Reiss on Fannie/Freddie Loan Limits
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.
September 19, 2013 | Permalink | No Comments
California Court of Appeals Holds That the Right to Challenge a Nominee’s Authority to Foreclose on Behalf of Note Holder Would Fundamentally Undermine the Non-Judicial Nature of the Process
The Fourth District California Court of Appeals in considering Gomes v. Countrywide Home Loans, Inc., 192 Cal.App.4th 1149 (2011), affirmed the lower court’s decision upholding MERS’ ability to initiate non-judicial foreclosure actions.
The appellant argued that he was entitled to bring a lawsuit to challenge whether MERS was authorized to initiate a foreclosure action, however the California Court of Appeals rejected this argument. In rejecting the appellant’s argument, the court held that the text of the statue failed to provide a judicial action to determine whether the person initiating the foreclosure process is indeed authorized. Further, the court noted that there were no grounds for implying such an action.
The Court found that “the recognition of the right to bring a lawsuit to determine a nominee’s authorization to proceed with foreclosure on behalf of the note holder would fundamentally undermine the non-judicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures.”
September 19, 2013 | Permalink | No Comments
September 18, 2013
Show Me The Note, NY Style
Steiner, Goldstein & Sohn published a short article in the New York Law Journal, Clearing The Confusion: Misplaced Notes and Allonges (Sept. 18, 2012) (behind a paywall). While intended to address commercial real estate finance, it relies on an interesting residential real estate finance case, Bank of N.Y. Mellon v. Deane, 2013 Slip Op. 23244 (Sup. Ct. Kings Country July 11, 2013). The authors write that
Mortgage assignments, when properly drafted, assign both the mortgage and the note. Assuming the chain of mortgage assignments is intact, lenders can gain comfort knowing that under New York case law they have standing to enforce the full amount of the debt evidenced by these assignments. Nevertheless, defendants in foreclosure proceedings often challenge the lenders’ standing to enforce the note, demanding that lenders demonstrate physical possession of the note to initiate a foreclosure despite the fact that physical possession is not required by the law.
They conclude:
New York courts in the cases described herein consistently follow well-established precedent permitting standing in a foreclosure action without the plaintiff having physical possession of the original notes. New York case law makes clear that physical possession of all notes in a chain of loan assignments and refinancings is unnecessary for standing in a foreclosure action and that proper execution of a [Consolidated Extension and Modification Agreement] is sufficient to confer standing when missing notes have been consolidated. Likewise, inclusion of an allonge or other endorsement for every note transfer is not required under New York law for standing in a foreclosure action when the note has been assigned by other means, such as through a properly drafted assignment of mortgage.
The article’s discussion of Deane is most interesting:
the court found physical possession of the note to be determinative regardless of whether a written assignment was executed. The court criticized the approach followed by case law in New York, stating that allowing an assignee to have standing without possession of the note “would be inconsistent with Revised Article 3, and put New York out-of-step with the 49 states that have adopted the revision[.]” Notably, however, New York has opted not to adopt those proposed revisions to Article 3. The court continued, “that misstep, however, if such it is, has apparently already been taken. The case law quoted and cited above clearly speaks, in the disjunctive, of standing obtained by ‘assignment’ or ‘physical delivery’ of the note[.]”
I will return to Deane in a later post.
September 18, 2013 | Permalink | No Comments
September 17, 2013
United States District Court Rules That MERS Had The Power to Assign the Deed of Trust
The United States District Court of the Eastern District of California in deciding Coburn v. Bank of New York Mellon, N.A., 2:10-CV-03080 (2010) granted defendants’ motion to dismiss. The court also handed down the ruling that the plaintiff’s claim of deceit was without merit.
The plaintiff argued that MERS simply lacked the power to assign the deed of trust to The Bank of New York Mellon since MERS was neither the owner of the mortgage nor holder of the note. The court rejected this assertion.
The court held that MERS had the authority to assign its beneficial interest to another party. The court also held that MERS did not violate California Civil Code §1095 in assigning the deed of trust to the bank.
September 17, 2013 | Permalink | No Comments
Arkansas Court Finds That Based on Security Agreement, MERS Was the Mortgagee
The Arkansas court considering Coley v. Accredited Home Lenders, Inc. et al, 4 10 CV01870 (E.D. Ark. 2011) ultimately granted the defendants’ motion for dismissal. The court granted the dismissal with prejudice as to the plaintiff’s wrongful foreclosure claims. The court however, did not apply dismissal with prejudice to the plaintiff’s fraud claim.
The court held MERS acted within its role as agent when it transferred the mortgage to the foreclosing lender. Likewise, the court held, and ruled that the assignment to MERS was valid as such the court dismissed the wrongful foreclosure claim.
The plaintiffs based their argument on the allegation that the foreclosing lender lacked standing to foreclose. The plaintiff based this assertion on the claim that MERS was not authorized to transfer or assign the mortgage to the foreclosing lender and that the lender named in the security agreement was the only entity that could pursue foreclosure. The court, however found that MERS was the mortgagee under the security agreement as an agent of the originating lender.
September 17, 2013 | Permalink | No Comments
September 19, 2013
Court Holds MERS’ Previous Business Activities Prior to Proper Registration in California Did Not Render its Foreclosing Illegal
By Ebube Okoli
The court in Perlas et al v. MERS, No. C 09-4500 (N.D.Cal. 2010) held that MERS’ previous business activities prior to becoming registered to do business in California did not render its foreclosing activities illegal.
Despite the plaintiff’s arguments to the contrary, the court noted that since MERS is now registered in California any alleged error had since been retroactively fixed. The Court in delivering their holding also noted that MERS, acting as the lender’s agent, had the authority to initiate non judicial foreclosures.
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September 19, 2013 | Permalink | No Comments