January 18, 2014
The court in deciding Beka Realty LLC v JP Morgan Chase Bank, N.A., 41 Misc. 3d 1213(A) (N.Y. Sup. Ct. 2013) ultimately granted Chase’s motion for an order dismissing plaintiff’s claims.
Beka Realty LLC (plaintiff) brought an action against defendant JP Morgan Chase Bank, N.A. (Chase) for a judgment declaring that the enforcement or foreclosure of the mortgage held by Chase is barred on the claimed basis that Chase lacked ownership of the mortgage, cancelling the mortgage, and awarding it damages for fraud, negligent misrepresentation, and unjust enrichment.
Chase moved, pursuant to CPLR 3211 (a) (1) and (7) and 3016 (b), for an order dismissing plaintiff’s complaint in its entirety, and awarding it reasonable attorneys’ fees, costs, and expenses. The court granted this motion, moreover, the court found that the plaintiff’s five causes of action all failed as a matter of law because each of them was predicated on the unfounded assertion that Chase did not have the right to enforce the Loan. Since the court found that the unrefuted documentary evidence flatly contradicted this assertion, the court found that none of these causes of action stated legally viable claims.
Accordingly Chase’s motion for an order dismissing plaintiff’s complaint in its entirety was granted, and it was declared that Chase is entitled to enforce the Loan.
January 17, 2014
Credit.com quoted me in What Happens to Your Mortgage After Death? It reads in part,
Death isn’t on the minds of most homeowners on closing day, naturally, unless it’s a fear of drowning in paperwork. But it’s really never too early to consider what happens to your mortgage should you pass away.
The financial obligation of a home loan does linger after death. There’s a host of scenarios regarding the mortgage’s ultimate disposition, all colored by a homeowner’s estate planning (or lack thereof) and other legal issues.
It isn’t a particularly pleasant topic, but a little bit of planning and paperwork can save your loved ones from considerable headache and hassle during an already difficult time.
“If you’re really thinking about your family’s long-term interests, purchase insurance so they can stay in your home upon your death, and have a will to make everything administratively easy,” said David Reiss, a law professor at Brooklyn Law School in New York.
Keeping the House
Nearly seven in 10 recent homebuyers are married couples, according to the National Association of Realtors, so we’ll focus on them. The co-borrowing spouse will typically be financially liable for the mortgage moving forward.
A spouse who plans to continue living in the home will need to keep current on payments. If you have a life insurance policy in play, your spouse may be able to use the payoff to keep up with or completely wipe out the mortgage balance.
Reiss recommends homeowners consider term life plans rather than actual mortgage term insurance, which can be more expensive.
* * *
About a third of people 65 and older have a mortgage, according to the U.S. Census. For older homeowners, it’s important to talk with family members about the property’s long-term future.
Children and grandchildren may not share the same desire to keep a house in the family.
“Do you see it as something your family wants to keep?” Reiss said. “You want to make that as financially easy for them as possible.”
January 16, 2014
The Office of Financial Research in the Department of the Treasury has released its 2013 Annual Report. It describes a number of things that should scare you as you put your head on your pillow at night and dream of the financial markets. It also describes some important steps that OFR is taking to get a handle on these potential nightmares.
One of the nightmares, relevant to readers of this blog, are Mortgage REITs. Mortgage Real Estate Investment Trusts (REITs) are “leveraged investment vehicles that borrow shorter-term funds in the repo market and invest in longer-term agency mortgage-backed securities (MBS).” (16) OFR identifies serious problems in this subsector:
Mortgage REITs have grown nearly fourfold since 2008 and now own about $350 billion of MBS, or 5 percent of the agency MBS market. Two firms dominate the sector, collectively holding two-thirds of assets. By leveraging investor funds about eight times, mortgage REITs returned annual dividend yields of about 15 percent to their investors over the past four years, when most fixed-income investments earned far less.Mortgage REITs obtain nearly all of their leverage in the repo market, secured by MBS collateral.
Lenders typically require that borrowers pledge 5 percent more collateral than the value of the loan,which implies that a mortgage REIT that is leveraged eight times must pledge more than 90 percent of its MBS portfolio to secure repo financing, leaving few unencumbered assets on its balance sheet. If repo lenders demand significantly more collateral or refuse to extend credit in adverse circumstances, mortgage REITs may be forced to sell MBS holdings. Timely asset liquidation and settlement may not be feasible in some cases, since a large portion of agency MBS trades occurs in a market that settles only once a month . . ..
