Schiff- Home prices are still too high

An Opinion piece by Peter Schiff in the Wall Street Journal today. The ironic thing is that Mr. Schiff is a notorious 'inflation' hawk. I've always disagreed with in certain respects, but this article indicates that he would probably be categorized in the skewflation camp.

Nevertheless, as pessimistic as it may seem, Mr. Schiff makes a lot of points that are awfully hard to dispute.

AP- Most economists concede that a lasting general recovery is unlikely without a recovery in the housing market. A marked increase in defaults and foreclosures from today's already elevated levels could produce losses that overwhelm banks and trigger another, deeper financial crisis. Study after study has shown that defaults go up when falling prices put mortgage holders "underwater." As a result, the trajectory of home prices has tremendous economic significance.

Earlier this year market observers breathed easier when national prices stabilized. But the "robo-signing"-induced slowdown in the foreclosure market, the recent upward spike in home mortgage rates, and third quarter 2010 declines in the Standard & Poor's Case–Shiller home-price index—including very bad October numbers reported this week—have sparked concerns that a "double dip" in home prices is probable. A longer-term view of home price trends should sharply magnify this fear.

Even those economists worried about renewed price dips would be unlikely to believe that the vicious contractions of 2007 and 2008 (where prices fell about 30% nationally in just two years) could return. But they underestimate how distorted the market had become and how little it has since normalized.

By all accounts, the home price boom that began in January 1998, when the previous 1989 peak was finally surpassed, and topped out in June 2006 was extraordinary. The 173% gain in the Case-Shiller 10-City Index (the only monthly data metric that predates the year 2000) in those nine years averaged an eye-popping 19.2% per year. As we know now, those gains had very little to do with market fundamentals, and everything to do with distortionary government policies that mandated loans to marginal borrowers, and set off a national mania for real-estate wealth and a torrent of temporarily easy credit.

If we assume the bubble was artificial, we can instead imagine that home prices should have followed a more traditional path during that time. In stock-market terms, prices should have followed a trend line. When you do these extrapolations (see lower line in the nearby chart), a sobering picture emerges. In his book "Irrational Exuberance," Yale economist Robert Shiller (co-creator of the Case-Shiller indices along with economists Karl Case and Allan Weiss), determined that in the 100 years between 1900 and 2000, home prices in the U.S. increased an average 3.35% per year, just a tad above the average rate of inflation. This period includes the Great Depression when home prices sank significantly, but it also includes the frothy postwar years of the 1950s and '60s, as well as the strong market of the early-to-mid 1980s, and the surge in the late '90s.

In January 1998 the 10-City Index was at 82.7. If home prices had followed the 3.35% annual 100 year trend line, then the index would have arrived at 126.7 in October 2010. This week, Case-Shiller announced that figure to be 159.0. This would suggest that the index would need to decline an additional 20.3% from current levels just to get back to the trend line.

How has the market found the strength to stop its descent? No one is making the case that fundamentals have improved. Instead, there is widespread agreement that government intervention stopped the free fall. The home buyer's tax credit, record low interest rates, government mortgage-assistance programs, and the increased presence of Fannie Mae, Freddie Mac and the Federal Housing Administration in the mortgage-buying business have, for now, put something of a floor under house prices. Without these artificial props, prices would have likely continued to fall.

Weitz - this is the story no one talks about. The measures taken to 'prop up' the market were unsustainable. Now, the tax credit has run it's course, and interest rates are creeping back up from historic lows. I still maintain that a second leg down in prices is imminent. The extent of the drop is hard to predict, but I would be very surprised if it did not exceed the 5% drop that many 'experts' are predicting.

Where would prices go if these props were removed? Given the current conditions in the real-estate market, with bloated inventories, 9.8% unemployment, a dysfunctional mortgage industry and shattered illusions of real-estate riches, does it makes sense that prices should simply fall back to the trend line? I would argue that they should overshoot on the downside.

With a bleak economic prospect stretching far out into the future, I feel that a 10% dip below the 100-year trend line is a reasonable expectation within the next five years, particularly if mortgage rates rise to more typical levels of 6%. That would put the index at 114.02, or prices 28.3% below where we are now. Even a 5% dip would put us at 120.36, or 24.32% below current prices. If rates stay low, price dips may be less severe, but inflation will be higher.

Weitz - if Mr. Schiff is correct, our "recovery" will most certainly be short lived and things will likely get worse before they get better...a scary proposition indeed.

From my perspective, homes are still overvalued not just because of these long-term price trends, but from a sober analysis of the current economy. The country is overly indebted, savings-depleted and underemployed. Without government guarantees no private lenders would be active in the mortgage market, and without ridiculously low interest rates from the Federal Reserve any available credit would cost home buyers much more. These are not conditions that inspire confidence for a recovery in prices.

In trying to maintain artificial prices, government policies are keeping new buyers from entering the market, exposing taxpayers to untold trillions in liabilities and delaying a real recovery. We should recognize this reality and not pin our hopes on a return to price normalcy that never was that normal to begin with.

Mr. Schiff is president of Euro Pacific Capital and author of "How an Economy Grows and Why it Crashes" (Wiley, 2010).

Higher rates threaten recovery

A nice video on the overview of the recent uptick in mortgage rates. Higher rates will obviously lead to lower purchasing power for buyers, and presumably lower prices in housing. This will be an interesting trend to follow in the year to come.

Fannie and Freddie consider principle reduction loan modifications

Fannie Mae and Freddie Mac are in talks with Obama administration officials to join fledgling government programs aimed at reducing loan balances of mortgages where borrowers owe more than their homes are worth, according to people familiar with the situation.

Weitz – while I commend the administration for trying to help out homeowners, I fear this would create a ‘slippery slope’. What about those that aren’t 'underwater', or those that have been renting during this crisis.

An agreement with the two government-owned mortgage giants to write down so-called underwater loans could reduce the threat to the U.S. housing market from the glut of homeowners believed at risk of default should their personal finances or home prices worsen. A deal would deepen losses at Fannie Mae and Freddie Mac, which already have cost taxpayers about $134 billion.

Weitz – Fannie and Freddie are explicitly backed by the US Government. Losses for them are irrelevant at this point.

Fannie Mae and Freddie Mac, which own or guarantee about half of all first-lien mortgages in the U.S., have been highly reluctant to reduce loan balances, especially for borrowers who are still making payments.

The Obama administration is pressuring Fannie Mae and Freddie Mac, through their primary regulator, the Federal Housing Finance Agency. The administration wants the firms to join a program run by the Federal Housing Administration that allows banks and other creditors, which agree to write down mortgages, to essentially hand off the reduced loans to the FHA.

Weitz – take note we’re going to use the FHA to absorb all these loses for banks, Fannie and Freddie. I’m OK with this, but would really want the banks to have share in the burden (rather than exclusively being the problem of the US taxpayer).

Federal officials estimate that 500,000 to 1.5 million homeowners could benefit from the program—a fraction of the estimated 11 million borrowers who were underwater as of June 30, according to CoreLogic Inc. That figure represents about 23% of all U.S. households with a mortgage.

Industry executives say the FHA program—as well as a related initiative by Treasury—will be only marginally helpful to the housing market without the participation of Fannie Mae and Freddie Mac. The program completed three loan modifications during its first three months and received 61 applications

Participation by Fannie Mae and Freddie Mac would put additional pressure on the nation's biggest banks to follow suit. Banks have shown little enthusiasm for the programs without the two mortgage giants.

David Stevens, the FHA's commissioner, said resistance by lenders has been exasperating. Obama administration officials have given lenders "a responsible way to address borrowers with negative equity, he said, "and if institutions are blatantly refusing" to participate, then that is "short-sighted."

The arm-twisting is the latest sign that loan-modification efforts aren't doing enough to address the threat that more borrowers will default on so-called underwater properties.

