the gears of the economic recovery,elizabeth warren Over the next several years, failed commercial real estate loans could litter American cities with empty stores and office complexes, cause hundreds of bank failures and weaken the economy, a watchdog report says.
Banks face up to $300 billion in losses on loans made for commercial property and development, according to a report released Thursday by the Congressional Oversight Panel. The panel monitors the government's efforts to stabilize the financial system.
The report says the defaults could lead to reduced lending and cause the eviction of families from rental properties. Bank failures also could contribute to job losses and hurt the economic recovery.
Smaller banks are more vulnerable to the losses than their larger Wall Street counterparts. That's because commercial real estate makes up a larger portion of their portfolio.
The Federal Deposit Insurance Corp., which manages bank failures and insures deposits, is under stress that will intensify over the next few years, panel chairwoman Elizabeth Warren said in a call with reporters.
Small- and mid-size banks have been failing at the fastest rate since the savings and loan crisis of the 1980s and 1990s. The failures are due mostly to bad loans they made for commercial projects.
Banks often lent too much for land and buildings whose prices were inflated by a real estate bubble. They also relied on rosy assumptions about the profitability of retail and office projects and did not consider the possibility of a severe recession.
Commercial property values have fallen more than 40 percent in the past three years, the report notes.
Some have been unable to pay the loans. Others have stopped paying because they now owe more than the properties are worth. Losses are mounting for banks, more of which will close. That could spell trouble for the economic recovery, said Warren, a Harvard law professor.
"If hundreds more community banks go under, the effect would be to ... dump sand in the gears of the economic recovery," she said.
Unlike residential mortgages, commercial loans are refinanced every three to five years. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will come due for refinancing, the report says. For nearly half of them, borrowers could struggle to get new financing because they'll owe more than the properties are worth.
The report attributes the looming crisis to failures of bank management and supervision. It says banks made loans based on property values inflated by the real estate bubble. They sometimes acted carelessly "in a rush for profit," the report says. Banks and their regulators failed to consider the possibility of reduced consumer demand from a severe recession, the panel says.
The panel criticizes the Treasury Department and bank supervisors for not putting smaller banks through "stress tests" like those done last year on the nation's 19 largest banks. Warren notes that Treasury Secretary Timothy Geithner resisted calls to conduct public stress tests of smaller banks.
The Treasury Department referred to comments by Geithner that bank regulators routinely conduct such assessments confidentially.
Warren also noted that last year's tests gauged banks' strength only through 2010. The commercial real estate threat looms largest in 2011 and beyond.
The report says loan failures could weaken the financial system because banks that fear major losses will be less likely to lend. Economic recovery depends on the free flow of credit.
The report offers no specific recommendations. But it calls on the Treasury to enact a comprehensive plan to handle the expected crisis.
The bipartisan panel is one of three oversight bodies Congress mandated for the bailout at the height of the financial crisis in October 2008. It makes periodic assessments of how the government is managing the rescue program.
The bailouts also are subject to review by the Special Inspector General for the Troubled Asset Relief Program and the Government Accountability Office.
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets | | |
| | February 11, 2010 | | Pilot Program to Launch in Texas, Florida, Illinois, Michigan, New Jersey, and Ohio | At CitiMortgage, we're committed to finding every solution possible to help families facing foreclosure CitiMortgage today announced the Citi® Foreclosure Alternatives Program, a new pilot initiative that will allow distressed CitiMortgage borrowers to avoid foreclosure and remain in their homes for six months by agreeing to sign over their property deeds to CitiMortgage at the end of that period. In addition, Citi will provide relocation assistance to aid the borrowers’ transition to another residence at the end of the program. This expanded deed-in-lieu-of-foreclosure program, the latest in the Company’s series of initiatives to help distressed borrowers, is being piloted in Texas, Florida, Illinois, Michigan, New Jersey and Ohio, beginning February 12.
“At CitiMortgage, we’re committed to finding every solution possible to help families facing foreclosure. However, the reality is that not every homeowner has the financial ability to remain in their home,” said Sanjiv Das, CEO of CitiMortgage. “The goal of the program is to help homeowners make a smooth transition into the next chapter of their lives. The Foreclosure Alternatives Program is another tool in our ongoing efforts to find creative, innovative ways to help our customers across a variety of difficult financial situations.”
About the Foreclosure Alternatives Program
In exchange for the deed on their property, CitiMortgage will allow borrowers to stay in their homes for a period of up to six months. At the end of the six months, the borrower will turn over the property deed to CitiMortgage, and CitiMortgage will provide a minimum of $1,000 in relocation assistance to the borrowers. Citi will also provide relocation counseling by trained professionals and will cover certain monthly property expenses if Citi determines that the borrower can no longer afford them. Payment of utilities costs will be the responsibility of the borrower. Other costs incurred by the borrower, such as homeowner’s association and escrow fees, will be determined on a case-by-case basis considering the borrower’s specific financial circumstances. As part of the agreement, borrowers must maintain the property in its current condition and agree to bi-monthly meetings during which trained relocation professionals will help the borrower prepare for the next chapter of their lives.
Before a borrower enters the Foreclosure Alternatives Program, they must first be evaluated for a permanent mortgage modification. For those who do not qualify for a modification or another solution, CitiMortgage will explore the possibility of a short sale in which the company might accept a buyer’s offer for less than the outstanding amount of the mortgage. If a short sale is not feasible, then the borrower may be considered for the deed-in-lieu program. In addition, in order to be eligible, homeowners must hold first mortgages with a clear title owned by CitiMortgage, occupy the property, and be at least 90 days delinquent on their mortgage payments.
As it evaluates the progress of the pilot program, CitiMortgage will assess whether or not to expand the program to other parts of the United States. The initial pilot is expected to help as many as 1,000 families.
“We hope others in our industry will join us in helping distressed borrowers across the country,” continued Das. “By helping avoid the foreclosure process, which can be very stressful and distracting, and keeping people in their homes long enough to make an orderly transition to the next stage of their lives, we are also supporting neighborhood revitalization and stabilization efforts, which are crucial to the nation’s economic recovery.”
While CitiMortgage has done deeds-in-lieu and short sales in the past, the company is increasingly looking to them as alternatives to foreclosures.
CitiMortgage Series of Initiatives to Help Homeowners
The Foreclosure Alternatives Program is the latest in a series of initiatives CitiMortgage has designed to help homeowners. Among the industry-leading programs and initiatives that Citi has put in place to help homeowners in distress are:
- Office of Homeownership Preservation (OHP) - Established in 2007, OHP provides a range of support services that go beyond modification of a mortgage loan, including an extensive partnership network with non-profit organizations that offer legal assistance, counseling and translation services to borrowers.
