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Lawmakers Demand Answers from Treasury on Proposed Settlement

More backlash from the 27-page proposed servicer settlement developed on Wednesday when five representatives from the House Financial Services Committee voiced their disapproval and concern in a letter to Treasury Secretary Timothy Geithner.

The letter, signed by committee chairman Spencer Bachus, and members Scott Garrett, Randy Neugebauer, Patrick McHenry, and Pete Sessions, was obtained by DS News on Thursday.

“If the terms of the draft settlement are implemented as proposed, the settlement would transform the mortgage servicing industry and fundamentally change the rules that have historically governed relationships among borrowers, servicers, and investors,” said the letter.

Additionally, the letter claims “the breadth and scope of the draft settlement proposal raise significant concerns about its effect on the financial system, as well as concerns that the administration and state agencies are attempting to legislate through litigation.”

The representatives believe the settlement is going above and beyond typical remedies imposed by federal banking regulators. Instead of asking for compensation for victims who were specifically harmed by misconduct of some sort, or demanding improvements in internal operations, the representatives say this settlement is attempting to revamp the whole system.

One specific issue the group has with the settlement is its mention of using Home Affordable Modification Program (HAMP) guidelines and procedures, because the House Financial Services Committee sent a bill to terminate HAMP to the House on Wednesday.

The group also points out that the House and Senate have both rejected efforts to enforce principal write-downs in the past.

In the list of questions, the five representatives ask, “What standards will govern the process by which servicers select which borrowers receive a principal write-down?”

And if write-downs are to be given to borrowers who fall behind on payments, “Will forcing servicers to fund principal reductions for underwater loans they service affect the incentive of mortgagors to stay current on their loans?” In the settlement, there is a mandate that monetary penalties be collected from servicers to support mortgage modifications and to fund programs used to help borrowers avoid foreclosure. The group asks, “What is the legal basis for using funds collected in an enforcement action to benefit parties who have not been harmed by the purported wrongdoing?” The group requests detailed answers to these and other questions by March 18.

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As much as the big banks want to end the mess and move on; as much as the country NEEDS this mess to be over, it looks like it's around for a while. Attorneys general in all 50 states are jointly investigating whether lenders violated state laws, lawyers for evicted homeowners are preparing lawsuits against major lenders, state judges have signaled they will review the banks' foreclosure documents with skepticism, and lawmakers on Capitol Hill plan to hold hearings. On top of all that, now and unnamed official has told CNBC that the FBI is in the initial stages of trying to determine whether the financial industry may have broken criminal laws in the mortgage foreclosure crisis. The law enforcement official says the question is whether some in the industry were acting with criminal intent or were simply overwhelmed by events in the wake of the housing market's collapse.

The official spoke on condition of anonymity because the investigation is just getting under way. Hundreds of judges around the country have the authority to penalize bank officials who violate their procedural rules. They could also force thousands of foreclosure cases to go to full trials rather than issue a quick ruling. Judges won't take well to banks that filed erroneous documents with their courts, said Indiana Attorney General Greg Zoeller. "There could be some serious consequences," including criminal charges, Zoeller said. Even if there aren't, lawsuits are likely to continue for years, said Guy Cecala, publisher of trade publication Inside Mortgage Finance. "Some of these plaintiffs' attorneys clearly smell blood in the water," Cecala said.

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Thursday, October 14, 2010
To secure title insurance on REO sales, Bank of America has agreed to indemnify a major insurer if the title is challenged due to robo-signings and other improper foreclosure processing practices.

"Bank of America and Fidelity National Financial have reached an agreement confirming that Fidelity will provide title insurance on the sale of foreclosed properties," said B of A spokesman Dan Frahm.

Under the agreement, Fidelity will defend the new homeowner in court if a foreclosed owner challenges the title. B of A will cover the costs and, if necessary, any damages awarded to the previous owner.

"Bank of America and Fidelity National are taking this step to facilitate the continued availability of title insurance that is vital to the marketability of foreclosed properties," Frahm said.

The giant bank is seeking similar agreements with other title insurers.

American Land Title Association chief executive Kurt Pfotenhauer welcomed the B of A/Fidelity agreement.

“Title insurers are looking to lenders to provide appropriate indemnities," he said. ALTA also has approached the GSE regulator about title indemnifications.

"We will continue to work with federal and state regulators, Fannie Mae, Freddie Mac and lenders to bring certainty to the marketplace," Pfotenhauer said.

RealtyTrac says 372,445 foreclosure auctions were scheduled in July, August and September, while 288,345 properties were repossessed by lenders over the same time period. Overall foreclosure filings edged up to 930,437 in the third quarter, a 4% increase from the previous quarter. One in every 139 homeowners received a foreclosure filing during those three months. Bank repossessions, or REOs, also are on the rise. In September, a record 102,134 homes were taken back by banks. It's the first time repos have topped 100,000 in a single month. The uptick is not expected to last, RealtyTrac CEO James Saccacio said in a statement, because several major loan servicers have halted foreclosure sales pending a review of documents. Nevada had the nation's highest foreclosure rate, up 1% from earlier, for the 15th quarter in a row.

