Friday, November 12, 2010

Foreclosure Mess Prompts Growing Number of Public Officials to Slow Down Process

Frustrated by the banks' response to the foreclosure mess, a growing number of public officials - including chief judges, attorneys general and sheriffs from jurisdictions big and small - are pushing the boundaries of their powers to slow down foreclosures in their areas, the Washington Post reported today. The new challenges are throwing a wrench into the plans of mortgage companies, which in recent weeks have tried to put the robo-signing mess behind them by rapidly reviewing or fixing their paperwork and resuming foreclosures. Such challenges, experts say, are likely to further prolong a foreclosure process that already takes an average of 16 months to complete - helping homeowners facing eviction but hurting the still-fragile housing market.

Thursday, November 11, 2010

Are You Up To Speed On The New Regulations?

Are You Up To Speed On The New Regulations?

in From The Orb > Required Reading

by Sue Sroka on Wednesday 10 November 2010

REQUIRED READING: Did you know that earlier this year, a mortgage banker made a $1.25 million settlement with the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) following an examination of compliance with federal and state consumer protection laws? Not keeping up with regulatory changes can put a deep dent in your reputation - if not put you completely out of business!

Loans that hit your desk with regulatory issues, incomplete packages and erroneous pricing are unacceptable in today’s environment. Now, more than ever, it is crucial to understand exactly what is happening from the time an application is taken, through underwriting, pre-funding quality control and closing. Additionally, you need to question how your staff operates - and if anyone on your staff explains their actions by saying, "Because we have always done it this way," you should toss out the yellow flag while shouting "Foul!" at the top of your lungs.

Admittedly, there has been an avalanche of new regulations and requirements coming from federal and state levels. Many mortgage banking executives are struggling to get their employees to think differently about the lending process and to embrace change. This can be difficult, because many executive themselves do not quite understand what needs to change.

If any of this sounds familiar, it is an excellent idea to immediately update your written corporate policies and prepare for resistance. This will help clarify any ambiguous issues and force you to re-evaluate how your operation should be working.

Then, check the technology that you are leveraging to ensure that it is configured to support your policies. Many systems available today are highly configurable, but lenders need to invest some time to actually configure them. This may sound strange, but there are still too many lenders who are in the market for a new technical "miracle solution," - when, in fact, the product they already have installed just needs to be configured to meet their current business needs.

In this area, it is important to work with your lending system vendor. Any vendor worth its salt is eager to give guidance that will benefit its clients' secondary operations. Then, make sure that you invest the time to train your staff - this should be a key component of any risk-management strategy.

The acronym parade

The key areas that need to be updated in your policy documents include the Home Valuation Code of Conduct (HVCC), the Real Estate Settlement Procedures Act (RESPA), the Mortgage Disclosure Improvement Act (MDIA) and the state examinations.

People have been grumbling about HVCC rules for more than a year. Now, the Subtitle F of the Mortgage Reform Act (Title XIV of the act) addresses appraisal activities, with new rules that have provisions to abolish HVCC with a new interim final regulation. Having your current procedures clearly documented will make it easier for you to adjust quickly to the new rulings going into effect shortly.

As for RESPA, those regulatory changes have been the bane of our industry this year. One of the key elements driving lenders crazy is the conflicting information we have been receiving from various regulatory agencies. There is also the matter of the vague language within RESPA that is left up to interpretation.

Regarding RESPA, it is vital to determine if your technology can easily support your workflow. In some automated solutions, there are alerts that notifies you if closing dates are outside of the regulatory requirements. If your platform does not support this type of functionality, how clearly have you documented your manual work-around processes so that new hires will be doing their job without putting your company at compliance risk?

MDIA is another regulatory change that has most certainly had an impact on your internal processes. At one time, it was a mild and mostly benign inconvenience - but borrower disclosures are now an integral element of a compliant loan. Not only does MDIA set new rules around the timing of when disclosures need to be sent to borrowers, but it also changes which loan programs and purposes are being regulated differently.

But that's just the federal concerns. The states are also party to this issue. If you are not up to speed on what your state regulators are demanding, you need to get cracking on that knowledge gap ASAP.

It is of no value to a lender to have originators failing their state examinations. Although these exams are expensive and tedious to manage, their quality-control measures can ultimately protect your company.

From a policies and procedures perspective, the impact of state exams should definitely change how you do business - especially if you lend in multiple states. The multistate examination process is a collaboration of two state regulators: CSBS and AARMR. Together, they have embarked upon a comprehensive initiative to modernize mortgage lending regulatory practices. Not only are they establishing consistency across all states relative to what gets looked at in an audit, but they are also sharing their findings.

