It is not light reading by a long stretch. Understanding the securitization process from the originator to the Trustee, locating and understanding the governing document, the Pooling & Servicing Agreement (PSA), is no simple matter. But we have done just that and analyzed numerous defective Assignments of Mortgage for New York City properties.  These banks and their respective attorneys flagrantly ignore the rule of law, routinely perjury themselves, do documents without authority, and directly violate the terms of the PSA.  These banks have also been paid over and over for the same loan because of the over-collateralization of these mortgage securities, but seek to enrich themselves further by availing themselves of the remedy of foreclosure.  And yet, the tax payer pays them yet again, via the Obama Administration, instead of taking that same money to make jobs to bolster our sagging economy.

These banks are posting record profits for 2010 as our country fails to recover for lack of not only jobs but of credit.  The purpose of the TARP funds was to give an incentive to the banks to extend credit but they failed to do so and really decreased lending.  Congress, in their haste, failed to include any strings in that gift package.  The Wall Street Journal indicated that such failure was the reason for the decreased lending:

The fact that loan portfolios are shrinking at many of the largest TARP recipients underscores how few strings Treasury Department officials attached to the infusions. That has made it hard to prevent banks from using the money to pay dividends, make acquisitions and fund bonuses for top executives.

Pioneers saw what the banks were doing – getting rich from tax payers’ monies and then enriching themselves further through foreclosure of these overcollateralized securities or peoples’ homes. They fought the banks in court by going back to the basics and not just blinding accepting the banks’ right to foreclose on their “security”.  It started with “produce the note” because the whole mortgage industry had gotten sloppy and couldn’t locate their documents.  But then it went further, questioning whether the bank really owned the Note and if you could foreclose on a mortgage once it had morphed into a security. MERS‘ role was being investigated and foreclosure defense lawyers questioned whether or not it could bring a foreclosure action as plaintiff, because it did not really own the Note as well as failed to maintain a proper chain of assignment.

These very foreclosure defense attorneys and judges, inundated with millions of foreclosure actions, started to see an hideous pattern and the same names over and over again, executing assignments, affidavits of merit etc.  Brooklyn’s own Judge Schack has been on the forefront of demanding legal compliance from the banks and making them account for their failure to adhere to the law as well as outright committing fraud.  Our courts have been on the forefront of insuring that homeowners’ rights are not trampled – that the banks act in excellent faith and when they don’t – holding them liable for it.  The banks and their attorneys step very carefully into our courts these days for dread of the ultimate punishment – dismissal of their action with prejudice.

I reckon 2011 is the year we take back our country from Wall Street and the banks. The tide is turning.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
3. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants

In the highly publicized choice, Judge Spinner had not only vacated the Judgment of Foreclosure, but ordered that the mortgage and note be cancelled in their entirety. Spinner blisteringly castigated the plaintiff and characterized its course of conduct as “wholly unsupportable at law or in equity, greatly egregious and so completely devoid of excellent faith that equity cannot be permitted to intervene on its behalf. Indeed, plaintiff’s actions toward defendant in this matter have been harsh, repugnant, shocking and repulsive to the extent that it must be appropriately sanctioned”.

The Appellate Division held that the such a severe sanction was “not authorized by statute or rule” and the bank was not given “honest warning that such a sanction was even under consideration”.  Further, the court held that the trial court’s equity powers did not include the “authority to cancel the note and mortgage since there was no acceptable basis for relieving the homeowner of her contractual obligations to the bank” noting that a judgement had already been entered in the bank’s favor.  The court’s opinion can be found here.

Judge Spinner has gotten the attention of the banks in a huge way – his three recent decisions, Indymac Bank v. Yano-Horoski (cancelling note and mortgage), Wells Fargo v. Tyson (awarded $155,000 in hurts to the homeowner) and Emigrant Mortgage v. Corcione (awarded $100,000 in hurts to the homeowner) has made him the hero of the foreclosure defense community and a fearsome figure to the foreclosure plaintiffs.  Spinner just issued another crushing choice on December 1st in U.S. Bank v. Mathon 2010 NY Slip Op 52082(U) granting Defendant’s Order to Show Cause, staying all proceedings and scheduling a hearing for possible sanctions against the Plaintiff and other possible remedial relief based on the bank’s appalling terrible faith dealings on a loan modification.  The Banks’ attorneys no longer entrust their cases to junior associate,s when appearing in his courtroom at mandatory settlement conferences, because apparently, the risks are too fantastic.

