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G M
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« Reply #50 on: October 09, 2010, 10:29:34 AM »

Obama and the dems move us another step towards being a banana republic.
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Crafty_Dog
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« Reply #51 on: October 09, 2010, 10:35:34 AM »

Indeed.

Also, some very interesting cases are likely to come up for title insurance , , ,  shocked
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Crafty_Dog
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« Reply #52 on: October 09, 2010, 05:38:38 PM »

Doug:

I'm not sure we are reading this the same way.  If I understand you correctly, you are discussing a signature at the closing.

If I understand correctly the issue presented concerns robo-signatures as part of the foreclosure process.
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DougMacG
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« Reply #53 on: October 09, 2010, 09:22:37 PM »

Crafty, Thanks for getting me headed right on that.  I will fix that post. I've never seen a foreclosure document; I like the ones that say paid in full. smiley  Was there a law requiring personal signatures of bank officers on foreclosure documents or is someone trying to make tighter rules now?

If foreclosures were defective then they have to go back and do it again and that helps no one.  A simple quit claim deed would also do if the defaulting homeowner is not fighting the repo.  I hear about  'cash for keys' programs which I believe are really cash for documents (quit claim?)  so this may just be a cost of doing sloppy business.  Too bad the taxpayer is on the hook for what should be private sector business.  If it takes another 6 months, 12 months (?) then the defaulting party is just that much further away from ever making their loan current, and living for free never seems to have benefit the defaulter.
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G M
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« Reply #54 on: October 11, 2010, 08:05:19 PM »

http://www.smh.com.au/business/foreclosures-the-real-us-time-bomb-20101011-16g4e.html

Not surprisingly, the virtual breakdown of the foreclosure system has created a political storm because it could threaten the liquidity of the banks, particularly the smaller ones.

Reports out of the US over the weekend are that up to 40 state attorneys-general, as well as members of Congress, plan to meet and will call for an across-the-board moratorium on foreclosures to sort out alleged irregularities in foreclosure documents submitted by the banks.

US courts are choked with cases where notes and mortgages were missing from bankruptcy mortgage claims, despite a clear rule that they should be attached. It seems the many mortgage originators which encouraged people to lie about their financial capacity when taking out loans, also didn't bother with the paperwork.

Put simply, some mortgages changed hands many times without the full chain of documents completed. Upon challenge, many companies have been unable to show they had the paperwork, leading to their cases being dismissed.

On September 27, the Department of Justice in North Carolina wrote to Ally Financial: ''This office has received information regarding Ally Financial/GMAC Mortgage's questionable preparation of documents to support home mortgage loan foreclosure actions. In particular, the information indicates that GMAC Mortgage employees routinely signed off on large numbers of affidavits without personal knowledge of the accuracy of the contents of the affidavits. The allegations of improper verification of affidavits are supported by sworn deposition testimony by a team leader of GMAC Mortgage's document execution team for foreclosures.''

The Washington Post reported a day later that millions of people were working their way through the US court system in the wake of the financial crisis. It described the foreclosure process as a system rife with shoddy documents, forged signatures and, according to some state law enforcement officials, outright fraud by lenders eager to rid themselves of bad loans.

The subprime collapse had already wreaked havoc globally as house prices began to fall and the loans became worthless, with millions of borrowers walking away from their obligations. This pushed property prices lower and resulted in the collapse of Bear Sterns, Lehman Brothers, Merrill Lynch, Wachovia, Washington Mutual and hundreds of smaller banks.

While it had a huge impact on the banking system in the US, it didn't destroy it, because lenders were able to foreclose or obtain possession of a property by evicting the borrower and selling it, albeit at a fraction of the loan.

But with question marks hanging over the legality of many foreclosures, the bomb could be about to go off in the US.

As Hugh McLernon at IMF, who has been an avid observer of the subprime crisis, said: ''The central question in any foreclosure is whether the person seeking foreclosure has the standing to ask for it. This is usually done by producing to the court the documents showing that the applicant made the loan and is entitled to the mortgage rights, including the right to foreclose and sell when the borrower stops paying interest.''

For McLernon, the answer is to change the legislation so as to dispense with the need to produce documentation, which is the ad hoc position so far adopted by the court system without legal authority. However, with elections looming in the US, the speedy passage of difficult laws will be difficult.

The alternative is to clog the courts and erode the fragile confidence in the US government and the US financial system. With such a mess bubbling away, the release of consumer sentiment figures, trade figures and US consumer prices is a sideshow to the true health of the US economy.
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G M
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« Reply #55 on: October 12, 2010, 10:02:55 PM »

http://www.financialsense.com/contributors/james-quinn/consumer-deleveraging-commercial-real-estate-collapse

Prepare.
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Crafty_Dog
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« Reply #56 on: October 25, 2010, 07:16:06 AM »

PHOENIX — Bank of America and GMAC are firing up their formidable foreclosure machines again today, after a brief pause.

But hard-pressed homeowners like Lydia Sweetland are asking why lenders often balk at a less disruptive solution: short sales, which allow owners to sell deeply devalued homes for less than what remains on their mortgage.

Ms. Sweetland, 47, tried such a sale this summer out of desperation. She had lost her high-paying job and drained her once-flush retirement savings, and her bank, GMAC, wouldn’t modify her mortgage. After seven months of being unable to pay her mortgage, she decided that a short sale would give her more time to move out of her Phoenix home and damage her credit rating less than a foreclosure.

She owes $206,000 and found a buyer who would pay $200,000. Last Friday, GMAC rejected that offer and said it would foreclose in seven days, even though, according to Ms. Sweetland’s broker, the bank estimates it will make $19,000 less on a foreclosure than on a short sale.

“I guess I could salute and say, ‘O.K., I’m walking, here’s the keys,’ ” says Ms. Sweetland, as she sits in a plastic Adirondack chair on her patio. “But I need a little time, and I don’t want to just leave the house vacant. I loved this neighborhood.”

GMAC declined to be interviewed about Ms. Sweetland’s case.

The halt in most foreclosures the last few weeks gave a hint of hope to homeowners like Ms. Sweetland, who found breathing room to pursue alternatives. Consumer advocates took the view that this might pressure banks to offer mortgage modifications on better terms and perhaps drive interest in short sales, which are rising sharply in many corners of the nation.

But some major lenders took a quick inventory of their foreclosure practices and insisted their processes were sound. They now seem intent on resuming foreclosures. And that could have a profound effect on many homeowners.

In Arizona, thousands of homeowners have turned to short sales to avoid foreclosures, and many end up running a daunting procedural gantlet. Several of the largest lenders have set up complicated and balky application systems.

Concerns about fraud are one of the reasons lenders are so careful about short sales. Sometimes well-off homeowners want to portray their finances as dire and cut their losses on a property. In other instances, distressed homeowners try to make a short sale to a relative, who would then sell it back to them (a practice that is illegal). A recent industry report estimates that short sale fraud occurs in at least 2 percent of sales and costs banks about $300 million annually.

Short sales are also hindered when homeowners fail to forward the proper papers, have tax liens or cannot find a buyer.

Because of such concerns, homeowners often are instructed that they must be delinquent and they must apply for a modification first, even if chances of approval are slim. The aversion to short sales also leads banks to take many months to process applications, and some lenders set unrealistically high sales prices — known as broker price opinions — and hire workers who say they are poorly trained.

As a result, quite a few homeowners seeking short sales — banks will not provide precise numbers — topple into foreclosure, sometimes, critics say, for reasons that are hard to understand. Ms. Sweetland and her broker say they are confounded by her foreclosure, because in Arizona’s depressed real estate market, foreclosed homes often sit vacant for many months before banks are able to resell them.

“Banks are historically reluctant to do short sales, fearing that somehow the homeowner is getting an advantage on them,” said Diane E. Thompson, of counsel to the National Consumer Law Center. “There’s this irrational belief that if you foreclose and hold on to the property for six months, somehow prices will rebound.”

Homeowners, advocates and realty agents offer particularly pointed criticism of Bank of America, the nation’s largest servicer of mortgages, and a recipient of billions of dollars in federal bailout aid. Its holdings account for 31 percent of the pending foreclosures in Maricopa County, which includes Phoenix and Scottsdale, according to an analysis for The Arizona Republic.

The bank instructs real estate agents to use its computer program to evaluate short sales. But in three cases observed by The New York Times in collaboration with two real estate agents, the bank’s system repeatedly asked for and lost the same information and generated inaccurate responses.

In half a dozen more cases examined by The New York Times, Bank of America rejected short sale offers, foreclosed and auctioned off houses at lower prices.

=======





“When I hear that a client’s mortgage is held by Bank of America, I just sigh. Our chances of getting an approval for them just went from 90 percent to 50-50,” said Benjamin Toma, who has a family-run real estate agency in Phoenix.

Bank of America officials also declined interview requests. A Bank of America spokeswoman said in an e-mail that the bank had processed 61,000 short sales nationwide this year; she declined to provide numbers for Arizona or to discuss criticisms of the company’s processing.

Fannie Mae, the mortgage finance company with federal backing, gives cash incentives to encourage servicers, who are affiliated with banks and who oversee great bundles of delinquent mortgages, to approve short sales.

But less obvious financial incentives can push toward a foreclosure rather than a short sale. Servicers can reap high fees from foreclosures. And lenders can try to collect on private mortgage insurance.

Some advocates and real estate agents also point to an April 2009 regulatory change in an obscure federal accounting law. The change, in effect, allowed banks to foreclose on a home without having to write down a loss until that home was sold. By contrast, if a bank agrees to a short sale, it must mark the loss immediately.

Short sales, to be sure, are no free ride for homeowners. They take a hit to their credit ratings, although for three to five years rather than seven after a foreclosure. An owner seeking a short sale must satisfy a laundry list of conditions, including making a detailed disclosure of income, tax and credit liens. And owners must prove that they have no connection to the buyer.

Still, bank decision-making, at least from a homeowner’s perspective, often appears arbitrary. That is certainly the view of Nicholas Yannuzzi, who after 30 years in Arizona still talks with a Philadelphia rasp. Mr. Yannuzzi has owned five houses over time, without any financial problems. When his wife was diagnosed with bone cancer, he put 20 percent down and bought a ranch house in North Scottsdale so that she would not have to climb stairs.

In the last few years, his wife died, he lost his job and he used his retirement fund to pay his mortgage for five months. His bank, Wells Fargo, denied his mortgage modification request and then his request for a short sale.

The bank officer told him that Fannie Mae, which held the mortgage, would not take a discount. At the end of last week, he was waiting to be locked out of his home.

“I’m a proud man. I’ve worked since I was 20 years old,” he said. “But I’ve run out of my 79 weeks of unemployment, so that’s it.”

He shrugged. “I try to keep in the frame of mind that a lot of people have it worse than me.”

Back in Phoenix, Ms. Sweetland’s real estate agent, Sherry Rampy, appeared to receive good news last week. GMAC re-examined her client’s application and suggested it might be approved.

But the bank attached a condition: Ms. Sweetland must come up with $2,000 in closing costs or pay $100 a month for 50 months to the bank. Ms. Sweetland, however, is flat broke.

A late afternoon desert sun angles across her Pasadena neighborhood.

“After this, I’ll never buy again,” Ms. Sweetland says. “This is not the American dream. This is not my American dream.”

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Crafty_Dog
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« Reply #57 on: October 31, 2010, 10:23:55 AM »

I will ask a savvy friend of mine for his comments on this:
===========
IN Congressional hearings last week, Obama administration officials acknowledged that uncertainty over foreclosures could delay the recovery of the housing market. The implications for the economy are serious. For instance, the International Monetary Fund found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages, rather than widely cited causes like mismatches between job requirements and worker skills.

This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program.

Banks are claiming that these are just accidents. But suppose that while absent-mindedly paying a bill, you wrote a check from a bank account that you had already closed. No one would have much sympathy with excuses that you were in a hurry and didn’t mean to do it, and it really was just a technicality.

The most visible symptoms of cutting corners have come up in the foreclosure process, but the roots lie much deeper. As has been widely documented in recent weeks, to speed up foreclosures, some banks hired low-level workers, including hair stylists and teenagers, to sign or simply stamp documents like affidavits — a job known as being a “robo-signer.”

Such documents were improper, since the person signing an affidavit is attesting that he has personal knowledge of the matters at issue, which was clearly impossible for people simply stamping hundreds of documents a day. As a result, several major financial firms froze foreclosures in many states, and attorneys general in all 50 states started an investigation.

However, the problems in the mortgage securitization market run much wider and deeper than robo-signing, and started much earlier than the foreclosure process.

