FHA Adjusts Seller Contributions Proposal

From Mortgage Daily:

A proposed policy that cuts the maximum seller concessions in half on residential transactions financed with government mortgages has been revised in response to strong public feedback.

Seller-paid closing costs on mortgages insured by the Federal Housing Administration are limited to 3 percent based on a proposal by the Department of Housing and Urban Development. But a revision to the proposal extends the limitation to the greater of 3 percent or $6,000.

Current regulations allow up to 6 percent to be paid by the seller.

Reducing the limit on seller-paid fees will align FHA policy with the rest of the market, according to HUD. Conventional loans are limited to 3 percent, while mortgages guaranteed by the Department of Veterans Affairs are capped at 4 percent of the sales price.

Statistical data cited in a July 2010 notice reportedly illustrated how loans to borrowers who received more than 3 percent in seller concessions generated more losses than those with 3 percent or less in fees paid by the seller.

HUD explained, “Seller concessions include any payment toward the borrower’s closing costs and other fees, by any third party with an interest in the transaction, including the seller, builder, developer, mortgage broker, lender, or settlement company.”

The revised definition removes homeowners association fees, mortgage interest payments and mortgage payment protection plans, among other payment supplements, from acceptable seller concessions.

Closing costs, prepaid expenses and discount points were already considered acceptable concessions when paid by the seller. Interest-rate buydowns were also in this category.

The proposal adds up-front mortgage-insurance premiums to the list of items that fit the acceptable definition of seller concessions.

“All other third-party contributions are considered inducements to purchase, resulting in a dollar-for-dollar reduction to the lesser of sale price or appraised value before applying the appropriate LTV factor (96.5 percent),” the notice stated. “This excludes closing costs and prepaid items paid by the lender through premium (rebate) pricing.”

The $6,000 limit can increase each year at the same rate as the FHA national loan limit floor.

The housing agency will accept comments on Thursday’s revised proposal for 30 days.

Just How Large is the Shadow Inventory

The Wall Street Journal Takes a Stab At This Ever “Elusive” Number….

Note:  The housing “problem” will not go away until this inventory is at more normal levels…..

Call it what you will—the “shadow inventory,” the “distressed inventory,” the “foreclosure pipeline”—but if you ask five researchers how many houses or mortgages we should worry about, you’ll probably get at least five completely different answers. Given this, Developments examined these worrisome numbers and see how they stack up. Here’s a roundup of distress numbers, and how researchers arrived at them:LPS

Applied Analytics Number: 4 million loans. Explanation: This is the number of loans that have either been delinquent for 90 days or more or are in foreclosure. The latest report showed that the number of new loans entering delinquency was slowing, but the number of homes in foreclosure that have not been sold remains fairly flat, mainly because the foreclosure process has been bogged down by legal issues in many states. LPS doesn’t use the term “shadow inventory.”

Amherst Securities. Number: 8.2 million and 10.3 million loans. Explanation: Laurie Goodman, a trusted authority on housing finance issues and managing director at bond-trader Amherst, recently presented this whopping estimate of loans “that may be subject to distressed sales over time.” Amherst divides the nation’s 55 million mortgages into five categories: non-performing loans; loans that were once delinquent but are now performing and likely to re-default; performing loans that are underwater by more than 20%; performing loans that are underwater by less than 20%; and performing loans with some equity in them. Amherst considers loans that are 60 days delinquent to be troubled – most other estimates start the clock on their definition of distress at 90 days.

Barclays Capital. Number: About 3 million loans. Explanation: Barclays Capital’s Chief Housing Economist Michael Gapen produced a report looking at loans delinquent for 90 days or more, foreclosures, and REO, or bank-repossessed properties. His report does not include 30-day or 60-day delinquencies. “If you included those categories…it would be a much larger number,” a spokesman for the bank says.

CoreLogic. Number: 1.6 million homes. Explanation: Sam Khater, an economist with CoreLogic, said that CoreLogic’s shadow estimate is so low because the company uses “roll-rate analysis” to predict how many of the 90-plus-day delinquent loans out there will “roll over” to REO, meaning, how many of the country’s seriously delinquent loans will be repossessed by the bank. Then, the company estimates how many loans, once the house is repossessed by the banks, will end up listed on public multiple-listing services (making them no longer “shadow” inventory), and removes those.

