The Federal Reserve chairman says the review is ‘seeking to determine whether systematic weaknesses are leading to improper foreclosures.’
By Jim Puzzanghera, Los Angeles Times October 25, 2010
Reporting from Washington
Federal Reserve Chairman Ben S. Bernanke said Monday that banking regulators have been concerned about “reported irregularities in foreclosure practices at a number of large financial institutions” and are conducting an in-depth review.
“We are looking intensively at the firms’ policies, procedures, and internal controls related to foreclosures and seeking to determine whether systematic weaknesses are leading to improper foreclosures,” Bernanke said in prepared remarks to a housing finance conference in Virginia hosted by the Fed and the Federal Deposit Insurance Corp. “We take violations of proper procedures seriously.”
Bernanke said preliminary results of that probe are expected next month. In addition to the investigation, the Fed and other banking regulators are looking at the potential effects of the mortgage paperwork problems on the real estate market and financial institutions.
The regulatory review comes as the Department of Housing and Urban Development, the Treasury Department, the Justice Department and other agencies are conducting their own comprehensive review of botched foreclosure paperwork. HUD Secretary Shaun Donovan said last week the review would not be finished until the end of the year, but so far the agencies had found the problems do not pose a “systemic” threat to the financial system.
Attorneys general in all 50 states also are conducting a joint investigation into how lenders have verified foreclosure documents.
But federal officials have resisted calls for a nationwide moratorium on foreclosures as the various investigations continue, arguing that could do more harm to the fragile real estate market than good.
Bank of America last week ended its self-imposed moratorium on foreclosures in 23 states but said it was still reviewing its actions in California and 26 other states to make sure they complied with states’ laws. Ally Financial Inc., formerly GMAC Inc., also has resumed some foreclosures after its own moratorium.
Bernanke said Monday the ongoing foreclosure crisis, triggered by the bursting of the real estate bubble, has caused “tremendous upheaval in housing markets.”
“Now, more than 20 percent of borrowers owe more than their home is worth and an additional 33 percent have equity cushions of 10 percent or less, putting them at risk should house prices decline much further,” he said. “With housing markets still weak, high levels of mortgage distress may well persist for some time to come.”
The Fed has been trying to stabilize the housing finance market by purchasing mortgage-backed bonds, helping keep interest rates at historic lows.
By Danielle Kucera – Wed Oct 20 2010, Bloomberg
Fidelity National Financial Inc., the largest U.S. title insurer by market share, will require lenders to sign a warranty assuring their paperwork is sound before backing sales of foreclosed homes.
An indemnity covering “incompetent or erroneous affidavit testimony or documentation” must be signed for all foreclosure sales closing on or after Nov. 1, the Jacksonville, Florida- based company said in a memorandum to employees today. The agreement was prepared in consultation with the American Land Title Association and mortgage finance companies Fannie Mae and Freddie Mac, Fidelity National said.
“It’s just the prudent thing to do,” Peter Sadowski, executive vice president and chief legal officer for Fidelity National, said in an interview. “It is important for the servicers and the lenders to represent to us and to the people we are going to be insuring that there are no problems.”
Bank of America Corp., the biggest U.S. lender, agreed to a similar contract with Fidelity National on Oct. 8, the same day it extended a freeze on foreclosures to all states amid concern by federal and state officials that lenders are seizing homes without properly reviewing documents. The bank plans to start resubmitting foreclosure affidavits next week. Attorneys general across the country have opened a joint investigation into foreclosures, saying they will seek an immediate halt to any improper practices at mortgage lenders and loan servicers.
Fidelity National, in separate announcements today, named a new chief executive officer and said that its earnings rose 13 percent in the third quarter.
Fidelity National shares dropped 7.8 percent this month through yesterday amid concern that foreclosure mistakes may allow former owners to challenge the repossession of their homes. Shares of Santa Ana, California-based First American Financial Corp., the No. 2 insurer, fell 3 percent. The Standard & Poor’s 500 Index gained 2.2 percent in that time.
Title insurers use their records and public documents to verify a seller is the home’s true owner and that the property is free from liens. They collect a one-time premium at the closing of the purchase and pay costs that may arise if someone disputes the new owner’s right to the property.
