Appraisal Scoop

Consumer Financial Protection Bureau Issues Rule to Protect Consumers from Irresponsible Mortgage Lending

Rule Requires Lenders Ensure Borrowers Have the Ability to Repay Their Mortgage

WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) adopted a new rule that will protect consumers from irresponsible mortgage lending by requiring lenders to ensure prospective buyers have the ability to repay their mortgage. The rule also protects borrowers from risky lending practices such as “no doc” and “interest only” features that contributed to many homeowners ending up in delinquency and foreclosure after the 2008 housing collapse.

“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford,” said CFPB Director Richard Cordray. “Our Ability-to-Repay rule protects borrowers from the kinds of risky lending practices that resulted in so many families losing their homes. This common-sense rule ensures responsible borrowers get responsible loans.”

Leading up to the mortgage crisis, certain lenders originated mortgages to consumers without considering their ability to repay the loans. The gradual deterioration in underwriting standards led to dramatic increases in mortgage delinquencies and rates of foreclosures. What followed was the collapse of the housing market in 2008 and the subsequent financial crisis. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act created broad-based changes to how creditors make loans and included new ability-to-repay requirements, which the CFPB is charged with implementing.

Ability to Repay

In the years leading up to the financial crisis, lenders too often offered mortgages to consumers who could not afford them. Under the Ability-to-Repay rule announced today, all new mortgages must comply with basic requirements that protect consumers from taking on loans they don’t have the financial means to pay back. Among the features of the new rule:

• Financial information has to be supplied and verified: Lenders must look at a consumer’s financial information. A lender generally must document: a borrower’s employment status; income and assets; current debt obligations; credit history; monthly payments on the mortgage; monthly payments on any other mortgages on the same property; and monthly payments for mortgage-related obligations. This means that lenders can no longer offer no-doc, low-doc loans, where lenders made quick sales by not requiring documentation, then offloaded these risky mortgages by selling them to investors.
• A borrower has to have sufficient assets or income to pay back the loan: Lenders must evaluate and conclude that the borrower can repay the loan. For example, lenders may look at the consumer’s debt-to-income ratio – their total monthly debt divided by their total monthly gross income. Knowing how much money a consumer earns and is expected to earn, and knowing how much they already owe, helps a lender determine how much more debt a consumer can take on.
• Teaser rates can no longer mask the true cost of a mortgage: Lenders can’t base their evaluation of a consumer’s ability to repay on teaser rates. Lenders will have to determine the consumer’s ability to repay both the principal and the interest over the long term − not just during an introductory period when the rate may be lower.

Qualified Mortgages

Lenders will be presumed to have complied with the Ability-to-Repay rule if they issue “Qualified Mortgages.” These loans must meet certain requirements which prohibit or limit the risky features that harmed consumers in the recent mortgage crisis. If a lender complies with the clear criteria of a Qualified Mortgage, consumers will have greater assurance that they can pay back the loan. Among the features of a Qualified Mortgage:

• No excess upfront points and fees: A Qualified Mortgage limits points and fees including those used to compensate loan originators, such as loan officers and brokers. When lenders tack on excessive points and fees to the origination costs, consumers end up paying a lot more than planned.
• No toxic loan features: A Qualified Mortgage cannot have risky loan features, such as terms that exceed 30 years, interest-only payments, or negative-amortization payments where the principal amount increases. In the lead up to the crisis, too many consumers took on risky loans that they didn’t understand. They didn’t realize their debt or payments could increase, or that they weren’t building any equity in the home.
• Cap on how much income can go toward debt: Qualified Mortgages generally will be provided to people who have debt-to-income ratios less than or equal to 43 percent. This requirement helps ensure consumers are only getting what they can likely afford. Before the crisis, many consumers took on mortgages that raised their debt levels so high that it was nearly impossible for them to repay the mortgage considering all their financial obligations. For a temporary, transitional period, loans that do not have a 43 percent debt-to-income ratio but meet government affordability or other standards − such as that they are eligible for purchase by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) − will be considered Qualified Mortgages.

There are two kinds of Qualified Mortgages that have different protective features for a consumer and different legal consequences for the lender. The first, Qualified Mortgages with a rebuttable presumption, are higher-priced loans. These loans are generally given to consumers with insufficient or weak credit history. Legally, lenders that offer these loans are presumed to have determined that the borrower had an ability to repay the loan. Consumers can challenge that presumption, though, by proving that they did not, in fact, have sufficient income to pay the mortgage and their other living expenses. 

