September 3, 2013
The United States District Court for the District of Arizona Reasons That the Plaintiff Agreed to Empower MERS to Foreclose
The United States District Court for the District of Arizona, in Silvas v. GMAC Mortgage, LLC, et al., cv00265 (AZ Dist., 2009), reaffirmed MERS’ standing as the beneficiary of a deed of trust.
In the present case, the plaintiff brought a host of claims against the defendant. One such claim included conspiracy to commit fraud by making use of the MERS System. The court considered the plaintiff’s arguments, however the court rejected them. In rejecting the plaintiff‘s contentions, the court found that they were not only inaccurate, but that the claims were also insufficient to support the plaintiff’s assertions.
The court also reasoned that the plaintiff agreed to empower MERS to foreclose. In reaching this conclusion the court noted that the deed of trust designated MERS as the beneficiary, and authorized MERS to take any action to enforce the loan. One such right included the power to foreclose.
September 3, 2013 | Permalink | No Comments
The United States District Court for the District of Arizona Finds That the Borrower Gave MERS the Ability to Take Any Action, Which the Lender Would be Able to Take
The United States District Court for the District of Arizona, in Blau v. America’s Servicing Company, et al, No. CV-08-773 (D. Ariz., 2009), acknowledged that MERS, acting as a beneficiary, was the proper party to execute an assignment of the deed of trust.
The borrower gave MERS the ability to take any action, which the lender would be able to take. Thus, this included the ability to assign, foreclose, and even substitute the trustee. The court also found that MERS had no liability under The Truth in Lending Act (TILA) since it had not been involved in making the loan to the plaintiff.
September 3, 2013 | Permalink | No Comments
Fannie and Freddie’s Unreported Billions of Losses
The Federal Housing Finance Agency’s Inspector General has warned FHFA Acting Director DeMarco that the FHFA has allowed Fannie and Freddie to defer acknowledgment of billions of dollars of losses relating to seriously delinquent singe-family residential mortgage loans for far too long.
The Office of the IG recommends that estimates of these losses be reported immediately, on an ongoing basis. There are all sorts of obvious good reasons to do this, including the fact that “[c]lassification of loans according to risk characteristics is a critical factor considered by financial regulators to evaluate a financial institution’s safety and soundness” and that it accords with Generally Accepted Accounting Principles. (1)
Fannie and Freddie’s recent reports of billions of dollars of profits have caused a scrum to form around the two companies, as investors in preferred shares seek to get a slice of those profits through a series of lawsuits (here, here, here and here for example), as low-income advocates seek to fund the Housing Trust Fund through a lawsuit (here) and as some politicians forget the risks that these two companies present to the American taxpayer and seek to reanimate the two companies.
In a perfect world, we would ask what kind of residential housing finance infrastructure we want to implement for the next fifty years or so and what should happen to Fannie and Freddie should have little to nothing to do with their current profits or losses. But the political reality is that it does. With that as a given, we should at least have an honest assessment of their balance sheets. But the FHFA is keeping us in the dark. It needs to turn the lights on so that we can understand the true magnitude of these unreported losses so that the debate about Fannie and Freddie can be held with as much accurate information as possible.
September 3, 2013 | Permalink | No Comments
U.S. District Court for the District of Arizona Found the Mere Use of MERS Nid Not Constitute Common Law Fraud
The U.S. District Court for the District of Arizona, in Cervantes v. Countrywide Home Loans, Inc., et al., No. 09-cv-00517 (D.Ariz. 2009), dismissed all state and federal claims brought by all three of the borrowers. The borrowers filed a complaint against MERS as well as a group of other defendants
After considering the borrowers’ arguments, the court found the mere use of MERS did not constitute common law fraud on the borrowers. The court found that the plaintiffs had failed to allege what effect, if any, listing the MERS system as a ‘sham’ beneficiary on the deed of trust had upon their obligations as borrowers.
Subsequently, the United States Court of Appeals for the Ninth Circuit affirmed the trial court’s judgment in favor of MERS. Accordingly, the Court held that a borrower lacked the basis to challenge the standing of an entity such as MERS. Further, the court, however, drew attention to a legal reference that such a borrower still had legal recourse by bringing an action to have the trustee’s sale set aside.
September 3, 2013 | Permalink | No Comments
If QRM = QM, then FICO+CLTV > DTI ?@#?!?
The long awaited Proposed Rule that addresses the definition of Qualified Residential Mortgages has finally been released, with comments due by October 30th. The Proposed Rule’s preferred definition of a QRM is the same as a Qualified Mortgage. There is going to be a lot of comments on this proposed rule because it indicates that a QRM will not require a down payment. This is a far cry from the 20 percent down payment required by the previous proposed rule (the 20011 Proposed Rule).