Capital Economics. Number: 4.3 million homes. Explanation: Capital Economics has estimated the number of homes “waiting in the wings [that] will eventually add to the supply of properties for sale” and “prevent a normalization in the visible inventory for several years yet.” Their number is comfortably middle-of-the-road. Their definition does not include REO inventory, and it admits that in the worst-case scenario, there could be a shadow inventory of 15.3 million, using the widest possible definition of the term.

Source: The Wall Street Journal

Just How Large is the Shadow Inventory

The Wall Street Journal Takes a Stab At This Ever “Elusive” Number….

Note:  The housing “problem” will not go away until this inventory is at more normal levels…..

Call it what you will—the “shadow inventory,” the “distressed inventory,” the “foreclosure pipeline”—but if you ask five researchers how many houses or mortgages we should worry about, you’ll probably get at least five completely different answers. Given this, Developments examined these worrisome numbers and see how they stack up. Here’s a roundup of distress numbers, and how researchers arrived at them:LPS

Applied Analytics Number: 4 million loans. Explanation: This is the number of loans that have either been delinquent for 90 days or more or are in foreclosure. The latest report showed that the number of new loans entering delinquency was slowing, but the number of homes in foreclosure that have not been sold remains fairly flat, mainly because the foreclosure process has been bogged down by legal issues in many states. LPS doesn’t use the term “shadow inventory.”

Amherst Securities. Number: 8.2 million and 10.3 million loans. Explanation: Laurie Goodman, a trusted authority on housing finance issues and managing director at bond-trader Amherst, recently presented this whopping estimate of loans “that may be subject to distressed sales over time.” Amherst divides the nation’s 55 million mortgages into five categories: non-performing loans; loans that were once delinquent but are now performing and likely to re-default; performing loans that are underwater by more than 20%; performing loans that are underwater by less than 20%; and performing loans with some equity in them. Amherst considers loans that are 60 days delinquent to be troubled – most other estimates start the clock on their definition of distress at 90 days.

Barclays Capital. Number: About 3 million loans. Explanation: Barclays Capital’s Chief Housing Economist Michael Gapen produced a report looking at loans delinquent for 90 days or more, foreclosures, and REO, or bank-repossessed properties. His report does not include 30-day or 60-day delinquencies. “If you included those categories…it would be a much larger number,” a spokesman for the bank says.

CoreLogic. Number: 1.6 million homes. Explanation: Sam Khater, an economist with CoreLogic, said that CoreLogic’s shadow estimate is so low because the company uses “roll-rate analysis” to predict how many of the 90-plus-day delinquent loans out there will “roll over” to REO, meaning, how many of the country’s seriously delinquent loans will be repossessed by the bank. Then, the company estimates how many loans, once the house is repossessed by the banks, will end up listed on public multiple-listing services (making them no longer “shadow” inventory), and removes those.

Capital Economics. Number: 4.3 million homes. Explanation: Capital Economics has estimated the number of homes “waiting in the wings [that] will eventually add to the supply of properties for sale” and “prevent a normalization in the visible inventory for several years yet.” Their number is comfortably middle-of-the-road. Their definition does not include REO inventory, and it admits that in the worst-case scenario, there could be a shadow inventory of 15.3 million, using the widest possible definition of the term.

Source: The Wall Street Journal

Payroll Tax Extension Omits G-Fee Hike

Here is my comment about this story. Just because Congress left the hike out–does not mean that Fannie, Freddie and FHA will roll back planned 10bp increases. They are already built into their budgets…

From National Mortgage News…

The House and Senate on Friday passed a $150 billion bill that extends a payroll tax reduction and unemployment benefits for 10 months without increasing guarantee fees on Fannie Mae and Freddie Mac loans.

In the search for ways to pay for the extension, a hike in g-fees was contemplated but then ultimately rejected. 

In December, Congress passed a two-month extension bill that was funded through a 10 basis point hike in guarantee fees. That increase is permanent and remains, much to the chagrin of the mortgage industry. For 10 years, Fannie and Freddie are required to charge this extra 10 bps to cover the $35 billion cost of the short 2-month extension bill.

Fannie and Freddie will pass that cost onto lenders who in turn will make borrowers pay for it.

The fact that another g-fee hike was even considered shows the difficulty the two parties have in finding ways to fund critical government programs. “It will come up again and again,” said one lobbyist said, adding that the industry must be ready to block it.