"Letting the status quo continue is going to be much more expensive than people think," said Kenneth Rosen, a professor of economics and real estate at the University of California, Berkeley. "We've got a downward spiral in housing here, and they'd better break the back of this with some shock and awe.''

Weitz – Mr. Rosen, what about allowing the market to self adjust. The government can do nothing but prolong the agony. Just look at the tax credit effectiveness...turns out it was a waste of taxpayer money.

The ongoing discussions underscore the sometimes awkward relationship between the Obama administration and FHFA, which has overseen Fannie Mae and Freddie Mac since their takeover in September 2008 and is charged with stemming taxpayer losses. An FHFA spokeswoman said participation in the FHA and Treasury loan-modification efforts is under review.

The two mortgage companies rarely reduce loan balances—only 10 of the 120,000 loans modified during the second quarter of 2010, according to the Office of the Comptroller of the Currency.

"We have historically counted on the fact that the vast majority of borrowers-even borrowers who are underwater-continue making their payments," said Don Bisenius, a Freddie Mac executive vice president.


Weitz – The question is how long people will continue to pay full price for a house that has dropped significantly in value. I’ve read articles that indicate when the home drops to 70% of the mortgage value, the chances of default rise dramatically…only time will tell.

Fannie Mae and Freddie Mac are reluctant to reduce principal because it limits their options to recoup losses. Typically, the companies collect claims from mortgage insurers or force banks to buy back certain loans when a loan defaults. Those options are relinquished when writing down loan balances.

In addition, Fannie Mae and Freddie Mac, along with other mortgage investors, are reluctant to approve principal reductions if banks that own second mortgages on the same properties also don't take losses.

Weitz – good point on this one. What’s the point of lowering balances on a first when a second still exists on the property that would keep the homeowner 'underwater'?

Unlike most loan-modification efforts, the FHA program is open only to borrowers who aren't behind on their payments.

Weitz- that I really like. An incentive that doesn’t benefit only those who default.

The Treasury Department initiative to reduce loan balances builds on HAMP, in which banks reduce monthly payments for distressed borrowers by lowering interest rates and extending loan terms.Starting in October, banks were able to receive additional subsidies if they first write down loan balances for borrowers owing at least 15% more than their home's current value. Fannie Mae has said it won't participate in the Treasury program. Freddie Mac says it is still reviewing whether to join.

Weitz - This is an interesting development that I will definitely keep track of and update the blog accordingly.

For more information on your options with distressed real estate, consider contacting a Seattle Strategic Default Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
(425) 889-9300

weitzlawfirm.com

Banks Benefits extend beyond TARP

Whoa!...this is big. A recent article from CNN-Money.

The Federal Reserve made 9 Trillion in Emergency Loans to banks during the Crisis.

Weitz - Yes, that would be Trillion (with a 'T')...Gee, I wonder how they paid back the 700 billion that Congress "loaned" to them via the TARP Program!! 700 billion looks like peanuts compared to this. I'm going to copy the text of this article below, and give a lot of my thoughts (and I've got many) throughout.

NEW YORK (CNNMoney.com) -- The Federal Reserve made $9 trillion in overnight loans to major banks and Wall Street firms during the financial crisis, according to newly revealed data released Wednesday.

Weitz – First, it is important to note that the “Federal Reserve” is not a truly government agency. It is actually a private organization that was created by powerful bankers. More importantly, we have NO IDEA what is actually on their books. They typically do not allow audits of the Fed so there is no way to truly know what they have “lent” out and what has been repaid.

The loans were made through a special loan program set up by the Fed in the wake of the Bear Stearns collapse in March 2008 to keep the nation's bond markets trading normally.

The amount of cash being pumped out to the financial giants was not previously disclosed. All the loans were backed by collateral and all were paid back with a very low interest rate to the Fed -- an annual rate of between 0.5% to 3.5%.

Weitz – This is just the beginning. The Fed makes HUGE loans everyday via at a interest rate which has been close to 0 for several years (See Fed Fund Rate). There is no way of knowing exactly how much the fed has lent out to the big banks.

Still, the total amount was a surprise, even to some who had followed the Fed's rescue efforts closely.

"That's a real number, even for the Fed," said FusionIQ's Barry Ritholtz, author of the book "Bailout Nation." While the fact that the markets were in trouble was already well known, he said the amount of help they needed is still surprising.

"It makes it very clear this was a very serious, very unusual situation," he said.

Weitz – the problem remains very serious. If forced to actually report the current valuation of assets (see easing of 'Mark to Market'), many economists believe the big banks would be forced into bankruptcy.

Sen. Bernie Sanders, the Vermont independent who had authored the provision of the financial reform law that required Wednesday's disclosure, called the data that was released incredible and jaw-dropping.

Weitz – Good for you, Bernie Sanders!! The fed would never have released this without you!!

"The $700 billion Wall Street bailout turned out to be pocket change compared to trillions and trillions of dollars in near zero interest loans and other financial arrangements that the Federal Reserve doled out to every major financial institution," Sanders said.

He said that even if the Fed was right to make the loans to keep the economy from toppling into a depression, it should have made stronger demands that the banks help American consumers and small businesses.

Weitz – Absolutely right. Amazing how the economy (see employment rate, record foreclosures & bankruptcies) is still in the dumps, yet the banks are paying record bonuses again.

"They may have repaid their loans, but that's not good enough," he said. "It's clear the demands the Fed made were not enough."

Weitz – there is zero chance they have repaid this. What actually happened is that the banks went directly to the real US government (the US Treasury), and let the government borrow the money from them….only the govt (taxpayers) have to pay the banks a higher interest rate.

The Wall Street firm that received the most assistance was Merrill Lynch, which received $2.1 trillion, spread across 226 loans. The firm did not survive the crisis as an independent company, and was purchased by Bank of America just as Lehman Brothers was failing.

Citigroup which ended up with a majority of its shares owned by the Treasury Department due to a separate federal bailout, was No. 2 on the list with 279 loans totaling $2 trillion. Morgan Stanley was third with $1.9 trillion coming from 212 loans.

"As we have previously disclosed, Morgan Stanley utilized some of the Federal Reserve's emergency lending facilities during a time of immense financial turmoil throughout the banking sector and the broader market," Morgan Stanley said in a statement Wednesday. "The Fed's actions were timely and critical, and we commend them for providing liquidity and stabilizing the financial system during that period.''

The largest single loan was by Barclays Capital, which borrowed $47.9 billion on Sept. 18, 2008, in the days after the Lehman bankruptcy. The loan financed Barclays' purchase of Lehman's remaining assets.

Weitz – Barclays?!?! They are a foreign bank (UK)!! Terrific, we paid $50 Billion to a foreign company to buy a crappy US company.

Some Wall Street firms disputed the way the Fed reported the numbers. An executive from one of the firms said that many of the overnight loans were rolled over for days at a time, and that each day it was counted as a new loan. "It's being double, triple, quadruple counted in some cases," said the executive.

Not all the major banks needed much help from the Fed. JPMorgan Chase received only three loans from this program for a total of $3 billion.

Weitz – No, Chase just does it every day from different, more ordinary programs.

The last loan was made under the program in May 2009, and the program, known as the primary dealer credit facility, was officially discontinued in February of this year.

The Federal Reserve revealed details of that program as part of a large scale release of data on all the steps it took to stabilize the nation's financial sector during the markets crisis of the last few years.

The central bank posted details of more than 21,000 transactions with major banks and Wall Street firms between December of 2007 and July of 2010. In addition to the loan program for bond dealers, the data covered the Fed's purchases of more $1 trillion in mortgages, and spending to back consumer and small business loans, as well as commercial paper used to keep large corporations running.

Weitz – this is ‘code’ for handing money to banks and other corporations by buying their crappy assets at full price. Think of it as someone voluntarily paying you $100,000 for your 2002 Hyundai…not a bad deal if you can get it (ie. Hidden Bailouts) .