Although their MBS holdings account for a relatively small share of the market, distress among mortgage REITs could have impacts on the broader repo market because agency MBS accounts for roughly one-third of the collateral in the triparty repo market. Mortgage REITs also embody interest rate and convexity risks, concentration risk, and leverage. For these reasons, forced-asset sales by mortgage REITs could amplify price declines and volatility in the MBS market and broader funding markets, particularly in an already stressed market. (17)
Sounds like systemic risk to me.
Happily, the report also contains policy proposals to address some of these systemic risk concerns. First and foremost, it proposes the adoption of a Financial Stability Monitor tool to track financial threats. The OFR also proposes mortgage-specific tools. Reiterating the findings in a recent OFR white paper, the report calls for the creation of a universal mortgage identifier so that regulators and researchers can more quickly identify patterns in the mortgage market. Predicting financial crises is still more of an art than a science but it is a good development that OFR is trying to improve the quality of the data that regulators and researchers have about the financial market.
January 15, 2014
The Joint Center for Housing Studies of Harvard University released its report, America’s Rental Housing: Evolving Markets and Needs. The report notes that
Rental housing has always provided a broad choice of homes for people at all phases of life. The recent economic turmoil underscored the many advantages of renting and raised the barriers to homeownership, sparking a surge in demand that has buoyed rental markets across the country. But significant erosion in renter incomes over the past decade has pushed the number of households paying excessive shares of income for housing to record levels. Assistance efforts have failed to keep pace with this escalating need, undermining the nation’s longstanding goal of ensuring decent and affordable housing for all. (1)
The report provides an excellent overview of the current state of the rental housing stock and households. Of particular interest to readers of this blog is how the report addresses the federal government’s role in the housing finance system. The report notes that
During the downturn, most credit sources dried up as property performance deteriorated and the risk of delinquencies mounted. Much as in the owner-occupied market, though, lending activity continued through government-backed channels, with Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) playing an important countercyclical role.
But as the health of the multifamily market improved, private lending revived. According to the Mortgage Bankers Association, banks and thrifts greatly expanded their multifamily lending in 2012, nearly matching the volume for Fannie and Freddie. Given fundamentally sound market conditions, multifamily lending activity should continue to increase. The experience of the last several years, however, clearly testifies to the importance of a government presence in a market that provides homes for millions of Americans, particularly during periods of economic stress. (5)
The report, to my mind, reflects a complacence about the federal role in housing finance:
Although some have called for winding down Fannie’s and Freddie’s multifamily activities and putting an end to federal backstops beyond FHA, most propose replacing the implicit guarantees of Fannie Mae and Freddie Mac with explicit guarantees for which the federal government would charge a fee. Proposals for a federal backstop differ, however, in whether they require a cap on the average per unit loan size or include an affordability requirement to ensure that credit is available to multifamily properties with lower rents or subsidies. While the details are clearly significant, what is most important is that reform efforts do not lose sight of the critical federal role in ensuring the availability of multifamily financing to help maintain rental affordability, as well as in supporting the market more broadly during economic downturns. (8)
The report gives very little attention to what the federal housing finance system should look like going forward, other than implying that change should be incremental:
To foster further increases in private participation, the Federal Housing Finance Agency (FHFA—the regulator and conservator of the GSEs) has signaled its intent to set a ceiling on the amount of multifamily lending that the GSEs can back in 2013. While the caps are fairly high—$30 billion for Fannie Mae and $26 billion for Freddie Mac—FHFA intends to further reduce GSE lending volumes over the next several years either by lowering these limits or by such actions as restricting loan products, requiring stricter underwriting, or increasing loan pricing. With lending by depository institutions and life insurance companies increasing, the market may well be able to adjust to these restrictions. The bigger question, however, is how the financial reforms now under debate will redefine the government’s role in backstopping the multifamily market. Recent experience clearly demonstrates the importance of federal support for multifamily lending when financial crises drive private lenders out of the market. (27)
I would have preferred to see a positive vision from the Center for how the federal government should go about ensuring liquidity in the market during future crises and how it should support an increase in the affordable housing stock. Perhaps that is asking too much of such a broad report, although the fact that Fannie and Freddie are members of the Center’s Policy Advisory Board which provided funding for the report may have played a role as well. [I might add that I found it odd that the members of the Policy Advisory Board were not listed in the report.]
