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Posts Tagged ‘mortgages’

Vulture Funds

Posted by CM on November 25, 2009

I came across this article in the NY Times on Sunday about the fate of Vulture Funds (Troubled Investments).  Here is what is going on now in Wall Street….

  1. Investors are buying discounted home loans from distressed banks.
  2. Mortgages are then refinanced through the government.
  3. Profits are made by reselling government insured loans.
  4. The newly refinanced loans are bundled into securities and sold to investors (like usual).

For those of you who like diagrams….

 graphic vulture funds2

So, evidently all of the risk for these newly refinanced loans falls on the government and then ultimately the taxpayers.  Keep in mind that “Americans are falling behind on mortgage payments in record numbers1.” 

Homeowners are involved here.  They receive a letter stating their principals have been reduced and then have to refinance to get the reduction.  The investors receive a profit when the refinances amount to more than their original $40 Million investment.   Many of the interviewees in the article expressed their concerns about this new strategy and weren’t quite clear where all of this was headed. 

From my understanding;

  • These Vulture Funds are coming from distressed banks, not necessarily from distressed loans.  Yes, the argument is that distressed banks are a victim of distressed loans, but not every single loan is in distress.
  • Principal reductions don’t seem to be targeted toward people with distressed loans or those asking for modifications.  The article didn’t make this issue clear.  It just seems that whatever loans were in the pool are the ones being refinanced.  I don’t believe investors are going around looking for homeowners to help by reducing principals.  Wall Street just doesn’t work that way.
  • This article is a clear indication that the game hasn’t changed at all.  Regulations with teeth haven’t been enacted and the rules of the game haven’t changed either.
  • All we seem to have here is either a different way to play the mortgage game or a new side game to the game that has always been played.

Come on Obama and Geithner, “Yes We Can” do something about this.

Sources:
1.  Wall Street Finds Profits by Reducing Mortgages. Louise Story. New York Times. 11/21/09.
URL: http://www.nytimes.com/2009/11/22/business/22loans.html

Posted in Foreclosure, Green Tree Servicing, Mortgage Servicers, New York Times, PHH Mortgage | Tagged: , , , , , | Leave a Comment »

Update: HR 3126

Posted by CM on October 16, 2009

Surprise, surprise; Barney Frank and his committee cohorts have voted 43 to 26 to approve exemptions for their bill, HR 3126; the Consumer Financial Protection Agency.  “Small” banks will be exempt from federal oversight while large banks will still be under federal oversight.  I guess when our mortgages are repackaged and sold, we should cross our fingers that the buying bank is large enough to be under federal scrutiny so we have someone to complain to when things go south.  Otherwise, we are doomed to be left out of complaining because our mortgage holder is considered “small” by Frank’s committee.

Ed Mierzwinski of the United States Public Interest Research Group summed up HR 3126 and our government perfectly when he told the NY Times that “the legislation had broad exceptions that swallow any rule it creates.” (1)

When I started this blog, I was the hopeful optimist.  Now I am the cynical pessimist.   

Source:
1. Bill Shields Most Banks From Review.  Stephen Labaton. 10/16/2009. NY Times. URL:  http://www.nytimes.com/2009/10/16/business/16regulate.html

Posted in Congressional regulation, Foreclosure, Mortgage Servicers, PHH Mortgage | Tagged: , , , , , | Leave a Comment »

Mortgage Cramdown

Posted by CM on October 16, 2009

If the health care debate in Washington has shown us anything, it is that corporations own our politicians.  I have spent the past month thinking that this little ole blog of mine won’t amount to anything and why waste my time.  To be fair to myself, I still kept reading the papers and watching the news and had not really heard much about mortgage servicers lately.  Luckily I picked up a Business Week Magazine this week and found an article about mortgages!  (I should also add that I don’t believe that any elected official will do anything about mortgage servicers.  Please excuse my bitterness about my foreclosed house!)

Anyway, it seems that Senator Dick Durbin (D-IL) has vowed to attach a “cramdown” amendment to every bill until it gets passed.  Cramdown is the Democrats catchy phrase answer to allowing bankruptcy judges to adjust mortgages.  They would also be more inclined to reduce principal and interest.  Recall from previous posts that reducing principal and interest are the best tools for mortgage modifications in HAMP.  Apparently this proposal passed the House and was lost in the Senate on a 45-51 vote1.   Undeterred, Durbin has promised to fight on.  I suppose he will hang on until a bank lobbyist gives him a big campaign contribution to shut up! 

Business Week did not give any specifics about the cramdown legislation and I was not able to find any information about it on Sen. Durbin’s website.  Business Week did not provide details regarding the cramdown’s passage in the House; like which bill the proposal was imbedded into. 

Obviously letting judges modify mortgages is a good idea.  These days, any good idea that has lobbyists fighting over its demise is good for the American people!

Hopefully I can put my foreclosure bitterness aside and keep fighting the good fight.  I don’t think we will win but I suppose we can keep trying. 

