Sunday, October 31, 2010

Foreclosure Fiasco - Robo-signing: Just the start of bigger problems

Robo-signing is just the tip of the iceberg.
By Tami Luhby, Senior Writer ~ October 22, 2010

The revelation that loan servicers were rapidly signing foreclosure documents without even reading them has uncovered a morass of serious paperwork problems.

These issues could potentially prevent some foreclosure cases from proceeding and allow delinquent borrowers to stay in their homes indefinitely or wrangle settlements from their servicers.

"The whole robo-signing scandal has caused many judges to mistrust what servicers are saying in foreclosure petitions," said Patricia McCoy, a law professor at the University of Connecticut, who co-authored "The Subprime Virus." "Many judges will scrutinize filings more closely."

Several major banks have halted their foreclosure proceedings while they review their process and paperwork. However, several, including Bank of America (BAC, Fortune 500), are ready to continue the cases, saying they are confident that their methods are sound.

But servicers could still hit some big paperwork potholes in answering what seems like the simplest of questions: Who owns the loan and who has the right to foreclose?
Foreclosure mess: Fake signatures, lavish gifts

First, a quick primer.

The debt taken out to buy a house is called a note, which is similar to an IOU. The mortgage pledges the property as collateral to pay off that debt.

When mortgages are bundled together into securities that are sold to investors, the notes are then transferred to a trust. The investors in that trust become the owners of the note and the holders of the mortgage.

Now for the problems.

The note: One of the most important documents in this foreclosure fiasco is the note, which gives investors the right to take action against delinquent borrowers.

The problem is that many servicers don't know where that piece of paper is. Or, they didn't transfer it properly to the trust that holds the securitized mortgages.

This could prove to be a possibly fatal problem for financial institutions.

Until now, many courts were lax about requiring servicers and investors to produce the actual note. Judges allowed the financial institutions to simply provide affidavits saying the investors owned the note.

Now that the robo-signing scandal has surfaced, more judges want to see the note.

In those cases, "the banks will have a big problem," McCoy said. "I don't see how the foreclosure can go forward."

How to buy a foreclosure in a robo-signing world

The American Securitization Forum, an industry group, said that the standard industry methods of transferring ownership of mortgage loans to securitization trusts are sufficient and appropriate.

"These concerns are without merit and our membership is confident that these methods of transfer are sound and based on a well-established body of law governing a multi-trillion dollar secondary mortgage market," said Tom Deutsch, the forum's executive director.

The mortgage: The mortgage industry is slamming into a digital wall.

State law requires that mortgages be recorded in county offices so homeowners and the general public can see that there is a debt on the property.

But as mortgage securitizations began to boom in the 1990's, servicers sought to digitize and centralize the paperwork surrounding the bundling and selling of the loans. So they created the Mortgage Electronic Registration System, known as MERS, to serve as a repository to show both the owner of the note and the home that serves as its collateral.

About 60% of the nation's residential mortgages are now recorded in MERS' name, according to Christopher Peterson, a law professor at the University of Utah who wrote a recent paper on the issue.

When a homeowner falls behind on payments, the company often brings the foreclosure suit to court on behalf of the servicer and the investors who own the debt.

This has become a problem because some judges are questioning MERS' right to represent the owners of the note.

"An increasing number of courts have begun taking a dim view of MERS-recorded mortgages and deeds of trust," wrote Peterson in his recent paper.

If judges don't recognize MERS' right to bring the foreclosure suit, they could throw out the case.

But this problem can be rectified. The trustee can bring suit on behalf of the investors, McCoy said, though this involves more time, paperwork and filing fees.

MERS said it has prevailed in previous legal challenges to its authority.

"The MERS process of tracking mortgages and holding title provides clarity, transparency and efficiency to the housing finance system," said R.K. Arnold, the company's chief executive.

Wednesday, October 20, 2010

Best-Worse Case Scenario for Foreclosure Freeze - Wall Street Journal

Best-Worse Case Scenario for Foreclosure Freeze
The Wall Street Journal, Dawn Wotapka 10/12/2010

Gregor Watson, a principal with McKinley Partners, a development company that buys foreclosed homes, told listeners on a Citi home-builder conference call that there were three potential outcomes from the foreclosure fiasco:

· Best case: These are technical issues that can be resolved quickly so the foreclosure process can continue and the glut of foreclosed homes is cleared from the market.

· Medium case: There is significant litigation that takes years to sort out and this slows the troubled housing market even further.

· Worst case: The market grinds to a halt and title insurers refuse to insure mortgages involving foreclosed homes. “It would be devastating for the resale market if this robo-signer issue spiraled out of control,” Watson says.

Friday, October 08, 2010

Historical Phoenix, AZ Homes Information and Links to Free MLS Searches: Information from NAR regarding improper foreclosure procedures by banks - Read this before it hits the Washington Report Monday, October 11th, 2010

Information from NAR regarding improper foreclosure procedures by banks - Read this before it hits the Washington Report Monday, October 11th, 2010

Information from NAR regarding improper foreclosure procedures by banks - Read this before it hits the Washington Report Monday, October 11th, 2010

Washington Report, Monday, October 11

Information from NAR regarding improper foreclosure procedures by banks

In September and October 2010, several lenders suspended foreclosures in two dozen states due to questions about whether foreclosures were being processed consistent with applicable state law requirements.  Concerns are being raised by state and federal elected officials, as well as consumer and fair housing groups, about the validity of ownership of mortgages that have been securitized and resold.  At the center of the controversy is Mortgage Electronic Registration Systems (MERS).  This firm is responsible for electronically tracking the transfer of assignment of mortgages.  Class-action suits are being brought against MERS alleging that the use of the system circumvents state laws.
On October 1, 2010, Fannie Mae and Freddie Mac released statements regarding servicer compliance with foreclosure processing of Fannie and Freddie loans.  In the releases, both organizations reiterated that servicers must comply with applicable state laws governing foreclosures.  Although nearly all of the foreclosures in question are expected to be fixed eventually, the current situation is creating difficulties and a new hurdle to the recovery of the housing and mortgage markets.  NAR members are reporting that upcoming sales have been delayed indefinitely or cancelled, to the detriment of all involved.  Additionally, homes on the market without clear title will make sales much more difficult.  While banking executives focus their attention on this problem, it is possible that servicers may be somewhat more receptive to approving loan modifications and short sales, since they avoid the foreclosure procedural problems altogether.

NAR has also developed the following talking points that can be used when responding to queries:
  • There’s no way of knowing what percentage of foreclosures that were improperly processed were, in fact, inappropriate or wrongly taken.  The assumption is that for most of them, this may be only a technicality and that the property ultimately would have been repossessed.
  • For owners who believe their home was wrongly foreclosed, they may wish to contact a real estate attorney to investigate the possibility of a property claim.  However, that could prove costly and time consuming – regulations vary by state.
  • For banks, it may make sense to modify loans or agree to short sales to expedite disposal of inventory.
  • For buyers, the assumption is that listed foreclosures come with clear property title but they should discuss any necessary contract contingency with  their attorney.  Foreclosures in limbo are likely to be withdrawn from the market.
  • It’s too early to tell if there’s an impact on the market but we will be monitoring the situation.