The second, Qualified Mortgages that have a safe harbor status, are generally lower-priced loans. They are generally prime loans that are given to consumers who are considered to be less risky. They will also offer lenders the greatest legal certainty that they are complying with the new Ability-to-Repay rule. Consumers can legally challenge their lender if they believe the loan does not meet the definition of a Qualified Mortgage.

The Ability-to-Repay rule does not affect the rights of a consumer to challenge a lender for violating any other federal consumer protection laws.

Today, the CFPB is also releasing proposed amendments to its Ability-to-Repay rule. These amendments would, among other things, exempt certain nonprofit creditors that work with low- and moderate-income consumers. The proposed amendments would also make exceptions for certain homeownership stabilization programs − such as those that offer loans made in connection with the Making Home Affordable program − which help consumers avoid foreclosure. The proposed amendments would also provide Qualified Mortgage status for certain loans made and held in portfolio by small creditors, such as community banks and credit unions. Finally, today’s proposed amendments invite comment on how to calculate loan origination compensation under the points and fees provision of Qualified Mortgages.

The proposed amendments, if adopted, would be finalized this spring and go into effect at the same time as the Ability-to-Repay rule in January 2014. The CFPB is dedicated to working with industry and consumers for a smooth transition to the new rule. To help creditors with compliance, the CFPB will, among other things, be publishing plain-language translations of the regulation for lenders in booklet and video form, issuing implementation guides, and, in coordination with other agencies, releasing materials that help lenders understand supervisory expectations. As the effective date approaches, the CFPB will give consumers information about their new rights under these rules.

The rule and proposed amendments will be available on Thursday at: http://www.consumerfinance.gov/regulations

A factsheet further explaining the new rule is at: http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-factsheet.pdf

A summary of the final Ability-to-Repay rule is at: http://files.consumerfinance.gov/f/201301_cfpb_ability-to-repay-summary.pdf

SOURCE: CFPB Website

Real Estate Purchase Contract Scams - Tricking Appraisers To "Hit The Target"

GUEST AUTHOR: Vernon Martin, the founding principal of American Property Research, performs paid research, due diligence and valuations regarding commercial real estate
throughout the world. He has 28 years of commercial appraisal experience and has
worked in 20 countries, 39 U.S. states, and four Canadian provinces. He was  previously the chief commercial appraiser at 3 national (U.S.) lending institutions, formerly taught Real Estate Valuation at California State University, Los Angeles and has authored many professional journal articles and two books.

The appraisal textbooks don’t mention these, so I will.  Real estate purchase contracts are often
constructed to mislead lenders and appraisers.  Various ruses are used to inflate stated purchase prices above market  value, with the hope of tricking an appraiser into valuing a property at above market value and tricking a lender into offering a loan at an imprudent loan-to-value ratio.  

What the buyer and seller are counting on is a phenomenon known as “anchor bias”, the tendency of appraisers to offer an appraised value identical to the purchase price. Various academic studies have indicated that this happens about 96 to 97% of the time, although some appraisers seem to have been getting wiser lately.  Some ruses that I have recently seen include the following:

1. The “soft second” mortgage loan – forgivable seller financing used to inflate the contract purchase price.  

My last appraisal assignment presented such a possibility. It was an $8 million purchase contract which was contingent upon $4 million in first mortgage financing, supplemented by seller financing of $4 million. The buyer would have no equity in the property, a situation that presents a high risk for loan default.

I suspected that the seller financing was a “soft second”, a seller concession disguised as a fake loan. My suspicion was well supported by a contract purchase price which was $1.6 million above the listing price for a property that had been marketed for almost 3 years. I found the listing on the Internet.  

Normally, the term “soft second” in the real estate industry refers to a legitimate second mortgage loan made at a below-market rate, perhaps subsidized by a government agency or a nonprofit entity. In some cases, though, the seller financing is not meant to be paid back. It is a price concession in disguise, meant to inflate a contract purchase price.