- Citi Homeowner Assistance Program (CHAP) – Launched in November 2008, CHAP includes a series of initiatives designed to proactively help potential at-risk borrowers remain current on their payments and ultimately in their homes.
- Citi Unemployment Assist Program – Since March 2009, this program serves as a bridge to longer-term solutions for certain qualifying recently unemployed and delinquent borrowers with Citi-owned mortgages. The program lowers monthly mortgage payments to an average of $500 for three months for most eligible borrowers, a cost below the national average rent for a one-bedroom residence, according to Citi Research.
To see the most recent comprehensive report about Citi’s foreclosure prevention efforts, please go to: http://www.citigroup.com/citi/fin/data/3q09_datareport.pdf?ieNocache=297
For further information please call 1-866-781-0322 or visit www.citimortgage.com.
In addition to our efforts to keep people in their homes, Citi is actively involved in revitalizing America’s communities. For an update on our latest initiatives visit: www.citigroup.com/citi/community/.
Citi, the leading global financial services company, has approximately 200 million customer accounts and does business in more than 140 countries. Through Citicorp and Citi Holdings, Citi provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Additional information may be found at www.citigroup.com or www.citi.com.
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets | | |
| | February 10, 2010 | | Anchor Bank forecloses on Chicago developer Joseph Beale | A group led by longtime Chicago developer Joseph Beale faces a $7-million foreclosure lawsuit on a prime River North site after two development proposals there failed to materialize.
Madison, Wis.-based AnchorBank says the venture failed to pay off a loan that matured in May 2009 and that Mr. Beale, along with an executive at his firm, Jane Rodak, and investor Louis C. Waddle all personally guaranteed the loan.
Mr. Beale’s group bought the site, a small surface parking lot at the northwest corner of State and Illinois streets just behind Rock Bottom Brewery, for $5.7 million in 2006 with the AnchorBank loan.
Ms. Rodak, an executive vice-president with Chicago-based Hawthorn Interests LLC, says she hadn’t heard about the foreclosure suit, filed Jan. 26 in Cook County Circuit Court, and that Mr. Beale was traveling and unavailable.
Ms. Rodak says that after losing out on a boutique hotel and a John Barleycorn pub, Hawthorn now has a lease in place with upscale Mexican restaurant chain Cantina Laredo.
“At the end of the day the bank’s going to be paid,” Ms. Rodak says. “This is just a really crazy, crazy environment. But you know, we just plug away. Every day is a challenge.”
Mr. Waddle couldn’t be reached Tuesday.
The first near-miss for the site, given an address of 508 N. State, was a 2008 plan by Chicago developer Michael Reschke for a 15-story Gansevoort hotel. Mr. Reschke ultimately let his contract to buy the property lapse.
After that, well-known Lincoln Park pub John Barleycorn had a letter-of-intent agreement early last year with Hawthorn for a 20,000-square-foot bar and restaurant that would be the chain’s fourth location.
That deal fizzled several months ago, says Barleycorn owner Sam Sanchez, who cited escalating construction costs and high taxes.
“The numbers weren’t working,” he says.
Mr. Sanchez says his group is in talks for alternate River North locations — in existing buildings — for a Barleycorn and Moe’s Cantina, a Mexican tapas restaurant with one location next to the Barleycorn in Wrigleyville.
A call Tuesday to the parent company of Cantina Laredo, Dallas-based Consolidated Restaurant Operations Inc., wasn’t returned. The company is a franchise operation with 20-some Cantina Laredo locations, including ones in the Middle East.
AnchorBank in its lawsuit says the original $4.3-million mortgage to Mr. Beale’s venture, 508 Productions LLC, was amended in April 2008 to extend the maturity and increase the loan amount to $6.68 million. The maturity was extended to May 1, 2009, from Jan. 1, 2008.
AnchorBank says that in addition to the maturity default, the defendants failed to pay real estate taxes when due and sold the 2007 real estate taxes at a tax sale. The bank says it’s owed $6.98 million in principal, interest and late fees, and seeks possession for a foreclosure sale.
The suit also seeks $6.98-million judgments against Messrs. Beale, Waddle and Ms. Rodak on their guarantees. A separate Mr. Beale-controlled entity also provided a guarantee and is named as a defendant in the suit.
A spokeswoman for AnchorBank declines to comment. The bank’s lawyer in the matter, Andrew Eres of Chicago firm Stahl Cowen Crowley Addis LLC, couldn’t be reached.
Unless the Cantina Laredo deal comes together, it’s likely to be some time before the site gets developed, says Mr. Reschke, chairman and CEO of Chicago-based Prime Group Inc.
“I think it’s not going to happen for another year or two,” Mr. Reschke says. “It’s a hold strategy.”
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets | | |
| | February 10, 2010 | | Harris Bank Forecloses on Galt Airport | The economy is so weak, even airports are facing foreclosure.
Harris Bank has sued to collect about $14.3 million on an unpaid loan on Galt Airport in northwest suburban McHenry County, a 60-year-old airfield for private pilots that in recent years has also become an outdoor concert venue.
For many years, small private airfields have struggled to stay in business, threatened by urban sprawl, increasing regulation and the expanding airspace of major airports like O’Hare International Airport. Now, the economy may be posing a new challenge.
“As soon as money gets tough, one of the first things you do is stop flying because, gee, it’s expensive,” says Evanston author Laurence Gonzales, who wrote the 1993 book “One Zero Charlie: Adventures in Grass Roots Aviation” about the airport’s original owner and Mr. Gonzales’ own exploits as a stunt pilot.
The airfield, at 5112 Greenwood Road in Wonder Lake, is controlled by Ivan Djurin, a real estate investor and licensed flight instructor. In addition to the airfield lawsuit, filed Jan. 26 in McHenry County Circuit Court, Chicago-based Harris Bank sued the same day to collect about $3.3 million on a Lake Forest house controlled by Mr. Djurin, according to notices of the complaints filed with the recorders’ offices of McHenry and Lake counties.
The airfield does not have a control tower and features a 3,000-foot paved runway.
Mr. Djurin, of Lake Forest-based North Street Properties, did not return messages requesting comment.
Copies of the complaints could not be obtained and reasons for the alleged loan defaults could not be deternined. It is unclear whether the litigation also involves any of North Street’s holdings. The company owns six apartment properties: three in Pennsylvania, two in Kentucky and one in south suburban Richton Park, and three hotels in Lexington, Ky.
Harris is suing to collect a $13.5-million loan issued in 2006. The loan currently requires monthly payments of principal and interest of about $98,500. A balloon payment of $12.7 million is due in June 2011. The annual interest rate is 7.25%.
