- HUD’s Office of Policy Development & Research released its most recent issue of Cityscape, featuring research from a symposium about affordable housing and neighborhood qualities.
- The HOME Coalition released “Building HOME: The HOME Investment Partnerships Program’s Impact on America’s Families and Communities”, analyzing the program’s impact. The report analyzes the economic impact on leveraged investments, jobs supported, and local income generated.
- The FHFA released its Annual Housing Report for 2014 Fannie Mae and Freddie Mac.
Tag Archives: 2014
Systemic Servicing Failure
Joseph A. Smith, Jr.
Joseph A. Smith, Jr., the Monitor of the National Mortgage Settlement, issued An Update on Ocwen’s Compliance. It opens,
I filed a compliance report with the United States District Court for the District of Columbia (the Court) today that provides the results of my tests on Ocwen’s compliance with the National Mortgage Settlement (Settlement or NMS) servicing standards during the third and fourth calendar quarters of 2014. (2)
The Monitor found that Ocwen (which has been subject to numerous complaints) failed at least four metrics and a total of ten metrics are subject to some type of corrective action plan. As with many of these reports, the prose is turgid, but the subject is of great concern to borrowers who have mortgages serviced by Ocwen. Problems were found with
- the timeliness, accuracy and completeness of pre-foreclosure initiation notification letters
- the propriety of default-related fees
- compliance with short sale notification requirements regarding missing documents
- providing the reason and factual basis for various denials
The Monitor concludes, “The work involved to date has been extensive, but Ocwen still has more work to do. I will continue to report to the Court and to the public on Ocwen’s progress in an ongoing and transparent manner.” (5) This sounds like bureaucratic understatement to me. Each of these failures has a major impact on the homeowners who are subject to it.
The Kafka-esque stories of homeowners dealing with servicers gone wild are graphic and frightening when a home is on the line. And when I read the corrective actions that the Monitor is implementing, it reads more like my 6th grader’s report card than like a plan for a massive corporation. One of them is “ensuring accuracy of dates used in letters.” (Appendix ii) Hard to imagine a grown up CEO needing to be told that.
I have wondered before how a company under court-ordered supervision could continue to behave like this. I remain perplexed — and even a bit disgusted.
Thursday’s Advocacy & Think Tank Round-Up
- The Institute of Housing Studies at DePaul University has issued a report analyzing foreclosure activity which finds that foreclosures are down in the Chicago area in 2014. The report also finds that mortgage activity remains low while investor buyers have become a major factor in the single family market.
- Miami Coalition for the Homeless has proposed a set of solutions to make housing in Miami affordable. The prosed policy changes grew out of a cross sector symposium dubbed the 2015 Housing Summit – organized to promoting the creation and maintenance of affordable housing in Miami-Dade County, where 71% of monthly household income goes to housing and transportation.
- The National Association of Realtors (NAR) would like to see the Federal Housing Authority (FHA) increase National Loan Limits. The National Loan Limit sets the individual loan limits available under the Government Sponsored Entities (Fannie and Freddie) and FHA and VA loan programs. In a comment letter to the FHA NAR argues that since housing prices have rebounded following the financial crisis – now expected to surpass 2007’s prices, increases are in order.
Friday’s Government Reports Roundup
- CFPB releases its 2014 Fair Lending Report, discussing its fair lending acts over the past year. It shows that the CFPB required institutions to provide over $224 million in remediation in 2014.
- A S. Census Bureau paper examines the effects of foreclosures on families during the financial crisis and in the years following.
- The Center for Housing Policy released a report “Impacts of Affordable Housing on Health: A Research Summary,” which discusses how Affordable Housing is correlated to better health than unaffordable, unstable and poor quality housing.
- The National Housing Conference released report: “Broadband Connectivity in Affordable Housing,” which highlights the need for internet access in affordable housing.
- HUD released the “2015 Worst Case Housing Needs” report.
State of the Nation’s Housing Finance
The Joint Center for Housing Studies of Harvard University has released the 2014 edition of The State of the Nation’s Housing. As to the nation’s housing finance system, the report finds that
The government still had an outsized footprint in the mortgage market in 2013, purchasing or guaranteeing 80.3 percent of all mortgages originated. The FHA/VA share of first liens, at 19.7 percent, was well above the average 6.1 percent share in 2002–03, let alone the 3.2 percent share at the market peak in 2005–06. Origination shares of Fannie Mae and Freddie Mac were also higher than before the mortgage market crisis, but less so than that of FHA. According to the Urban Institute’s Housing Finance Policy Center, the GSEs purchased or guaranteed 61 percent of originations in 2012 and 2013, up from 49 percent in 2002 and 2003.
Portfolio lending, however, has begun to bounce back, rising 8 percentage points from post-crisis lows and accounting for 19 percent of originations last year. While improving, this share is far from the nearly 30 percent a decade earlier. In contrast, private-label securitizations have been stuck below 1 percent of originations since 2008. Continued healing in the housing market and further clarity in the regulatory environment should set the stage for further increases in private market activity. (11)
As usual, this report is chock full of good information about the single-family and multi-family sectors. I did find that some of its characterizations of the housing market were lacking. For instance, the report states
Many factors have played a role in the sluggish recovery of the home purchase loan market in recent years, including falling household incomes and uncertainty about the direction of the economy and home prices. But the limited availability of mortgage credit for borrowers with less than stellar credit has also contributed. According to information from CoreLogic, home purchase lending to borrowers with credit scores below 620 all but ended after 2009. Since then, access to credit among borrowers with scores in the 620–659 range has become increasingly constrained, with their share of loans falling by 6 percentage points. At the same time, the share of home purchase loans to borrowers with scores above 740 rose by 8 percentage points.