An appraiser cannot be sure the second mortgage is real or fake, so he must look for clues, the most obvious of which is that the purchase price is not supported by comparable sales or the purchase price is above the asking price. The lack of equity contributed by the buyer should also make lenders and appraisers think twice.     One would think that some government agency or appraiser association would issue an “all points bulletin” on this deception, but this scam continues to this day.

2. Unsigned purchase agreements in draft form.

 

I have seen a proliferation of this trick in the last 2 years, and am currently witnessing it happen on a
transaction in Puerto Rico.  The buyer just says that the purchase contract has not yet been finalized and submits his own version, usually in MSWord, with a different price.  Very simple, but these deceivers are counting on appraisers or lenders who will believe anything.  

 

Normally, an application for a purchase mortgage loan comes with an already-signed purchase agreement with contingencies for financing. Why and how could there be a closing without a definitive purchase agreement? An agreement that is not written is commonly known as not worth the paper it is written on. There is no reason for an appraiser to accept an unsigned, draft purchase agreement as a reliable indication of value.

 

3. The double escrow
 
This is when there are two purchase contracts for the same property.  The first purchase contract is the legitimate one, and once closed, the buyer can then sell at a higher price to an entity he controls in a different purchase contract that he will submit to lenders and appraisers.  The latter transaction, however, is a sham "pocket-to-pocket" transaction.

 
4. Secret partnerships and "transaction facilitators"
 
In one instance I met with the owners/sellers of swampland intended for development of a marina residential community. The buyer and sellers were old friends. I was presented with three conflicting purchase contracts, and whenever the story keeps on changing, that is a good sign of deception. After four hours I asked Mr. Seller where he would  be moving to. He seemed surprised and responded, "I'm staying here, of course.  I've got a lot of work to do!" which made it clear that he was part of the development team. I looked at his wife, whose facial expression said "How can my husband be so stupid?"

I discovered  one company in Arizona that advertised "transaction facilitation" services. Step 1 is that the buyer forms a joint venture partnership with the transaction facilitator in buying the property in the guise of an LLC or Limited Partnership. Step 2 is the shell company (the LLC or LP) sells to the buyer
again at a higher price in a sham transaction designed to trick a lender and maximize financing.
 
Another type of "transaction facilitation" is those services which "rent" cash down payment money overnight to buyers while the purchase price is inflated to cover the amount of the phony down payment.  Law enforcement has been shutting down such operations in the United States.

Other purchase contract deceptions 

 

It is risky, any way, for an appraiser to automatically assume that a contract purchase price is identical to market value.  I have seen fake purchase contracts and purchase contracts which disguise the fact that the buyer and seller are one and the same. I have seen purchase prices inflated by real estate
syndicators who are compensated as a percentage of the transaction price.

 

Many appraisers are so convinced that the purchase price is real that they make the mistake of making
unconventional adjustments to sales data to support the stated purchase price. They may choose much newer properties or much smaller properties as comparable sales and fail to make adjustments for age or size.
 
Questions to ask
 
The first thing I do in analyzing the purchase transaction is to peruse the Internet to try to find the property listed for sale. LoopNet and realtor.com are good sources, but sometimes if you just google the address of the property, you can find a more obscure listing. When I find the property listed at a price below the contract purchase price, and the property has already spent a substantial time on the market, that is cause for suspicion.

The next question I ask the buyer and the seller, separately if possible, is "who were the listing broker and the buyer's broker on this transaction?" The reason why I ask is that I see so many purchase loan applications which are not represented by a broker, begging the question of how the buyer and seller found each other in a market with so many properties listed for sale. 

If there was no broker, there was most likely no listing or advertising, meaning the buyer already knew the seller, increasing the odds that the purchase transaction is not arm's length or even a
"pocket-to-pocket" transaction with the owner buying the property from himself with my client's financing. Past experience has shown me that this is a way to make the lender the unintentional buyer of a hard-to-sell property.

One tell-tale sign of a fraudulent purchase is when the buyer complains that the value is too low. In legitimate purchases, the buyer often uses a low appraisal to negotiate a better price, and they sometimes even thank me, but when a buyer starts making phony excuses as to why the appraised
value should be higher, it is a signal to me that the buyer is either already affiliated with the seller or else the buyer and seller have negotiated a separate purchase agreement and the contract I was given was
phony.