A bank spokesman declines to comment, except to say, “We worked with Mr. Djurin, like we do with all of our customers at Harris, looking to . . . help them with the financial challenges they may be facing.”
Two ventures managed by Mr. Djurin bought the airfield in 1998 from its original owner, Arthur T. Galt Jr., who died in 2002. The Djurin ventures paid $2.1 million, property records show. The field is called “One Zero Charlie” for its Federal Aviation Administration designation, 10C.
The Djurin ventures estimate that Galt’s combined takeoffs and landings total about 44,000 a year, according to reports filed with the FAA. The estimate hasn’t changed in 10 years, an FAA spokesman says.
In recent years, the sprawling airfield’s grounds also have been the site of concerts, including a 40th anniversary celebration last year of the 1969 Woodstock music festival in upstate New York.
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"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets | | |
| | February 09, 2010 | | HELOC Home Equity Lines of Credit | Amherst Securities Group back in March 2009 warned the administration?s Home Affordable Modification Program (HAMP) would be detrimental first lien holders in private-label RMBS Silent Second Lien Risk to RMBS Getting Louder
Second liens, commonly made in the form of home equity lines of credit (HELOCs), are so far a silent hazard to first lien bond holders in residential mortgage-backed securities (RMBS), as many of these investors may not even know if a second lien is tied to their collateral investment.
And as the press continues to focus on subprime fall-out, strategic default and option ARM resets, experts warn that these “silent second” HELOCs may become a much louder problem, according to converging data from a consumer credit agency and securities research.
They say that investor claims on the underlying assets are potentially compromised by federally-subsidized modifications of first liens. In the short term, investors of RMBS may see reduced cash flow as the borrower’s second lien debt is piled onto the underwater property, further constricting household finance. Along a longer timeline, the risk of default rises as negative equity increases.
HELOCs were common in 2002 in cases where homeowners put 20% or 25% down. Homeowners often opened home lines of credit to access the equity in their homes – even as early as the closing table. Getting closer to 2007, less and less money was being put down on homes, though the rate of HELOC origination did not necessarily slow.
Once house prices began to fall, the presence of second liens became a major issue to first lien holders. Not only were borrowers increasingly trapped in negative equity positions on first liens, but additional debt from second liens placed all the more financial pressure on performance. Additionally, some RMBS analysts say first lien holders also lacked clarity regarding which first lien assets are also secured by second liens. First lien RMBS investors were not automatically notified when second liens were made on the underlying property.
Amherst Securities Group back in March 2009 warned the administration’s Home Affordable Modification Program (HAMP) would be detrimental first lien holders in private-label RMBS.
Holders of second liens are not forced to participate in HAMP, and “acute” conflicts of interest arise between servicers and investors, especially when the servicer of the first lien also services the second lien. HAMP also “violates the time-honored” cash flow priority where second liens are written off before cash flow on the first lien suffers, Amherst said.
The plan for federal modifications “in combination with the servicer safe harbor [that protects servicers from legal backlash for complying with the Truth in Lending Act], leaves the current first lien holders with no protection,” said Laurie Goodman and Roger Ashworth from the Amherst team. “It is the equivalent of having the fox guard the hen house, with the fox in possession of the only set of keys.”
Goodman and Ashworth added: “And it potentially corrupts the integrity of the securitization market. In any structured security, the prioritization of claims is integral to valuation. Once the precedent is set to violate this hierarchy, by making the first liens holders incur losses without touching the second lien cash flows, the integrity is breached.”
Nearly a year later in January 2010, the Amherst MBS strategy group was still warning of the prevalence of second liens by product type (illustrated below) – which will become a much louder issue if federal modifications begin to focus on principal reduction.
“Lien priority dictates that the first mortgage cannot be written down until the second is extinguished,” Amherst said. “And second liens are not an inconsequential factor; they appear disproportionately on the books of the largest banks, so extinguishment would impact the capital position of these institutions.”
The Amherst team used the First American CoreLogic LoanPerformance Securities and and LoanPerformance TrueLTV databases to determine that more than 50% of first liens in private-label securitzations have second or higher liens behind them. The presence of this second lien raises the combined loan to value (CLTV) by more than 20 points and takes a “significant adverse impact” on the performance of first liens.
Amherst also found simultaneous second liens are more prevalent for 2006-2007 vintages, while subsequent seconds were more common within earlier vintages from 2002-2005. Default frequency is worse on simultaneous seconds than on subsequent seconds.
And as defaults rise overall in RMBS, borrowers’ use of revolving credit has also increased.
Consumer credit bureau Equifax adds that not only are CLTV ratios on current loans not widely understood, but the entire issue is under-reported in the press. In that report, 25% of borrowers with current Alt-A loans had closed-end seconds in July 2009, up from just 10% in July 2005. Equifax also indicated 23% of prime borrowers getting high use (80%) of revolving credit lines in July 2009, from 17% four years earlier. Similarly, 22% of Alt-A borrowers now have high use of revolving lines, compared with 10% in July 2005. 20% of subprime borrowers are now getting high use out of their revolving credit, compared with 10% in July 2005.
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| | |
| | February 08, 2010 | | 3045 S Karlov Avenue Chicago IL 60623 | 
Resale Opportunity in Chicago IL
3045 S Karlov Avenue Chicago IL 60623
Completely updated legal 2 flat. Two units with 2 bedrooms each. 2nd floor unit encompasses 2 floors with large loft upstairs. Perfect for live in rent out other unit.
Qualifies for FHA financing and first time homebuyer tax credit.
Annual Cook County taxes are $3,287.74
Click here for further detail
Click here for the public MLS data sheet
A & N Mortgage Services, Inc. is the preferred lender on this resale opportunity.
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets
| | |
| | February 07, 2010 | | State Street Bank and Trust pays $313M fine to the Securities and Exchange Commission (SEC) | One of the strongest sanctions yet for behavior during last decade?s credit boom State Street Pays out $313M in Subprime Mortgage Case
State Street Bank and Trust agreed Thursday to pay the Securities and Exchange Commission (SEC) $313 million to settle claims that it misled a select group of investors about their exposure to subprime mortgages.
Click here for the Securities and Exchange Commission press release 2010-21
Click here for the SEC Order Against State Street Bank and Trust Company
The Boston-based money manager said in a statement to the press that the allegations centered around losses incurred from certain fixed-income strategies managed by State Street Global Advisors during 2007 and earlier periods. “In reaching these settlements, State Street has not admitted or denied the allegations made by the regulators,” the statement read.