When mortgage securitization took off in the 1980s, the contracts to govern these transactions were written carefully to satisfy not just well-settled, state-based real estate law, but other state and federal considerations. These included each state’s Uniform Commercial Code, which governed “secured” transactions that involve property with loans against them, and state trust law, since the packaged loans are put into a trust to protect investors. On the federal side, these deals needed to satisfy securities agencies and the Internal Revenue Service.

This process worked well enough until roughly 2004, when the volume of transactions exploded. Fee-hungry bankers broke the origination end of the machine. One problem is well known: many lenders ceased to be concerned about the quality of the loans they were creating, since if they turned bad, someone else (the investors in the securities) would suffer.

A second, potentially more significant, failure lay in how the rush to speed up the securitization process trampled traditional property rights protections for mortgages.

The procedures stipulated for these securitizations are labor-intensive. Each loan has to be signed over several times, first by the originator, then by typically at least two other parties, before it gets to the trust, “endorsed” the same way you might endorse a check to another party. In general, this process has to be completed within 90 days after a trust is closed.

Evidence is mounting that these requirements were widely ignored. Judges are noticing: more are finding that banks cannot prove that they have the standing to foreclose on the properties that were bundled into securities. If this were a mere procedural problem, the banks could foreclose once they marshaled their evidence. But banks who are challenged in many cases do not resume these foreclosures, indicating that their lapses go well beyond minor paperwork.

Increasingly, homeowners being foreclosed on are correctly demanding that servicers prove that the trust that is trying to foreclose actually has the right to do so. Problems with the mishandling of the loans have been compounded by the Mortgage Electronic Registration System, an electronic lien-registry service that was set up by the banks. While a standardized, centralized database was a good idea in theory, MERS has been widely accused of sloppy practices and is increasingly facing legal challenges.

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As a result, investors are becoming concerned that the value of their securities will suffer if it becomes difficult and costly to foreclose; this uncertainty in turn puts a cloud over the value of mortgage-backed securities, which are the biggest asset class in the world.

Other serious abuses are coming to light. Consider a company called Lender Processing Services, which acts as a middleman for mortgage servicers and says it oversees more than half the foreclosures in the United States. To assist foreclosure law firms in its network, a subsidiary of the company offered a menu of services it provided for a fee.

The list showed prices for “creating” — that is, conjuring from thin air — various documents that the trust owning the loan should already have on hand. The firm even offered to create a “collateral file,” which contained all the documents needed to establish ownership of a particular real estate loan. Equipped with a collateral file, you could likely persuade a court that you were entitled to foreclose on a house even if you had never owned the loan.

That there was even a market for such fabricated documents among the law firms involved in foreclosures shows just how hard it is going to be to fix the problems caused by the lapses of the mortgage boom. No one would resort to such dubious behavior if there were an easier remedy.

The banks and other players in the securitization industry now seem to be looking to Congress to snap its fingers to make the whole problem go away, preferably with a law that relieves them of liability for their bad behavior. But any such legislative fiat would bulldoze regions of state laws on real estate and trusts, not to mention the Uniform Commercial Code. A challenge on constitutional grounds would be inevitable.

Asking for Congress’s help would also require the banks to tacitly admit that they routinely broke their own contracts and made misrepresentations to investors in their Securities and Exchange Commission filings. Would Congress dare shield them from well-deserved litigation when the banks themselves use every minor customer deviation from incomprehensible contracts as an excuse to charge a fee?

There are alternatives. One measure that both homeowners and investors in mortgage-backed securities would probably support is a process for major principal modifications for viable borrowers; that is, to forgive a portion of their debt and lower their monthly payments. This could come about through either coordinated state action or a state-federal effort.

The large banks, no doubt, would resist; they would be forced to write down the mortgage exposures they carry on their books, which some banking experts contend would force them back into the Troubled Asset Relief Program. However, allowing significant principal modifications would stem the flood of foreclosures and reduce uncertainty about the housing market and mortgage securities, giving the authorities time to devise approaches to the messy problems of clouded titles and faulty loan conveyance.

The people who so carefully designed the mortgage securitization process unwittingly devised a costly trap for people who ran roughshod over their handiwork. The trap has closed — and unless the mortgage finance industry agrees to a sensible way out of it, the entire economy will be the victim.


Yves Smith is the author of the blog Naked Capitalism and “Econned: How Unenlightened Self-Interest Undermined Democracy and Corrupted Capitalism.”

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G M
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« Reply #58 on: November 01, 2010, 02:18:25 PM »

U.S. home prices expected to slide another 8%

http://finance.yahoo.com/news/US-home-prices-expected-to-cnnm-28872967.html?x=0

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Crafty_Dog
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« Reply #59 on: November 01, 2010, 04:34:38 PM »

Marc,


Here is Part 1.  It covers the historical perspective.  Just cut and paste everything below.


Crafty,

I apologize for not replying to previous requests, but I have been extremely busy.  I finally caught up on current work, but preparing for two new projects.  This first post is extremely long, but it must be to explain how we got to where we are today.   

To establish my bona fides to speak to the subject of the housing crisis, here is my background.  I spent 12 years doing mortgage loans.  In late 2007, unable to help borrowers, I teamed with attorneys to assist homeowners.  My responsibility was to evaluate loan documents.  I reviewed everything from TILA/RESPA to fraud, securitization, MERS and the foreclosure process.  Much of what you read on other websites, I originally brought to light.  Many of the “loan audits” seen today have my original ideas, word for word.  Some firms have taken old exams I did from early 2009 and copied them as their own work.  Even then, because they do not know the underlying thought processes, their exams are inaccurate.

The exams that I do today are the most comprehensive in the country.  They are unbiased, covering even the homeowner, and I tell it like it is.  Borrower fraud, Lender Fraud, Securitization issues and the Foreclosure Process are all covered.  As a result, I work both sides, for homeowners and for lenders.

Most of what people read today about the housing crisis is based upon one-sided, biased thinking.  The persons writing articles only look from the homeowner’s perspective, and try to develop arguments for stopping foreclosures.  They will not entertain any arguments in defense of the banks.  As a result, they give out substandard information to homeowners, doing them and attorneys a major disservice.

The Housing Crisis, of which I am writing an article, has its roots going back to the Depression and then 1934-1936, when the original FHA was created to stabilize and then stimulate housing.  Prior to this time, home loans were done solely by local banks, with terms of 3-5 years, and loan amounts generally in the range of $1,000 to $3,000.  FHA and the end of WW2, changed all of this. 

The returning veterans and the changed role of women created a new stimulus for housing.  This led to the creation of the VA and offering of VA loans.  Housing and its ancillary industries became one of the great supports for economic growth. 

By the 1960’s, FHA had become a large budgetary item.  Congress created Fannie Mae and Freddie as off balance sheet items, who then securitized loans through bonds, etc.  This offered an “incredible” stream of money for housing, and truly stimulated the market even more. 

Not content to let things be, Congress created other programs like the Community Reinvestment Act so that “non-qualified” persons could by homes.  This added even more demand for housing.

Shortly after, in the 70s, the economic structure of the US began to change.  Manufacturing, the true mechanism of wealth creation began to fall off.  Other countries began to offer products in the US, and many US firms went oversea, or completely out of business.  The economy began to be “service” oriented, which does not create wealth, but only serves to transfer it from one person to another.

Also, during the 70’s, B of A and Salomon Brothers experimented with Securitization, but at the time, it really did not “take off”. 

The 80’s saw even more changes to the economic structure of the US.  Manufacturing was leaving in droves, and the Service Sector becoming ever more important.  But wealth creation was not occurring until the “Telecommunications” Bubble in the 19080’s, with the Cellular and Airwave changes, which stimulated the economy.  This affected housing and saw to housing growth, until 1989, when many areas saw economic recession and a drop of 20% or more in housing.

The early 90s saw a change in the economy again with the downsizing of the military.  Industry and housing was damaged, with values again falling.  This continued until the Mid 90s, when the Dot Com Bubble exploded.

Concurrent with the Dot Com Bubble, housing and home values began to take on new momentum.  The money being made on Dot Com stock investments offered large sums of money for the public, who used the money for housing and other goods. 

In 1990, another event occurred which would spur housing at a later time, and, in fact, lead to massive securitization.  Long Beach Savings, the predecessor of Ameriquest and other Sub-Prime lenders, united with Greenwich to offer $67m in Mortgage Backed Securities.  The offering was a great success, and all other lenders took notice.

Fannie Mae, Freddie Mac, B of A and others formed a working group in 1993 to determine how to take advantage of the success of the Long Beach offering.  The group came back in 1995 with recommendations, one of which was to form MERS.  By, 1996, MERS had been created and in 1998, it was ready to go full ahead. But there was still one issue to resolve.

Glass Steagall was the final hurdle.  To begin to securitize loans, it must be repealed and in 1999, it was repealed.  Now, commercial banks, investment banks and insurance companies could “intrude” on each other’s turf.

During 98 & 99, another factor delayed the process of securitization.  The implosion of Long Term Capital affected the lending industry significantly.  In Oct 98, sub-prime lenders were folding up shop in droves.  Credit lines were pulled, and there was nothing to replace the lines.  Only a few large sub-prime lenders survived.

Then, in Mar 2000, the Dot Com bubble burst.  We all know how the market tanked.  With it, the economy went into recession.  Housing took another hit.  Just as things looked better and the recession was ending, 9-11 occurred.

 

It must be remembered that none of this was occurring in a vacuum.  During the previous 30 years, the economy had faced massive changes.  Manufacturing had declined and the service industries began to dominate.  The auto industry had destroyed itself by its concessions to unions.  Electronics were dominated by Asian countries.

The American consumer had changed as well.  With the growing prosperity, the consumer had all their “toys”.  Everyone owned autos and hard goods.  When new goods were bought, it was to replace older goods.  American industry was in either a “mature” market, or a “declining” market phase.

No replacement “Bubble” industries were on the horizon.  The economy was facing a resumption of the recession as a result of 9-11.  The government was left with few options for recovery.

To reassure the Markets and to stimulate the economy, Greenspan started to ease interest rates.  As he eased, this created problems across the board.  It led to the point that the people with “real money” were seeing little Return on Investment.  Guaranteed income was desired, but there was nowhere to turn.  The solution was the Housing Market.  If the Housing Market was stimulated, then there would be construction, home improvement, infrastructure and other industries affected positively.

2002 saw the beginning of full scale securitization.  Wall Street had need for the income from the guaranteed income streams generated by securitization.  The government had the need for the stimulus created by housing.  Lenders had the need for the money to lender that came from Wall Street.  A match thought to be “made in heaven” was really the “stimulus from hell”.

Through the following years up to 2007, the need to feed Wall Street kept growing.  By early 2004, qualified borrowers no longer existed, so the lenders loosened standards for lending.  No matter what, the demand for Mortgage Backed Securities continued.  Eventually, anyone with a heart beat could qualify for a loan.

During this period of time, the Government knew what was happening, but they could do nothing about it.  To restrict lending would result in recession and a revealing of the underlying weakness of the economy.  So the Fed allowed the charade to continue.

By mid 2006, the strains were showing.  Defaults were increasing. Home values in certain parts of the US were failing, and especially hard in areas like Florida. At the end of 2006, the first Sub-Prime lenders were closing.  This trend would continue throughout 2007, at which time the Housing Bubble burst.

The purpose of this long writing was to show the historical perspective of housing and securitization.  Essentially, it was to show that Housing has been one of the significant “supports” of the US economy for decades.  Since the 80’s, the US has relied upon “Bubbles” to keep the economy growing.  When a bubble bursts, the economy goes to pieces.

With the Housing Bubble gone, there are no “easy” Bubbles to see coming.  The government will try to create a new bubble with Green technology, but that will likely be a no starter.  Health Care will be another bubble, but it would end up destroying the economy.  So, every effort to restart Housing will need to be made.

I should point out that Illegal Immigration comes into play here.  Illegal Immigration means people coming to the US, with their wants and needs. Housing and ancillary industries will be helped by the influx of people, so don’t expect to see anything done on immigration.
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Crafty_Dog
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« Reply #60 on: November 01, 2010, 04:35:38 PM »


Securitization & MERS

The first post was to provide a historical view of the role housing played in the economy and the background for how we got into this mess.  It is necessarily simplified, but it generally details the history. This post will attempt to explain securitization and the issues in question.

Securitization was the process whereby loans were sold to Wall Street in the form of bonds and certificates.  It involved a number of different entities established solely for the purpose of securitization.  The purpose of such entities was to provide REMIC status, or favored tax status to the “final holders” of the notes and income streams.