Housing and mortgage trade groups have told Congress they oppose using g-fees as a source for funding other government programs. “We are united in opposition to increasing g-fees,” 19 trade groups said in a joint letter, unless it is for “shoring up” the GSEs’ capital reserves and “ensuring the liquidity of the secondary mortgage market.”

FHA to Raise Premiums–Especially For Jumbos

The Federal Housing Administration will “soon” increase its annual premium on jumbo mortgages by 25 basis points, according to government budget documents released today. The increase means FHA loans with a principal balance above $625,500 will carry a 140-bp annual premium. On lower balance loans, FHA is raising the annual premium by 10 bps.

FHA currently charges a 1% upfront fee and a 115 bp annual premium on residential loans with loan-to-value ratio higher than 95%. “These [premium] increases will bolster FHA’s capital reserves, accelerating the point at which FHA will regain compliance with its capital reserve ratio,” according to the President’s Fiscal Year 2013 budget proposal. Some analysts claim the higher annual premium will reduce demand for FHA jumbos and push more borrowers to seek out private jumbo loans. Congress instructed FHA to increase its annual premium by 10 bps late last year when lawmakers passed a bill to extend a payroll tax reduction for two months. Source: National Mortgage News

House Dems & White House Press FHFA Regarding Principal Reductions

Source: The Hill

The Obama administration signaled that it is stepping up pressure on Fannie Mae and Freddie Mac to provide mortgage-principal reductions for holders of government-backed loans. Housing Secretary Shaun Donovan said that the administration is considering taking “additional steps to make mortgage principal reductions available to Fannie and Freddie homeowners,” that go beyond recently announced incentives designed to spur a write-down of those home loans to bolster the housing market and economic recovery. I hope Fannie and Freddie accept the incentives and I hope they will do principal reductions,” Donovan said at a press conference announcing a $25 billion settlement between states and five of the nation’s largest banks over foreclosure abuses. ”Fannie and Freddie are doing extensive payment modifications for homeowners but not, to date, doing significant principal reductions,” he said. “We need to break the logjam of principal reductions.”

To that end, House Democrats have been pressing Edward DeMarco, acting director of the independent Federal Housing Finance Agency (FHFA) that oversees Fannie and Freddie, to provide documents to support his opposition to reducing principal for homeowners who are underwater on their loans but current on their payments. DeMarco has argued before Congress that principal reductions are “not going to be the least-cost approach for the taxpayer.” Under a plan announced in January by President Obama, Treasury would offer triple incentives designed to spur principal reductions to underwater homeowners through the Home Affordable Modification Program (HAMP), a plan the FHFA is currently evaluating, Donovan said. “Although more funds from Treasury could help incentivize principal reduction programs even further, Mr. DeMarco’s own data show that he should start implementing these programs now, both to comply with the law Congress passed and to start saving American taxpayers billions of dollars,” House Oversight and Government Reform ranking member Elijah Cummings (D-Md.) told The Hill.

Principal reduction has been available through HAMP but it has not been widely used.  

The settlement announced this week between states and banks doesn’t cover the government-sponsored enterprises (GSEs) so the agreement alone can’t compel Fannie and Freddie to move forward with principal reductions, Donovan said. 

So far, DeMarco has shown no signs of wavering on his stance that reducing mortgage principal will cost taxpayers more than forbearance efforts, leading Democrats to call for him to step down while, at the same time, urging the White House to appoint a director who would be more agreeable to their policy ideas. 

In a statement following the unveiling of the January proposal asking FHFA to consider the incentives program, DeMarco said “that FHFA recently released analysis concluding that principal forgiveness did not provide benefits that were greater than principal forbearance as a loss mitigation tool.”

But Cummings and fellow panel member Rep. John Tierney (D-Mass.) say that FHFA’s own reports prove that reducing mortgage principal would actually save taxpayer money, contrary to DeMarco’s arguments. 

The lawmakers wrote DeMarco a letter last week criticizing him for highlighting a $100 billion cost for providing principal reductions for 3 million homeowners who are underwater on their mortgages instead of pointing out an estimated savings of $28 billion for reducing principal for a portion of those loans, a more likely scenario. 

“We understand that the FHFA is not part of the Obama administration, and that you do not take direction from administration officials, but it appears that your refusal to follow Congress’ direction and allow principal reduction programs is based more on ideology and the fear of political backlash than on a straightforward analysis of the interests of American taxpayers,” they wrote. 