The rescues of the investment bank Bear Stearns in March of 2008, and insurance behemoth AIG in September of that year, were also revealed in far greater detail, as were programs to make dollars available to foreign central banks in return for their currency, in order to keep international trade flowing.

Most of the special programs set up by the Fed in response to the crisis of 2008 have since expired, although it still holds close to $2 trillion in assets it purchased during that time.

Weitz – Shocking…maybe because the assets they ‘purchased’ are worthless.

The Fed said it did not lose money on any of the transactions that have been closed, and that it does not expect to lose money on the assets it still holds.

Weitz – To be closed, the account would have to be paid back…isn’t this obvious?? To clarify…the Fed hasn’t lost money on the accounts that have been paid back. As for the ones that haven’t been paid back?....those aren’t important;)


The details of which banks participated in the Fed's emergency programs, and how the banks benefited from the transactions, had never before been revealed.

The Fed argued that revealing the information could cause a run on the banks that needed to draw cash at the discount window. But under the financial regulatory reform act that was passed in July, the Fed will reveal future discount window transactions following a two-year lag.

Weitz - Here's the bottom line - with so many folks enduring so much pain, I find it incredibly difficult to see banks giving out record bonuses and not doing a darn thing to benefit the country or home owners in this foreclosure/ small business crisis. Simply put, it's inequitable and unjust the banks have received so much from the taxapyer with no strings attached. There is no easy solution to the problems we face, but I propose we force our leaders to at least be HONEST and TRANSPARENT about this financial issues in front of us... We can't fix what we don't acknowledge.

Existing Home Sales Fall - Shadow Investory looms

Yikes. A report from CNBC on October Home sales.

Important Stats:
Sales fell 25% from last year
Inventories rose to 10.5 months




More tough News: Shadow Inventory estimated at 2.1 Million...and this only looks at distressed property!

Fannie and Freddie Update - Jame Lockhart

An interview with James Lockhart with Dylan Ratigan, who has intimate knowledge of Fannie and Freddie.

An Overview:

1) underwriting standards were lowered due to political demands
2) these government agencies were leveraged at 100-1. (ie. lending money they did not have)
3) Fannie and Freddie are requesting and actively pursuing having banks buy back these bad loans that were fraudulently transferred to Fannie and Freddie (this is really bad for banks).

Visit msnbc.com for breaking news, world news, and news about the economy

Homeowners vs. Banks

A clip from the Dylan Ratigan show interviewing some Foreclosure attorneys from Florida. Remember, Florida has a different foreclosure process than Washington, but its an interesting video nonetheless.

Visit msnbc.com for breaking news, world news, and news about the economy

If you'll note, the segment specifically points to Washington as one of the fastest growing areas in terms of those stopping payment of their mortgage....better pay attention folks. Its going to get interesting around here.

Washington Short Sale Law - An overview

So you want to do a short sale?

Short sales are becoming more and more necessary in this world of no-equity real estate.

Here are some typical questions and answers regarding the short sale process in Washington State:

Q: What exactly is a short sale?

A: A short sale is the sale of a property in which the proceeds that are available from a sale are less than the amount owed on the loan.

Q: I hear short sales a huge headache. Is that true?

A: Yes and No. Short sales require more paperwork to be given from the borrower -typically tax returns, pay stubs, bank account information, and financial statements are requested by the banks in order to approve a short sale. Additionally, the time frame of short sale is typically much longer than a typical sale as the banks do appraisal work on the property, and there is a period of negotiation. If the above two issues are not overly burdensome in your mind, then the short sale is nothing to fear.

Q: What happens to the potential deficiency? (amount owed (less) proceeds from the sale)

A: In our opinion, this is by far the biggest issue in short sales. IF THE BANKS DO NOT WAIVE THEIR DEFICIENCY RIGHTS, YOU WILL STILL OWE THE MONEY.

That said, banks are often willing to reduce the entire deficiency or a part thereof.

** This is truly a point of negotiation and every case has different arguments as to why the deficiency should be waived - whether it be potential bankruptcy or foreclosure protections allowed in your state. There are numerous arguments that can be persuading to the banks to waive or lower these deficiencies.

Bottom Line: short sales can be a terrific tool to assist you in getting out of your 'underwater' mortgage in a fashion you may not have expected. It could save you from bankruptcy, and/ or foreclosure.

The key is to fine a competent Realtor and/ or Short sale facilitator to protect your best interest, and push the deal through as effectively as possible.

For more information, consider contacting a Seattle Short Sale Attorney.

Our Firm:

Weitz Law Firm, PLLC

5400 Carillon Point

Kirkland, WA 98033

(425) 889-9300

weitzlawfirm.com

scottweitz@weitzlawfirm.com

Quanative Easing - A Cartoon Overview

These are entertaining videos regarding the Federal Reserve's Quanatative Easing, and past history.

Quanative Easing Explained:



A (Mock) interview with Alan Greenspan and Ben Bernanke:

Foreclosure Video Clip - Some fighting back

As he often does, Dylan Ratigan had a nice segment on the foreclosure issues faces the U.S.:



Highlights:
1) The foreclosure problem is growing
2) It is moving into higher wealth neighborhoods
3) Some governmental law officials at the local level are requiring higher standards for the foreclosure

Mortgage Modification Effectiveness - Update on HAMP

An Update on the Modification issue in the WSJ today:

The Obama administration's program to help struggling borrowers keep their homes is being hurt by the same miscommunication, botched documents and other snafus that caused the original foreclosure crisis.

After J.P. Morgan Chase & Co. agreed in January to her trial loan modification under the Home Affordable Modification Program, Stephanie Lulko made six $767-a-month mortgage payments, even though the bank said it had no record of her loan and then warned in a letter that she would be foreclosed on unless she paid $4,091.94.

The 44-year-old Ms. Lulko, of Oklahoma City, says bank employees told her to ignore the letter. Their tune changed in June, when J.P. Morgan said she earned too much to qualify for a permanent modification. The problem this time: The bank's numbers were wrong. "I wish I had never applied for this modification," she says.

In September, the bank rejected her request for a permanent loan modification for a second time. She faces foreclosure unless she pays nearly $5,000—the difference between her original and modified loan payments, plus late fees. Ms. Lulko has been unemployed since her temporary job at the U.S. Census Bureau ended in August.

Weitz - I see this ALL THE TIME. The modification allows for lower payments for a period, but if the loan is not approved for permanent modification (only 29% are approved for permanent modification), the bank will pursue the amount that was deducted from the original mortgage amount to create a modified payment. (ie. 2000/ mortgage is reduced to 1500/ month for the modification - If, after the trial period, the permanent modification does not go through, the bank will pursue the 1500 difference)

J.P. Morgan denies any wrongdoing related to Ms. Lulko's loan. "We worked with the borrower over a number of months and communicated the status of the loan modification during that time," spokesman Tom Kelly says. He adds that the lender has converted 29% of temporary modifications into permanently reduced payments as of September. Weitz - 29% seems outrageously low to me. Why let the trial payments begin in the first place?!

The foreclosure-paperwork furor is deepening criticism of the U.S. government's high-profile mortgage-restructuring effort, which has fallen short of its goal of helping three million homeowners. More than half of the 1.4 million borrowers approved for temporary modifications have fallen out of HAMP because they didn't qualify.

The program "has undoubtedly put people into foreclosure," says Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program, which funds HAMP. "It's a parade of documentation horrors."

In a report to Congress on Oct. 26, Mr. Barofsky concluded that some borrowers seeking loan modifications through HAMP might wind up "worse off than before they participated." Back payments, penalties and late fees triggered when homeowners are rejected for a permanent fix can push some borrowers over the edge, he said.

