Report Foreclosure Sales Fall to Lowest Level Since 1Q 2011
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Mortgage Rates Tumble
The average rate on a fixed-rate 30-year mortgage fell to 4.03 percent in the week ended Oct. 17, the lowest level since June 2013, according to mortgage-information website HSH.com, the Wall Street Journal reported today. Rates have hovered around that level in the days since, HSH.com says. That compares with 4.29 percent in mid-September and marks a sharp decline from the average rate in the week ended Jan. 3, when it was 4.63 percent. Declines of that magnitude can translate into tens of thousands of dollars in savings through lower monthly payments over the course of a 30-year mortgage—and potentially even greater savings on jumbo mortgages. As interest rates have fallen, demand for home loans has surged. Mortgage applications jumped nearly 12 percent in the week ended Oct. 17 compared with a week prior, according to the Mortgage Bankers Association, a lenders trade group.
Regulators to Give More Guidance on Leveraged Loans
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U.S. Agencies Approve Relaxed Mortgage-Lending Rules
Three U.S. agencies signed off on relaxed mortgage-lending rules Wednesday, helping complete a long-stalled provision of the 2010 Dodd-Frank financial law, the Wall Street Journal reported today. The Federal Reserve, Securities and Exchange Commission and Department of Housing and Urban Development approved the new rules for the mortgage-backed securities market a day after three other agencies approved the standards. The regulators’ actions came over the objections of two SEC commissioners, who warned that the rules would do little to prevent a return to the kind of lax mortgage underwriting that fueled the financial crisis. The rules are intended to improve the quality of loans by giving banks a financial incentive to ensure that mortgages can be repaid. The initial rules required that banks hold 5 percent of the risk of mortgages packaged and sold to investors or require a 20 percent borrower down payment. But regulators, concerned that overly stringent rules would harm the housing market’s recovery, backtracked on the 20 percent down payment. Instead, banks will be able to avoid the 5 percent risk-retention requirement if they verify a borrower’s ability to pay back the loan and comply with other requirements, such as a requirement that a borrower’s debt payments not exceed 43 percent of their income.
Federal Housing Finance Agency Unveils Plan to Loosen Rules on Mortgages
Melvin L. Watt, director of the Federal Housing Finance Agency, announced a program yesterday offering more reassurances to mortgage lenders that fear they could suffer unpredictable losses on the loans they sell to the government, the New York Times reported today. The move in large part is intended to reassure banks that have had to pay tens of billions of dollars to settle legal cases arising from the housing boom and bust and to buy back bad loans sold to Fannie and Freddie. To avoid having to make those payments again, many lenders now demand that borrowers meet stricter requirements for loans, known in the industry as overlays. Separately, Watt disclosed that efforts are underway to allow borrowers to receive government-backed loans with much smaller down payments than are now required.
Foreclosure Dispute Pits Mortgage Lenders vs. Investors
Mortgage lenders and housing investors are squaring off in Nevada over a court decision that has allowed thousands of foreclosed homes to be sold for pennies on the dollar, in a case that could have big implications on an already-tight home-loan market across the country, the Wall Street Journal reported today. At issue are homeowners associations and the liens they put on properties when a homeowner stops paying dues. Homeowners associations enforce rules in a community and collect dues to maintain common areas and pay for repairs. Like lenders, homeowners associations can foreclose on homes to recoup delinquent payments, an option that many have taken after waiting years for lenders themselves to foreclose, a scenario that has left homes without dues-paying owners and some HOAs strapped for cash. Nevada and about 20 other states have laws that allow HOA liens to get priority over first mortgages. The result, according to a recent state court decision, is that homes can be put up for auction by HOAs—without the blessing of the mortgage lender—and sold, extinguishing the first mortgage and allowing the investor to get title to the home. Such sales often are for an amount equal to or slightly above the HOA dues in arrears. In a court filing yesterday, the Mortgage Bankers Association wrote that because of the decision, “mortgage lenders stand to lose millions—perhaps even billions—of dollars in security interests.” Lenders nationwide have argued that HOAs should have to foreclose through the court system and shouldn’t have the power to wipe away entire mortgages. But in a closely watched case in September involving Bank of America Corp. , the Nevada Supreme Court said that they can do so, and sent the case back to a lower court. Last week, Bank of America requested that the state Supreme Court reconsider.