The major entities that were involved in the securitization process”

The Originator:  The lender that funded the loan.  (There are table funders involved at times, but they simply used the Originator’s money, so this is irrelevant for this discussion.)

The Sponsor/Seller:  This was the entity that “collected” the loans together from different lenders so that the loans could be securitized.

The Depositor:  The Depositor took the loans from the Seller, broke them up into the different tranches, had the tranches rated, and prepared the bonds for sale.  The Depositor also created the Trust, and at the closing date of the Trust, deposited the loans into the Trust.

Issuing Entity:  This is the Trust.

Underwriters:  The agencies who “rated” the bonds.

Servicer/Master Servicer:  The entities who collected the monthly payments and handled administrative details to include foreclosure, modifications, etc.

Trustee:  The entity who “oversees” the operations of the Trust, Servicer, etc.  All “authority” is delegated.

There are a number of documents associated with the securitization of the loans, most important of which was the Pooling and Servicing Agreement, aka the PSA.

When loans were securitized, there were specific procedures outlined that had to be done.  Adherence to those procedures is at the crux of the legal arguments related to securitization.

The primary procedure was that when the loan was securitized, the loan would be “sold” first to the Sponsor, then the Depositor, and finally to the Issuing Entity.  Each loan was to be “assigned” to the entity taking possession of the loan and there was to be a “perfected Chain of Title” according to the PSA.  However, each PSA made allowances for MERS, and for a MERS loan, there need not be the Assignments.

The actual process that the lenders have used was to make assignments to the Trust after default of the loan.  No intervening assignments to the Sponsor or Depositor would occur. This is where attorneys are alleging the fraud and arguing “Prove the Note”.

The problem with such an approach is that when the loan is securitized, Commercial Code arguably takes precedent. Securitization is covered under Commercial Code, and not Real Estate Law.  Under UCC, the Deed “follows” the Note.  When a Note is transferred, it carries the Deed of Trust with it.  So, simply the endorsement of the Note is enough to transfer all beneficial interest in the Deed.  Assignments would not be required.  That was the purpose of endorsing the Note “in blank”.  The Note is turned into a Bearer Instrument, and assignments would not be needed.

It can now be seen that the different requirements under Real Property Law and under Commercial Code contradict each other.  And, there are no legal precedents that cover Real Property and Personal Property Law combined.  (Bonds and securitization fall under Personal Property and SEC.) Judges have no idea how to resolve the contradictions and so they go with what they are comfortable with.  Is the loan in default?  If so, let the lender foreclose and then the lender can sort it all out.

(Some argue that the homeowner should use the PSA and assignment requirements to attack the lender.  The problem is that the homeowner would be using a “third party beneficiary” argument, and such arguments would not be allowed.)

MERS is playing a huge role in the litigation as well.  MERS is an electronic registry designed to track the ownership and servicing rights of each loan registered with MERS.  MERS has taken the place of the beneficiary on loans.

Since MERS is the “nominee for the beneficiary” or “agent”, when assignments are made, or foreclosures are initiated, MERS is usually the “stated authority”.  This is a point of contention.  Does MERS have the authority to do assignments or foreclose? 

The actions against MERS are taking place in the Judicial Foreclosure states and in the Bankruptcy Courts.  Often, you will see cases where the courts have ruled against MERS and its authority.  However, these cases are not common, though the persons quoting those cases make it appear common.  The majority of the courts are ruling in favor of MERS.  The Minnesota Supreme Court has ruled in favor of MERS.  Arkansas has ruled against MERS.  Ultimately, this will only be resolved by either the US Supreme Court or by Federal Legislation.  (Non-Judicial States “duck” this issue by relying solely on the foreclosure statutes for the state.)

(I have reviewed extensively both the issues with Securitization and with MERS. I have thoroughly read the judicial rulings on both sides, and the statutes.  There are good points to be made on both sides, but when related to homeowners, there is a real issue that I will discuss later in this response.)

Servicing of the loans is another issue being argued.  The attorneys are claiming that the servicer has no authority to foreclose, and that only the Trust can foreclose.  These arguments are bogus since the PSA gives the servicer the authority to act for the Trust.  But, if the Trust can be shown to not own the loan, then the argument has some credence.

You will also read that loans were sold into more than one Trust.  Yes, in some cases that has happened, but this is a very few cases, and it was outright fraud on the part of the Originator.  Most of the claims are on the basis of a complete misunderstanding of the securitization process and later processes that occurred.

Once the bonds were sold to certain investors, the investors combined the bonds with other bonds.  They added credit enhancements and then broke these up and sold them as “synthetic CDO’s”.  These were artificially created bonds, and in a term that I use, a “second generation” bond.  These actions are where people get confused about the loans being placed into more than one trust.

Another point of confusion for attorneys is that loans could always be “removed” from the Trust, and replaced with other loans.  The original Mortgage Loan Schedule filed with the SEC need not be updated, so a loan would appear to be in the Trust, when it had been removed and replaced.  When a Notice of Default was filed with the name of the new Trust, this led to confusion that the loan might be in more than one Trust.  Attorneys not understanding this will file allegations to delay the foreclosure.

Again, yes, there have been instances of a loan being placed into more than one Trust, in a fraudulent manner, but these instances are not the norm.

The current “Big News” is regarding the filing of fraudulent foreclosure documents.  The allegations consist of people signing the documents and not having factual knowledge of the defaults.  It is being alleged than the foreclosures are fraudulent.  Yes, the issue of the “robo-signers” is valid. But here is what is not being told.

When a home goes into default, the servicer is the entity first aware of the default.  They fully document the files, and know the status of the loan at every step.  (Yes, errors can occur, but these errors are not the norm.)  When the loan hits a certain stage of default, usually three months or longer, it is now ready for foreclosure.  All of the documents are packaged together and then sent to the entity that will be foreclosing.  The documentation of the default is in the package.

The foreclosure firm takes the information and prepares the documentation.  So it has the factual proof that such default exists.  Once the foreclosure documents are prepared, the “robo-signer” signs the documents.  True, the signer has not inspected the documents, but both the servicer and the foreclosure firm have inspected the documents.  Therefore, two entities have direct knowledge of the default.  The bottom line is that the “robo-signer” arguments are nothing more than delaying tactics.

There are so many more arguments and facets to the issues involved, I could write a book about it, and still not cover all the issues.  I just wanted to cover a few key elements here.  If anyone has questions, I will be more than happy to respond to the questions and also other topics.

Before I end and get back to work, I want to say a couple more things.

Homeowners and advocates are arguing lender fraud on the loan.  They claim that the lender has violated a fiduciary duty to the homeowner by providing them a loan that they could not repay.  The truth is that courts have ruled continuously that a lender has “no fiduciary duty” to a borrower. So this argument does not fly.

Furthermore, what would happen if the lender declined the loan?  The answer is simple.  The homeowner would have gone to another lender to get the loan.  They would have continued until they found a lender.  So this argument is bogus. 

Also, in over 3500 exams that I have done, I can conclusively prove borrower fraud on 90% of them.  This is in addition to any lender or broker fraud.  So, almost always, those who are the most vocal against the lenders have “unclean hands”.  Lenders will soon be going after them.

Finally, many advocates claim that the appraisals were grossly inflated.  The argument is that the homes were never worth what they were sold at, and that the true value might be $200k-$300k less.  The inflated appraisals were used by the lenders as part of the “fraud”.

What these advocates and homeowners refuse to accept is that people were making the offers and were willing to pay the price of the home.  Therefore, the values were “legitimate” at the time.  (You don’t hear these same people argue that when stocks fall, the price of the stocks were fraudulently inflated.)  Also, you can bet that every time a similar home in their neighborhood sold at a higher value, then every homeowner in the neighborhood rejoiced over the amount of money that they just made.

The reality is that everyone was at fault in the foreclosure crisis; homeowners, lenders, Wall Street, the Federal Government, everyone.  There may be a few exceptions, but these are not the norm.  Now, everyone wants to go after the lenders and ignore their own responsibility in their fate.

There are solutions to the Housing Crisis, but it is not what homeowners and advocates want to hear.  The reality is that most people who are in foreclosure will never be able to afford the home, even with modification.  It is that simple.  Those people need to be foreclosed upon.

Principal Reduction should not be forced upon lenders and the securitizing entities.  Among other things, it violates the Contract Clause of the Constitution.  Furthermore, it punishes people who are not in foreclosure or who are not underwater.  Only 25% of the homes are underwater.  It will be everyone else who pays for the reductions.

Lenders who own the loans in their portfolio should not be forced into principal Reductions.  That will destroy their capital reserves and will immediately force the lender into receivership.

The only solution is to get out of the way of the banks and to let them foreclose on most people.

I know that my comments are going to give rise to much criticism and complaints.  Some will likely complain that I am on the side of the banks.  The truth is that I take no sides.  I am an unbiased participant in what is going on, and I will remain so.  I tell both sides as it is, like it or not.

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« Reply #61 on: November 02, 2010, 08:32:30 AM »

Crafty Dog asked me to comment about what would have happened without interventions of the government.  Here is what must be kept in mind.

Whether you are talking about Fannie and Freddie or Private Securitization, the money used by these entities all comes from Wall Street sources.  Only portfolio loans use a “banks” money/deposits.  So, 80% to 90% of the total amount used for mortgage loans is Wall Street.  Remove this money from the mix, and housing crashes like it did in 07 and 08. 

The creation of Fannie, Freddie and other sources certainly spurred housing, but in the last few decades drove the cost of homes up considerably.  Loose and plentiful money due to low interest rates drove up demand far beyond what was reasonable and affordable.

The Community Reinvestment Act and other housing incentives created further demand.  Unfortunately, this demand ended up with people buying homes that were not qualified to buy homes, and thus we see the end result. 

The blame cannot be based solely on the CRA and other housing programs.  The real blame must be placed upon the government using housing as a wealth and job creation program far beyond what could reasonably be expected.

Starting after 9-11, if the government had kept interest rates high, it is likely that the housing boom would not have occurred.  The recession would have continued, but it would have resolved itself within a year or two.  Sure, the damage from the recession would have financially hurt many, but the “cure” has certainly been much worse.

Housing would not have seen the value inflation that actually occurred.  Likely, we would have seen increases in value in the 2-3% range, after an initial drop in values. 

Home sales, due to the easy money policy of the Fed would not have taken off.  They would have been restrained as in all recessions, but would eventually return to more “normal” levels. Instead, due to the easy money policies, Wall Street turned to “guaranteed returns” from MBS, believing that housing would be safe investments.  This resulted in such an increase in lending money, and such demand for loans from Wall Street that prudent lending standards were tossed out the window.

If one could build a timeline of the decrease in lending standards from 2002 to 2007, it would be shocking.  Each year would show a steady decline in lending standards.  By mid 2004, there were few credible buyers left, and so loans with credit scores of 550, stated income became common.  Option ARMS became the loan of choice, because that was the only way that people could ever make the monthly payment.  By 2006, prove that you had a pulse, and you could buy a home. 

People are now clamoring for an end to Freddie, Fannie and Securitization.  None of these people have any idea of what would happen.  All the funds left for lending would be with the banks, as money held on deposit.  This is 10-15% of the money needed to support a credible housing industry. The entire housing industry would be stifled and crash.  Lending would cease except for the few who could afford substantial down payments of 40% or greater.   Home values would fall drastically for of buyers.  The end result would be a greater calamity than what we have now.

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G M
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« Reply #62 on: November 02, 2010, 03:30:58 PM »

We need to let it crash. Only then can we have real pricing.
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DougMacG
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« Reply #63 on: November 02, 2010, 04:47:06 PM »

Marc,  What your friend writes makes perfect sense to me.  Very nice detail on the lead up and buildup to the collapse and right on the mark regarding the prescription from here.  Foreclosures need to go forward.  That is the mechanism for the correction and the correction needs to happen.  Maybe some errors were made in a few foreclosures but it didn't make any sense to me that foreclosure firms don't know how to do foreclosures or that they would use robo Signatures if those weren't allowed.  

I agree with GM but would like to substitute 'let it correct' for let it crash.  We shouldn't need to approach zero or far over-correct in order to right-size these values.  Unfortunately there are others factors causing uncertainty and over-correction in housing, same as for the lack of investment and hiring in the rest of the economy, compounded by homeowners or potential homeowneers not finding work or with depressed or stagnant incomes.  In other words, if employment had recovered and incomes were growing and housing was the only problem we could have grown out of this somewhat quickly, without this prolonged death recovery.