I do not want to end on a negative note about such a helpful report. I would note that it takes seriously some controversial ideas about increasing the supply of affordable housing. The report advocates for the reduction of regulatory constraints on affordable rental housing construction. I interpret this as a version of the Glaeser and Gyourko critique of the impact of restrictive local land use regimes on housing affordability. As progressives like NYC’s new Mayor know, restrictive zoning and affordable housing construction are at cross purposes from each other.
January 14, 2014
The Community Service Society released a report, An Affordable Place to Live (written by Waters and Bach). The report is intended to state “What New Yorkers Want From the New Mayor” from the perspective of low-income New Yorkers. Given that Mayor De Blasio campaigned on the theme of a Tale of Two Cities, this report is very timely. It focuses on the “growing mismatch between rents and incomes” which results in low- and moderate-income New Yorkers paying a greater and greater percentage of their income in rent. (1)
The report’s recommendations include
- eliminating the sizable payments that the New York City Housing Authority must pay to the City so that those monies can be invested in NYCHA’S strained operating and capital budgets.
- implementing mandatory inclusionary zoning, a policy which the Mayor had highlighted during his campaign.
- tying real estate tax exemptions to affordable housing.
There are a lot of good ideas in the report. But some of the ideas avoid the tough questions. For instance, the report argues that plans to infill NYCHA land with additional housing should be halted. Such a step would be inconsistent with other proposals in the report such as making affordable housing the highest priority for city-controlled land.
Another drawback of the report is that it did not attempt to quantify how much housing its proposals would actually create or preserve. This may be beyond the scope of what the authors intended, but I was left with the impression that even if many of the proposals were adopted, they would fail to actually make a big dent in the affordability issue that they identify.
That being said, the report is a very helpful contribution to what will be an essential and ongoing policy discussion during the De Blasio Administration.
January 13, 2014
McCormick and Calahan have posted Common Ground: The Need for a Universal Mortgage Loan Identifier, a Department of the Treasury Office Financial Research Working Paper (#0012). They argue that
The U.S. mortgage finance system is a critical part of our nation’s financial system, representing 70 percent of U.S. household liabilities. It is also highly complex, with many finance channels, participants, and regulators. The data produced by this system reflect that complexity; unfortunately, no single identifier exists to link the major loan‐level mortgage datasets. The establishment of a single, cradle‐to‐grave, universal mortgage identifier that cannot be linked to individuals using publicly‐available data would significantly benefit regulators and researchers by enabling better integration of the fragmented data produced by the U.S. mortgage finance system. Such an identifier could additionally serve as the foundation of a system that could benefit private market participants, as long as such a system protected individual privacy. (1)
This is a very important initiative, although the privacy concerns are very important to address. Regulators have been many steps behind the private sector in tracking developments in the mortgage markets and a cradle-to-grave identifier, like a Social Security Number for an individual, will help them (and private sector analysts for that matter) to track patterns among borrowers and loan products.
The authors identify a number of serious privacy concerns:
a mortgage identifier would have to be designed to prevent market participants from re‐identifying individuals. No links from public documents to mortgage identifiers should be allowed. Otherwise the identifier could be used to identify individuals, rendering all datasets containing the identifier personally‐identifiable information. Such a designation would create concerns about the use of individual data in the private sector and trigger burdensome requirements for government researchers using the data. (3)
Researchers have proven resourceful at mashing up data sets to identify supposedly anonymous individuals, so the privacy protections that are ultimately implemented would need to be airtight. That being said, there is a lot of value in working toward the goal of a universal identifier.
Florida Appellate Court Holds that Mortgagee is not Required to be the Mortgage Holder and Owner to have Standing for Foreclosure Action
The District Court of Appeal of Florida in Wells Fargo Bank, N.A., v. Morcom, 2013 WL 5575634 (Fl. Ct. App., 5th Dist. 2013), held that mortgagee was not required to be both holder and owner of promissory note in order to have standing to foreclose.
On August 6, 2010, Wells Fargo Bank (“Plaintiff”) initiated a foreclosure action against homeowners Daniel and Sharon Morcom (“Defendants”). One year later on August 9, 2011, the Defendants filed a motion for summary judgment claiming that the Plaintiff was not the owner of the promissory note and mortgage and therefore did not have standing to initiate the foreclosure. The trial court granted Defendant’s summary judgment motion challenging Plaintiff’s standing to initiate the foreclosure. The Court had found that a party initiating a foreclosure must be the holder and owner of the promissory note in order to have standing pursuant to Florida’s Uniform Commercial Code and controlling case law.
The Florida Appellate Court reversed the trial court’s decision and held that a mortgagee was not required to be both holder and owner of promissory note in order to have standing to foreclose a mortgage.