As part of HAMP, mortgage servicers and investors get financial incentives to modify a borrower's loan payment to 31% of monthly gross income. Servicers typically hit that number by lowering interest rates or extending a loan's life. Borrowers must make at least three "trial payments" to be considered for a permanent fix.

Weitz- reduction of principal is often sought by clients, however, it has been extremely rare in my experience.

Borrowers who miss a payment or otherwise fail to win a permanent modification essentially are stuck with the original terms of their mortgage.

"The trial period provides homeowners an immediate reduction in payments at no expense to taxpayers," says Andrea Risotto, a Treasury spokeswoman. "It is the gateway for many homeowners to get the help they need."

The Treasury Department doesn't record how frequently errors occur with documentation on home loans submitted to more than 2,500 financial institutions and servicers empowered by the U.S. government to grant and reject HAMP requests. An outside review of borrowers denied permanent modifications disagreed with the servicer's decision in 4.8% of the loans during the fiscal quarter ended in August.

Meanwhile, anecdotal evidence points to a modification process at least fraught with miscommunication and misunderstanding.

Bank of America Corp. says it "inadvertently verbally reviewed" a loan-modification request by Lindsey Farnsworth of Sugar Hill, Ga., who started making reduced payments to the Charlotte, N.C., bank in May after being told she was "preapproved" for HAMP.

Loan servicers are required to follow government guidelines on loan modifications. Last month, the Treasury Department sent a notice "reminding them of their requirement to comply with all applicable state and federal laws," says Ms. Risotto, the Treasury spokeswoman.

Mr. Barofsky says the oversight is toothless, noting that no servicers have been fined for bungled paperwork or improper foreclosures. At the request of nine U.S. senators, Mr. Barofsky is auditing whether servicers in HAMP are correctly following Treasury's guidelines when deciding whether borrowers should get a loan modification. The inspector general also is scrutinizing how borrowers are notified that they failed to qualify.

Sometimes, it can be hard for borrowers to tell if a servicer is putting them through HAMP or its own loan-modification process.

Mr. Barofsky, a frequent critic of HAMP, says the foreclosure furor that erupted in mid-September convinced him even more strongly that mortgage servicers have wrongly denied permanent loan modifications to deserving borrowers.

"If there are problems like we've seen on one side of the shop, why would we expect anything different on the modification side?" Mr. Barofsky says in an interview.

For more information on your rights in Foreclosure, consider contacting a Seattle Foreclosure Attorney.

Our Firm

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
(425) 889-9300

Seattle Real Estate Recovery?

CNN MONEY recently called Seattle the 2nd best market for a real estate recovey.

Here's the article:
Seattle has become a world-class city with a diverse, vibrant economy. As a home to manufacturers such as Boeing and software providers such as Microsoft, the job market has held up better than average, with a current unemployment rate of 8.8%.

Home prices had a softer landing as well, dropping just 15.2% over the past three years, about half the national average. However, prices do tend to be volatile, according to Mark Fleming, chief economist for First American CoreLogic. The lack of available land for development is one reason for that volatility, as are political restrictions on growth.

After another modest price decline of 2.3% in the next eight months, the market should begin to turn up. Between June 2010 and June 2011, the city should see a gain of 6.2%. Averaged out, that means a 3.8% gain over the next two years*.

And while that may not sound all that robust for those jaded by the annual double-digit returns recorded during the boom, that performance will be one of the best of any large city during that period.

Weitz - If you'll notice, this article has no statistics whatsoever to back up their their claim. In the hopes of being a realist (rather than a pessimist), I will simply point out that Foreclosures continue to rise dramatically, the number of sales is very close to post WWII lows with closed sales in October (down 25% from last year), and bankrtupcies still continue to rise (up 18% from last year)....not exactly the fundamentals of a solid recevery. In my opinion, this is a poorly thought out, poorly researched article. Be careful putting to much faith in the prediction of CNN-Money.

Strategic Default - the stealth stimulus

Weitz: A terrific article in the WSJ today about ‘the stealth stimulus’.

The mortgage-foreclosure mess could prove expensive for banks and investors. But in some states, it will also prolong an unintended economic stimulus: free housing for millions of defaulters.

Across the U.S., banks are running into problems foreclosing on homes because of flaws in their paperwork. Their main transgression involves the use of so-called robo-signers, bank employees who signed foreclosure affidavits without properly checking the required loan documentation. Major loan servicers—including Bank of America Corp., J.P. Morgan Chase & Co. and Ally Financial Inc.'s GMAC Mortgage—have at least temporarily stopped some foreclosure sales as state attorneys general probe their practices and loan servicers check to make sure their papers are in order.

The problems will be expensive for banks, and for investors in mortgage bonds, in terms of added processing costs and lost interest income. But for the millions of U.S. homeowners who have stopped making mortgage payments or who are already in the foreclosure process, the upshot is that they'll get to stay in their homes a bit longer. Given that they're not paying rent, that time has value.

Defaulters living in their homes are getting a subsidy worth about $2.6 billion a month, according to a Wall Street Journal analysis based on mortgage data from LPS Applied Analytics and rent data from the Commerce Department. That's 0.25% of U.S. personal income, roughly equivalent to the benefit top earners receive from Bush-era tax breaks.

The longer defaulters stay in their homes, the longer the stimulus lasts. The average borrower whose home is in the foreclosure process hasn't made a payment in nearly 16 months, according to LPS.

Weitz - 16 months of free living expenses - that is incredible. My concern is what happens when the well runs dry. Hopefully, folks have utilized this money and placed it in savings.

It's hard to know how much of that money will find its way into the economy through consumer spending. Some defaulters sock away their mortgage payments, in hopes that they'll strike a modification agreement with their bank and get current again. Others have lost their jobs and hence most of their income, though the free housing might allow them to make purchases they otherwise would have to forgo.

Some homeowners who have defaulted on their mortgage payments are cashing in by renting out their homes. Joe Mayol, a real-estate agent in Palmdale, Calif., estimates that in his area about two-thirds of houses with defaulted mortgages are occupied, and half of those by renters. "People are getting money out of these houses," he said.

Ms. Zelman says her research suggests defaulters do spend much of the money on consumer services and goods. "People are taking what they would have been spending on a mortgage and spending it somewhere else," she says.

To be sure, while the free rent might help some people through periods of unemployment, it's not particularly encouraging to people who keep paying their mortgages, and it's not going to drive a recovery. It's also painful for local governments and school districts, which typically can't collect property taxes from defaulters. The foreclosure troubles can also add to uncertainty in the housing market and delay its return to healthy growth.

Weitz - exactly. When will we have a true bottom? Probably not until the foreclosure cycle works itself out.

"I don't think that's the kind of consumer recovery we want, if the only reason they're spending a bit more is that they're not paying their other bills," said Joseph Carson, director of global economic research at AllianceBernstein in New York.
Another question is what might happen in the housing market if banks caught up in robo-signing controversy can't put as many foreclosed homes up for sale. By taking some supply off the market, it could help support prices at a time when demand has been exceedingly weak.

Given the number of foreclosed homes that have already piled up in their inventory, though, banks already have more ready-for-sale houses than the market can bear. As of September, banks owned nearly a million homes, up 21% from a year earlier. That alone would take 17 months to unload at the most recent pace of sales, and doesn't include the 5.2 million homes still in the foreclosure process or those whose owners have already missed at least two payments.

Weitz - these numbers are staggering, and the main reason why I believe there will be downward pressure on the real estate markets for the considerable future.

Meanwhile, banks and investors suffer. (Weitz - its really sad that the banks have to suffer...they will just have to make do with their on-going accounting fraud and free money from the Federal Reserve...its hard to feel sorry for them given the perks they have received to the dismay of taxpayers.) It's hard to estimate how much it will cost to fix the paperwork problems. But the interest they could earn on the money from selling all the homes they own, together with the ones attached to delinquent mortgages, amounts to more than $10 billion a year.

Still, at least some of the banks' loss is the borrowers' gain.