A Treasury Department official, in an email to The Hill, said $100 billion is the total cost of writing down all underwater debt for government-backed mortgages, while the principal forgiveness program FHFA is considering has a $20 billion benefit to taxpayers because it reduces defaults. 

Mark Zandi, chief economist at Moody’s Analytics, has said that write-downs under HAMP could help homeowners who are struggling with their loans and it would be up to the FHFA to properly implement the policy. 

Cummings and Tierney also said a former Fannie Mae employee has provided new information about a pilot program for principal reductions tentatively approved in 2010 but canceled by Fannie Mae officials because they were “philosophically opposed” to the concept of reducing principal, despite potential economic benefits

Meanwhile, Donovan continued his insistence that reducing mortgage principal will help the sector and the broader economy recover faster. 

“Principal reduction is an important part of steps that we need to take that will help the housing market recover,” he said. 

“It’s critical for all of us to be able to get the housing market accelerating in its recovery.” 

In a Friday speech, Fed Chairman Ben Bernanke said “no single solution will be sufficient but sustained efforts to address the many interlocking factors holding back the housing market will pay dividends in the long run.”

What is certain is that the pressure for a broader principal reduction plan through the GSEs is growing.  

Iowa’s Attorney General Tom Miller said he expects the states’ settlement with the banks “will make widespread principal reduction throughout the country, commonplace.” 

Under the agreement, Miller said there will be a significant amount of principal reduction “done right away” and it will feed from a very large pool of homeowners. 

“Once this demonstration of principal reduction takes place it will work and it will become commonplace,” he said. 

“As far as homeowners who want principal reduction, this is the vehicle.”

The Federal Reserve also has suggested that the FHFA move forward with reducing principal to reduce the number of delinquencies, which they acknowledged may increase short-term losses but have long-term benefits for the housing market. 

The Fed’s white paper sent to Congress in January said “some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.”

Even more broadly, The Leadership Conference on Civil and Human Rights, a coalition of more than 200 groups, sent DeMarco a letter on Friday asking him to do more to reduce foreclosures and stabilize the housing market, including reducing mortgage principal for underwater borrowers. 

“We believe that Fannie Mae and Freddie Mac principal reduction policies must promptly be instituted in order to significantly reduce foreclosures, stabilize the housing finance market, and ultimately reduce taxpayer losses stemming from the takeover of the GSEs,” wrote Wade Henderson, president and chief executive and Nancy Zirkin, executive vice president or the group. 

“We strongly believe that principal reductions are very much in the interests of the taxpayer owners of the GSEs, and we remain troubled by assertions you have made that it is not the FHFA’s responsibility to provide “more general support to the housing market.” 

The group has a meeting with DeMarco on Feb. 23, but they are trying to get that moved up because of recent developments.

Mortgage Servicing Settlement Equals More Foreclosures

FROM CNN/Money:

Even as the $26 billion mortgage settlement helps hundreds of thousands of troubled homeowners, it will bring a wave of new foreclosures.

Many lenders held off on reposessing homes during the complex negotiations between 49 state attorneys general, and federal officials.

That’s left a backlog of troubled loans, many of which won’t be helped by measures in the deal that will let homeowners refinance or reduce the amount of their mortgage.

“The bottom line is that 2012 will see a lot of foreclosures that should have taken place in 2011 and didn’t,” said Rick Sharga, executive vice president for Carrington Holdings, a real estate finance firm.

Daren Blomquist, vice president of RealtyTrac, online marketer of foreclosed properties, agrees that much of last year’s 34% drop in foreclosure filings was likely due to the uncertainty involved in the negotiations. He estimates that new filings will climb from 1.9 million in 2011 to between 2.2 million and 2.5 million this year.

“We think what we saw in 2011 was artificially low foreclosure numbers,” he said. He added that banks took longer to file foreclosure notices last year, and longer to finish the foreclosure process.

HUD press secretary Derrick Plummer said Thursday’s mortgage settlement is designed to make foreclosure the last resort for banks negotiating with homeowners who are seriously delinquent on loans.

Sharga and Blomquist agree said that the mortgage deal will help many homeowners stay in their homes who would have otherwise been forced out. Up to one million mortgage holders could see the amount of money they owe reduced.

But the solutions offered by the settlement can only work for homeowners who can afford to make new, lower mortgage payments. Banks will have little choice to foreclose on those who have stopped paying due to prolonged unemployment or other severe economic distress.

“The settlement really wasn’t designed to prevent foreclosure on loans that aren’t salvageable,” said Sharga.

