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On Thursday of last week, lenders involved in negotiations with the Obama administration to reach a settlement that would hopefully end the robo-signer controversy and begin to restore faith in the lending industry received the administration’s proposal for resolving the robo-signer fiasco. Rumors have swirled about the contents of this proposal, with critics claiming that the lenders are going to have to pay too much to people who were wrongfully foreclosed and lenders insisting that mandatory principal reductions would ultimately just lead to fraud and closed banks. However, pretty much everyone expected that there would be some solid number for a monetary penalty that banks would have to pay for their misconduct. Oddly enough, there is nothing like that in this initial document[1].

This may be a response to allegations – apparently reasonably accurate – by the comptroller of the currency, John Walsh, that most of the foreclosures conducted by banks were legal – even if not adequately documented or verified – and that only “a small number of foreclosure sales should not have proceeded” of the myriad processes now in question due to the robo-signer fiasco. However, the decision to make the settlement proposal largely a “code of conduct” for banks moving forward has many people, including a “Capitol Hill staffer” who spoke to the Huffington Post on condition of anonymity, suspicious that “the settlement was conceived as a benefit for financial markets, giving investors and banks certainty about their total liability from wrongful foreclosure rather than thousands of individual court cases”[2]. If this is the case, then you would think that lenders would be pleased to have ultimately gotten a settlement in hand.

However, lenders complain that the fees and regulations in their proposed code of conduct are nothing more than a “naked shakedown.” Futhermore, they believe that some proposed mandatory principal reduction regulations do nothing more than open them up to fraud and, and lenders like Ally Financial admitted that “any of these potential actions could have a material adverse impact on us”[3]. It seems reasonable that lenders should pay for this vast moral and professional oversight, but unless we are ready to operate without the lending industry as we currently know it, then maybe the penalties cannot be as severe as many might consider “fair.” Do you think that this settlement does enough for the injured parties? Too much? How should the country’s lending industry be handled going forward?

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Let us know what you think of the administration’s proposed settlement with the banks below.

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[1] http://www.dsnews.com/articles/banks-receive-proposal-that-could-make-write-downs-mandatory-2011-03-04

[2] http://www.huffingtonpost.com/2011/03/04/lawmakers-demand-big-mone_n_831693.html

[3] http://empowerednews.net/foreclosure-investigation-result-draws-closer-as-attorneys-general-draft-settlement/186364/

According to LPS Applied Analytics, the average borrower in foreclosure spends 17 months in the foreclosure process, up six months from 2009’s 11 months. Furthermore, this is probably not the end of the extension process, said Herb Blecher, senior vice president of LPS, citing “huge volumes of defaulted mortgages,” “time-consuming reviews for loan modifications and additional delays that followed revelations late last year about improperly filed foreclosure documents”[1]. Before the housing crash and subsequent foreclosure crisis, the average foreclosure took about 250 days. Now, says Blecher, “loans are spending longer in the process.”

Interestingly, this constantly-extending delay could artificially inflate prices in some markets as local inventories shrink, removing the massive foreclosure glut from the equation – temporarily. However, emphasize experts, this is nothing but a trade-off for improvement now and more pain later since “ultimately, these units have to be foreclosed” and when they are, they will weigh on the housing market when they become available, says Beacon Economics analyst Christopher Thornberg. Additionally, some lenders may be deliberately slowing foreclosures to keep their books balanced and avoid tanking delicate local markets.

To make matters even more confusing, many experts and analysts – and now government officials as well – fear that the current administration’s strategies for dealing with the foreclosure problem are “broken.” Neil Barofsky, special inspector general for the TARP bailout program, has announced that he will be stepping down from his post in March 2011 at least in part because “many of the people it’s [Home Affordable Modification Program] supposed to be helping are now in a far worse place than they would have been had this program not existed”[2]. While many people have been saying this literally since the inception of the program, if it is eliminated (which seems unlikely) banks will once again have to revisit the entire foreclosure and modification process and homeowners and investors will once again face uncertainty as they wait for the “new rules” of foreclosure.

