Marc's Mortgage Matter's

There sure was a lot going on this past holiday-shortened week. First off, the Fed sent Congress a little missive on how to fix the housing and mortgage market. Among the ideas is forming a national strategy to facilitate the conversion of foreclosed properties into rentals, allowing banks to rent their repossessed homes rather than forcing lenders to sell them, changing the compensation structure for mortgage servicers, companies that collect payments from borrowers and pursue foreclosures in the event of a default, creating a national online registry of liens to track ownership interests, and altering existing Obama administration policies to allow for more refinancings and mortgage restructurings. These are a few of the twelve ideas - although many of the Fed's proposals either have been considered by policymakers or are under consideration now, the report is the Fed's most comprehensive effort to date to identify the ailments plaguing the US property market and potential solutions for policymakers to consider. Here is a summary. But don't believe everything you read - here is the actual paper. 

CitiBank told its correspondent clients that, "Under the umbrella of Income Calculation, the calculation of non-reimbursed business expenses has been identified as a top post-purchase defect. The policy that should be followed is, "When a borrower has non-reimbursed business expenses, such as classroom supplies, uniforms, meals, gasoline, auto insurance and/or taxes, a recurring monthly debt obligation should be developed based on a 24-month average of the expenses (from Schedule A and IRS Form 2106 from the tax returns). Automobile depreciation may be netted out. The 24-month average should be deducted from the borrower's stable monthly income. If there is not a full 24-month history, the underwriter should develop an annualized monthly average. Automobile loan payments and automobile lease payments that are included as non-reimbursed expenses on the tax returns may not be deducted from income. They must be included as recurring debts in the total debt ratio."

An interesting twist to have in mind, that most major banks and lenders now automatically do while underwriting ALL mortgage loans.

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NEW YORK (CNNMoney) -- Delinquent borrowers facing foreclosure are learning that they can stay in their homes for years, as long as they're willing to put up a fight.

Among the tactics: Challenging the bank's actions, waiting to file paperwork right up until the deadline, requesting the lender dig up original paperwork or, in some extreme cases, declaring bankruptcy.

Nationwide, the average time it takes to process a foreclosure -- from the first missed payment to the final foreclosure auction -- has climbed to 674 days from 253 days just four years ago, according to LPS Applied Analytics.

It takes much longer than that in Florida, where the process averages 1,027 days, nearly 3 years. In D.C., foreclosure averages 1,053 days and delinquent borrowers in New York often stay in their homes for an average of 906 days.

And while some borrowers are looking for ways to make good with lenders and get their homes back, many aren't paying a dime. Nearly 40% of homeowners in default have not made a payment in at least two years, according to LPS.

Many of these homeowners are staying in their homes based on a technicality. There is rarely any dispute over whether or not they have stopped paying their mortgage, said David Dunn, a partner at law firm Hogan Lovells in New York, who represents banks and other financial institutions in foreclosure cases.

"In my experience, they never say, 'I'm not delinquent' or 'I want to pay my bill but I'm confused over who to send it to,' or 'Oh my God, you mean I didn't pay my mortgage?' They're not in technical default. They're in default because they're not paying," he said.

Ironically enough, the banks have given delinquent borrowers some of the ammunition they need to delay the foreclosure process. During the "robo-signing" scandal in 2010, it was revealed that bank employees signed paperwork attesting to facts they had no personal knowledge of. Now, borrowers are routinely challenging that paperwork.

A Staten Island, N.Y. man who owed $300,000 on his mortgage and hadn't made a payment in two years, said his attorney used the robo-signing issue to fight his foreclosure.

In his case, the lender's paperwork included many different papers signed by the same employee. The problem was that the signatures didn't match. The judge dismissed the lender's case against the borrower, although it can be re-filed.

Sometimes just asking the bank to produce the paperwork that shows it is the legal holder of the mortgage note can stall a repossession, said attorney Robert Brown. Since mortgages are often transferred electronically, the official paperwork often gets misplaced.

"My lawyer asked my bank to produce an affidavit that entitled them to foreclose," said a client of Brown's, who lives in Harlem and also asked to remain anonymous. "They couldn't do it."

The case was dismissed, without prejudice, though the lender can try again -- if it finds the paperwork.

In some of the more extreme cases, borrowers will file for bankruptcy in order to block a foreclosure. In these instances, courts order creditors to cease their collection activities immediately. Home auctions can be postponed as the bankruptcy plays out, which can take months.

The ensuing delays are further harming the housing market. People who stay in homes undergoing foreclosure for years often don't maintain the properties, causing blight and lowering property values in the surrounding neighborhoods, said Dunn.

Then there are the court costs that lenders bear, which will eventually be borne by home buyers as lenders increase their borrowing fees to cover the increased risk, Dunn said.

David Berenbaum of the National Community Reinvestment Coalition (NCRC), a community activism group, disputes the contention that owners are gaming the system for free rent and hurting the housing market.

