Foreclosure moratorium - why?

[M Paquette]

Quote:

Originally Posted by dfdski 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

Quote:

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]

Quote:

Originally Posted by 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 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]

Quote:

Originally Posted by 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): Quote: 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:

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Originally Posted by youbet 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]

Quote:

Originally Posted by 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: 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]

Quote:

Originally Posted by 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: 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]

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Originally Posted by youbet 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]

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Originally Posted by Texas Proud 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.

[clifp]

Quote:

Originally Posted by dfdski s 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.) .

I don't agree. Prior to the depression mortgages required closer to 70% or 80%, but stocks only required 20-25% down which is why we had a bubble in the stock market in the 20s which spread to the housing market.

My first house was 10% down, had graduated payments and negatively amortized this was back in 1984. Meaning that each year the payments increased, I was not even paying the interest (13.75% ) until year 3 and I think by year 5, I owed 5% more than I borrowed so effectively a 5% down. I was 24 years old, and while my credit was good I didn't have much history and I had excellent job prospect. They had my parents co-sign but since they were retired and California is non-recourse state them cosigning didn't really help since they were in no position to take over the payments. Over course because housing prices were soaring in Silicon Valley everything worked great for both the bank and myself. In hindsight it was a crazy risk for the banks to take for a a couple percent interest rate premium over a conventional home loan of about 12% (inflation was double digits at this time).

I think making me wait 3 to 5 more years to save up for a down payment would have been a much smarter move on the part of the banks. Yes, it would have a cost me a lot money since the house went from 150K to between 200-250K in those few years, meaning I would have needed a much bigger down. In fact one of the reasons I was so desperate to get into a house and took such horrible mortgage was because prices were going up so quickly, I felt I had to act quickly. Removing a young kid with no savings from the housing market is a good thing because it reduce speculation.

Requiring 20% down is no guarantee that a bank won't lose money on a loan as Chris points out, but letting people use 20x leverage (5% down) is practically a guarantee that in the future we will have another bubble

[Gumby]

Quote:

Originally Posted by DoingHomework 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.

I would also add that, in many states, when a mortgage is transferred (as they were in creating the RMBS/CDO monster), there is a fee or tax owed to the city or the state to record/recognize the transfer. By creating MERS, banks were able to evade these fees or taxes, ultimately to the detriment of local taxpayers.

[Nords]

Couple of interesting links from AP in our morning news website:
StarAdvertiser.com - Mobile Edition

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Bank of America halted foreclosures across the country to address paperwork problems, but three other banks did so only in 23 states. Other banks holding millions of mortgages have not suspended any foreclosures. In the other 27 states, judges don't have to review foreclosures. A homeowner must sue the bank for that to happen. Paperwork mistakes and fraud are even harder to discover, legal experts say. Those states without judicial oversight for foreclosures include eight of the top 10 foreclosure states in America, including California, Arizona and Nevada. As with all real estate matters, location is everything.

StarAdvertiser.com - Mobile Edition

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In one deposition taken in Houston, a foreclosure supervisor with Litton Loan couldn't define basic terms like promissory note, mortgagee, lien, receiver, jurisdiction, circuit court, plaintiff's assignor or defendant. She testified that she didn't know why a spouse might claim interest in a property, what the required conditions were for a bank to foreclose or who the holder of the mortgage note was. "I don't know the ins and outs of the loan, I just sign documents," she said at one point. Until now, only a handful of depositions from robo-signers have come to light. But the sheer volume of the new depositions will make it more difficult for financial institutions to argue that robo-signing was an aberrant practice in a handful of rogue back offices.

I think the best way to solve the problem lies in these two articles: give the foreclosed homeowners a new and lucrative career as robo-signers...

There's gotta be a logic flaw in there somewhere.

[Htown Harry]

Good comments everyone. I'm learning a lot.

I keep waiting for a political blast from right or left field, but so far it looks like my OP could have been in FIRE and Money.

Random comments and recommended reading:

1. Why correct paperwork is the Right Thing To Do:

Quote:

Originally Posted by DoingHomework 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.

Absolutely correct, but it goes deeper. A case can be made that central to any country's economic strength is the stability of its legal system, in particular the laws related to property rights, property titles and the security of collateral for debts.

