February 22, 2013
The GAO’s Take on The FHA
The Government Accountability Office issued an update to its 2013 HIGH-RISK SERIES. It had this to say about the Federal Housing Administration:
a new challenge for the markets has also evolved as the decline in private sector participation in housing finance that began with the 2007-2009 financial crisis has resulted in much greater activity by FHA, whose single-family loan insurance portfolio has grown from about $300 billion in 2007 to more than $1.1 trillion in 2012. Although required to maintain capital reserves equal to at least 2 percent of its portfolio, FHA’s capital reserves have fallen below this level, due partly to increases in projected defaults on the loans it has insured. As a result, we are modifying this high-risk area to include FHA and acknowledge the need for actions beyond those already taken to help restore FHA’s financial soundness and define its future role. One such action would be to determine the economic conditions that FHA’s primary insurance fund would be expected to withstand without drawing on the Treasury. Recent events suggest that the 2-percent capital requirement may not be adequate to avoid the need for Treasury support under severe stress scenarios. Additionally, actions to reform GSEs and to implement mortgage market reforms in the Dodd-Frank Act will need to consider the potential impacts on FHA’s risk exposure. (25)
Discussion about the FHA is getting in high gear, in large part because of Ed Pinto. I expect to take up the issue of the FHA’s appropriate role in the housing market over the coming months and will offer an alternative vision to his.
February 22, 2013 | Permalink | No Comments
Reiss on Qualified Mortgages and Fair Housing
Law360 ran Banks Fear CFPB Rule Could Spur Fair Lending Fights (behind a paywall) which asked for my thoughts:
banks may be getting a bit ahead of themselves when it comes to worrying about how the fair lending law will work in the qualified mortgage context, said David Reiss, a professor at Brooklyn Law School.
Any mortgage that is purchased by Fannie Mae, Freddie Mac and — key for low-income borrowers — the Federal Housing Administration for seven years after the rules take effect in January will be deemed qualified mortgages. The FHA currently backs around $1.1 trillion worth of mortgages.
Unless the FHA drastically reduces its presence in the market that should cover many of the loans that have banks worried, he said.
The banks are not wrong to flag potential problems that may arise in the future, and the issue of fair lending law bumping up against decisions regarding extending only qualified mortgages is a legitimate potential problem, Reiss said.
It’s simply a bit premature with the federal government’s heavy role in the housing finance market.
“They are predicting a scenario, but there’s a lot that’s going to happen between now and that scenario ever being actualized,” Reiss said.
February 22, 2013 | Permalink | No Comments
February 21, 2013
Rhode Island Court Compares Case to Kriegal
In Chhun v. Mortgage Electronic Registration Systems, et al., C.A. No. PC 2011-4547, (R.I. Super. June 26, 2012), the plaintiff sought a declaration from the court to quiet title following a foreclosure sale. The plaintiff claimed that the foreclosing party did not have the statutory power of sale at the beginning of the foreclosure proceedings.
The defendant made a motion to dismiss, which the court addressed in this opinion. The court found the allegations similar to the facts in Kriegel v. Mortgage Electronic Registration Systems and adopted the reasoning in the case.
The court notes that the plaintiff failed to distinguish their case from Rhode Island precedent and instead criticized both Kriegel and Payette. The plaintiff also argued that Bucci should not be followed because of the mortgagor’s allegations of fraud. The court dismissed these arguments as unpersuasive.
The plaintiff argued that the assignment between the Lender and MERS was invalid. However, the court found the plaintiff relied on case law from other jurisdictions that were not binding on this court. The court dismissed challenges to the assignment based on Colorado and Massachusetts case law and distinguished their holdings from the precedent in Rhode Island. The court also found that an allegation that “robo-signers” existed was not substantiated with facts to explain the allegation. The court then dismissed the challenge of the assignment because the plaintiff lacked standing.
The court ultimately held that the same outcome in Kriegel, a dismissal of the plaintiff’s complaint for failure to state a claim of relief, is warranted in this case.
February 21, 2013 | Permalink | No Comments
Reiss on Federal Housing Policy
Law360 ran a story on President Obama’s vision for America’s housing policy and asked for my reaction:
For a piece of mortgage-related legislation to have any chance of passing, it has to require that a borrower pay some kind of down payment so as to remain responsible for at least a small amount of risk, said David Reiss, a professor of real estate and consumer financial services law at Brooklyn Law School.
“What we’ve seen fail pretty consistently is [legislation in which] the homeowner has no skin in the game at all,” and is allowed to obtain a loan — often backed by the government — without putting down a cent, he said.
While this type of policy may help more Americans become homeowners, it does little to fix the housing finance system, which needs a major overhaul, according to Reiss.
“This is the time to reset the market in a rational way, where private lenders make responsible loans because they are doing responsible underwriting,” he said. “Setting up the framework for that should be happening now, even though right now government lending in the residential sector is really the dominant form of lending.”
The rest of the story is here (behind a paywall).
