I put together my first YouTube video, and thought a good topic would be the impact of the U.S. Bank v. Ibanez case on the foreclosure and REO market. The case underscores the necessity of obtaining an owner’s policy of title insurance for any REO transaction, and really any conventional transaction for that matter. Appreciate any feedback, good or bad. I’m no Ryan Seacrest obviously!
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From the Lawrence (Mass.) Eagle Tribune:
Massachusetts Secretary of State William Galvin filed legislation last Friday to give the Land Court authority to create a special master to deal with foreclosures that may have occurred improperly. Anyone seeking to challenge the legitimacy of a foreclosure would have one year to file a lawsuit in the court.
Galvin’s bill follows a Supreme Judicial Court decision in U.S. Bank v. Ibanez, upholding a 2009 Land Court ruling that a bank or lender must have proper documentation proving it holds a title before foreclosing on a home.
“It’s opened the door to anyone that wants to question a foreclosure that’s already moved forward,” Galvin said of the decision. As the secretary of state, Galvin is the state’s register of deeds. Galvin’s bill will go to the Legislature for debate.
The special court could play host to homeowners who purchased a foreclosed home staking claim against a former homeowner who may have faced an improper foreclosure. Galvin pointed out that about 40,000 foreclosures have taken place in Massachusetts since 2006.
“I doubt that half of them are going to be involved in this,” Galvin said. “I don’t know if it’s 5 percent. But if it’s 5 percent, that’s 2,000 properties.”
Depending on the numbers of foreclosure affected, this may be a step in the right direction–as long as homeowners are able to obtain clear title and get reimbursement of any out of pocket expenses dealing with a problem they didn’t create. As with any special court or master, there’s always a short statute of limitations imposed. So we’ll keep an eye out on that.
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It’s been awhile since we had one of our mortgage guest bloggers here, and there’s been a number of recent changes and news in the mortgage industry. Today we have David Gaffin from Greenpark Mortgage talking about rising borrower costs for those with less than stellar credit scores (i.e., the vast majority of folks). Tomorrow, we’ll have Brian Cav of Smarterborrowing.com talking about current interest rates.
Fannie To Increase Borrower Costs
David Gaffin, Greenpark Mortgage
Fannie Mae recently announced that it will be increasing the charges for Loans with Certain Credit Score/LTV Combinations and Loans with Subordinate Financing. Known as Loan Level Price Adjustment or LLPAs, the theory is that loans with higher loan to value ratios and borrowers with less than perfect credit scores represent a higher risk of default to Fannie Mae. As such, Fannie is charging these borrower’s a premium, which will translate into a higher interest rate or points to be paid at closing.
This is the latest attempt for Fannie and Freddie to become more profitable after the mortgage meltdown. Taxpayers have spent billions trying to keep these institutions afloat, and with 2011 expected to be another huge year in foreclosures, the losses will keep coming.
So what is the damage this time? Fannie and Freddie already had a hit of .75 points if you were buying a condominium with less than a 25% down payment. They have added a new hit for single family homes of at least .25 points regardless of credit score, if you are not putting down 25%. If your credit score is below 740, expect this adjustment to be higher.
These new adjustments will add at least .125% and possible more than.25% to the typical borrowers rate. If we are trying to improve the economy by allowing borrower’s to refinance to put more money in their pockets, this is not going to help.
Lending guidelines are already tight. By adding these new adjusters, the interest rates to borrower will rise and therefore they can afford less house or their refinancing opportunity is reduced.
Eventually it will smooth out, but borrower’s are already seeing the hits when they call for rate quotes. The common response is “I thought interest rates went down this week”, to which I reply, “They did but Fannie just added new risk hits to the pricing and therefore rates are higher.” Some people are skepital so I refer them to the Fannie link.
As the saying goes, “It is what it is,” and what it is just got more expensive.
File under Fannie and Freddie need more money.
For more information, contact David Gaffin at [email protected].
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Guest Post By Harold Clark, Esq., New England Regional Counsel for Westcor Land Title Insurance Company.
On January 7, 2011, the Supreme Judicial Court (SJC) rendered its decision in the U.S. Bank v. Ibanez case. Before discussing the Court’s decision, here is a brief review of the procedural history of the case.
The Land Court’s decision in the Ibanez case and its two consolidated cases had created a conflict with the Massachusetts Real Estate Bar Association’s Title Standard #58 and its underlying rationale. Pursuant to the title standard, a title is not defective by reason of “The recording of an assignment of Mortgage executed either prior, or subsequent, to foreclosure where said Mortgage has been foreclosed, of record, by the Assignee.” In a nutshell, this means that if B forecloses a mortgage originally held by A, it is immaterial whether A’s assignment predates or postdates the foreclosure sale.
In Ibanez and in the other two companion cases-Rosario and Larace-the Land Court ruled on the validity of three different scenarios relating to the date of the assignment vis- a- vis the date of the first publication of the mortgagee’s sale of real estate/foreclose sale. In Rosario, the assignment was in existence and in recordable form (although not recorded) at the time of the first publication. In Larace, the assignment was dated after the date of first publication but had an “effective date” which predated the first publication. In Ibanez, the assignment was executed after the date of first publication.
At first blush, based on the Title Standard, it would appear that all three foreclosures were valid. Unfortunately, the Land Court disagreed. In fact, the Land Court found that only the Rosario foreclosure was valid. The Land Court held that G.L. c. 244, Section 14 must be given by the “holder of the mortgage.” Failure to do so renders the “sale void as a matter of law.” As a result, the foreclosures in Ibanez and Larace were invalidated since they did not comply with the statute. The Land Court held that it is not necessary to record the assignment prior to publishing but only that it be in existence and in recordable form at such time.
The plaintiffs filed a motion to vacate the judgment. On October 14, 2009, Judge Long rendered his decision which denied the plaintiff’s motion to vacate the judgment.
The Land Court noted that in each case the bank was the only bidder and bought back at a discount from appraised value which wiped out the defendants’ equity and created a deficiency. The foreclosing mortgagees could not get title insurance. The plaintiffs suggested that there were documents that would demonstrate that pre-notice and pre-foreclosure assignments existed. The Land Court granted the plaintiffs leave to produce such documents provided they were in the form they were in at the time the foreclosure sale was noticed and conducted. The plaintiffs produced the notes and assignments in blank which are not suitable for recording since there is no assignee listed. The Land Court found that the plaintiffs’ own securitization documents showed that such assignments were required. With all available files, it took 10 months in one of the cases and 14 in the other to obtain the assignments in recordable form. Such a burden should not fall on the high bidder at the foreclosure sale. “A bidder does not expect to purchase the right to a potential lawsuit, which only entitle him or her to actually obtain the property if such lawsuit is successful.”
The plaintiffs argued that they followed “industry standards and practice.” The Land Court said that if this is true, they should seek a change in the law.
The SJC granted direct appellate review and affirmed the Land Court’s judgment. The SJC held that “We agree with the judge that the plaintiffs, who were not the original mortgagees, failed to make the required showing that they were the holders of the mortgages at the time of foreclosure. As a result, they did not demonstrate that the foreclosure sales were valid to convey title to the subject properties, and their requests for a declaration of clear title were properly denied.”
The plaintiffs had the burden of proving the validity of their foreclosures. Since Massachusetts is a non-judicial foreclosure state, there must be strict compliance with the terms of the statutory power of sale. The Court noted that only “the mortgagee or his executors, administrators, successors or assigns” can exercise the statutory power of sale.
Unlike the Land Court, however, the Court continued:
“We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder. However, there must be proof that the assignment was made by a party that itself held the mortgage.”
