Mortgage Defaults Continue to Rise, MI Firms Say

By PAUL JACKSON

December 1, 2008

 

A surge in residential mortgage defaults continued during October, according to a trade organization representing private mortgage insurers. More than 80,000 defaults were recorded during the month, the highest such total in at least 12 months, said the Mortgage Insurance Companies of America Monday, in its monthly report.

 

Against 80,071 reported primary insurance defaults, the industry recorded 43,211 cures, generating a 54.0 percent cure rate for October. That total is slightly better than the 53.9 percent cure rate recorded during Sept., but below the 56.1 percent rate recorded one year ago; before the nation’s housing crisis set in, the MI industry had rarely ever recorded a cure rate below 60 percent for any given month. October’s total now means MICA members have posted sub-60 percent cure rates for 7 months this year, and the past four months in a row.

 

MICA highlighted continued strength in the total dollar amount of insurance in force in its press statement announcing the numbers. MICA’s members reported a total of $800,880.5 million in primary insurance in force for the month of Oct.; that compares to $801,346.9 million one month earlier. Numerous individual insurers, however, have said in earnings calls with analysts that such high persistency rates tend to reflect the difficulty many insured borrowers — including troubled borrowers — are having in refinancing their way into another mortgage.

 

While persistency remains high, new policies aren’t exactly flooding in the front door. MICA members reported that just 42,167 borrowers used private mortgage insurance to buy or refinance a home in October, down from 49,544 in Sept. and well off the 173,949 certificated issued one year earlier. Likewise, the dollar volume of primary new insurance written on newly originated conventional mortgage loans totaled $7,737.3 million in Oct., well below the $25,349.0 recorded in Oct. 2007.

 

MICA’s statistics include data AIG United Guaranty, Genworth Mortgage Insurance Corporation, Mortgage Guaranty Insurance Corporation, PMI Mortgage Insurance Co., and Republic Mortgage Insurance Company.

 

For more information, visit paul.jackson@housingwire.com.

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Countrywide Sued by Fund Over $8.4 Billion Loan Deal (Update1)

By Patricia Hurtado

 

Dec. 1 (Bloomberg) -- Countrywide Financial Corp., the home lender acquired by Bank of America Corp., was sued by Greenwich Financial Services Fund over claims an agreement to reduce payments on mortgages by $8.4 billion would hurt investors.

 

The hedge fund claims investors will be harmed by Bank of America’s settlement, reached on behalf of Countrywide, with 15 state attorneys general. The value of trusts that bought 400,000 mortgages will decline under the deal, the fund said.

 

In the proposed class action, or group lawsuit, the Greenwich, Connecticut-based fund demands a declaration that “Countrywide must purchase at par every mortgage loan that it sold to any of the 374 securitization trusts,” David Grais, a lawyer for the fund said today in an e-mailed statement. Grais said Countrywide could owe $80 billion to the trusts.

 

“Countrywide plans not to absorb the $8.4 billion reduction in mortgage payments itself, even though it was Countrywide’s own conduct of which the attorneys general complained,” the fund said in the complaint filed today in New York State Supreme Court in Manhattan. Under the settlement, the mortgage lender would “pass most or all of that reduction on to the trusts that purchased mortgage loans from Countrywide,” the fund said in the complaint.

 

Bank of America reached the settlement in October with 15 state attorneys general. The bank didn’t admit or deny any wrongdoing under the accords. Shirley Norton, a Bank of America spokeswoman, didn’t immediately return a voice-mail seeking comment on today’s complaint.

 

374 Securitization Trusts

 

Grais said in his e-mail that the hedge fund is seeking a declaration that “Countrywide must purchase at par every mortgage loan that it sold to any of the 374 securitization trusts.”

 

Countrywide must change at least 50,000 mortgage loans between today, when its modification program starts, and March 31, he said. The lender has said it may modify as many as 400,000 loans, Grais said.

 

“We believe that the average unpaid principal balance of these loans is approximately $200,000. If so, and if the court grants the declaration we seek in this complaint, then Countrywide (and its parent Bank of America) would be liable to pay the trusts approximately $80 billion for the loans it modifies,” he said.

 

The case is Greenwich Financial Services Distressed Mortgage Fund 3 v. Countrywide Financial Corp., New York State Supreme Court (Manhattan).