Banks have been letting delinquent loans sit in limbo, but now that a settlement has been reached, banks will likely start contacting delinquent homeowners to see which loans can be salvaged. Sharga says that the banks will likely turn up a raft of new foreclosures.

The five lenders who are parties to the deal — Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Wells Fargo (WFC, Fortune 500) and Ally Financial — together account for about 60% of the mortgage market, Sharga said. And there are many other lenders who were also taking a wait-and-see approach while the big banks held talks, who might soon join the settlement as well.

Sharga and Blomquist said that while the increase in foreclosures will cause plenty of pain in the short term, it’s an important part of the recovery process for the housing market, especially the hardest-hit markets.

“The uncertainty has been very bad for the market over the last year,” said Blomquist.

There are currently more than 3 million homeowners either seriously delinquent on mortgages or in foreclosure, and that looming inventory has been one of the biggest drags on home sales prices.

“The market needs to clear out a lot of the distressed inventory before prices start to come back,” Sharga said. 

 

Mortgage Servicing Settlement–HUD Press Release in Full

Department of Justice WWW.JUSTICE.GOV (202) 514-2008

FOR RELEASE Thursday February 9, 2012

FEDERAL GOVERNMENT AND STATE ATTORNEYS GENERAL REACH
$25 BILLION AGREEMENT WITH FIVE LARGEST MORTGAGE SERVICERS
TO ADDRESS MORTGAGE LOAN SERVICING AND FORECLOSURE ABUSES

$25 billion agreement provides homeowner relief & new protections, stops abuses

WASHINGTON–U.S. Attorney General Eric Holder, Department of Housing and Urban Development (HUD) Secretary Shaun Donovan, Iowa Attorney General Tom Miller and Colorado Attorney General John W. Suthers announced today that the federal government and 49 state attorneys general have reached a landmark $25 billion agreement with the nation’s five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses. The agreement provides substantial financial relief to homeowners and establishes significant new homeowner protections for the future.

The unprecedented joint agreement is the largest federal-state civil settlement ever obtained and is the result of extensive investigations by federal agencies, including the Department of Justice, HUD and the HUD Office of the Inspector General (HUD-OIG), and state attorneys general and state banking regulators across the country. The joint federal-state group entered into the agreement with the nation’s five largest mortgage servicers: Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc., and Ally Financial Inc. (formerly GMAC).

“This agreement–the largest joint federal-state settlement ever obtained–is the result of unprecedented coordination among enforcement agencies throughout the government,” said Attorney General Holder.” It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will ensure the abuses of the past are not repeated.”

“This historic settlement will provide immediate relief to homeowners, forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers,” said HUD Secretary Donovan. “Banks must follow the laws. Any bank that hasn’t done so should be held accountable and should take prompt action to correct its mistakes. And it will not end with this settlement. One of the most important ways this settlement helps homeowners is that it forces the banks to clean up their acts and fix the problems uncovered during our investigations. And it does that by committing them to major reforms in how they service mortgage loans. These new customer service standards are in keeping with the Homeowners Bill of Rights recently announced by President Obama–a single, straightforward set of commonsense rules that families can count on.”

“This monitored agreement holds the banks accountable, it provides badly needed relief to homeowners, and it transforms the mortgage servicing industry so now homeowners will be protected and treated fairly,” said Iowa Attorney General Miller.

“This settlement has broad bipartisan support from the states because the attorneys general realize that the partnership with the federal agencies made it possible to achieve favorable terms and conditions that would have been difficult for the states or the federal government to achieve on their own,” said Colorado Attorney General Suthers.

The joint federal-state agreement requires servicers to implement comprehensive new mortgage loan servicing standards and to commit $25 billion to resolve violations of state and federal law. These violations include servicers’ use of “robo-signed” affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court.

Under the terms of the agreement, the servicers are required to collectively dedicate $20 billion toward various forms of financial relief to borrowers. At least $10 billion will go toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth. At least $3 billion will go toward refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth. Borrowers who meet basic criteria will be eligible for the refinancing, which will reduce interest rates for borrowers who are currently paying much higher rates or whose adjustable rate mortgages are due to soon rise to much higher rates. Up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their home at a loss as a result of a Permanent Change in Station order, and other programs. Because servicers will receive only partial credit for every dollar spent on some of the required activities, the settlement will provide direct benefits to borrowers in excess of $20 billion.

