Foreclosure moratorium - why?

[Brat]

The law is not always just. Mortgage writers are supposed to be know the law. They are at risk for not following the law. What is tragic is that holders of the securitized mortgages will loose too. Look for class actions against the banks and mortgage companies, maybe too the underwriters of the securities.

Could it be that the reason why lenders are hording TARP money is that they were aware of this risk?

 

[ChrisC]

I understand there is another mouse in this house, the paperwork in the securitization of mortgages is a mess. Title insurers have stopped writing policies on foreclosed properties and, it is rumored, that they are hesitating about writing where any mortgage has been securitized.

Ding, ding, ding: Mortgage Electronic Registration System (MERS). The Washington Post recently did a short article about this little known, but very important company in the mortgage securitization and foreclosure mess with the paperwork. A number of lawsuits raise interesting views on whether lenders and the mortgage industry got way ahead of themselves on electronic transfers of mortgages and liens (without the transfer of title) and a number of local recording offices are also challenging this enterprising privately developed system.

 

[youbet]

Now the banks are in the position of having to support their claims without documentation. If they cannot produce original documents as required then they may have no claim on the properties.

At the same time, the occupants of the home have no claim of ownership either. They hold no deed or title and there is no reason to issue them one.

If the banks failed to follow the requirements of keeping records as mandated by the government, but there is no doubt that they lent and the borrower borrowed, then the banks should be heavily fined for failure to follow procedures. But the borrower should still be required to repay the loan.

However this works out, I hope lenders get tough. They should be strong fidicuaries of the funds (ours) they are loaning out and have stiff requirements. Minimum 20% down, strong income requirements, excellent credit history, etc. No exceptions.

 

[Brat]

I also hope that the courts get tough and look at the mortgage from the beginning. Personally I expect that some were fraudulent at conception which could mean that the mortgage insurance is worth nothing to the lender. In most cases the borrower is underwater on the loan, the bank isn't going to pick that pocket.

Time to sit down with a bag of popcorn and watch the fight.

 

[Htown Harry]

Mass evictions? No. Riots and disorder would follow.

Right now, about 10% of all mortgages are delinquent. About 25% of housing sales nationwide are foreclosures and short sales. Generally speaking, the worst loans and the worst borrowers are being worked through the system at a somewhat steady pace. (Apparently with or without conforming paperwork.) While the housing market isn't robust anywhere in the country, it's approaching steady in many places.

I think an argument can be made that a lengthy nationwide moratorium will create a higher likelihood of unrest and sudden downward pressure on home prices down the road, because of a backlog of foreclosure property that would be released at the end of the moratorium.

BTW, I forgot one disclosure above: I never, ever voted for Phil Gramm.
Phil Gramm - Wikipedia, the free encyclopedia
Gramm
Subprime mortgage crisis - Wikipedia, the free encyclopedia

 

[ChrisC]

At the same time, the occupants of the home have no claim of ownership either. They hold no deed or title and there is no reason to issue them one.

If the banks failed to follow the requirements of keeping records as mandated by the government, but there is no doubt that they lent and the borrower borrowed, then the banks should be heavily fined for failure to follow procedures. But the borrower should still be required to repay the loan.

However this works out, I hope lenders get tough. They should be strong fidicuaries of the funds (ours) they are loaning out and have stiff requirements. Minimum 20% down, strong income requirements, excellent credit history, etc. No exceptions.

This might be an oversimplification of the extent of the problem. The record documentation issue affects many who have obtained "title" from foreclosure sales already completed (including my daughter who obtained one of these foreclosed properties) and title insurance companies (several of whom might not be issuing future policies for properties foreclosed in "nonjudicial" foreclosures).

The major problem isn't between borrower and lender, but how to ensure title passes, once the lender has "foreclosed" a title claim against the borrower and others with subordinate claims against the property. If the lender did not effect a proper foreclosure, then subsequent, purported owners of the property are at risk and clouds on title to the property will exist. If title insurance companies stop insuring foreclosure properties, this could be a major drag on the housing market.

 

[Ronstar]

At some point, people have to become accountable for their actions.

If the banks are illegally foreclosing, they should be punished per the laws.

If the homeowners have violated the terms of their mortgages, they should face the consequences for their violations.

The government should leave this mess alone, and let nature take it's course. But they feel they need to do something to save face before the elections. If they take measures to support the responsible parties, where will it stop? Why not eliminate responsibility for all debts?

 

[Nords]

At the same time, the occupants of the home have no claim of ownership either. They hold no deed or title and there is no reason to issue them one.

In Hawaii, and perhaps other states, the occupants do hold the deed/title.

Of course the lender also holds a lien, but they don't hold the title/deed. It's not like a car loan where you could drive the assets away overnight and never be seen again.