Am I shocked at the Appellate Division’s reversal? Not at all – I really predicted this would be the outcome.  As you get higher up the food chain, it gets to be more about policy than law sometimes.  The Yano-Horoski trial court choice would have set a perilous precedent and sent shock waves through the mortgage credit industry.  A mortgage is a debt security and should a judge just cancel such a debt based upon broad powers of equity, what bank would lend on a home in such a climate?  And if the bank were willing to risk it, at what cost to the consumer?  The banks would need to insulate themselves against the risk of mortgage cancellation and the way they do that is by increasing the profit margin dramatically.  Also, lets look to the every day people who are paying their mortgage every day, even if their house is underwater – what would be their reaction if all of sudden, homeowners left and right were given free houses? The outrage would start to build (if it hasn’t already) – and they would start to wonder why should they pay their mortgages?

I believe that the parties will quietly come to a settlement, probably sealed of course, and the Horoskis will receive a nicely, modified loan with a stout principal reduction and the bank has a stellar precedent on the appellate record.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
3. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants

“In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.”

The online real estate community was buzzing yesterday as news of this waiver spread quickly. The investor “gurus” are, of course, rejoicing and spreading the news far and wide, without a careful read of the Waiver itself.  The intent of this temporary policy change is to allow investors to take title to a property, rehab it and sell it quickly. It is not a panacea for those investors who pick up a property at a discount, seeking to flip it for a profit in a “back to back” or “double” closing.  For those types of transactions, the 90 day seasoning rule is a non-issue if you utilize a land trust correctly.

HUD’s Mortgagee Letter 2006-14 clarified the Rule and Regulations set forth in 24 CFR 203.37a concerning the eligibility of properties for FHA insurance and the rules governing sales of property.  As I have discussed in a previous blog post,  Legal Analysis of FHA’s Seasoning Requirements, the real estate and mortgage industry routinely misunderstands and applies these eligibility rules incorrectly and it appears that the trend is continuing with this new Waiver.

FAQS:

1. Does it have to be a property bought through a small sale, bank auction or an REO to be eligible under the Waiver?

No. There are no requirements in the Waiver concerning the status of the property itself.  It is not necessary to demonstrate the distressed nature of the property.

2. So I can get a property under contract, do a contract with a potential FHA buyer and close with my FHA buyer the same day or the day after I buy the property?

No this transaction would not be eligible for FHA insurance. The waiver is really of the requirement that the real estate contract be executed on the 91st day after the investor takes title to the property. The requirement that the investor own the property is still in effect and therefore Contract Vendees and Assignments of contract are still prohibited.  Further, an application for an FHA mortgage cannot be submitted to a Lender for consideration without a fully executed Contract.  Therefore, Back to Back Closings will be impossible.

3. So I can close a week after I take title?

Virtually impossible for several reasons. I venture that there are nearly no Lenders in this post-bubble market that will take an application for an FHA mortgage and be in a position to close a week later.  I am going to stretch that to probably 30 days.  This is certain if your sale price to your FHA buyer is 20% or more higher than your acquisition price (do the math – its not that hard to hit that number – especially in certain areas of the country where housing prices are below $50,000). If the sale price exceeds the 20% threshhold, the investor will have to document the increase in value with supporting documentation and/or a second appraisal and the Lender will have to obtain a Property Inspection Report (see paragraph 2 of the Waiver).  This report will not be ordered prior to application submittal and as discussed previously, that doesn’t take place until there is a fully executed Contract of Sale.

4. I found this fantastic property that my buddy picked up 2 months ago for $120,000.00.  He rehabbed it and I am in contract to buy it from him for $220,000.  I want to flip it to an FHA buyer for $250,000.00 can I do it?

You will have to wait until the 91st day after you close title to enter into a Contract of Sale with the FHA buyer. The Waiver will not apply if there is a history of prior flipping activity in the 12 month chain of title (see paragraph 1(c) of the Waiver).

5. In April, the Treasury’s Small Sale Program goes into effect and there should be a lot of distressed properties coming on to the market. The Waiver is going to be a huge help in moving those properties!

No, it isn’t.  Apparently, government offices do not communicate with each other before issuing rulings – one of the requirements under the Treasury small sale program is that the Contract include a representation that the Purchaser will hold the property for 90 days post-closing.  Perhaps the Treasury will revise its Directive and remove this offending language (which, as I had discussed previously, is extremely small-sighted).