Sources:
 1. Return of the Mortgage Cramdown. Theo Francis. Business Week. 10/19/2009. 
  http://www.businessweek.com/magazine/content/09_42/b4151052063508.htm

Posted in Congressional regulation, Foreclosure, Mortgage Servicers, PHH Mortgage | Tagged: , , , , , | 2 Comments »

HR 1728

Posted by CM on September 6, 2009

HR 1728: The Mortgage Reform and Anti-Predatory Lending Act, Click Here for the full text in PDF

On April 28, 2009, Ms. Maureen McGrath of the National Advocacy Against Mortgage Servicing Fraud provided a written statement to the U.S. Congress to lend her organization’s support to HR 1728. 

The following are some key points regarding fraud from her written statement in her own words.

  • The first fraud by an institution is offering a loan when they know the homeowner does not have the means to ever repay the loan. 
  • The first fraud can also be offering a loan when the LTV (loan-to-value ratio) is upside down because the collateral cannot bear the price of the principal of the loan.
  • The second fraud is committed when a BPO (broker’s price option) is ordered rather than an appraisal.
  • An appraisal becomes fraudulent when an appraiser is coerced into “hitting the mark.”

Ms. McGrath further advocates oversight and regulation of the appraisal process because no uniform, nationwide oversight guidelines exist now.  Read her full statement here. 

I have advocated for a Mortgage Bill of Rights, but this bill is what we need instead.  It is comprehensive and worth the time to look over it.  Lets lend our support to this bill.  On May 7, 2009 the bill passed the House with 300 votes.  It is now awaiting Senate approval.  I will keep a tracker of this bill on the right side bar. 

Sources:

Written Statement of Maureen McGrath on behalf of National Advocacy Against Mortgage Servicing Fraud.  Submitted to the House Committee on Financial Services Hearing on HR 1728, The Mortgage Reform and Anti-Predatory Lending Act.   4/28/09.

Posted in Congressional regulation, Foreclosure, Green Tree Servicing, Mortgage Service Providers, Mortgage Servicers, PHH Mortgage, white house | Tagged: , , , , | Leave a Comment »

Guest Blog Post!

Posted by CM on August 24, 2009

Hi All!  As the founder of STOP! Mortgage Servicers, I was asked to do a guest blog post on Denise Richardson’s site, Give Me Back My Credit

I have always been a nonbeliever in the status-quo.  So when my husband and I failed in the sale of our first house, I just didn’t accept the failure.

Click Here to read more

You can also find this guest post on Zimbio

Sources:
 1. http://www.givemebackmycredit.com/blog/2009/08/homeowners-continue-to-speak-o.html
2. http://www.zimbio.com/Consumer+Affairs

This is FANTASTIC Exposure!  Thank you again Denise! 

Posted in Congressional regulation, Foreclosure, Green Tree Servicing, Mortgage Service Providers, Mortgage Servicers, PHH Mortgage, Short-sales | Tagged: , , , , , | Leave a Comment »

Mark-to-Market (MTM) Investigation

Posted by CM on August 11, 2009

By Coleen Martinez

First, let’s begin our discussion with an explanation of what Mark-to-Market (MTM) is.  From the Forbes website, Investopedia, MTM is the following1:

  1. A measure of the fair value of accounts that can change over time, such as assets and liabilities.  MTM aims to provide a realistic appraisal of an institution’s or company’s current financial situation. 
  2. The accounting act of recording the price or value of a security, portfolio or account to reflect its current market value rather than its book value. 
  3. When the net asset value (NAV) of a mutual fund is valued based on the most current market valuation.

The Forbes’ website goes on to try to explain what happens in a MTM situation.  Take the “financial crisis of 2008/20091” (as if this crisis is ancient history) as the starting point of the following explanation.  So, as we all know, banks went around the country selling and buying lots of bad loans on houses with inflated prices.  And when the bubble burst, the loans that the banks were holding lost their value and in consequence, the banks themselves lost their value.  Forbes explains the above situation as this:

                 “Problems can arise when the market-based measurement does not accurately reflect the underlying asset’s true value. This can occur when a company is forced to calculate the selling price of these assets or liabilities during unfavorable or volatile times, such as a financial crisis. For example, if the liquidity is low or investors are fearful, the current selling price of a bank’s assets could be much lower than the actual value. The result would be a lowered shareholders’ equity.1

The bank bought loans for inflated values.  In turn, the bank sold shares based on the inflated values of the loans and ultimately marketed itself at an inflated price to have investors buy shares of their company so everyone could be happy and rich.   When the bubble burst, the bank would have lost its’ value because the loans lost their values, and ultimately the shareholders would lose the value of their high priced stock in the bank. 