 

To contact the reporter on this story: Patricia Hurtado in Manhattan at pathurtado@bloomberg.net

Last Updated: December 1, 2008 14:52 EST

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FanFred’s NEW PLAN Keeps Borrowers Underwater in Neg-Am’s & Teasers

Posted on November 11th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

 

The great new and improved big plan to save the housing sector involves giving 40-year terms, adding balances to the end of the loan and offering teaser rates. IT WAS THESE EXACT PRACTICES THAT GOT US HERE IN THE FIRST PLACE! They were called ‘interest only’ and ‘Pay Option ARMs’.

 

This ‘new’ program is nothing new at all. It is simply an aggregation of a bunch of stuff brought forth previously that just makes everyone renters. The government’s new plan of reducing rates, extending terms and allowing negative amortization is being done primarily to keep borrowers from walking and renting by competing with rentals.

 

Why walk from your home when you can essentially rent your own home for the same? That is what the government is banking on. But in doing this the borrower stays underwater and highly leveraged. Its sad when it takes reducing rates to 1-2% to get the borrowers to be able to afford their mortgage. It highlights just how over-leveraged the housing system is. If this new program is widely adopted and successful, it ensures lost future DECADES for housing.

 

This new plan certainly does not instill any confidence in new buyers because it makes everything much more opaque. It makes true valuations much more difficult to derive.

 

This plan does not solve the problem - that home owners are hopelessly underwater and over-leveraged to their home. They can’t sell or refi. In turn, they are making a wise financial decision and walking away. Negative equity cuts across all loan types and borrower demographics.

 

Another main problem is that the borrowers have to produce income documentation. Remember, in the Alt-A universe 83% of all loans were limited documentation (stated income). In the Subprime universe 55% were stated income and in the Prime world, some 35% were limited documentation. How many that lied on their original loan application will be willing to give the real information now?

 

Additionally, by the time borrowers have missed so many payments they have been beat up by the lender for months. Many just give up and don’t care anymore. You would be surprised how hard it is to get borrowers to help themselves even with massive principal balance reductions, which are not being offered through the program to the best of my knowledge.

 

It is impossible to quantify, but I still maintain that programs that do not address the root problem will promote bad behavior by good borrowers looking to benefit. There are millions underwater in their property perfectly able to make their payments that may chose to default as a means to better their balance-sheet.

 

Today’s hype was just that…a non-starter ’solution’ that ultimately turns home owners into leveraged renters because banks refuse to reduce the principal balance. Until principal is waived for good, no solution will work.

 

I highly urge you to read the two posts below regarding the terrible solutions being brought forth by the government. - Best, Mr Mortgage

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Fannie, Freddie Boost Effort to Minimize Foreclosures (Update3)

Fannie, Freddie Boost Effort to Minimize Foreclosures (Update3)

 

By Dawn Kopecki and Rebecca Christie

 

Nov. 11 (Bloomberg) -- Fannie Mae and Freddie Mac, the largest U.S. mortgage-finance companies, will accelerate anti- foreclosure efforts by streamlining loan modifications to lower monthly payments for more struggling homeowners.

 

Fannie and Freddie, operating under a government conservatorship, will target loans in which borrowers are at least 90 days delinquent and have high loan-to-income ratios, officials from the Treasury and the Federal Housing Finance Agency said today at a press conference in Washington. The companies may offer homeowners reduced interest rates and longer terms of as much as 40 years to trim monthly payments.

 

``With such broad adoption, this new protocol will be a standard for the industry to quickly move homeowners into long- term sustainable mortgages,'' Neel Kashkari, the Treasury's interim assistant secretary, said in a prepared statement.

 

The initiative expands efforts by the Hope Now Alliance, a group of investors, advocacy groups, and mortgage lenders and servicers such as Citigroup Inc. and Wells Fargo & Co. that Treasury Secretary Henry Paulson helped create last year. The success rate in the past for ``curing'' delinquent loans with modifications similar to what the government proposes was about 50 percent for both prime and subprime borrowers with damaged credit, according to data from the Mortgage Bankers Association.

 

``We realize a number of these can't be saved because of the borrower's situation,'' said MBA Chief Economist Jay Brinkmann. ``But if we can save half of them, that's a good result.''

 

A Central Role

 

California, Florida and other high-cost real estate markets where borrowers have larger debt loads or nontraditional mortgages will likely reap the most from the program, he said.

 

U.S. foreclosure filings increased 71 percent in the third quarter from a year earlier to the highest on record as home prices fell and stricter mortgage standards made it harder for homeowners to sell or refinance, RealtyTrac, a provider of real estate data based in Irvine, California, said on Oct. 23.