Do you think longer foreclosure timelines are a good thing for the market? For homeowners? How can lenders appropriately handle this issue?

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Please let us know what you think about the foreclosure crisis and the Home Affordable programs below.

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[1] http://www.usatoday.com/money/economy/housing/2011-02-21-unpaidmortgages21_ST_N.htm

[2] http://www.npr.org/2011/02/18/133839730/tarp-watchdog-says-foreclosure-plan-is-failing

Juan Rangel of California was heartless when it came to taking money from his victims, and he would get it nearly any way that he could think of. Rangel operated a $30 million Ponzi scheme in California targeting Hispanic investors and also managed to talk many of them into signing over title to their distressed properties as well[1]. He has been in court on multiple charges since 2008 and finally was sentenced yesterday as part of a plea agreement in which he pled guilty in exchange for 15 years in prison. A judge added seven more years because of the “devastating impact Rangel’s actions had on his victims.” Those victims number more than 500[2].

The two-part scheme involved promising to pay investors high returns on investments – often as high as 60 percent – by placing their money in real estate and lending situations that would realize high profits. In reality, Rangel simply took new money to pay off old investors and also bought a mansion and a Lamborghini. He also targeted Latino homeowners in preforeclosure, taking title to homes, draining equity and selling the properties without the owners’ knowledge to a number of straw buyers. These straw buyers then were used to apply for more loans on the home, few or none of which were ever paid.

While all this is bad enough, Rangel had a completely “callous disregard” for his investors, said the court. One victim testified that she had invested all the money she received after her son, a marine, was killed in Iraq. He also did everything possible to scare his investors away from putting money in banks and recommending that they give all funds to him instead.

It seems like every day a new mortgage fraud story breaks. Do you think that new mortgage regulations will help this situation? Have you personally encountered this type or a similar type of fraud?

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Leave your comments and questions below.

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[1] http://nationalmortgageprofessional.com/news23646/california-man-gets-22-year-sentence-leading-ponzi-scheme-and-mortgage-fraud-scam

[2] http://www.businessweek.com/ap/financialnews/D9LDAOA80.htm

According to an article in the Florida Bar Journal, the Florida Bar Association considers it an attorney’s responsibility to notify judges of potential foreclosure fraud when working on foreclosure cases – even if the property has already been foreclosed upon and even been sold at auction[1]. The types of fraud particularly noted are “robo-signed affidavits and forged notary stamps.” Given that in the 1.2 million foreclosures filed in Florida since the beginning of 2007, “tens of thousands of forged signatures, backdated documents and other problem paperwork” have been detected already, this new mandate could further add to the massive foreclosure backlog threatening the engulf the state’s housing market.

Ultimately, however, lawyers must try to do the right and best thing in unprecedented circumstances, then wait for the judge to react, say Florida attorneys. “There has never been a problem like this before,” explains Margery Golant, who teaches a foreclosure course for the Bar and is based in Boca Raton. Cynthia Booth, one of the Bar’s ethics attorneys, emphasizes that “You try to cause the least amount of harm as possible to the client” when reporting fraud, but added that if fraud is suspected, the lawyer’s “duty to the court supercedes…duty to the client.” This means that even if the lawyer is working with the lender, he or she still must report suspected “fraudclosure” to a judge in a private hearing.

As yet, Bar officials have not determined what the results of the fraud notification should or could be. They say it is “unclear what judges will do about fraud in a finished foreclosure,” but that it is likely proceedings will stop in pending cases so that an investigation can be conducted[2]. This sounds a lot like lawyers trying – albeit belatedly – to “do the right thing.” However, it also turns lawyers directly against their clients in some cases. Do you think that this new Florida Bar policy is appropriate?

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Please leave comments and questions below.