My place went up 8-fold in 2 decades to the peak. The bulk of that came from artificial and inflated factors.  I was proud of my investment when it doubled.  After that it just became bizarre with pretend values with runaway taxes until property taxes exceeded food, clothing, transportation and shelter combined.  Now I have paid more in real estate taxes than I paid for the house, but I digress...

I wonder when we will learn anything from the events described.  Why would we want to get people into homes they can't afford?  Why do we still want values to be artificially high?  Why would we want markets and values to be constantly changing, unstable and out of whack, high or low? Why would we want to prevent or delay a correction?  Why do we keep doing things that over inflated the market?  We were still offering multiple thousand dollar home buyer credits long after the crash which is a federal stimulus spending program that Democrats are still passing off as a "middle class tax cut'".  http://www.politifact.com/truth-o-meter/statements/2010/feb/02/david-axelrod/axelrod-claims-democrats-passed-25-tax-cuts-last-y/

A different way to encourage home ownership might be lower property taxes and to reduce economic penalties for hiring, earning and creating and retaining wealth.

Today it seems equally bizarre to me how low some foreclosure prices have gone, down to 14 cents on the dollar of previous purchase in some cases. Buyer exhaustion, and it keeps getting worse as the inventory keeps coming.  The wild fluctuations and high levels of uncertainty are still screwing up the efficiency and integrity of the market.  

One observation about foreclosure owners is that they do almost nothing to make the houses ready for sale beyond emptying them.  I can't understand why they won't do basic, neglected repairs and small investment to protect their asset value, bring the house up to at least their own lending standards and slow the free fall of prices.
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« Reply #64 on: November 02, 2010, 04:56:30 PM »

"Let it correct" does sound better.

America has developed a serious debt addiction and needs to hit bottom and sober up. The longer we delay the day of reckoning, the worse it will be.
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« Reply #65 on: November 04, 2010, 12:35:02 PM »

By NICK TIMIRAOS
The total cost to rescue and then overhaul mortgage giants Fannie Mae and Freddie Mac could reach $685 billion, according to estimates published Thursday by Standard & Poor's.

Fannie and Freddie have already cost taxpayers nearly $134 billion, but S&P analysts said Thursday that the government could ultimately be forced to inject $280 billion into the firms because of a slowdown in the housing market.

Any entities that might replace Fannie and Freddie would need new start-up funding that would go beyond the money already committed.

A consensus of academics, industry officials and investors has coalesced around the idea of using the government to provide explicit guarantees for securities backed by mortgages that meet certain standards. Tough questions loom over how those guarantees would be structured and priced and what entities would provide them.

Analysts estimate that it would cost an additional $400 billion to sufficiently capitalize any entities that would take the place of Fannie and Freddie. Those capital levels could be lower, at around $225 billion, if the government were to retain ownership in any surviving entity.

"As it stands now, we believe that addressing the [companies'] problems is likely to be an expensive repair job for U.S. taxpayers," wrote S&P analysts Daniel Teclaw and Vandana Sharma.

While mortgage delinquencies have eased in recent quarters, analysts warned that high unemployment, a weak economy, and a sluggish housing market could prompt costs to rise "substantially" over the next year. "It's no secret that a better economy would help ease the [firms'] predicament," the report said.

The S&P loss estimates are higher than those made last month by the firms' federal regulator. The Federal Housing Finance Agency said that the taxpayer tab for the companies is on pace to reach $154 billion under the current home-price forecast. If the economy enters a double-dip recession and home prices fall more than 20%, the cost to taxpayers could reach $259 billion.

The government took over the troubled housing-finance giants two years ago through a legal process known as conservatorship. The Treasury has promised to inject unlimited sums through 2012 and nearly $300 billion after that in order to maintain a positive net worth and to avoid triggering liquidation.

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« Reply #66 on: November 08, 2010, 03:32:13 PM »

http://www.calculatedriskblog.com/2010/11/lps-over-43-million-loans-90-days-or-in.html
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JDN
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« Reply #67 on: November 09, 2010, 09:52:32 AM »

I just read a good book last night; "The Big Short" "Inside the Doomsday Machine"
by Michael Lewis.

He blames Wall Street.

"When the crash of the U.S. Stock market became public knowledge in the fall of 2008, it was
already old news.  The real crash, the silent crash, had taken place over the previous year,
in bizarre feeder markets where the sun doesn't shine and the SEC doesn't dare, or bother,
to tread; the bond and real estate derivative markets where geeks invent impenetrable securities
to profit from the misery of lower and middle class Americans who can't pay their debts."
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« Reply #68 on: November 09, 2010, 10:16:38 AM »

"He blames Wall Street."

Umm , , , so what? cheesy

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« Reply #69 on: November 09, 2010, 10:26:10 AM »

"He blames Wall Street."

Umm , , , so what? cheesy

That is kind of his point; they will do it again....   smiley

But it is a good look at the inner workings of the bond and derivative markets.
And how their blind greed drove firms and by extension the economy to ruin.



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« Reply #70 on: November 09, 2010, 10:46:58 AM »

Forgive me my sarcasm but , , , drum roll please , , , Duh.  OF COURSE Wall Street is greedy.  It is precisely why the Government should not lead them into temptation by guaranteeing mortgages (the FMs) or make them invest in people who can't pay (the Community Reinvestment Act) or create a bubble with unnaturally low interest rates or bail theirs asses out when things go south.
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DougMacG
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« Reply #71 on: November 09, 2010, 11:32:33 AM »

Put me with Crafty here, it was the tampering (to put it lightly) with the market to create defective underlying assets, not the packaging of the product that caused failure.

I recall a Dem friend blaming gas prices (under Bush) on greed.  Oil companies are doing this and oil companies are doing that, as if that inspiration came on suddenly.  Excuse me but greed (self interest / profit motive) was the only thing that remained constant during that market turmoil.

Competition is what squeezes out excess profits (in housing, healthcare, investment banking, manufacturing, energy, anything) and it is usually excessive government regulations that prevent a price-competitive environment from forming.
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JDN
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« Reply #72 on: November 09, 2010, 11:43:54 AM »

Actually the book makes an excellent case that it was if fact "the packaging of the product that caused failure."
It was all smoke and mirrors....

It's a bit technical, but a good book...
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« Reply #73 on: November 09, 2010, 11:49:27 AM »

We already have substantial laws on the books regarding fraud in its various incarnations.  Without the FMs guaranteeing the loans, people would have been paying attention and apart from the fraud for those who didn't , , , too bad.  Stupid SHOULD hurt.
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DougMacG
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« Reply #74 on: November 09, 2010, 12:34:42 PM »

"Stupid SHOULD hurt"

Stupid needs to hurt instantly.  If a 2-year old puts a hand on a hot stove, the kid screams and pulls the hand off the stove.  He doesn't leave his hand on the stove until it is charred and smoldering.  These housing market mistakes didn't need to go into the tens of trillions of dollars of damage.  We constantly insulate economic errors from correction or consequence, and that only makes everything much much worse.

Everybody makes mistakes.  Instant correction makes them stay small.  In prosperous times we wanted a wider cross-section of America to become home owners.  But a home owner doesn't become a home owner by government decree unless you eliminate the meaning of the term.  First you build up your education and then your income. Then you build up your credit while you live beneath your means (imagine that!) and save up your down payment.  By then you have developed the level of commitment, maturity and responsibility to pursue a 30 year plus life decision and stick with it.  Shortcut that and you haven't.  Borrow 100% or more and you aren't a homeowner.  If we artificially drive up the price of homes, we aren't helping people get in. If we make the interest rate on savings 0% we aren't helping them save.  Take away the right to foreclose and we don't have mortgages.  Policy error, policy error, policy error.

Forrest Gump could have figured this out better than the current class of clowns.
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G M
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« Reply #75 on: November 12, 2010, 11:00:42 AM »

http://www.businessinsider.com/the-20-cities-with-the-most-underwater-homes-2010-11

The scariest number for anyone invested in the real estate market is this: 23.2%.

That's the record-high share of mortgages that are now underwater, as estimated by Zillow.

Negative equity is the prime factor driving a record number of mortgage holders into delinquency. Delinquencies will lead to foreclosures, which will drive down home prices, creating more negative equity -- a very dangerous cycle.

In some parts of America, a gob smacking percentage of homes are underwater. In Las Vegas, for instance, four out of five mortgages are now underwater.
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« Reply #76 on: December 07, 2010, 08:46:54 AM »

The percentage of U.S. consumers who are delinquent on their mortgages could fall to about 5% by the end of 2011, from an expected 6.2% at the end of this year, according to a leading credit bureau.

Even so, the proportion of consumers who are 60 or more days overdue on their mortgages would still be sharply higher than the historical range of 1.5% to 2%, according to TransUnion LLC, which analyzed about 27 million randomly selected consumer records from its database. The Chicago credit bureau first started tracking these statistics in 1992.

In data released Tuesday, TransUnion forecasts that mortgage delinquencies will fall to 4.98% in the fourth quarter of 2011 from 6.21% at the end of this year. According to TransUnion, this delinquency rate peaked at 6.89% in fourth quarter of 2009, as lenders tightened underwriting standards.

A decrease in mortgage delinquencies, traditionally a precursor to foreclosure, could boost the faltering recovery in the U.S. economy and the residential real-estate market.

"We think that the mortgage industry isn't out of the woods yet, but it's starting to move in a better direction," said Steve Chaouki, a group vice president in TransUnion's financial-services unit.

Protracted and high unemployment and depressed home values are contributing to the elevated delinquency rate.

TransUnion also forecast that credit-card delinquencies, an important gauge of future losses for lenders, will continue to fall, though not nearly as sharply. By the end of this year, the ratio of credit-card borrowers who are 90 days or more delinquent on one or more of their credit cards is expected to reach 0.75%—below the levels at the beginning of 2007, at the peak of the credit boom, according to TransUnion.

As credit quality improves, this delinquency rate is expected to fall to 0.67% by the end of 2011. Credit-card delinquencies are lower than mortgage delinquencies in part because credit-card lenders have more ways to control the potential losses, such as reducing customers' credit lines.

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« Reply #77 on: December 10, 2010, 09:57:54 AM »

A friend writes:

"The repercussions of the Housing boom & bust are likely to continue for years to come."

Seeing foreclosures nationwide on Google Maps, described at Google Map Foreclosure Tricks: 


Google Maps Foreclosure Listings

1. Punch in any US address into Google Maps.

2. Your options are Earth, Satellite, Map, Traffic and . . . More. (Select “More”)

3. The drop down menu gives you a check box option for “Real Estate.”

4. The left column will give you several options (You may have to select “Show Options”)

5. Check the box marked “Foreclosure."



Note: This map does not reveal any of the millions of REOs that have already been sold by the banks that hold them.

But the maps do reveal an entire nation littered with foreclosure sales. It is an ugly and graphic depiction of how much inventory is out there, and why housing is stillmany years away from being healthy.



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« Reply #78 on: December 22, 2010, 11:54:16 AM »

Existing home sales increased 5.6% in November to an annual rate of 4.68 million To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/22/2010


Existing home sales increased 5.6% in November to an annual rate of 4.68 million, slightly below the consensus expected pace of 4.75 million. Existing home sales are down 27.9% versus a year ago, when sales were artificially high due to the homebuyer credit.

Sales in November were up in all major regions of the country. Sales increased for single-family homes, but declined for condos/coops.
 
The median price of an existing home increased to $170,600 in November (not seasonally adjusted), and is up 0.4% versus a year ago. Last November, prices were down 5.7% from the prior year.
 
The months’ supply of existing homes (how long it would take to sell the entire inventory at the current sales rate) fell to 9.5 from 10.5 in October. The decline in the months’ supply was due to both the faster selling pace and a decline in overall inventories.
 
Implications: Existing home sales rebounded sharply in November, increasing 5.6% after falling 2.2% in October. Some of the rebound may have been due to the end of the moratorium on foreclosures that probably reduced sales in October. Regardless, we believe the underlying trend will be upward over the next year, as sales continue to rebound without artificial government support. Although the data will zig and zag from month to month, we expect sales to get back to about 5.5 million units at an annualized rate. And we expect the rebound even if mortgage rates float back upward.  Housing in November was more affordable than at any time in the past 40 years, and as buyers get more secure about the state of the economy, private-sector job creation accelerates, and purchasers become more confident that their homes will eventually rise in value rather than decline, they will be more willing to buy homes even if interest rates are higher. For example, mortgage rates averaged about 7.5% in the late 1990s and were not an impediment to climbing home sales. In other housing news this morning, the FHFA index, a measure of prices for homes financed with conforming mortgages, increased 0.7% in October (seasonally-adjusted), the first gain since May, although this measure of prices is still down 3.4% versus a year ago.
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« Reply #79 on: December 23, 2010, 01:50:46 PM »

New single-family home sales increased 5.5% in November To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 12/23/2010


New single-family home sales increased 5.5% in November, coming in at a 290,000 annual rate, but still fell short of the consensus expected pace of 300,000.