According to charges filed by the SEC, as well as the Massachusetts Securities Division and the Massachusetts attorney general’s office, State Street told certain investors that fund assets were diversified, when instead they were invested almost entirely in high-risk subprime mortgages.
At the same time, the company disclosed to its more elite clientele that the fund was a money-loser and advised them to cash in early. State Street’s own pension fund was one of the investors privy to this information.
The $313 agreement reached Thursday is in addition to nearly $350 million State Street has already paid to investors to settle private claims of misrepresentations surrounding subprime mortgage investments.
(C) Lincoln Foreclosure Solutions
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| | |
| | February 06, 2010 | | Delinquent $1.6 million loan from M&I Bank | Foreclosure suit targets Franklin development site
A foreclosure suit targeting a development site in Franklin is proceeding, even as the property's owner tries to give the land to the bank that is suing him.
Fountains of Franklin LLC, owned by developer David Hintzman, is delinquent on a $1.6 million loan from M&I Bank, according to the lawsuit filed in Milwaukee County Circuit Court.
The loan is secured with a 9.5-acre parcel at 5610 W. Rawson Ave., said Russell Long, the bank's attorney.
Hintzman personally guaranteed the loan, which was due Sept. 1, according to court records.
Fountains of Franklin, in its defense, said the land is worth substantially more than the amount owed.
Hintzman offered to give the land to M&I to prevent a foreclosure suit, court documents said.
The bank declined that offer, which Fountains of Franklin says amounts to bargaining in bad faith.
Long, however, said M&I is not obligated to accept property instead of filing a foreclosure suit.
He also questioned the claim that the land is worth more than the defaulted debt, which includes interest that has been accumulating daily.
M&I is seeking a summary judgment in the case. A hearing on that request was set this week for March 3.
In 2006, Hintzman proposed the Fountains of Franklin retail and office center for the site.
A separate phase of that development was built a few blocks to the east, and includes a Sendik's Food Market that opened in 2007 at 5200 W. Rawson Ave. That part of the development is not involved in the foreclosure action.
Hintzman also is involved in a dispute with a neighbor that owns property between the Fountains of Franklin lot and the shopping center.
Fountains of Franklin sued its neighbors, Leonard and Verna Fox, in 2008 claiming their businesses, Castle Concrete Products and Franklin Storage, had violated city zoning ordinances.
In court records, Fountains of Franklin said it would call witnesses who would testify about how those zoning violations affected the ability to market the development site.
The Foxes denied those claims, which also brought an enforcement action from the City of Franklin.
A settlement of that enforcement action is now pending, according to court records.
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| | |
| | February 06, 2010 | | Beefing up reserves to cover bad loans | Despite the third-quarter loss, we continue to make progress toward upgrading our credit quality standards, strategically repositioning our balance sheet and, most importantly, returning the bank to profitability Anchor Bank parent reports $12.2 million loss, says progress being made
The parent company of Anchor Bank said Friday it lost $12.2 million in the quarter ended Dec. 31 as it beefed up reserves again to cover bad loans, but its chief executive said Anchor is making progress.
A year ago, Madison's Anchor BanCorp Wisconsin Inc. posted a $167.3 million loss in the period, which is the third quarter of the company's fiscal year.
Chris Bauer, a former U.S. Bank executive who was brought in last year to help turn Anchor around, noted that while the quarterly provision for loan losses remained high at almost $10.5 million, it was down $50.4 million from the previous quarter and $82.5 million lower than in the Dec. 31, 2008, quarter.
"Despite the third-quarter loss, we continue to make progress toward upgrading our credit quality standards, strategically repositioning our balance sheet and, most importantly, returning the bank to profitability," Bauer said. "These results show signs that we're moving in the right direction."
Anchor, which is the fourth-biggest bank based in Wisconsin, said nonperforming assets dropped by $109.1 million, or about 24%, from the previous quarter. That reflected some improvement in certain customers' ability to make payments under restructured terms, Anchor said.
The bank wrote off $16.6 million in bad loans in the quarter, compared with $29.7 million in the previous quarter. Anchor's commercial loans, particularly those for construction and development projects, have been its most troublesome.
In December, Anchor announced a $400 million investment and recapitalization plan. In part, the plan would require the U.S. Treasury to approve the conversion of $110 million in preferred shares - its TARP investment in Anchor - to common stock.
The recapitalization plan, which stops short of an acquisition, would give a company headed by Chicago investment banker Steven D. Hovde about 95% ownership of Anchor, which would remain publicly traded.
Before the announcement, shares of Anchor closed up 2 cents at $1.06.
Anchor BanCorp Wisconsin Inc.
| 3rd quarter |
|
|
% |
| 12/31 |
2009 |
2008 |
change |
| |
|
|
|
| Net income |
-$12.2 |
-$167.3 |
N.A. |
| EPS (diluted) |
-0.58 |
-7.96 |
N.A. |
| 9 months |
|
|
|
| |
|
|
|
| Net income |
-$153.6 |
-$185.0 |
N.A. |
| EPS (diluted) |
-7.26 |
-8.82 |
N.A. |
Figures in millions except for earnings per share. Percentages are based on unrounded sales and income figures.
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| | |
| | February 05, 2010 | | John Dugan Comptroller of the Currency | Done correctly, securitization helps consumers and businesses by increasing the availability of credit on terms that might otherwise be unavailable
In remarks at the American Securitization Forum’s (ASF) annual convention in Maryland this week, Comptroller of the Currency John C. Dugan urged policymakers to instead focus reform efforts on strengthening loan underwriting standards. He said improving loan quality would play a much larger role in reforming secondary markets than risk retention proposals that could hamper an already-tenuous securitization industry and further diminish credit availability.
“Done correctly, securitization helps consumers and businesses by increasing the availability of credit on terms that might otherwise be unavailable,” Dugan said.
The secondary market for residential mortgage-backed securities (RMBS) has essentially screeched to a complete halt since the subprime crisis set in, and the trading of commercial mortgage-backed securities (CMBS) just broke its gridlock last November when Developers Diversified Realty and Goldman Sachs completed the first new-issue offering in more than a year.
The stalled secondary market has been one of the reasons banks have held on to credit so tightly. For years, banks have been able to sell bundled mortgages in the secondary market as a means of freeing up liquidity for more lending, but along with passing the debt, accounting rules and regulations also allowed them to pass off the risk associated with those loans to investors.
Dugan stressed to ASF attendees “just how important securitization is to our economy,” but also acknowledged that the process “played a significant role in the crisis, and nobody should think that we can just wait for the market to stabilize and then go back to business as before.”