One blogger on BankRate.com doesn't object to making sure the lenders have their paperwork straight, but he says that any foreclosure conversation in front of a judge should include the question "So, are you paying your mortgage?!?"

 

[harley]

The law is not always just.

 

[Texas Proud]

TexasProud one of the reports I heard said that bankers were required under penalty of perjury to sign that had reviewed the paperwork before they could start the foreclosure process. It seems me one of the big problems we've had in this financial crisis is too many people are ignoring the the "Under penalty of Perjury" which is typically in big bold print.
I'll certainly sign (or lately click the I accept box) that I've not read thourghly, but the threat of perjury tends to stop me.

It wasn't that long ago we impeached a president for perjury. I'd like to see more people pay attention to it in the future.

There was not such language on the ones that I signed... BUT... I have a problem with that language..... I am NOT a lawyer... so I am not sure that we were doing things legal... that is why we had lawyers looking at the documents.... but since they were not trust officers they could not sign the documents...

SOOO, if this is similar to today's signing... you are in a catch 22 situation....

 

[Texas Proud]

There was a high profile case reported on CNN (Chase Bank have since apologized)

Bank breaks into home - over mortgage payments

Have not read to see if anyone responded....


But, this is not what was said that was happening... it was said that they were foreclosing on houses that were paid off.... she admitted she was behind on her mortgage... I am not agreeing on what happened to her, but it was not someone breaking into a house trying to foreclose on a paid mortgage...

If this is the only one, then I think the banks must be doing some things right... there has been millions of foreclosures... you would think there would be thousands of problems even if they were doing things right...

 

[Texas Proud]

So you are admitting to fraud, a felony?

I think that is the issue here. I have little sympathy for deadbeats. But banks MUST follow due process. To not do so and then sign documents confirming that the proper review was carried out and the bank officer had personal knowledge of it, which is required in some places, is perjury and possibly fraud on the part of the bank officer. Clearly it varies by jurisdiction. But the national banks ignored jurisdictional requirements and just followed their own rules. In many cases these rules were contrary to law.

No.... It was not my job to look at the paperwork... I signed as a trustee for the trust... we hired people who were responsible for doing all the legal work... as I mentioned in a post responding to someone else, I am not a lawyer and as such do not pretend to know all the legal issues...

Also, I did read the docs enough to know that it was a loan for the trust that I had and that it was the property that we wanted... ie, they were the ones not paying... I was being a bit to general on 'not reading anything'...

 

[Texas Proud]

Forgiving the loans would not be just. But it might be the legal out come in some cases. As I understand it, in some jurisdictions banks were required to keep physical paperwork documenting loans. That is inefficient so they kept electronic records only in their owns systems. While that made sense to them, it was not legal in some areas because it denied borrowers access to documents they might need to support a claim.

Now the banks are in the position of having to support their claims without documentation. If they cannot produce original documents as required then they may have no claim on the properties.

I don't think it is a sensible or just outcome. But the alternative is to not follow the law that required banks to maintain evidence of claims. That would not be just either.

When I was dealing with them... we had ALL the paperwork on every loan that the trust owned.... it was stored in a big vault that was fire proof...

Keeping records for 20 to 30 years is part of the process.... if they did not, then they should live with the problems...

BUT, a lot of places also allow anything that is filed in the county records to be legal.... and most have a lien with a mortgage attached... so all you do is have them print you another one and you are good to go....

 

[HFWR]

However this works out, I hope lenders get tough. They should be strong fidicuaries of the funds (ours) they are loaning out and have stiff requirements. Minimum 20% down, strong income requirements, excellent credit history, etc. No exceptions.

Oh, you mean be a bank...

One blogger on BankRate.com doesn't object to making sure the lenders have their paperwork straight, but he says that any foreclosure conversation in front of a judge should include the question "So, are you paying your mortgage?!?"

heh heh...

One would hope that, in all this mess, at least some of the judges are using "judgement".

 

[Cattusbabe]

In today's USAtoday
"Fight over who has legal right to foreclose makes mess worse"
Fight over who has legal right to foreclose makes mess worse - USATODAY.com

 

[M Paquette]

I'm not interested in the politics associated with things here. (Been there, done that, have the tee-shirt. I'm not on this forum for a political discussion.) And M Paquette - I've been here long enough to know I pretty much tend to agree with you.

But this? No links? It hits close enough to home - I plan to pay off the mortgage about 3 years early in 2012 - to ask for *something* more than you word about "a number of instances" or "a few outcomes".

With all due respect, mistakes can happen. You seem to imply something much more.

Peace.

Sorry! I'm on the road and posting from an iPod, so I don't have access to my usual pile of desk litter and clippings. The banks are making sufficient errors already that I think streamlining the process could have unfortunate side effects.

Let the existing process work. Don't let mistakes happen without proper recourse.

 

[Htown Harry]

Now I'm really discouraged...