 

Paulson has said a housing market recovery is central to the economy's revival and urged Fannie and Freddie to play a bigger role.

 

``If housing doesn't get stabilized, it's really going to continue to bleed the economy,'' said Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, and Bloomberg's most-accurate economic forecaster for 2008.

 

Under the proposal, mortgage servicers will work with borrowers to reduce monthly payments to 38 percent of their gross income, a threshold of affordability, by lowering the principal, reducing interest rates and extending the length of the loan term. The plan doesn't include money from the Treasury's $700 billion bank rescue and isn't mandatory for companies that received federal aid.

 

Conditions and Fees

 

Homeowners that qualify will receive notices about the program. Their loan modifications won't become final until they have made three consecutive payments, and there is no limit to the number of times a loan can be modified. The new payment will include all of the borrower's monthly housing costs, such as taxes and condominium payments.

 

Fannie and Freddie are paying mortgage servicers $800 to process each modification, which isn't available for investment or vacation properties. Fannie and Freddie will absorb the losses on loans or mortgage securities they own while investors in mortgage bonds guaranteed by the government-run corporations will bear a brunt of the losses on that debt.

 

``This idea is really to keep homeowners in their homes,'' FHFA Director James Lockhart said in an interview with Bloomberg Television today. ``If we can start stabilizing the mortgage market, prevent foreclosures, hopefully, we can put a floor under house prices, and that would be important to every homeowner in this country.''

 

Bair Objects

 

Federal Deposit Insurance Corp. Chairman Sheila Bair, who has advocated using some of the money from a $700 billion bank rescue program to help with loan modifications, said today's announcement doesn't go far enough.

 

``This is a step in the right direction but falls short of what is needed to achieve widescale modifications of distressed mortgages,'' Bair said in a statement sent by e-mail. ``As we lend and invest hundreds of billions of dollars to help institutions suffering leveraged losses from defaulting mortgages, we must also devote some of that money to fixing the front-end problem: too many unaffordable home loans.''

 

Bair said there are still questions about implementation including: Allowing extended amortization prior to interest rate reductions; the length of caps on payment increases, interest rate caps; and compliance reporting, according to the statement.

 

Housing Slump

 

Lockhart placed Fannie and Freddie under federal control Sept. 6 and has since pushed the new management to work harder than the old management at modifying troubled single-family and multifamily mortgages to curtail foreclosures.

 

Fannie and Freddie's loss mitigation efforts so far have fallen short, according to a FHFA report last month. Fannie and Freddie's success in resolving delinquencies fell in the second quarter, the companies took on fewer loan modifications and workout plans for borrowers, and their success for loans in loss mitigation declined to a 37.2 percent rate from 43.7 percent in the first quarter, FHFA data shows. Company executives estimated about 10,000 borrowers a month may qualify for the new program.

 

FHFA and the Treasury have put more pressure on the lending industry to be flexible with struggling homeowners. The U.S. housing slump may extend into a fourth year as banks still turn away borrowers, foreclosures worsen the glut of unsold homes and job losses climb higher.

 

Best Decisions

 

Lower property values will keep eroding home equity, complicating even more refinancings. The S&P/Case-Shiller home- price index of values in 20 U.S. cities dropped 16.6 percent in August from a year earlier, the fastest pace on record. The index has been lower every month since January 2007.

 

The worsening economic slump means there's a need to scrutinize past loan-modification programs and see how they can be improved, said Mary Coffin, executive vice president of loan servicing at Wells Fargo, the largest U.S. mortgage servicer.

 

``We didn't have the economic situation we have today 18 months ago, so we've got to re-look at it, and say, `What's the best decision for investors, borrowers and the state of the entire country?''' Coffin said in an interview at a Securities Industry and Financial Markets Association conference yesterday in New York.

 

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net; Rebecca Christie in Washington at Rchristie4@bloomberg.net.

