March 26, 2013
Kentucky Attorney General Sues MERS for Recording Fees
In Commonwealth of Kentucky v. MERS Holdings, Inc., L3-CI-00060 (Jan. 23, 2013), the Kentucky attorney general filed a lawsuit against MERS seeking recording fees, claiming that it wrongfully held itself out as mortgagee on recorded mortgages, deceptively failed to record mortgage assignments, deceptively brings foreclosure actions, and lacks standing to bring foreclosure actions.
This suit follows a lawsuit brought by several Kentucky counties against MERS an other bank defendants.
March 26, 2013 | Permalink | No Comments
March 25, 2013
Building a Model for Housing Finance
Following up on Friday’s post, I want to discuss Chambers, Garriga and Schlagenhauf’s draft that they recently posted to SSRN (free here). It presents some interesting historical analogies to the issues we face as we attempt to chart a new direction for federal housing policy.
They too review the housing subsidies that exist in the financing system and in the tax code. They attempt to “study the effects of changes in government regulation on individual incentives and relative prices” (4) They include an interesting Table (2) on page 8 that shows the growing percentage of home mortgages that were insured or guaranteed by the FHA and VA.
What I find most interesting about this article is that it attempts to model the impact of better financing terms on the housing market. For instance, they argue that their “model suggest that the extension of the FRM contract from 20 to 30 years can explain around 12 percent of the increase in ownership” for a certain period of time. (25) More generally, they find that the “total impact of mortgage innovation is approximately 21 percent” when combined with “a narrowing mortgage interest rate wedge . . ..” (31) I would love to see more economics articles that model the impact of credit terms on housing prices and homeownership rates. While this seems fundamental to housing economics, there is less out there about this than there should be.
While their conclusion that “mortgage innovation did make a significant contribution to the increase in homeownership between 1940 and 1960” is not surprising, their model helps us understand why that is the case. (26)
March 25, 2013 | Permalink | No Comments
March 23, 2013
District Court of Arizona Finds MERS has Authority to Transfer a Lender’s Interest Under a Deed of Trust, Denies Plaintiffs’ Request for a Temporary Restraining Order
In Jones v. Wells Fargo Bank, CV11-0197-PHX-DGC, 2011 WL 683887 (D. Ariz. Feb. 18, 2011) reconsideration denied, CV11-0197-PHX-DGC, 2011 WL 767302 (D. Ariz. Mar. 1, 2011) the District Court of Arizona denied plaintiff/homeowners’ petition for a temporary restraining order, finding plaintiffs had failed to prove a likelihood of success on the merits of their case.
The Jones’ made five arguments in support of their petition for a temporary restraining order, the court addressed all five.
First, they alleged that the foreclosure documents created by Defendant Wells Fargo Bank did not include valid signatures. However their only evidence of this claim was complaints they had filed with the state’s Attorney General’s Office. The court found this was insufficient to show a likelihood of success on the merits.
Second, they argued that Wells Fargo was not a valid successor on the Deed of Trust or Promissory Note because MERS could not confer that status to Wells Fargo. The court disagreed, citing Blau v. America’s Servicing Co., 2009 WL 3174823 at *7 (D.Ariz., Sept. 29, 2009) for the proposition that “MERS is authorized to transfer a lender’s interest under a Deed of Trust and related documents.”
Third, plaintiffs argued Wells Fargo had already been paid in full on their Promissory Note. However, their only evidence of this claim was a stamp attached to a Deed of Trust that stated “pay to the order of Wells Fargo, NA, without recourse.” They did not explain how or by whom the note could have been paid in full. The court found this simply showed Wells Fargo’s right to receive payments.
Fourth, plaintiffs claimed that a complaint filed by the Arizona Attorney General against Bank of America in regards to mortgage fraud supported their TRO. Again, the court disagreed, finding claims against Bank of America irrelevant to plaintiffs’ claims against Wells Fargo.
Finally, plaintiffs claimed they did not understand when they signed the Deed of Trust that MERS could transfer their rights. However, the court pointed to the specific language in the Deed that stated MERS was a beneficiary to deny this claim as well. Further, since plaintiffs did not argue they were unaware that beneficiaries of a Deed of Trust could foreclose if payments were not made, the court concluded plaintiffs had failed to show a likelihood of success on the merits, and denied their request for a TRO.
March 23, 2013 | Permalink | No Comments
March 22, 2013
Goldilocks Homeownership
It has only been since the housing bust have we had a serious conversation about how much homeownership is just the right amount. Mostly, the federal government (under both Democrats and Republicans) has pushed for more, more, more without regard to whether more was better. Principled commentators on the Left (Paul Krugman, for instance) and the Right have rightly criticized this unthinking commitment to more, but it is very politically attractive to push policies that appear to benefit homeowners (read, voters).