Foreclosure Rights of Tenants and Landlords

The rights of Tenants and Landlords in the foreclosure setting is an issue that I see arising more and more these days. Accordingly, I thought I would take the opportunity to provide an overview of the law. Please note that this is WASHINTON LAW as it currently stands, however, each state has differing laws, laws are subject to change.

Federal Law – Protecting Tenants at Foreclosure Act of 2009

Rule- the new owner of the foreclosed home must notify the tenant AT LEAST 90 days before evicting the tenant. (this law is currently set to apply until 2014).

Washington Law – RCW 62.24.143

The Washington Law requires the foreclosing party (lender or trustee) provide written notice to the tenant before the foreclosure sale. This notice must explain that the sale may be held 90 days or more after the date of notice; and state that the person who buys the home is required to provide at least 60 days notice before evicting the tenant.

So which is it? A 60 day eviction notice or 90 day eviction notice.

As you can see, there is a conflict in the federal and state laws. As such, the purchaser of the property at a foreclosure sale will be required to provide the renters 90-day notice prior to eviction because of the Federal Law.

How does the new law affect a Tenant’s current lease?

** UNLESS the new owner is going to move into the property, the tenant can stay in the property until the lease ends!! (**this is huge- if the property reverts back to the bank, the tenant can stay in the home until the lease expires!)

** This currently applies to ALL LEASES entered into anytime prior to the transfer of title at foreclosure (the banks argued that this should not apply to leases unless they were entered into before the notice of default and notice of trustee sale).

Who does the tenant pay rent to?

Rent should be paid to the new owner post foreclosure. If the tenant has not been provided with payment information, then tenant should save the rent money until it is clear how payment should be made.

There are obviously some issues that may not be touched on in this post, but I hope it has provided a general overview that will assist you make the most of an abnormal situation.

For more information on your rights in Foreclosure or Short Sales, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
(425) 889-9300

What does the Foreclosure Crisis Mean for You?

Weitz – an article from the Wall Street Journal this weekend:

WSJ - For the vast majority of homeowners, new questions about the state of foreclosures appear to be irrelevant. Few people seem to have been wrongly thrown out of their homes, and those who have been are generally months or years behind on their mortgage payments.

But the fallout from the crisis is beginning to be felt in real-estate markets across the country, particularly in places dominated by vacation homes and investment properties. Some of the worst-hit areas could be Western ski towns, because fall is the busiest time of the year for sales.

By the Numbers
• 27% - Percentage of total home sales in 2009 that were second homes.
• 30% - Percentage of total mortgage defaults attributable to second-home and investment properties.
• 4.57% - Percentage of mortgages in some state of the foreclosure process, June 2010. (Weitz - and the loans that are in default is much higher)
• 9.4 Months - The average amount of time from default until foreclosure proceedings begin on a "jumbo" mortgage loan.

Real-estate salespeople in some of those places are worried. "September and October are usually the height of the selling-season for us," says Rich Armstrong, who owns the brokerage Rare Properties in Jackson Hole, Wyo. "Now we are seeing a number of what we call 'fence sitters,' people who would have leapt in even a month ago, but now are waiting on the sidelines."

The "foreclosure crisis" is a result of the frenzied real-estate boom and bust of the past decade. Banks made foolish loans, and borrowers signed up for them—only to default later, as the economy slumped. Banks rushed to reclaim properties, launching a record number of foreclosure proceedings.

In the past several weeks flaws have emerged in that complex process. Because of the high volume of foreclosures, the documentation supporting legal actions was prepared hastily, and some homes were seized improperly.

Yet the far bigger worry is what happens next. A frenzy of lawsuits and banks' examinations of their own practices could throw more of the millions of foreclosures of the past few years into legal jeopardy. Attorneys general in all 50 states are investigating, and plaintiffs' lawyers are working hard to perfect their legal strategies for suits on behalf of people who have been foreclosed on.

The suits might well fail. But just the threat that past foreclosure rulings might be overturned could result in collateral damage. In some places, banks are rushing foreclosed properties to market. In others, buyers are stepping back, refusing to buy foreclosed properties or "short sales"—homes sold by owners for less than the mortgage balance. In markets already beset with large inventories of foreclosed properties, the result could be a slower recovery.

Weitz – I hate to sound pessimistic, but I genuinely believe we have yet to reach a true bottom based on the huge supply of properties for sale across the country, and meager demand for those homes. This econ 101 fact, coupled with less access to financing, and fewer qualified buyers will lead to continued struggles.

I constantly hear that 'interest rates are at all time lows...now is a great time to buy. My response: what happens when/ if interest go up? Prices come down since there is a direct correlation to prices, and borrowing costs.

Coastal markets and ski areas are feeling the most anxiety. Some already are littered with foreclosures—in part because they're dominated by second-home and investment properties. Those owners are more willing to walk away from a house that isn't their primary residence.

Weitz - Coastal Markets are also under the most pressure since they are the highest priced, and had the most excessive appreciation during the boom.

Foreclosure tracker RealtyTrac estimates that, nationwide, 30% to 35% of properties in foreclosure are owned by investors or were second homes. In Aspen, Colo., the figure is about 60%, says Kim McKinley, owner of McKinley Sales Real Estate in Basalt and Aspen, Colo. If foreclosure proceedings slow from here, inventory could jump, leading to price weakness later.

The foreclosure mess could hurt homeowners in another way: The costs of buying a home and paying off the mortgage are likely to go up, say housing experts.
The rising costs will come both during the closing and throughout the life of the loan.

At the closing, the cost of title insurance, which protects a property buyer from claims of ownership made by other people, is likely to rise, industry officials say. Title insurance is one of those annoying costs that can sneak up on a buyer during a close; premiums average around $2,000 across states, says Tim Dwyer, CEO of insurer Entitle Direct Group.

The foreclosure mess has sent insurers scrambling. One of the largest, Old Republic Title Insurance, told its agents on Oct. 1 not to issue policies on homes that have been foreclosed by GMAC Mortgage or J.P. Morgan Chase. And on Wednesday, the nation's largest title insurer, Fidelity National Financial, said lenders must vouch for the accuracy of their paperwork before it will insure properties.

Just like homeowners-insurance rates rise after a hurricane, the rates for title insurance are expected to rise, to compensate for the added risk.

Other costs could be felt during the life of the loan. Until the current mess, servicing loans was a low-margin, high-volume business. Servicers collect mortgage payments from borrowers and send them off to mortgage holders, and if the loan gets into trouble, they manage the foreclosure. Few doubt this process will get costlier now that it is under scrutiny from regulators and the courts. That higher cost likely will show up in higher interest rates for borrowers.

Both of these higher costs also would hit homeowners who refinance their loans.
How much the costs of buying a home will rise is unknown. Mortgage industry officials say it is too soon to tell. And no one believes the costs will significantly change the price of a home. But with the housing market still weak, the uncertainty is making the prospect of buying—or selling—a home that much dicier.

The timing of the foreclosure mess is especially inconvenient for ski towns, given the fall selling season.

Property owners are growing nervous. In Park City, Utah, lenders are quickly unloading foreclosed homes ahead of what could be a long, stalled foreclosure process, says Joe Trabaccone, a real-estate agent there.

On Oct. 11, for example, J.P. Morgan Chase put up for sale an 8,000-square-foot home adjacent to a private gated golf course. Mr. Trabaccone initially recommended the property be listed for $1.6 million, but Chase opted for $1.26 million. "They are offering these homes far too low just to hurry up and sell them," Mr. Trabaccone says.

Even so, it hasn't worked. A buyer made an offer and signed a contract, but then backed out.

In South Lake Tahoe, Calif., on Thursday, Freddie Mac, the big government-sponsored guarantor of mortgages, put a foreclosed home that had just been listed for sale on hold, freezing the property until paperwork could be straightened out. The foreclosure mess "seems to be filtering down and it could be an impact," says Doug Rosner, the broker who had listed the home. Three other properties in town were also frozen, another real-estate agent says.

