December 5, 2017
Buying after Bankruptcy
Realtor.com quoted me in Buying a House After Bankruptcy? How Long to Wait and What to Do. It opens,
Buying a house after bankruptcy may sound like an impossible feat. Blame it on all those Monopoly games, but bankruptcy has a very bad rap, painting the filer as someone who should never be loaned money. The reality is that of the 800,000 Americans who file for bankruptcy every year, most are well-intentioned, responsible people to whom life threw a curveball that made them struggle to pay off past debts.
Sometimes filing for bankruptcy is the only way out of a crushing financial situation, and taking this step can really help these cash-strapped individuals get back on their feet. And yes, many go on to eventually buy a home. Only how?
Being aware of what a lender expects post-bankruptcy will help you navigate the mortgage application process efficiently and effectively. Here are the steps on buying a house after bankruptcy, and the top things you need to know.
Types of bankruptcy: The best and the worst
There are two ways to file for bankruptcy: Chapter 7 and Chapter 13. With Chapter 7, filers are typically released from their obligation to pay back unsecured debt—think credit cards, medical bills, or loans extended without collateral. Chapter 13 filers have to pay back their debt, only it’s reorganized to come up with a new repayment schedule that makes monthly payments more affordable.
Since Chapter 13 filers are still paying back their debts, mortgage lenders generally look more favorably on these consumers than those who file for Chapter 7, says David Carey, vice president and residential lending manager at New York’s Tompkins Mahopac Bank.
How long after bankruptcy should you wait before buying a house?
Most people applying for a loan will need to wait two years after bankruptcy before lenders will consider their application. That said, it could be up to a four-year ban, depending on the individual and type of loan. This is because lenders have different “seasoning” requirements, which is a specified amount of time that needs to pass.
Fannie Mae, for example, has a minimum two-year ban on borrowers who have filed for bankruptcy, says David Reiss, professor of law and academic programs director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. The FHA, on the other hand, has a minimum one-year ban in place after a bankruptcy. The time is measured starting from the date of discharge or dismissal of the bankruptcy action. Generally the more time that passes, the less risky a once-bankrupt borrower looks in the eyes of a lender.
December 5, 2017 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- The Senate’s version of its tax reform bill will increase the nation’s debt. Their plan as written, increases the deficit by more than $1 trillion. The Senate’s vote on the bill narrowly passed with a 51-49 vote in favor of the bill. Though the bill garnered enough support from Republicans, it did not garner one vote from Democrats. Further, one of the proposed cuts contributing to the national deficit is the corporate tax cut. Supporters of the bill believe the government will recoup the funds lost by the tax cut through the corporation’s investment into the economy. However, only time will determine if such result is plausible.
- The House of Representatives recently passed a bill revising the federal rules concerning home mortgage loans regarding various manufactured-home makers. Democrats do not support the bill and believe that the revision will expose consumers to predatory practices by lenders. Critics argue the bill unravels the rules and procedures put in place by the Consumer Financial Protection Bureau (CFPB) and the Obama Administration.
December 5, 2017 | Permalink | No Comments
December 4, 2017
Net Losses in FHA’s Annual Management Report
The Federal Housing Administration released its Annual Management Report for Fiscal Year 2017. As always, it is good to review what the FHA has accomplished and the challenges it faces:
FHA is the largest provider of mortgage insurance in the world. Since its inception, FHA has insured over 47.5 million single family homes and 48 thousand multifamily and healthcare project mortgages. Through its insurance programs, FHA supports the homeownership goals of qualified individuals and families, and enables multifamily and hospital production that meets the needs of communities across the country. Over the course of its history, FHA has been a critical player in the U.S. housing market, including serving millions of first-time and low-to-moderate income homebuyers; stepping in as a countercyclical backstop during times of economic stress; and providing relief to borrowers affected by disasters. In addition, through housing counseling programs, FHA also offers assistance to individuals and families to help them make independent financial decisions that can lead to greater long-term financial success. (5)
Some of the data highlights from the report include the following:
- The FHA has over $1.38 trillion in insurance-in-force
- In fiscal year 2017, FHA endorsed 1,246,440 single family forward mortgages totaling $251 billion.
