Month: December 2011

Payroll tax cut may hurt housing market

To pay for the two-month payroll tax cut, a small fee will be levied for a decade on all mortgages sold to Fannie Mae and Freddie Mac. That also makes it harder to overhaul the housing finance system.

  • A sale pending sign sits outside a home in San Rafael, Calif. The new mortgage fee may make loans unaffordable for some people, but the effect probably would be modest, banking analyst Bert Ely said.
A sale pending sign sits outside a home in San Rafael, Calif. The new mortgage… (Justin Sullivan, Getty Images)
December 23, 2011|By Jim Puzzanghera, Los Angeles Times

Reporting from Washington — The new mortgage fee to fund the temporary extension of the payroll tax cut could damp the still-sluggish real estate market and complicate efforts to overhaul the nation’s wounded housing finance system.

Even though the tax cut approved Friday extends for only two months, a small fee on loan amounts will be levied for a decade on all mortgages sold to housing finance giants Fannie Mae and Freddie Mac, which control about 60% of the nation’s mortgage market.

That fee arrangement also makes it difficult for Congress to work on efforts to shut down Fannie and Freddie, which federal regulators seized three years ago with a taxpayer bailout now estimated to total about $150 billion.

Based on prevailing rates for a 30-year fixed-rate loan, a homeowner borrowing $200,000 would pay about $4,000 more if the loan were sold to Fannie or Freddie. That would raise the mortgage payment about $11 a month for the life of the loan.

“Housing doesn’t need any more speed bumps, and this is a speed bump,” said Jaret Seiberg, senior financial policy analyst at Guggenheim Partners in Washington. “It’s not a big one, but every extra penny that it costs to finance a home puts that much more downward pressure on home prices.”

The collapse of the housing market triggered the Great Recession and led to a wave of foreclosures as housing prices plummeted nationally. The market has been struggling to recover amid weak economic growth and high unemployment.

The fee may make a new loan unaffordable for some people, but the effect probably would be modest, said banking analyst Bert Ely of Alexandria, Va. The bigger effect will be on the government’s ability to overhaul the housing finance system, which most analysts said is needed.

“This really complicates what you do with Fannie and Freddie down the road,” Ely said.

The Obama administration and some analysts have called for Fannie Mae and Freddie Mac to raise their fees to make it easier for private companies to compete with them. Because Fannie and Freddie are owned by the government, investors view the mortgage-backed securities they create as safer investments than those offered by private firms.

David Stevens, president of the Mortgage Bankers Assn., said a fee increase would be fine — if the money were used to offset losses at Fannie and Freddie. But diverting the money to other government uses is a bad idea, he said.

“These institutions, which have been so costly to Americans and are so necessary to the housing recovery … should not be the piggy bank for future arbitrary tax policy,” Stevens said.

“We understand the desire by Congress to extend the payroll tax [cut] because so many Americans are hurting right now,” he said. “But the cost of that is going to be directly paid for by a whole other set of Americans who use Fannie Mae and Freddie Mac for their mortgages.”

This month, the mortgage bankers group joined with the National Assn. of Home Builders and the National Assn. of Realtors in urging lawmakers not to use the fee to pay for the extension package.

Edward DeMarco, the acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, also raised concerns.

He said the government reliance on long-term revenue from the firms seemed inconsistent with the need to end the conservatorship and overhaul the housing finance system.

The agency did not comment on the legislation, which President Obama quickly signed Friday.

The housing finance agency will announce soon when it will implement the fee, spokeswoman Corinne Russell said. The law allows the agency to phase in the fee over two years.

Congress and the White House agreed on the fee as a way to pay for the extensions without finding spending cuts or tax increases to offset the cost.

But some lawmakers criticized the money-raising move. Rep. Tom McClintock (R-Granite Bay) called it “atrocious public policy.”

“It shifts the burden for this bill to future home buyers, kicks the housing market when it’s already down, makes it that much more expensive for home buyers to reenter the market and adds to the pressures that have chronically depressed everyone’s home values,” he said.

Consumer protection bureau opens mortgage complaint hotline

The Consumer Financial Protection Bureau’s new mortgage complaint service is an extension of the agency’s existing hotline for credit card-related disputes and inquiries.

By Kenneth R. Harney, LA TimesDecember 11, 2011

Reporting from Washington—

Got a beef with your mortgage lender? Is your bank unresponsive when you complain that your escrow account is fouled up and making your monthly payments needlessly high?