Recent adverse publicity for the appraisal profession
 
The National Association of Realtors (U.S.) has recently unleashed their well-funded publicity machine to criticize appraisers for failing to "hit" purchase prices. They publicize sob stories of realtors whose purchase deals fell apart.  "I had a bona fide purchase contract and the incompetent appraiser appraised it too low!" Such things could be said about me, too, but nothing is being said about the epidemic of deceptive purchase contracts nowadays.
 
To appraisers who think they must "hit" the purchase price:

If it was really true that the market value of a property is always the same as the purchase price, there would be no need for appraisals, would there be?

 

AUTHOR: Vernon Martin, the founding principal of American Property Research, performs paid research, due diligence and valuations regarding commercial real estate throughout the world. He has 28 years of commercial appraisal experience and has worked in 20 countries, 39 U.S. states, and four Canadian provinces. He was previously the chief commercial appraiser at 3 national (U.S.) lending institutions.  Full profile: click here

Who Has Been Suing the Most Appraisers? Two Names You Know. Two Names You've Probably Never Heard.

GUEST POST: Monday, October 8, 2012 - Who Has Been Suing the Most Appraisers? Two Names You Know. Two Names You've Probably Never Heard - By Peter Christensen

These are four of the parties who have been suing the most appraisers in 2011-12.  I suspect most appraisers won't recognize two of the names, unless the appraisers are defendants in one of their cases.  The parties are in no particular order, but the last one does file the most lawsuits. 

LSF6 Mercury REO Investments.  This is an investment fund of a private equity company named Lone Star.  LSF6 bought discounted mortgage debt from bankrupt CIT Group in 2008.  In late 2011, LSF6 began suing appraisers in New York as part of what appears to be an experiment with mass appraiser litigation to recover damages from appraisers relating to the defaulted mortgages.  Most of the mortgages and appraisals at issue date to 2005 to 2007.  So far, LSF6 has sued at least 50 individual appraisers and small appraisal firms in New York.  LSF6, however, has lost some of its early New York cases or been forced to abandon others.  Its masterminds made some obvious legal mistakes.  Perhaps seeking a new testing ground, LSF6 filed one of its most recent lawsuits against an appraiser in a Western state.  If LSF6's experiment with mass appraiser litigation pays off for its private equity investors, the appraisal industry will have a dark future of voluminous appraiser litigation. 
 
Lehman Brothers Holdings, Inc.  This company hardly needs an introduction.  It is the financial services firm commonly blamed for the near destruction of our economy in 2008.  So, what's this former giant doing suing individual residential appraisers?  Well, one of Lehman's mortgage origination machines at the height of the real estate and mortgage bubble was its subsidiary Aurora Bank.  Lehman acquired mortgages from that subsidiary and packaged many for sale to other parties. Though it filed for bankruptcy in 2008 and remains in bankruptcy, Lehman began filing sporadic negligence lawsuits last year against appraisers who appraised for loans by Aurora back in 2005-2006.  These lawsuits have been filed or threatened against appraisers in California, Colorado, Florida, Georgia and Tennessee (to name a few states).  Lehman filed its most recent lawsuit against an appraiser last week in Michigan.
 
Heritage Pacific Financial.  This entity is an investment vehicle of some type that purchases defaulted mortgage debt for pennies on the dollar and then tries to recover some of the debt through creative means.  One of its strategies has been to sue the borrowers for fraud, not just breach of the debt instrument.  Because insolvent borrowers rarely fight in court, Heritage Pacific often obtains default judgments against the borrowers without a fight.  A judgment for fraud can be non-dischargeable in bankruptcy and thus potentially will remain collectible against the borrower forever (a judgment can be renewed perpetually in California) or as long as judgments are enforceable.  The judgments are then either collected on or sold to third parties according to marketing literature from Heritage Pacific.  In the last couple of years, Heritage Pacific also has tried suing appraisers for professional negligence and misrepresentation, contending that the appraisers are liable for the unpaid loan balances -- though Heritage Pacific may only have paid pennies on the dollar for the already defaulted debt.   

With respect to its borrower actions, Heritage Pacific is facing at least one class action for unfair debt collection practices.  Separately, it has been subject to state action for alleged securities violations concerning its investment offerings.  The Center for Investigative Reporting's California Watch published a report on Heritage Pacific earlier this year (link).