- 82.2 percent of FHA purchase-loan endorsements were for first-time homebuyers.
- 33.7 percent of all borrowers (both home purchase and refinance) were minority borrowers.
- The number of FHA forward mortgage borrowers in fiscal year 2017 classified as low or moderate-income households represented 56.4 percent of all such households purchasing or refinancing their homes nationwide.
- Home Equity Conversion Mortgage (also known as reverse mortgage) endorsements increased from 48,868 to 55,291.
I was confused by the following passage and would love to hear from FHA nerds who can explain it to me:
In fiscal year 2017, FHA reported a net loss. The most important facet of FHA’s cost and revenue activity is the treatment of loan guarantee subsidy cost. Loan guarantee subsidy cost is the estimated long-term cost to FHA of a loan guarantee calculated on a net present value basis, excluding administrative costs. The cost of a loan guarantee is the net present value of the estimated cash flows paid by FHA to cover claims, interest subsidies, and other requirements as well as payments made to FHA, including premiums, penalties, and recoveries also included in the calculation.
FHA had a net program loss in fiscal year 2017. Single Family and HECM Gross Costs with the Public increased by $17,845 million and $22,213 million, respectively. The program cost difference is primarily due to the increases in the re-estimates and interest expenses relating to Single Family and HECM. Re-estimates are the recalculation of subsidy costs and are performed annually. The increases in re-estimate and interest expenses were the primary drivers for the over-all program cost increase in fiscal year 2017, compared to fiscal year 2016. (49)
I am not sure how serious of a problem this is and have not heard about it from any news outlets. If any readers can shed some light on it, it would be much appreciated.
December 4, 2017 | Permalink | No Comments
Monday’s Adjudication Roundup
- The Eleventh Circuit affirmed the conviction of a Florida resident, Ravindranauth Roopnarine, for his attempt to defraud the government. The Florida man received an approximate sentence of 22 years. Furthermore, he must pay a sum of more than $9 million in restitution for his mortgage fraud scheme.
- In effort to decrease its own liability, Wells Fargo Bank NA filed a “Memorandum of Law in Opposition to Motion.” Wells Fargo Bank NA asserted its adversaries were attempting to diminish their role in the mishandling of 12 residential mortgage-backed securities trusts.
- A Kansas based bank, Lawrence, settled a claim with the Federal Reserve for $2.8 million. Lawrence allegedly defrauded homebuyers by misrepresenting terms of their mortgages. The $2.8 million will go towards repaying homeowners for their funds slated to their “discount points.”
December 4, 2017 | Permalink | 2 Comments
December 1, 2017
Mooting The CFPB Constitutional Challenge
Law360 quoted me in DC Circ. May Skip CFPB Fight After Cordray’s Exit. It opens,
The legal battle over who will temporarily lead the Consumer Financial Protection Bureau comes as the D.C. Circuit is considering whether the bureau’s structure is constitutional, and experts say the fight over its leadership could lead the appeals court to punt on the constitutional question.
The full D.C. Circuit has been considering an appeal filed by mortgage servicer PHH Corp. to overturn a $109 million judgment entered by former CFPB Director Richard Cordray over alleged violations of anti-kickback provisions of the Real Estate Settlement Procedures Act. PHH’s argument is that the agency’s structure, which includes a single director rather than a commission along with independent funding not appropriated by Congress, is unconstitutional.
But now that a political and legal fight has broken out over who should temporarily lead the CFPB since Cordray has left the bureau, the D.C. Circuit may be even more inclined to find a way to decide the underlying arguments about the CFPB’s enforcement of a decades-old mortgage law without touching the constitutional questions.