Meanwhile, the government sponsored enterprises (GSEs) have also concentrated both their purchase and refinancing activity on applicants with higher credit scores. At Fannie Mae, only 15 percent of loans acquired in 2013 were to borrowers with credit scores below 700—a dramatic drop from the 35 percent share averaged in 2001–04. Moreover, just 2 percent of originations were to borrowers with credit scores below 620. The percentage of Freddie Mac lending to this group has remained negligible.
Yet another drag on the mortgage market recovery is the high cost of credit. For borrowers who are able to access credit, loan costs have increased steadily. To start, interest rates climbed from 3.35 percent at the end of 2012 to 4.46 percent at the end of 2013. This increase was tempered somewhat by a slight retreat in early 2014. In addition, the GSEs and FHA raised the fees required to insure their loans after the mortgage market meltdown, and many of these charges remain in place or have risen. The average guarantee fee charged by Fannie Mae and Freddie Mac jumped from 22 basis points in 2009 to 38 basis points in 2012. In 2008, the GSEs also introduced loan level price adjustments (LLPAs) or additional upfront fees paid by lenders based on loan-to-value (LTV) ratios, credit scores, and other risk factors. LLPAs total up to 3.25 percent of the loan value for riskier borrowers and are paid for through higher interest rates on their loans. (20)
Implicit in this analysis is the view that lending should return in some way to its pre-bust levels. But, in fact, much of the boom lending was unsustainable for many borrowers. The analysis fails to identify the importance of promoting sustainable homeownership and instead relies on one dimensional metrics like credit denials for those with low credit scores. Until we are confident that borrowers with those scores can sustain homeownership in large numbers, we should not be so quick to bemoan credit constraints for people with a history of losing their homes to foreclosure.
The Center’s analysis also takes a simplistic view about guarantee fees. The relevant metric is not the absolute size of the g-fee. Rather, the issue should be whether the g-fee level achieves its goals. At a minimum, those goals include appropriately measuring the risk of having to make good on the guarantee.
Finally, the Center demonstrates symptoms of historical amnesia when it characterizes an interest rate of 4.46% as “high.” This is an incredibly low rate of interest and one would expect that rates would rise as we exit from the bust years.
I have made the point before that the Center’s work seems to reflect the views of its funders. The funders of this report (not identified in the report by the way) include the National Association of Home Builders; National Association of Realtors; National Housing Conference; National Multifamily Housing Council; and a whole host of lenders, builders and companies in related fields that make up the Center’s Policy Advisory Board. These organizations benefit from a growing housing sector. This report seems to reflect an unthinking pro-growth perspective. It would have benefited from a parallel focus on sustainable homeownership.
Open Season on Homeowners
A case coming out of California, Peng v. Chase Home Finance LLC et al., California Courts of Appeal Second App. Dist., Div. 8, April 8th, 2014, has attracted a lot of attention in the blogosphere. This is particularly notable because this case is not to be published in the official reports and thus has no precedential value. Judge Rubin’s dissent has attracted much of the attention. It opens,
The promissory note signed by appellants Jeffry and Grace Peng obligated them to repay their home loan. In August 2007, Freddie Mac acquired the promissory note from Chase. Based on Freddie Mac owning the note, appellants seek to amend their complaint to allege Chase did not have authority to enforce the promissory note or to foreclose on their home, but the majority rejects appellants’ proposed amendment. Relying on case law rebuffing a homeowner’s challenge to a creditor-beneficiary’s authority to foreclose, the majority notes that courts have traditionally reasoned that the homeowner’s challenge is futile because, even if successful, the homeowner “merely substitute[s] one creditor for another, without changing [the homeowner’s] obligations under the note.” (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 271.) The only party prejudiced by an illegitimate creditor-beneficiary’s enforcement of the homeowner’s debt, courts have reasoned, is the bona fide creditor-beneficiary, not the homeowner.
Such reasoning troubles me. I wonder whether the law would apply the same reasoning if we were dealing with debtors other than homeowners. I wonder how most of us would react if, for example, a third-party purporting to act for one’s credit card company knocked on one’s door, demanding we pay our credit card’s monthly statement to the third party. Could we insist that the third party prove it owned our credit card debt? By the reasoning of Fontenot and similar cases, we could not because, after all, we owe the debt to someone, and the only truly aggrieved party if we paid the wrong party would, according to those cases, be our credit card company. I doubt anyone would stand for such a thing. (Dissent, 1)
The dissent’s concern is justified. As Professor Whitman has recently noted on the Dirt Listserv and elsewhere, it is a “bizarre notion that anyone can foreclose a mortgage without showing that they have the right to enforce the note.” He also notes that the majority (and even the dissent) in Peng confuse ownership of the note with the right to enforce it. Until courts fully understand how the UCC governs the enforcement of notes, one should worry that some state court judges might declare an open season on homeowners as the majority does here in Peng.