Niccolo Machiavelli once wrote, "There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things." In today's evolving regulatory environment, change will not come easy or fast. However, the industry cannot procrastinate when it comes to meeting the new requirements and understanding the new guidelines. Without having the correct operations policy in place, this task will be more difficult than it needs to be.

Sue Sroka is vice president of client services for Del Mar DataTrac, based in San Diego. She can be reached at (858) 550-8810.

Wednesday, November 10, 2010

Thoughts Sent to Me on Foreclosure Crisis

Who are the benefactors of the defaulter stimulus package? Many defaulters just stay in their homes because they have made a conscious decision not to pay the banks any more money on their underwater homes, or in anticipation of a loan modification approval. Some are unemployed, staying put for as long as they can in an effort to get their personal finances together and on with their lives. There are a despicable hybrid of defaulters sharing their misfortune with others by moving out of their home and renting it to some unsuspecting soul. The landlords collect and pocket the rent for as long as the scam runs and lender/servicers evict the occupants at the end of their lease term, if they were lucky enough to get a bona fide lease agreement.

Local municipalities also suffer because of an eroded tax base. Providing basic services to a community that may not have realized an actual reduction in population, only in revenue, is daunting. Defaulters do not pay property taxes, limiting the pool of funds available, straining the already burdened local economies.

Most people on Main Street have little sympathy for the banks and the investors even though there is definitely a loss associated with defaulting loans. It could have been a very different story if modification and principal reduction were more of the norm than the exception. Defaulters creating their own stimulus packages could not have been something any of us would have predicted, but when in dire straits and with no viable alternatives, many have adopted this behavior.

Exemption Laws

In bankruptcy, property can be divided into two piles: exempt and non-exempt. Exempt property is protected from creditors and the bankruptcy trustee. Non-exempt property is subject to sale or attachment. How to determine if your property is exempt? Consult a bankruptcy attorney, the laws vary by state.


Less than a year after the passage of new laws limiting banks' ability to impose certain fees on credit and debit cards, Bank of America Corp., Discover Financial Services, JPMorgan Chase & Co. and other lenders are using different tactics to boost their fee income, the Wall Street Journal reported today. Some are raising minimum payments on certain customers' accounts in order to increase late penalties. Others are ramping up credit-protection insurance programs and charging customers for coverage without permission. Still others are pushing aggressively into high-fee prepaid cards, which are exempt from most of the new rules. Banks already have rolled out a slew of new fees since the passage of the Credit Card Accountability Responsibility and Disclosure Act of 2009. Among other things, they have revived annual fees; shortened billing cycles; levied new charges on cards with low credit limits; increased balance-transfer, cash-advance and foreign-exchange fees; and begun aggressively marketing "professional cards" not subject to the restrictions of the Card Act. The Federal Reserve responded on Oct. 19 by announcing proposals that would ban hefty activation fees and prevent issuers from raising interest rates on promotional card offers until a borrower is more than 60 days late.


The foreclosure-paperwork furor is deepening criticism of the U.S. government's high-profile mortgage-restructuring effort, which has fallen short of its goal of helping three million homeowners, the Wall Street Journal reported on Saturday. More than half of the 1.4 million borrowers approved for temporary modifications have fallen out of HAMP because they did not qualify. The program "has undoubtedly put people into foreclosure," says Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program, which funds HAMP. "It's a parade of documentation horrors." In a report to Congress on Oct. 26, Barofsky concluded that some borrowers seeking loan modifications through HAMP might wind up "worse off than before they participated." Back payments, penalties and late fees triggered when homeowners are rejected for a permanent fix can push some borrowers over the edge, he said. As part of HAMP, mortgage servicers and investors get financial incentives to modify a borrower's loan payment to 31 percent of monthly gross income. Servicers typically hit that number by lowering interest rates or extending a loan's life. Borrowers must make at least three "trial payments" to be considered for a permanent fix. Borrowers who miss a payment or otherwise fail to win a permanent modification essentially are stuck with the original terms of their mortgage. The Treasury Department doesn't record how frequently errors occur with documentation on home loans submitted to more than 2,500 financial institutions and servicers empowered by the U.S. government to grant and reject HAMP requests. An outside review of borrowers denied permanent modifications disagreed with the servicer's decision in 4.8 percent of the loans during the fiscal quarter ended in August.