Federal Deposit Insurance Corporation.  The FDIC's tear against appraisers continues unabated.  From January 1, 2011 through today, it has sued approximately 140 individual appraisers and small appraisal firms relating to defaulted loans of failed lenders under its supervision as receiver.  It has identified approximately 400 additional individual appraisers by name as grossly negligent in its two lawsuits against national AMCs.  Most or all of those 400 appraisers recently received a document entitled "notice of claim" which purported to give notice that civil claims for damages would be made against them relating to the appraisals in the FDIC's two AMC lawsuits, but the notices do not appear to have come from the FDIC.  Almost all appraisals that the FDIC is suing over date to 2005 to 2007.  Some appraisers in high risk states now have E&O policies that exclude coverage for damages awarded to the FDIC. The FDIC, acting as receiver for failed Amtrust Bank, filed its most recent lawsuit against an appraiser in September in Ohio. 

 
The FDIC's litigation tactics against appraisers also have been questioned.  It has been using a law firm called the Mortgage Recovery Law Group to make demands on, subpoena and sue appraisers across the country.  The firm is staffed by personnel formerly employed by Indymac Bank, which itself failed and is under FDIC receivership. 

 

One attorney in the FDIC's law firm held the title "Director of Quality and Fraud Risk Management" at Indymac.  A non-attorney staffer formerly employed at Indymac held the title "Vice President of Fraud Prevention and Loss Mitigation."  In some cases, these law firm personnel play the role of a witness for the FDIC; in other cases, the law firm's lawyers represent the FDIC as attorneys.  Some might think the FDIC's utilization of former management insiders at the failed bank is clever, but other people may think it's repugnant that former insiders are now profiting from their management work in Indymac's pilothouse, while others are being sued for it.  In one of its cases (not handled by the Mortgage Recovery Law Group), the FDIC is suing two appraisers -- husband and wife -- over appraisals done years ago.  The husband appraiser is now deceased and the wife appraiser has dementia.  It really is the FDIC against "mom and pop."
 
I could add a few regular lenders to the short list above as suing a fairly high number of appraisers and a couple lenders do sue more often than others, but it's not really newsworthy that appraisers' named lender-clients sue them and the lenders actually don't sue very often as compared to their mortgage volumes.

Does it seem like commercial appraisers have been left out?  They should not feel that way.  First, in recent months, the FDIC and its outside law firms have begun suing and sending subpoenas to more commercial appraisers.  Second, the litigation described above is merely the most frequent, not the most severe.  As written about elsewhere in this blog, the three biggest appraisal negligence lawsuits currently pending concern commercial appraisal work. 

 

Former LandSafe " Whistleblower" Appraiser Awarded $14.5 Million

The Huston Chronicle's article "The Price of Courage" by Loren Staeffy tells a story of two different men.

"One is Angelo Mozilo, the former chief executive of Countrywide Financial, once the nation's biggest mortgage company. The other is Kyle Lagow, a former appraisal supervisor in Plano for LandSafe, a Countrywide subsidiary."

Lagow, a former LandSafe Appraisal Supervisor, began to spot a trend of 100's of homes being overvalued by a single appraiser.  When he brought this to LandSafe's attention, "Lagow saw his territory reduced and, in 2008, he was fired."

Lagow sued plaintiffs including Countrywide and Bank of America, which acquired Countrywide in 2008, claiming they defrauded the government by inflating home values on mortgages guaranteed by the Federal Housing Administration.

"He came to the government saying, 'This is a problem, and somebody should do something about it,' " Lagow's attorney, Shayne Stevenson, told me. "He was concerned that it would hurt homeowners and appraisers."

This is a story of two very different men who both got millions.

One of them deserved it.

Loren Steffy, [email protected] , is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Follow him online at blog.chron.com/lorensteffy, www.facebook.com/LorenSteffypage and twitter.com/lsteffy.

Ohio Coalition of Appraisal Professionals (OCAP) a "Real Estate and Mortgage Fraud" Seminar Scheduled for 6/19/2012

The Ohio Coalition of Appraisal Professionals (OCAP) is sponsoring the  "How To Identify and Prevent Real Estate and Mortgage Faud" seminar on June 19, 2012 The Fawcett Center, Ohio State University 9.00 am to 5.00 pm.  Click here for more information:  Download OCAP 2012 Class Announcement

The guest speakers will include the nationally known Richard Hagar, SRA of the Hagar Institute and he will be speaking about a very timely topic – Mortgage Fraud. In addition, Anne Petit (Superintendent for the Ohio Division of Real Estate and Professional Licensing) and Laura Fulton (Ohio Attorney General’s Office) will be our special guest speakers!  

