FEDERAL GOVERNMENT NO LONGER PROTECTING TENANTS POST FORECLOSURE.

FEDERAL GOVERNMENT NOT PROTECTING TENANTS POST FORECLOSURE.

The Protecting Tenants at Foreclosure Act (PTFA) expired last December.  The Act allowed tenants to stay in the property at least 90 days after it was foreclosed.  Should it make a comeback?   There is a proposal in Congress to make it permanent.  Lenders disliked the law as it forced them to be a landlord and delayed the repossession process.  Under the old PTFA it was possible for the lender to be forced to honor a long term lease.  There were some unscrupulous people who fraudulently created long term leases. However, it was good because it created a national standard for dealing with tenants thus avoiding numerous state laws that have been adopted since the housing crisis.

What no one wants to talk about is that 1/4 of all mortgages still are at risk of foreclosure.  This means that in those states like Missouri who do not have laws to protect tenants there will be tenants who are evicted immediately after a foreclosure.

Bringing back the PTFA in some form would give the public more confidence in the lending industry.  On a national level it would show that lenders are not callous, not cold and calculating.  There are lenders who still apply may provisions of the old PTFA on their own.  Lenders realize there are tenants who are unprotected.  These same lenders are not honoring long term leases, but they are allowing 90 days for the tenant to move.   These lenders are not just nice guys.  Lenders do not want a tenant on the news talking about how horrible the lender treated them.   So, today it is every lender for themselves.  Good luck tenants.

Foreclosure protection rules expand

Foreclosure protection rules expand.  The Consumer Financial Protection Bureau (CFPB) is proposing numerous new rules for mortgage servicers to ensure no one is wrongfully foreclosed upon.    Here are the proposed new rules:

  • Provide borrowers with alternatives to foreclosure more than once during the life of the loan.
  • Tell borrowers about these protections even if the borrower is current.
  • Expand the rule to allow for protections for surviving family members, transfers after a divorce, legal separation, or when a borrower who is a joint tenant dies.
  • Notify borrowers when the loss mitigation application is complete.
  • Stop dual tracking.  This takes place when a borrower make a loss mitigation application but the foreclosure process continues.

There are so many foreclosure protection rules that keeping track is next to impossible.  The consumer, homeowner, has no chance of knowing all these rules.  How  can you expect the government to police every rule to every mortgage company?

ZOMBIE HOMES

ZOMBIE HOMES are still around.  You know the zomie homes where the owner walked away due to the underwater mortgage.   Now the house is vacant.  There is no equity, no homeowner and nothing but blight.

It is a nightmare for the neighborhood and the neighbors.  Vacant homes breed vandalism. There are only two possible solutions.  The zombie homes are cured or killed.  Most of these vacant homes will end up as short sales, foreclosures or bank owned sales (REO).

The most effective method would be to maintain a short efficient foreclosure process.  It would seem unlikely since lenders, servicers of loans and our government are most certainly less than efficient.  Option two would be for the banks or the cities to aggressively take possession of the property and rehab or demolish the zombie homes.

FORCE PLACED INSURANCE

New force placed insurance mortgage restrictions. Failure by a lender to pay attention to these rules is severe.  In March, Wells Fargo along with others settled a class action lawsuit over its force placed insurance practices, resulting in a reported out of court settlement of about $19 million.  As part of the settlement Bank of America has agreed to forgo commissions on force placed insurance for a period of three years.

The rules originate from the Dodd-Frank reform and the Consumer Protection Act which requires a lender servicing a loan to verify and document that the homeowner’s insurance policy has lapsed and that there is no insurance on the property before imposing forced placed insurance (also known as LPI charges).  In addition servicers must provide each borrower with advanced notice prior to obtaining a forced placed policy and notify the borrower annually before renewing the policy.  The first notice is to be sent at least 45 days before purchasing the LPI policy.  The second notice is to be sent at least 15 days before charging the borrower for LPI coverage.

Generally speaking if the servicer requires the insurance to be escrowed, then the servicer must pay the insurance bill even if funds need to be advanced.

Should the borrower subsequently provide evidence of insurance, then the servicer must cancel the LPI insurance within 15 days and refund any premiums charged for duplicate coverage to the borrower.

Borrowers need to know they have rights regarding force placed insurance.

 

LENDER FINES COMING 8-1-15; HUD-1 GONE

HUGE LENDER FINES are coming after August 1, 2015.  This is when the HUD-1 goes away and new forms are to be used for consumer real estate closings. The Consumer Financial Protection Bureau (CFPB) who call themselves the “Bureau”, like the FBI does is solely funded on the fines it collections from violators.  Millions of fines are collected each year.  To stay alive, the Bureau must seek out violators, establish fines and must collect the fines for its budget.  Its 2015 budget is $618.7 million.  Remember the the CFPB mission is to make “rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their financial lives”.