What the Forbes quote above is trying to explain is that during a financial crisis, banks with bad loans will appear worse than they appear.  So to combat this awful situation for the banks, the MTM rule was kicked to the curb.  In April 2009, the Financial Accounting Standards Board (FASB) created “new guidelines that would allow for the valuation to be based on a price that would be received in an orderly market rather than a forced liquidation.1

Based on the financial industry’s faulty logic, they have concluded that during a financial crisis, they are allowed to value their assets at a price of their desire.  When doing this “magic math” banks will not lose shareholders because their only value is based on a bunch of bad loans.  Banks will instead keep all of their value and shareholders by lying about the value of their assets.  Isn’t this just fantastic!

I felt bad for not knowing about the MTM rule in the first place and not knowing about the rule’s demise in April.  I try really hard to know about current events especially when it comes to mortgage news.  Then I realized that rules disappearing and reappearing in the financial world is exactly why we had a “financial crisis of 2008/2009.1”  It seems that while President Obama is trying to put forth new regulations in the financial industry, Wall Street is still playing their games. 

I guess that you wouldn’t be surprised to know MTM is a company also.  Check them out, they offer BPO’s (Broker Price Opinions) or as we know them as, appraisals2.  I suppose that this website promises BPO’s in an “orderly market, not a forced liquidation market.1” My personal experience tells me that the BPO’s ordered for my vacant home on the market were based on a bubble market (orderly), not a reality market (forced liquidation).

While doing research for this piece, I came across a wonderfully titled opinion piece on the Forbes website titled, “Why Mark-to-Market Accounting Rules Must Die.3” The writers complain about how terrible the rule is for banks and why we should allow the financial industry to get rid of the rule.  Clearly these writers have no clue as to the affect of not having this rule does for the average citizen. 

My house has been vacant and listed for sale since February 2008.  After 6 months on the market, I started requesting approval of short sale offers.  Every single BPO we received was entirely too high and not at all reflective of the current depressed market value of my home, of the neighborhood, and of the town.  Obviously my mortgage servicer had decided early on to ignore the MTM rule and now they can ignore the MTM rule in good conscience. 

In summary, the MTM rule has been relaxed to allow banks to value their assets as they see fit.  In a financial crisis, they can keep their assets valued high even though the assets might be low.  However, in a normal market, banks have to value their assets at face value.  The financial industry’s idea of a stable market is our idea of a bubble market, whereas our idea of a stable market is the financial industry’s idea of a “forced liquidation1” market.       

We are still in a financial crisis.  Banks still won’t modify mortgages.  Obviously if banks modified mortgages they would be admitting that the values of their assets are lower than when they were first purchased.  As we have realized, this asset lowering in turn can lower the overall value of the bank.  Clearly this is why banks won’t accept short sales because they would have to admit that the loans are not as valuable as first thought.  This is why banks won’t refinance because typically the payment amount and interest will go down and thus lower the value of the loan.  This is why banks won’t modify mortgages that are underwater because again, they have to admit that the value of their loan has decreased.  Plus, by keeping an inflated value on mortgages, servicers earn ¼ to ½ percent per value of each mortgage5.  By keeping the values/mortgages/loans/assets at an inflated price, both the banks and mortgage servicers win.      

Lastly, “by allowing a property to go into foreclosure, banks have postponed the inevitable, admitting the value of their asset has decreased.4”  Take it from someone who knows, banks can drag out a pending foreclosure for a long time and all the while, they get to keep the same high value of their assets for as long as possible.  Plus, when the property does foreclose, banks and servicers earn fees5.     

I believe the MTM rule has become a joke.  Either we create a new rule or refer to the old rule and actually enforce it. 

Sources:

  1. Mark-to-Market on Investopedia, A Forbes Digital Company.  Found 8/11/09
    URL: http://www.investopedia.com/terms/m/marktomarket.asp
  2. Mark-to-Market. Found 8/11/09
    URL: www.marktomarket.com
  3. Why Mark-to-Market Accounting Rules Must Die by Brian S. Wesbury and Robert Stein.  Posted 2/24/09.  Found 8/11/09.
    URL: http://www.forbes.com/2009/02/23/mark-to-market-opinions-columnists_recovery_stimulus.html
  4. Our view on housing: On foreclosures, lenders play ‘extend and pretend’. USA Today Editorial Board.  Posted 7/28/09. Found 8/10/09
    URL:  http://blogs.usatoday.com/oped/2009/07/our-view-on-housing-on-foreclosures-lenders-play-extend-and-pretend–to-avoid-write-downs-banks-drag-feet-on.html?loc=interstitialskip
  5. AP IMPACT: Government Mortgage Partners Sued for Abuses.  Daniel Wagner.  Associated Press.  8/5/09. 
    URL: http://hosted.ap.org/dynamic/stories/U/US_MORTGAGE_MIDDLEMEN?SITE=KYB66&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2009-08-05-20-52-21

Posted in Congressional regulation, Foreclosure, Green Tree Servicing, J.P. Morgan Chase, Lehman Brothers, Mortgage Service Providers, Mortgage Servicers, New York Times, PHH Mortgage, Short-sales, Treasury, white house | Tagged: , , , , , , , , , , , , , , , , , , , , , | Leave a Comment »