One blogger quoted some legal language I recognized, which boils down all the legal issues of this foreclosure mess to an essential point. It applies to all of us, deadbeats included:

Quote:

"#5 - No person shall...be deprived of life, liberty, or property, without due process of law;..."

2. The mortgage service organizations lost sight of risk / reward relationships over a period of years.

One of the blogs I found had a link to a fascinating - and very entertaining - first-person insider’s account from 2007:
Calculated Risk: Deutsche Bank FC Problems and Revenge of the Nerd

Quote:

The first point of this little exercise is to convince you that sometimes things happen because somebody screwed up a bit of paperwork; it is not always a case of things happening because of Organized Predatory Conspiracy to Defraud mortgagors. The second point is to indulge myself in a few minutes of childish vindication of my years spent as Detail Obssessed Literal-Minded Small Picture Pain in the Ass Who Doesn't Play Ball… Several years ago I represented a large bank in the process of securitizing a big chunk of its seasoned portfolio loans. Among other things that meant I reviewed several thousand notes...

Many of the pressures she describes greatly enlightened me on the way an MBS’s component notes are / were assembled in a paper system. Of course, we now know as MERS and other electronic recordkeeping systems gained favor, the risks associated with paperwork shortcuts were greatly compounded by recordation shortcuts.

3. This ain’t good for the banks that securitized mortgages. Not good at all.

This interview of a bank analyst was interesting. Same pessimistic tone as the guy from Diana Olick’s blog quoted in my post above, but with more details.
Foreclosure Fear: Q&A Risk Analytics Chris Whalen - TheStreet

Quote:

“…So when you have an imperfection in the record, you're in big trouble as a lender. You basically have an unsecured loan. That's the issue that's really going to commit the banks this year and next year. Investors are going to sue them because they were sold a security that was fraudulent. It was not collateralized. And the underwriter of the security did not take the steps required to go out there and perfect the collateral lien, because they wanted to keep the extra half point for themselves as profit in the underwriting instead of having it as the expense for the underwriting…”

4. The news isn’t all bad

The giant federal finance reform bill passed this summer has quite a few prohibitions against the worst practices of mortgage lenders during the boom. Two summaries, the first a one-pager and the second very detailed:

Some Mortgage Tidbits from the Dodd-Frank Mortgage Reform Act | Aurora Mortgage

http://www.mbaa.org/files/ResourceCe...fDoddFrank.pdf


However, I didn’t see anything that addresses this latest set of problems related to foreclosure paperwork. Much of the Dodd-Frank language relates to the mortgage's financial terms and the disclosures owed to borrowers.

Since foreclosure is an area of law largely delegated to the states, one has to be at least somewhat encouraged that all 50 states AGs joined in today's action to get the bad practices exposed and stopped.

[Texas Proud]

Quote:

Originally Posted by DoingHomework 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.

I agree... and I don't think my post said otherwise...

I am just guessing here, but I would think that SOMEONE filed a lien at some point in time.... I think the problem is that Bank A filed the lien, then put the loan in MERS... sold it to Bank B who did not file, sold to Bank C who did not file, sold it to consolidator Z who did not file, who sold it to Trust ABC who did not file... and now the trust wants to foreclose and the courts say 'you don't own this mortgage... Bank A does...'



As for people who say that there was a foreclosure on a paid off mortgage... can you give links I still have not seen any proof of this.

[Brat]

Maybe the solution is that each of the lien holders document the chain and pay the filing fees they avoided. Those fees pay for the service of assuring that title passes without default and the lien holders attempted not to pay their share.

Not much different IMHO than folks who try to take a ride on the subway/light rail without paying the fare.

[Emeritus]

Quote:

Originally Posted by Texas Proud As for people who say that there was a foreclosure on a paid off mortgage... can you give links I still have not seen any proof of this.