The "sand states" of Arizona, California, Florida and Nevada are being hit as well. These areas, too, have a lot of vacation and investment properties—and a lot of foreclosures.

The possible foreclosure wars to come loom so largely over Florida markets that Ms. Speronis is urging condo sellers to consider any offer they get, even if it is far below asking price or what is owed on the mortgage.

Dianne Cloutier, a records supervisor in Chelmsford, Mass., had been looking for a retirement property in Cape Coral, but decided to wait because of the foreclosure mess. "It's left us on hold until we are sure the banks have legitimately foreclosed on people and that nobody can come back on us to get their property back," she says.
Foreclosures aren't the only problem. Short sales are getting more difficult to pull off, too.

In Bend, Ore., agents say buyers are avoiding short sales or even backing out of contracts because they don't want to deal with paperwork hassles or the chance of a court challenge later.

The short sales "can be very frustrating," adds Becky Ozrelic, of with Steve Scott Realtors in Bend. "You just have buyers waiting and waiting."
For sellers, lining up a short sale was tough even before the latest foreclosure crisis. Banks and mortgage "servicers," the outfits that process payments, already had been scrambling to handle surging workloads.

For more information on your rights in foreclosure or short sale, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
(425) 889-9300

weitzlawfirm.com

Legal Action against Bank of America...finally!

Weitz - Let the games begin!!! As you know, I've been saying the bank mis-representation when selling off these loans was the biggest potential problem with 'foreclosuregate' (rather than robo-signers). Well, the first big case against this garbage was announced yesterday.

As Article from the WSJ today:

As banks restart foreclosures they had suspended, bondholders are stepping up efforts to recoup losses on soured mortgage portfolios amid concern about sloppy mortgage servicing and underwriting practices.

In a letter Monday, a group of institutional bond investors raised objections to the handling of 115 bond deals issued by affiliates of Countrywide Financial Corp., acquired by Bank of America Corp. in 2008.

Weitz - By the way, the plaintiffs include Fannie, and Freddie (ie. the US taxpayer).

The investor actions, which seek to have certain loans be repurchased among other things, come as Bank of America on Monday took steps to defuse claims that its foreclosure troubles are deep-seated. The bank on Monday said it was restarting the foreclosure of more than 100,000 homes.

Weitz - note the investors are seeking to to have these garbage loans re-purchased. If victorious in this action, and other like it, the banks will face severe financial difficulties (even with the on-going accounting fraud).

The letter, to Bank of New York Mellon Corp. and Bank of America, cited Bank of America's "failure to observe and perform, in material respects" its duties as the servicer for the bond deals. The failure to properly handle the loans "has materially affected the rights" of bondholders, the letter said.

The institutional investors, who include mutual-fund managers, government-related entities, insurance companies and investment partnerships, are seeking to have loans that didn't meet underwriting requirements repurchased and to be compensated for losses due to inadequate mortgage servicing, says Kathy Patrick, an attorney with Gibbs & Bruns, a Houston law firm representing the investors.

The group says it holds roughly $16.5 billion—or more than 25%—of the $47 billion in outstanding mortgage-backed securities from these deals.
"We are reviewing the letter," said a BNY Mellon spokesman. "It appears to be directed to Countrywide and does not ask BNY Mellon to take any action. We will continue to perform our duties as trustee." A Bank of America spokesman declined to comment.

As mortgage servicer, Bank of America is responsible for collecting loan payments and working with troubled borrowers. BNY Mellon, the bond trustee, is charged with administering the securitizations, or bond trusts, for the benefit of investors. Investors say they are concerned both about servicing and violations of representations and warranties made when the loans were packaged into bonds.

Monday's action lays the groundwork for what could be one of the first lawsuits by mortgage-bond investors seeking to enforce their contract rights, including loan buybacks, in response to the current foreclosure crisis. Investors have mounted other challenges based on alleged violations of securities laws.

On Monday, the Association of Mortgage Investors stepped up efforts to pressure banks by calling on state attorneys general to expand their investigation of mortgage-servicing practices to include violations dating back to the time when loans were packaged into securities.

Analysts are trying to tally up the costs of loan buybacks and foreclosure moratoria. In a report issued Friday, Barclays Capital said the current crisis could delay foreclosures by three to six months. Longer timelines could reduce yields on some bonds by as much as one percentage point, it said, and "drastically" reduce cash flows to some bond holders in the next few months.

In a separate report issued Friday, J.P. Morgan Chase & Co. bond analysts estimated that future losses from repurchases of loans that didn't meet sellers' promises could total $55 billion to $120 billion.

Even before the recent furor over "robo-signers"—back-office employees who approved hundreds of foreclosure documents daily without reviewing them—bond investors were raising concerns about servicer practices.

In August, a smaller group of investors in some Countrywide deals sent BNY Mellon instructions to investigate whether certain mortgages didn't meet representations made at the time the loans were packaged into securities. The group demanded that some loans be repurchased.

But the August letter, a BNY Mellon spokesman says, "did not comply with multiple requirements for giving direction to BNY Mellon in its role as trustee."
Recent disclosures of sloppy servicing practices follow questions about whether the processes for conveying loans to the bond trust were properly followed. Together, they "have exacerbated investor concerns and created delays and added costs that hurt investors," Ms. Patrick says.

Bond investors have been slow to press their claims, in part because of how the contracts for bond deals, known as pooling and servicing agreements, are written. Typically, these contracts require that bondholders gather 25% of the voting rights in the trust before they can enforce the contracts themselves. These provisions are intended to ensure that the action being requested will benefit bondholders as a group, rather than any one bondholder or subset of holders.

Earlier this month, a New York state justice dismissed a lawsuit by investors who argued they shouldn't bear any of the cost of an $8.4 billion settlement between state attorneys general and Countrywide Financial. The judge said the investors hadn't satisfied terms set out in the pooling and servicing agreements.
The Oct. 18 investor letter formally notifies BNY Mellon and Bank of America that investors believe that Bank of America has failed to meet its obligations as a mortgage servicer. The two companies then have 60 days to address the issues, says Ms. Patrick.

If the problems aren't resolved, that would trigger an "event of default" under the agreement, Ms. Patrick says, which would allow an investor to file a lawsuit against both companies. Investors "aren't trying to halt loan modifications for troubled borrowers," she added.

The move is one of a number investor actions seeking to recoup losses. In a separate action, a group of investors in 2,300 mortgage securities worth $500 billion this summer sent a letter to trust departments of several large banks expressing concerns about how loans are being handled.

David Grais, a New York securities lawyer, recently announced plans to hold a conference on "Robosigners and Other Servicing Failures." Mr. Grais represents Federal Home Loan Banks in San Francisco and Seattle that have sued Wall Street banks, seeking to force them to buy back mortgage-backed bonds. Similar lawsuits were filed last week by Federal Home Loan Banks in Chicago and Indianapolis.

But the time to pursue some of these claims is running out, Mr. Grais says. Under New York contract law, investors generally have six years from the time of a securitization to put back loans that violate representations and warranties, Mr. Grais says. State securities law generally gives investors one to four years after they discover a legal violation to put back bonds that weren't accurately described in disclosure documents.

"If people don't throw their hat in the ring, they are out of luck," Mr. Grais says.

Weitz- Let's get ready to ruuuumble!!

Banks Restart Foreclosures

Two major lenders at the center of the foreclosure crisis took steps Monday to put the mess behind them by restarting home seizures that were frozen by documentation concerns.

Weitz – no surprise there. As we’ve said – they’d “investigate” and find no problems.

Bank of America Corp. reopened more than 100,000 foreclosure actions, declaring that it had found no significant problems in its procedures for seizing homes. GMAC Mortgage, a lender and loan servicer, said that it also is pushing ahead with an unspecified number of foreclosures that came under intense pressure.