Also speaking at the ASF convention, Michael Barr, assistant Treasury secretary for financial institutions, echoed Dugan’s sentiments that “We cannot build securitization on old infrastructure.” Barr said the packaging and selling of asset pools “must be governed by rules,” and provide transparency.
Along this line of new rules, federal regulators have adopted new accounting guidelines that require banks to bring securitized mortgages back onto their balance sheets to better align risk and related capital reserves.
On top of the new mathwork, the House has proposed requiring banks and other loan securitizers to retain at least 5 percent of the risk associated with the debt they package into securities and sell to investors. The Senate has proposed a higher risk retention of 10 percent. Such a statute is intended to ensure lenders have a greater interest in ensuring the loans are sound and borrowers have the ability to repay.
The lack of such “skin in the game” has become clearly evident with skyrocketing delinquency rates of both RMBS and CMBS loans issued at the height of the real estate boom.
But Dugan says the double jeopardy accounting rules and proposed risk retention requirements create a potential problem.
“Where a securitizer retains a material risk of loss on loans transferred in a securitization, the new accounting and regulatory capital rules may require that all loans in the securitization vehicle be kept on the bank’s balance sheet – not just the amount of risk required to be retained,” Dugan said. “This could significantly increase the regulatory capital charge for such securitizations.”
The comptroller said a better and more direct way to assure sound underwriting for all mortgages, regardless of whether they are sold or held, would be to set minimum standards by regulation and stipulate that if the standards were met, there would be no need for skin-in-the-game risk retention requirements.
“We could do this,” he said. “Bank and thrift regulators could establish minimum underwriting standards for all mortgages originated, purchased, or sold by banks, thrifts, and – very importantly – by all of their affiliates. The Federal Housing Finance Agency could ensure similar treatment for all mortgages purchased or accepted as collateral by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. And the Federal Housing Administration, which already establishes minimum underwriting standards for U.S. government-guaranteed mortgages, could coordinate those actions with the other regulators.”
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| | February 05, 2010 | | Initiatives to manage and streamline the bank’s efforts to use short sales and other property liquidation tools to prevent foreclosures | The distressed economy is creating extraordinary volume on mortgage servicers in short sales and post-foreclosure REO activities According to a recent company announcement, Matt Vernon has been named short sale and real estate owned (REO) executive for Bank of America Homes Loans.
In his new position, Vernon will develop and implement initiatives to manage and streamline the bank’s efforts to use short sales and other property liquidation tools to prevent foreclosures. In addition, Vernon will oversee the management and marketing of properties in the bank’s REO portfolio.
“The distressed economy is creating extraordinary volume on mortgage servicers in short sales and post-foreclosure REO activities,” Vernon said. “We know we need to improve processes and efficiencies in these areas. We have
begun taking productive steps, and I look forward to working with real estate professionals, customers, investors, and our team on ways we can accelerate that progress.”
Vernon, a 15-year veteran of the financial industry, moves to the loan servicing division from roles in the bank’s residential mortgage origination business. His most recent position in new loan production was as enterprise sales executive, leading mortgage originations and cross-selling efforts through Bank of America’s network of more than 6,000 banking centers.
Previously, Vernon led the bank’s consumer real estate retail sales channel, overseeing 150 offices and more than 2,000 mortgage loan officers. He began his Bank of America career in a banking center in Baltimore and was promoted to broader leadership positions to become division executive sales manager over 479 banking centers in five Mid-Atlantic states before moving into consumer real estate financing.
“Throughout his 15 years with Bank of America, Matt has demonstrated tremendous acumen in strategic planning, performance, customer focus and, other areas that will serve him well in his new position,” said Rebecca Mairone, national servicing executive for Bank of America Home Loans. “This gives him a clear understanding of realty markets and the real estate professionals who play such an important role in short sales and REO marketing.”
(C) Lincoln Foreclosure Solutions
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| | |
| | February 04, 2010 | | Credit cards before mortgage payments | More borrowers than ever before are choosing to pay down credit card debt over making mortgage payments.
The share of borrowers who are delinquent on their mortgages but current on their credit cards rose to 6.6% as of Q309 (from 4.3% in Q108), according to national credit bureau TransUnion.
At the same time, the share of borrowers that are delinquent on credit cards but current on their mortgages slipped to 3.6% from 4.1%.
This switch first appeared in early 2008, when TransUnion reported the share of borrowers current on credit cards and delinquent on mortgages surpassed the share of borrowers current on mortgage payments and behind on credit cards. Since then, the shift of borrower behavior in paying down debt is growing.
“Conventional wisdom has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages,” said Sean Reardon, author of the TransUnion study on the changing payment hierarchy from Q208 through Q309.
“Increasingly more consumers are paying their credit cards before making mortgage payments,” Reardon added. “This analysis reaffirms the results of a previous TransUnion study that examined data between the third quarter of 2006 and the first quarter of 2008.”
The study, based on a database of 27m consumer credit records, found the magnitude of delinquency is significantly higher in the lowest credit scoring segment, opposed to delinquency in the total market. The payment priority shift to credit cards over mortgages is even more pronounced in sand states like California and Florida, which experienced a more severe housing bubble effect, TransUnion said.
“The implosion of the mortgage industry over the last 24 months, the resetting of adjustable-rate mortgages and the weak job market have all come together to redefine how consumers are managing their finances and meeting (or not meeting) their credit obligations,” said Ezra Becker, director of consulting and strategy in the TransUnion financial services business unit.
Becker added: “The financial services industry must recognize and adjust to the payment hierarchy shift with judicious modifications to business models, new assessments of specific areas of risk, and by strategic revisions to acquisition and account management strategies.”
Another national credit bureau, Equifax, recently released analysis that indicates home equity lines of credit (HELOCs) represent a significant portion of borrowers’ revolving debt and, thus, a huge driver of default.
TransUnion saw mortgage loan delinquency rise for the 11th straight quarter in Q309. Based on credit performance of 27m consumers, however, mortgage delinquencies of 60 or more days should drop nearly 3% by year-end 2010 to 6.39%, from an expected 6.56% at year-end 2009.
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets
| | |
| | February 03, 2010 | | Bank of America, J.P. Morgan and Wells Fargo vie with insurers, Fannie, Freddie | Just when they thought the worst of the mortgage crisis was behind them, billions of dollars in bad loans from the debacle may be rising from the dead and creeping back on the balance sheets of the largest U.S. banks.
Big lenders including Bank of America, J.P. Morgan Chase and Wells Fargo may be forced to repurchase troubled home loans from insurers and mortgage-finance giants like Freddie Mac that had agreed to take on risks associated with those assets during the real estate boom.