Mortgage servicers are required to fulfill these obligations within three years. To encourage servicers to provide relief quickly, there are incentives for relief provided within the first 12 months. Servicers must reach 75 percent of their targets within the first two years. Servicers that miss settlement targets and deadlines will be required to pay substantial additional cash amounts.

In addition to the $20 billion in financial relief for borrowers, the agreement requires the servicers to pay $5 billion in cash to the federal and state governments. $1.5 billion of this payment will be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. This program is separate from the restitution program currently being administered by federal banking regulators to compensate those who suffered direct financial harm as a result of wrongful servicer conduct. Borrowers will not release any claims in exchange for a payment. The remaining $3.5 billion of the $5 billion payment will go to state and federal governments to be used to repay public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general.

The $5 billion includes a $1 billion resolution of a separate investigation into fraudulent and wrongful conduct by Bank of America and various Countrywide entities related to the origination and underwriting of Federal Housing Administration (FHA)-insured mortgage loans, and systematic inflation of appraisal values concerning these loans, from Jan. 1, 2003 through April 30, 2009. Payment of $500 million of this $1 billion will be deferred to partially fund a loan modification program for Countrywide borrowers throughout the nation who are underwater on their mortgages. This investigation was conducted by the U.S. Attorney’s Office for the Eastern District of New York, with the Civil Division’s Commercial Litigation Branch of the Department of Justice, HUD and HUD-OIG. The settlement also resolves an investigation by the Eastern District of New York, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) and the Federal Housing Finance Agency-Office of the Inspector General (FHFA-OIG) into allegations that Bank of America defrauded the Home Affordable Modification Program.

The joint federal-state agreement requires the mortgage servicers to implement unprecedented changes in how they service mortgage loans, handle foreclosures, and ensure the accuracy of information provided in federal bankruptcy court. The agreement requires new servicing standards which will prevent foreclosure abuses of the past, such as robo-signing, improper documentation and lost paperwork, and create dozens of new consumer protections. The new standards provide for strict oversight of foreclosure processing, including third-party vendors, and new requirements to undertake pre-filing reviews of certain documents filed in bankruptcy court.

The new servicing standards make foreclosure a last resort by requiring servicers to evaluate homeowners for other loss mitigation options first. In addition, banks will be restricted from foreclosing while the homeowner is being considered for a loan modification. The new standards also include procedures and timelines for reviewing loan modification applications and give homeowners the right to appeal denials. Servicers will also be required to create a single point of contact for borrowers seeking information about their loans and maintain adequate staff to handle calls.

The agreement will also provide enhanced protections for service members that go beyond those required by the Servicemembers Civil Relief Act (SCRA). In addition, the four servicers that had not previously resolved certain portions of potential SCRA liability have agreed to conduct a full review, overseen by the Justice Department’s Civil Rights Division, to determine whether any servicemembers were foreclosed on in violation of SCRA since Jan. 1, 2006. The servicers have also agreed to conduct a thorough review, overseen by the Civil Rights Division, to determine whether any servicemember, from Jan. 1, 2008, to the present, was charged interest in excess of 6% on their mortgage, after a valid request to lower the interest rate, in violation of the SCRA. Servicers will be required to make payments to any servicemember who was a victim of a wrongful foreclosure or who was wrongfully charged a higher interest rate. This compensation for servicemembers is in addition to the $25 billion settlement amount.

The agreement will be filed as a consent judgment in the U.S. District Court for the District of Columbia. Compliance with the agreement will be overseen by an independent monitor, Joseph A. Smith Jr. Smith has served as the North Carolina Commissioner of Banks since 2002. Smith is also the former Chairman of the Conference of State Banks Supervisors (CSBS). The monitor will oversee implementation of the servicing standards required by the agreement; impose penalties of up to $1 million per violation (or up to $5 million for certain repeat violations); and publish regular public reports that identify any quarter in which a servicer fell short of the standards imposed in the settlement.

The agreement resolves certain violations of civil law based on mortgage loan servicing activities. The agreement does not prevent state and federal authorities from pursuing criminal enforcement actions related to this or other conduct by the servicers. The agreement does not prevent the government from punishing wrongful securitization conduct that will be the focus of the new Residential Mortgage-Backed Securities Working Group. The United States also retains its full authority to recover losses and penalties caused to the federal government when a bank failed to satisfy underwriting standards on a government-insured or government-guaranteed loan. The agreement does not prevent any action by individual borrowers who wish to bring their own lawsuits. State attorneys general also preserved, among other things, all claims against the Mortgage Electronic Registration Systems (MERS), and all claims brought by borrowers.