The indemnity agreement requires lenders to protect title insurers at their own expense from “any and all liability, loss, costs, damage and expense of every kind” if errors arise in foreclosure procedures, according to the document.
The expenses may include attorney’s fees, a decrease in the property’s value and inability to sell the title, Fidelity said in the document. The lender must also notify the insurer in each case that a foreclosure complies with state laws and regulations, according to the agreement.
The indemnity agreement is available for use by all title insurers, Fidelity National said.
“This is a standard all lenders should follow,” said Kurt Pfotenhauer, chief executive officer of the American Land Title Association, a Washington-based trade group. “The sooner that indemnification agreement is adopted market-wide, the more confidence investors can have in this foreclosure market.”
Costs for title insurers to defend customers and reimburse for lost properties rose to $480.5 million in the first half of 2010, up 14 percent from a year earlier, according to the association.
Fidelity National had 38 percent of the title insurance market in the second quarter, according to the trade group. First American had a 27 percent share.
Scanlon Replaces Stinson
Stinson decided to remain with Fidelity National in a “less rigorous capacity” as an executive vice president, Chairman William P. Foley III said in the statement.
Separately, the company said its third-quarter earnings rose to $83.2 million, or 36 cents a share, from $73.4 million, or 32 cents, a year earlier. Foreclosures halted because of documentation problems won’t have a “material adverse impact” on Fidelity National’s title business, Foley said in the earnings statement.
“Even if a court sets aside a foreclosure due to a defect in documentation, the foreclosing lender would be required to return all funds obtained from our insureds, resulting in no loss under the title insurance policy,” Foley said.
Bank of America Corp. announced Tuesday that it has reopened more than 100,000 foreclosure actions in 23 states, saying its investigation found no significant problems. Likewise, GMAC Mortgage said it would reopen an undisclosed number of foreclosure files.
“This is an important first step in debunking speculation that the mortgage market is severely flawed,” said Bank of America spokesman James Mahoney.
Meanwhile, state attorneys in general continue to push for a halt to foreclosure sales, saying they have little confidence that procedures have been fixed.
Source: The Wall Street Journal, Jessica Silver-Greenberg, Robbie Whelan, and Dan Fitzpatrick (10/19/2010)
Sales in September drop for the third straight month, but the region’s median home price rises slightly. It was the slowest sales pace for that month since 2007.
By Alejandro Lazo, Los Angeles Times
October 20, 2010
Sales of homes in Southern California slumped for a third consecutive month in September but prices ticked up, underscoring a weak but stable real estate market headed into the traditionally slow fall and winter months.
Sales of newly built and previously owned houses, town homes and condominiums fell 2.4% from August and 16% from the same month last year, according to real estate research firm MDA DataQuick of San Diego. A total of 18,091 homes were sold last month in the region.
Prices rose slightly as sales continued to move from more affordable areas to pricier neighborhoods. The Southland’s median home price was $295,500, up 2.6% from the previous month and up 7.5% from September 2009, DataQuick said Tuesday.
Real estate professionals and economists said the sales pace probably would remain sluggish for the rest of the year as buyers take longer to commit to purchases and sellers wait out the slow period.
“We are in the doldrums. Nothing much is happening,” said Richard Green, director of the USC Lusk Center for Real Estate. “We are now kind of bumping along, not doing particularly well, but not doing any worse either, and that is probably where we are going to be for a while.”
Glenn Kelman, chief executive of online brokerage Redfin, said the uncertainty in the marketplace after the expiration of tax credits had created a standoff between buyers and sellers.
“There are a huge number of buyers touring houses, but they have no sense of urgency whatsoever,” Kelman said. “They are all convinced that property values will drop. They are probably right, and they all want a discount.”
And sellers, “instead of lowering their prices,” he said, “are boarding up their windows for the winter, and they are going to wait for the spring.”
September’s sales pace was the slowest for that month since 2007, having fallen for three straight months beginning in July, when the market’s boost from federal and state tax credits evaporated, DataQuick reported.
