Las Vegas real estate, mortgage, appraisal blog

According to a recent article in the Wall Street Journal the rash of defaulted mortgages that have cropped up have lenders poring over their paperwork and discovering that a good portion of them were not owner-occupied homes, despite being purchased as such. In quite a few of the situations it was lies on loan applications that enabled these borrowers to get more favorable terms for their loan. A study in defaulted loans that occured within 12 months of the loan, despite the owner having a good credit score, was done by Fitch Ratings and two thirds were cases of borrowers who said they intended to live on the property and never did.

It’s estimated that up to 60% of the foreclosures in this last year here in Las Vegas involved this same issue, non-owner occupied homes. That is a staggering statistic. If underwriters were not paying attention or turning a blind eye to this practice, certainly they won't be anymore now in light of these figures.  We all saw how important closing the deal was in the boom times of earlier this decade, but everyone is learning again that it's not the most important thing.

With investors more willing to walk away from their investment than home owners it may be that these same investors are the ones who made the boom and bust so much larger than they would have been otherwise. Once prices stopped rising, investors stopped buying.

Forbes.com reported that although there is a bill put that will be put before the Senate next week which would allow judges to alter mortgages to stop foreclosure, not many are on board with the idea. Lenders say it would lead to a hike in the cost of mortgages for all borrowers in order to insure loans against the chance of only part of the loan being paid back. The Bush administration has already said that such a law will be vetoed and even the head of the Fed, Ben Bernanke, says that it will be more of a cost to the economy than a benefit.

Indiana Senator Evan Bayh, a Democrat, argued for the proposal saying that only existing mortgages would be subject to the bill. Bernanke fears if the legislation is passed Congress might broaden the bill's influence, which would likely increase mortgage costs even more. The possibility of increased mortgage costs caused the Fed's chief to say he would "decline to endorse" the bill.

Kurt Eggert, a law professor at Chapman University, in Orange, Calif., has testified before Congress about mortgage default issues and is a past member of the Federal Reserve Board's Consumer Advisory Council. Eggert says that judges inability to modify home loans is the "significant exception" to a general rule that judges can alter debt terms. He questions whether it is prudent for judges to not have this right.

Arguing the other side is Alan Pomerantz, a partner at the Orrick Law firm, in New York, who specializes in real estate and financial law. He told Forbes.com that the proposed bill "would probably be unconstitutional, the Constitution protects private contracts." Pomerantz said that the federal legislature doesn't have the authority to change agreements, "unless the contract is illegal or somehow against public policy. "

This will most likely not be the last we hear of similar bills attempting to pass in the Senate. This does bring up an interesting question though. "Who wants to loan money that might not be paid back?"

A steady rise in forclosed and abandoned properties is causing Boston to look at penalizing the owners who left them. The Boston Herald had recently reported that several formerly heavily occupied areas of the city had become a "virtual ghost town." The city is now negotiating to have condo units sold, some at close to 1/10 their value. In the meantime, the state Legislature wants to slap a new levy on homeowners as well as mortgage lenders and even mortgage servicers who leave properties abandoned and vacant for more than one year.

“It is a real scam and it’s happening in so many cities throughout America,” said Mayor Thomas M. Menino, who was updated yesterday on efforts to revive the foreclosure-ravaged Hendry Street area in Dorchester during a revved-up meeting with 20 city officials in a new “war room” at City Hall. “All the predictions are that the worse is yet to come.”

Another measure that targets the banks and mortgage servicers that assume ownership of foreclosed properties also received unanimous approval from the City Council, said Hyde Park City Councilor Rob Consalvo, who sponsored the new ordinance.

The regulation would require all vacant and foreclosed residential properties to be registered with city inspectors and be maintained by a local management company, Consalvo said. Owners who didn’t comply would be fined $300.

Whether other cities follow in Boston's footsteps remains to be seen.

CNBC reported that Andrew Cuomo, New York's Attorney General, is close to a deal with Fannie Mae and Freddie Mac that would help finish part of his inquiry into the billions lost in home loans. Part of that deal would include lenders no longer being able to use in-house appraisers or appraisers owned by the lender.

U.S. mortgage firms Fannie Mae and Freddie Mac would require their mortgage lending partners to have independent appraisals of home values under a deal being thrashed out with New York's attorney general, sources familiar with a draft deal said on late Monday.

"All lenders will be required to provide post-purchase copies of appraisal documents to the Clearinghouse," according to a Fannie outline of the plan. "It will be an independent entity with an executive and board of directors (and) It will staff a hotline for industry and consumer complaints."

Cuomo's spokesman Jeffrey Lerner said that the attorney general's office has had discussions with Fannie Mae and Freddie Mac for several months. "At the end of the process, we will either have agreements or we will take other appropriate action," he said in a statement.

These new standards could be in place by September.

At the ABA’s Real Estate Lending Conference and Marketplace it was announced that the American Bankers Association’s subsidiary ABA Total Solutions is extending and enhancing the alliance with Freddie Mac in order to provide community banks with new critical mortgage products, staff training, technology tools and services essential for competing in today’s troubled mortgage market.

Joining the Freddie Mac/ABA Alliance gives access to competitive cash executions, services to help manage mortgage portfolios in a more efficient way and exclusive training on the many Freddie Mac products and solutions, in the areas of technology and keeping housing affordable especially. You can read more about all of this on the Freddie Mac website.

A recent Seattle Times article had interesting news for those hit hardest by the subprime bust. In a move reminiscent of the late 1980’s and early 1990’s savings-and-loan fiasco, the courts are finding themselves swamped with subprime cases being filed in federal courts. The FBI has released in the last month that they are investigating 14 companies for everything from accounting fraud to insider trading and a whole slew of other violations that could possibly result in criminal charges. The SEC has confirmed they have about three dozen investigations actively under way.

Since mortgages are no longer locally owned and serviced as they were several decades ago, but more often now sold to a secondary market, the risk has become much more widespread. Although most of these companies will not be repeating these actions there will likely be a long legal battle to follow. In suing big business there will be a lot of very close scrutiny as to practices that probably went under the radar before. Most of the cases are over violations of state securities laws that have now been discovered by regulators but some are even from those cities hit hardest by the foreclosures, including Cleveland and Baltimore.