Did your loan officer switch you into a more costly home loan than you were promised? Or worse yet, did your home loan servicer ignore you when you told him you’ve had an unexpected drop in income and needed a modification to avoid missing payments?

If any of these situations sound familiar, here’s a heads-up about the newest and least-publicized source of federal help: the Consumer Financial Protection Bureau’s home mortgage complaint and dispute resolution hotline. Never heard of it? That’s not surprising since it went live only Dec. 1 and the bureau hasn’t said much about it, preferring to ease into the potential snake pit of mortgage issues that American consumers have with their lenders rather than get overwhelmed.

The complaint hotline is accessible online at and by toll-free phone between 8 a.m. and 8 p.m. Eastern at (855) 411-2372.

The bureau was created by last year’s Dodd-Frank financial reform legislation and is supposed to look out for your interests in banking, financial products, home loans and all other forms of consumer credit. Its mortgage complaint service is an extension of the agency’s existing hotline for credit card-related disputes and inquiries, which began July 21.

So far, according to the bureau, the credit card hotline has handled 5,074 complaints. Of this total, 84% were referred directly to the card issuers — mainly big banks — for resolution. Some complaints came with incomplete information or were referred to other agencies for action. About 74% of the complaints were subsequently reported back from banks as resolved, and 71% of the resolutions were not disputed by the consumers who lodged the complaints. Just under 13% of credit card complainants reported that they were not satisfied with the card issuer’s actions.

The credit card complaint service is likely to provide a template for the consumer bureau’s approach to mortgage problems, which are expected to be more voluminous. When a borrower submits a formal complaint to the bureau, complete with account numbers and other key identifiers, the information will be sent immediately to the lender or mortgage servicer named in the complaint using a secure Web portal.

The lender must then review the information, contact the customer if needed and determine what action to take to resolve the matter. Next, the lender is supposed to report its action — if any — to the bureau, which sends it on to the borrower for review. Throughout the process, according to the bureau, borrowers can log onto the agency’s “secure ‘consumer portal’ or call the toll-free number to receive updates, provide additional information and review responses” from the lender.

If the dispute focuses on what is primarily a matter of state regulation or is beyond the purview of the bureau, the dispute may be referred to other agencies. Similarly, if the dispute points to fraud or identity theft, the bureau is likely to refer it to either a federal or a state law enforcement authority. For the time being, the bureau is referring all complaints involving small banks or their subsidiaries that have less than $10 billion in assets to other agencies.

In the mortgage field, however, the vast majority of loan originations and servicing are controlled by the top 10 largest banks or their subsidiaries, which means that a high percentage of the complaints received are likely to be handled by the bureau.

How is this going to work in practice? Though consumer groups are optimistic, and the bureau says it’s staffed and ready to go, some mortgage industry leaders worry that the agency could be taking on more than it can realistically handle and raising borrower expectations that can’t be met.

David H. Stevens, president and chief executive of the Mortgage Bankers Assn., said that while he has found the bureau to be “fairly thoughtful” in its approach to lending and disclosure issues to date, he is “concerned that they are moving too quickly too soon.” If the bureau is not properly equipped to handle large volumes of emails and calls, the service could be “an investigatory black hole” where complaints are filed but not addressed quickly or adequately, and it could be “a net negative” for borrowers who have genuine problems, Stevens said.

Since the agency is expected to report on the initial months’ results sometime early in 2012, Stevens and consumers should have answers fairly soon. Meanwhile, if you’ve got a legitimate complaint, give the hotline a shot.

BofA developing foreclosure rental programs to deal with distressed properties


Friday, December 9th, 2011

Bank of America (BAC: 5.42 -5.24%) is looking at a new program to rent a home back to the borrower after foreclosure.

“There are programs that we are quite interested in,” said Ron Sturzenegger, who leads the bank’s legacy asset servicing division, in an interview with HousingWire. “We are talking with investors that would come in and buy these houses and would lease them back to who would now be the now tenant.”

In February, BofA formed the division to handle the servicing for delinquent mortgages, loans no longer being written, and to sort out outstanding representation and warranty claims. Currently, more than 35,000 employees at the bank are sorting through 1.1 million loans 60 days delinquent or worse, according to its third-quarter financial statement.

The Federal Housing Finance Agency is working on an REO rental program for Fannie Mae and Freddie Mac. It received more than 4,000 ideas on how to do it.

But private banks own $50.4 billion worth of REO properties, too, according to the Federal Deposit Insurance Corp., and millions of these homes are sitting vacant.

Sturzenegger described how their idea would work.