The Court ruled that possession of the note does not allow the holder to foreclose.
“In Massachusetts, where a note has been assigned but there is no written assignment of the mortgage underlying the note, the assignment of the note does not carry with it the assignment of the mortgage. Rather, the holder of the mortgage holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage, which may be accomplished by filing an action in court and obtaining an equitable order of assignment.”
The Court stated that “the mortgages securing these notes are still legal title to someone’s home or farm and must be treated as such.”
The Court was not persuaded that post-foreclosure assignments were valid pursuant to REBA Title Standard No. 58 and industry practice. The Court found that such “reliance is misplaced because this proposition is contrary to…G.L. c.244, Section 14.”
The Court rejected the warning in REBA’s amicus brief that “If the rule as announced in these decisions is not limited to prospective application, inequitable results that will cause hardship and injustice are inevitable, and will likely be widespread.”
The Court noted that its rulings are prospective only if they make a “significant change in the common law.” Such was not the case here where the law was well settled. “All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities.” In a concurring opinion, this was referred to as “the utter carelessness with which the plaintiff banks documented the titles of their assets.”
As Judge Long had suggested in his decision, perhaps it is time to change the law. Since the SJC began its discussion by noting that “Massachusetts does not require a mortgage holder to obtain judicial authorization to foreclose on a mortgaged property,” and reading between the lines, one solution would be for Massachusetts to adopt judicial foreclosures. Another possibility would be to return to the earlier practice in which the Land Court/Superior Court would review and approve in writing the foreclosure documents prior to recording. Perhaps the easiest solution would be to require the plaintiff in its Complaint to Foreclose Mortgage to cite the recording information for the assignment(s) by which it became the holder rather than simply to state “Your plaintiff is the assignee and holder of a mortgage.” If the assignments did not exist, the complaint could not be filed.
I think that the problem in Ibanez is that US Bank laid out the chain of title to the mortgages on the record but then could not document the supposed assignments into it. Justice Cordy referred to this as utter carelessness. Therefore, I don’t think that reforeclosure is possible since US Bank can’t show that it was either then or now the holder.
In general, I believe that you can reforeclose under the theory that since the original foreclosure was invalid, the power of sale was never exercised.
The case stands for the proposition that the foreclosing lender must be the holder of the mortgage at the time of foreclosure. The SJC said that this is well established law and that reliance on REBA Title Standard No. 58 is misplaced as it is contrary to the law.
It will be interesting to see how “widespread” the SJC’s decision becomes.
If you would like to discuss this or any other issue, please contact me directly via email.
Harold Clarke, Esq.
New England Regional Counsel, Westcor Land Title Insurance Co.
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Breaking News (10/19/11): SJC Rules Purchaser Of Ibanez Property Left Without Valid Title in Bevilacqua Case (click for more info)
Barely 24 hours old — the Massachusetts Supreme Judicial Court’s U.S. Bank v. Ibanez decision is already a huge national story. The high court ruled that two foreclosures of sub-prime mortgages were null and void where the lenders could not establish the chain of ownership within the securitized mortgage back securitized pools. CNN-Money calls it a “beat down” of the big banks. Reuters says it’s a “catastrophe risk” for banks. TheHuffington Post claims there’s some Obama Administration-Bank of America conspiracy in play. The ruling has spooked investors, as bank stocks were down in reaction to the ruling. In reaction to the ruling, a coalition of seven major public pension systems called on the boards of directors of Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo to immediately undertake independent examinations of the banks’ mortgage and foreclosure practices.
The case certainly has national implications as the Massachusetts SJC is the first state supreme court to weigh in on the legal ramifications of widespread irregularities in the residential securitized mortgage industry. Over half of U.S. states have foreclosure laws similar to Massachusetts’ regarding the assignment of mortgages, such as California and Georgia. Other courts across the country will likely be influenced by the ruling, especially since the SJC is widely regarded as one of the most respected state supreme courts in the country.
But is the Ibanez ruling really the next Foreclosure Apocalypse?
That remains to be seen. But the answer to the question will likely rest with what has transpired under little-known, complex mortgage securitization pooling and servicing agreements, known as PSA’s. These complex agreements may unlock the key to who, if anyone, owns these non-performing mortgage loans and has the legal right to foreclose.
The Ibanez Fact Pattern: Mortgage Assignments In Blank, A Common Practice
On December 1, 2005, Antonio Ibanez took out a $103,500 loan for the purchase of property at 20 Crosby Street in Springfield, MA secured by a mortgage to the lender, Rose Mortgage, Inc. The mortgage was recorded in the county registry of deeds the following day. Several days later, Rose Mortgage executed an assignment of this mortgage in blank, that is, an assignment that did not specify the name of the assignee. The blank space in the assignment was at some point stamped with the name of Option One Mortgage Corporation (Option One) as the assignee, and that assignment was recorded in the registry of deeds on June 7, 2006. Before the recording, on January 23, 2006, Option One also executed an assignment of the Ibanez mortgage in blank.
Option One then assigned the Ibanez mortgage to Lehman Brothers Bank, FSB, which assigned it to Lehman Brothers Holdings Inc., which then assigned it to the Structured Asset Securities Corporation, which then assigned the mortgage, pooled with approximately 1,220 other mortgage loans, to U.S. Bank, as trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates, Series 2006-Z. With this last assignment, the Ibanez and other loans were pooled into a trust and converted into a mortgage-backed securities pool that was bought and sold by investors.
On April 17, 2007, U.S. Bank started a foreclosure proceeding in Massachusetts state court. Although Massachusetts requires foreclosing lenders to follow the Soldier’s and Sailor’s Servicemember’s Act to ensure the debtor is not in the military, it is considered a non-judicial foreclosure state. In the foreclosure complaint, U.S. Bank represented that it was the “owner (or assignee) and holder” of the Ibanez mortgage. At the foreclosure sale on July 5, 2007, the Ibanez property was purchased by U.S. Bank, as trustee for the securitization trust, for $94,350, a value significantly less than the outstanding debt and the estimated market value of the property.
On September 2, 2008–14 months after the foreclosure sale was completed – U.S. Bank obtained an assignment of the Ibanez mortgage.
The major problem was that as the time U.S. Bank initiated the foreclosure proceeding, it did not possess (and could not produce evidence of) a legally effective mortgage assignment evidencing that it held the Ibanez mortgage.
Almost all sub-prime mortgages and millions of conventional mortgages originated before the mortgage meltdown in 2008 were packaged in securitized mortgage securities and sold off to Wall Street investors. Securitized mortgages currently comprise over half, or $8.9 trillion, of the $14.2 trillion in total U.S. mortgage debt outstanding.
Pooling and Servicing Agreements are part of the complex mortgage securitization lending agreements. As one securitization expert explains, a Pooling and Servicing Agreement is the legal document creating a residential mortgage backed securitized trust. The PSA also establishes some mandatory rules and procedures for the sales and transfers of the mortgages and mortgage notes from the originators to the securitized trusts which hold the millions of bundles of mortgage loans.
Here is a sample Pooling and Servicing Agreement. Quite complex, as you can see. Most PSA’s are supposed to be filed with the SEC by law. Here’s a guide to find your loan in a securitized PSA using the SEC system.
The Ibanez Ruling
The Ibanez ruling clearly invalidates a common practice in the sub-prime mortgage securitization industry of assigning the mortgage in blank and not recording it until after the foreclosure process has started. The Court held that there must be evidence of a valid assignment of the mortgage at the time the foreclosure process starts which would establish the current ownership of the mortgage.