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[1] http://www.tcpalm.com/news/2011/feb/01/florida-bar-says-foreclosure-lawyers-must-report/

[2] http://www.miamiherald.com/2011/02/02/2046181/fla-bar-says-foreclosure-fraud.html

Banks and lenders repossessed more than 1 million homes in 2010, but more than 3 million homes actually entered foreclosure last year. As a result, 2011’s foreclosure numbers stand to be far worse than 2010’s as banks attempt to “catch up” on properties that have been delinquent far longer than would usually be permitted[1]. Lenders will be moving through a serious backlog as 2011 gets underway, and one in every 45 U.S. households will have received a foreclosure filing in 2010 that the homeowner will have to confront in 2011.

While the pace of foreclosures slowed dramatically in December partly due to holiday policies on the parts of lenders and law enforcement and partly due to lenders’ self- and externally-imposed reviews of foreclosure practices, there are still a lot of foreclosures out there that will stand up in a court of law. However, it remains to be seen if the lenders themselves can afford to foreclose in the volumes that are being predicted. Particularly in light of the recent Massachusetts foreclosure ruling that brought to light egregious oversights in mortgage paperwork that will likely invalidate myriad foreclosures at least in that state, many analysts are predicting a boom in short sales and loan mods as lenders opt to keep what they can and avoid a massive REO influx.

This new ruling is indisputably necessary in light of massive flaws in the paperwork and foreclosure systems at major lenders. However, it also threatens to stall the real estate market’s recovery indefinitely and render foreclosures nearly impossible. Do you think this is a good thing or a bad thing for the market in the long run?

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[1] http://www.businessweek.com/ap/financialnews/D9KN8HJG1.htm

It is one thing to lose your house to foreclosure as a casualty in the real estate market crash and another to lose it because a person you trusted sweet talked you into deals that were destined to fail. At least 75 home owners are complaining about being “coaxed” by a real estate agent into dealings that made them lose their homes to foreclosures. Miguel Romero – real estate agent, income tax preparer, insurance dealer, and credit repair specialist – is being complained about by 75 of the 122 Latino families to whom he sold homes since 2004. Though there are no public allegations to him breaking the law, his case showcases industry excesses that may partly explain the foreclosure crisis: The largely Spanish-speaking borrowers claim that they were convinced to sign documents that they did not understand, charged excessive fees by mortgage brokers who exploited language barriers and offered high-risk loans made more tempting by promises of high payoffs for investments.

Though documents of the clients never show Romero as loan officer, the complainants report that they were actually pushed into lying in mortgage applications – a state crime. But Romero’s colleagues came to his defense, saying he is not the type of agent who would have encouraged people to lie. Records show that on top of the 122 homes sold (and 75 foreclosed), Romero also had a network of employed real estate agents who sold 63 more homes since 205 – and 21 of these have entered foreclosure. In summary, 69% of his sales and 33% of his agents’ have resulted either in short sale or foreclosure. And the clients contest this is not a coincidence. There have been no comments from the attorney general and district attorney as to whether Romero’s actions are now being investigated.

Federal prosecutors seem to be getting some results in their probe into real estate investment scam. Two more defendants have plead guilty to charges of conspiracy and mail fraud regarding real estate investment scam [1].

The eighth and ninth to enter guilty pleas to be entered were on behalf of brothers Matthew and Lance LaMadrid – 44 and 46 respectively. The two admitted that from 2004 to 2008 they operated Plus Money Premium Return Funds and other entities. The said entities have gotten at least $30 million from investors by providing false monthly statements showing profitable brokerage accounts. The funds from new investors were in actuality being used to pay debts from older investors.

The younger of the two also confessed to misrepresenting borrowers’ assets on loan applications. As a result of the fraud, millions of dollars were obtained by the younger LaMadrid’s entities. The elder, on the other hand, said his fraudulent activities caused around $400,000 to $1 million losses. April 4 is set for the brothers’ sentencing.

[1]http://www.sdbj.com/news/2011/jan/04/two-brothers-enter-guilty-pleas-real-estate-invest/

There have been so many horror stories related to the real estate market that one cannot be blamed for being too scared to jump into purchasing a house. Even news headlines are supporting the fear of being in the real estate market. However, analysts are starting to point out that real estate deals these days are just too good to resist – and some Americans are starting to realize that[1].