“We are looking at programs where you can capture somebody before the REO process and offer a deed-for-lease. We would go to the customer and say, ‘We’ll do a short sale. Will you be interested in leasing your property back? We’re still going to sell the property. You will no longer be the owner. But you can be a tenant now in that same property and save you from moving on,'” he said.

Sturzenegger stressed the bank would still sell the REO as before in areas where there is a market for them and they can still get reasonable bids. But some areas are so saturated with inventory, there isn’t enough investor or homebuyer demand and properties can sit for years uninhabited.

Rick Sharga, the executive vice president at Carrington Mortgage Holdings, said in an interview that many firms, including Carrington are preparing to participate.

“We already have the infrastructure and assets in place to participate effectively,” he said. “Everyone is waiting on final direction from the FHFA.”

Sturzenegger stressed the private program at BofA is in its infancy.

“It’s in the very early stages,” he said.

Appraisal changes at Fannie and Freddie unevenly adopted


Thursday, December 1st, 2011

The government-sponsored enterprises Fannie Mae andFreddie Mac started implementing the Uniform Collateral Data Portal as part of the ongoing Uniform Mortgage Data Program on Thursday.

The new program accepts electronic appraisals via a new .XML data report. The previously popular .pdf is no longer being accepted.

It’s a change that early reports indicate will get off to a slow start.

For the most part, given the scope of the project, several street-level appraisers may struggle to get their heads around the new process.

The Uniform Collateral Data Portal is at its heart a quality-control initiative. Under the uniform delivery, the GSEs will have an easier time enforcing repurchase and warranty claims. The lender can be made aware of a possible appraisal problem before the loan is even closed.

Once an appraisal is delivered to the portal a “submission summary report” gives the GSE go-ahead to close.

If the appraisal doesn’t get a SSR, it can’t close and must be resubmitted in the correct format.

“The problem is where lenders who do 20 to 30 loans a month, they don’t have an appraisal management company or someone to call on them to insure they are up to date and ready to go,” said of Matt McHale co-founder of Global DMS, a mortgage technology firm.

Independent lenders are not mandated to use an AMC, or anyone else for that matter, for UCDP compliance. They do, however, still need to independently register directly with the UCDP. And if they haven’t by now, they can’t close Fannie or Freddie deals.

“It can delay the whole process if that SSR isn’t done,” he added. “It takes time and time kills deals.”

McHale adds that the Federal Housing Administrationis adopting the Uniform Appraisal Dataset portion of the UCDP on Jan. 1. Some correspondent lenders may be under the assumption they can wait until then.

They can’t.

REO investors squeezing out owner-occupants


Friday, December 2nd, 2011

Owner-occupancy rates of real estate owned sales are plummeting as investors who recognize their economic value are taking advantage of bulk transactions, a trend that nonprofits and trade groups are closely monitoring.

New Vista Asset Management, a San Diego-based provider of real estate services for sellers of foreclosed residential homes, performed a three-year study that found 17 of 18 counties hit hardest by the country’s mortgage crisis experienced a drop in REO properties sold to owner-occupiers.

The company tracked all real estate sale transactions closed in the first quarter of 2009 and includes consecutive quarterly data through the third quarter of 2011. The study included REO sales private banks, Fannie MaeFreddie Mac and the Department of Housing and Urban Development.

According to the GSEs’ financial statements, 59% of REOs sold by Fannie Mae in 2011 went to owner-occupiers, while 70% of Freddie Mac’s REO sales went to owner-occupiers. Because the GSEs put in first-look programs to push more REO to owner occupiers, investors could be fleeing to private banks for these properties.

Quarter-to-quarter, some markets saw increases in the owner-occupier rate, but over the period of the study, owner-occupancy rates for REO broadly weakened.

The findings support recent investor sentiment toward new government REO programs.

The Federal Housing Finance Agency in October began to develop new pilot programs to more efficiently unload foreclosed homes held by Fannie Mae and Freddie Mac.

Investors are extremely enthusiastic about acquiring GSE and Federal Housing Administration REO properties in bulk and renting or selling them, Amherst Securities Group has said.

Amherst’s report focuses specifically on the supply and demand imbalance that is currently making it difficult for property owners to offload properties. This imbalance has created a systemic shift in the housing market, making it more attractive for investors to eye properties as rentals that could potentially produce yield while improving the overall housing market.