Left open by the Court was what evidence would suffice to establish such ownership, specifically referencing PSA’s:
“We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder. However, there must be proof that the assignment was made by a party that itself held the mortgage.”
This language opens the door for Massachusetts foreclosing lenders to move ahead with foreclosures and cure title defects by using PSA’s to prove proper assignment of the mortgage loans. That is, if they can produce proper documentation that the defaulting mortgage was actually transferred into the pool and assigned to the end-holder before the initiation of foreclosure proceedings. Whether lenders can do this is another story.
The major problem for banks is mounting evidence is that originating lenders like Countrywide and Bank of America never transferred a vast number of loans into the securitized trusts in the first place. Josh Rosner, a well respected financial analyst, issued a client advisory in October, advising of widespread violations of pooling and servicing agreements on mortgages. Mr. Rosner counseled that although PSA’s require transfer of the promissory notes into the securitized trusts, that hardly ever occurred in the white hot run-up of securitized loans in the last decade. He also says that the mortgage assignments which must accompany each note are routinely ignored or left blank. (This was the major problem in the Ibanez case).
Mr. Rosner said:
“We believe nearly every single loan transferred was transferred to (securitized trusts) in “blank” name. That is to say the actual loans were apparently not, as of either the cut-off or closing dates, assigned to the (securitized trusts) as required by the PSA.”
Mr. Rosner concludes in this chilling statement:
There have been a large numbers of foreclosure proceedings where, because of improper assignments, the trust has been unable to demonstrate the right to foreclose. It is thus that we raised concern about the transfer “in blank name.” We do believe it likely the rush to move large volumes of loans may well have resulted in operational failures in the “true sale” process by some selling firms and trustees. Were this “missing assignment” problem, which we are witnessing in individual foreclosure proceedings, to be found to have resulted from widespread failure of issuers and trusts to properly transfer rights there would be appear to be a strong legal basis for the calling into question securitizations.
Mr. Rosner’s theory has been born out in court testimony. In a New Jersey bankruptcy case, a senior Bank of America manager admitted that Countrywide Loans routinely failed to transfer promissory notes as part of the securitization process. Countrywide, of course, went under but not after originating billions in loans.
But no one — except the banks themselves — really has a handle on how widespread these irregularities are.
If, in fact, there exists widespread legal failure of securitized mortgage pools, as Mr. Rosner, theorizes, then we are possibly facing the Apocalypse Scenario, calling into question the legal and financial soundness of a large portion of the U.S. securitized mortgage market. Securitized mortgages comprise over half, or $8.9 trillion, of the $14.2 trillion in total U.S. mortgage debt outstanding.
“It may mean investors who think they bought mortgage- backed securities bought securities that aren’t backed by anything,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California. Well, that’s already happened. Check out this lawsuit by MBIA Insurance against Credit Suisse 0ver a bad securitization loan deal.
Using the Ibanez case as a guide, CNBC.com Senior Editor, John Carney wrote a humorous yet ominous hypothetical conversation between U.S. Bank, the servicer, and Option One:
US Bank dude: “Hey, can I speak to whoever it is who is handling the Ibanez mortgage?”
Option One guy (after some delay): “No one handles that mortgage. We sold it five years ago to Lehman and closed the file.”
US Bank: “Right. Okay. Well, I need you to find someone who will execute an assignment of the mortgage to me.”
Option One: “First of all, no one who handled that mortgage still works here. You might have heard about the mortgage meltdown, right? Second, we sold it to Lehman, according to the file.”
US Bank: “Right. But I bought it from Lehman.”
Option One: “So get the assignment from Lehman.”
US Bank: “They’re an empty company that is in bankruptcy.”
Option One: “I’ve heard about that. Thanks for the news.”
US Bank: “So I need you to execute the assignment.”
Option One: “First of all, you’re going to have to show me that you bought the loan from Lehman. Second, I need to talk to legal to make sure I can assign a mortgage to someone we never dealt with. Third, how much are you willing to pay me to do all this?”
US Bank: “Pay you? I already own the mortgage.”
Option One: “The mortgage we sold to Lehman. If Lehman asks for the assignment, we’ll do it as part of that deal. But, as far as I can tell, I don’t owe you anything. If you want an assignment, you’re going to at least be paying the legal bills for the legal opinion that says it’s okay for us to do this.”
US Bank: “You don’t have to be an [expletive deleted] about this.”
Option One: “I also don’t have to give you an assignment.”
Now take that scenario, and multiple it by a factor of 10,000 or 50,000 or 100,000….see what we are talking about here? As Georgetown Law Professor Adam Levitan so artfully commented, “deal design was fine, deal execution was terrible.”
Before the Ibanez ruling came down Bloomberg News said the best scenario is that the disputes are deemed as legal technicalities, which would cause a one-year delay in foreclosures. In the medium case, years of litigation will ensue. In the worst case, the problem becomes systemic, causing “the mortgage market to grind to a halt as title insurers refuse to insure mortgages involving existing homes.”
Well, we now know from the Ibanez decision that this is hardly a “legal technicality.” So we are in the medium or worst case scenarios.
For those thousands (or millions?) of defaulted loans which were “assigned in blank,” I’m simply not sure if or how mortgage lenders are going to be able to cure the title defects they created. It’s going to take some major effort and creative lawyering, that’s for sure.
In some cases, I’m afraid, these problems may be fatal. That is, once U.S. Bank, for example, obtained a mortgage assignment executed and effective after the start of the foreclosure, which the SJC said was no good, they cannot then go back and re-create a new assignment dated prior to the foreclosure. That’s called back-dating, and would be fraudulent. And there’s also the issue of all these original promissory notes which were never transferred. Where are those? In some dingy warehouse in Texas. Good luck finding them.
Rather scary, huh?
Not all investment analysts, however, expect financial chaos. The controversy may cause a six-month delay in foreclosures and “have a muted effect on valuation” of about $154 billion of mortgage-backed securities, Laurie Goodman, senior managing director of Amherst Securities Group LP in New York, wrote in a note to investors. “Servicers will incur high costs both from re-processing loans that are in the process of foreclosure as well as from defending themselves in litigations,” Goodman wrote. “And investors definitely need to question the cash flows they are receiving on private-label MBS, to ascertain that they are not paying for expenses that rightfully belong to servicers.”
There are several important and unanswered questions which remain. How many pools of mortgage loans are affected by the “assignment in blank” and related irregularities in the servicing pools? How many pools are affected by the missing or lost promissory notes? How many pools are affected by assignment executed after the foreclosure started? Will California and other states with huge foreclosure rates follow the Ibanez ruling?
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“[W]hat is surprising about these cases is … the utter carelessness with which the plaintiff banks documented the titles to their assets.” –Justice Robert Cordy, Massachusetts Supreme Judicial Court
Today, the Massachusetts Supreme Judicial Court (SJC) ruled against foreclosing lenders and those who purchased foreclosed properties in Massachusetts in the controversial U.S. Bank v. Ibanez case. Here is the link for the decision. I’ve posted the decision below, and I’ve done a video blog embedded below.
Background
For those new to the case, the problem the Court dealt with in this case is the validity of foreclosures when the mortgages are part of securitized mortgage lending pools. When mortgages were bundled and packaged to Wall Street investors, the ownership of mortgage loans were divided and freely transferred numerous times on the lenders’ books. But the mortgage loan documentation actually on file at the Registry of Deeds often lagged far behind.
In the Ibanez case, the mortgage assignment, which was executed in blank, was not recorded until over a year after the foreclosure process had started. This was a fairly common practice in Massachusetts, and I suspect across the U.S. Mr. Ibanez, the distressed homeowner, challenged the validity of the foreclosure, arguing that U.S. Bank had no standing to foreclose because it lacked any evidence of ownership of the mortgage and the loan at the time it started the foreclosure.