From Diana Olick's blog on CNBC.com (highly recommended - she does her research before posting "news" issued by NAR, Case-Schiller and others):
News Headlines

The domino effect [of a nationwide moratorium] cannot be underestimated. "It will have an immediate negative impact on house sales volume, house prices, private label MBS investors, bank earnings, mortgage servicing values, and much more. It opens up all the servicers to a rush of litigation at an extent never experienced before from homeowners and investors alike. This scandal has the potential to make the Subprime crisis look like a minor market correction and at the end of the day, the nation's largest banks will feel the most pain," adds Hanson.

Let's hope this is just one mortgage "consultant" trying to make a name for himself by calling a market turn.

 

[clifp]

Now I'm really discouraged...

From Diana Olick's blog on CNBC.com (highly recommended - she does her research before posting "news" issued by NAR, Case-Schiller and others):
News Headlines

Let's hope this is just one mortgage "consultant" trying to make a name for himself by calling a market turn.

Ugh this is potentially really bad. The housing market needs this like Haiti needed an earthquake.

 

[Nords]

Now I'm really discouraged...
From Diana Olick's blog on CNBC.com (highly recommended - she does her research before posting "news" issued by NAR, Case-Schiller and others):

The domino effect [of a nationwide moratorium] cannot be underestimated. "It will have an immediate negative impact on house sales volume, house prices, private label MBS investors, bank earnings, mortgage servicing values, and much more.

Let's hope this is just one mortgage "consultant" trying to make a name for himself by calling a market turn.

I'm sorry, would this new self-imposed crisis cause mortgage lenders to try to revive a stream of applications by reducing points and possibly lowering their 30-year fixed rates even more?

One of our local banks actually blipped a 3.875% 30-year rate last Friday. It was gone on Saturday morning but today's 4% rate is at only one point...

 

[ChrisC]

Chop, chop, chop . . . . . JPMorgan Chase to Stop Using MERS | Mortgage News | Industry Advice for Mortgage Professionals

 

[dfdski]

First time back since Sunday - busy week so far. Interesting discussion. I spoke my opinion earlier, so I'll just say a couple of things in hopes of not repeating myself.

First - nobody is going to come out of this unscathed, including taxpayers. And only the taxpayers are going to come out of this with no part of the blame.

Second:

However this works out, I hope lenders get tough. They should be strong fidicuaries of the funds (ours) they are loaning out and have stiff requirements. Minimum 20% down, strong income requirements, excellent credit history, etc. No exceptions.

I hope they get tougher. But I think you go overboard, at least on one thing - 20% down.

I bought my home with 5% down in 1998. Excellent credit, acceptable income, blah blah. But I wasn't ready to come up with 20%. Since then I've refinanced twice. Went from [6.125% 30 yr] to [5.75% 20 yr] to [5% 10 yr]. Each time I knew exactly what I could afford, and I plan to pay things off in Q1 2013.

None of this could have happened if I had to have 20% down. (Remember, no exceptions.)

Third, and I'm only thinking of this as I was typing in my rates, is what I think was the FIRST thing that started everybody down this slippery slope - variable rates. It's one thing to allow someone (like me) 5% down when their income history says they can make a flat monthly payment. But when you start scheduling balloon payments and expect the average Joe and Jane to plan for it? Insane.

 

[ChrisC]

First time back since Sunday - busy week so far. Interesting discussion. I spoke my opinion earlier, so I'll just say a couple of things in hopes of not repeating myself.

First - nobody is going to come out of this unscathed, including taxpayers. And only the taxpayers are going to come out of this with no part of the blame.

Second:



I hope they get tougher. But I think you go overboard, at least on one thing - 20% down.

I bought my home with 5% down in 1998. Excellent credit, acceptable income, blah blah. But I wasn't ready to come up with 20%. Since then I've refinanced twice. Went from [6.125% 30 yr] to [5.75% 20 yr] to [5% 10 yr]. Each time I knew exactly what I could afford, and I plan to pay things off in Q1 2013.

None of this could have happened if I had to have 20% down. (Remember, no exceptions.)

Third, and I'm only thinking of this as I was typing in my rates, is what I think was the FIRST thing that started everybody down this slippery slope - variable rates. It's one thing to allow someone (like me) 5% down when their income history says they can make a flat monthly payment. But when you start scheduling balloon payments and expect the average Joe and Jane to plan for it? Insane.

Like others, I think you're missing the major point of foreclosuregate. The problem with foreclosuregate is lax documentation, bordering in some cases on fraud, combined with an electronic mortgage registration system (developed by the private sector without any strong connection to the land recording/registration system) -- all under assault by enterprising lawyers. In turn, this has probably resulted in some title insurance companies going on lockdown for issuing policies for any properties sold after a foreclosure. The estimates of the percentages of foreclosure properties that make up the current housing inventory are pretty high these days -- I've heard in some localities this can be 25 percent of the inventory! Foreclosuregate can be a big problem, as it impedes a normal bottoming out of the residential real estate market for 1-4 family homes.