"Most people do everything in their power to maintain these homes," he said. "They take in relatives, get second jobs and even rent out rooms."

What really needs to be done, he said, is for lenders to work harder to find solutions that allow delinquent borrowers who can afford to make reasonable mortgage payments to keep their homes.  

New Bubble May Be Building in 30-Year Mortgages – 

… three separate factors that cause the 30-year fixed-rate mortgages to be a great deal less safe than it is advertised to be, says Edward J. Pinto of the American Enterprise Institute.

1. Its dominance requires permanent government subsidies.
2. It amortizes slowly, exposing homebuyers to years of unnecessary default risk.
3. It was responsible for two taxpayer bailouts in the last 20 years.
… Were government policies to change suddenly and affect interest rates, volatility within the mortgage securities market would be substantial.

1. If mortgage-loan rates went up only from 4 percent to 5.5 percent, the value of these securities would go down by about 6 percent.

2. Given current investment levels, this would result in a $100 billion loss.

3. A larger sudden interest rate hike would necessarily cause larger losses.

Out with the old year, in with the new. After several months of improving economic reports, optimism appears to be growing for the moment that the new year will bring steadily improving economic growth. There will no doubt be challenges both expected and unexpected as 2012 progresses, and probably, some beneficial surprises as well.

Will the housing market be one of them? Could be. Sales of existing homes are nudging higher, builders are building again (at least multifamily stock) and mortgage rates, well, mortgage rates really don't get any lower than they are at the moment and are starting 2012 at approximately 60-year lows. That said, better economic news, should it persist, will tend to bump rates higher as we go.

Aside from fantastic mortgage rates and lots of available low-priced housing stock, the key to a housing market improvement is fewer folks losing jobs and more getting them. In that regard, the end of 2011 points to a hopeful warming trend. Seasonal adjustments aside, over the past five weeks new claims for unemployment assistance have been in their most favorable pattern since March 2011. During the week ending December 31, that trend continued, with 372,000 new applications for benefits filed at state windows. Fewer people losing jobs is a key to re-building shattered consumer confidence as we roll forward.

Announced layoffs tracked by the outplacement firm of Challenger, Gray and Christmas were virtually unchanged in December from November, with 41,785 folks slated to lose jobs at some point. Not all announcements signal immediate firings, and not all will occur here in the US. Nonetheless, the present level is low and has been very steady for the past three months, which is good news overall.

Fewer layoffs are welcome, but perhaps more important is that more unemployed people find new jobs. After a 2011 nadir of just 20,000 new hires in June, job growth has turned more solidly positive, with no month since then sporting fewer than 100,000 new hires. December's figure was expected to improve on November's 100,000 increase by perhaps 50%, but the employment report on Friday was actually 100% higher, closing out 2011 with a sound 200,000 new jobs created. The nation's rate of unemployment eased back to 8.5%, partially driven there by a 50,000 contraction in the nation's workforce.

The Federal Reserve released the minutes of its policy-setting meeting on December 13. The Fed continues to expect that the pace of economic activity would pick up gradually in 2012 and into 2013. While no change in the Fed's present stance came at the meeting, it was decided that the Fed would start to provide additional clarity into FOMC member expectations for interest rates as a part of Fed's regular quarterly Summary of Economic Projections. Each member of the committee will provide their forecasts for the expected level of the Federal Funds rate in the fourth quarter of each year, over the next few calendar years and over a much longer run. This will include participants' current projection of when the first increase of the Federal Funds target rate will occur.

The change is expected to be "...helpful in enhancing the transparency and accountability of monetary policy and in facilitating well-informed decisionmaking by households and businesses..." but there is no way to know exactly how markets will react when presented with such information. If an increase in the Funds rate is on the Fed's horizon, how long will markets wait before demanding higher rates of their own, or will they react on a more immediate basis? Will the Fed still feel able to maneuver to react to emergent items if they have prepared the markets to expect stability? It seems to us that at least this construct of the Fed will take a gradualist approach to policy for some time if they feel such a level of comfort about revealing their intentions far in advance. Of course, we'll need to see how all this plays out, for better or worse.

Mortgage rates are at favorable levels, and it would take monumental economic change for better or worse to move them in either direction very much. At the moment, the warmer economic climate here is providing some much-needed distraction from the troubles in Europe, but those issues continue to influence the markets.

Will the good news continue? More clarity should come next week with the release of Retail Sales data for December, consumer borrowing, initial January consumer sentiment readings and a few other indicators. Look for little change in mortgage rates next week, perhaps a couple of basis point upward movement at most. 
 

A couple of New Jersey hunters are out in the woods when one of them falls to the ground. He doesn't seem to be breathing and his eyes are rolled back in his head.
The other guy whips out his cell phone and calls the emergency services. He gasps to the operator: "My friend is dead! What can I do?"
The operator, in a calm soothing voice says: "Just take it easy. I can help. First, let's make sure he's dead." There is a silence, and then a shot is heard.
The guy's voice comes back on the line.
He says: "OK, now what?"