Author Archives: David Reiss

CFPB Tool Puts HMDA Data on Web

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The Consumer Financial Protection Bureau has posted an online tool to make Home Mortgage Disclosure Act (HMDA) data available to consumers in an easy to use format.    The Bureau notes that in 2012

there were approximately 18.7million HMDA records from 7,400 financial institutions. This information includes the majority of the country’s mortgage applications and mortgages made – known as loan “originations” – by banks, savings associations, credit unions, and mortgage companies. The public information is important because it helps show whether lenders are serving the housing needs of their communities; it gives public officials information that helps them make decisions and policies; and it sheds light on lending patterns that could be discriminatory.

quick cash loan utah

 The Bureau says that the tool

focuses on the number of mortgage applications and originations, in addition to loan purposes and loan types for 2010 through 2012. It looks specifically at first-lien, owner-occupied, one- to four- family and manufactured homes. Using the tool, the public can see nationwide summaries or they can choose interactive features that allow them to isolate the information for metropolitan areas. The public can easily explore millions of data points with these user-friendly graphs and charts.

I found one of the highlights derived from the tool particularly interesting:  “Of the nearly 13 million applications in 2012 for home purchase loans, home improvement loans, and refinancing, more than 8 million resulted in loan originations.” (2) It will be interesting to see what Google Mashups might come from all this data.

Reiss on Atlantic Yards Litigation

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The New York Daily News quoted me in a story, Bruce Ratner Will Have to Pay His Opponents’ Legal Bills: Judge, about the litigation over the construction of the Barclays Center and the other buildings in the Atlantic Yards project. It reads in part,

Develop Don’t Destroy Brooklyn and Prospect Heights Neighborhood Development Council will get hundreds of thousands of dollars to pay their legal eagles — a ruling that followed a rare court victory over Ratner in 2009.

That win, which forced the state to conduct a new study of the project’s environmental impact, led to Supreme Court Judge Marcy Friedman’s ruling this week on the legal reimbursement.

The opposition groups said their battle against Ratner’s Atlantic Yards proposal – which at one time included 16 skyscrapers, the Barclays Center, a hotel and thousands of units of housing, but now only consists of the completed arena and two pre-fab apartment buildings — cost $323,000.

* * *

Real estate law expert David Reiss cautioned against seeing the opponents’ victory as a big win the little guy.

“It is hard to call it a David-versus-Goliath win when Goliath is still standing and still going strong,” said Reiss who teaches at Brooklyn Law School. “It is a tactical victory. The war has been lost. The arena is built.”

 

 

Another Federal Judge Can’t Take It Anymore

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Magistrate Judge Brown (EDNY) issued a memorandum and order in Pandit v. Saxon Mortgage Services, Inc., CV 11-3935 (June 5, 2013) that reflects, to my mind, judicial frustration with mortgage industry companies.  This frustration arises, no doubt, from the many frequent of shockingly bad behavior by such companies.

Pandit concerned a mortgage that the plaintiffs had attempted to modify through the Home Affordable Modification Program (HAMP). HAMP has been derided as an “ineffectual” response (one of many) that arose in the aftermath of the financial crisis. (1) The plaintiffs allege that Saxon deceived them throughout their participation in HAMP and seek to form a class of similar victims.

Defendant moved to limit discovery to the named plaintiffs’ claims only or, in the alternative, to “the existence and scope of a putative class.” (2) The court stated that

[i]t is ironic, then, that a defendant accused of “routinely ask[ing] homeowners to resubmit financial information on pretextual grounds; mislead[ing] homeowners over the phone; and ignor[ing] completed loan modifications in what is fairly read to be a series of steps designed to string along loan modification applicants,” , now seeks to establish procedural hurdles that may fairly be read to string along the adjudication of plaintiffs’ legal action. The proposed path appears neither just nor fair. (13, citation omitted)

With that the Court denied defendant’s motion and granted plaintiff “leave to proceed with discovery related to their claims and certification of the class.” (2)

While this is, of course, just a procedural win for plaintiffs, the judge noted that the “parties are at liberty to engage in fulsome discovery . . ..” (14) Defendant, one would assume, is not looking forward to “excessive, extravagant, overdone, immoderate, inordinate” discovery and are not looking forward to appearing before a judge who issues such an order.

 

[HT Scott Mollen, NYLJ]

Federal Judge Declares War on Wells Fargo

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Never saw this before:

And so, Wells Fargo wins on a technicality.  The Court never addresses the merits of this case and expresses no opinion thereon. Still, it is appropriate to point out that, were Henning to prove his case on the merits, the conduct of Wells Fargo would be shown to be nothing short of outrageous.  On the other hand, perhaps if Wells Fargo addressed the merits, its conduct would be vindicated by fair-minded American jurors.  A quick visit to Wells Fargo’s website confirms that it vigorously promotes itself as consumer friendly, Loans and Programs, page within Home Lending, wellsfargo.com, https://www.wellsfargo.com/mortgage/loan-programs/ (last visited September 17, 2013); a far cry from the hard-nosed win-at-any-cost stance it has adopted here.

The technical (and now obsolete) preemption defense upon which Wells Fargo relies is an affirmative defense which can be waived.  See, e.g., Tompkins v. United Healthcare of New England, 203 F.3d 90, 97 (1st Cir. 2000).  The disconnect between Wells Fargo’s publicly advertised face and its actual litigation conduct here could not be more extreme.  These facts lead this Court to inquire whether Wells Fargo wishes to address Henning’s claims on the merits.  After all, it may be that Wells Fargo has done nothing wrong.

ACCORDINGLY, it is ORDERED that Wells Fargo, within 30 days of the date of this order, shall submit a corporate resolution bearing the signature of its president and a majority of its board of directors that it stands behind the conduct of its skilled attorneys and wishes to avail itself of the technical preemption defense to defeat Henning’s claim.

Should it do so, judgment will enter for Wells Fargo. If no such resolution is filed, the Court will deem the preemption defense waived and both Wells Fargo and Henning will have the opportunity to address the merits (i.e., what really happened) at a trial before an American jury. (36-37)

So ends District Judge Young’s (D. Mass.) opinion in Henning v. Wachovia Mortgage, F.S.B., n/k/a Wells Fargo Bank, N.A., No. 11-11428 (Sept. 17, 2013). Henning brought suit against his lender, which sought to have it dismissed, arguing in large part that the state law claims are preempted by the federal Home Owners’ Loan Act.

Judge Young does not make clear the basis for his authority to require such a resolution from Wells Fargo. I am guessing that we will see a motion for reconsideration pretty soon.

[HT April Charney]

Deane Finds Us East of Eden

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Last week, I discussed a NYLJ article about the “Show Me The Note” argument in New York. The article discussed a recent case, Bank of N.Y. Mellon v. Deane, 2013 Slip Op. 23244 (Sup. Ct. Kings Country July 11, 2013). Brad and I have earlier noted that “many scholars and leaders of the bar are befuddled by courts’ failure to do a comprehensive analysis under the UCC as part of their reasoning in mortgage enforcement cases . . ..”  As if to prove us wrong, Judge Battaglia has taken on the UCC in Deane even while acknowledging that “quotation of the Code, or even its citation, has virtually disappeared from the caselaw on this part of negotiable instruments law, at least where addressed in mortgage foreclosure actions.” (5) Judge Battaglia also notes how NY mortgage enforcement caselaw diverges from the contemporary UCC caselaw.

Judge Battaglia framed the issue of standing as follows:

As recently summarized by the Second Department:”In order to commence a foreclosure action, the plaintiff must have a legal or equitable interest in the subject mortgage…A plaintiff has standing where it is both the holder or assignee of the subject mortgage and the holder or assignee of the underlying note prior to commencement of the action with the filing of the complaint…Either a written assignment of the underlying note or the physical delivery of the note prior to the commencement of the foreclosure action is sufficient to transfer the obligation, and the mortgage passes with the debt as an inseparable incident.” (GRP Loan, LLC v. Taylor, 95 AD3d at 1173 [internal quotation marks and citations omitted] [emphasis added].) (2)

He continued, “the cursory treatment of the standing question in the memorandum of law evidences a misunderstanding of the general law of negotiable instruments in its equation of the status as “holder” to mere possession of the instrument. The core of the law of negotiable instruments is found in Article 3 of the Uniform Commercial Code . . ..” (3) He finds that the plaintiff has not established that it is a holder or a nonholder in possession who has the rights of a holder. He states that

To allow an assignee to sue without possession of the note, therefore, would be inconsistent with Revised Article 3, and put New York out-of-step with the 49 states that have adopted the revision, including, in particular, a conception of “transfer” as “deliver[y] by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument” (see Revised UCC §3-203 [1].) That misstep, however, if such it is, has apparently already been taken. (7)

Doing its best to reconcile the the mortgage enforcement and UCC caselaw, Judge Battaglia concludes that

in the usual case, a plaintiff has “standing” to prosecute a mortgage foreclosure action where, at the time the action is commenced: (1) the plaintiff is the holder of the note (see NYUCC §1-201 [20]); or (2) the plaintiff has possession of the note by delivery (see NYUCC §1-201[14]), from a person entitled to enforce it, for the purpose of giving the plaintiff the right to enforce it; or (3) the plaintiff has been assigned the note, by a person entitled to enforce it, for the purpose of giving the plaintiff the right to collect the debt evidenced by the note, and the plaintiff tenders the note at the time of any judgment. (8)

New York’s law in this area is not satisfying and it looks to me like courts need to make a concerted effort to synthesize UCC law with foreclosure law.  Otherwise, mortgage litigants are left to wander like Cain in the land of Nod, east of Eden, not knowing what law governs their disputes.

American Dream/American Nightmare

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I will be presenting “How Low Is Too Low? The Federal Housing Administration and the Low Down Payment Mortgage” at the 2013 Meeting of the Canadian Law and Economics Association next week in Toronto. I just came back from an interesting conference at the Cleveland Fed where I was on a panel devoted to the FHA. The other two panelists presented some disturbing findings about default rates for FHA mortgages.

The two panelists were

Edward J. Pinto, Resident Fellow, American Enterprise Institute, How the FHA Hurts Working-Class Families

Joseph Tracy, Executive Vice President and Senior Advisor to the President, Federal Reserve Bank of New York, Interpreting the Recent Developments in Housing Markets

Pinto’s summary is as follows:

The Federal Housing Administration’s mission is to be a targeted provider of mortgage credit for low- and moderate-income Americans and first-time home buyers, leading to homeownership success and neighborhood stability. But is the FHA achieving this mission? This paper reports on a comprehensive study that shows the FHA is engaging in practices resulting in a high proportion of low- and moderate-income families losing their homes. Based on an analysis of the FHA’s FY 2009 and 2010 books of business, the FHA’s lending practices are inconsistent with its mission. The findings indicate: An estimated 40 percent of the FHA’s business consists of loans with either one or two subprime attributes—a FICO score below 660 or a debt ratio greater than or equal to 50 percent (based on loans insured during FY 2012). The FHA’s underwriting policies encourage low- and moderate-income families with low credit scores or high debt burdens to make risky financing decisions—combining a low credit score and/or a high debt ratio with a 30-year loan term and a low down payment. A substantial portion of these loans has an expected failure rate exceeding 10 percent. Across the country, 9,000 zip codes with a median family income below the metro area median have projected foreclosure rates equal to or greater than 10 percent. These zips have an average projected foreclosure rate of 15 percent and account for 44 percent of all FHA loans in the low- and moderate-income zips.

Tracy reported that rates of defaults by households rather than by mortgages gave a truer picture of the FHA’s success because many FHA borrowers would refinance into another FHA loan. Thus, to study defaults by mortgages covers up the real rate of default.

I believe that their studies were preliminary and have not gone through peer review, but both of them reported extraordinary default rates for certain types of FHA mortgages.

Pinto and his empirical work are very controversial so I cannot endorse his findings. But I can say that if he got it only somewhat right about predictable and ridiculously high default rates for some categories of borrowers, the FHA must immediately defend the underwriting of such loans or change its practices. It would be criminal to have predictable default rates in excess of 20% for any population. Such a rate transforms the American Dream of homeownership into an American Nightmare of foreclosure far, far too often.

Reiss on Fannie/Freddie Loan Limits

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Law360 quoted me in Time May Not Be Right To Limit Fannie, Freddie Loans (behind a paywall).  It reads in part,

The Federal Housing Finance Agency has proposed lowering the maximum size of the loans Fannie Mae and Freddie Mac can purchase as part of an effort to attract more private-sector lending, but some experts warn that other market factors including rising interest rates will keep private lenders from filling the gap.

The FHFA announced earlier this month that it planned to reduce the maximum size of home mortgage loans eligible for backing by the government-sponsored enterprises. The move is part of the agency’s strategic plan of slowly backing away from the mortgage market and encouraging private capital to take its place. But some real estate attorneys and practitioners say private lenders need more than customers to convince them to take the plunge.

Many other environmental factors affect private lenders’ decisions about whether to enter the residential mortgage market, said Bob Bostrom, a shareholder of Greenberg Traurig LLP and former counsel to Freddie Mac.

Reducing the number of loans eligible for Fannie and Freddie backing and raising guarantee fees — another recent tactic — sound good in theory, but they don’t change the fact that the interest rate for a 30-year fixed-rate mortgage rose a full percentage point over the past several months and the housing market dipped correspondingly, Bostrom said.

“The housing recovery is extraordinarily fragile right now,” he said.

The steps the FHFA is taking to reduce the GSEs’ size and scope will work only when there’s a private sector ready to step in, experts say. Until then, these measures can only push the housing market backward, they warn.

* * *

Not everyone is convinced of this dark forecast, however. David Reiss, a Brooklyn Law School professor and real estate finance scholar, told Law360 on Thursday that he’s not convinced the FHFA’s moves will have a negative effect.

Although the pullback should be gradual, it must be done, because the government can’t continue to hold up the mortgage market indefinitely, he said.

Reiss says current market factors actually favor weaning borrowers off Fannie and Freddie, noting that private capital in the sector has increased — particularly in the market for jumbo loans — and that the overall housing market has stabilized.

“We’re past the immediate crisis,” he said. “There’s nothing going on right now that makes me think a downward adjustment in conforming loan limits won’t be met by an increase in capital from private lenders,” Reiss said.