Sales were up in the South and West but down in the Northeast and Midwest
 
At the current sales pace, the months’ supply of new homes (how long it would take to sell homes in inventory) fell to 8.2 in November from 8.8 in October. The drop in the months’ supply was mainly due to the faster selling pace. The number of homes for sale fell 4,000 to 197,000, down 65.6% versus the peak in 2006. Interestingly, this is the lowest level of new homes in inventory since 1968.
 
The median price of new homes sold was $213,000 in November, down 2.7% from a year ago. The average price of new homes sold was $268,700, down 2.2% versus last year.
 
Implications:  The market for new homes remains sluggish, still suffering from the expiration of the homebuyer tax credit but also from intense competition from the large inventory of foreclosed homes on the market, many of which were built within the past decade. The tax credit, which required buyers to sign a contract by the end of April, moved sales forward into the early part of this year.  New home sales, which are counted at contract, increased to a 414,000 annual pace in April. But sales dropped off almost immediately, and have only averaged 289,000 in the seven months since. It is important to note that, despite the slow pace of sales, inventories are still declining and are already at levels not seen since the late 1960s. As inventories fall, homebuilders will need to start building more homes. Given a growing population and the need for more housing, the pace of new home sales should more than triple over the next several years to roughly 950,000. With lumber prices on the rise in recent months, that process may be underway. On the price front, the median sales price of new homes rose to $213,000 in November, bouncing back after going below $200,000 last month. This price measure is down 2.7% versus a year ago. We expect the new home market to continue to improve, albeit gradually.
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« Reply #80 on: January 11, 2011, 02:16:21 PM »

A front-page Wall Street Journal feature, titled "Housing Recovery Stalls," worries that "a new bout of declining home prices is threatening to hamper the U.S. recovery."

A dip in the Case-Shiller moving average of home prices in 20 cities for August to October is said to be "troublesome headwind" for the economy in 2011, and "markets such as Sacramento, Las Vegas and parts of Arizona and Florida are at risk of more declines."

Some of those cities may indeed account for a significant share of the Case-Shiller index, because that index covers only 20 cities (and Sacramento, the centerpiece of the story, is not one of them). However, a few troubled cities in a few states do not represent the entire nation.

The Federal Housing Finance Agency (FHFA), which examines all 50 states, reported home prices rising in October. The FHFA found third-quarter home prices higher than a year ago in 10 states, but seven of those 10 are excluded from the Case-Shiller index.

Yet even Case-Shiller shows home prices higher than a year ago in three cities where the boom-bust cycle was quite severe — Los Angeles, San Diego and San Francisco.

Writing ominously about the Case-Shiller index in the Wall Street Journal, however, bearish author Peter B. Schiff prophesizes that home prices all over the country will fall by somewhere between 24.32% and 28.3% over the next five years.

He imagines home prices must magically revert to some "3.35% annual 100-year trend line," even though no prices of any assets or goods have ever followed such a century-long "trend." This is utter nonsense.

To get closer to reality, suppose home prices in 2011 really did keep falling in "Sacramento, Las Vegas and parts of Arizona and Florida." So what? GDP growth depends on new production, not on prices at which existing homes change hands. In November, housing starts were up 3.9% and new homes sales were up 5.5%.

Falling home prices ultimately help the homebuilding industry because lower prices increase home sales and shrink the excess inventory of existing homes. The stock of existing homes fell to 9.5 months of supply in November from 12.5 months in July. That, not "stalling" prices, is the housing recovery that matters.

Moreover, new homebuilding often occurs in cities where home prices are not falling. Regardless of troubles in Sacramento and Las Vegas, the National Association of Home Builders reports year-to-date increases in building permits of 172% in San Jose (through October) and 88% in Carson City. Surprisingly, building permits were also up 59% in Miami and 133% in Detroit.

The most persistently incorrect argument about the alleged dangers of letting overpriced homes fall to an affordable level is that falling home prices supposedly have a devastating effect on household wealth.

"Homes remain a key part of Americans' wealth," says the Journal article. "Households held $6.4 trillion of home equity at the end of the third quarter, alongside $12.2 trillion in stocks and mutual fund shares. ... For every dollar decline in housing wealth, consumers reduce spending by about a nickel in the subsequent 18 months, Moody's Economy.com chief economist Mark Zandi estimates."

The table alongside shows that the $6.4 trillion of home equity in the third quarter was only 11.9% of estimated household wealth, which was $54.9 trillion. The Journal's reference to "$12.2 trillion in stocks and mutual fund shares" leaves out retirement accounts, bonds, rental property, farmland, precious metals and family-owned businesses, among other things.

Alan Reynolds, a senior fellow with the Cato Institute, is the author of Income and Wealth (Greenwood Press 2006).

More by Alan ReynoldsHousing wealth has no more impact on consumer spending than any other sort of wealth. In fact, the $6 trillion increase in overall household wealth since early 2009 was nearly as large as total home equity. The five-year decline in home equity is partly because homeowners took out larger mortgages to cash out equity while home prices were rising.

The notion that an assumed "double dip" in housing prices might cause a double dip in real GDP confuses home prices with homebuilding. Many who now warn of grave dangers arising from a brief dip in the Case-Shiller index are the same folks who once told us, quite incorrectly, that the economy could never recover until the Case-Shiller index turned decisively upward.

Lower prices on homes are clearly helping recent home buyers, leaving them with more money to spend on other things. Sellers, real estate agents and mortgage lenders prefer higher prices, of course. But that is why government policy should never favor sellers over buyers.

In short, anxiety about falling home prices is based on (1) a limited sample of 20 cities, (2) confusing home prices with homebuilding, (3) forgetting that lower prices are as beneficial to buyers as they are harmful to sellers and (4) grossly exaggerating the importance of housing to overall wealth.

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DougMacG
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« Reply #81 on: January 11, 2011, 11:21:38 PM »

"anxiety about falling home prices is based on (1) limited sample... (2) confusing home prices with homebuilding, (3) forgetting that lower prices are as beneficial to buyers as they are harmful to sellers and (4) grossly exaggerating the importance of housing."

"the $6.4 trillion of home equity in the third quarter was only 11.9% of estimated household wealth, which was $54.9 trillion. The Journal's reference to "$12.2 trillion in stocks and mutual fund shares" leaves out retirement accounts, bonds, rental property, farmland, precious metals and family-owned businesses, among other things."

-Alan Reynolds cuts through the noise nicely.  It's too bad that reported economic data are so often full of flaws.  If we fix the employment and income situation, housing will take care of itself.  Foreclosures now have to do with jobs and income, not valuations IMO.
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« Reply #82 on: January 14, 2011, 12:04:02 PM »

http://news.yahoo.com/s/ap/us_foreclosure_rates

NEW YORK – The bleakest year in the foreclosure crisis has only just begun.

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and industry experts say more people will miss payments because of job losses and also loans that exceed the value of the homes they are living in.

"2011 is going to be the peak," said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year.
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« Reply #83 on: January 25, 2011, 08:35:49 AM »

A push by Republican lawmakers to scale back government backing for home mortgages is meeting resistance from the housing industry, a longtime ally of the party.

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Rep. Jeb Hensarling said Fannie and Freddie's role should be transferred to the private sector.
.In recent months, banking executives and mortgage investors from groups including the Financial Services Roundtable, the Mortgage Bankers Association and the National Association of Real Estate Investment Trusts have met with Republican lawmakers and their staffs to press them on the need for a permanent government role in guaranteeing mortgages.

But many Republicans blame government-controlled mortgage giants Fannie Mae and Freddie Mac for fueling the housing bubble that helped spark the financial crisis, and some new members of Congress want government to take a smaller role in the economy. That has some lawmakers pledging to resist any effort to revamp the U.S.'s system of housing finance that would leave taxpayers exposed to losses.

"I know the industry is here, and they are saying we need a government guarantee," said Rep. Spencer Bachus (R., Ala.), now chairman of the House Financial Services Committee, at a September hearing.

"If I were the industry, I would be doing the same thing because I would love to make loans and if they failed, let the taxpayers make up the loss," Mr. Bachus said. "That's a pretty sweet deal."

Since the 1930s, the federal government has backed the housing market through Fannie Mae and, later, Freddie Mac. The two firms bundle mortgages into securities that are sold to investors, who are then protected against any losses if borrowers default.

That support, the housing industry argues, is key to lenders' willingness to offer the traditional 30-year, fixed-rate mortgage at low rates.

The Obama administration is due by mid-February to issue a proposal to overhaul Fannie and Freddie, which have been under government control since 2008. Officials are likely to present two or more approaches, including one with a limited but explicit government guarantee of securities backed by certain types of mortgages, and another with no such guarantees. Democrats generally support the guarantees to preserve wide availability of the 30-year mortgage.

Many investors and the housing industry argue that guarantees are needed to ensure the availability of home loans during downturns, when private lenders retreat. Under several proposals, the mortgage industry would pay the government fees for support, much as the Federal Deposit Insurance Corp. collects fees from banks to handle failures.

If investors in mortgage-backed securities don't have that government guarantee, they will demand higher interest rates and some may not invest at all, said Jeremy Diamond, managing director of Annaly Capital Management, who has met with GOP staff. His message to lawmakers considering full-scale privatization: "You will end up with a mortgage market that is smaller, less liquid and more expensive."

The idea of any kind of government guarantee raises the hackles of many in the GOP, especially members sympathetic to the tea-party movement, which made a mantra of opposing bailouts.

"You're going to be setting the housing industry, who have traditionally had a tremendous influence on the Republican Party, against the tea party," said Mark Calabria, director of financial regulation studies at the libertarian Cato Institute.

Last week, Rep. Jeb Hensarling of Texas, the House's fourth-ranking Republican, said he would introduce legislation to transfer Fannie and Freddie's role to the private sector within five years with no future guarantees. "My goal is to get the taxpayer off the dime," he said.

Critics say reformulating the system to look like the FDIC wouldn't relieve taxpayers of the burden because the government isn't likely to charge enough for the insurance protection, resulting in a rerun of the government's takeover of Fannie and Freddie, which has cost taxpayers $134 billion.

"The government's guarantee eliminates an essential element of market discipline—the risk aversion of investors," said a paper released last week by the conservative American Enterprise Institute. "So the outcome will be the same: the underwriting standards will deteriorate, regulation of issuers will fail and taxpayers will take losses once again."

In the months ahead, GOP lawmakers—especially those who remain cautious about privatization—are likely to face a lobbying blitz from home builders, community bankers, real-estate agents and other businesses in their home districts that depend on federal housing support.

Community banks, for example, will likely argue that they would face higher costs to originate mortgages.

The burden on the industry is to "show that the risk to the taxpayer is going to be minimized," said Paul Leonard, chairman of the Financial Services Roundtable's Housing Policy Council.

Write to Nick Timiraos at nick.timiraos@wsj.com

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« Reply #84 on: January 26, 2011, 07:59:49 AM »

http://www.washingtonpost.com/wp-dyn/content/article/2011/01/25/AR2011012502271.html

Home prices fall in nearly all major cities, heightening fears of double dip

By Dina ElBoghdady
Washington Post Staff Writer
Tuesday, January 25, 2011; 4:12 PM

Home prices slipped in nearly every major metropolitan area in November, with a few cities hitting their lowest levels since prices peaked about four years ago, according to a closely watched index released Tuesday.


From October to November, prices fell in 19 of the 20 metro areas tracked by the Standard & Poor's/Case-Shiller index, widely considered a gauge of the housing market's health. The only exception was San Diego, where prices were basically unchanged.

Only four areas posted year-over-year gains in November, including Los Angeles, San Diego, San Francisco and the Washington region. But in the aggregate, prices dipped 1.6 percent in November from the same time a year earlier, falling in 16 cities.

The nine cities that hit their lowest annual levels since the housing bust started were Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Miami, Portland, Ore., Seattle and Tampa.

The 20-city index is now about 3 percent above April 2009 levels, "suggesting that a double dip could be confirmed before spring," said David Blitzer, the index committee's chairman.

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« Reply #85 on: January 26, 2011, 11:31:40 AM »

GM:

I acknowledge what you just posted and the gravity of its implications, yet there also is this:
=============================================================
Data Watch

--------------------------------------------------------------------------------
New single-family home sales increased 17.5% in December To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 1/26/2011


New single-family home sales increased 17.5% in December, coming in at a 329,000 annual rate, blowing away the consensus expected pace of 300,000.