Conclusion

Investors should rejoice as finally they are receiving the recognition they deserve: properties are moving because of their hard work and without the proper incentive, it wouldn’t happen. Instead of being the black sheep of the real estate community, investors are a major part of the solution.  This Waiver is what investors need to get the properties rehabbed, sold and occupied to ameliorate the problem of abandoned and blighted homes. It is not a license to flip and should you wish to engage in that type of activity, you will not be able to use this Waiver to accomplish your goals.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

Interagency Statement on Meeting the Needs of Creditworthy Borrowers

The Department of the Treasury, the Federal Deposit Insurance Corporation, and the Federal Reserve have recently place into place several programs designed to promote financial stability and to mitigate procyclical effects of the current market conditions. These programs make new capital widely available to U.S. financial institutions, broaden and increase the guarantees on bank deposit accounts and certain liabilities, and provide backup liquidity to U.S. banking organizations. These efforts are designed to strengthen the capital foundation of our financial system and improve the overall functioning of credit markets.

The ongoing financial and economic stress has highlighted the crucial role that prudent bank lending practices play in promoting the nation’s economic welfare. The recent policy actions are designed to help support responsible lending activities of banking organizations, enhance their ability to fund such lending, and enable banking organizations to better meet the credit needs of households and business. At this critical time, it is imperative that all banking organizations and their regulators work together to ensure that the needs of creditworthy borrowers are met. As discussed below, to support this objective, consistent with safety and soundness principles and existing supervisory standards, each individual banking organization needs to ensure the adequacy of its capital base, engage in appropriate loss mitigation strategies and foreclosure prevention, and reassess the incentive implications of its compensation policies.

Lending to creditworthy borrowers
The agencies expect all banking organizations to fulfill their fundamental role in the economy as intermediaries of credit to businesses, consumers, and other creditworthy borrowers. Moreover, as a result of problems in financial markets, the economy will likely become increasingly reliant on banking organizations to provide credit formerly provided or facilitated by purchasers of securities. Lending to creditworthy borrowers provides sustainable returns for the lending organization and is constructive for the economy as a whole.

It is essential that banking organizations provide credit in a manner consistent with prudent lending practices and continue to ensure that they consider new lending opportunities on the basis of realistic asset valuations and a balanced assessment of borrowers’ repayment capacities. But, if underwriting standards tighten excessively or banking organizations retreat from making sound credit decisions, the current market conditions may be exacerbated, leading to slower growth and potential hurt to the economy as well as the long-term interests and profitability of individual banking organizations. Banking organizations should strive to maintain healthy credit relationships with businesses, consumers, and other creditworthy borrowers to enhance their own financial well-being as well as to promote a sound economy. The agencies have directed supervisory staffs to be mindful of the procyclical effects of an excessive tightening of credit availability and to encourage banking organizations to practice economically viable and appropriate lending activities.

Strengthening capital
Maintaining a strong capital position complements and facilitates a banking organization’s capacity and willingness to lend and bolsters its ability to withstand uncertain market conditions. Banking organizations should focus on effective and efficient capital plotting and longer-term capital maintenance. An effective capital plotting process requires a banking organization to assess both the risks to which it is exposed and the risk management processes in place to manage and mitigate those risks; evaluate its capital adequacy relative to its risks; and consider the potential impact on earnings and capital from economic downturns. Further, an effective capital plotting process requires a banking organization to recognize losses on bank assets and activities in a timely manner; maintain adequate loan loss provisions; and adhere to prudent dividend policies.

In particular, in setting dividend levels, a banking organization should consider its ongoing earnings capacity, the adequacy of its loan loss allowance, and the overall effect that a dividend payout would have on its cost of funding, its capital position, and, consequently, its ability to serve the expected needs of creditworthy borrowers,. Banking organizations should not maintain a level of cash dividends that is inconsistent with the organization’s capital position, that could weaken the organization’s overall financial health, or that could impair its ability to meet the needs of creditworthy borrowers. Supervisors will continue to review the dividend policies of individual banking organizations and will take action when dividend policies are found to be inconsistent with sound capital and lending policies.

Working with mortgage borrowers
The agencies expect banking organizations to work with existing borrowers to avoid preventable foreclosures, which can be costly to both the organizations and to the communities they serve, and to mitigate other potential mortgage-related losses. To this end, banking organizations need to ensure that their mortgage servicing operations are sufficiently funded and staffed to work with borrowers while implementing effective risk-mitigation measures.

Given escalating mortgage foreclosures, the agencies urge all lenders and servicers to adopt systematic, proactive, and streamlined mortgage loan modification protocols and to review troubled loans using these protocols. Lenders and servicers should first determine whether a loan modification would enhance the net present value of the loan before proceeding to foreclosure, and they should ensure that loans currently in foreclosure have been subject to such analysis. Such practices are not only consistent with sound risk management but are also in the long-term interests of lenders and servicers, as well as borrowers.