New York High Court Considers Rent-Regulated Leases
New York’s highest court weighed in yesterday on a dispute over a plan by a bankruptcy trustee to sell the rent-stabilized apartment of an 80-year-old East Village woman to her landlord, the Wall Street Journal reported today. Arguments before the Court of Appeals focused on whether such leases were considered transactions like any leases, or public benefits conferred by the state legislature that should be protected from bankruptcy court. Some judges on the Court of Appeals sharply questioned a lawyer for Mary Santiago, the East Village woman. He argued that a state law that listed exemptions from bankruptcy for “public-assistance benefits” meant to include rent-stabilized leases, though the law doesn’t specifically mention them. Several judges seemed sympathetic to another argument, raised by lawyers for Attorney General Eric Schneiderman and Mayor Bill de Blasio, that rent stabilized leases couldn’t be considered property at all, since they couldn't be legally bought and sold by tenants. Under a bankruptcy court ruling, Santiago would have been permitted to live in her apartment at the same rent for the rest of her life but would give up the right to pass the apartment to her son. Santiago appealed. The state court was asked by the Second U.S. Circuit Court of Appeals to step in and examine the state law setting exemptions for state residents from bankruptcy.
Wells Fargo Still Wary of Home Loans
The housing bust ended several years ago, but the big mortgage banks are still acting as if the home loan business were fraught with peril, the New York Times reported today. Executives from Wells Fargo, the nation’s biggest mortgage bank, said yesterday that important changes had to be made before they might consider increasing the flow of credit. In the third quarter, Wells Fargo’s mortgage banking income totaled $1.63 billion, a small rise from the $1.61 billion in the third quarter of 2013. Since the financial crisis led the Federal Reserve to cut interest rates, Wells Fargo has made billions of dollars in its mortgage unit, as mortgage borrowers rushed to the bank to refinance. Wells Fargo does not hold most of the mortgages it makes. Instead, it books a profit when it packages the loans into bonds and sells them to investors. An increase in the profitability of such sales is a reason Wells Fargo’s mortgage banking revenue went up in the third quarter even as the bank underwrote far fewer loans.
Most ResCap Suits Against Originators Go to Minnesota
Residential Capital LLC for the most part must pursue lawsuits in federal court in Minnesota against lenders who sold it allegedly defective home mortgages, Bloomberg News reported yesterday. The former mortgage-servicing unit of Ally Financial Inc., which filed for chapter 11 protection in May 2012, won approval of a reorganization plan in December and started more than 80 lawsuits against so-called mortgage originators for breach of contract and other claims alleging that ResCap-purchased mortgages didn’t comply with advertised underwriting standards. More than 10 of those suits ended up before U.S. district judges in Manhattan. The remainder were in Minnesota. As a result of a series of decisions by different Manhattan judges beginning in July, it appears that most of the New York suits will be transferred to Minnesota, except where ResCap and the mortgage originator had agreed that suits could be filed in New York. The latest ruling was handed down on Oct. 10 by U.S. District Judge John G. Koeltl in New York in a case involving PHH Mortgage Corp., which sold ResCap almost $1 billion of mortgages. The mortgage-purchase agreements called for disputes to be litigated in courts in Minnesota.
Wells Fargo Settles Inquiry Into Bias Against Mothers
The federal government said yesterday that it reached a $5 million settlement with Wells Fargo to resolve allegations it discriminated against pregnant women, new mothers and women on maternity leave, the Associated Press reported yesterday. The U.S. Department of Housing and Urban Development said Wells Fargo's home mortgage unit refused to make loans available to some women based on their gender or family status, and forced some women to give up their maternity leave and go back to work before it would close a loan with them. HUD said that bank employees also made discriminatory statements to and about women who were pregnant or had recently given birth. The agency said Wells Fargo will change its underwriting guidelines as part of the settlement and will show its staff how to follow the new guidelines.