January 29, 2013
Federal Reserve Report on the 30 Year Fixed Rate Mortgage
Fuster and Vickery have posted Securitization and the Fixed-Rate Mortgage, a FRB of NY Staff Report. This paper brings some empirical research to the debate over the proper fate of the 30 year mortgage. Commentators are sharply divided over whether the government must be intimately involved in the operations of the residential mortgage markets in order to keep the 30 year FRM available in the United States. (Whether that is a worthy goal is another question entirely.)
Peter Wallison at the American Enterprise Institute has argued that the existence of 30 year FRMs in the jumbo market demonstrates that the government does not need to play an active role in the mortgage markets to ensure the availability of that mortgage product. David Min, formerly of the Center for American Progress, has argued that the government must continue to play an active role in order to keep that product in the market. My own position has been in the middle — the government can reduce its dominant role in the mortgage markets while retaining a role during financial crises.
Fuster and Vickery test whether securitization, by allowing interest rate and prepayment risk “to be pooled and diversified, increases the supply of FRMs relative to ARMs.” (1) They find that “lenders are averse to retaining exposure to the risks associated with FRMs in portfolio. Securitization increases lenders’ willingness to originate FRMs by transferring these risks to a diverse international pool of MBS investors.” (2) Unsurprisingly, they also find that “when private MBS markets are liquid and well functioning, as in the period before the onset of the financial crisis in mid-2007, private and government-backed securitization perform similarly in terms of supporting FRM supply. However, public credit guarantees may make securitization less susceptible to market disruptions, thereby improving the stability of FRM supply.” (2) Fuster and Vickery suggest that the current GSE- centered mortgage finance system may not be necessary for FRMs to remain widely available at competitive rates, but only as long as private securitization markets are liquid.” (30)
Fuster and Vickery do not mean to say that they have produced the last word on this topic, but their findings are intuitive to me. This debate is central to any plan for the future of the American housing finance system, so more empirical work in this area is most welcome.
January 29, 2013 | Permalink | No Comments
January 28, 2013
GAO Report on Challenges for Financial Regulatory Reform
The GAO has issued a report, Financial Regulatory Reform: Regulators Have Faced Challenges Finalizing Key Reforms and Unaddressed Areas Pose Potential Risks. The report notes that
A variety of challenges have affected regulators’ progress in executing rulemaking requirements intended to implement the act’s reforms. Regulators to whom we spoke indicated that the primary challenges affecting the pace of implementing the act’s reforms include the number and complexity of the rulemakings required and the time spent coordinating with regulators and others. In addition, some regulators identified additional challenges, including extensive industry involvement through comment letters and litigation resulting from rulemakings, concurrently starting up a new regulatory body and assuming oversight responsibilities, and resource constraints. (23)
These challenges are only compounded by the recent court decision that throws CFPB rulemaking into a pit of uncertaintly. While the decision addresses the legality of NLRB recess appointments, it clearly implicates the appointment of Richard Cordray as the Director of the CFPB. This has serious consequences for Bureau rulemaking which cannot be occur without a Bureau Director being in place. (See Dodd-Frank section 1022(b)(1), codified at 12 U.S.C. section 5512(b)(1))
January 28, 2013 | Permalink | No Comments
Northern District of Ohio Holds that Mortgage Conveys Beneficial Interest to MERS as Nominee, Mortgagee
In Meehan v. Mortgage Elec. Registration Sys., Inc., 1:11CV363, 2011 WL 3360193 (N.D. Ohio Aug. 3, 2011), the United States District Court for the Northern District of Ohio held that MERS had a beneficial interest in the property based on the language of the mortgage agreement. In this case, the homeowners filed an action to quiet title, claiming, “MERS has no beneficial interest in the mortgage. . . [further,] MERS’s interest is adverse and constitutes a cloud on the title to [the] property.” MERS claimed it had a beneficial interest in the property because the mortgage named MERS as nominee for the lender as well as the mortgagee. The court found that the contract language was clear and an action to quiet title, which is an equitable remedy, was not available to the homeowners in this case. Thus, the court held that the homeowners claim was without merit and granted MERS’s motion to dismiss.