Investigations were conducted by the U.S. Trustee Program of the Department of Justice, HUD-OIG, HUD’s FHA, state attorneys general offices and state banking regulators from throughout the country, the U.S. Attorney’s Office for the Eastern District of New York, the U.S. Attorney’s Office for the District of Colorado, the Justice Department’s Civil Division, the U.S. Attorney’s Office for the Western District of North Carolina, the U.S. Attorney’s Office for the District of South Carolina, the U.S. Attorney’s Office for the Southern District of New York, SIGTARP and FHFA-OIG. The Department of Treasury, the Federal Trade Commission, the Consumer Financial Protection Bureau, the Justice Department’s Civil Rights Division, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Department of Veterans Affairs and the U.S. Department of Agriculture made critical contributions.

For more information about the mortgage servicing settlement, go to www.NationalMortgageSettlement.com. To find your state attorney general’s website, go to www.NAAG.org and click on “The Attorneys General.”

The joint federal-state agreement is part of enforcement efforts by President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information about the task force visit: www.stopfraud.gov.

Mortgage Servicing Settlement Is Final–What Does it Mean To You?

FROM CNN/Money

The nation’s five largest banks have finally struck a deal with 49 states to settle charges of abusive and negligent foreclosure practices dating back to 2008.

Under a deal announced Thursday, the banks will commit $26 billion to help underwater homeowners and compensate those who lost their homes due to improper foreclosure practices.

The banks also agreed to change the way they handle and approve foreclosures.

A group of state attorneys general claimed that banks lost important paperwork, cut corners and enlisted robo-signers to attest to facts they had no knowledge of on hundreds of documents a day.

The settlement has been in the works for more than a year.

What did the mortgage lenders and loan servicers agree to do? The banks and servicers have committed at least $17 billion to reduce principal for borrowers who 1) owe far more than their homes are worth 2) are behind on payments.

The amount of principal reduction will average about $20,000 per borrower.

Another $3 billion will go toward refinancing mortgages for borrowers who are current on their payments. This will enable them to take advantage of the historic low interest rates currently available.

The banks will pay $5 billion directly to the states, the only hard money involved in the deal. Out of that fund will come payments of $1,500 to $2,000 to homeowners who lost their homes to foreclosure. Other funds will be paid to legal aid and homeowner advocacy organizations to help individuals facing foreclosure or experiencing servicer abuses.

Another $1 billion will be paid directly to the Federal Housing Administration.

In addition, the banks agreed to eliminate robo-signing altogether and to use proper and legal procedures when putting homeowners through the foreclosure process. They also agreed to end servicer abuses, like harassing delinquent borrowers for payments, and to include principal reductions more often in their mortgage modifications programs. (Mortgage deal could bring billions in relief)

Is my mortgage lender taking part in this settlement? Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Ally Financial (GJM)
are taking part in the settlement.

In addition, nine other unnamed loan servicers may join the settlement later, and that would bring its value to $30 billion.

Loans owned or backed by Fannie Mae and Freddie Mac, however, are not part of the deal. (Obama proposes new home loan refinancing program)

The Federal Housing Finance Agency, which oversees the two government-sponsored mortgage giants, will not allow any balance reductions for loans insured by the companies under the settlement.

I lost my home to foreclosure; how do I know if I qualify for payment? If you were foreclosed on in the calendar years 2008 through 2011, you may be be eligible for a payment of up to $2,000. People who think they may qualify should notify their bank.

The exact amount of the payments will depend on how many people participate in this part of the settlement. They will share equally in a pool of $1.5 billion. The U.S. Department of Housing and Urban Development expects about 750,000 former homeowners to take part.

What should I do if I think I may qualify for a principal reduction or refinanced mortgage? Contact your lender/servicer and ask them to review your case.

If I take the money, what rights do I give up? Individual borrowers do not give up any right to sue.

As part of this deal, state attorneys general gave up the right to sue the mortgage servicers for foreclosure abuses arising out of the robo-signing scandal. However, they reserve the right to sue if they uncover improper acts when the loans were originated or when they were securitized.

When will the new rules and bank policies be put into place? Most of them have already become part of bank policies.

When will homeowners get paid? HUD said the settlement will be put before a court for approval within two weeks. It is unknown how long it will then take for a court to rule.