Mr. Ibanez won his case in the lower court in 2009, and due to the importance of the issue, the Massachusetts Supreme Judicial Court took the case on direct appeal.
The SJC Ruling: Lenders Must Prove Ownership When They Foreclose
The SJC’s ruling can be summed up by Justice Cordy’s concurring opinion:
“The type of sophisticated transactions leading up to the accumulation of the notes and mortgages in question in these cases and their securitization, and, ultimately the sale of mortgaged-backed securities, are not barred nor even burdened by the requirements of Massachusetts law. The plaintiff banks, who brought these cases to clear the titles that they acquired at their own foreclosure sales, have simply failed to prove that the underlying assignments of the mortgages that they allege (and would have) entitled them to foreclose ever existed in any legally cognizable form before they exercised the power of sale that accompanies those assignments. The court’s opinion clearly states that such assignments do not need to be in recordable form or recorded before the foreclosure, but they do have to have been effectuated.”
The Court’s ruling appears rather elementary: you need to own the mortgage before you can foreclose. But it’s become much more complicated with the proliferation of mortgage backed securities (MBS’s) –which constitute 60% or more of the entire U.S. mortgage market. The Court has held unequivocally that the common industry practice of assigning a mortgage “in blank” — meaning without specifying to whom the mortgage would be assigned until after the fact — does not constitute a proper assignment, at least in Massachusetts.
My Analysis
More more extensive analysis, please read my new post: Apocalypse Now? Will The Massachusetts Ibanez Case Unravel Widespread Irregularities In The Residential Securitized Mortgage Market?
Additional Press Coverage
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Fannie Mae will roll out new lending guidelines on December 13 which will make securing a mortgage a lot easier for some borrowers but harder for others.
This will help upgrade buyers and young couples who for whatever reason don’t have enough money and are getting some from their families.
Fannie Mae is getting tougher on debt-to-income ratios, or the amount of a borrower’s gross monthly income that goes toward paying off all debts. The maximum ratio for those seeking a conventional mortgage will drop to 45 % from 55 % under the new guidelines.
The agency is also taking a harder look at payment histories on revolving debt. In the past, if a borrower missed a monthly payment, Fannie Mae ignored it, or required that lenders add a few percentage points to the total balance when calculating the debt-to-income ratio. Now, buyers who have missed a payment will have 5 % of the total balance added to their ratios.
These new guidelines could sink many potential borrowers with student-loan debt that has been deferred or borrowers who have bought big-ticket items through financing with delayed payments.
Perhaps the toughest news from Fannie Mae concerns borrowers who have gone through foreclosure. They will be excluded from obtaining a Fannie-backed loan for seven years, up from four.
This is an especially tough pill to swallow, especially since many feel Fannie Mae is complicit in creating the very environment which lead to the explosion of foreclosures.
Buyers who do not meet the new Fannie Mae requirements may have to consider a nonconforming loan from the Federal Housing Administration (FHA). These loans, which do not follow Fannie Mae underwriting guidelines, require mortgage insurance premiums and, for those with low credit scores, higher interest rates and steeper down-payment requirements.
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I’m never one to rain on a good shopping day parade, but the upcoming Black Friday and “Cyber Monday” shopping binges could cause some problems for home buyers who intend on makes big purchases over the weekend, but haven’t closed yet on their real estate transaction.
The reason is Fannie Mae’s Loan Quality Initiative (LQI) rules which have resulted in lenders pulling last minute credit reports and additional verifications of borrower information. If you have racked up a big credit card bill before your closing, these last minute credit checks pull could result in a closing delay, pricing adjustment, or, worst, loan approval cancellation.
So, I hate to say it, but the best thing to do for home buyers is WAIT until after your closing to buy those new appliances at Sears. Your loan officer will thank you!
And thanks to my colleague Pat Maddigan for the head’s up on this issue!
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Mortgage Guy Brian Cav has been riding the Massachusetts mortgage rate roller coaster this week! Seems like the Fed’s new Quantitative Easing II policy has got the market jumping all over the place. Well, here’s the lowdown from BC:
Brian Cav
Wow, I am at a lack of words for what has happened over the past week with Mortgage Rates. Rates have changed up to 5 times per day since last Wednesday. We are just now starting to see some stabilization after a week of bad mortgage market losses.
Most Lenders are offering 4.25% with 1 point of origination for a 30 year fixed with standard costs. The same can be said at 3.75% for a 15 year fixed. You must have a 740 FICO credit score or better and enough equity in your home to refinance or standard down payment requirements on a purchase. Jumbo 30 year and 15 year fixed along with 5/1 ARMs are very near all-time lows as of today. Jumbo Mortgage financing requires a 80% loan to value or a 20% down payment on purchases.
Inquire within for current Mortgage Rates or guidelines at [email protected] 617.771.5021
Economic Data
Wednesday’s bond market has opened in positive territory following the release of favorable economic data and a relatively flat open in stocks. The stock markets don’t appear ready to rebound from yesterday’s selling with the Dow up and the Nasdaq up. The bond market is currently up 5/32, which with yesterday’s afternoon strength should improve this morning’s mortgage rates by approximately .25 of a discount point over yesterday’s morning pricing.
There were two reports posted this morning. The first was October’s Consumer Price Index (CPI) that showed weaker than expected inflation readings. The Labor Department said that the overall CPI reading rose 0.2% and that the core data was unchanged from September’s level. Both of these readings were just shy of forecasts, meaning inflationary pressures were not as strong at the consumer level of the economy as many had thought. That is good news for the bond market and mortgage rates, but did not come as too much of a surprise after yesterday’s PPI numbers.
The Commerce Department gave us today’s second piece of data. They announced that construction starts of new homes fell 11.7% last month, falling to their lowest level in the past year and a half. This is favorable data for the bond market and mortgage rates since it indicates housing sector weakness. Unfortunately, the data is not considered to be highly important, preventing it from influencing this morning’s mortgage rates by much.
The final monthly report of the week will come from the Conference Board late tomorrow morning when they release their Leading Economic Indicators (LEI) for October. This is a moderately important report that attempts to predict economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning economic activity will rise fairly rapidly over the next couple of months. Generally speaking, this would be bad news for bonds. However, since this data is considered only moderately important, its results need to vary by a wide margin from forecasts for it to affect mortgage rates.
Also tomorrow, the Labor Department will give us last week’s unemployment figures. They are expected to announce that 442,000 new claims for unemployment benefits were filed last week. This would be an increase from the previous week and considered good news for the bond market. However, since this is only a week’s worth of new claims data, its impact on tomorrow’s mortgage rates will likely be minimal. The larger the number of new claims filed, the better the news for the bond market and rates.
FLOAT or LOCK
If I was closing on a Home Mortgage in the next 0 to 15 Days – FLOAT
If I was closing on a Home Mortgage in the next 15 to 30 Days – FLOAT
If I was closing on a Home Mortgage in the next 30 to 60 Days – FLOAT
If I was closing on a Home Mortgage in the next 60+ FLOAT
This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
[email protected] 617.771.5021
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We welcome for the first time, guest blogger Ricardo Brasil. Ricardo is a Vice President at one of America’s largest Banks, and is recognized as one of the top mortgage originators nationally. For more info, go to his website at www.ricardobrasil.com or call him directly at (617) 897-5192.