Bank of America prepared to restart 102,000 pending foreclosure actions where court approval is required, applying new signatures to documents in 23 states.
Monday's moves are part of a growing counterattack by lenders scrambling to stem a financial and political threat over allegations that certain employees signed hundreds of documents a day without carefully reviewing their contents when foreclosing on homes.

Weitz- signatures are not the issue here. The problem is the MERS issue, and the fraud issues.

Bank of America, the nation's largest bank in assets, which imposed on Oct. 8 a nationwide moratorium on the sale of foreclosed homes, said it has begun preparing new affidavits for pending foreclosures in 23 states where a judge's approval is required. The paperwork will be submitted to courts by next Monday, and foreclosure sales will resume in those states starting in November, according to the bank. "This is an important first step in debunking speculation that the mortgage market is severely flawed," said Bank of America spokesman James Mahoney. More details will be disclosed when the company reports quarterly results Tuesday.

Weitz – haha. Thanks James…if you say so!!

Citigroup Inc. Chief Financial Officer John Gerspach said the bank has found no reason to halt foreclosures, calling its internal procedures "sound." "We have not identified any system issues," he said Monday.

Weitz – how about the fraud you committed when you sold these loans to fannie and freddie (ie. Taxpayers) and assured they met quality standards?

Restarting the nation's foreclosure machine puts the lenders on a collision course with state attorneys general, who announced last week a nationwide investigation of foreclosure practices. Some state officials have been pushing for a wider halt to foreclosure sales, but Bank of America's moves show determination by at least some lenders to get back to business while the investigation proceeds.

A Bank of America spokesman said the bank has found "no cases" thus far of foreclosures that should not have "gone through." Last week, James Dimon, J.P. Morgan Chase & Co. chairman and chief executive, said that no one has been "evicted out of a home who shouldn't have been."

Weitz – for the most part, this is probably true – but they are hiding the ball for the larger issues of fraud in the origination and securitization processes.

Some attorneys general said they have little confidence that problems with foreclosures have been fixed. "We've been in discussions with some of the major servicers, and as part of that they've assured us that they are fixing this problem, but we're not just going to take their word for it," said Patrick Madigan, a spokesman for Iowa Attorney General Tom Miller.

Weitz – I commend the AGs, but I’d like to see less talk and more action on the real issues.

It will be hard for lenders to declare the foreclosure crisis over and get back to business as usual. Bondholders are escalating efforts to recover losses on soured mortgage-bond deals containing loans with flawed paperwork. (Weitz – DING DING!!!....the context is wrong in this article... The fraud existed in the origination and securitization process)....but this is the BIG ENCHILADA!!..if the bond holders sue and force the banks to take back these fraudulent loans, it will cripple many of the banks Meanwhile, federal banking regulators are assigning additional employees to an ongoing review of large mortgage-servicing operations, according to people familiar with the situation. Officials want to make sure that documentation procedures are being followed and companies are meeting all legal foreclosure requirements.

Bank stocks surged Monday as investors reassessed last week's outlook for the cost of the foreclosure mess. Citigroup shares jumped 23 cents, or 5.8%, to $4.18 a share in New York Stock Exchange composite trading at 4 p.m., on better-than-expected earnings. Bank of America rose 36 cents, or 3%, to $12.34, while J.P. Morgan was up $1.05, or 2.8%, to $38.20.

Weitz – I’m no financial analyst, but I’d highly recommend taking profits if you own the stock of these institutions. They are, for the most part, black boxes…no one outside of these companies truly knows their financial situation because of the legalized accounting fraud I often refer to.

Bank of America is the only major U.S. bank that announced a halt to all foreclosure sales while it reviewed documents for errors. Bank officials say they're readying new affidavits for 102,000 pending foreclosure actions.

A company spokesman said the largest investors in mortgages serviced by Bank of America have signed off on the new timetable. The bank will continue delaying foreclosure sales in the 27 states where court approval isn't required until a review is completed "on a state by state basis." The bank expects delays on fewer than 30,000 foreclosure sales nationwide.

GMAC, a unit of Ally Financial Inc., declined to comment on the number of foreclosures it has reviewed so far, but said they included loans with affidavits signed by employee Jeffrey Stephan. His testimony in a deposition that he signed 10,000 foreclosure affidavits a month without reviewing the underlying documentation led GMAC to halt evictions in 23 states last month while it scrutinized its procedures.

Ohio Attorney General Richard Cordray, who last week filed a lawsuit against GMAC alleging hundreds of counts of fraud related to foreclosure documents, said he is suspicious of efforts to replace paperwork. "Substituting new evidence in [cases] where there's been fraud won't help prevent the court from sanctioning them for the fraud that has already been committed," he said. "It doesn't unring the bell."

Weitz – if the banks committed fraud, the penalties should be severe, but it does not prevent an eventual foreclosure. The real issues are not falsifying documents. I’m sure they exist, but they are rare (especially in non-judicial foreclosure states like Washington).

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
(425) 889-9300

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The MERS problem - in plain english

Greetings Earthlings - Welcome to MERS!

Caution: do not read this post while driving a vehicle or operating heavy machinery as it may cause drowsiness.

MERS OVERVIEW

MERS ‘Mortgage Electronic Recording System’ has been a big issue in news as of late. There are a lot of complex legal issues involved with the MERS process that could lead to significant problems for the U.S. Mortgage Market.

In this post, I will try to simplify the issue as best I can and also provide an outline of some of the issues involved and why there may be problems moving forward for the banks. I have cited some authorities, but given that this is a blog post and not a law review article, I refrained on others.

The Background:

In the go-go years, Banks would create mortgage backed securities (‘MBS’) or Collateralized Debt Obligations (CDOs). They were simply a bundle of loans (or portions of loans) that were sold to investors (ie. pension funds, municipalities, etc.)

In every state in our union, a title and deed of trust (or mortgage) that is transferred is typically ‘recorded’ with the county recorder of register of deeds. This recording has provided a transparent vehicle for determining property ownership in our Country for generations. Typically, a fee is associated with recording of said documents. In King County, the fee is about $65.

In the mid-1990s, mortgage banks decided they did not want to pay the recording fees or create proper ‘assignments’ (ie. Transfer documents) when selling the mortgage to investors as that would obviously be incredibly cumbersome and expensive.

To avoid paying county recording fees, mortgage bankers decided to create a SHELL COMPANY that would pretend to own many of the mortgages in the county – that way, no assignment documents (or recording fees) would be necessary upon the transfer of a loan document.

Currently, about 60% of the nation’s residential mortgages are recorded in the name of MERS.

What exactly is MERS?:

In boilerplate security agreements included in mortgages or deeds of trust around the country, this clause is included:

“MERS”…..is a separate corporation that is acting solely as nominee for Lender and Lender’s successors and assigns. MERS is the mortgagee under this security agreement.

Essentially, MERS is claiming to be an ‘agent’ of the lender and a ‘mortgagee’ (owner with the right to foreclose). This raises two important issues:

1) If MERS is an Agent, it is uncertain whether MERS has the ability to list itself as the Morgagee.

2) If MERS is a mortgagee, both MERS and the companies that invested in these mortgages breach the longstanding precedent that a promissory note and mortgage are inseparable documents.

Court Cases: As of August, 2010, every state supreme court that has ruled on the issue has found that MERS is not a mortgagee or deed of trust beneficiary. (Arkansas Court; MERS v. Southwest homes of Arkansas)(Kansas – Landmark Nat. Bank v. Kesler); (Maine – MERS v. Saunders) which leads to the problem of conveyance of the mortgage.

MERS and the Problem with conveyance:

If MERS is neither a mortgagee, or a deed of trust beneficiary, the courts must soon confront the enforceability of the MERS security agreements as there is a compelling argument that loans originated through the MERS system fail to create enforceable liens.

