Feds Take Action Against Banks for Misconduct and Negligence Related to Mortgage Loan Servicing and Foreclosure Practices

Dennis Norman St LouisOver the past year or so there have been dozens, if not hundreds, of stories questioning the manner in which lenders were handling the servicing of their loans, particularly those of underwater borrowers, as well as the foreclosure practices of many including “robo-signing” of foreclosure affidavits. Next came the lawsuits and now, this week, the Federal Reserve Board announced formal enforcement actions requiring 10 banking organizations to address “a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing.” Continue reading “Feds Take Action Against Banks for Misconduct and Negligence Related to Mortgage Loan Servicing and Foreclosure Practices

Home prices expected to continue to suffer as a result of foreclosures

Much has been written (including by me) about the negative impact foreclosures and other distress sales have on home prices so this is no new issue.  In fact, most readers have probably seen (or felt) the impact of this in their own neighborhood.

The charts below which show the percentage of mortgages that were 90 days or more past due and in foreclosure for 2007 through 2010 illustrate well just how ugly this issue is.  In the lower left hand corner of each chart is depicted the national house-price index through the period and it is easy to see that as the foreclosure activity grew, home prices declined.  Continue reading “Home prices expected to continue to suffer as a result of foreclosures

‘Shoddy’ mortage servicing practices prolonging housing market trouble

This past Friday Federal Reserve Board Governor Sarah Bloom Raskin spoke at the 2011 Midwinter Housing Finance Conference about the powerful impact the housing and mortgage markets have had on the nation’s economy recovery.

Governor Raskin began by point out that, “speaking strictly in an economic sense, the recession that emerged in 2008 is over.”  She then followed by saying “I know that the millions of Americans still looking for work, living in cars or motels, or trying to keep their businesses out of bankruptcy would beg to disagree.”  Gov Raskin went on to state that our economy is in fact growing, but the pace of recovery is “agonizingly slow” and not keeping pace with recovery in prior recessions. Continue reading “‘Shoddy’ mortage servicing practices prolonging housing market trouble

Fed Reserve expects over 4 million new foreclosures in the next two years

Dennis Norman St Louis

Speaking at the National Consumer Law Center’s Consumer Rights Litigation Conference in Boston, Federal Reserve Governor Sarah Bloom Raskin delivered some sobering news about the Fed Reserve’s expectations for the housing market.

Raskin discussed how foreclosures on residential properties soared from about one million in 2006, the “peak of the boom”, to 2.8 million last year. There were 1.2 million foreclosure filings in just the first half of 2010 and, right now, nearly five million loans are somewhere in the foreclosure process or are 90 days or more past due.

Raskin said “our projections remain very grim for the foreseeable future: All told, we expect about two and one-quarter million foreclosure filings this year and again next year, and about two million more in 2012. While these numbers are down from their peak in 2009, they remain extremely high by historical standards and represent a trauma in the lives of millions of people affected.”

New Rule Proposed to Protect Seniors Obtaining Reverse Mortgages

Dennis Norman

Reverse mortgages have become increasingly popular over the past few years with seniors that find themselves with a large amount of equity in their home, but short on cash, or struggling to pay for the upkeep of the home, property taxes, insurance or other living expenses.   A reverse mortgage allows people in that situation to pull the equity from their home in a lump sum, monthly payments or just as they need it. Continue reading “New Rule Proposed to Protect Seniors Obtaining Reverse Mortgages

New Rules Announced to Protect Mortgage Borrowers

Dennis Norman St Louis

Dennis Norman

Over the past couple of years lawsuits have been filed against several lenders over “yield spread premiums” that were paid by the lenders to mortgage brokers originating loans on their behalf. These suits brought a lot of attention to a common practice in the mortgage industry which was to compensate the companies (or loan officers) originating loans based upon the rate and points charged to the borrower. There have been numerous debates on the topic and I’m staying out of it, however, last week the Federal Reserve announced new rules that will go in effect on April 1, 2011 that will end this practice. Continue reading “New Rules Announced to Protect Mortgage Borrowers

Fed Reserve: Housing Sales and Starts Have Flattened Out at Depressed Levels; Foreclosures Likely To Remain High

Dennis Norman

At the Federal Open Market Committee meeting on March 16th it was suggested that “economic activity expanded at a moderate pace in early 2010″. Unfortunately, when it came to the housing market, the news was not as good and it was noted that “housing activity remained flat and the nonresidential construction section weakened further.”