Systematic efforts to address delinquent mortgages should seek to achieve modifications that result in mortgages that borrowers will be able to sustain over the remaining maturity of their loan. Supervisors will fully support banking organizations as they work to implement effective and sound loan modification programs. Banking organizations that experience challenges in implementing loss mitigation efforts on their mortgage portfolios or in making new loans to borrowers should work with their primary supervisors to address specific situations.

Structuring compensation
Poorly-designed management compensation policies can make perverse incentives that can ultimately jeopardize the health of the banking organization. Management compensation policies should be aligned with the long-term prudential interests of the institution, should provide appropriate incentives for safe and sound behavior, and should structure compensation to prevent small-term payments for transactions with long-term horizons. Management compensation practices should balance the ongoing earnings capacity and financial resources of the banking organization, such as capital levels and reserves, with the need to retain and provide proper incentives for strong management. Further, it is vital for banking organizations to have independent risk management and control functions.

The agencies expect banking organizations to regularly review their management compensation policies to ensure they are consistent with the longer-run objectives of the organization and sound lending and risk management practices.

The agencies will continue to take steps to promote programs that foster financial stability and mitigate procyclical effects of the current market conditions. But, regardless of their participation in particular programs, all banking organizations are expected to adhere to the principles in this statement. We will work with banking organizations to facilitate their active participation in those programs, consistent with safe and sound banking practices, and thus to support their central role in providing credit to support the health of the U.S. economy.

Tags: FDIC, Fed, Credit, Lending, Banks, Mortgage

Related posts:

1. Fannie and Freddie – What Went Wrong and Can It Be Fixed?
2. Washington Mutual to end 2 complex mortgage types
3. Mortgage Assignments are Not the Real Estate Investor’s Dream!

July 22, 2008 – CMPS Institute

 “There are two main issues that need to be addressed regarding the problems being experienced by Fannie Mae and Freddie Mac,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers.

Issue #1 – Small-term crisisFannie and Freddie currently buy a whopping 68% of all new US home mortgages compared to 45% one year ago. This means that if they fail, nearly 70% of US home buyers would be unable to qualify for financing. “The declines in home prices we are currently experiencing would pale in comparison to the rapid free-fall in home values that would result if 68% of home buyers suddenly found themselves without funding options,” said Nicholas.The carnage in the real estate markets wouldn’t be the only crisis facing consumers. Wall Street investors, financial institutions, mutual funds, foreign governments and wealthy foreign investors have long considered their investments in Fannie Mae and Freddie Mac to be super-safe. The turmoil currently being faced has really hammered the asset values of Fannie and Freddie and place downward pressure on both their bond and stock prices.“Accounting rules require financial institutions to reassess the value of their investments based on current market prices,” said Nicholas. “Every time asset prices fall, financial institutions need to raise more money to maintain their minimum capital requirements.” The downturn in Fannie and Freddie stock and bond prices has the potential to cause upheaval in financial markets across the world. “This pressure to raise funds and meet capital requirements makes a downward spiral in prices forcing financial institutions to continually sell even more assets into an already depressed market,” said Nicholas. “A terrible situation quickly becomes even worse – this is exactly what has been happening among financial institutions since the credit crisis started in July 2007.

”Issue #2 – Long-term policyFannie Mae was made in 1938 as a government agency with a mission to buy mortgages from banks and issue bonds on the bond market using the pool of mortgages as collateral for the bonds. This process was designed to add liquidity to the mortgage marketplace and supply banks with extra funds that could be used to allow more Americans to buy and own homes. Fannie Mae became so successful and profitable that in 1968, the government chose to spin it off into a private, shareholder-owned company. In 1970, the government chartered Freddie Mac as another private, shareholder-owned company to provide some competition to Fannie Mae and further add liquidity, stability and affordability to the housing market. Since then, the companies have grown so large that they own or guarantee roughly half of all mortgages in the United States.The main issue being faced by government officials today is whether it is wise or viable to have US taxpayers support the risky business practices of for-profit companies like Fannie Mae and Freddie Mac. Fascinatingly enough, Fannie and Freddie do not wish to be completely privatized. They have spent over $170mm on government lobbying activities since 1998. “Their preferred status and insider ties to the government have resulted in record corporate profits when times were excellent and a taxpayer-funded safety net when times are terrible,” said Nicholas. “Just because the companies engage in a business that benefits the public, doesn’t mean that they deserve to be fully backed by taxpayers and the federal government.