January 28, 2013 | Permalink | No Comments
January 25, 2013
Southern District of Ohio Unable to Determine Lenders’ Standing, Orders Lenders to Submit More Evidence or Have Case Dismissed
In In re Foreclosure Cases, 521 F. Supp. 2d 650 (S.D. Ohio 2007), the United States District Court for the Southern District of Ohio reviewed 27 private foreclosure actions based on federal diversity jurisdiction. In this case, the court was concerned with the issues of standing and subject matter jurisdiction, and was dissatisfied with the evidence submitted by the lenders. The court concluded by ordering the lenders to “submit evidence [within 30 days] showing that they had standing in the above-captioned cases when the complaint was filed and that this Court had diversity jurisdiction when the complaint was filed. Failure to do so will result in dismissal without prejudice to refiling if and when the plaintiff acquires standing and the diversity jurisdiction requirements are met.”
January 25, 2013 | Permalink | No Comments
Ohio Appellate Court Holds that Lender, as the Real Party in Interest, has Standing to Foreclose
In Countrywide Home Loans Servicing, L.P. v. Shifflet, 2010-Ohio-1266, the Court of Appeals of Ohio, Third District held that the lender had standing to bring a foreclosure action against the homeowners. The homeowners argued that “MERS, rather than [lender], was the holder of the mortgage, rendering [MERS] the real party in interest.” The court rejected this argument, and based their determination on the evidence submitted by the lender. The evidence submitted was (1) an affidavit from the lender’s assistant vice president stating that the lender is the holder of the mortgage deed and note, and (2) an assignment executed by MERS that assigned all of its right, title, and interest in the subject mortgage deed and note to the lender. The court found this evidence dispositive, stating, “[g]iven the affidavit of [the lender’s assistant vice president] and, more importantly, the documentary evidence of the assignment of the mortgage and note to [the lender], the trial court did not err in granting summary judgment to the lender.”
January 25, 2013 | Permalink | No Comments
Foreclosure = Debt Collection
The Sixth Circuit ruled in Glazer v. Chase Home Finance LLC, __ F.3d ___ (Case No. 10-3416, Jan. 14, 2013) that “that mortgage foreclosure is debt collection under” the Fair Debt Collection Practices Act. (2) As Glazer indicates, courts have been split on this issue, but the trend seems to be in accord with Glazer.
Of particular note to lawyers: “Lawyers who meet the general definition of a “debt collector” must comply with the FDCPA when engaged in mortgage foreclosure. And a lawyer can satisfy that definition if his principal business purpose is mortgage foreclosure or if he “regularly” performs this function.” (16)
January 25, 2013 | Permalink | No Comments
January 24, 2013
Ohio State Court of Appeals Holds that Bank has Standing to Foreclose
In Deutsche Bank Natl. Trust Co. v. Traxler, 2010-Ohio-3940, the Court of Appeals, Ninth District of the State of Ohio held that the bank had standing to commence a foreclosure action against the homeowners. The homeowners argued that the bank lacked standing because the bank did not possess the mortgage and note at the time it commenced its action. The court rejected this argument, holding, “a bank need not possess a valid assignment at the time of filing suit so long as the bank procures the assignment in sufficient time to apprise the litigants and the court that the bank is the real party in interest.” The court looked at the assignments of the mortgage and note, and found that both were valid. Specifically, the court rejected the homeowner’s argument that MERS lacked authority to assign the mortgage. The court found that where MERS is designated as both the nominee and mortgagee of the mortgage, it has authority to assign the mortgage. However, the court went even further and stated, “assuming that MERS did not have the authority to assign the mortgage, however, we. . . conclude that the proper transfer of the promissory note, which the mortgage secured, amounted to an equitable assignment of the mortgage.” Thus, the court concluded that the homeowner’s arguments be rejected and the bank had standing to foreclose.
January 24, 2013 | Permalink | No Comments
