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More than 4,000 homeowners have complained to federal agencies in the past year about Ditech Financial LLC, including allegations that the bankrupt mortgage servicer failed to properly credit payments and wrongly foreclosed on their homes, Bloomberg News reported. A federal judge today is slated to decide whether Ditech can sell its mortgage servicing business “free and clear” of these consumer claims as part of $1 billion deal in its bankruptcy plan. Consumer advocates say if Bankruptcy Judge <b>James L. Garrity Jr.</b> approves the deal, it would be difficult or impossible for homeowners to correct what they say are errors related to their loans. People would even be permanently stripped of claims or defenses that would help them save their homes from wrongful foreclosures, the New York Attorney General’s office wrote in its objection to the sales. The New York AG contends that some homeowners are facing foreclosure because of potential errors by Ditech, in which the firm misapplied or refused to record payments that they made, misrepresented the amounts they owed or failed to acknowledge tax payment plans that would bring their accounts up to date.

The Trump administration is preparing to release as early as the first part of September its long-awaited plan to return Fannie Mae and Freddie Mac to private-shareholder ownership, the Wall Street Journal reported. The proposal comes more than a decade after the government seized the mortgage-finance firms to save them from collapse. It would likely seek to put the companies on a sounder financial footing and then release them from government control if Congress doesn’t enact a more fundamental overhaul in the meantime. The plan, which could be floated shortly after the Labor Day holiday, is expected to envision a version of what has been called “recap and release,” which would ensure the firms have adequate capital to absorb loan losses in a future housing slump. Its provisions aren’t expected to give details for initial public offerings for the firms. If the proposal is carried out, the firms could ultimately return to the way they operated before the financial crisis. While administration officials would prefer that Congress act on a more sweeping overhaul of housing finance, Republican control of the Senate and Democratic control of the House leaves lawmakers unlikely to act. The firms are unlikely to face new competition because only Congress can create a more-level playing field that could break up the firms’ effective duopoly.

More than a decade after home loans triggered the worst financial crisis in a generation, the strict lending requirements put in place during its aftermath are starting to erode, the Wall Street Journal reported. Home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit. The loans have been rebranded. Largely gone are the monikers subprime and Alt-A, a type of mortgage that earned the nickname “liar loan” because so many borrowers faked their income and assets. Now they are called non-qualified, or non-QM, because they don’t comply with post-crisis standards set by the Consumer Financial Protection Bureau for preventing borrowers from getting loans they can’t afford. Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019, according to Inside Mortgage Finance, an industry research group. Such mortgages aren’t guaranteed by government agencies and typically charge higher interest rates than conventional loans. Proponents of unconventional loans argue that mortgages became too hard to get in the aftermath of the crisis and that their proliferation will open the housing market to sound borrowers who had been shut out of it. But some worry that the competition for customers could drive lenders to loosen standards too much.

U.S. mortgage debt reached a record in the second quarter, exceeding its 2008 peak as the financial crisis unfolded, the Wall Street Journal reported. Mortgage balances rose by $162 billion in the second quarter to $9.406 trillion, surpassing the high of $9.294 trillion in the third quarter of 2008, the Federal Reserve Bank of New York said yesterday. Mortgages are the largest component of household debt. Mortgage originations, which include refinancings, increased by $130 billion to $474 billion in the second quarter. The figures are nominal, meaning they aren’t adjusted for inflation. The milestone for mortgage debt has been long in the making. Americans’ mortgage debt dropped by about 15 percent from the 2008 peak to the trough in the second quarter of 2013 and has climbed slowly since then. Total household debt has been on the rise since mid-2013. It rose by 1.4 percent from the first quarter to $13.86 trillion, the 20th consecutive quarter of increase. Mortgages remain the largest form of household borrowing but have become a smaller share of total debt since the late 2000s as consumers take on more automotive and student loans. Despite the higher debt loads, Americans appear to be keeping up with their payments. The report found that 95.6 percent of balances were current, the highest level of the current expansion. Read more. (Subscription required.) 

Be sure to check out yesterday’s “Chart of the Day” in the ABI Newsroom. 

Fannie Mae and Freddie Mac, two mortgage-finance firms that back nearly half of U.S. mortgages, will have to consider credit-score alternatives to Fair Isaac Corp.’s FICO score when determining a mortgage applicant’s creditworthiness, under a new rule issued yesterday by the mortgage-finance giants’ federal overseer, the Wall Street Journal reported. The move by the Federal Housing Finance Agency is seen as a win for VantageScore, a credit-score system by VantageScore Solutions LLC, which is owned by the three large credit-reporting firms: Equifax Inc., TransUnion and Experian PLC. “One of my priorities is to ensure that the American people have a safe and sound path to sustainable homeownership, which requires tools to accurately measure risk,” FHFA Director Mark Calabria said in a written statement. The new rule “is an important step toward achieving that goal,” he added. Regulatory rollback legislation signed into law last year required the FHFA to set new standards for Fannie Mae and Freddie Mac to approve credit-score models.