“It is very clear to us that the economic value of the homes involved, and the benefit to the economy, is maximized by bulk auctions to investors (who will then turn them into rental housing),” said Amherst. “The massive housing market overhang is a clear danger to the U.S. economy — it creates significant stress on borrowers, communities, courts and the banking system — and is stifling growth in the broader economy.”

Nonprofits and trade groups are stressing the importance of documenting any partnership with an investor to make sure these neighborhoods are maintained and begin recovery after the REO is sold. Most want documentation to ensure investors with poor management histories do not have access to bulk transactions.

Freddie Mac sold a record number of real estate owned properties in 2011 and received decent pricing on most of them, according to Tracy Mooney, senior vice president of single-family servicing and real estate owned properties at the GSE.

Mooney said that the majority of REO sales at Freddie are going to owner-occupants.

“While we have always been open to selling to investors, our strategy is to limit the concentration of investor sales in any given area,” Mooney said. “In addition, we do not typically consider any offers that require significant discount pricing.”

The longer the property sits, the more cash buyers end up with the property, often for steep discounts. For the 2006 REO that resold more than one year later, 55% went to cash investors, compared to 40% for the entire foreclosure stock that year.

New Vista’s study used data extracted from local recorder, courthouse and tax assessment records to determine whether the purchasers buying foreclosed houses from banks, HUD, Fannie Mae and Freddie Mac, are owner-occupants or absentee owners using single family homes as rental or vacation properties.

The pace and scale of decline varied widely across markets, according to the study. In Los Angeles County, Calif., for example, the New Vista data shows 79.36% of single-family REO houses were purchased by owner occupants in 2009, compared with only 60.32% in the third quarter of 2011.

Most counties covered by the study saw declines of more than 5% during the same period, with a few dropping more modestly.

Only one county included in the index, Wayne County, Mich., had an owner occupancy rate for single-family REO sales below 50% in 2009.

By the third quarter of 2011, owner occupancy rates for REO sales in an additional four of the studied counties had fallen below 50%, including Maricopa County, Ariz.; Osceola County, Fla.; Miami-Dade County, Fla.; and Clark County, Nev.

“The increased investor acquisition of REOs is reversing the years of community development progress that nonprofits have facilitated throughout California,” said Kevin Stein ofCalifornia Reinvestment Coalition.

“We need to ensure that lenders, nonprofits and government agencies are working together to give qualified homebuyers a fair chance to purchase REO properties and help stabilize residential neighborhoods,” he said.

Fannie Mae, banks halt foreclosures for the holidays

By Les Christie @CNNMoney December 1, 2011

NEW YORK (CNNMoney) — Happy holidays struggling homeowners! Fannie Mae, Freddie Mac and several large mortgage lenders have pledged not to foreclose on delinquent borrowers during the Christmas season.

For homeowners with loans through Fannie Mae (FNMAFortune 500) and Freddie Mac (FMCCFortune 500), the moratorium will run from Dec. 19 to Jan. 2. During this time, legal and administrative proceedings for evictions may continue, but families will be allowed to stay in their homes, Fannie said in a statement.

“No family should have to give up their home during this holiday season,” said Terry Edwards, an executive vice president for Fannie Mae.

Among some of the major banks that offer mortgage loans, Chase (JPMFortune 500) Mortgage said it will not evict anyone between Dec. 22 and Jan. 2. Wells Fargo (WFCFortune 500) will also suspend evictions during that period, but will not shut down its eviction machinery entirely.

The bank said it will observe the moratorium on foreclosed properties in its own portfolio but for loans it services for other lenders “foreclosure-related actions may still occur.”

Bank of America (BACFortune 500) said that it would “avoid foreclosure sales or displacement of homeowners or tenants around the Thanksgiving and Christmas holidays.”

However, that policy only applies to loans the bank itself owns. Like Wells Fargo, it will also honor the wishes of the owners of the loans it services, which could mean moving forward with certain foreclosures.

A holiday halt on foreclosures by the major mortgage lenders could affect tens of thousands of homeowners. An average of 89,000 foreclosure auctions a month have been scheduled this year, according to RealtyTrac. Once a home has gone through that process, eviction is the next step.

There could be a small handful of borrowers who might benefit permanently from the suspension, according to Daren Blomquist, a spokesman for RealtyTrac.

Sometimes, albeit very rarely, a Christmas miracle will occur where a borrower finds the cash to get current on their mortgage again and keep their home.

For the overwhelming majority of borrowers in default, however, “[i]t’s a temporary reprieve, a symbolic gesture to help people out during the holidays,” said Blomquist.

Then, come the New Year, everyone gets back to business, including mortgage lenders.