In the past two years, housing experts have never been able to agree as whether the combination of record-low mortgage rates and low home prices has made home buying worth the perceived risk in today’s market. Mortgage-insurance and research firm PMI Group Inc. chief economist David Berson pointed out that the U.S. median home price during the market boom was 7.3 times disposable per capita income but ratio is currently only at 5.

A warning, though, to those who are now gaining confidence to jump the gun: lowering of prices does not mean further decline is not about to happen. Home ownership is no longer about investing solely for appreciation, but also in the experience and benefits of owning a home versus renting one. Experts explain that there are just some cities that have better price outlook. PMI’s risk index reveals that metro areas – 381 of them – have 30% less chances of seeing a drop in prices in the next two years. If you are to purchase a home, those in the Midwest or South will be the best option.

[1]http://realestate.msn.com/article.aspx?cp-documentid=26646856>1=35006

With the recent economic slump that had almost everyone suffering some financial loss, businesses have relied on lending to keep themselves afloat. Even mortgage companies have had their share of troubles during the economic downturn. One such troubled mortgage company is Ally Financial’s mortgage unit Residential Capital and its subsidiaries. This week, ResCap reaches an agreement with Fannie Mae in resolution of repurchase exposure that may arise from breaches in warranties and selling representations[1].

ResCap and its subsidiaries are now released from liability for the $292 billion unpaid balance it owed Fannie Mae – thanks to a $462 million settlement reached with the government-controlled GSE. The settlement will cover loans serviced by GMAC Mortgage prior to the 30^th of June, 2010 on behalf of Fannie Mae. Mortgage-backed securities purchased by Fannie Mae prior to the settlement are also covered in the settlement.

“At the start of 2010, we set a goal to substantially reduce risk in our mortgage operation and, during the last twelve months, we have successfully completed a series of steps toward that objective and are largely complete. This agreement, along with prior repurchase settlements with Freddie Mac and others and the sale of legacy assets and operations, has significantly reduced Ally’s risk related to the legacy mortgage business going forward,” Ally CEO Michael A. Carpenter said.

The settlement does not cover contractual obligations such as those that may arise from mortgage servicing. Also, Ally Bank is excluded from the settlement. Aside from the settlement, ResCap and Fannie Mae also made arrangements for ResCap’s mortgage insurance proceeds payment for rescinded or cancelled mortgage insurance coverage.

ResCap CEO Thomas Marano said yesterday that “We are very encouraged to have reached this agreement with Fannie Mae. They are a key counterparty to our mortgage business and we look forward to continuing our important and productive relationship. With our de-risking initiatives largely complete, the mortgage business will focus predominantly on the origination and servicing of conforming mortgages, which is where the company holds leadership positions.”

[1]http://www.dsnews.com/articles/ally-financial-reaches-462-settlement-with-fannie-mae-2011-01-03

So we all know that banks have admitted to robo-signing, a process whereby employees sign foreclosure cases without verifying the veracity of the documents. We also know that banks have tried controlling the negative effects by freezing foreclosure sales in most states (and even all for a number of banks). But what we don’t know is that the issue at hand is bigger than what they are all letting us on.

There have been talks about the effects of the foreclosure freezing on foreclosure buyers, homeowners who are facing and have faced foreclosures, and the housing market in general. But nobody has ever really touched on the real issue: who has the right to foreclose on properties? The ownership of loans is what everybody should be talking about; and everybody should also know that no matter what the Obama administration says, foreclosures are still governed by state law and not federal jurisdiction.

Georgetown University Law professor Adam Levitin, who specializes in financial regulatory issues and mortgage finance, discussed in a recent conference call between Citigroup and its investors and clients the adverse effects of the mortgage mess. According to the professor, the documentation problems can cloud the title on both foreclosed mortgages and performing mortgages. Furthermore, says Levitin, real estate analysts should start looking at the negative results of cutting corners – e.g. securitization and modernization.

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