The subprime mess which started the recession of few years ago was largely the result of poor lending underwriting standards, poor forecasting of mortgage loan defaults, and a mortgage-backed securities market on steroids. Poor underwriting standards have largely been addressed by the current regulatory and market environment. If you know of anyone who can get a conventional mortgage loan with 5 percent down -- even with pristine credit -- I'd like to meet that person. 20 percent down is the new minimum benchmark for most people. And anyone trying to get refinancing with less than 20 percent down is in for a shock, unless you have compensating, liquid balances in depository accounts maintained with the lender.

 

[Texas Proud]

First time back since Sunday - busy week so far. Interesting discussion. I spoke my opinion earlier, so I'll just say a couple of things in hopes of not repeating myself.

First - nobody is going to come out of this unscathed, including taxpayers. And only the taxpayers are going to come out of this with no part of the blame.

Second:



I hope they get tougher. But I think you go overboard, at least on one thing - 20% down.

I bought my home with 5% down in 1998. Excellent credit, acceptable income, blah blah. But I wasn't ready to come up with 20%. Since then I've refinanced twice. Went from [6.125% 30 yr] to [5.75% 20 yr] to [5% 10 yr]. Each time I knew exactly what I could afford, and I plan to pay things off in Q1 2013.

None of this could have happened if I had to have 20% down. (Remember, no exceptions.)

Third, and I'm only thinking of this as I was typing in my rates, is what I think was the FIRST thing that started everybody down this slippery slope - variable rates. It's one thing to allow someone (like me) 5% down when their income history says they can make a flat monthly payment. But when you start scheduling balloon payments and expect the average Joe and Jane to plan for it? Insane.

A good post by Chris on your comments.... but I will chime in a bit on your 5% example... in todays world....

"Joe put 5% down on his house in 2006. Pristine credit, excellent job blah blah... now Joe's house is worth $150K less than he paid for it... Joe decides that he can withstand the hit to his credit and goes down the street and buys a foreclosure that is in great shape at an even bigger discount... so now Joe is living in a better house with a mortgage balance $200,000 less than he had before. Joe has stopped paying on his first mortgage and waiting to get his foreclosure notice... except that there is a freeze on foreclosures and his old house will sit empty for a year or two declining in value the whole time.

None of this could happen if Joe had to put 20% down".....


Now, to tell the truth there are places that have declined more than 20%.... but then the incentive to take the hit is less as your negative value is a lot less than a 5% down loan....

 

[DoingHomework]

At the same time, the occupants of the home have no claim of ownership either. They hold no deed or title and there is no reason to issue them one.

Oh, I agree the borrowers should pay the money back. I have no sympathy for deadbeats.

But what you say about deeds is simply not true in every state. In my state when I buy a house I get a deed conferring ownership. The bank files a lien against the deed that they have to support with a mortgage note referenced in the lien and recorded by the county.

One of the things that has happened with MERS is that the physical mortgage notes were destroyed when the banks decided their electronic reporting system was adequate. The problem is, they were wrong. Now, if they cannot produce the note they have no evidence of a valid lien. The homeowner has a valid deed and simply has to challenge the defective lien.

Is this unethical on the part of the homeowner? I think so. But I don't have a lot of sympathy for a bank that, is a fit of arrogance, burned their own evidence. You can't intentionally destroy documentation and then beg a judge to believe you when you claim a certain balance is due. There are a number of situations coming to light around the country where banks foreclosed on properties even though they had been paid off. The banks simply failed to keep proper records.

This whole situation is a mess. People who legitimately owe money should be forced to repay it of lose their collateral. But when the documentation has been destroyed the burden should shift to bank to prove the debt in court rather than in their own system.

 

[DoingHomework]

When I was dealing with them... we had ALL the paperwork on every loan that the trust owned.... it was stored in a big vault that was fire proof...

Keeping records for 20 to 30 years is part of the process.... if they did not, then they should live with the problems...

BUT, a lot of places also allow anything that is filed in the county records to be legal.... and most have a lien with a mortgage attached... so all you do is have them print you another one and you are good to go....

Personally I think electronic registration is a great idea. It benefits almost everyone. But if the law in a particular state says something must be recorded and a bank failed to record its lien or mortgage, the bank loses! That's the price of arrogance for thinking they can just create their own system and ignore the law.

I'd add that recording property ownership and liens is not merely an anachronistic requirement to help creditors. It is also to protect property owners against illegal takings, fraud, and that sort of thing. In most states, recording a deed establishes legal ownership. Mortgages and such can only encumber the deed. When the banks tried to take over the process they left out important safeguards to property owners.