 

Last Updated: November 11, 2008 18:24 EST

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The Underwhelming Frannie Loan-Mod Plan

The Underwhelming Frannie Loan-Mod Plan

 

The Frannie loan-mod plan has arrived, and it's not particularly exciting. Among the more obvious problems:

 

• It applies only to mortgages owned by Frannie, which means, by definition, that it doesn't include subprime mortgages. FHFA is trying to apply moral suasion -- but no cash -- to persuade other mortgage holders to adopt the same plan. Good luck with that.
• It doesn't even begin to address the problem of mortgages which have been securitized, rather than being held by a single bank.
• It's based on the idea that servicers "have dedicated personnel who are experienced in working with borrowers who are struggling with finances, but who are eager to keep their homes". Not nearly enough of them they don't.
• It requires borrowers to be 90 days delinquent -- and therefore gives many borrowers with mortgages over 38% of their gross monthly income a massive incentive to cease making any mortgage payments now.
  The onus is on the borrower to initiate proceedings, providing a package including "monthly gross household income, association dues and fees, and a hardship statement". For $800 per mod, servicers aren't going to be proactive about helping get this kind of thing done, especially given how overworked they are already.
  

 

In a quite extraordinary turn of events, FHFA director James Lockhart said in his statement that "we have drawn on the FDIC's experience and assistance, and have greatly benefited from the FDIC's input", yet the FDIC's Sheila Bair then turned around and released her own statement, saying that the plan "falls short of what is needed to achieve widescale modifications of distressed mortgages".

 

Clearly this is not going to be the last word when it comes to government attempts to help stabilize the housing market. It's probably going to be the last word until January 20, though; after that, Bair might find Treasury and the White House more amenable to her ideas.

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Bear Stearns and EMC Mortgage to Pay $28 Million to Settle FTC Charges of Unlawful Mortgage Servicing and Debt Collection Practices

Bear Stearns and EMC Mortgage to Pay $28 Million to Settle FTC Charges of Unlawful Mortgage Servicing and Debt Collection Practices

 

The Bear Stearns Companies, LLC and its subsidiary, EMC Mortgage Corporation, have agreed to pay $28 million to settle Federal Trade Commission charges that they engaged in unlawful practices in servicing consumers’ home mortgage loans. The companies allegedly misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices. Under the proposed settlement they will stop the alleged illegal practices and institute a data integrity program to ensure the accuracy and completeness of consumers’ loan information.

 

“Like other companies that send a bill, mortgage servicers must make sure that the amount they say is due really is the amount due,” said Lydia B. Parnes, Director of the FTC’s Bureau of Consumer Protection. “Consumers have the right to expect accuracy from the company that collects their mortgage payments.”

 

As stated in the FTC’s complaint, Bear Stearns and EMC have played a prominent role in the secondary market for residential mortgage loans. During the explosive growth of the mortgage industry in recent years, they acquired and securitized loans at a rapid pace, but they allegedly paid inadequate attention to the integrity of consumers’ loan information and to sound servicing practices. As a result, in servicing consumers’ loans, they neglected to obtain timely and accurate information on consumers’ loans, made inaccurate claims to consumers, and engaged in unlawful collection and servicing practices. These practices occurred prior to JP Morgan Chase & Co.’s acquisition of Bear Stearns, which became effective on May 30, 2008.

 

According to the complaint, EMC is the mortgage servicer for many of the loans Bear Stearns and EMC acquired. Many of these loans are subprime or “Alt-A” (less than prime) loans, including nontraditional mortgages such as pay option adjustable rate mortgages (“pick-a-payment” loans), interest-only mortgages, negative amortization loans, and loans made with little or no income or asset documentation. EMC’s loan servicing portfolio has grown significantly in recent years; as of September 2007, it serviced more than 475,000 mortgage loans with a total unpaid balance of about $80 billion.

 

THE FTC COMPLAINT

 

The complaint charges Bear Stearns and EMC with violating the FTC Act, the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Truth in Lending Act’s (TILA) Regulation Z.

FTC Act Violations: The defendants are charged with unfair and deceptive loan servicing practices in violation of the FTC Act. They allegedly misrepresented the amounts consumers owed; assessed and collected unauthorized fees, such as late fees, property inspection fees, and loan modification fees; and misrepresented that they possessed and relied upon a reasonable basis for their representations about consumers’ loans.

 

Fair Debt Collection Practices Act Violations: The defendants allegedly violated several provisions of the FDCPA in collecting loans that were in default when they obtained them. They also allegedly made harassing collection calls; falsely represented the character, amount, or legal status of consumers’ debts; and failed to communicate that debts were disputed. In addition, they allegedly used false representations or deceptive means to collect, and failed to send consumers a validation notice containing the amount of the debt and the consumer’s right to dispute the debt and obtain verification of the debt.

 

Fair Credit Reporting Act Violations: The FTC alleges that the defendants furnished information about consumers’ payment status to credit reporting agencies (CRAs). When consumers informed the defendants that they disputed the completeness or accuracy of the reported information, the defendants failed to report the dispute to the CRAs as required by the FCRA.