The relief for homeowners has to be completed within three years, but the state attorneys general and HUD want it to be front-loaded and completed within 12 months.

Would I have to pay taxes on the principal reductions or the pay-outs? If the principal is reduced in 2012, it will not be subject to income tax.

That’s because the Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence. The act is scheduled to expire at the end of this year, however.

So if the act is not extended and the principal reduction occurs in 2013, borrowers may be on the hook to pay taxes on the settlement amount.

It’s not clear whether you would have to pay taxes on the $1,500 to $2,000 payout. The IRS declined to comment on the question.

Will the settlement make it harder to get a mortgage? The new rules and regulations the banks have agreed to under the settlement should have little impact on future mortgage borrowing since most of practices are already in place, said Keith Gumbinger of HSH Associates, a mortgage information provider.

The actual cost to the banks of the settlement should not discourage lending either. (Housing: The one bailout America really needs)

Only $5 billion of the $26 billion settlement will be a direct cost to the banks. The remainder will be the cost of modifying mortgages. Many of those modifications may be in the best interests of the banks to make, however, since the alternative may be foreclosure, which can cost banks more than modifications. 

Source: CNN/Money

40 States Sign on to Settlement

FROM HOUSING WIRE

More than 40 states will sign a settlement with the top five mortgage servicers over alleged foreclosure abuses that arose more than one year ago, Iowa Attorney General Tom Miller said in a statement Monday night.

Last week, Miller extended the deadline to Monday for states wanting to sign the deal with Bank of America ($7.97 0%), Wells Fargo ($30.20 0%), Citigroup ($33.30 0%), JPMorgan Chase ($38.14 -0.14%) and Ally Financial ($22.95 0%).

“The sign-on deadline for the proposed joint state-federal mortgage servicing settlement passed Monday with more than 40 states signing on,” Miller said “This enables us to move forward into the very final stages of remaining work.Federal and state officials, as well as representatives from the banks, continue to address matters that they must complete before finalizing any settlement.”

Throughout the day, those representing states hardest hit by the foreclosure crisis signaled they are still working on the details of the settlement.

“We’re closer,” a spokesperson for California AG Kamala Harris said.

“My office is continuing to review the intricate draft settlement terms and advocating for improvements to address Nevada’s needs,” said Nevada AG Catherine Cortez Masto in a statement. “Receipt of important state specific information is necessary to make our determination and my office is still in discussions regarding that information.”

Florida AG Pam Bondi said she “remains involved in the settlement discussions in order to reach the best resolution for Floridians and all Americans.” She signed a joint letter with other republican AGs in 2010, saying a settlement that would involve principal reduction creates a moral hazard and lead to more strategic defaults.

A spokesman for Arizona AG Tom Horne said he would decide sometime later Monday.

More than 796,000 homes in these four states received at least one foreclosure filing in 2011, according to RealtyTrac, accounting for more than 42% of all activity in the country.

Oregon AG John Kroger and Connecticut AG George Jepsen said publicly they would sign onto a deal.

“I helped to negotiate and strongly support the bipartisan multistate foreclosure settlement,” Jepsen said in a statement last week. “It would provide timely help to thousands of Connecticut homeowners when they can still use that help to save their homes. It would impose tough new servicing standards on banks and hold them accountable for what have become familiar abuses such as lost documents, poor communication, inadequate and poorly trained staff, and endless loan modifications.”

Jepsen said the deal would allow his office to go after illegal practices the banks committed leading up to the crisis, which is a central point for many AGs wanting to join a federal mortgage fraud task force announced last week.

New York AG Eric Schneiderman, who will co-chair the task force with the Justice Department, also said previously he would not sign onto the foreclosure deal, but reports surfaced this week he was considering signing on. He was removed from the central negotiation committee last year when he tried to expand the scope of the investigation into securitization and other issues. His task force will look into secondary market fraud outside of the robo-signing probe.

Miller formed the multistate coalition in October 2010 to look into faulty foreclosure documents signed en masse and allegedly forged. Since then, a settlement has been almost perpetually imminent. Last week, when many of these AGs had stated they would not sign on, the total charged to the servicers was around $25 billion.

The Department of Housing and Urban Development said Wednesday that $17 billion will be used for principal reductions. Between $2 billion and $3 billion will be used for housing counseling and legal aid.

An official in one AG office said an announcement is expected at the end of this week at the earliest.