January 8, 2013
Republicans Issue Report Critical of CFPB’s Regulation of Mortgage Markets
The staff of the House’s Committee on Oversight and Government Reform issued a report that argues that the CFPB is “predisposed to limit access to credit;” “will increase regulatory burdens and reduce credit availability;” and has inadequate mechanisms to “detect access to credit impediments.” As to mortgage markets in particular, it argues that
Lenders are reportedly requiring the highest credit scores in a decade to approve home mortgages, with an average credit score of 737 for borrowers approved for a home loan in 2011.22. The international capital guidelines outlined in the Basel III capital accords have also made mortgage loans less worthwhile for banks. An April 2012 Federal Reserve survey found that 83 percent of banks were less likely to originate a GSE-eligible 30-year fixed-rate mortgage for a borrower with a credit score of 620 and a 10 percent down payment than they were in 2006. Roughly 70 percent of those banks surveyed blamed regulatory and legislative changes for restricting lending. (3-4, footnotes omitted)
It continues,
the CFPB is currently considering a mortgage rule that would require a lender to verify a borrower’s ability to repay a mortgage unless the loan satisfies the definition of a “qualified mortgage.” According to Frank Keating, CEO of the American Bankers Association, the rule could “make borrowing more expensive and credit less available. Some lenders may leave the market altogether.” The rule could also increase the cost of mortgage lending, reduce consumer choice, and make it harder for consumers to compare mortgage options. If the CFPB is not careful, these rules could make it more difficult – if not impossible – for millions of Americans to purchase homes. (11, footnotes omitted)
The analysis in this staff report strikes me as fundamentally unsophisticated as it does not draw a distinction between sustainable credit and unsustainable credit. The last bubble was driven by credit that was extended to people who could not repay it. There is no reason we would want to see a return to those practices.
The question should be — what regulations allow for a healthy mortgage market where careful lenders make loans to creditworthy borrowers?
January 8, 2013 | Permalink | No Comments
The Appellate Division of New York State Supreme Court Holds that Assignee Lenders Must Produce Evidence of MERS’s Authority to Assign Mortgage Notes to Lawfully Conduct a Non-Judicial Foreclosure
The New York State Supreme Court, Appellate Division, Second Department in Aurora Loan Services v Weisblum, 923 N.Y.S.2d 609 (App. Div. 2011) held that a mortgage lender does not have standing to foreclose if it cannot establish its lawful status as assignee. In this case, MERS assigned both a mortgage and mortgage note to Aurora Services (“the Assignee”), who subsequently moved to foreclose on the subject property. At the time of the assignment, MERS was the holder of the mortgage, but not the note, which was held by the original mortgagee. MERS claimed that the assignment was valid because it was acting on behalf of the original mortgagee when it assigned the note. The court rejected this argument and held that the assignment was not valid because the Assignee failed to prove that MERS received an explicit grant of authority to assign the note from the original mortgagee. The court explained that, in general, MERS can legitimately assign notes. However, if the assignee moves to conduct a foreclosure, it must produce evidence of MERS’s authority to assign, which must be granted from the original lenders. The court further held that the evidence must show that the original mortgagee explicitly granted MERS such authority to assign.
Here, the lender failed to produce any evidence of MERS’s authority to assign the notes. Thus, the court found that MERS could not assign the note and therefore the lender did not have standing to foreclose.
January 8, 2013 | Permalink | No Comments
January 7, 2013
Oregon District Court Holds that MERS Must Record Every Assignment of Trust Deed to Lawfully Conduct a Non-Judicial Foreclosure
The District Court of Oregon in Hooker v Northwest Trustee Services, Inc., 2011 WL 2119103 (D.Or. May 25, 2011) granted homeowners’ motion for declaratory judgment preventing MERS from continuing with a non-judicial foreclosure proceeding. The court first held that MERS could only be a nominee or agent of a lender, and not have a beneficial interest in the trust deed, where MERS was not listed as the beneficiary on the note. However, the court did not hold that this precluded MERS from lawfully initiating a non-judicial foreclosure. The problem in this case was that MERS only recorded the final assignment of the trust deed, instead of recording every assignment as required by law. In failing to record every assignment of the trust deed in this case, the court found that MERS could not lawfully conduct a non-judicial foreclosure.
January 7, 2013 | Permalink | No Comments
S&P Predicts Residential Mortgage Finance To Improve in 2013
S&P’s report has a couple of interesting predictions:
- Although the GSEs (government-sponsored entities, such as Fannie Mae and Freddie Mac) have been vital players in the U.S. mortgage finance market, 2012 was a strong year for mortgage banking, largely because of refinancing activity. This trend will likely continue in 2013, but banks may struggle to duplicate strong performance next year. . . .