The banks are setting aside more reserves to cover the potential costs of such repurchases, cutting into earnings.
The trend is also pitting big lenders, insurers and mortgage-finance institutions against each other. That's a big change from the previous decade, when they worked together to fuel the housing boom by originating, insuring and securitizing mortgages in record amounts.
Christopher Whalen, managing director of research firm Institutional Risk Analytics, offered up a colorful metaphor for the unfolding situation.
"The wave of loan repurchase demands on securitization sponsors is the next area of fun in the zombie dance party, namely the part where different zombies start to eat each other," Whalen wrote in a note to clients Tuesday.
Mortgage insurers such as MGIC Investment have rescinded, or refused to pay, roughly $6 billion in claims from delinquent home loans since January 2008, rating agency Moody's Investors Service estimated in a December report. That could leave banks that originated the loans on the hook for losses.
Bond insurers are expecting to recover more than $4 billion from banks for breaches of representations and warranties on residential mortgage-backed securities they guaranteed, Moody's also noted.
'All parties in the mortgage chain are taking a look at their rights and looking to bring claims.' -Michael Cavanagh, J.P. Morgan Chase
"Depending on how things go it certainly could go much higher than $10 billion," said James Eck, a senior analyst in Moody's Specialty Insurance team.
Meanwhile, government-controlled mortgage-finance giants Fannie Mae and Freddie Mac are also getting in on the act, potentially forcing banks to repurchase billions of dollars more in bad loans.
In the first nine months of 2009, firms that collect payments on mortgages guaranteed by Freddie Mac repurchased home loans with a total unpaid balance of $2.7 billion. That was up from $1.2 billion in the same period of 2008, Moody's noted.
Vulnerable to potential exposures
Bank of America and Wells Fargo may be particularly exposed on this front, according to Institutional Risk's Whalen.
Fannie and Freddie "are going to tear 50-100 basis points easy out of the flesh of the banking industry in the form of loan returns," he wrote.
Wells Fargo said last month that $1.2 billion in fourth-quarter income from mortgage loan originations and sales included a $316 million increase in reserves to cover loan repurchases. The bank disclosed no such reserves in its third-quarter earnings release.
It's a similar situation at Bank of America. Joe Price, the company's head of consumer banking, told analysts last month that the company has billions of dollars in reserves lined up to cover loan repurchases and related disputes with Fannie, Freddie and insurers.
'We wanted to make sure we were paying all appropriate claims, not inappropriate claims.' -Michael Fraizer, Genworth Financial
"I would be disingenuous if I didn't say people were throwing everything over the wall then can, because they are," Price said during a January conference call with analysts.
Bank of America books "hundreds of millions of dollars" in reserves for these risks each quarter, he added.
At J.P. Morgan Chase, the company's retail division reported its first quarterly loss in nearly two years in January, partly because it had to set aside more reserves for loan repurchases.
"Obviously it's picked up," Michael Cavanagh, J.P. Morgan Chase's chief financial officer, said recently.
"All parties in the mortgage chain are taking a look at their rights and looking to bring claims," he said during a conference call with analysts. Cavanagh didn't disclose details of the company's reserves covering these risks.
The process takes a long time because each disputed loan has to be scrutinized to see if the originator should buy it back or whether the risk should stay with the insurer or Fannie and Freddie.
Legacy of Countrywide
Bank of America's Price said the company is still resolving similar disputes from a business that it exited in 2001.
A lot of Bank of America's more-recent exposure comes from its 2007 acquisition of mortgage lender Countrywide Financial.
In September, MBIA sued Countrywide, alleging that the lender "fraudulently induced" the bond insurer to guarantee securities backed by home-equity lines of credit and second-liens.
MBIA claims Countrywide didn't underwrite the home loans properly because it was trying to gain more market share during the real estate boom. The bond insurer said that it already paid out $1.5 billion on these guarantees and that it remains exposed to "several hundred million dollars more," according to the suit.
Bank of America is fighting back on some of these claims. Countrywide sued MGIC Investment in December, on the grounds that the mortgage insurer is improperly denying millions of dollars in valid claims on defaulted home loans.
Countrywide said that MGIC knew much about the lender's underwriting policies and that it only questioned them after the real estate market collapsed and claims spiked.
"As long as the real estate market remained relatively strong, and claims levels remained moderate, MGIC was happy to collect premiums on loans that were made based on existing underwriting practices, about which it was fully aware," Countrywide said in the suit.
From allies to adversaries
Disputes such as these are sparking increased tensions between companies that previously worked closely together during the real estate boom.
For mortgage insurers, this means that customer relationships may be damaged and that the perceived value of their coverage may fall, Moody's warned back in December.
"This remains a source of tension in the industry," said Michael Fraizer, chief executive of Genworth Financial, which owns one of the largest mortgage insurers. "No one can be happy, but you have to approach the issue professionally. We wanted to make sure we were paying all appropriate claims, not inappropriate claims."
Genworth saved $847 million in 2009 from loss-mitigation efforts, including mortgage insurance policy recissions and loan modifications. Recissions accounted for roughly two-thirds of these savings, the insurer noted.
In 2010, Genworth expects loss mitigation to generate the same level of savings, or more. Recissions will make up less of the total, while mortgage modifications are set to pick up.
Battles like these may be more important for bond insurers and their mortgage counterparts than the big banks, according to Moody's.
"For a large bank, it could be an earnings event for a quarter, rather than something that really depletes capital," said David Fanger, a senior vice president on Moody's banking team.
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| | |
| | February 03, 2010 | | Valid for purchases prior to May 1, 2010 |
Fannie Mae says it will cover the closing costs on purchases of its REO homes – an incentive the GSE hopes will help it pare down a bloated supply of repossessed foreclosed properties.
The nation’s largest mortgage financier has announced a temporary seller-assistance program under which people purchasing a property through HomePath, Fannie Mae’s REO disposition operation, will receive up to 3.5 percent of the final sales price, which can be applied toward closing costs or used to purchase appliances for their new home.
The offer is available to any owner-occupant who closes on the purchase of a property listed on HomePath.com before May 1, 2010, the company said. In addition, many Fannie
Mae-owned properties are eligible for special HomePath Mortgage and HomePath Renovation Mortgage financing, with as little as 3 percent down.
“Attracting qualified buyers to the market and reducing the inventory of vacant homes is critical to stabilizing neighborhoods and helping the market recover,” said Terry Edwards, EVP of credit portfolio management for Fannie Mae. “Many families are taking advantage of the federal homebuyer tax credit to buy a new home so this is a great time for Fannie Mae to offer some additional help.”