February 21, 2013 | Permalink | No Comments
Reiss on Pino Robo-Signing Case
I had blogged about the case here. Law360 interviewed me about the broader significance of the case:
Despite its application to just Florida, real estate and foreclosure attorneys around the country have been keeping tabs on the case, according to Brooklyn Law School professor David Reiss. The ruling highlights a trend around the country of foreclosure mills and debt collection firms “making thousands of filings and paying very little attention to whether the filings are accurate,” he said.
Reiss said the court could have taken broader action by stating clearly that fraudulent filings undercut the rule of law.
“You could easily imagine a court saying that the kind of behavior alleged here does impugn the litigation process and [that] the court can take actions to remedy it,” Reiss said. “I’m not saying they made a mistake, but if you are aware of behavior that is taking advantage of the judicial system, I think I can imagine another set of judges saying, ‘We have the inherent authority to handle that.'”
The rest of the story is here (behind a paywall, alas).
February 21, 2013 | Permalink | No Comments
Superior Court of New Hampshire Denies Homeowners’ Consumer Protection Claims, Finds MERS has Authority to Assign Mortgage
In Powers v. Aurora Loan Services, 2011 WL 4428713, the Superior Court of New Hampshire denied plaintiff/homeowners’ petition for injunctive relief and lifted the stay on foreclosure.
Plaintiffs had sued Aurora for numerous violations of the New Hampshire Consumer Protection Act, including deceptive debt collection (RSA 358-C); fraud, and negligence. Plaintiffs had originally executed a note secured by a mortgage with GreenPoint Mortgage Funding, Inc. (“Greenpoint”). The mortgage named MERS as nominee and mortgagee. Approximately one year after signing, Aurora became the servicer of the loan. Two years later plaintiffs defaulted. Aurora had previously worked out three previous forbearance agreements with the homeowners, however after plaintiffs defaulted on the third modification Aurora instituted a foreclosure proceeding.
Plaintiffs’ only legal challenge was that Aurora lacked standing because MERS, as nominee, lacked the authority to assign the mortgage to Aurora. The court, citing Black’s Law Dictionary and other decisions nationwide, disagreed. The court summarized, “[t]he Powers (homeowners) knew who their mortgagee was; they communicated with the mortgagee and entered into a number of repayment and forbearance agreements.” The court also rejected their claims that the complex nature of the mortgage’s ownership obfuscated the current mortgagee.
The court also addressed MERS ability to assign its interest in the mortgage as it related to Aurora’s standing. Acknowledging “there is no New Hampshire case law on point” the court discussed developments nationwide and concluded MERS had the authority to transfer the mortgage to Aurora. In addition, the court referred to the language in the mortgage itself, which reflected MERS’ authority to assign its interest. Accordingly, the court dismissed plaintiffs’ claims for injunctive relief and lifted the stay on foreclosure.
February 21, 2013 | Permalink | No Comments
Rhode Island Superior Court Addresses Issues Payette Did Not
In Kriegel v. Mortgage Electronic Registration Systems, PC2010-7099 (R.I. Sup. October 13, 2011), the court granted the defendant’s motion to dismiss the plaintiff’s claim. The plaintiff sought a declaratory judgment and petition to quiet title for his property. The plaintiff argued that the language in the mortgage barred the foreclosing party from having the right to execute the statutory power of sale.
The court relied on the holding in Payette v. Mortgage Electronic Registration Systems in finding that as a matter of law “foreclosure sales conducted by MERS or by one of MERS’ assignees [are] valid.” The court then went on to address the issues that Payette‘s holding did not cover.
The plaintiff alleged that he was misled into believing the original Lender was his mortgagee. However, the court found that “even if true … the clear and unambiguous language in the Mortgage instrument signed by Plaintiff [ ] designated MERS as the mortgagee and nominee to the lender numerous times.”
The court also relied on precedent to dismiss the plaintiff’s claim that designating MERS as the mortgagee disconnects the note and Mortgage, resulting in both becoming void.
The court next addressed a challenge of MERS’ assignment of the mortgage to FNMA, the foreclosing party. The court found that Payette held that “the homeowner lacked standing to challenge the propriety of MERS’ assignment of a mortgage.” In this case, the court acknowledged that Payette was decided on a summary judgment, while this case is a motion to dismiss. However, the court held that “because standing does not raise a question going to the merits of the controversy, it is also appropriately raised on a motion to dismiss.” Since the plaintiff was not a party to the assignment between MERS and FNMA nor did the assignment cause an injury in fact to the Plaintiff, the court dismissed this challenge as well.
Finally, the plaintiff challenged the ability of GreenTree, the servicer for FNMA, to foreclose. The plaintiff argued that GreenTree was not a “Lender” under either the Mortgage agreement or in the relevant statutory authority. However, the court found that the language of the Mortgage agreement states “the mortgagee or its assigns may invoke the Statutory Power of sale.” In addition, the court rejected the plaintiff’s narrow interpretation of the statute and found that GreenTree could properly foreclose the property.
The court ultimately granted the defendant’s motion to dismiss the plaintiff’s claims.
February 21, 2013 | Permalink | No Comments