The CFPB maintains the Consumer Financial Civil Penalty Fund (CPF) for this purpose. Collections of civil penalties are deposited into the CPF, and such funds are available for payments to victims of activities for which civil penalties have been imposed under the Federal consumer financial laws. If victims cannot be located or payments are otherwise not practicable, the Bureau is authorized to use such funds for consumer education and financial literacy programs.

The Bureau was established on July 21, 2010 under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act Public Law No. 111-203 (Dodd-Frank Act).  The CFPB was established as an independent bureau within the Federal Reserve System.  The Dodd-Frank Act authorizes the CFPB to exercise its authorities to ensure that, with respect to consumer financial products and services: 1. Consumers are provided with timely and understandable information to make responsible decisions about financial transactions; 2. Consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination; 3. Outdated, unnecessary, or unduly burdensome regulations are regularly identified and addressed in order to reduce unwarranted regulatory burdens; 4. Federal consumer financial law is enforced consistently in order to promote fair competition; and 5. Markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

When an independent bureau is in charge of enforcing the regulations so it  can feed its budget, to issue lender fines, we all need to be watch out for this elephant in the room.

MISSOURI THE NEXT CALIFORNIA FOR OCWEN FINANCIAL

What does a criminal say just before sentencing?  “I’m innocent!”  What does Ocwen Financial say?  “Not true.”  Then Ocwen pays MILLIONS OF DOLLARS in fines.    State regulators in California threatened to suspend Ocwen’s license to operate, saying Ocwen failed to submit paperwork showing that Ocwen complied with state laws.  From one shake down to another the state Department of Oversight instead fined Ocwen only $2.5 million and prohibited Ocwen from acquiring additional mortgage servicing rights for loans.

Ocwen is also being sued by its investors for failing to collect payments on $82 BILLION DOLLAR of home loans.  The investors claim that Ocwen implemented “conflicted servicing practices that enriched Ocwen’s corporate affiliates… .”  The lawsuit also accuses Ocwen of “engaging in imprudent and wholly improper loan modification, … failing to communicate effectively with borrowers or comply with applicable laws, including consumer protection and foreclosure laws… .”

Shockingly, Ocwen has denied the allegations, saying the lawsuit is “baseless”.  We have heard this before.  It is time for Ocwen to once again open up its wallet and pay people to go away.  Not the best business model.  Recently, Ocwen paid a $150 MILLION DOLLAR settlement with the New York Department of Financial Services.  When will Ocwen learn that paying out millions of dollars in fines is not the way to do business.  Ocwen must not care.

REPLACING FANNIE MAE: CRAPO

Congress was to decide about replacing Fannie Mae; however Senate Banking Committee members again could not agree on anything.   Proposed legislation, by Crapo of Idaho, was to replace Fannie Mae over five years with federal insurance for mortgage bonds. Under the proposed legislation current shareholders of Fannie Mae would be in line behind the U.S. in getting any compensation from the winding down of Fannie Mae.

Fannie Mae buys mortgages from lenders and packages them into securities on which they guarantee payments of principal and interest.  Fannie Mae now backs about two-thirds of new home loans.  As the housing market rebounds, Fannie Mae rebounds, now recording record profits of $84 billion for 2013.

Restructuring the mortgage market is the largest piece of unfinished business from the 2008 crisis.  You may recall that was when the government seized control of Fannie Mae as it was going insolvent.

An impasse between Democrats and Republications leaves Fannie Mae operating indefinitely under federal control and prevents the replacing of Fannie Mae.  So, as of late April, the U.S. Senate Banking Committee delayed indefinitely the bill to replace Fannie Mae.  The result is that efforts to fix the housing finance system will have to start over in 2015.

This status quo is nationalization of the entire mortgage industry.    This is no accident but an intentional government policy decision.   This certainly benefits the shareholders of Fannie Mae who while the market rebounds; they will continue to see the benefits of the billions in profits.  Yet at the same time there may be an unintended result to future first-time borrowers with higher mortgage rates.  Tougher credit standards and increase property prices shut out increasing numbers of first-time home buyers.  First-time buyers accounted for 26 percent of purchases in January 2014, down from 30 percent in 2013.

Senate Republicans’ proposal sought to bring more buyers into the market by creating affordable housing funds.    So, replacing Fannie Mae, what a joke.