The (Archaic) Legal Problem:
1) The Banks did not specify who the actual Mortgagee is (MERS is a shell company). This presumably breaks the chain of title, and breaks long standing precedent that a mortgagee must exist to enforce (foreclose) the document.

2) In many cases, the mortgage and the note may have been separated. This of course would violate the legal requirement that mortgage and note are inseperable.

Allowing either of these to continue would upset hundreds of years of legal precedent.

The Decision:
If the courts take a hard stand by invalidating liens because they do not specify a mortgagee, the markets very well may collapse.

Conversely, if they allow MERS to act as a ubiquitous national proxy system, they will alter the real property that has stood for generations.

My guess: Just as we don't depend on horses to transport us anymore or cook our meat over an open fire, we must adopt to a new era of technology and adopt the MERS system (warts and all). I think its fairly obvious that the courts/ politicians will take the easy way out and alter the law rather than create a tidal wave of title issues that could cripple the national real estate market.

Of course, they must first "investigate the problem" as they are now doing in all 50 states. This is purely my opinion, but I believe the investigation is mainly a political ploy to appease the constituents.

That said, there may be other issues looming similar in nature to this problem that will hopefully arise during these state "investigations" including: 1) fraudulent transfers/ misrepresentations by the bank in transferring these mortgages to the taxpayer (ie. Fannie/ Freddie) and other investors; and 2) the continuing accounting fraud in the banking industry that allows for record Wall Street bonuses while the rest of the country continues to struggle from a problem creating largely by Wall Street.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98033
(425) 889-9300

weitzlawfirm.com

Mortgage Issues Cloud Recovery

Weitz - An article from the Wall Street Journal followed a Washington specific analysis of the mortgage issue.

Sales of foreclosed homes have helped lay the groundwork for housing recovery in many of the nation's boom-to-bust markets. Now, some real-estate agents say that recovery is at risk because of delays in bank foreclosures.

Weitz – what recovery are they referring to?!

Homes are being pulled from the market, and buyers—especially investors intent on quickly reselling foreclosed properties—are retreating to the sidelines amid growing uncertainty over the extent to which banks filed fraudulent foreclosure documents.

On Tuesday, Wells Fargo & Co. said it had started a review of all pending home foreclosures in states where certain paperwork was required but it did not suspend foreclosures or foreclosure sales, as have other big banks.

Meanwhile, GMAC Mortgage, a unit of Ally Financial Inc. and one of the first to suspend some foreclosures last month, expanded its review to all 50 states. Initially GMAC's review was limited to 23 states that require court approval for foreclosures.

Bank of America Corp. last Friday agreed to halt all foreclosures and foreclosure sales, the first bank to do so.

Uncertainty about the legitimacy of foreclosures threatens the market because about one in four homes sold during the second quarter was in some stage of the foreclosure process, according to RealtyTrac Inc., which tracks foreclosure filings.

Weitz – take note – ¼ of all homes sold in the 2nd quarter were at some stage of the foreclosure process. I’m seeing a lot of short sales in which the borrower has stopped paying the mortgage, and then tries to get a short sale for varies reasons including a smaller credit hit.

Some in Congress have called for a nationwide foreclosure moratorium, but Obama Administration officials said they didn't support such a broad move.

"If there is an empty house in the neighborhood that somebody has a contract on, and their closing date is next week, and there is a moratorium, that closing doesn't happen," Robert Gibbs, the White House press secretary, told reporters on Tuesday.

The administration's stance illustrates the policy conundrum: Officials say they want to root out possible wrongdoing by banks, but they also want to avoid policies that derail the fragile housing market by delaying inevitable foreclosures.

Weitz - Delaying foreclosures does not derail the fragile housing market...in fact, it helps short term as it would presumably keep some homes off the market at discount prices. The delay, however, would simply prolong the track to a true bottom.

The crisis has also put a cloud over whether banks can assert clear ownership of those properties. In the past week, two of the nation's largest title-insurance companies, Stewart Title Guaranty Co. and Old Republic National Title Insurance Co., have issued guidelines that could make it much harder to write policies on homes foreclosed by certain banks and in certain states.

"Title companies would be crazy to ensure title on anything remotely associated with a foreclosed property because we don't know how this is going to resolve itself," said Mark Hanson, an independent housing analyst in Menlo Park, Calif.

The result: Not only could sales slow on foreclosures now listed for sale, but it could also become harder to sell or refinance properties that have been foreclosed upon at some point in the past few years.

"Title-insurance costs can go up, purchasers can flee from auctions, and new home-buying families will decide to wait longer before re-entering the market," said Peter Swire, a law professor at Ohio State University who until August served as a top adviser on housing-finance issues in the White House.

So far, officials have downplayed those concerns. "We have not seen broad steps at this point by title insurers that would pose a significant risk to the market," said Shaun Donovan, the secretary of Housing and Urban Development.

But he said banks needed to correct their mistakes quickly "to give the market confidence that the...foreclosure process is working in the right way."

Weitz- good luck with that, banks. I bet your workers that you pay 12 dollar/hour will easily be able to sift through millions of documents and insure that properties have been transferred properly and abide by the ancient and complex real property laws of the U.S.....most attorneys couldn’t do this with one document, but I’m sure your staff will have no problem doing it with millions of documents.

Banks have begun discussions with title-insurance firms to prevent sales from
stalling further. Bank of America, for example, reached an agreement with Fidelity National Financial Inc., the nation's largest title insurer, last week to provide warranties that would indemnify the insurer against claims that resulted from foreclosure errors by the bank.

Real-estate agents are particularly worried about the situation's impact on investors, the buyers who fix up foreclosed homes for resale. Investors accounted for 21% of all home sales in August, according to the National Association of Realtors.

Some analysts say the loss of investors could be particularly damaging to the housing market because some they tend to buy large numbers of units at once.
"We're the lubricant in this recovery," said Gregor Watson, with McKinley Partners, a development company that has spent more than $35 million buying hundreds of foreclosed homes in California this year. "To create more doubt in investors' minds will have a dramatic impact on home pricing."

Mr. Mirmelli has already witnessed the downside of legal tangles between banks and homeowners. He said he purchased a Las Vegas home four months ago that remained occupied by the homeowner, who is suing his bank alleging that it shouldn't have foreclosed on the property because he had been pre-approved by the bank to sell it for less than the amount owed.

"It's frustrating," Mr. Mirmelli said. "The bank has taken our money, but we're still trying to get possession of our house."

Weitz – here’s the deal. I’m not terribly concerned with the ‘title issues’ in Washington State. (I say this because I assume the government will eventually let the paperwork problems slide as to hold the banks accountable to some of the more historic laws would create a title disaster).

Here’s why the title issues won't be an issue:

1) Washington is what is called a ‘race-notice’ state for solving title disputes. Thus, if you buy the home and record the title with the County Recorder before anyone else who makes a claim for the property.... You have won the ‘race’ to provide ‘notice’ to other potential owners…you will be the rightful owner. Period.

Here are the three situations that could arise in foreclosure:

a) Who holds title to the home before foreclosure? The home owner. That was easy.

b) Who holds the title if a buyer buys it at foreclosure? The buyer. There will be no issues with title assuming the title is properly recorded. That was easy too.

c) Who holds title if the bank forecloses, and no one buys the house at the foreclosure auction? The note holder. This one may get interesting, but there are very few foreclosures where the actual mortgage holder is unknown.

The issue, as I said, is whether the banks have the ‘right to foreclose’ because of the MERS issues, and whether the banks were fraudulent in this whole foreclsoure process (ie. fraudulent documents, bad notarization). (Look for a detailed post on the MERS issue later this weekend - I should warn you that you should not be operating heavy machinery when reading as it will cause drowsiness;).

For more information on your rights in foreclosure, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300

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