Ricardo Brasil
Some feel there is a good chance that the FOMC’s planned announcement to purchase U.S. treasury bonds will cause mortgage rates to fall even further. Unlike the Fed’s first quantitative easing (QE I) program, however, borrowers could see a muted (or even negative) response by the time QE2 winds down next June when it comes to rates for home loans.
Mortgage rates improved substantially the last time the Fed carried out its first Quantitative Easing program from December 2008 through March 2010. $1.75 trillion in bonds and mortgage backed securities were purchased during that time and mortgage interest rates dropped by more than 1% over the same period for a 30-year fixed rate mortgage. In 2010 they have fallen further to just over 4% last week with no points.
There are those who argue the Fed’s second attempt at Quantitative Easing, known as QE2 or QEII, is different. Mortgage rates have the QE2 effect ‘baked into the cake’ according to many industry pundits. The goal of this type of Fed action is to lower real interest rates and increase spending in sectors that respond to interest rate changes. This includes home purchases as well as business spending and investment. Quantitative easing could decrease mortgage rates by increasing mortgage backed securities’ liquidity enough that the lower end MBS’s begin to sell. On the contrary, the purpose of quantitative easing ultimately is to stimulate the economy, and if it is successful, over time there should be real indicators of growth that show up in production and employment figure increases. These will surely put pressure on interest rates to rise.
Additionally, the direct impact on the economy of this quantitative easing policy will be a weakening of the US dollar. A weaker dollar in turn should make US products cheaper to foreign countries and cause exports to rise. With a weak dollar imported products of all kinds from clothes to consumer electronics will increase in price because it will take more dollars to buy the same amount of products. The increased cost of imports will drive up retail prices and increase inflation. As a result, inflation will cause home prices to rise and mortgage rates as well. This wouldn’t happen immediately but could be expected in the in the not too distant future. Moderate inflation and job growth are what the Fed is looking for.
Rising production of exported products should generate more profits for domestic companies and those profits should result in increased production and job growth. That in turn will lead to the stock market going up and for those in the mortgage industry who know this all too well, mortgage rates tend to follow the direction of the financial markets. Rates rise when the economy is clicking on all cylinders and equity markets are moving higher. Rates decrease when the economy and equity markets struggle.
As the cliché goes, don’t fight the Fed. Well, when it comes to mortgage rates, when we know the Fed is trying to stimulate the economy and put off dealing with inflation, I would do away with any floating bias and will be taking advantage of historically low rates for the time being without holding off for lower rates that we may not see.
Mortgage rates are currently hovering at record lows and remain very attractive especially in combination with low home prices. Although there will continue to be fractional fluctuations in rates over the next few months, mortgage rates should be low but range bound for the foreseeable future before being forced higher by inflationary pressures. After rates improved a bit following the Fed’s announcement they have gone up as recent economic news has been quite sanguine especially with the 151,000 jobs added in October. Mortgage bonds have fallen a whopping 143 basis points in the past 5 days and the yield on the 10yr-note has spiked 28 basis points higher.
Ricardo Brasil can be reached at www.ricardobrasil.com or call him directly at (617) 897-5192.
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David Gaffin of Greenpark Mortgage, www.massmortgageblog.com, is here with a superb summary of what’s now going on with Massachusetts (and national) residential mortgage market.
Lot’s has been happening in the Mortgage World lately. Refinance business is very good. Purchase business is fair, heading into the all important year end buying season.
I will let this post be a little more free-form than my taking a particular topic and expounding on it (or beating it to death) depending on your perspective.
FHA has changed guidelines… Again.
USDA is still not guaranteeing loans.
Fannie and Freddie need another $200 billion of taxpayer money.
Foreclosures stopped and started again. What could that mean to you and me?
The Fed is meeting on Nov 3 to either lay the hammer down on Quantitative Easing II or will do nothing and really mess up interest rates.
1. So you want to refinance? My suggestions: A. Get started now! Loan pipelines continue to be backed up. Remember the bad old days when rates were an exorbitant 4.75% for a 30 year fixed rate and everyone re-fied? When was that again? Oh, right. JUNE. Well many of those same people are now re-fiing again in the low 4′s, possibly high 3′s. And people who were late to the party are adding on. So don’t expect your file to be closed in less than 60 days. Many lenders are at 120 days for refinances. If you have a current home equity line of credit that you plan to keep open, add another 30 days or so.
It is not all doom and gloom. I know of many files that were closed in less than 45 days. Purchases always get priority and about 30-35 days is the requirement. If you lender can’t get it done in that time, well my contact info is below.
Don’t be cranky with your loan officer or processor when they request enough paper work to rebuild a forest. The secondary market has really toughened its verification guidelines, cause no one wants to be left holding the bag on a loan that goes bad. Everyone wants to ensure that the underwriting, appraisal and income verification has been double and triple checked.
End of year buying season has begun and the clients that want to be in their new homes by year end must make some decisions soon. We should see a boost in P & S activity over the next 30 days. If that doesn’t come to fruition, it could be a long dark winter for many of my realty friends. But rates are great! If you bought the same priced home 2 years ago, you would have paid 5-20% more than current prices and your interest rates could have been more than 2.00% higher. Now is a GREAT time to buy. I know that is self-serving, but I am a numbers and value guy. I don’t like seeing the value drop in my house either, but if I were buying I would be psyched!
FHA needs money to keep guaranteeing its loans against default. Every borrower pays a fee to get into the program and to ensure its continuation. So the fees got changed. FHA lowered the UPMIP (up-front mortgage insurance premium) from 2.25% to 1.00%. Sounds good right? With one hand they giveth and the other taketh away. The monthly mortgage insurance will virtually all FHA borrowers pay has moved from .55% of the base loan amount to .84% monthly. On a $200,000 loan the old cost over 7 years was $12,200 and the monthly MI was $91.67. Now the projected expense is $13,760 and the monthly MI is $140.00. Most investors have now raised the minimum credit score requirement from 620 to 640. FHA is still the best choice for borrower’s with credit scores under 660 and who may have little equity or down payment or who need higher tolerance levels for debt to income ratios.
The USDA which offers a great program, or at least did, can’t seem to get its funding in order and therefore cannot issue any conditional guarantees for loans. USDA offers several advantages over conventional and FHA loans but they are proving very hard to get. If you would like more information on the availability of these loans, send me an email.
Do we shut them off and let the private sector take over? We can but rates would rise dramatically and put an even further damper on the housing market. Given that TARP actually turned a profit, I think any additional funds to rescue the GSE’s should have an opportunity for the taxpayer to make a return on the re-sold properties even if it takes years to divest the shadow inventory that they own.
Speaking of shadow inventory… Foreclosures are on again/off again/on again. For legal thoughts on this check out the Mass Real Estate Law Blog by Rich Vetstein and Marc Canner.
My thoughts are that although there will be a delay to ensure that the legal work has been properly done, people will unfortunately continue to lose their homes. Many will lose them due to the economic downturn or medical reasons. Others will have lost them to predatory lenders or poor decision making on their parts. I don’t really want to get started on “It was all the lender’s fault.” Needless to say, a reason the paperwork requirements exist today, is reliant upon the the lack of paperwork requirements and shoddy underwriting in the past.
I could write several scrolls on this whole mess, but I don’t wish to bore. It may already be too late.
Possibly the greatest short to mid-term driver for interest rates will be what the Fed decides or doesn’t decide to do at it’s next meeting. The market has baked in that the FED will ease monetary policy further. If they don’t come through in a big way the stock market most likely will drop and interest rates will rise. But how much will rates rise? Probably enough that any one who re-fied this summer won’t be able to do so again, or at least until some other economic driver comes to bear. So get off the fence and talk to your loan officer NOW.