There is a lot to digest in the Proposed Rule. For today’s post, I will limit myself to a staff report from the SEC, Qualified Residential Mortgage: Background Data Analysis on Credit Risk Retention, that was issued a couple of days ago about the more restrictive definition of QRM contained in the 2011 Proposed Rule. The report’s main findings included
- Historical loans meeting the 2011 proposed QRM definition have significantly lower SDQ [serious delinquency] rates than historical loans meeting the QM definition, but applying this definition results in significantly lower loan volume than QM.
- FICO and combined loan-to-value (CLTV) are strong determinants of historical loan performance, while the effect of debt-to-income (DTI) is much lower.
- Adding FICO or CLTV restrictions to the QM definition reduces SDQ rates faster than the loss of loan volume: max ratios achieved at 760 FICO and 55% CLTV. (2)
Certainly, some readers’ eyes have glazed over by now, but this is important stuff and it embodies an important debate about underwriting. Is it better to have an easy to understand heuristic like a down payment requirement? Or is it better to have a sophisticated approach to underwriting which looks at the layering of risks like credit score, loan to value ratio, debt to income ratio and other factors?
The first approach is hard to game by homeowners, lenders and politicians seeking to be “pro-homeowner.” But it can result in less than the optimal amount of credit being made available to potential homeowners because it may exclude those homeowners who do not present an unreasonable risk of default but who do not have the resources to put together a significant down payment.
The second approach is easier to game by lenders looking to increase market share and politicians who put pressure on regulated financial institutions to expand access to credit. But it can come closer to providing the optimal amount of credit, balancing the risk of default against the opportunity to become a homeowner.
It would be interesting if the final definition of QRM were able to encompass both of these approaches somehow, so that we can see how they perform against each other.
August 30, 2013 | Permalink | No Comments
August 29, 2013
Homeowner Can Challenge Mortgage Assignment
Judge Kennelly has ruled that a homeowner can challenge a mortgage assignment under Illinois law in Elesh v. MERS et al., No. 12 C 10355 (N.D. Ill. Aug. 16, 2013). The Court stated that
Defendants argue that Elesh is not a party to the assignment and thus lacks standing to challenge it. Only one of the cases upon which defendants rely, however, is an Illinois case, and that case makes it clear that this supposed “rule” has exceptions. See Bank of America Nat’l Ass’n v. Bassman FBT, LLC, No. 2-11-0729, 2012 IL App (2d) 110729, 981 N.E.2d 1, 6-11 (2012). The basic requirements of standing are that the plaintiff suffered an injury to a legally cognizable interest and is asserting his own legal rights rather than those of a third party. See id. at 6. Elesh unquestionably meets the first requirement; the recorded assignment constitutes a cloud on his title, and Deutsche Bank recently relied on the assignment to prosecute a foreclosure action against him. Elesh also has a viable argument that in challenging the validity of the assignment, he is asserting his own rights and not someone else’s rights. For example, given Deutsche Bank’s apparent lack of possession of the original note, Elesh is put at risk of multiple liability as long as Deutsche Bank claims to hold the mortgage. See id. at 7-8 (citing cases indicating that an obligor has an interest in ensuring that he will not have to pay the same claim twice). In any event, Illinois law, to the extent there is much of it on this point, appears to recognize an obligor’s right to attack an assignment as void or invalid under certain circumstances. (3)
This is a pretty significant case, at least in Illinois, as it provides homeowners with a way to defend against a foreclosure action that does not rely upon whether the loan is in default or not. The Court takes seriously the possibility that the homeowner could otherwise be liable for the same debt twice. Commentators and courts have downplayed that risk, so it is notable that this Court has taken this position. Time will tell if other courts do so as well.
[HT April Charney]
August 29, 2013 | Permalink | No Comments
August 30, 2013
Alabama Court Holds That MERS’ Assignment to Current Servicer of the Mortgage Loan was Valid
By Ebube Okoli
The Alabama court in Mortensen v. MERS et al, S.D. Ala. No. CV10-234-S (2010) after considering both arguments, granted summary judgment to MERS as well as all defendants.
The court found that the borrower, from his own volition, knowingly and willingly gave a mortgage interest in the property to MERS. The court also found that the mortgage in this case expressly stated that MERS was the mortgagee under the security instrument.
Accordingly, the court held that the MERS’ assignment to the current servicer of the mortgage loan was valid and assigned all MERS’ interest in the mortgage to the servicer.
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August 30, 2013 | Permalink | No Comments