One in every 29 Nevada homes received a foreclosure filing during the third quarter. Looking at total numbers of foreclosures, neighboring California was worst, with 191,016, followed by Florida, Arizona, Illinois and Michigan. Combined, the five states accounted for half of all foreclosures last quarter. Of course, once the moratorium ends, we can expect a new tidal wave of foreclosures. John McGeough, a broker, said that the current foreclosure freeze may give distressed homeowners extra time to do a short sale and avoid having their homes repossessed by the banks. "Foreclosure should be the last resort."

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Ally Financial, previously known as GMAC, the finance arm of General Motors, said Tuesday it has hired outside accounting and legal firms to examine its foreclosure procedures in all 50 states. That effort will not look at individual cases. Ally also said it would review pending foreclosure sales to ensure that all documents are accurate. In addition, Ally had previously announced that it was temporarily suspending evictions and post-foreclosure closings in the 23 states in which judges must sign off before someone loses their home. The company will continue its internal review in those 23 states. Ally Financial said it has found no evidence of any inappropriate foreclosures. Separately, both Wells Fargo and Litton Loan Servicing said Tuesday they were modifying their foreclosure processes. A spokesman for Wells Fargo, one of the nation's largest loan servicers, said the bank is conducting additional reviews of documents, but is not freezing foreclosures. Litton said in a statement that it "has suspended foreclosure proceedings in certain cases while it completes a review of its procedures."
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The 30-year, fixed-rate mortgage hit its lowest point in more than 50 years. The Freddie Mac Primary Mortgage Market Survey reported the average rate for a 30-year, fixed-rate mortgage at 4.19% with an average 0.8 origination point for the week ending Oct. 14, down from last week's average of 4.27%. A year ago the average was 4.92%. This is the lowest rate the survey has recorded since its inception in 1971. Mortgage rates were last at this level in April 1951, according to Freddie Mac. The Bankrate survey of large banks and thrifts reported the average rate for a 30-year, fixed mortgage is 4.47% with a 0.32 origination point, slightly above the 25-year-old survey's record low of 4.45% posted last month. Rates for 15-year FRMs are falling steeply, setting a new low for Freddie Mac.

The GSE said the rate was down to 3.62% with an average origination point of 0.8. The rate for a 15-year FRM was 4.37% a year earlier. Bankrate said the average rate for 15-year, FRMs of 3.85% is a new record low and down from 3.87% a week earlier. Frank Nothaft, vice president and chief economist at Freddie Mac, attributed the declining rates to the loss of 95,000 nonfarm payroll jobs in September. The GSE said the average for a 5-year, adjustable-rate mortgage is 3.47% with an average 0.6 origination point, down from 4.38% a year ago. The average remained flat with last week. Bankrate reported the average rate for a 5-year, ARM fell last week to 3.62% from 3.64% previously. The one-year Treasury-indexed ARM averaged 3.43% with an average 0.7 point up slightly from 3.4%. At this time last year, the one-year ARM averaged 4.6%.

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The mortgage-foreclosure crisis spilled into the financial markets on Thursday, driving down bank stocks and weighing on mortgage bonds as investors took a grim view of the potential costs. Shares of U.S. banks fell, while the broader stock market was essentially flat. Bank of America Corp., potentially among the most affected, dropped more than 5%. Bank bonds also fell, and the cost of buying protection against a possible debt default by banks climbed. "The level of uncertainty in the economy is at extraordinarily high levels to begin with," said Jack Scott, chief investment officer at BlackHawk Capital Management, a Charlotte, N.C., money manager that owns mortgage securities. "The foreclosure problem adds another layer of acute uncertainty."

So far, the foreclosure crisis hasn't affected consumer mortgage rates, which remain near record lows. They are closely linked to rates on U.S. Treasurys, which have tumbled in recent months. Until recently, investors hadn't fled financial stocks. If the issues raised about foreclosure practices in recent days are easily resolved technical glitches, with most foreclosures resuming after brief delays, then the impact on most investors would be small. "The [mortgage] market seems to be functioning relatively well, but that could change depending on how we see this play out," said BlackRock Inc. portfolio manager John Vibert. But some fear that it may be difficult to do any foreclosures for a while.

The risk is that foreclosure flaws are so widespread, or the political furor so heated, that the entire process grinds to a halt, as Citigroup analyst Joshua Levin said in a conference call this week. In some cases, that would choke off much of the cash flow used to pay mortgage bondholders. Another concern is that banks could be forced to modify billions of dollars in loans, including reducing principal, which could leave bondholders as big losers. Banks, meanwhile, could be hit with investor lawsuits, and foreclosure delays could bring short-term losses. Some investors are pushing for banks to take back nonperforming mortgages in cases of faulty documentation.