A federal judge on Friday said that investors seeking to hold banks liable for helping underwrite more than $7.7 billion of mortgage-backed securities from the now-bankrupt subprime lender NovaStar Mortgage Inc. may pursue their claims as a group, Reuters reported today. In a 33-page decision, U.S. District Judge Deborah Batts in Manhattan granted class certification to investors led by the New Jersey Carpenters Health Fund against units of Royal Bank of Scotland Group Plc, Deutsche Bank AG and Wells Fargo & Co. Several former NovaStar executives are also defendants. NovaStar specialized in lower-quality residential mortgages, including many packaged into securities issued in 2006 and 2007.
Banks no longer reign over the mortgage market as they accounted for less than half of the mortgage dollars extended to borrowers during the third quarter of 2016, the Wall Street Journal reported today. It represented the first quarter that banks, credit unions and other depository institutions have fallen below that threshold in more than 30 years, according to Inside Mortgage Finance. The shift reflects banks’ aversion to risk, especially in the mortgage market, in the wake of the housing meltdown and financial crisis. Banks also remain fearful of legal and regulatory threats that have cost them tens of billions of dollars in mortgage-related fines and settlements in recent years. Six of the top 10 mortgage lenders by origination volume were nonbanks as of September, up from four for all of 2015 and two in 2011. The three largest U.S. retail banks, JP Morgan Chase & Co., Bank of America Corp. and Wells Fargo & Co., accounted for about 50 percent of mortgage dollars extended in 2011 — a share that dropped to nearly 21 percent year to date through September.
As part of its third-quarter regulatory filing, Freddie Mac declared it helped approximately 16,000 borrowers avoid foreclosure, HousingWire.com reported. Most of that is dealing with crisis-era mortgages, but Freddie Mac CEO Donald Layton revealed that this strategy is changing. Freddie Mac is now working with its regulator, the Federal Housing Finance Agency, to create permanent foreclosure-avoidance programs as HAMP and HARP look to expire. Now, as part of the regular course of business, and with foreclosure still the option of last resort, Layton said that efforts are being made to make permanent a government-defined method for handling the modification of distressed mortgages. “These crisis-era programs are not disappearing, the new solutions will be permanent,” he said, without giving a specific timeline. Currently, both HAMP and HARP are set to expire at the end of next year. Read more.
In related news, Freddie Mac in its regulatory filing said that it posted a profit of $2.3 billion in the third quarter after avoiding derivative losses it’s experienced in the past, Bloomberg News reported yesterday. The company, which was seized along with Fannie Mae during the 2008 financial crisis, will send the Treasury Department $2.3 billion at the end of December, bringing the total amount returned to $101.4 billion, according to its filing. Freddie Mac had posted a loss of $475 million in the third quarter of 2015 stemming mostly from accounting for hedges against interest-rate risk. The company uses derivatives to hedge away the impact of rising and falling rates on its holdings. But because the company values the derivatives at a different time than it values the hedged assets, in prior quarters that’s resulted in large swings in profits. Under the terms of Fannie Mae and Freddie Mac’s bailout agreement, the companies have to send almost all profits to the government. Read more.
Wells Fargo & Co. has agreed to pay $50 million to settle a racketeering lawsuit accusing it of overcharging hundreds of thousands of homeowners for appraisals ordered after they defaulted on their mortgage loans, Reuters reported today. The proposed settlement, which requires court approval, was disclosed in a filing on Friday in an Oakland, Calif. federal court. If approved, it will resolve nationwide claims that Wells Fargo charged much more than it paid for third-party appraisals, exploiting borrowers who could least afford it and driving them further into default. Wells Fargo's settlement of the lawsuit comes as the bank is still recoiling from a scandal over sales targets that drove employees to create unauthorized accounts for customers. Multiple lawsuits over those practices are pending. Read more.
Mortgage escrow accounts remain a mystery in many cases as debtors’ and creditors’ attorneys both struggle to understand the calculations set forth in them and the effect they have on chapter 13 cases. A panel at the 2016 Hon. Steven W. Rhodes Consumer Bankruptcy Conference on Nov. 11 will focus on escrow accounts, as well as new proof-of-claim forms and how they treat escrow accounts. Click here to register.
The percentage of foreclosed mortgages has reached its lowest point in nine years, according to Black Knight Financial Services' September First Look report, NationalMortgageNews.com reported. The presale foreclosure rate of 1 percent represents a 3.38 percent decline from August and a 31.23 percent year-over-year decline. There are 509,000 homes in the presale inventory, down 18,000 from the previous month and 228,000 from last September. There were 61,700 foreclosure starts for the month, a 10.32 percent reduction from the previous month and a drop of 22.78 percent from September 2015. There are 2.17 million properties that are more than 30 days late but not in foreclosure as of Sept. 30, an increase of 14,000, but down by 292,000 from one year ago.
The mortgage-servicing industry is still struggling to adopt technology that will help them comply with a 2014 Consumer Financial Protection Bureau regulation that placed new rules on the sector, MorningConsult.com reported yesterday. “While we applaud the investments made in compliance by certain servicers, others have not yet made satisfactory progress,” CFPB Director Richard Cordray told this year’s annual conference of the Mortgage Bankers Association in Boston, according to prepared remarks. “Outdated and deficient servicing technology continues to put many consumers at risk. This problem is made worse by a lack of training to use their technology effectively.” The 2014 CFPB rule required mortgage servicers to quickly correct errors reported by consumers and gave extra protection to borrowers in distress or facing foreclosure. Cordray said that the CFPB will try to address the problems he listed by demanding the firms having trouble with compliance work with the agency on “specific and credible plans” listing changes to information technology systems that will help firms with implementation. He also said the bureau will work more closely with the industry when crafting updates to the mortgage-servicing rule that are slated to go into effect in 2017.