 

Truth in Lending Act’s Regulation Z Violations: The complaint also states that the defendants charged borrowers a loan modification fee, typically $500, and automatically added the fee to the modified loan’s principal balance. In doing so, the defendants failed to provide the borrowers with required TILA disclosures.

 

THE SETTLEMENT

 

The proposed settlement requires Bear Stearns and EMC to pay $28 million to redress consumers who have been injured by the illegal practices alleged in the complaint. In addition, the settlement bars the defendants from future law violations and imposes new restrictions and requirements on their business practices. Specifically, the settlement:

 

bars the defendants from misrepresenting amounts due and any other loan terms; 
requires them to possess and rely upon competent and reliable evidence to support claims made to consumers about their loans; 
bars them from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized by the contract; 
prohibits them from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the consumer is in material default, confirmed that the defendants have not subjected the consumer to any illegal practices, and investigated and resolved any consumer disputes; and 
prohibits the defendants from violating the FDCPA, FCRA, and TILA. 

 

The proposed settlement further requires Bear Stearns and EMC to establish and maintain a comprehensive data integrity program to ensure the accuracy and completeness of data and other information that they obtain about consumers’ loan accounts, before servicing those accounts. The defendants must obtain an assessment from a qualified, independent, third-party professional within six months and then every two years, for the next eight years, to assure that their data integrity program meets the standards of the order.

 

The proposed settlement also contains record-keeping and reporting provisions to allow the FTC to monitor compliance with the order.

 

The Commission vote to authorize staff to file the complaint and proposed stipulated final order was 4-0. The documents were filed in the U.S. District Court for the Eastern District of Texas.

 

Including the case announced today, the Commission has brought 23 actions in the past decade alleging deceptive or unfair practices by mortgage brokers, lenders, and servicers. Several of these landmark cases have resulted in large monetary judgments that have returned more than $320 million to consumers.

 

CONSUMER HOTLINE: If the court approves the settlement, consumers who are eligible for redress will be contacted by mail. The Commission’s consumer hotline regarding the settlement is 1-877-787-3941. Consumers who have changed their address recently may provide updated contact information by calling the hotline. Consumers also can find information about the settlement on the FTC’s Web site athttp://www.ftc.gov.

 

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants have actually violated the law. The stipulated final order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge. 

 

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's Web site provides free information on a variety of consumer topics.

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State Sues Large Mortgage Lender

State Sues Large Mortgage Lender

AG Alleges Countrywide Misled Borrowers

 

Written by: TheIndyChannel.com

 

INDIANAPOLIS -- Indiana has sued Countrywide Home Loan Inc., claiming deceptive and misleading practices in thousands of loans issued in the state.

 

Attorney General Steve Carter on Sunday announced the lawsuit against the country's largest mortgage lender, 6News' Ericka Flye reported.

 

Carter said the actions of Countrywide and parent company Countrywide Financial Corp. were far from fair.

 

The state claims that between July 2005 through this year, Countrywide violated Indiana's Home Loan Practices Act by misleading homeowners about their loans, which differed from the terms in their signed contracts, and inflating consumers' incomes on documents.

 

"People have been led to believe they can get a 1.75 percent rate good for five years -- quite a deal -- but, in fact, that rate has been adjusted after three months," Carter said. "Hopefully this is a warning to some degree to lenders in Indiana that we want them to be fair with Indiana consumers."

 

Carter claimed that in one Indiana case, a person's income was stated in a contract as $14,000 a month when it was just $3,000 a month.

 

The state said Countrywide also provided incentives to employees to sell loans with risky features and misled borrowers about prepayment penalties.

 

"These are people that were told, 'If you sell your home, you're not going to have to pay a prepayment penalty,'" Carter said. "In fact, they've been charged for that."

 

The state wants loan terms it claims were misrepresented voided and is seeking fines and restitution for families affected by the company's loan practices.

 

"We hope that they (borrowers) will file a complaint with the Indiana Attorney General's Office, and they may then become part of this lawsuit," Carter said.

 

In a statement released Monday, Countrywide officials said, "Since taking ownership of Countrywide in July, Bank of America has been involved in a detailed review of Countrywide’s operations. Practices that established Bank of America’s positive reputation and record in home lending are an illustration of how we will operate the combined company."

 

Four additional states have also taken action against Countrywide -- Connecticut, California, Illinois and Florida.

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