- We expect the federal agencies to continue to dominate the residential mortgage-backed securities (RMBS) market in 2013, but the private-label market will see some growth from a low base.
January 7, 2013 | Permalink | No Comments
District Court of Arizona Dismisses Homeowners’ 72-Member Complaint, Finding MERS’ Securitization System Consistent with Theories of Real Property Law
In In re MERS Litigation, the District Court of Arizona dismissed all seventy-two member cases of a multi-district litigation “Consolidated Amended Complaint” (CAC) brought on behalf of numerous homeowners. Plaintiffs alleged defendants, including MERS, had violated various state statutes including ARS Sec. 33-420, NRS Sec. 107.080, and ORS Sec. 86.735, and committed the tort of wrongful foreclosure, amongst other violations. Eleven defendants filed motions to dismiss, with several additional defendants filing joinders to MERS’ motion.
The crux of plaintiffs’ claims turned on the position that “naming MERS as a beneficiary on the deeds of trusts, and the subsequent operation of the MERS system, splits the MERS deeds of trust from their promissory notes and renders these notes unsecured and unenforceable.” Plaintiffs premised this argument on three basic theories of real property law.
First, to foreclose you need to be a beneficiary.
MERS is not and has never been.
Second, to foreclose the deed of trust must be a valid enforceable security instrument.
The MERS Deeds of Trust are not and never were because they never named a valid beneficiary and were split from the note they were supposed to secure at the time of their creation.
Third, if MERS was actually in possession of some right as an agent under the Deed of Trust, its attempted assignment was ineffective because only the true beneficiary (i.e. principal) can make such an assignment.
The court rejected plaintiffs’ theories and in turn the CAC in its entirety. First, the court rejected the notion that naming MERS as a beneficiary completely destroys the security and bars all attempts at non-judicial foreclosure. Citing the 9th Circuit, the court stated “even granting that MERS is a sham beneficiary and the note is split from the deed [the] conclusion that …no party has the power to foreclose does not hold.” (emphasis added, internal citations omitted). Second, the court rejected the notion that MERS’ assignments were invalid because they never possessed the promissory notes. Referring to the language in plaintiffs’ Deeds of Trust – the court relied on the provisions granting MERS legal title to the secured interests and the power to assign those interests as dispositive. In turn, the court dismissed all twelve of plaintiffs’ claims for relief. Additionally, though plaintiffs did not explicitly request leave to file an amended complaint, the court found that there would be some level of prejudice to defendants, and that “futility – weighs heavily against granting leave to amend” as “plaintiffs [have already had] several bites at the apple.” Accordingly, the court dismissed with prejudice.
While the court noted the argument was moot for purposes of this decision, it did grant one small victory to plaintiffs in agreeing that the Housing and Economic Recovery Act of 2008 (“HERA”) does not preclude courts from enjoining foreclosures. Defendant Federal Housing Finance Agency (“FHFA”) as Conservator of Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) had intervened in nine separate cases pending in this litigation. In their motion to dismiss, FHFA relied on the language of U.S.C. Sec. 4617(f) that restricts judicial action that would “restrain or affect” the powers of FHFA to argue courts lacked the power to issue injunctions in non-judicial foreclosures. The court disagreed, stating there was no “authority standing for the proposition that the FHFA, or a similarly situated entity, may never be enjoined from bringing a non-judicial foreclosure. If plaintiffs overarching MERS argument was correct, and [Fannie Mae and Freddie Mac had] no enforceable interests in the properties at issue, then FHFA would also lack any enforceable interest.”
January 7, 2013 | Permalink | No Comments
January 5, 2013
Alabama Civil Court of Appeals finds that MERS Assignee has Standing to Initiate Foreclosure Proceedings
In Crum v. LaSalle Bank, 55 So.3d 266, (Ala. Civ. App. 2009), the court held that the assignee of the mortgage, LaSalle Bank had standing to initiate foreclosure proceedings. The court reasoned that MERS and the assignee were not delivered a mortgage instrument by a mortgagee solely for effecting a foreclosure and MERS was expressly acknowledged by the borrower in the mortgage instrument itself as not only having “any or all of [the lender’s] interests” in the mortgaged property, but also as having the power “to take any action required of” the lender. The mortgage instrument also expressly provided that the note and the mortgage could be sold without prior notice to the borrower, and the assignment by MERS to the assignee of the mortgage, the note, and “all moneys” due was undertaken for consideration that included a $10 payment to MERS. Therefore, MERS was authorized to perform any act on the lender’s behalf as to the property, including selling the note and the mortgage to a third party and MERS fully exercised that power in favor of the assignee for valuable consideration.
January 5, 2013 | Permalink | No Comments
