Tag Archives: Reiss

Reiss on Fannie/Freddie Loan Limits

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Law360 quoted me in Time May Not Be Right To Limit Fannie, Freddie Loans (behind a paywall).  It reads in part,

The Federal Housing Finance Agency has proposed lowering the maximum size of the loans Fannie Mae and Freddie Mac can purchase as part of an effort to attract more private-sector lending, but some experts warn that other market factors including rising interest rates will keep private lenders from filling the gap.

The FHFA announced earlier this month that it planned to reduce the maximum size of home mortgage loans eligible for backing by the government-sponsored enterprises. The move is part of the agency’s strategic plan of slowly backing away from the mortgage market and encouraging private capital to take its place. But some real estate attorneys and practitioners say private lenders need more than customers to convince them to take the plunge.

Many other environmental factors affect private lenders’ decisions about whether to enter the residential mortgage market, said Bob Bostrom, a shareholder of Greenberg Traurig LLP and former counsel to Freddie Mac.

Reducing the number of loans eligible for Fannie and Freddie backing and raising guarantee fees — another recent tactic — sound good in theory, but they don’t change the fact that the interest rate for a 30-year fixed-rate mortgage rose a full percentage point over the past several months and the housing market dipped correspondingly, Bostrom said.

“The housing recovery is extraordinarily fragile right now,” he said.

The steps the FHFA is taking to reduce the GSEs’ size and scope will work only when there’s a private sector ready to step in, experts say. Until then, these measures can only push the housing market backward, they warn.

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Not everyone is convinced of this dark forecast, however. David Reiss, a Brooklyn Law School professor and real estate finance scholar, told Law360 on Thursday that he’s not convinced the FHFA’s moves will have a negative effect.

Although the pullback should be gradual, it must be done, because the government can’t continue to hold up the mortgage market indefinitely, he said.

Reiss says current market factors actually favor weaning borrowers off Fannie and Freddie, noting that private capital in the sector has increased — particularly in the market for jumbo loans — and that the overall housing market has stabilized.

“We’re past the immediate crisis,” he said. “There’s nothing going on right now that makes me think a downward adjustment in conforming loan limits won’t be met by an increase in capital from private lenders,” Reiss said.

Reiss on Mortgage Scams

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I was quoted in a story on HSH.com, 4 Ways to Prevent Mortgage-Relief Scams, that reads

Millions of American homeowners are still underwater, attempting either a refinance or a loan modification to help make their mortgages more affordable and their homes more valuable.

But far too many homeowners don’t properly investigate the supposed source for their mortgage relief and wind up scammed by fake mortgage-relief companies.

Mortgage-relief scams became a burgeoning trend in the aftermath of the Great Recession as massive home price declines wiped out home equity leaving millions of homeowners underwater — owing more on their mortgages than their properties are worth.

With so many homeowners facing financial distress, mortgage-relief scammers have stepped up their efforts to try and separate vulnerable homeowners from their money.

Definition

According to the U.S. Federal Trade Commission, “Mortgage relief scammers falsely claim that, for a fee (typically hundreds or thousands of dollars paid up-front), they will negotiate with consumers’ mortgage lenders or servicers to obtain a loan modification or other relief to avoid delinquency or foreclosure. Many of them pretend to be affiliated with the government or government housing assistance programs. Some falsely claim to be offering legal services or ‘audits’ of consumers’ loan paperwork to help them negotiate a resolution with their lenders. Unfortunately, these operations often fail to obtain the relief they promise, and they sometimes fail to take even minimal steps to help consumers.”

Jeremy Heck, a consumer law attorney in Columbus, Ohio says there are two major types of mortgage-relief scammers that advertise heavily via the Internet and mail.

“There are mortgage brokers that attempt to refinance a consumer’s residential real estate for what amounts to extraordinarily high fees,” he explains. “There are other companies that advertise to modify a consumer’s mortgage and claim they can achieve a much lower interest rate. Both of these types of companies advertise in a way that implies they are related to or are part of a governmental organization.”

Here are four tips to help prevent mortgage-relief scams:

Do not pay any money up front

Heck notes that some loan-modification companies charge high fees of between $2,500 and $5,000. “But at the end of the day, they provide absolutely no benefit,” he says. If you are talking to a mortgage-relief company that promises they can reduce your home loan, ask for testimonials and references from satisfied clients — and never put any money down until you see some results.

Don’t assume you are safe from foreclosure

If you’ve been receiving mortgage delinquency notices from your mortgage lender, you may be closer to foreclosure than you might think. At that point, it’s much better to work directly with your bank or lender than a mortgage-relief company. “Many times a consumer will believe they are protected from foreclosure having retained a loan modification company, but in reality, there is no protection and a foreclosure is usually imminent,” says Heck.

Ask a lot of questions

If you do decide to hire a mortgage-relief company, start asking questions, and don’t agree to anything until you get those questions answered.