The Federal Deposit Insurance Corp. (FDIC) today proposed shifting the burden for protecting depositors against bank failures toward larger lenders whose reliance on riskier funding sources may pose a greater threat to the financial system, Bloomberg News reported today. The FDIC board today approved two proposals for overhauling assessments for its deposit insurance fund, including one that would base the fees on banks’ liabilities rather than their domestic deposits. The fee proposal, a response to the Dodd-Frank financial-regulation law, would increase assessments on banks with more than $10 billion in assets. “This proposal achieves the goals of the Dodd-Frank Act to change the assessment base to better reflect risks to the deposit insurance fund,” said FDIC Chairman Sheila Bair. The measure is subject to a 45-day comment period.

In related news, the FDIC said that the number of bank failures in 2010 eclipsed the total bank failures seen last year as regulators announced the closure of four banks Friday amid continued weakness in the U.S. economy, Dow Jones Daily Bankruptcy Review reported today. The FDIC yesterday announced the failures of banks in Maryland, California and Washington for a total of 143 bank failures so far this year. In 2009, 140 banks failed. Specifically, regulators closed the K Bank of Randallstown, Md., Western Commercial Bank of Woodland Hills, Calif., First Vietnamese American Bank of Westminster, Calif. and Pierce Commercial Bank of Tacoma, Wash. All of the banks are being purchased by other banks. The FDIC estimates that the cost of the four bank failures to the Deposit Insurance Fund will be about $255 million.

Debt Reduction in America

According to the New York Fed’s report, about 457,000 individuals received home foreclosure notices on their credit reports between July 1 and September 30, 2010. Officials say this represents a 5.5 percent decrease from the second quarter and a 6.4 percent drop from a year earlier.

The Fed says consumers are continuing to trim their debt. It’s a trend that has been evident for the previous seven quarters, though the pace of decline has slowed recently. Since peaking in the third quarter of 2008, nearly $1 trillion has been shaved from outstanding consumer debts, the federal bank reports.

Excluding the effects of defaults and charge-offs, available data show that non-mortgage debt fell for the first time since at least 2000. Also, net mortgage debt paydowns, which began in 2008, reached nearly $140 billion by year-end 2009.

The Fed says “these unique findings suggest that consumers have been actively reducing their debts, and not just by defaulting.”

Tuesday, November 9, 2010


Our country's well-established system for handling problems related to consumer debt is bankruptcy court. The availability of this remedy is so crucial for both creditors and debtors that the framers established it in the Constitution, and the first bankruptcy legislation passed in 1800. Today, bankruptcy judges restructure debt for corporations and individuals alike.

Chapter 7 on the Rise

The Bankruptcy Abuse Prevention and Consumer Protection Act of five years ago made it harder for individuals to receive Chapter 7 bankruptcy protection, in part by increasing the costs associated with filing. Chapter 7 is designed to give individual debtors a "fresh financial start" by liquidating assets and discharging debts.

In fiscal 2010, Chapter 7 filings spiked nearly 15% to over 1.1 million, from 989,227 in fiscal 2009. Chapter 13 filings, in which debtors are typically required to repay debts according to a budget plan that the court sets up, rose 9.2% in the year. Chapter 11 filings fell 3.8%.

Meanwhile, business filings decreased slightly in fiscal 2010, according to the Courts. Bankruptcies filed by a corporation or partnership totaled 58,322, down 0.7% from the 58,721 business filings in 2009.

Jumbo-Mortgage Lending Thaws

When the credit crisis hit more than two years ago, many banks cut back or stopped making jumbo home loans, but now smaller and regional lenders, along with some bigger players, are issuing more new jumbo loans and doing more refinancings, the Wall Street Journal reported today. In the second quarter of 2010, jumbo-mortgage lenders originated $18 billion in loans - a 20 percent increase from the first quarter. Jumbo lending still remains far below 2007 levels, according to Inside Mortgage Finance Publications Inc. JPMorgan Chase & Co.'s Chase Home Lending unit increased its jumbo-mortgage volume by 146.2 percent in the first six months of this year over the same period a year earlier, and Wells Fargo & Co. by 47.5 percent, according to Inside Mortgage Finance. PHH Corp. of Mount Laurel, N.J., a mortgage originator and servicer, issued 64.6 percent more jumbos in that period.

