Steve Bartlett, President and CEO of the Financial Services Roundtable, recently updated member institutions about current events in the mortgage sector.
Much has happened in the past ten days in the mortgage and foreclosure world. While things are not as bad as the headlines, there remain some risks.
Here is a quick summary:
Foreclosure Document Review: The issue is this: some state courts require a formal document review and an affidavit that the review was completed. Some courts have found that reviews were not completed properly. Other courts have held the reviews were complete. Companies have announced they are conducting a thorough review of the documents. That review is complete in some cases and underway in others.
Ironically, in virtually all the mortgage foreclosure cases under review, the loans are seriously delinquent and foreclosure is the necessary and appropriate action. Borrowers have typically not made payments for 18-24 months, and are unable to qualify for government or private loan modifications. One-third of the houses being foreclosed on are vacant.
Roundtable Response: The Roundtable, Housing Policy Council, and Mortgage Bankers sent a joint letter to Congress on this issue, as well as a joint HPC-MBA education piece on the document review issue. The Housing Policy Council will also conduct a briefing for congressional staff on mortgage servicing, the foreclosure process, and on-going loan modification efforts that are assisting more than 100,000 homeowners each month.
In addition, Faith Schwartz, Senior Advisor to HOPE NOW, will testify before the Congressional Oversight Panel on October 27, to describe the 3.7 million mortgage modifications made by members of HOPE Now since 2007. Over 90% of these modifications result in a significant reduction in the monthly payment.
Calls for Moratorium. Initial calls for moratoria on foreclosures have now diminished. The Administration has repeatedly opposed a moratorium and few Congressional leaders are pursuing that. In addition, most mainstream economists have publically opposed the idea.
Mortgage Ownership Challenges: In addition to the foreclosure document review issue, some attorneys and others have asserted that the electronic transfer of mortgage ownership is flawed, and that some foreclosures cannot proceed because the servicer or entity bringing the foreclosure action is not the legal owner of the mortgage. This issue will continue to receive some additional attention, but investor organizations such as the American Securitization Forum and other experts have stated that this is not a legitimate basis to challenge a foreclosure.
Courts have occasionally ruled in favor of homeowners in cases in which the court has concluded that plaintiffs have not demonstrated that they own the note. More importantly, in no cases that I know of is there an actual unresolved ownership issue. Servicers have the right and duty to represent the interest of the Note Owner, even in cases when the physical copy of the note has been misplaced. Member companies believe they have adjusted their procedures in those cases in which the note has been lost or misplaced.
Companies are separately reviewing their procedures since they vary from company to company.The Roundtable and HPC will include education on this issue in our communications to Congress.
Mortgage put-back, title insurance, and other issues: Media stories have focused recently on the possibility that investors may be able to put back mortgages to lenders because the mortgages failed the reps and warranties, or were transferred fraudulently, or for some other basis which has not yet been spelled out clearly. Unfortunately, the New York Fed has been named in some stories as one of the potential claimants, as have Fannie and Freddie. Title insurers have asked lenders to agree to indemnify them if titles fail in the future because of improper documentation or fraudulent activity in the origination or assignments of mortgages. At this point, these are primarily media stories, although American Land Title Association has communicated with FSR and other trades associations relaying its desire for indemnification.
Government action: Examiners from the Fed, the OCC and the FDIC have commenced meetings with senior officers of major lenders, and it appears as though they will take about 30 days to review operations in all of the outlets of each institution. After that, they will probably issue reports directly to each institution concerning what they have found about their operations, although precisely in what form or the public nature of such reports is unclear. A substantial number of examiners will be in each institution.
State attorneys general have formed a task force and have been meeting with major lenders. AG’s began by publically demanding Moratorium on foreclosures, but have recently seemed to emphasize major improvements in the document review process.
Homeowner Assistance: Through HOPE NOW we provide counseling and assistance to borrowers in trouble. About a third of the borrowers who contact us qualify for and receive mortgage modifications. HOPE NOW is completing approximately 150,000 mods a month.
Summary: This is a classic case of “process over substance”. While the companies have taken major steps to improve back office processes, and should “get it right” in every case, the fact is that these are cases in which the borrowers are delinquent and have been for extended time, and no benefit can be had by delaying foreclosures. Further, no one yet has surfaced to say that they are the true owner of a note that has been foreclosed on and been ignored.
John Dalton, President of the Housing Policy Council, and I are focused on this issue, and will use this blog to keep you informed.