Banks foreclose on houses where there never was a mortgage
Bank Mistakenly Starts Foreclosure Process On Wrong House In Kissimmee - News Story - WFTV Orlando

Bank of America has been screwing up regularly
Bank of America Forecloses on Wrong House, Abducts Macaw
Bank Tries to Foreclose on Wrong House! -- Must Read

[Texas Proud]

Quote:

Originally Posted by Emeritus Banks foreclose on houses where there never was a mortgage Bank Mistakenly Starts Foreclosure Process On Wrong House In Kissimmee - News Story - WFTV Orlando Bank of America has been screwing up regularly Bank of America Forecloses on Wrong House, Abducts Macaw Bank Tries to Foreclose on Wrong House! -- Must Read

Thanks... it does show that people have forclosed on the wrong house which is horrible... but I did not see where they forclosed on a house that was 'paid off'.... IOW, what it seemed like people were saying... using your articles as an example.... someone had a loan with BOA.... they paid on the loan until it was paid in full... but BOA came and forclosed on it anyhow... at least that is what I assumed people were talking about...

Now, getting the addressed mixed up has been happening for many things over many years.... the utility company cuts off utilities at the wrong house, a delivery of something to the wrong house, etc. etc.... not quite the same as what had been said.

And I think the people who this happend to should get a decent settlement.... I know BOA or any other bank does not want to deal with it, but they did wrong and should pay to fix everything plus at least $50K in the pocket of the homeowner....

[DoingHomework]

Quote:

Originally Posted by Texas Proud As for people who say that there was a foreclosure on a paid off mortgage... can you give links I still have not seen any proof of this.

I'm not sure how it works in other places. I just checked my county's records. I found lots of lien filings listing MERS as the lienholder. But I am fairly certain that no one actually borrowed from MERS so it is unlikely that MERS, the lienholder can produce a mortgage in its name to support the lien. And if,for example, BofA then decides to foreclose, it has no lien to support a foreclosure because the lien is in the name of MERS.

I'm sure that internally between the banks and MERS they documented proper assignment of the liens. But that is basically irrelevant. If the law required the assignment be recorded and it was not then it is invalid and can't be foreclosed against. I understand that legally this does not mean the borrower is off the hook. It just means that the bank then has to follow a much more expensive and laborious process to enforce its rights.

When we put our house, which is paid off, into a trust a few years ago, we had to file a series of deeds to get a clear deed in the right name. My wife and I had bought the house together before we got married. We had to file a quit claim deed, then a community property deed,then a deed to the trust. Each of these cost us recording fees, and, we were told, the sequence had to be properly recorded just in case a future claim arose during one of the periods when ownership was in an entity other than the trust. In other words, if someone popped up 10 years from now and claims to have been injured on our property after we got married but before the trust was formed there needs to be a deed on record documenting proper ownership.

[Texas Proud]

Quote:

Originally Posted by DoingHomework I'm not sure how it works in other places. I just checked my county's records. I found lots of lien filings listing MERS as the lienholder. But I am fairly certain that no one actually borrowed from MERS so it is unlikely that MERS, the lienholder can produce a mortgage in its name to support the lien. And if,for example, BofA then decides to foreclose, it has no lien to support a foreclosure because the lien is in the name of MERS. I'm sure that internally between the banks and MERS they documented proper assignment of the liens. But that is basically irrelevant. If the law required the assignment be recorded and it was not then it is invalid and can't be foreclosed against. I understand that legally this does not mean the borrower is off the hook. It just means that the bank then has to follow a much more expensive and laborious process to enforce its rights. When we put our house, which is paid off, into a trust a few years ago, we had to file a series of deeds to get a clear deed in the right name. My wife and I had bought the house together before we got married. We had to file a quit claim deed, then a community property deed,then a deed to the trust. Each of these cost us recording fees, and, we were told, the sequence had to be properly recorded just in case a future claim arose during one of the periods when ownership was in an entity other than the trust. In other words, if someone popped up 10 years from now and claims to have been injured on our property after we got married but before the trust was formed there needs to be a deed on record documenting proper ownership.

I have not looked at who has filed the lien on my house... don't know if I can... but let's just continue with the theme of your post...

Say the MERS is not a proper lien... but BofA owns the note... then if they want to foreclose all they have to do is file a proper lien and then foreclose... sure, a lot of unwanted paperwork but it is not like they can not perfect their lien at all... unless of course someone got a second and the second lienholder is really the first.... that could be a problem...