Economists believe those tax incentives pulled sales that would have occurred in the latter part of this year into the first half, and now the housing market is feeling the fallout. Nevertheless, sales in September usually are lower than those in August, and recent sales decreases in no way compare to the freefall of late 2007 and early 2008.
Sales are up 81% from the last bottom, reached in January 2008, when only 9,983 homes sold in the six-county region.
The data released Tuesday reflect deals that closed in September, meaning that home buyers probably were signing contracts on the properties in July and August. Some real estate agents said things have improved since.
Syd Leibovitch, president of Rodeo Realty Inc. in Beverly Hills, said he was optimistic about the rest of the year.
“Things have picked up. They are much better than they were in July, which was really a slow sales month,” he said. “In June and July, they were talking about a double-dip recession and consumer confidence had dropped…. In August it got a little better and September it got a little better.”
The numbers didn’t reflect the recent halt in foreclosures announced by several large lenders, which for the most part didn’t include California. At least one major lender, Bank of America Corp., said Monday that it would resume foreclosures in 23 states, although not in California.
Foreclosures as a percentage of the Southland’s resale market have dwindled steadily since hitting a peak of 56.7% of the market in February 2009. Last month, they made up 33.4% of the market.
Also Tuesday, the Commerce Department said construction of U.S. single-family homes and apartment buildings in September rose 0.3% from the prior month and 4.1% from September 2009.
“The construction industry perked up a bit in September,” said Michael D. Larson, a housing and interest rate analyst for Weiss Research Inc. “Overall starts hit a six-month high, and the single-family market in particular showed relative strength.”
“Still,” he added, “there’s [not] any evidence of a robust recovery here.”
The Federal Housing Finance Agency has responded to the foreclosure document crisis with a policy statement ordering lenders to ensure that paperwork is properly reviewed and signed.
For documents that do not meet the standards, lenders must collaborate with local lawyers to resolve any problems.
The policy statement dovetails with the Obama administration’s opposition to a nationwide foreclosure freeze due to concern that it would jeopardize the economy.
Source: Washington Post (10/14/10)
Raising questions for the first time about the role of Fannie Mae and Freddie Mac in the unfolding mortgage-foreclosure crisis, the two government-owned giants are reviewing the work of a Florida law firm they recommended to process foreclosures.
Until now, Fannie and Freddie have been largely bystanders in the widening foreclosure scandal, because they don’t directly service loans, or handle day-to-day management of mortgages. But their use of so-called foreclosure mills, law firms that specialize in quickly processing thousands of foreclosures on behalf of lenders, is dragging the companies into the latest crisis.
Last Friday, Freddie told mortgage servicers to stop sending cases to the Law Offices of David J. Stern, of Plantation, Fla. Fannie followed suit on Monday. The law firm has been at the center of recent allegations by the Florida attorney general’s office, which released a deposition of a former law-firm employee. In the deposition, the employee alleged the firm routinely forged notarized documents amid closed-door screaming matches that broke out because files weren’t moved fast enough.
The employee, Tammie Lou Kapusta, didn’t return calls for comment. Jeffrey Tew, a lawyer for the Stern firm, declined to comment about the review by Fannie and Freddie. But he said Ms. Kapusta was fired by the firm. “The firm thinks her allegations are incorrect and not true,” he said.
Fannie and Freddie have hired separate firms to review the foreclosures handled by Stern’s offices. Fannie also began conducting audits of all nine Florida law firms in its retained attorney network earlier this year, said people familiar with the matter.
“Obviously, a lot of issues have been raised about this firm,” said Brian Faith, a Fannie spokesman. “We thought it was appropriate and responsible to suspend new referrals to the firm while we undertake our review.”
The Florida firm processed more than 70,000 foreclosures last year, and Mr. Stern was named “attorney of the year” by Fannie in 1998 and 1999, according to his biography.
While Fannie conducts regular audits of its approved attorneys, it said that mortgage servicers that select the firms are ultimately responsible for ensuring foreclosures are done properly. Fannie also said it was preparing to add more attorneys in Florida, which has been hard hit by foreclosures and requires that courts process them.