The staff went on to say that activity in the housing sector appears to “have flattened out in recent months” and that “sales of both new and existing homes have turned down, while starts of single-family homes were about unchanged despite the substantial reduction in inventories of unsold new homes.” The feeling was that some of the recent weakness in home sales may have been due to buyers that rushed to buy in anticipation of the first-time homebuyer tax credit that was originally expected to expire in November, 2009.
Other concerns about the housing market that were expressed by participants in the meeting included the concern that activity appeared to be leveling off in most regions despite various forms of government support, and that the commercial and industrial real estate markets “continue to weaken”. The fact that “housing sales and starts had flattened out at depressed levels” suggests that the previous improvements in the housing market may have largely been a result of the homebuyer tax credit “rather than a fundamental strenthening of housing activity.
On another negative note for the housing markets, the meeting participants indicated that “the pace of foreclosures was likely to remain quite high; indeed, recent data on the incidence of seriously delinquent mortgages pointed to the possibility that the foreclosure rate could move higher over coming quarters.” Adding; “the prospect of further additions to the already very large inventory of vacant homes posed downside risks to home prices.” (hmm…sounds familiar, what real estate blogger has been talking about this for a while and expressing concern? oh yeah, me :)
The committee also confirmed, as I have discussed was coming in other posts, that the Fed was going to complete their purchase of the $1.25 trillion worth of mortgage-backed securities by the end of March that they committed to in an effort to add liquidity to the mortgage market and would discontinue purchasing the securities after that. Thus far this has not had much effect on interest rates but I think it will take a month or so to see where things shake out.
So, in a nutshell, the Fed doesn’t think the housing market is out of the woods yet; the government stimulus may have done nothing more than creaate a temporary “false market” (I’ve talked about this point here before too) and that the housing sector may continue to be a drag on the economy for a while.

Feds pulling support of mortgage market- will interest rates increase?

Dennis Norman

The Federal Reserve announced it will stop purchasing mortgage-backed securities by the end of March.

In November, 2008, the Federal Reserve announced, in an effort to help the housing market, it would purchase mortgage-backed securities. Then, in March, 2009, the Fed increased the total amount of money they would invest in such securities to $1.25 trillion and estimated that they would complete those purchases by the end of first quarter 2010.

The Fed’s action I think certainly added some liquidity and confidence to the ailing housing market and now, that the time has come for them to pull out of the market, the question is what effect it will have on interest rates is uncertain. Some industry analysts are cautioning that after the Fed pullout the private investor sector will want a higher return thereby forcing mortgage interest rates upward.

Last week the Federal Reserve announced that they will complete the purchases of mortgage-backed securities by the end of this month, thereby taking the Fed out of the market. In their announcement they said “economic activity has continued to strengthen and that the labor market is stabilizing” but cautioned that the pace of economic recovery “is likely to be moderate for a time.”

By this time next month we will get an idea of what effect the Fed’s action will have on interest rates. I think it is safe to say we are going to see an increase in mortgage interest rates although I would predict that the increase will be slight, at least initially. The interest rate for a 30-year fixed-rate mortgage has been hovering around 5 percent for a while now, sometimes bouncing above or below that mark. My guess is we will see this rate hover more in the 5.25 – 5.50 percent range soon.

Fed Reserve proposes significant changes to provide more disclosure and protection to borrowers on mortgages

Dennis Norman

Dennis Norman

Late last week the Federal Reserve Board proposed significant changes to Regulation Z (Truth in Lending) intended to improve the disclosures consumers receive in connection with home mortgages and home equity lines of credit.

These changes are just proposed at this point and are being offered for public comment for 120 days at which time the Fed Reserve will review comments and decide whether or not to put the changes into effect.

Ben S. Bernanke, Chairman of the Federal Reserve

Ben S. Bernanke

“Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances,” said Federal Reserve Chairman Ben S. Bernanke. “It is often said that a home is a family’s most important asset, and it is the Federal Reserves’ responsibility to see that borrowers receive the information they need to protect that asset.”
The proposed changes include: Continue reading “Fed Reserve proposes significant changes to provide more disclosure and protection to borrowers on mortgages

Fed Reserves publishes “5 Tips for Shopping for a Mortgage”

Dennis Norman

Dennis Norman

By: Dennis Norman

Buying a home should be a dream come true not a nightmare of worry and stress. A new Federal Reserve Board publication, “5 Tips for Shopping for a Mortgage,” will help consumers avoid potential pitfalls and make well-informed decisions when choosing a home loan.
Financing the purchase of a home is one of the most complex financial decisions that consumers make. The Federal Reserve’s latest “5 tips” guide is designed to help home buyers find the mortgage that is best for them. The complete guide is available here however a summary of the tips are below:
  • Know what you can afford.
    • Review your monthly income and spending to estimate what you can afford to pay for a home, including the mortgage, property taxes, insurance, and monthly maintenance and utilities.
  • Shop around-compare loans from lenders and brokers.
    • Shopping takes time and energy, but not shopping around can cost you thousands of dollars. You can get a mortgage loan from mortgage lenders or mortgage brokers.
  • Understand loan prices and fees.
    • Many consumers accept the first loan offered and don’t realize that they may be able to get a better loan.
  • Know the risks and benefits of loan options.
    • Mortgages have many features — some have fixed interest rates and some have adjustable rates; some have payment adjustments; on some you pay only the interest on the loan for a while and then you pad down the principal (the loan amount).
  • Get advice from trusted sources
    • A mortgage loan is one of the most complex, most expensive financial commitments you will ever assume–it’s okay to ask for help. Talk with a trusted housing counselor or a real estate attorney that you hire to review your documents before you sign them.