Sales were up in the West, Midwest, and South, but down in the Northeast.
 
At the current sales pace, the months’ supply of new homes (how long it would take to sell the homes in inventory) fell to 6.9 in December from 8.4 in November. The drop in the months’ supply was mainly due to the faster selling pace. The number of homes for sale fell 5,000 to 190,000, down 66.8% versus the peak in 2006 and the lowest level of new homes in inventory since 1968.
 
The median price of new homes sold was $241,500 in December, up 8.5% from a year ago. The average price of new homes sold was $291,400, up 4.7% versus last year.
 
Implications:  New home sales jumped 17.5% in December, the biggest percentage gain since 1992, coming in well above consensus expectations. The increase was mostly due to stronger sales in the West. Outside the West, sales were up only slightly. It is important to note that new home inventories are still declining and are already at levels not seen since the late 1960s. As inventories keep falling, homebuilders will eventually need to start building more homes. Given a growing population, the pace of new home sales should roughly triple over the next several years to about 950,000. On the price front, the median price of new homes sold rose to $241,500 in December, coming in at the highest level since April 2008. This was probably influenced by the large increase of sales in the West where homes are usually priced higher. Median new home prices are up 8.5% versus a year ago. In other recent housing news, the Case-Shiller index, a measure of home prices in the 20 largest metro areas, dipped 0.5% in November (seasonally-adjusted) versus a consensus expected decline of 0.8%.  Prices are down 1.6% in the past year, but still up 1.2% versus the cycle low in May 2009.  The FHFA index, a price measure for homes financed by conforming mortgages, was unchanged in November but down 4.3% in the past year.  In the factory sector, the Richmond Fed index, a measure of manufacturing in the mid-Atlantic, came in at +18 in January versus +25 in December.  Although lower, the Richmond index still signals strong growth in manufacturing activity.
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« Reply #86 on: February 04, 2011, 01:35:26 PM »

First a comment on GM's post on Political Economics: http://reason.com/blog/2011/02/03/coming-soon-a-300-percent-incr "Coming Soon: A 300-Percent Increase in Foreclosures"

I don't buy the conclusion in the title (they do back it up with numbers), but the article has excellent reporting.  Much of the information presented is in clickable links for sourcing.

I would add that lots of people are so-called underwater in value and keep paying because they don't want to move and don't want to default.

Remember, foreclosure is the good part - the contract as the parties originally agreed working as designed to get the asset (and the family leaving) back to the market.  The fact that the borrower quit paying their obligation - that was the bad part and that is well into past by the time foreclosured home hit the market.

In light of the demonstrated failure of programs that slow the foreclosure process to keep people in the wrong home for them, we should consider the opposite, speedier returns to market and fully privatized renegotiations.
-----------------

18.4 million homes are vacant, 11% in Q4 2010 according to Census numbers.  Here on CNBC: http://www.cnbc.com/id/41355854.  I saw that go by on drudge a couple of weeks ago but didn't see it on the forum.  That is a very scary number, though in my business, an 11% vacancy rate or a theoretical 89% collection rate would be a dream.

Remember there are many many bureaucratic barriers to bringing vacant homes back to market depending on where you are and a good number of the foreclosures are in highly regulated municipalities.  In Minneapolis as an example, there is a $1000 fine/fee in addition to the annual rental license fee to bring a house into the rental market, and a far more expensive, complied-with truth-in-housing report required for a sale.  In other words the old 'fixer-upper' 'sweat equity' bargain idea is highly illegal and could trigger something called a 'Code Compliance' order requiring an old house to be brought up to new code, which is financially akin to condemnation in a low end property.
These regulation mean that these properties can be bought only with high-risk cash, not mortgages as they are not insurable, or legal to rent or live in.

Foreclosed homes often have the furnace or even entire kitchen stripped etc. and sold as they leave.  I've bought them with the electrical panel removed and feed wires dangling hot.  As they sit empty the copper pipes get stolen.  Banks rarely will do more than empty and mow to protect their value.  Before the crisis, banks we worked with wanted the property sold at best price / any price usually in less than one day because they didn't want the liability of ownership.  Anyone in the business of buying these properties has got to be tapped out at this point no matter what you started with.
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« Reply #87 on: February 04, 2011, 01:39:27 PM »

I think the only reason there is anything of a middle class left in California is that underwater homeowners don't want to default or take the loss.
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« Reply #88 on: February 12, 2011, 06:41:22 AM »

The ABCs of QRM
Why a regulation you haven't heard of matters as much as Fannie and Freddie.
By Bethany McLean



--------------------------------------------------------------------------------

Practically everyone who is concerned about the future of the housing market is focused on Fannie Mae and Freddie Mac. The Treasury is leaking details of its overdue plan for the hobbled mortgage giants; the House Financial Services Committee held a hearing so Republicans could rant about the evils of government involvement in the housing market; think tanks are holding conferences to devise solutions.

 

But behind the scenes, there's another huge debate taking place, one that has every bit as much potential—maybe more—to shape the housing market. It involves a provision in last summer's Dodd-Frank financial reform legislation, one that was inserted partly due to Lou Ranieri, the former Salomon Brothers bond trader and executive who helped create the modern mortgage market back in the 1980s. The provision is called the qualifying residential mortgage, or QRM. What is a QRM? Well, that's precisely the cause of the debate. The answer will play a big role in determining who can get a mortgage at what cost.

 

One of the factors that made the housing bubble so big was that financial institutions that made mortgages were able to sell them off, whether to Wall Street firms or to Fannie and Freddie, thereby ridding themselves of the risk. Over time lenders became increasingly indifferent to the question of whether the borrowers could pay. (Many of them couldn't, as we all know now.) To fix this, Dodd-Frank imposed a requirement that mortgage companies keep 5 percent of the risk on their own books even when they sold off the loans. The idea was to give lending institutions a financial incentive to care about their borrowers' creditworthiness—"skin in the game," as the requirement is colloquially called. Banking regulations also compel lenders to maintain capital against that risk, thereby increasing their cost. Five percent may not sound like a large commitment, but for smaller institutions that operate on a thin margin (community banks, independent mortgage companies) it's huge. Even big banks, which face a slew of new capital requirements, find it a headache.

 

As Lou Ranieri watched Congress enact this so-called risk-retention requirement, he began to worry that while it was necessary for some types of mortgages, it could also limit, unnecessarily, the availability of all mortgages. "We need to come out of this [crisis] with a functioning housing market," he says. What Ranieri calls "old-fashioned mortgages"—traditional 15- or 30-year loans where the borrower pays off interest and principal every month, and where the loan is fully documented, among other things—held up fine even at the height of the crisis, according to analysis he presented to members of Congress. Was it really necessary for lenders to keep "skin in the game" for such super-safe mortgages? (Ranieri also thinks that just as stockbrokers can be held liable for selling customers unsuitable products, those in the mortgage lending chain should be held liable for selling unsuitable mortgages, whether those mortgages are old-fashioned or not. But that's a slightly different discussion.)

 

So, with input from Ranieri, a bipartisan group—Democratic Sens. Mary Landrieu of Louisiana and Kay Hagan of North Carolina and Republican Sen. Johnny Isakson of Georgia—inserted a provision into the financial reform legislation stipulating that old-fashioned mortgages (i.e., those that met certain time-tested guidelines) would be exempt from the skin-in-the-game requirement. These were the mortgages labeled "qualifying residential mortgages." Congress left the details of what could and could not be considered a QRM up to a clutch of federal agencies that includes the banking regulators, the Department of Housing and Urban Development, and the Federal Housing Finance Authority, which oversees Fannie and Freddie. They are supposed to issue a final regulation by April 21.

 

That rule will likely have a huge impact on what sort of loans lenders offer, and to whom. Smaller, thinly-capitalized mortgage originators can't afford to keep any of the risk, and other lenders simply don't want to keep it, so mortgages that don't qualify will be more expensive and harder for average consumers to get. Or, as the Mortgage Bankers Association predicts, loans made outside the QRM framework "will be costlier and likely to be made only to more affluent customers." J.P. Morgan Chase estimates that the 5-percent risk-retention requirements could increase rates on loans that don't qualify as QRMs by up to 3 percentage points.

 

Decisions about the QRM will also have a big effect on Fannie and Freddie (assuming Fannie and Freddie are still around when the rule takes effect). Because lenders will have to retain 5 percent of the risk on any nonqualifying loans that they sell, they will probably sell fewer such loans to Fannie and Freddie. In effect, how QRMs are defined will dictate which mortgages end up on the government's books. So if the government is going to maintain any kind of role in the housing market, then taxpayers have skin in the QRM game too. In which case, shouldn't the government tailor regulation of QRMs to minimize that risk?

 

The difficulty is that neither the regulators themselves, nor the industry, agree on what a qualifying mortgage should be—and whether minimizing risk should be the only criterion. The stricter the definition—for instance, requiring a 30-percent down payment—the fewer homeowners will get QRM mortgages. That's fine if your goal is to make sure that qualifying mortgages never default. But what if your goal is to make sure home mortgages remain affordable and widely available? Using Census Bureau data, the research firm Height Analytics calculated that in 2009, 47 percent of homebuyers who borrowed money to purchase their home made a down payment of less than 10 percent. So even requiring a seemingly modest down payment of 10 percent would disqualify about one-half of all prospective borrowers from obtaining QRMs. "As a result, these borrowers would have to take out a mortgage with a significantly higher interest rate or their efforts to buy a home could be restricted," Height Analytics noted.

 

Requiring a high down payment also stands to benefit the bigger players. Wells Fargo, which made some less-than-pristine loans during the subprime mania, sounded like a recovering alcoholic in a letter to regulators last fall that said a 30-percent down-payment requirement would provide a "simple and balanced" definition of a QRM. Big banks can afford to keep loans that don't qualify on their balance sheet. Smaller institutions can't. The Community Mortgage Banking Project, a coalition of mostly smaller lenders, argues in a position paper that a restrictive QRM definition would concentrate lending in the "too big to fail" banks. Operating in a less competitive market, the big banks could boost profits by charging higher rates to consumers who didn't qualify.

 

At the opposite pole is the Mortgage Bankers Association, which represents many non-bank mortgage originators whose business models depend on selling off the loans they make. The MBA wants even very risky loans in which borrowers pay only interest, not principal, to qualify as QRMs. "unnecessarily constraining the mortgage market," the MBA wrote in a letter to regulators last fall, "will not only deny the American dream of homeownership to many qualified persons, it will further depress the housing market and threaten the economic recovery." Of course, that's the same reasoning the MBA applied before the subprime crash.

 

Then, there are the mortgage insurers, companies such as MGIC and Radian, for whom the QRM represents nothing less than an existential threat. Mortgage insurance exists because Congress requires it on loans with a down payment of less than 20 percent that are bought by Fannie and Freddie. But if a QRM by definition requires a 20-percent down payment, what place will there be for mortgage insurance? So mortgage insurers are arguing that insurance makes mortgages safer for both borrowers and lenders, and are applying their considerable lobbying clout to stay in the game.

 

As for the regulators, sources say the Federal Reserve and the Federal Deposit Insurance Corporation, which traditionally care more about the safety and soundness of the financial system than they do about homeownership, are pushing for a conservative down-payment requirement—at least 20 percent. But they are meeting some resistance, too. A fixed down-payment requirement "would likely result in a furor on Capitol Hill," notes Height Analytics, because it would block such a large percentage of buyers from qualifying for a less costly loan. Although the housing-focused agencies like HUD and the FHFA haven't made public statements, the general sense in Washington is that they want a less strict standard in order to promote affordability and accessibility.

 

Sources in Washington say that the regulators will propose a rule requiring a hard down payment of 20 percent. But that would be controversial, and with all these conflicting agendas, the research firm MF Global predicts "very little chance" that we'll see a final QRM rule by the April 21 deadline. A "more realistic deadline," it says, "is mid-summer." A lot will ride on the regulators getting this right.

 

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Crafty_Dog
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« Reply #89 on: February 13, 2011, 10:09:47 AM »

Educate me please:

Is the US government obligated as a matter of law to cover the FMs debts?
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DougMacG
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« Reply #90 on: February 13, 2011, 12:36:37 PM »

Crafty: "Is the US government obligated as a matter of law to cover the FMs debts?"

IIRC, during the collapse of 2008 the answer to that question was 'no' for most of those assets as a strict, direct, legal obligation, but 'yes' as a practical matter that the full faith and credit of the USA was being used to sell the securities.  In other words the guarantee was with the GSE, Fannie Mae, Freddie Mac, but everyone knew that the GSE is the US Government.