Fannie and Freddie don’t actually issue mortgages, but purchase them from banks and sell them to investors as mortgage-backed securities, providing guarantees to cover losses in the event of default. While they rely on banks and other firms to service those loans, they helped build the framework for managing those loans. They provide lists of approved vendors to handle everything from issuing foreclosure filings to selling homes.
In recent weeks, mortgage servicers, including units of major banks such as Bank of America Corp. and Ally Financial Inc., have suspended thousands of foreclosure proceedings across the nation after the companies discovered that some documents didn’t follow proper procedures.
The delays are an unwelcome development for Fannie and Freddie, because carrying costs will mount on their stable of foreclosed and vacant properties. This summer, Fannie warned servicers that they could face fines if foreclosures became unreasonably prolonged.
The push to keep up with the rising tide of foreclosures has exposed sloppy practices across the mortgage-servicing industry, analysts say. “They’re just overwhelmed,” said Todd J. Zywicki, a law professor at George Mason University in Fairfax, Va.
Banks and other mortgage owners stand to lose $1,000 for each month that a foreclosure is delayed, according to estimates by Paul Miller, an analyst at FBR Capital Markets. If all foreclosures are delayed for three months, that could lead to $6 billion in losses across the industry, with around half of those falling on Fannie, Freddie and government agencies such as the Federal Housing Administration.
“The final losses for Fannie and Freddie will be more expensive than we anticipated” due to the current crisis, said Mr. Miller.
Fannie and Freddie have received $148 billion from the federal government so far to stay afloat. The giants’ federal regulator says banks and other servicers will foot the bill for costs that result from the foreclosure suspensions.
But the decision to suspend referrals to the Stern firm could complicate questions about who could ultimately bear the costs of any delays. “If they weren’t monitoring their lawyers, it would strike me that while they might try to reach back at some of the other originators, the buck stops with them,” said Mr. Zywicki.
Last week, a deposition of Ms. Kapusta, the former Stern paralegal, was released by the Florida attorney general, who conducted the deposition on Sept. 22.
The attorney general, Bill McCollum, announced he was investigating four firms, including the Stern firm, for presenting “fabricated documents” that allegedly used inaccurate or incomplete information for foreclosure proceedings against borrowers. All four have been approved by Fannie, and three by Freddie, to do business on behalf of their servicers. The companies have only suspended referrals to the Stern firm.
The Stern firm is challenging the attorney general’s jurisdiction in court.
Ms. Kapusta’s nearly two-hour sworn deposition details how documents were allegedly prepared by the Stern firm. Ms. Kapusta, who worked at the firm from spring 2008 to July 2009, described in detail a law firm where employees felt under pressure to quickly process foreclosure documents through the courts. In her deposition, Ms. Kapusta alleges borrowers were not served with foreclosure papers correctly, documents contained inaccurate information about the borrowers’ debt and documents were backdated or not filed correctly.
“I know that people had left because they were uncomfortable with the things that they were being asked to do,” Ms. Kapusta said in her deposition.
In the deposition, Ms. Kapusta said she was fired from the firm, which had more than 1,000 employees. “They terminated my employment and said it wasn’t working out,” she said, adding that termination came after she refused to process paperwork in an improper way.
Doug Lyons, Ms. Kapusta’s lawyer, said it was unfair that Ms. Kapusta was being portrayed as a disgruntled employee, because she was simply testifying after being subpoenaed by the attorney general’s office. “She was sworn to tell the truth.”
Ms. Kapusta handled files for Fannie and Freddie, according to her deposition.
When Fannie came to the Stern law firm to check on the processing, “We would all have to be under strict dress code and emails would go out that Fannie was in the office,” Ms. Kapusta said. Fannie and Freddie have guidelines that require, for example, that documents reflecting the transfer of ownership be dated on the exact day of the transfer.
But Ms. Kapusta said that to meet those guidelines, documents were backdated. “They’d come in and audit,” Ms. Kapusta said, “so we’re just typing in what they want to see. It’s not necessarily what actually occurred. That’s what we were told to do.”
Fannie and Freddie declined to comment on the deposition.
On Wednesday, attorneys general in 50 states said they would launch an investigation into the foreclosure filings and procedures of all major loan servicers.