This class provides the information you need to understand the depth of the fraud problem and how it will affect your business. Learn how doing business "the way we've always done it" fosters and perpetuates the fraud environment. See what is occurring daily in your marketplace and what you need to do to protect your liability.

Course Content:

• What triggers a State and FBI investigation of appraisers and agents 
• Defining real estate and mortgage fraud 
• Who is being investigated for fraud in Ohio 
• Appraiser and agent liability 
• Defending against fraud 
• Understand and recognize a fraudulent transaction

OCAP welcomes appraisers, agents, lenders, mortgage-industry professionals, underwriters, appraisal office staff, government investigators and prosecutors.  The semiar is brought to you by the Ohio Coalition of Appraisal Professionals in cooperation with SAI Education

Register for the class at http://www.ocapweb.org   Click here for more information:  Download OCAP 2012 Class Announcement

This event is sponsored by Landy Insurance, providing real estate and appraiser liability insurance at www.landy.com

Will the new UAD appraisal standards result in lower mortgage rates?

According to Peter G. Miller's 9/6/2011 HSH Blog article, "New appraisal standards to impact mortgage rates", the answer is YES!

Mr. Miller says, "They may allow us to unearth faked, falsified and incompetent appraisals and thus prevent loan fraud, illegal flipping and bad mortgage investing. And such improvements in the valuation process might actually lead to lower mortgage rates by removing excess risk from the marketplace."

 

He feels that illegal flipping and "faked appraisals" were key factors in the mortage meltdown and that, "Tighter appraisal standards [will] make it easier to catch cheats and, also, to drive bad appraisers and lenders out of business."

He concludes that "the new appraisal standards will allow lenders and government officials to quickly review past appraisals to see if they conform to national standards. If yes, fine. If not, lenders are likely to provide less business (or no business) to the appraiser with the bad rep."

Fewer cheats ------> Reduced lender risk  -----> Lower mortage rates?

What do YOU think? 

• Do you think that appraisers and flipping were the cause of the mess that we're in? 
• Will the UAD actually prevent bad mortgage investing? 
• Will improvements in the valuation process really lower mortgage rate?  

Source:  http://www.blog.hsh.com - article   [Thanks to Bill Cobb for posting this article to his FB page Real Estate Appraiser Tips]

FDIC Sues LPS and CoreLogic Over Appraisal Fraud

From The Subprime Shakeout Blog:

In another sign that the Federal Government is turning its focus towards prosecuting the securitization players who may have contributed to the Mortgage Crisis, the FDIC filed separate lawsuits against LSI Appraisal (available here) and CoreLogic (available here) earlier this month. 

In the suits, both filed in the Central District of California, the FDIC, as Receiver for Washington Mutual Bank (“WAMU”), accuses vendors with whom WAMU contracted to provide appraisal services with gross negligence, breach of reps and warranties, and other breaches of contract for providing defective and/or inflated appraisals. 

The FDIC seeks at least $154 million from LSI (and its parent companies, including Lender Processing Services and Fidelity, based on alter ego liability) and at least $129 million from CoreLogic (and its parent companies, including First American Financial, based on alter ego liability).

Click Here to continue reading the full article from The Subprime Shakeout blog.

 And then there are those pesky Indemnification Clauses!  YES!  Apparently even LSI and CoreLogic have to sign them.

 

"Foreclosure-Gate Deal? Government agencies close ranks - Washington Post

Washington Post reporters Zachary A. Goldfarb and Dina ElBoghdady are working this morning on word that a compromise deal is near that would resolve accusations of fraud and chicanery in banks' handling of failed home mortgages and property repossessions.

Goldfarb and ElBoghdady report that while a number of disparate agencies have banded together in agreement, the Office for the Comptroller of the Currency--which oversees the banks--remains opposed to the direction of the deal. What's more, there's work to do on the final terms of the settlement.