”Nicholas and the CMPS Institute are among the growing number of individuals and institutions that have called for completely privatizing Fannie and Freddie and eliminating their ties to the government. “Breaking up the companies and completely privatizing them may very well be a viable long-term solution that could prevent a crisis of this magnitude from occurring in the future,” Nicholas said. “The delicate balance here is not to sow the seeds of next crisis while simultaneously preventing a full-scale meltdown of the US housing market and financial system.”Members of the press can learn more about Fannie Mae, Freddie Mac and other current events in the mortgage industry by attending the upcoming CMPS event in New York City, July 28-30, 2008. The main presenter will be CMPS Institute Chairman Gibran Nicholas, and there will be a special real estate market forecast delivered by Dr. Lawrence Yun, chief economist of the National Association of Realtors. The entire event is open to the press, who can request complimentary attendance by registering here: http://www.cmpsinstitute.org/public/forecastAbout CMPS Institute: CMPS is a training, examination, certification and ongoing membership program for financial professionals who provide mortgage and real estate equity advice. Recognized for its preeminence within the industry, the CMPS curriculum represents the core knowledge expected of residential mortgage advisors regardless of the diversity of specializations within the industry. Over 5,500 financial professionals have gone through the program since its launch in 2005. For more information or to find a certified professional near you, please visit www.CMPSInstitute.org or call 888.608.9800.CMPS Institute by Josephine Nicholas, Ann Arbor-MI

Fannie and Freddie – What Went Incorrect and Can It Be Fixed?

Tags: FannieMae, Freddie Mac, lending, mortgage, crisis, foreclosure, real estate

Related posts:

1. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
2. Washington Mutual to end 2 complex mortgage types
3. Mortgage Assignments are Not the Real Estate Investor’s Dream!

YouNewsTV™Tale Published: Jun 18, 2008 at 8:36 PM MDTStory Updated: Jun 18, 2008 at 8:36 PM MDTBy Associated Press SEATTLE (AP) – Washington Mutual Inc. said Wednesday it would stop offering two types of complex mortgage products as part of a shift in its mortgage business, as it works to deal with the fallout from the subprime mortgage mess.The nation’s largest thrift said it would no longer offer negative amortizing loan products, and will also end its WaMu Mortgage Plus loan.

Negative amortization happens when a payment on a loan does not cover the interest due, and the amount of interest owed is added to the principal balance, increasing the size of the loan.WaMu Mortgage Plus loans were mortgages with built-in lines of credit and flexible payments.Washington Mutual also said it is adding $1 billion to its borrowers’ help program, developed in 2007 to help people with subprime mortgage loans stabilize their finances and avoid foreclosure.In aftermarket electronic trading, Washington Mutual shares fell 10 cents to $6.16, from their regular session close at $6.26.

Washington Mutual to end 2 complex mortgage types

Tags: subprime, mortgage, Washington Mutual, WAMU, negative amortization

Related posts:

1. Fannie and Freddie – What Went Wrong and Can It Be Fixed?
2. Mortgage Assignments are Not the Real Estate Investor’s Dream!
3. Foreclosure Defense Bar: Heads Up! Forensic Exam of TBW Mortgage Corp Loan Docs Could Be Fruitful

More than a Million Homes in Foreclosure in Latest Report – June 5, 2008

NEW YORK (CNNMoney.com) — More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that number will continue to climb.The Mortgage Bankers Association’s first quarter report showed that a record 2.5% of all loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That’s up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007.

More than a million homes in foreclosure in latest report – Jun. 5, 2008

Tags: foreclosure

         Proposed NY Senate Bill Would Enforce Upkeeping of Foreclosed Homes

Kerri Panchuk
| 06.03.08       New York State Senator Jeff Klein is one of several lawmakers
supporting New York State Senate Bill 7028, a piece of legislation that
would require the “winning party” in a foreclosure action to ensure a
home is cared for properly, especially if a local neighborhood
homeowners’ association requires that specific maintenance measures
occur.Senate Bill 7028 specifically says, “Where a final judgment for
the holder of a mortgage has been rendered in an action to recover any
part of the mortgaged debt, it shall be the duty of the prevailing
party to enter into control and possession of the foreclosed property
and to maintain it in a safe and habitable condition until said
premises are sold.”

DSNews.Com Default Servicing In Print and Online – Formerly REO Magazine

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Washington Mutual to end 2 complex mortgage types
3. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants