February 14, 2014
Federalizing Monoline Mortgage Insurance
The Federal Insurance Office of the Department of Treasury issued a report required pursuant to Dodd-Frank, How To Modernize And Improve The System Of Insurance Regulation In The United States, which addresses among other things the state of the monoline mortgage insurance industry:
Recommendation: Federal standards and oversight for mortgage insurers should be developed and implemented.
Like financial guarantors, private mortgage insurers are monoline companies that experienced devastating losses during the financial crisis. A business predominantly focused on providing credit enhancement to mortgages guaranteed by the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, mortgage insurers migrated from the core business of insuring conventional, well-underwritten mortgage loans to providing insurance on pools of Alt-A and subprime mortgages in the years leading up to the financial crisis. The dramatic decline in housing prices and the impact of the change in underwriting practices required mortgage insurers to draw down capital and reserves to pay claims resulting in the failure of three out of the eight mortgage insurers in the United States. Historically high levels of claim denials, including policy rescissions, helped put taxpayers at risk.
Regulatory oversight of mortgage insurance varies state by state. Though mortgage insurance coverage is provided nationally, only 16 states impose specific requirements on private mortgage insurers. Of these requirements, two govern the solvency regime and, therefore, are of particular significance: (1) a limit on total liability, net of reinsurance, for all policies of 25 times the sum of capital, surplus, and contingency reserves, (known as a 25:1 risk-to-capital ratio); and (2) a requirement of annual contributions to a contingency reserve equal to 50 percent of the mortgage insurer’s earned premium. In addition to the states, the GSEs (and through conservatorship, the Federal Housing Finance Agency) establish uniform standards and eligibility requirements that in some cases are more stringent than those required by state regulators. As the financial crisis unfolded, mortgage insurers no longer met state or contractual capital requirements. State regulators granted waivers in order to allow mortgage insurers to continue to write new business while the GSEs loosened other standards that were applicable to mortgage insurers.
The private mortgage insurance sector is interconnected with other aspects of the federal housing finance system and, therefore, is an issue of significant national interest. As the United States continues to recover from the financial crisis and works to reform aspects of the housing finance system, private mortgage insurance may be an important component of any reform package as an alternative way to place private capital in front of any government or taxpayer risk. Robust national solvency and business practice standards, with uniform implementation, for mortgage insurers would help foster greater confidence in the solvency and performance of housing finance. To achieve this objective, it is necessary to establish federal oversight of federally developed standards applicable to mortgage insurance. (31-32)
This critique of the monoline insurance industry seems accurate to me. The industry has a tendency to fail when it is needed most — during major financial crises. Having multiple states regulate monoline insurers allows this nationally (and globally) significant industry to engage in regulatory arbitrage — that is, finding the most pliable regulatory environment in which to operate. National regulation would solve that problem. As always, a single federal regulator is more prone to capture by the industry it regulates than a bunch of state regulators. We have, however, tried the alternative and it has not worked so well. I think a federal approach is worth a try.
February 14, 2014 | Permalink | No Comments
February 13, 2014
Reiss on BK Live!
The BK Live segment on Mortgage Inequities in Brooklyn has been posted to the web. Mark Winston Griffith (Brooklyn Movement Center Executive Director), Alexis Iwaniszie (New Economy Project) and I discuss mortgage inequities and how they effect Brooklyn (and beyond). REFinblog.com gets a nice shout out from BK Live.
February 13, 2014 | Permalink | No Comments
February 12, 2014
Reiss on Mortgage Inequities
I will be appearing on a segment on BK Live on BRIC , the Brooklyn Public Network, about “Mortgage Inequities/Fair Housing in Brooklyn” on Thursday, February 13th at noon (running again at 2pm, 8pm, 9pm and 10pm (Cablevision Ch 69, Time Warner 56, RCN Ch 84, Verizon Ch 44 or online at: www.bkindiemedia.bricartsmedia.org).
I will be appearing with Mark Winston Griffith, Executive Director of the Brooklyn Movement Center, a community organizing group based in Bed-Stuy and Crown Heights, and Alexis Iwanisziw of the New Economy Project.
We will be discussing The New Economy Project’s recent study about inequities in mortgage lending based on race in NYC:
Mortgage lenders made markedly fewer conventional home mortgage loans in communities of color than in predominately white neighborhoods in New York City, according to a series of GIS maps published today.
The maps show unequal lending patterns based on the racial composition of communities in New York City, controlling for the number of owner-occupied units in each neighborhood. New Yorkers who live in predominantly white neighborhoods on average receive twice as many conventional home purchase loans as New Yorkers who live in predominantly black or Latino neighborhoods, for every 100 owner-occupied housing units in the neighborhood.