“If the D.C. Circuit wants to avoid this question, they certainly have plausible means to do it,” said Brian Knight, a senior research fellow at George Mason University’s Mercatus Center.
The battle over the CFPB’s constitutionality waged by PHH in some ways opened the door for the current conflict over who should serve as the bureau’s acting director.
PHH’s fight with the CFPB stems from Cordray’s decision to jack up a RESPA penalty against the New Jersey-based mortgage company in June 2015.
A CFPB administrative law judge had originally issued a $6.4 million judgement against PHH over alleged mortgage kickbacks, but on appeal Cordray slapped the company with a $109 million penalty.
PHH then took its case to the D.C. Circuit, arguing that the single-director structure at the CFPB, which allowed Cordray to unilaterally hike the penalty, was a violation of the Constitution’s separation of powers clause.
Ultimately, a three-judge panel led by U.S. Circuit Judge Brett Kavanaugh found that the CFPB’s structure was unconstitutional but declined to eliminate the bureau and invalidate its actions. Instead, the panel elected to eliminate a provision that only allowed the president to fire the CFPB director for cause, rather than allowing the director to be fired at will by the president.
The original, now vacated, D.C. Circuit decision also overturned the CFPB’s penalty against PHH. That portion of the decision was unanimous.
The CFPB then sought an en banc review of the decision, with oral arguments held in May. Since then, the CFPB and the industry have waited for a decision.
In fact, the wait for that decision may have allowed Cordray to hang on as long as he did at the CFPB. Trump was expected to fire Cordray soon after taking office, but that never happened, and instead Cordray waited until November to depart the bureau for what many believe will be a run for governor in his home state of Ohio.
Many predicted the D.C. Circuit would go the route of U.S. Circuit Judge Karen L. Henderson, a member of the original panel that ruled in the PHH litigation. Judge Henderson dissented on the constitutional question but supported the decision on RESPA enforcement.
“You arguably don’t have to reach the constitutional question,” said Christopher Walker, a professor at Ohio State University’s Moritz School of Law.
But the D.C. Circuit’s decision comes as two individuals argue over which one of them is the CFPB’s rightful acting director.
Cordray last Friday promoted his chief of staff, Leandra English, to be the CFPB’s deputy director just moments before he formally announced his departure. Cordray and English argue that the 2010 Dodd-Frank Act, which created the CFPB, made the deputy director the acting director in his absence.
Hours later, Trump appointed Office of Management and Budget Director Mick Mulvaney, a fierce CFPB opponent, to be the federal consumer finance watchdog’s acting director under a different federal law.
English sued to block Mulvaney’s appointment, and although the case will continue, a judge on Tuesday rejected her request for a temporary restraining order.
Against that backdrop, the D.C. Circuit may have more of an incentive to lie low on the constitutional questions, said Brooklyn Law School professor David Reiss.
“My reading would be that if they reversed the agency on the RESPA issues, then they may be able to moot the constitutional issues,” he said.
December 1, 2017 | Permalink | No Comments
Friday’s Government Reports Roundup
- Atlanta’s City Council will enact new zoning legislation aimed at increasing the number of rental units near the city’s BeltLine. Developers hoping to take advantage of the new legislation must preserve a percentage of their rental units as affordable. Georgia law prohibits mandates of rent control concerning their landlords; thus Atlanta’s innovative legislation seeks to circumvent this law.
- The Consumer Financial Protection Bureau (CFPB) released its “2017 Financial Literacy Annual Report.” The agency’s report provides many resources for U.S. citizens in regards to home ownership, retirement, and sound financial practices. The CFPB cites their goal of ensuring individuals obtain economic independence as the foundation for their report.
December 1, 2017 | Permalink | No Comments
November 30, 2017
Storm-Induced Delinquencies
The Urban Institute’s Housing Finance Policy Center has released its November 2017 Housing Finance at a Glance Chartbook. The Introduction looks out how this summer’s big storms have pushed up delinquency rates:
November 30, 2017 | Permalink | No Comments