They write, "Even as officials neared consensus over the changes they would require banks to make in foreclosure practices, there was still no decision about how large a penalty banks should face and whether they should pay a fine or devote the sum to helping rework mortgages for distressed borrowers. Officials have told banks they would like the industry to help avert 1.5 million new foreclosures, sources said." It's important this gets settled for the market to work on normalizing supply and demand.

Click here to read more.

Source: Washington Post & Builder Online

 

 

 

 

Homeowner’s Lawsuit Against Major Banks Progresses Slowly, Alleges Predatory Lending and Unfair and Deceptive Trade Practices by Wells Fargo and Others

Pelayo Duran Faces “David and Goliath” Battle In Potentially Precedent-Setting Case In Florida Court

Miami, FL (PRWEB) December 7, 2010  - Coral Gables, Fla. homeowner Pelayo Duran claims in his lawsuit that what he wanted was the attractive loan he saw advertised in the Miami Herald to refinance a home for his growing family. Instead, he ended up in the middle of an endless and costly legal fight with the nation’s largest banks accusing them of illegal predatory lending and unfair and deceptive trade practices.

According to the lawsuit, Duran saw an ad in the Miami Herald published by Wells Fargo Home Mortgage. The ad was offering an Adjustable Rate Mortgage (ARM) at a rate of 5.75%, with 10 years interest only payments, a fixed interest rate for 10 years, and a 5.1 annual percentage rate. Duran’s plan was to buy down the loan rate at closing 1 to 2 point and pay off the home in about 10 to 15 years.

The lawsuit states Duran contacted Wells Fargo because he had a longtime business relationship with the bank and the terms in the ad were the most favorable. Attorneys claims when Duran called Cindy Sierra who he thought was a bank representative, she first told him that the advertised rates were not available. She then told him that she would get him an even a better deal. Duran believes that he, just like millions of other Americans, was baited into applying for an attractive loan that never existed, only to be switched to a high-risk subprime loan.

According to the lawsuit, Sierra told Duran to leave the income section on the application blank until such time as she could conduct a “pencil search,” a prohibited but common practice used by mortgage brokers and lenders in order to maximize the loan amount in which a mortgage broker would shop for an appraiser to support the highest value that the lender could hit in originating the loan.

Initially, Sierra informed Duran that his home was worth $1.5 Million. The appraiser, Lee Rosenthal who worked for and was hired by Rels Valuation, (also Wells Fargo company), ultimately determined and represented to Duran that his home, which was purchased for $984,000 four months earlier, was now worth $1.2 million.

“Unbeknownst to me, she created my loan by adjusting the value of my home to my debt-to-income ratio,” said Duran. “They never considered my ability to repay the loan. All they cared about was the appraised value and my good credit score. What I also discovered was that a Wells Fargo representative was actually originating a loan for Greenpoint Mortgage Funding and that immediately upon the closing of my loan, Greenpoint would turn around and sell my loan right back to Wells Fargo as trust administrator for a pool of loan. In addition, Fred Schlang, SRA, an appraisal expert, later alleges that the bank’s appraisal was inappropriately inflated."

 According to the lawsuit, after haggling over the terms for several weeks, Duran and his wife were disheartened at the closing when the final Greenpoint loan agreement reflected a financed amount of $920,000 with an APR of 5.622% fixed during a five year period, with rate adjustments up to twice per year, a pre-payment penalty, and a rate cap of 10.5%, (not the 5% he had been previously offered in writing) and they would not be able to buy down the rate 1 to 2 percentage points at closing, as he had been previously promised.

Continue reading the FULL article

Cuomo’s Lawsuit Against First American Can Go Forward

By Karen Freifeld

June 8 (Bloomberg) -- New York can proceed with its lawsuit accusing First American Corp. of inflating home values under pressure from Washington Mutual Inc., a state appeals court ruled.

Neither federal law nor rules of the Office of Thrift Supervision bar the New York attorney general from suing First American and its eAppraiseIT unit, the appeals court in Manhattan said today.

EAppraiseIT gave in to demands for higher appraisals to secure more of Washington Mutual’s business, Attorney General Andrew M. Cuomo said when he sued in 2007. A First American spokesman disputed Cuomo’s allegation at the time. States including New York began investigations of the mortgage industry in 2007 as foreclosures rose nationwide.

via www.businessweek.com