“The maps show that banks continue to redline communities of color across New York City,” said Monica M. Garcia, Community Education Coordinator at New Economy Project, which produced the maps. “For decades, banks have excluded neighborhoods of color from fair access to mortgage financing, allowing predatory lenders to flourish right up to the financial crisis. Now it’s déjà vu all over again, with banks failing adequately to provide conventional mortgages to people in predominantly black and Latino neighborhoods.”
“The maps highlight the profound and continued need for strong government action against banks that violate fair housing and fair lending laws,” said Sarah Ludwig, Co-Director of New Economy Project.
The series includes a map of New York City and borough-level maps of Brooklyn, Queens and Bronx.
To produce the maps, New Economy Project analyzed home mortgage lending data for 2012, the most recent year for which the data are publicly available. New Economy Project received partial funding to produce the maps from the U.S. Department of Housing and Urban Development’s Fair Housing Initiatives Program.
February 12, 2014 | Permalink | No Comments
February 10, 2014
Reiss on Mortgage Documentation
HSH.com quoted me in The Documents You Need to Apply for a Mortgage. It reads in part,
When it comes time to apply for a mortgage in 2014, you might be surprised at how much documentation you’ll need when applying for a home loan.
J.D. Crowe, president of Southeast Mortgage in Lawrenceville, Ga., says most of the documentation should be familiar to you if you have applied for a mortgage loan in the last five years. If you’re new to the mortgage market this year, he says, this is all new.
The new Qualified Mortgage rules that took effect on January 10, 2014 make this paperwork even more important. To meet the new Qualified Mortgage rules, lenders will be even more diligent in collecting the paperwork that proves that you can afford your monthly mortgage payments.
David Reiss, professor of law at Brooklyn Law School in Brooklyn, N.Y., says that while the documentation requirements under the new Qualified Mortgage rules might come as a shock to those who haven’t applied for a mortgage since 2008, they are common-sense requirements for the most part.
“These are really common-sense rules,” Reiss says. “The new rules say that mortgage lenders are no longer allowed to throw out the common-sense standards of lending money during boom times, when they might be tempted to overlook long-term financial goals for quick profits. If the rules help that happen, they’ll be a good thing.”
February 10, 2014 | Permalink | No Comments
February 9, 2014
Alabama Court of Civil Appeals Dismisses Homeowner Appeal for Filing Appeal Too Late
In Wolfe v. JPMorgan Chase Bank, N.A., the Alabama Court of Civil Appeals dismissed the appeal of joint homeowners Evan and Kelly Wolfe (“Plaintiffs”) in a foreclosure and attorney fee lawsuit for failing to file the appeal within the statutory time period of 42 days. In Wolfe, Plaintiffs defaulted on their home mortgage and JPMorgan Chase Bank, N.A. (“Chase”), a lienholder, purchased Plaintiffs’ home at a foreclosure sale in February 2010. Regions Bank (“Regions”), another lienholder, redeemed the property from Chase and subsequently filed an ejectment action in the trial court against Plaintiffs.
In March, 2011, the trial court entered a summary judgment in favor of Regions and ordered the Plaintiffs to vacate the property. Plaintiffs appealed and the Court of Civil Appeals affirmed the trial court’s grant of summary judgment in September 2011, and the Alabama Supreme Court denied Plaintiffs’ petition for writ of certiorari to hear their case in March 2012. In February 2012, while Plaintiffs’ certiorari petition was pending, Plaintiffs filed the current lawsuit pro se against Chase, MERS, and their former attorneys from Edith Pickett, Shapiro & Pickett, L.L.P., Beth Rouse, and McFadden, Lyon & Rouse, L.L.C. (“attorney defendants”) alleging claims of fraud and wrongful foreclosure, and they sought an award of damages and “full restoration of all property rights.” The attorney defendants counterclaimed against the Plaintiffs for attorney’s fees.
On September 10, 2012, the trial court granted summary judgment for Chase and the attorney defendants, and reserved jurisdiction to consider the attorney defendants attorney fee claim. Plaintiffs filed a post-judgment motion on October 10, 2012 that was denied on January 8, 2013 and Plaintiffs appealed the decision on February 28, 2013. However, Chase argued that Plaintiffs filed an untimely appeal. The Alabama Court of Civil Appeals agreed with Chase and dismissed Plaintiffs’ appeal as untimely. The Court found that statutory and case law authority required parties to file appeals within 42 days of denial of a motion on the law, such as the post-judgment motion in this case. In Wolfe, the Court found that Plaintiffs had 42 days to file an appeal from the January 8, 2013 denial of their post-judgment motion, which would have required them to file the appeal by February 19, 2013. Instead, Plaintiffs filed their appeal nine days later on February 28, 2013. The Court found that the Plaintiffs failed to comply with the mandatory 42 day filing period and therefore dismissed their appeal as untimely.
February 9, 2014 | Permalink | No Comments