That was then, I don't know what changes are in the latest 'financial reform' or other new laws.  My understanding is that from 90% of mortgages going through the federal government (citation needed for article authorizing that) we are moving toward 100%.
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« Reply #91 on: February 13, 2011, 12:53:41 PM »

So, the answer to my question is "No"?
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« Reply #92 on: February 13, 2011, 01:22:46 PM »

Not quite that simple, depends on which assets, when, and if indirectly on the hook has the same legal meaning as a direct guarantee.  A lot has changed since the fall 2008, huge amounts I believe, were brought in and directly guaranteed. Pose this to Scott G...
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« Reply #93 on: February 14, 2011, 03:28:58 AM »



It's enough to make you believe in miracles: The Obama Administration is now on record as saying that Fannie Mae and Freddie Mac should go out of business. It took a global financial panic and $140 billion in taxpayer losses, but on Friday there it was in black-and-white in the U.S. Treasury's report to Congress on reforming the mortgage market: The Administration will "ultimately . . . wind down both institutions."

This marks a break with decades of bipartisan support and protection for the two government-sponsored giants of mortgage finance. Fannie Mae has its roots in the Roosevelt Administration, and a phalanx of bankers, mortgage lenders, homebuilders and Realtors worked together to keep the companies growing and federal mortgage subsidies flowing. Now even some Democrats—though not yet those on Capitol Hill—admit their business model was a catastrophe waiting to happen.

***
Under the Administration's proposals, Fan and Fred wind down over five to seven years. The two mortgage giants would, in effect, gradually price themselves out of the mortgage finance market by raising guarantee prices and down payment requirements, while lowering the size of the mortgages they could securitize and guarantee. This sounds like a plausible set of first steps to lure private capital back into the mortgage market, where some 92% of all new mortgages are currently underwritten or guaranteed by the government.

The $5 trillion question, however, is what would replace Fan and Fred. And here the Obama Administration has punted, offering the "pros and cons" of three broad proposals without endorsing any one of them.

Door No. 1 is the best of the lot by our lights. Under this option, federal guarantees would be limited to Federal Housing Administration (FHA) loans for lower-income buyers and VA assistance for veterans and farm programs—each a narrowly targeted market segment. A Treasury official says this would reduce the taxpayer backstop over time to about 10% to 15% of the mortgage market.

The Administration puts the case for federal withdrawal from the broader housing market in compelling terms: "The strength of this option is that it would minimize distortions in capital allocation across sectors, reduce moral hazard in mortgage lending and drastically reduce direct taxpayer exposure to private lenders' losses." Bravo.

Treasury points to other benefits: "With less incentive to invest in housing, more capital will flow into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets. Risk throughout the system may also be reduced, as private actors will not be as inclined to take on excessive risk without the assurance of a government guarantee behind them. And finally, direct taxpayer risk exposure to private losses in the mortgage market would be limited to the loans guaranteed by FHA and other narrowly targeted government loan programs: no longer would taxpayers be at direct risk for guarantees covering most of the nation's mortgages."

Those two paragraphs more or less sum up 20 years of Journal editorials on housing.

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Corbis
 .So what's not to like? The Administration says this option could reduce access to credit for some home buyers, and that it would leave the government without the tools to intervene in a future crisis. As for the credit point, other countries have high rates of home ownership with far less government support. If the government stands aside, it would open the way for alternative forms of finance, such as covered bonds, that now can't compete in the U.S. because of government favoritism for the 30-year mortgage model. This would open options for borrowers by increasing the diversity of financing.

As for a future crisis, government intervention is less likely to be needed if the market isn't distorted by government subsidies in the first place.

Behind Door No. 2 is a rump Fan or Fred, one that would stay small in "normal" times but stand ready to step in with Uncle Sam's firepower in a future housing-finance crisis. But as the Administration acknowledges, it would be difficult both to stay small and retain the capacity to go large when needed. We'd add that the political pressure to expand any federal mortgage-lending program would be too great for lawmakers to resist. Within a generation, the winding down of Fan and Fred would be unwound.

But the greatest danger lies behind Door No. 3, which looks like Fannie in a new suit. Under this last option, the Administration envisages a group of tightly regulated, well-capitalized private mortgage insurers whose policies would be backstopped by government reinsurance. The government would charge premiums for this insurance, "which would be used to cover future claims and recoup losses to protect taxpayers." This reintroduces the lethal mix of private profit and public risk by other means.

The problem with Fan and Fred from the beginning was not—despite the Administration's claims—that the profit motive corrupted their benign goals. Rather, the political influence and financial power of the housing lobby ensured that the companies operated outside the normal rules of politics and financial discipline. Thanks to an implicit government guarantee, the market never put any limit on their growth, even as their liabilities climbed into the trillions. Few politicians had the nerve to challenge a housing lobby that would attack them for opposing home ownership. The same political flaws would afflict a future reinsurer and its coterie of putatively private insurers.

The power of the housing lobby is implicit even in the Treasury's refusal to pick a preferred reform. As with entitlement reform, the Administration is leaving the hard work to House Republicans, who will bear the brunt of the political blowback. A reasonable GOP fear is that the Administration, whatever its rhetoric now, will pounce with a veto when it's politically advantageous—in, say, 2012.

***
Our view is that there should be no federal housing guarantee. If Congress wants to subsidize housing for the poor, it ought to do so explicitly through annual appropriations. One lesson—perhaps the most important—of the financial crisis is that broad policy favors for housing hurt every American by misallocating capital and credit. The feds created incentives to pour money into McMansions we didn't need while robbing scarce capital from manufacturing, biotech and other uses that might have created better jobs and led to a more balanced and faster growing economy.

We realize this is political heresy, but it is the beginning of wisdom in getting government out of the mortgage market. We're glad to see the Administration concede this rhetorically, even if it lacks the courage to embrace its logical policy conclusions.

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« Reply #94 on: February 16, 2011, 05:26:25 AM »

http://www.inman.com/news/2011/02/15/decline-in-real-estate-sales-greater-stated

Decline in real estate sales greater than stated?

Statistics published by the National Association of Realtors appear to overstate sales of existing home by 15 to 20 percent, mortgage and property data aggregator CoreLogic says in a new report that concludes home sales fell more sharply last year than previously thought.

A NAR spokesman said the Corelogic claim "is premature at best," and NAR will be making some benchmark revisions to its historic sales data later this year.

NAR's figures -- based on data collected from multiple listing services and large brokerages -- show sales of existing homes fell 5 percent in 2010, to 4.9 million. But CoreLogic, which collects public sales records from county recorders and courts, estimates that home sales actually fell 12 percent, to 3.6 million.

The implications are not trivial: a slower rate of sales means that it will take longer to burn through unsold inventory, and a glut of homes for sale in a given market can undermine prices. CoreLogic says the unsold inventory on the market in November represented 16 months of supply, compared to NAR's estimate of 9.5 months.
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Crafty_Dog
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« Reply #95 on: February 23, 2011, 12:35:17 PM »

Existing home sales increased 2.7% in January To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 2/23/2011


Existing home sales increased 2.7% in January to an annual rate of 5.36 million, beating the consensus expected pace of 5.22 million. Existing home sales are up 5.3% versus a year ago.

Sales in January were up in the Midwest, South, and West, but down in the Northeast. Sales increased for both single-family homes and condos/coops.
 
The median price of an existing home fell to $158,800 in January (not seasonally adjusted), and is down 3.7% versus a year ago. Average prices are down 2.6% versus a year ago.
 
The months’ supply of existing homes (how long it would take to sell the entire inventory at the current sales rate) fell to 7.6 from 8.2 in December. The decline in the months’ supply was due to both the faster selling pace and a decline in overall inventories.
 
Implications: The housing market continues to heal.  Existing home sales grew 2.7% in January, the third increase in a row. Sales are now at the fastest pace since eight months ago, when the homebuyer tax credit expired. Also, sales of existing homes are now very close to the long-term trend of 5.5 million units annually.  With housing affordability hovering at the highest level in at least 40 years, the market for homes is poised to continue improving. Incomes are rising, mortgage rates remain relatively low, and homes are cheap. Lenders are asking for large down payments, but this is no different from a year ago. In other recent housing news, the Case-Shiller index, a measure of home prices in the 20 largest metro areas around the country, declined 0.4% in December (seasonally-adjusted) and was down 2.4% in 2010.  Prices have fallen six straight months, since the end of the homebuyer tax credit.  However, the decline in 2010 was the smallest since prices peaked in 2006 and we expect a modest price gain in 2011.  Meanwhile, manufacturing continues to soar.  The Richmond Fed index, a measure of manufacturing activity in the mid-Atlantic, increased to +25 in February from +18 in January, signaling robust growth in goods production. Combined with recent good news from the Philly Fed survey, the nationwide ISM manufacturing index likely remained at a very high level in February.

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FWIW Schiller, of the Case-Schiller index cited herein says that he thinks further declines of 15-25% are entirely possible.
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ccp
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« Reply #96 on: February 23, 2011, 12:51:37 PM »

Isn't Brian Wesbury a bull 100% of the time.  I don't recall him every saying anything negative.

Then again I don't follow him much anymore.
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« Reply #97 on: February 24, 2011, 02:19:11 PM »

http://hotair.com/archives/2011/02/24/new-residential-sales-sink-12-6-from-december-18-6-from-previous-january/

New residential sales sink 12.6% from December, 18.6% from previous January

posted at 2:55 pm on February 24, 2011 by Ed Morrissey

In other words, don’t expect the construction business to rebound soon.  In a release two hours ago, the Census Bureau announced that new residential sales dropped 12.6% over a mild bump upward in December, down to a seasonally-adjusted annual rate of 284,000 units.  That number barely avoids the low-water mark reached in October 2010 of 280,000 units, which was itself the lowest such figure in the entire historical run of the data, which goes back to 1963:
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« Reply #98 on: February 25, 2011, 11:43:03 AM »

This is exactly why tax codes should not be tinkered with in regards to social engineering.  They should be the same for everyone, flat, no write offs, no loopholes.
How could government employees under assault not be outraged?  This is classic the rich get richer and reap unfair benefits.  Repubs would do well to at least recognize this and say/do something about it.  The silence from them on issues like this is deafening. 

****Tax breaks on real estate deals for people like A-Rod cost city 900M a year
Juan Gonzalez - News

Friday, February 25th 2011, 4:00 AM

 
Sipkin/NewsA city program gives huge tax abatements to condo owners in newly built housing. A-Rod, for instance, will pay just $100 a month in taxes on his new $6 million bachelor pad. Related NewsLupica: A-Rod out of the spotlight? For Yanks to win, he'd better find itA-Rod: Bombers will survive without LeeLupica: Hamilton shows A-Rod how its doneA-Rod expects to be in top form next seasonA-Rod confronts Grim realityLupica: It's time for Alex to be GreatYankees star Alex Rodriguez will pay virtually no property tax for a $6 million apartment he is buying on the upper West Side.

Rodriguez will be billed around $1,200 this year in real estate tax for his 3,000-square-foot, five-bedroom penthouse with spectacular views of the Hudson River.

Over the next 10 years Rodriguez and his fellow residents will continue to receive huge discounts on their tax, a city housing official said.

For Rodriguez, a full tax bill would be at least $60,000 annually, the latest city assessment records show.

A spokeswoman for Extell, the company that built the 2-year-old luxury Rushmore Towers near the West Side Highway, declined to discuss the taxes on the slugger's new bachelor pad.

But the only two penthouses that went into contract this month at the Rushmore, each of which was listed at more than $6 million, have been assessed at a little over $100 per month in taxes, one real estate expert told the Daily News.

So how is it possible that tens of thousands of ordinary city residents struggle each year with soaring tax bills for their co-ops, condos and homes, while the Yankees' $33-million-a-year star gets to pay next to nothing?

Well, Rodriguez and many other well-heeled New Yorkers have learned to take advantage of a little-known tax abatement program that has existed for decades.

The politicians and real estate insiders call it the "421A" program. It grants as much as a 98% percent tax abatement for up to 25 years to condo owners in newly built housing.

The bulk of the 421A benefit has gone to luxury housing in Manhattan, though a few reforms by City Hall and the Legislature in 2007 at least required developers to build 20% affordable housing to qualify for the tax abatement.

This year alone, the 421A program will cost our city more than $900 million in lost revenues, the Independent Budget Office says.

That's money that could prevent layoffs of firefighters and teachers. That could fund senior citizen centers and pay for after-school programs.