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Sometimes the best blog posts are the frequently asked questions from our clients. With interest rates at all time lows, we’ve been doing a ton of refinance closings. Here are 5 questions which often come up.
In many cases, borrowers will focus only on the “principal balance” figure in their mortgage statement. However, this figure does not provide the complete figure necessary to pay off the loan. You must also pay any unpaid interest calculated up to the time that they actually receive the payoff check. Mortgage interest is not like traditional rent in which the monthly payment is for the upcoming month. Mortgage interest is paid in arrears, or backwards. Thus, your monthly mortgage payment is allocated partially to principal, but also pays the daily interest accumulated during the last month.
Therefore, if your refinance loan is funding on August 15, we must pay off your existing principal balance plus the interest that accumulated from August 1 to August 15 (plus additional days necessary to get the payoff check to the bank). That unpaid daily interest makes your payoff is higher than just the principal balance. Frequently included in your payoff is also a $75.00 registry discharge recording fee and a fee to issue a payoff statement (usually between $10.00 to $60.00).
An escrow account is established with a lender to pay for recurring expenses related to your property, such as real estate taxes and homeowner’s insurance. It helps you to anticipate and manage payment of these expenses by including these expenses as a portion of your monthly mortgage payment. At the time you establish an escrow account, your annual real estate taxes and homeowner’s insurance are estimated, based on your most recent bills and premiums. An incremental amount of these expenses is added to your monthly mortgage payment, in order to cover these expenses when they are due.
Each year, your escrow account is reviewed to determine if the amount being escrowed each month is sufficient to pay for any change in your real estate taxes or homeowner’s insurance premiums. At closing, we will collect sufficient funds to start your escrow account, typically 2-3 months worth of real estate taxes and up to a 12 months of homeowner’s insurance.
Although you have paid the first annual premium in advance, the lender needs to begin collecting money to pay next year’s annual premium. Since the lender will be paying the annual premium for you next year, they need to be sure that they have enough money in their account to pay that bill approximately one year from your closing. Because you will not make a mortgage payment in the month after your closing occurs and the lender usually pays the bill in the month before it is due, you will likely only have made 10 payments by the time they pay the bill. Thus, they need to collect 2-3 months at closing so that they will have sufficient funds to pay the bill.
Federal law requires that borrowers of a refinance loan must be given three days to rescind the transaction. This is commonly referred to as the “three-day right of rescission.” You cannot waive this right of rescission. Therefore, your lender cannot fund your loan until such rescission period has expired. When calculating the rescission period, the day that the closing occurs, Sundays and Holidays are not rescission days and are not counted. Thus, if your closing occurs on a Thursday, it will fund on the following Tuesday (Friday, Saturday and Monday being the three rescission days – Thursday of closing and Sunday not counted).
If your next tax bill is due within 60 days of closing, our office will administer payment that tax bill. The lender will require our office to take the necessary funds from you at closing and pay that tax bill. This is the case regardless of whether you are escrowing your taxes with the lender or not. If you are escrowing taxes with the lender, our office will administer payment of tax bills due within 60 days and the lender will administer payment of any tax bills thereafter. If you are not escrowing your taxes, we will administer payment of tax bills due within 60 days of closing, and you will have to pay any tax bills thereafter.
If you would like us to close your refinance loan, please contact us at 781-247-4250 or at [email protected].
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The recent historic drop of mortgage rates has created a refinancing boom for qualified homeowners. Unfortunately, the refinancing wave washing over the country has paradoxically left dry homeowners who would most benefit: those who are “underwater.” Underwater mortgages, or “negative equity” (i.e., they owe more on the mortgage than the property is worth) cause foreclosures and serves to bottle up the housing market. Thus, assisting homeowners who are underwater on their mortgage is good public policy. According to a CoreLogic study, there are currently 11 million mortgages underwater and another 2 million nearly at negative equity in the US housing market – a figure that comprises 28% of all residential properties with a mortgage. In Massachusetts, there are 225,000 properties with negative equity and another 52,000 with near negative equity.
The government has made attempts to address this crisis. Last year the Obama Administration created a loan modification program, the Home Affordable Refinance Program, to help refinance borrowers whose loans were worth up to 125% of their homes value. The program did not take hold, and only a relatively minor number of modifications/refinances occurred.
Writing in yesterday’s New York Times, former chairman of the President’s Council of Economic Advisors and current Dean of Columbia Business School Glenn Hubbard penned an intriguing column proposing easier refinancing of underwater mortgages.
Under the proposal, quasi-governmental entities like Fannie Mae, Freddie Mac, the FHA, and the VA would require loan servicers:
The proposal also mandates that existing second lien holders provide a subordination agreement (which benefits the holder because it lowers the default risk).
The program would have immediate benefits: a distressed homeowner could save approximately 15% in their monthly mortgage payment, which would greatly help homeowner’s through the current crisis.
Is there a guarantee that this modification will become law? No, there is not, but it certainly makes sense for policymakers to move on it right away.
In the words of Glen Hubbard, “[i]f we can lower mortgage payments for struggling homeowners, it will reduce future foreclosures on federally backed loans, providing savings to the taxpayers.” And that’s a good thing for everyone.
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Today’s strict lending and underwriting environment has resulted in quite a few delays and even losses of buyers’ financing for home purchases. Loan commitment deadlines are being pushed back due to underwriting delays, regulatory compliance and appraisal issues, among other delays. The worst case scenario for any borrower is the wholesale rejection of financing in the middle of a transaction.
What Is The Typical Mortgage Contingency Clause?
The Massachusetts “standard” form purchase and sale agreement contains a mortgage contingency clause which protects the buyer (and his deposit) for the period of time until he can obtain a firm loan commitment. The date is negotiated by the buyer and seller, and is usually around 30 days from the execution of the purchase and sale agreement, depending on the closing date. If the buyer cannot get a firm loan commitment by the deadline, he can opt out of agreement with a full refund of his deposit. Here is how a typical Massachusetts mortgage financing contingency clause operates:
In order to help finance the acquisition of said premises, the BUYER shall apply for a conventional bank or other institutional mortgage loan of $300,500.00 at prevailing rates, terms and conditions. If despite the BUYER’S diligent efforts, a commitment for such a loan cannot be obtained on or before October 15, 2010, the BUYER may terminate this agreement by written notice to the SELLER in accordance with the term of the rider, prior to the expiration of such time, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreements shall be void without recourse to the parties hereto. In no event will the BUYER be deemed to have used diligent efforts to obtain such commitment unless the BUYER submits a complete mortgage loan application conforming to the foregoing provisions on or before 3 days from the execution of this Agreement.
What If There Are Delays In Obtaining My Loan Commitment?
The buyer really has only two choices if the lender cannot deliver a firm loan commitment by the mortgage contingency deadline: (1) ask the seller for an extension of the loan commitment deadline, or (b) terminate the transaction. There is, however, a smart way to handle this situation.
I always couple a request for a loan commitment extension with notice that if the seller does not agree, then the buyer will exercise his right to terminate the agreement. That way, the seller has to make a tough choice: grant an extension or lose the deal. If the seller does not want to grant an extension, the buyer really has no other choice but to move on to the next home for sale.
Parties need to make mortgage contingency deadlines workable and don’t wait until the last minute to ask for extensions. See this post about a recent case for what happens when you don’t do this.
What If There Are Conditions In My Loan Commitment That I Cannot Control or Meet?