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Monday, November 8, 2010

Bankruptcy Filings Up Nearly 14 Percent over Last Fiscal Year

Bankruptcy cases filed in federal courts for fiscal year 2010, the 12-month period ending September 30, totaled 1,596,355, up 13.8 percent over total FY 2009 bankruptcy filings of 1,402,816, according to statistics released today by the Administrative Office of the U.S. Courts. While non-business bankruptcy filings continued to rise in FY 2010, business filings dropped slightly for the first time since 2006. The bankruptcies reported today are for October 1, 2009 through September 30, 2010.

FHA Fiscal Year

The Federal Housing Administration (FHA) insured 1.74 million single-family mortgages during fiscal year 2010, which for the federal agency ended in September. The collective value of the loans endorsed was $318.8 billion.

FHA’s loan volume for the year was down 10.3 percent from 2009, and came in below the 1.87 million mortgages it had previously projected would be endorsed in the 2010 fiscal year.

Telemarket Scams

Automatic Debit Scams

Fraudulent telemarketers have found yet another way to steal your money, this time from your checking account. Consumers across the country are complaining about unauthorized debits (withdrawals) from their checking accounts.

Automatic debiting of your checking account can be a legitimate payment method; many people pay mortgages or make car payments this way. But the system is being abused by fraudulent telemarketers. Therefore, if a caller asks for your checking account number or other information printed on your check, you should follow the same warning that applies to your credit card number - do not give out checking account information over the phone unless you are familiar with the company and agree to pay for something. Remember, if you give your checking account number over the phone to a stranger for "verification" or "computer purposes," that person could use it to improperly take money from your checking account.

How The Scam Works

You either get a postcard or a telephone call saying you have won a free prize or can qualify for a major credit card, regardless of past credit problems. If you respond to the offer, the telemarketer often asks you right away, "Do you have a checking account?" If you say "yes," the telemarketer then goes on to explain the offer. Often it sounds too good to pass up.

Near the end of the sales pitch, the telemarketer may ask you to get one of your checks and to read off all of the numbers at the bottom. Some deceptive telemarketers may not tell you why this information is needed. Other deceptive telemarketers may tell you the account information will help ensure that you qualify for the offer. And, in some cases, the legitimate telemarketer will honestly explain that this information will allow them to debit your checking account.

Once a telemarketer has your checking account information, it is put on a "demand draft," which is processed much like a check. The draft has your name, account number, and states an amount. Unlike a check, however, the draft does not require your signature. When your bank receives the draft, it takes the amount on the draft from your checking account and pays the telemarketer's bank. You may not know that your bank has paid the draft until you receive your bank statement.

What You Can Do To Protect Yourself

It can be difficult to detect an automatic debit scam before you suffer financial losses. If you do not know who you're talking to, follow these suggestions to help you avoid becoming a victim:

Don't give out your checking account number over the phone unless you know the company and understand why the information is necessary.

If someone says they are taping your call, ask why. Don't be afraid to ask questions.

Companies do not ask for your bank account information unless you have expressly agreed to this payment method.

IT'S THE LAW: Since December 31, 1995, a seller or telemarketer is required by law to obtain your verifiable authorization to obtain payment from your bank account. That means whoever takes your bank account information over the phone must have your express permission to debit your account, and must use one of three ways to get it. The person must tell you that money will be taken from your bank account. If you authorize payment of money from your bank account, they must then get your written authorization, tape record your authorization, or send you a written confirmation before debiting your bank account. If they tape record your authorization, they must disclose, and you must receive, the following information:

The date of the demand draft;

The amount of the draft(s);

The payor's (who will receive your money) name;

The number of draft payments (if more than one);

A telephone number that you can call during normal business hours; and

The date that you are giving your oral authorization.

If a seller or telemarketer uses written confirmation to verify your authorization, they must give you all the information required for a tape recorded authorization and tell you in the confirmation notice the refund procedure you can use to dispute the accuracy of the confirmation and receive a refund.

What To Do If You Are A Victim

If telemarketers cause money to be taken from your bank account without your knowledge or authorization, they have violated the law. If you receive a written confirmation notice that does not accurately represent your understanding of the sale, follow the refund procedures that should have been provided and request a refund of your money. If you do not receive a refund, it's against the law. If you believe you have been a victim of fraud, contact your bank immediately. Tell the bank that you did not okay the debit and that you want to prevent further debiting. You also should contact your state Attorney General. Depending on the timing and the circumstances, you may be able to get your money back.

For More Information

The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, visit or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. Watch a new video, How to File a Complaint, at to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Thank you FDIC