Recent data from Fannie Mae show an increase in the acquisition of foreclosed properties and an escalating rate of seriously delinquent loans, which means even larger volumes of REOs could be coming down the pipeline.
According to the GSE’s most recent quarterly filing, Fannie Mae acquired 98,428 homes through foreclosure during the first nine months of last year and sold 89,691 REO properties during the same period. But at the end of September, Fannie Mae still had 72,275 REO properties on its books, marking a 7 percent increase year-over-year.
Furthermore, Fannie Mae’s monthly summary shows significant growth in seriously delinquent single-family mortgages held or guaranteed by the company. Up from 2.13 percent in November 2008, loans three or more months behind in payments or in the foreclosure process soared to 5.29 percent in November 2009.
(C) Lincoln Foreclosure Solutions
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| | |
| | February 02, 2010 | | Paperwork Eased in Loan-Modification Program | Many people have waited months only to find out they're not elgible for assistance under Making Home Affordable. During the waiting period to hear help isn't available their financial condition got substantially worse.
The current administration is trying to simplify the paperwork for people seeking lower home-mortgage payments in an effort to avert more foreclosures.
The Treasury outlined new guidelines Thursday aimed at streamlining requirements for mortgage relief under the administration's Home Affordable Modification Program launched a year ago.
The guidelines specify that borrowers must provide three items to loan servicers, the companies that collect mortgage payments: a form requesting a loan modification, authorization for the servicer to seek tax information from the Internal Revenue Service and evidence of income, such as two recent pay stubs. Previously, some servicers have asked borrowers to fax in copies of their tax returns. Borrowers sometimes couldn't find the needed tax forms or complained that servicers repeatedly lost material faxed to them.
The previous documentation requirements were "somewhat overwhelming" for some borrowers, says Morgan McCarty, head of mortgage servicing at Regions Financial Corp., a banking company based in Birmingham, Ala.
The Treasury also said that, effective June 1, servicers must collect the information before starting borrowers on three-month "trial" loan modifications, during which borrowers must show they can make the payments before being granted a permanent reduction in their loan costs. Many servicers have been starting trial modifications based on unverified information provided orally by the borrower, only to find later that the borrower wouldn't or couldn't provide documentation.
As of Dec. 31, about 900,000 borrowers had been given trial modifications but only 66,465 had been converted to a permanent fix. That largely reflects problems getting documentation. The Treasury acknowledged that some of those 900,000 borrowers won't end up qualifying for a loan modification through the program.
As of Sept. 30, about 7.5 million households—about 14% of those with home loans—were behind on payments or in the process of foreclosure, according to data from the Mortgage Bankers Association, a trade group.
Many of those struggling borrowers owe far more to their lenders than the current value of their homes—a condition known as being "underwater"—and wonder whether it is worthwhile to keep paying. Micah Green, a partner at the law firm Patton Boggs in Washington who represents some large investors in mortgages, says the administration should revamp the program to put more stress on reducing principal owed by borrowers who can show that they would be able to stay current on a smaller, refinanced loan. In many cases, that would require the holders of both a first- and a second-lien loan to accept a write-down of the amount owed, a complicated process.
Treasury officials said Thursday they were looking at ways of helping underwater borrowers but haven't found practical means of doing that on a large scale. "There are no simple solutions," Herb Allison, an assistant Treasury secretary, said in a press briefing.
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets
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| | February 02, 2010 | | Downturn creates commercial buyers market |
Atlanta-based Regent Partners LLC and TriGate Capital have joined forces to form a $400 million fund to invest in commercial real estate. It’s just one more sign that the downturn in the sector has created a buyer’s market of incredible bargains.
According to the firms, the Regent-TriGate Property Fund I will focus on the recapitalization of real estate assets primarily in Atlanta, as well as other markets in the Southeast, that require both capital and management expertise.
A congressional oversight panel recently headed to Atlanta to hold a field hearing on the potential reach of commercial real estate troubles. Atlanta was chosen as the destination because that market has been hit particularly hard and many experts believe Atlanta’s experience could eventually stretch to other parts of the country.
A report by the local Atlanta Business Chronicle the investors will acquire primarily distressed office buildings, hotels, and high-rise residential towers over the next two years.
“We believe that Regent-TriGate will offer management and capital solutions to lenders and owners of large, complicated real estate assets that are in need of recapitalization,” said David Allman, chairman of Regent Partners. “It is our belief that market participants will be looking to firms that have capital, but also have the ability to add value to real estate through intensive management and redevelopment.”
According to a statement from the firms, the Regent-TriGate fund is currently looking for opportunities to combine its operating, marketing, and repositioning expertise with financial restructuring. Potential transactions might include joint ventures with financial institutions that own or are secured lenders on properties, acquisitions of loans, and equity investment in properties that require recapitalization.
The fund will look to combine its capital with third party institutional partners to further augment its capital base for specific opportunities. In particular, Regent-TriGate believes it can add value to large developments that need new sponsorship in order to maximize the value of the assets.
“We believe that Regent’s redevelopment capability, management expertise, and knowledge of Southeastern real estate together with TriGate’s investment and financial structuring expertise will provide unique solutions to the real estate challenges that exist today,” said Jay Henry, managing member of TriGate Capital.
Since its inception in 1998, Regent Partners has acquired and developed more than 15 million square feet of office, residential, retail, and hotel space valued in excess of $2 billion. Regent’s signature project is the 50 story Sovereign building, a vertical mixed use tower on Peachtree Road in the Buckhead district of Atlanta.
TriGate Capital, headquartered in Dallas, Texas, says it is focused on investing in real estate properties, real estate secured loans and securities, and real estate companies through transactions that emanate from the need of financial institutions and property owners to restructure. TriGate’s principals have invested in more than $10 billion of real estate assets, and the company says it has raised its inaugural fund to take advantage of the current lack of capital in the commercial real estate market.
Peter Fish of Sterling Real Estate Capital helped to arrange the new property fund. Sterling is an Atlanta-based real estate private equity advisory firm.
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets
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| | February 02, 2010 | | GSEs’ forcing lenders to buy back billions in soured loans |
Defaults on home loans held by Fannie Mae and Freddie Mac continue to climb, but the two government-backed enterprises aren’t taking the losses lying down – at least not all of them. The GSEs’ are forcing lenders who sell them mortgages to buy back billions in soured loans.
Between them the two companies have an estimated $300 billion in single-family home loans that are at least 90 days past due, the Wall Street Journal reports. And their teams of auditors are working overtime to weed through the files and pinpoint underwriting missteps or income discrepancies that would warrant a buyback by the selling institution.