Morris Davis has recently posted his Cato Institute policy analysis critique of federal homeownership policy to SSRN, Questioning Homeownership as a Public Policy Goal. Like others, he criticizes the extraordinary subsidization of homeownership through the significant tax benefits (such as the deductibility of mortgage interest on a personal residence) and financing subsidizes (through the FHA, Fannie and Freddie). But he also attempts to quantify the subsidy. He comes up with an estimate of $2.5 trillion.
While I agree with Davis that we oversubsidize homeownership, I am not sure that I am so convinced by the price tag he puts on it. This is because the class of homeowners overlaps so much with the class of taxpayers. It would be very interesting if he could refine his analysis more to see if federal homeownership subsidies effect a transfer from one group to another — that refinement could lead to an interesting fight in Congress.
I was also surprised that Davis did not rely at all on the work by Glaeser and Gyourko regarding the inefficiencies of federal housing subsidies given restrictive local land use policies. This work would support his overall argument — not only do we oversubsidize, but the subsidies don’t even help homeowners as much as we think they do.
Well, let’s see if Congress takes Krugman and Cato’s views under advisement as we chart a new direction for housing policy . . ..
March 22, 2013 | Permalink | No Comments
March 21, 2013
Borden and Reiss on Dearth of Prosecutions for Mortgage Misrepresentations
We published Cleaning Up the Financial Crisis of 2008: Prosecutorial Discretion or Prosecutorial Abdication? (paywall) today in the BNA Criminal Law Reporter. (You can also get a copy on SSRN or BEPress). It builds on things we have said here and here. In short, we argue
When finance professionals play fast and loose, big problems result. Indeed, the 2008 Financial Crisis resulted from people in the real estate finance industry ignoring underwriting criteria for mortgages and structural finance products. That malfeasance filled the financial markets with mortgage-backed securities (MBS) that were worth a small fraction of the amount issuers represented to investors. It also loaded borrowers with liabilities that they never had a chance to satisfy.
Despite all the wrongdoing that caused the financial crisis, prosecutors have been slow to bring charges against individuals who originated bad loans, pooled bad mortgages, and sold bad MBS. Unfortunately, the lack of individual prosecutions signals to participants of the financial industry that wrongdoing not only will go unpunished but will likely even be rewarded financially. Without criminal liability, we risk a repeat of the type of conduct that brought us to the edge of financial ruin.
Seems straightforward to us, but many other lawyers seem to disagree, including the outgoing Assistant Attorney General in charge of the Criminal Division, Lanny Breuer. He told the NY Times, “I understand and share the public’s outrage about the financial crisis. Of course we want to make these cases. … If there had been a case to make, we would have brought it. I would have wanted nothing more, but it doesn’t work that way.” More interesting stuff in the article.
March 21, 2013 | Permalink | No Comments
March 20, 2013
Texas District Court Found that Bank Had Standing because it had Promissory Note and Affidavit
In Santarose v. Aurora Bank FSB, No. H-10-0720 (S.D. Texas 2010), homeowners alleged wrongful foreclosure. The homeowner executed a promissory note in connection with a purchase money loan from Lehman Brothers Bank. The homeowners executed a deed of trust securing the payment of the Note. Homeowners assert that Aurora did not possess the original promissory note and therefore had no evidence that it loaned them any money. In addition, the Deed of Trust is a contract that homeowners have with themselves and can change at any time. Homeowners also asserted that MERS did not have standing to conduct the foreclosure. The court found that Aurora produced the original promissory note in open court and also submitted an affidavit attesting that Aurora/Lehman has been the sole owner of the Note since the inception of the loan. The Note lists Lehman Bank, Aurora’s predecessor in interest, as the “Lender” and defines “Note Holder” as “[t]he Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note . . ..” Therefore, the court held that there was no factual basis for homeowner’s suspicion that Aurora did not have the original promissory note as evidence of its loan to the homeowners.
March 20, 2013 | Permalink | No Comments
Washington District Court Holds that if MERS has a Beneficial Interest, the Designee can Initiate Foreclosure
In Daddabbo et al v. Countrywide Home Loans, No. C09‐1417‐RAJ, 2010 WL 2102485 (W.D. Wash. May 20, 2010), the court found that MERS had a beneficial interest in the note that the deed of trust secures. The court rejected the contention that MERS has no beneficial interest in the note, and that Recontrust therefore has no power as MERS’s designee to initiate a foreclosure action. The court found that the deed of trust, of which the court takes judicial notice, explicitly names MERS as a beneficiary. Since the deed of trust grants MERS not only legal title to the interests created in the trust, but the authorization of the lender and any of its successors to take any action to protect those interests, including the right to foreclose and sell the Property, the court found that Recontrust had standing to foreclose.
March 20, 2013 | Permalink | No Comments