“When trying to identify a scam, mortgage or otherwise, I always recommend sticking to the basics,” advises David Reiss, professor of law at the Brooklyn Law School. “Does the person have a call back number? Does the organization have a website? Will they put their promises in writing soon after meeting you? Will they show you the documents that they want you to sign soon after you agree to their terms? Very often these basic questions will review a scam for what it is.”

Watch for common “red flags”

Becky Walzak, senior partner of Looking Glass Group, a mortgage services firm in Deerfield Beach, Fla., says diligence is the key. She says to stay away from mortgage-relief companies that want all of your individual information such as social security number, credit card information, etc., over the phone, and who offer no written documentation of their strategies and track record.

“If they do offer references, call and ask specific questions such as when they helped, how they helped, how did you find out about them,” she says.

Being ripped off by a mortgage-relief scam when you’re fighting to save your home is a financial disaster that may take years to undo. Proceed cautiously with mortgage-relief companies, and don’t hire anyone without the proper due diligence. You may wish to hire a real estate attorney to help you review documents and contracts for you.

Fannie, Freddie & Affordable Housing

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I was quoted in a Law360.com story, Affordable Housing May Trip Up Fannie, Freddie Fixes (behind a paywall).  It reads in part,

While the debate over housing finance reform in Washington has focused on the government’s role as market backstop, analysts say questions about federal funding for affordable housing add another potential pitfall for lawmakers looking to dismantle and replace Fannie Mae and Freddie Mac.

Fannie and Freddie long have been part of a broader government program to add to the country’s affordable housing stock. Republicans have been critical of that mission and targeted it as something that should be abolished along with the two mortgage giants, while Democrats want to keep programs promoting affordable housing in any reform of the housing finance system.

As the U.S. House of Representatives and Senate move forward with their own visions of a new system for financing home purchases, it is likely that those two perspectives on affordable housing promotion will clash, said Rick Lazio, a former four-term Republican member of Congress from New York.

“That will be a significant obstacle to getting an agreement,” said Lazio, now the chairman of Jones Walker LLP’s housing and housing finance industry team.

One of the main issues lawmakers will have to confront will be what to do with the National Housing Trust Fund, a program created by the 2008 Housing and Economic Recovery Act.

HERA required Fannie Mae and Freddie Mac to transfer a small percentage of the money from new business to the fund, which would then be used to subsidize the construction of rental housing for low-income families.

The fund’s inclusion in HERA was seen as a major victory for affordable housing advocates, but the benefits never materialized.

Soon after HERA passed, Fannie and Freddie were placed into conservatorship after mounting losses from exposure to subprime mortgages, and the two companies took a combined $187 billion bailout. The Federal Housing Finance Agency canceled all contributions to the fund.

Several housing advocacy groups have sued the FHFA to force the agency to allow Fannie Mae and Freddie Mac to resume their contributions now that the entities are generating profits and repaying the bailout money.

What seems more likely than getting the money the two companies were supposed to pay out is that the funds allocated to affordable housing will be shrunk under a new system, as envisioned by a Senate bill, or eliminated altogether, as proposed by a bill introduced by House Republicans.

“If it’s included at all, it will be smaller,” Brooklyn Law School professor David Reiss said of affordable housing money.

Underwater Mortgages Eminent Domain Battle Gears up

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I was quoted in a recent story in www.thestreet.com, Eminent Domain Mortgage Battle Is a Lose-Lose Situation.  It reads in part,

The move by Richmond, Calif., to seize “underwater mortgages” from private investors using its powers of eminent domain has drawn controversy and consternation within the mortgage industry.

The law has mostly been used to seize property for public purposes such as building roads, highways or schools and other critical infrastructure.

Richmond is now testing whether the rule can be applied to seizing underwater mortgages.

Home prices in Richmond, a city with a population of a little more than 100,000 and a significant Hispanic and African-American presence, are still far below peak levels. More than half of its homeowners are underwater — they owe more than their homes are worth.

Richmond Mayor Gayle Mclaughlin said eminent domain is the only way to help borrowers and repair the local economy, as investors of private-label mortgages have been either reluctant or too slow to provide relief to borrowers.

The city, partnering with San Francisco-based Mortgage Resolution Partners (MRP), began sending letters to owners and servicers of 624 underwater mortgages this week.

If the investors do not agree to sell at the negotiated price, the city will seize the property through eminent domain.

The mortgage industry is, predictably, threatening a legal battle.

* * *

“The constitutional challenges for this proposal are weak,” according to David Reiss, law professor at the Brooklyn Law School.

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The bigger source of legal conflict, according to Reiss and other experts, would be on determining what is fair compensation for a mortgage, especially one that is still current.

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“Courts tend to overcompensate properties taken under eminent domain as a general rule,” said Reiss. “The proponents of this rule may be underestimating how these mortgages will be valued.”

* * *

Eminent domain is “theoretically a great idea,” said Reiss. “States certainly have the legal authority to try this experiment. But it is not clear whether the outcome of all this is beneficial.”