You haven't heard much about this, but the 421A program ended in December for any new construction. But the city's powerful real estate industry is determined to get it renewed and even get it expanded. Its lobbyists are working feverishly behind the scenes to pressure Council and lawmakers in Albany.

Brooklyn City Councilman Brad Lander has been leading the fight against that renewal.

It's too much of a giveaway to developers, Lander says, especially since there's already a glut of luxury housing in this town.

The developers want to link any extension of rent stabilization laws for tenants, which the Legislature must vote on by June, to a deal on extending the 421A tax abatement for builders.

The industry hopes Gov. Cuomo, who made a name for himself a long time ago as an advocate for affordable housing, will take their side.

In so many ways, big and small, the minority who have the big money keep trying to get government to give them more financial breaks at the expense of the rest of us.

"Where's the fair share if people who have paid millions of dollars for an apartment get away with paying no real estate taxes, when people in co-ops are being slaughtered?" said Bayta Lewton, of the Coalition for a Livable West Side.

Even before the pennant race begins, A-Rod has become the poster boy in another race - to end these tax abatements that have run amok.****


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Crafty_Dog
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« Reply #99 on: March 06, 2011, 09:01:33 AM »

FOR more than a decade, the American real estate market resembled an overstuffed novel, which is to say, it was an engrossing piece of fiction.

Mortgage brokers hip deep in profits handed out no-doc mortgages to people with fictional incomes. Wall Street shopped bundles of those loans to investors, no matter how unappetizing the details. And federal regulators gave sleepy nods.
That world largely collapsed under the weight of its improbabilities in 2008.

But a piece of that world survives on Library Street in Reston, Va., where an obscure business, the MERS Corporation, claims to hold title to roughly half of all the home mortgages in the nation — an astonishing 60 million loans.

Never heard of MERS? That’s fine with the mortgage banking industry—as MERS is starting to overheat and sputter. If its many detractors are correct, this private corporation, with a full-time staff of fewer than 50 employees, could turn out to be a very public problem for the mortgage industry.

Judges, lawmakers, lawyers and housing experts are raising piercing questions about MERS, which stands for Mortgage Electronic Registration Systems, whose private mortgage registry has all but replaced the nation’s public land ownership records. Most questions boil down to this:

How can MERS claim title to those mortgages, and foreclose on homeowners, when it has not invested a dollar in a single loan?

And, more fundamentally: Given the evidence that many banks have cut corners and made colossal foreclosure mistakes, does anyone know who owns what or owes what to whom anymore?

The answers have implications for all American homeowners, but particularly the millions struggling to save their homes from foreclosure. How the MERS story plays out could deal another blow to an ailing real estate market, even as the spring buying season gets under way.

MERS has distanced itself from the dubious behavior of some of its members, and the company itself has not been accused of wrongdoing. But the legal challenges to MERS, its practices and its records are mounting.

The Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. Last month in Utah, a local judge made the no-less-striking decision to let a homeowner rip up his mortgage and walk away debt-free. MERS had claimed ownership of the mortgage, but the judge did not recognize its legal standing.

“The state court is attracted like a moth to the flame to the legal owner, and that isn’t MERS,” says Walter T. Keane, the Salt Lake City lawyer who represented the homeowner in that case.

And, on Long Island, a federal bankruptcy judge ruled in February that MERS could no longer act as an “agent” for the owners of mortgage notes. He acknowledged that his decision could erode the foundation of the mortgage business.

But this, Judge Robert E Grossman said, was not his fault.

“This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country,” he wrote, “that is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.”

With MERS under scrutiny, its chief executive, R. K. Arnold, who had been with the company since its founding in 1995, resigned earlier this year.

A BIRTH certificate, a marriage license, a death certificate: these public documents note many life milestones.

For generations of Americans, public mortgage documents, often logged in longhand down at the county records office, provided a clear indication of homeownership.

But by the 1990s, the centuries-old system of land records was showing its age. Many county clerk’s offices looked like something out of Dickens, with mortgage papers stacked high. Some clerks had fallen two years behind in recording mortgages.

For a mortgage banking industry in a hurry, this represented money lost. Most banks no longer hold onto mortgages until loans are paid off. Instead, they sell the loans to Wall Street, which bundles them into investments through a process known as securitization.

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Page 2 of 3)



MERS, industry executives hoped, would pull record-keeping into the Internet age, even as it privatized it. Streamlining record-keeping, the banks argued, would make mortgages more affordable.

But for the mortgage industry, MERS was mostly about speed — and profits. MERS, founded 16 years ago by Fannie Mae, Freddie Mac and big banks like Bank of America and JPMorgan Chase, cut out the county clerks and became the owner of record, no matter how many times loans were transferred. MERS appears to sell loans to MERS ad infinitum.
This high-speed system made securitization easier and cheaper. But critics say the MERS system made it far more difficult for homeowners to contest foreclosures, as ownership was harder to ascertain.

MERS was flawed at conception, those critics say. The bankers who midwifed its birth hired Covington & Burling, a prominent Washington law firm, to research their proposal. Covington produced a memo that offered assurances that MERS could operate legally nationwide. No one, however, conducted a state-by-state study of real estate laws.

“They didn’t do the deep homework,” said an official involved in those discussions who spoke on condition of anonymity because he has clients involved with MERS. “So as far as anyone can tell their real theory was: ‘If we can get everyone on board, no judge will want to upend something that is reasonable and sensible and would screw up 70 percent of loans.’ ”

County officials appealed to Congress, arguing that MERS was of dubious legality. But this was the 1990s, an era of deregulation, and the mortgage industry won.

“We lost our revenue stream, and Americans lost the ability to immediately know who owned a piece of property,” said Mark Monacelli, the St. Louis County recorder in Duluth, Minn.

And so MERS took off. Its board gave its senior vice president, William Hultman, the rather extraordinary power to deputize an unlimited number of “vice presidents” and “assistant secretaries” drawn from the ranks of the mortgage industry.

The “nomination” process was near instantaneous. A bank entered a name into MERS’s Web site, and, in a blink, MERS produced a “certifying resolution,” signed by Mr. Hultman. The corporate seal was available to those deputies for $25.

As personnel policies go, this was a touch loose. Precisely how loose became clear when a lawyer questioned Mr. Hultman in April 2010 in a lawsuit related to its foreclosure against an Atlantic City cab driver.

How many vice presidents and assistant secretaries have you appointed? the lawyer asked.

“I don’t know that number,” Mr. Hultman replied.

Approximately?

“I wouldn’t even be able to tell you, right now.”

In the thousands?

“Yes.”

Each of those deputies could file loan transfers and foreclosures in MERS’s name. The goal, as with almost everything about the mortgage business at that time, was speed. Speed meant money.

ALAN GRAYSON has seen MERS’s record-keeping up close. From 2009 until this year, he served as the United States representative for Florida’s Eighth Congressional District — in the Orlando area, which was ravaged by foreclosures. Thousands of constituents poured through his office, hoping to fend off foreclosures. Almost all had papers bearing the MERS name.

“In many foreclosures, the MERS paperwork was squirrelly,” Mr. Grayson said. With no real legal authority, he says, Fannie and the banks eliminated the old system and replaced it with a privatized one that was unreliable.

A spokeswoman for MERS declined interview requests. In an e-mail, she noted that several state courts have ruled in MERS’s favor of late. She expressed confidence that MERS’s policies complied with state laws, even if MERS’s members occasionally strayed.

“At times, some MERS members have failed to follow those procedures and/or established state foreclosure rules,” the spokeswoman, Karmela Lejarde, wrote, “or to properly explain MERS and document MERS relationships in legal pleadings.”

Such cases, she said, “are outliers, reflecting case-specific problems in process, and did not repudiate the MERS business model.”

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Page 3 of 3)



MERS’s legal troubles, however, aren’t going away. In August, the Ohio secretary of state referred to federal prosecutors in Cleveland accusations that notaries deputized by MERS were signing hundreds of documents without any personal knowledge of them. The attorney general of Massachusetts is examining a complaint by a county registrar that MERS owes the state tens of millions of dollars in unpaid fees.

As far back as 2001, Ed Romaine, the clerk for Suffolk County, on eastern Long Island, refused to register mortgages in MERS’s name, partly because of complaints that the company’s records didn’t square with public ones. The state Court of Appeals later ruled that he had overstepped his powers.
But Judith S. Kaye, the state’s chief judge at the time, filed a partial dissent. She worried that MERS, by speeding up property transfers, was pouring oil on the subprime fires. The MERS system, she wrote, ill serves “innocent purchasers.”

“I was trying to say something didn’t smell right, feel right or look right,” Ms. Kaye said in a recent interview.

Little about MERS was transparent. Asked as part of a lawsuit against MERS in September 2009 to produce minutes about the formation of the corporation, Mr. Arnold, the former C.E.O., testified that “writing was not one of the characteristics of our meetings.”

MERS officials say they conduct audits, but in testimony could not say how often or what these measured. In 2006, Mr. Arnold stated that original mortgage notes were held in a secure “custodial facility” with “stainless steel vaults.” MERS, he testified, could quickly produce every one of those files.

As for homeowners, Mr. Arnold said they could log on to the MERS system to identify their loan servicer, who, in turn, could identify the true owner of their mortgage note. “The servicer is really the best source for all that information,” Mr. Arnold said.

The reality turns out to be a lot messier. Federal bankruptcy courts and state courts have found that MERS and its member banks often confused and misrepresented who owned mortgage notes. In thousands of cases, they apparently lost or mistakenly destroyed loan documents.

The problems, at MERS and elsewhere, became so severe last fall that many banks temporarily suspended foreclosures.

Some experts in corporate governance say the legal furor over MERS is overstated. Others describe it as a useful corporation nearly drowning in a flood tide of mortgage foreclosures. But not even the mortgage giant Fannie Mae, an investor in MERS, depends on it these days.

“We would never rely on it to find ownership,” says Janis Smith, a Fannie Mae spokeswoman, noting it has its own records.

Apparently with good reason. Alan M. White, a law professor at the Valparaiso University School of Law in Indiana, last year matched MERS’s ownership records against those in the public domain.

The results were not encouraging. “Fewer than 30 percent of the mortgages had an accurate record in MERS,” Mr. White says. “I kind of assumed that MERS at least kept an accurate list of current ownership. They don’t. MERS is going to make solving the foreclosure problem vastly more expensive.”

THE Sarmientos are one of thousands of American families who have tried to pierce the MERS veil.

Several years back, they bought a two-family home in the Greenpoint section of Brooklyn for $723,000. They financed the purchase with two mortgages from Lend America, a subprime lender that is now defunct.

But when the recession blew in, Jose Sarmiento, a chef, saw his work hours get cut in half. He fell behind on his mortgages, and MERS later assigned the loans to U.S. Bank as a prelude to filing a foreclosure motion.

Then, with the help of a lawyer from South Brooklyn Legal Services, Mr. Sarmiento began turning over some stones. He found that MERS might have violated tax laws by waiting too long before transferring his mortgage. He also found that MERS could not prove that it had transferred both note and mortgage, as required by law.

One might argue that these are just legal nits. But Mr. Sarmiento, 59, shakes his head. He is trying to work out a payment plan through the federal government, but the roadblocks are many. “I’m tired; I’ve been fighting for two years already to save my house,” he says. “I feel like I never know who really owns this home.”

Officials at MERS appear to recognize that they are swimming in dangerous waters. Several federal agencies are investigating MERS, and, in response, the company recently sent a note laying out a raft of reforms. It advised members not to foreclose in MERS’s name. It also told them to record mortgage transfers in county records, even if state law does not require it.

MERS will no longer accept unverified new officers. If members ignore these rules, MERS says, it will revoke memberships.

That hasn’t stopped judges from asking questions of MERS. And few are doing so with more puckish vigor than Arthur M. Schack, a State Supreme Court judge in Brooklyn.

Judge Schack has twice rejected a foreclosure case brought by Countrywide Home Loans, now part of Bank of America. He had particular sport with Keri Selman, who in Countrywide’s court filings claimed to hold three jobs: as a foreclosure specialist for Countrywide Home Loans, as a servicing agent for Bank of New York and as an assistant vice president of MERS. Ms. Selman, the judge said, is a “milliner’s delight by virtue of the number of hats that she wears.”

At heart, Judge Schack is scratching at the notion that MERS is a legal fiction. If MERS owned nothing, how could it bounce mortgages around for more than a decade? And how could it file millions of foreclosure motions?

These cases, Judge Schack wrote in February 2009, “force the court to determine if MERS, as nominee, acted with the utmost good faith and loyalty in the performance of its duties.”

The answer, he strongly suggested, was no.
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