 

Alert- SLOWING DOWN Of FORECLOSURES- NEW MORTGAGE SERVICING RULES

Will there be a Slowing Down of Foreclosures:  New Mortgage Servicing Rules are in effect which will cause a slowing down of foreclosures.  This may be old news to some but when talking about having to follow rules, news moves slowly.  Two new changes in Regulation X took effect in January.  (Section 1024.38) sets out general servicing policies and procedures for mortgage servicers (most people just say “my mortgage co”).  Reg. X requires servicers of loans to have policies and procedures in place to provide accurate and timely information to borrowers, properly evaluating loss mitigation applications.  (Section 1024.41) sets out loss mitigation procedures.

The CFPB (Consumer Financial Protection Bureau) rules protect consumers from risky mortgage servicing business practices.  These rules modify Regulation Z of the Truth in Lending Act (TILA) and Regulation X of the Real Estate Settlement Procedures Act (RESPA) dealing with the procedures for various servicing of loans.

Servicers are required to acknowledge the receipt of a loss mitigation application within 5 business days if received 45 days or more before foreclosure.  If a complete application is received more than 37 days before a scheduled foreclosure sale, the servicer is required to evaluate the borrower within 30 days for all loss mitigation options and notify the borrower of any loss mitigation offers.

Of significance is the rule’s prohibition of making the “first notice or filing” required by law for any foreclosure process until the loan is more than 120 days delinquent.  If the borrower submits a complete loss mitigation application during that time, the servicer cannot initiate foreclosure until the loss mitigation process is exhausted.  If foreclosure has started and the application is received, the servicer cannot move for judgment or conduct a foreclosure sale until the loss mitigation process is exhausted.  So, “Yes”, there will be a slowing down of foreclosures.

 

 

CAN A MORTGAGOR WAIVE FORECLOSURE DEFENSES?

Can a mortgagor waive foreclosure defenses in a modification or forbearance agreement?  Historically, lenders have routinely included such provisions in return for borrowers entering into a loan modification or forbearance agreement.  The argument favoring barring waivers is that (a) waivers are overly broad and eliminate the borrower’s ability to save the house later when unrelated claims of future conduct cause a foreclosure, (b) homeowners cannot determine whether a waiver is a worthwhile trade-off, (c) allowing for waivers rewards misconduct on the part of lenders.

Recently the U.S. Department of the Treasury and the Consumer Financial Protection Bureau (CFPB) have sought to curtail this practice.  Note that under HAMP (Home Affordable Modification Program) modifications are prohibited from containing waivers.  Complicating matters is the fact that some servicers of loans did not elect to participate in HAMP.

The U.S. Department of Justice sanctioned limited waivers with respect to the Servicemembers Civil Relief Act litigation. Fannie Mae requires lenders to waive claims against borrowers.(See SVC 2012-19) for guidelines directing servicers to release borrowers from liability from any deficiency upon successful completion of a short sale or deed-in-lieu of foreclosure.  In an attempt to standardize and have consistency in the law, the CFPB states that an agreement between borrower and lender may not be used to prevent the borrower from bringing a claim in court for alleged violations of federal law.  To confuse you event more, the Office of the Comptroller of the Currency (OCC)  entered into an agreement with several large lenders which also limited the use of waivers.

The bottom line is that to waive foreclosure defenses is no longer routine and is no longer permissible.

 

SLOWING DOWN FORECLOSURES

New Mortgage Servicing Rules are in effect which will be slowing down foreclosures.  This may be old news to some but when talking about having to follow rules, news moves slowly.  Two new changes in Regulation X took effect in January.  (Section 1024.38) sets out general servicing policies and procedures for mortgage servicers (most people just say “my mortgage co”).  Reg. X requires servicers of loans to have policies and procedures in place to provide accurate and timely information to borrowers, properly evaluating loss mitigation applications.  (Section 1024.41) sets out loss mitigation procedures.

The CFPB (Consumer Financial Protection Bureau) rules protect consumers from risky mortgage servicing business practices.  These rules modify Regulation Z of the Truth in Lending Act (TILA) and Regulation X of the Real Estate Settlement Procedures Act (RESPA) dealing with the procedures for various servicing of loans.

Servicers are required to acknowledge the receipt of a loss mitigation application within 5 business days if received 45 days or more before foreclosure.  If a complete application is received more than 37 days before a scheduled foreclosure sale, the servicer is required to evaluate the borrower within 30 days for all loss mitigation options and notify the borrower of any loss mitigation offers.  All of this will be slowing down foreclosures.

Of significance is the rule’s prohibition of making the “first notice or filing” required by law for any foreclosure process until the loan is more than 120 days delinquent.  If the borrower submits a complete loss mitigation application during that time, the servicer cannot initiate foreclosure until the loss mitigation process is exhausted.  If foreclosure has started and the application is received, the servicer cannot move for judgment or conduct a foreclosure sale until the loss mitigation process is exhausted.