According to analysis by the Journal, Freddie Mac required lenders to buy back $2.7 billion of loans in the first nine months of 2009, a 125 percent jump from $1.2 billion a year earlier. Fannie Mae wouldn’t disclose its figure, but the Journal cited trade publication Inside Mortgage Finance, who reported Fannie made $4.3 billion in loan-repurchase requests in the first nine months of 2009.
“Because taxpayers are involved, we’re being very vigilant,” Maria Brewster, who manages Fannie Mae’s repurchase team, told the Journal. “No taxpayer should have to pay for a business decision that caused a bad loan to be sold to Fannie Mae.”
The financial publication says the biggest losers are likely to be Bank of America Corp., J.P. Morgan Chase & Co. and other large mortgage lenders who led the pack in originations when the housing bubble burst.
Big banks are also taking a hit from mortgage-backed securities (MBS) investors who are returning loans with underwriting flaws in bulk. A report from Barclays Capital found that during the first nine months of 2009, lenders repurchased just over $14 billion in loans that had been bundled into MBS packages – that figure is up from $3.6 billion 12 months earlier.
Barclays warned that forced loan buybacks could wipe out a significant chunk of the origination profits recorded by banks last year.
As big lenders find themselves bringing bad loans back onto their books, more and more community banks are seeing interest from discerning buyers for assets already identified as nonperforming.
A separate report from American Banker says loan sales helped a growing number of community banks push some of their problems out the door in the fourth quarter, with such transactions increasing in popularity and likely to become a trend among community banks in 2010.
“You can carry nonperforming loans, but the question is: How are you going to resolve them?” Thomas O’Brien, president and chief executive of State Bancorp Inc., explained to the trade publication. “We elected to get out and move on with business. We didn’t feel that we were, as bankers, well-suited to act as developers or property men.”
According to American Banker, State Bancorp in New York, with $1.6 billion of assets, sold $22 million of legacy nonperforming loans in the fourth quarter of last year, reducing its nonperforming assets by 80 percent from the third quarter.
Others that struck deals cited by the banking publication included First Busey Corp. in Champaign, Illinois and United Community Banks Inc. in Blairsville, Georgia. First Busey sold $73 million of nonperformers in Q4 and cut its nonperforming asset total to $86.3 million, half what it was the previous quarter. And last week, United Community reported a sale for $81 million in nonperforming loans and foreclosed properties, helping to trim nonperforming assets by 8 percent from the third quarter, according to American Banker.
Although the loans are sold off with deep discounts, the paper says a growing number of regional community banks have had considerable success raising capital, which gives them a bigger cushion to absorb the markdowns and offer potential buyers a good deal.
Jason O’Donnell, a senior research analyst at the investment banking firm Boenning & Scattergood Inc., called this type of balance sheet clean-up “the next phase.” He told American Banker, “Liquidating assets in order to start moving forward is going to be a big theme in 2010.”
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets
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| | February 02, 2010 | | 1052 N Avers Avenue Chicago IL 60651 | 
Short Sale Opportunity in Chicago IL
1052 N Avers Avenue Chicago IL 60651
Legal 4 flat in Humboldt Park. All brick exterior. Most major systems updated 2005. Annual gross rental income $30,900. Fully rented.
Annual taxes are $5,211.78
Click here for further detail
Click here for the public MLS data sheet
A & N Mortgage Services, Inc. is the preferred lender for this short sale opportunity
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets
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| | February 02, 2010 | | Government's response to the financial meltdown could create deeper crisis | The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.
The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.
"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.
Since Congress passed $700 billion financial bailout, the remaining institutions considered "too big to fail" have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.
Barofsky also said his office is investigating 77 cases of possible criminal and civil fraud, including crimes of tax evasion, insider trading, mortgage lending and payment collection, false statements and public corruption.
One case concerns apparent self-dealing by one of the private fund managers Treasury picked to buy bad assets from banks at discounted prices. A portfolio manager at the firm apparently sold a bond out of a private fund, then repurchased it at a higher price for a government-backed fund. A rating agency had just downgraded the bond, so it likely was worth less, not more, when the government fund bought it. The company is not being named pending the outcome of Barofsky's investigation.
Barofsky renewed a call for Treasury to enact clearer walls so that such apparent conflicts are less likely.
Treasury said it welcomed Barofsky's oversight but resisted the call to erect new barriers against conflicts of interest. The new rules "would be detrimental to the program," Treasury spokeswoman Meg Reilly said in a statement. The existing compliance rules "are a rigorous and effective method of protecting taxpayers," she said.
Much of Barofsky's report focused on the government's growing role in the housing market, which he said has increased the risk of another housing bubble.
Over the past year, the federal government has spent hundreds of billions propping up the housing market. About 90 percent of home loans are backed by government controlled entities, mainly Fannie Mae, Freddie Mac and the Federal Housing Administration.
The Federal Reserve is spending $1.25 trillion to hold down mortgage rates, and millions of homeowners have refinanced at lower rates.
"The government has stepped in where the private players have gone away," Barofsky said in an interview. "If we take government resources and replace that market without addressing the serious (underlying) concerns, there really is a risk of" artificially pushing up home prices in the coming years.
The report warned that these supports mean the government "has done more than simply support the mortgage market, in many ways it has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private investor."
Barofsky's report echoed concerns raised by housing experts in recent months, as home sales and prices rebounded. They warn that the primary reason for the turnaround last year has been billions of dollars in federal spending to lower mortgage rates and prop up demand.
Once that spigot of cash is turned off, they caution, the market will be vulnerable to a dramatic turn for the worse. Daniel Alpert, managing partner of investment bank Westwood Capital, wrote in a report that national home prices are bound to fall 8 to 10 percent below the lows of last spring.
"The lion's share of the remaining decline will occur in markets that saw sizable bubbles but have not yet retrenched," he wrote.
Officials from the Obama administration counter that massive federal intervention has helped the housing market stabilize and prevented more dire consequences.
Barofsky's report also disclosed that, while the Obama administration has pledged to spend $75 billion to prevent foreclosures, only a tiny fraction — just over $15 million — has been spent so far. Under the Making Home Affordable program, only about 66,500 borrowers, or 7 percent of those who signed up, had completed the process as of December.
He said the key to preventing future crises is to reform Fannie Mae and Freddie Mac, create and improve loan underwriting and supervision of banks. He stopped short of endorsing specific proposals for overhauling financial regulation, but said many of the proposals would go far to improving the system.
(C) Lincoln Foreclosure Solutions
"Foreclosure With Integrity" is a registered service mark of Lincoln Foreclosure Solutions Lincoln Foreclosure Solutions is the National leader in handling Distressed Real Estate assets
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