Loan commitments are often riddled with conditions which must be reviewed carefully with counsel. Sometimes, there are conditions that a buyer simply cannot meet or control. To account for this I always insert this clause in my Massachusetts purchase and sale agreement rider:
Application to one such bank or mortgage lender by such date shall constitute “diligent efforts.” If the written loan commitment contains terms and conditions that are beyond BUYER’S reasonable ability to control or achieve, or if the commitment requires BUYER to encumber property other than the subject property, BUYER may terminate this agreement, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreement shall be void without recourse to the parties hereto.
This protects the buyer in case there are those uncontrollable conditions, and also limits the buyer’s efforts in applying for a mortgage to 1 application.
What If There Are Title Defects Which Delay The Transaction And My Rate Lock Expires?
Under paragraph 10 of the Massachusetts standard form purchase and sale agreement, the seller has the option (or the requirement, depending on the negotiation of the agreement) to cure any title defects, and has up to 30 days to do so. Sometimes, during this 30 day cure period, the buyer’s rate lock will expire. In this situation, I insert the following clause into the purchase and sale agreement:
MODIFICATION TO PARAGRAPH 10: Notwithstanding anything to the contrary contained in this Agreement, if SELLER extends this Agreement to perfect title or make the Premises conform as provided in Paragraph 10, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock. BUYER may elect, at its sole option, to obtain an extension of its mortgage commitment or rate lock.
This gives the buyer an “out” of the transaction if his rate lock expires.
As always, feel free to contact me, Richard Vetstein, for any questions about the Massachusetts purchase and sale agreement process.
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Mortgage Guy, Brian Cav, is back with his Massachusetts weekly mortgage rate report.
Mortgage Rates hit new lows yesterday. If you have refinanced over the past 2 years there is a 70% chance you can refinance to 0.5% lower in rate and pay NO closing costs. The 30 year fixed mortgage rate has fallen down to the 4.25% to 4.375% range for well-qualified borrowers. Can you say high 3.875%, 30 year fixed rate paying points?!?! These rates are amazing and may not be down this low again, I would take the safe play and LOCK in your purchase or refinancing application right now. Please call/email it only takes you 5 minutes to LOCK in at today’s new all-time low rates.
Inquire within for current Mortgage Rates or guidelines [email protected] 617.771.5021
Economic Data
Wednesday’s bond market has opened down sharply after this morning’s economic data showed surprising strength. The stock markets are heavily influencing bond trading with significant gains. Stocks have had quite a strong reaction to this morning’s news, pushing the Dow up over 230 points and the Nasdaq up. The bond market is currently down, which will likely push this morning’s mortgage rates higher by approximately .250 of a discount point. Strength in bonds late yesterday is helping to prevent a larger increase to this morning’s rates.
Today’s news came from the Institute for Supply Management (ISM), who released their manufacturing index for August late this morning. They announced a reading of 56.3 that was not only well above forecasts, but also an increase from July’s reading. This means that manufacturer sentiment about business conditions was much stronger than analysts had expected. When this happens, bonds tend to move lower and stocks higher as it is a sign of economic strength.
Yesterday afternoon’s release of the minutes from the last FOMC meeting didn’t reveal any significant surprises, but did indicate that the Fed is considering, or at least willing to invest more funds into mortgage-related securities. That can be considered good news for bonds and mortgage rates since the additional buying should drive mortgage pricing lower. However, it is just a thought at this time and cannot be given much weight until the Fed does decide to pursue that route.
There are two reports scheduled for release tomorrow morning that have the potential to influence rates. The first is the revised 2nd Quarter Productivity numbers, which measures employee productivity in the workplace. Strong levels of productivity allow the economy to expand without inflation concerns. It is expected to show a downward change from the previous estimate of a 0.9% decline. Forecasts are currently calling for a 1.7% drop, meaning productivity was weaker than previously thought. This would be negative news for the bond market and mortgage rates, but this data is not one of the more important reports we see each quarter. Therefore, unless there is a large variance from expectations, this report will likely have little impact on tomorrow’s rates.
July’s Factory Orders data will also be released tomorrow morning. This report measures manufacturing sector strength and is similar to last week’s Durable Goods Orders, but includes orders for both durable and non-durable goods. It is expected to show a 0.3% increase in new orders. A smaller than expected rise would be favorable for bonds, while a large than forecasted increase could lead to higher rates tomorrow morning.
Also worth noting are weekly unemployment figures that will be released by the Labor Department early tomorrow morning. They are expected to say that 475,000 new claims for unemployment benefits were filed last week. Since this data tracks only a single week’s worth of claims, it usually takes a fairly significant surprise for mortgage rates to react. This is especially true when monthly figures will be posted the following day, as is the case this week.
FLOAT or LOCK
If I was closing on a Home Mortgage in the next 0 to 15 Days – LOCK
If I was closing on a Home Mortgage in the next 15 to 30 Days – LOCK
If I was closing on a Home Mortgage in the next 30 to 60 Days – LOCK
If I was closing on a Home Mortgage in the next 60+ FLOAT
This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
- Are you a possible Massachusetts First Time Homebuyer?
- Do you have a Real Estate client inquiring about current Mortgage Rates?
- Do you have any Refinancing questions?
- Should you be thinking about Refinancing out of your ARM (Adjustable Rate Mortgage)?
- Have your Real Estate clients been Pre Approved?
[email protected] 617.771.5021
Credit: Bloomberg, Yahoo Finance, Mortgage News, MBS Quoteline, WSJ, NY Times
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The new Mortgage Reform and Anti-Predatory Lending Act, buried in the fine print of the much publicized Dodd-Frank Wall Street Reform and Consumer Protection Act contains strict new rules aimed at preventing another sub-prime mortgage collapse.
Overview: What Is The Impact To Mortgage Lenders and Originators?
The Mortgage Reform and Anti-Predatory Lending Act certainly changes the regulatory landscape for mortgage originators who focused on high-risk, sub-prime lending, setting tougher new standards and creating new federal remedies for consumers victimized by deceptive and predatory lending. Stripped down, the Act puts the onus on mortgage lenders and originators to ensure, based on verified and documentation information, that borrowers can afford to repay the loans for which they have applied. Pretty novel idea, huh?
The new law essentially codifies good underwriting practices by requiring consideration of a borrower’s “credit history, current income, expected income the consumer is reasonably assured of receiving, current obligations, debt-to-income ratio or the residential income the consumer will have after paying non-mortgage debt and mortgage-related obligations, employment status, and other financial resources other than the consumer’s equity in the dwelling or real property that secures repayment of the loan.”
I don’t see anything in these rules that a financially prudent lender wouldn’t have already implemented in its underwriting processes. Lenders should not be placing borrowers into loans they are doomed to fail.
I’m sure these new rules will result in a few more disclosures and forms, but I don’t see this making a major impact on the conventional residential lending industry. If mortgage professionals think otherwise, I’d love to here from you. Well, onto the details:
New Minimum Mortgage Affordability Standards
The new law essentially outlaws many of the characteristics of the classic sub-prime, predatory mortgage loan, by requiring that:
It would appear that this new law would prohibit so-called “no doc” “no income verification” loans.
The new law also imposes on lenders a duty to verify amounts of income or assets that the lender relies upon to determine the consumer’s ability to repay the loan. Again, a novel idea…In order to “safeguard against fraudulent reporting,” lenders are now required to use IRS transcripts of tax returns.
New Loan Origination Standards
The new law requires that lenders be qualified and registered as mortgage originators under the applicable federal and state laws. The significance of this registration procedure is that all loan documents will require the inclusion of the mortgage originator’s unique identifier, which is to be provided by the National Mortgage Licensing System and Registry. This will enable tracking of the bad guys.
