January 22, 2013
CFPB Issues Rules on High-Cost Mortgages
The CFPB issued rules for high-cost mortgages (those with high interest rates and/or points and fees). Importantly, the rules now apply to most mortgages, including purchase money mortgages; refis; home equity loans; and home equity lines of credit.
High-cost loans can no longer have prepayment penalties, balloon payments (except in special circumstances), big late fees and some other miscellaneous fees.
The high-cost mortgage rules have been criticized for not reaching many mortgages as they only kick in (in most cases) when the APR on a first mortgage is more than 6.5 percentage points higher than what people with good credit would pay or if the points and fees are more than five percent of the total loan amount. The new rule will still cover only a small number of loans, so it is not clear if the new rule will have much impact on the market, as opposed to the new Qualified Mortgage rules.
January 22, 2013 | Permalink | No Comments
Alleged Violation of Deceptive Trade Practice Dismissed by Nevada Court
In Medina v. Quality Loan Service Corp., et al., No. 12-CV-00428-KJD-PAL (D. Nev. Oct. 25, 2012), the district court in Nevada addressed the plaintiff’s claim of a violation of the Nevada Deceptive Trade Practices Act.
The Act prohibits sellers from making false statements or misrepresentations about their goods or services. However, the court found that the Act doesn’t apply to most real estate loan transactions. The use of the Deceptive Trade Practices Act was only recognized once by the Nevada Supreme Court in Betsinger v. D.R. Horton, Inc., 232 P.3d 433, 436 (Nev. 2010). However, in that case, the plaintiff purchased a home after the defendant offered a 4.6% mortgage interest rate. After entering a purchase contract and receiving the plaintiff’s deposit, the defendant increased the interest rate to 6.5%. As a result, the plaintiff cancelled the contract and sued for the deposit after the defendant refused to return it. The Supreme Court upheld a jury finding that the defendant violated the Deceptive Trade Practices Act.
In this case, the court distinguished the facts because there was no allegation of a bait and switch, the defendant was not selling a house and the plaintiff was not purchasing one, and the defendant was not withholding a deposit.
The plaintiff also alleged there was a wrongful foreclosure because the party that initiated the foreclosure proceedings, Quality, had no authority to do so. The plaintiff argued that the only person who can enforce the note is the current note holder, not the party in possession of the deed of trust. This theory is a challenge to the split note theory that was addressed in Edelstein v. Bank of New York Mellon, 128 Nev. Adv. Op. 48, *2-3, 286 P.3d 249, ___ (2012). The court summarized the court’s opinion that supported the split note theory and rejected this challenge as well.
As a result, the court granted the defendant’s motion to dismiss this case.
January 22, 2013 | Permalink | No Comments
CFPB Issues Rule on Loan Originator Compensation
Distorted mortgage broker incentives were one of the big problems during the Subprime Boom. Indeed, many lenders have since stopped outsourcing loan originator to mortgage brokers because a lot of the terrible loans they were stuck with had been originated by them. Homeowners were also frequently burned by mortgage brokers who placed them in inappropriate products.
The CFPB has just issued new rules (summary here) relating to the compensation of mortgage brokers. One of the key elements of the rule is that broker compensation cannot be based on a term of the transaction such as the interest rate. This is intended to keep brokers from steering borrowers into more expensive mortgages solely to increase their own compensation. This is a major consumer protection initiative because a large number of homeowners with subprime loans were eligible for prime loans with lower interest rates. Because brokers had been financially incentivized to place them in subprime loans, that is what they did.
The new rule seeks to prevent the mortgage industry from doing an end run around the rule by attempting to identify proxies for the terms of the transaction. Time will tell whether the proxies work as intended.
January 22, 2013 | Permalink | No Comments
January 18, 2013
New York Supreme Court, Appellate Division Holds that Bank Has Standing to Foreclose
In Countrywide Home Loans, Inc. v Delphonse, 64 A.D.3d 624 (2d Dept. 2009) the Supreme Court, Appellate Division, Second Department found that the lender, Countrywide Home Loans (Countrywide), had standing to foreclose on the Delphonses, the homeowners in the case, because the court found that the Delphonses waived the issue at the pre-trial stage, and furthermore that Countrywide met its burden of proof. The court held, “[the Delphonses] waived the defense of lack of standing (see CPLR 3211[a][3]) by failing to either make a pre-answer motion to dismiss the complaint on that ground or by asserting that defense in their answer. . . . On its motion for summary judgment, [Countrywide] established its prima facie entitlement to judgment as a matter of law by submitting the mortgage, the underlying note, and evidence of a default.”
January 18, 2013 | Permalink | No Comments
January 17, 2013
Rental Housing Market Trends — Growing Demand, Unsurprisingly
The Bipartisan Policy Center has an interesting “infographic.” I found the demographic information to be of particular note. The Center says that Baby Boomers, Echo Boomers, Former Homeowners and Recent Immigrants will be driving demand.
January 17, 2013 | Permalink | No Comments
Plaintiff’s Claim Against MERS Time-Barred in Nevada
In Haischer v. Mortgage Electronic Registration Systems, Inc., et al., No. 2-11-cv-01786-GMN-RJJ (D. Nev. Sep. 17, 2012), the plaintiff challenged a foreclosure after the property was sold at a foreclosure auction. The plaintiff requested an order to set aside the foreclosure sale and cancel the Trustee’s deed due to a violation of the Nevada Revised Statutes § 107 regarding deficiencies of the notice of default. Failure to comply with the notice provisions of § 107 warrant voiding a sale by the court. The defendants made a motion to dismiss the claim, which the court ultimately granted.
In this case, the plaintiff failed to bring the claim within the proper timeframe (within 90 days after the date of the sale or within 120 days of receiving actual notice of the sale). As a result, the court found that her claim was time-barred.
However, the court continued to address the plaintiff’s deficient notice claims.
The plaintiff first challenged the authority of ReconTrust, the organization that recorded the notice of default, arguing that they were neither a beneficiary or trustee at the time they recorded the notice. The court stated that in Nevada, “an assignment of the beneficial interest in a deed of trust need not be recorded in order to be valid.”
In response, the defendants submitted evidence that MERS was initially assigned the beneficiary interest in the deed of trust. MERS then assigned a beneficiary interest to BAC Home Loans Servicing, L.P. which was recorded in the proper county. BAC Home Servicing then named ReconTrust the Trustee. As a result, the court found that ReconTrust had the authority to record the notice of default.
The plaintiff then challenged the actual notice of default, alleging there were deficiencies in the notice that was required by the statute. However, the court found that the deficiencies the plaintiff alleged were either not required by the statute or were sufficiently addressed by the notice.
After addressing the plaintiff’s underlying claim, the court granted the defendant’s motion to dismiss.
January 17, 2013 | Permalink | No Comments
CFPB Issues New Rules To Protect Homeowners in Foreclosure
The CFPB issued new rules today that increase protections for homeowners in foreclosure. The 2013 Real Estate Settlement Procedures Act (Regulation X) and Truth in Lending Act (Regulation Z) Mortgage Servicing Final Rules. These rules are a first national standard to replace a hodgepodge of practices that had been in place. The rules come on the footsteps of the $85 billion settlement last week arising from improper foreclosure practices by the ten banks who are parties to the settlement. The rules address many of the behaviors that infuriated homeowners over the last few years including
1. non–transparency as to interest rate adjustments, fees, penalties and other costs;
2. inability to speak with employees at mortgage servicers;
3. overly complicated forms and procedures;
4. glacially slow processing of information; and
5. capricious review standards.
The CFPB has a fact sheet about the rule.
January 17, 2013 | Permalink | No Comments