“Steering Incentives” Prohibited
The Dodd-Frank Act will prohibit lenders from “steering” borrowers into more costly loans. It will prohibit mortgage originators from mischaracterizing the credit history of a consumer or the residential loans available to the consumer for purposes of making the loan. Mortgage originators are also prohibited from discouraging consumers from seeking a residential mortgage loan from another lender when the former is unable to suggest, offer, or recommend a loan that is not more expensive.
Predatory Loans Banned
Mortgage originators are prohibited from steering consumers to residential mortgage loans that have “predatory characteristics or effects.” “Predatory characteristics,” include equity stripping, excessive fees, or abusive terms.
Yield-Spread Premium Bonuses Outlawed
The Dodd-Frank Act also imposes new compensation limitations by prohibiting yield-spread premium bonuses, a practice, regulators argue, tends to increase the total cost of the loan to the borrower. Yield spread premiums (YSPs) are fees paid by a lender to a mortgage originator for placing a loan in a certain loan program.
Additional Liability for Mortgage Originators
The Act imposes liability on mortgage originators who fail to comply with these new minimum standards. It provides the penalty of triple damages plus the costs of suit and reasonable attorneys’ fees. Watch out for class actions here!
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The briefs in the US. Bank v. Ibanez foreclosure case in the Supreme Judicial Court have been filed.
Here is a link to the Ibanez side brief.
Here is the lenders’ brief.
The case is still set for oral argument in October, with a decision expected in late Fall, early Winter.
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I’m never one to rain on a good shopping day parade, but the Massachusetts sale tax holiday scheduled for this weekend, could cause some problems for home buyers who intend on makes big purchases over the weekend, but haven’t closed yet on their real estate transaction.
The reason is Fannie Mae’s new Loan Quality Initiative (LQI) rules which have resulted in lenders pulling last minute credit reports and additional verifications of borrower information. If you have racked up a big credit card bill before your closing, these last minute credit checks pull could result in a closing delay, pricing adjustment, or, worst, loan approval cancellation.
So, I hate to say it, but the best thing to do for home buyers is WAIT until after your closing to buy those new appliances at Sears.Your loan officer will thank you!
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By Karen Rabinovici, UConn Law ’12
It seems more outdated than hair scrunchies, something we witnessed years ago: discrimination against pregnant women seeking mortgage loans. Apparently it’s still going on and worse than ever which is why the U.S. Department of Housing and Urban Development (HUD) is investigating numerous cases of alleged pregnancy discrimination in lending. The New York Times recently wrote about it: Seeking a Mortgage, Don’t Get Pregnant.
Spurred by the financial crisis, lenders have created more stringent guidelines for granting loans to borrowers looking to buy homes, and have zoned in on pregnant women, essentially deeming them to be liabilities. Lenders are equivocating maternity leave with unemployment, which results in automatic disqualification or reduced buying power for a loan. Although some women on maternity leave can be entitled to temporary disability insurance, this disability insurance may not be used as qualifying income because it is allocated for a period of time less than three years. Women who are on maternity for only a few weeks are also affected, so the range of women denied loans is vast.
In the past, maternity leave was considered a break from work and was not taken into account when considering whether or not to grant a loan. In this financial climate, however, maternity leave has come to be viewed differently – as complete unemployment. So, lenders will not approve a loan until the mother is officially back at work. This subjects women to more red tape: providing documents from their employers specifying the length of their maternity leave and the date of their return to work, as well as letters from their doctors, and other information deemed relevant.
These new guidelines have resulted in too many claims of discrimination from pregnant women to ignore, and thus has resulted in the HUD investigation. If HUD concludes that discrimination against pregnant women and new mothers is indeed taking place, this could be a violation of the Fair Housing Act, one purpose of which is to protect families.
Some results of all this are that families are forced to wait until the mother returns to work (possibly rushing maternity leave), families are altogether giving up on buying homes, or families are purchasing homes that they can afford on one salary.
Families are feeling punished for having babies, and the irony that most families are buying new homes in the first place because they are expecting children does not fail to come through.
While tougher standards for approving loans have become an obvious step to take by lenders, these types of resulting consequences walk a dangerous line between what needs to be done, and unfair treatment towards one group of people. In either case, the allegations of discrimination against pregnant women reek of the sexism that was rampant in the professional world decades ago.
What do you think? Are pregnant women being treated unfairly, or are they indeed a liability to lenders because of the income gap resulting from their maternity leave?
Related Articles:
Pregnant Women Losing Out On Home Loans, Change.org
Pregnant Women Denied Loans? Realtor.com
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Our Mortgage Guy, Brian Cav, is back with his Massachusetts weekly mortgage rate report.
Mortgage Rates are at all-time lows right now; 30 year fixed, 20 year fixed, 15 year fixed and even Jumbo Rates, and they are showing no signs of rising! I don’t see them going any lower but staying down at these levels for a while. What’s moving Mortgage Rates? No one really knows right now but this is usually what happens, bonds go up, stocks go down. Stocks go up, bonds go down. It’s really pretty easy to understand. However this mortgage market that we are in is no where near normal. In fact, it’s the total opposite, it’s like nothing we’ve ever experienced.
The housing market is stagnating at record low levels, refinance loans account for the majority of all present loan production. Credit guidelines are as strict as they’ve ever been, it’s really brutal. Home values are off by incredible amounts of inventory. Mortgage Rates are showing no signs at all of rising anytime soon!
30 year fixed mortgage rates remain in the 4.375% to 4.625% range. The 30 year fixed rate mortgage is 4.375% for a qualified borrower. 4.125% is presently being offered for two points.
Inquire within for current Mortgage Rates or guidelines [email protected] 617.771.5021
Economic Data
Wednesday’s bond market has opened in negative territory following modest stock gains. The Dow is currently up while the Nasdaq has gained. The bond market is currently down, which should push this morning’s mortgage rates higher by approximately .125 of a discount point.
There is no relevant economic data scheduled for release today. This leaves the stock markets to influence bond trading and mortgage rates. If the stock markets move higher from current levels, we should see bond prices fall and mortgage rates rise if the move is sizable. However, if the major stock indexes fall from where they are now, the bond market would likely improve, leading to slightly lower mortgage rates this afternoon.
The only relevant data scheduled for release tomorrow are weekly unemployment figures from the Labor Department. They will post the number of new claims for unemployment benefits filed last week, giving us a small measurement of employment sector growth. This data usually does not lead to noticeable changes in mortgage rates because the data tracks only a single week’s worth of new claims. Analysts are expecting 455,000 new claims, but it will likely take a fairly large variance for the markets to have much of a reaction to this data. This week’s release may carry a little more significance than usual because there is no other data scheduled for release that day.
Friday brings us the release of July’s Employment report that compiles several key employment readings and is based on an entire month’s worth of data. This is a very important report for the financial and mortgage markets and could lead to sizable changes to mortgage rates. I would not be surprised to see the traders prepare for the report by adjusting portfolios late tomorrow and Thursday. This could lead to some pressure in bonds or possibly improvements if market participants are betting on bad economic news coming. The results on mortgage rates should be fairly minimal and could easily be erased after the report is released Friday morning, but it is worth mentioning.
FLOAT or LOCK
If I was closing on a Home Mortgage in the next 0 to 15 Days – LOCK
If I was closing on a Home Mortgage in the next 15 to 30 Days – FLOAT
If I was closing on a Home Mortgage in the next 30 to 60 Days – FLOAT
If I was closing on a Home Mortgage in the next 60+ FLOAT
This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
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[email protected] 617.771.5021
Credit: Bloomberg, Yahoo Finance, Mortgage News, MBS Quoteline, WSJ, NY Times
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