Is a stealth shift in policy afoot, to find the bottom in the housing market by getting banks to start clearing out their foreclosed and “ought to be foreclosed” exposures?
On Tuesday, Fannie Mae announced that it was not longer giving servicers free rein, and was clamping down on multiple fronts, such as procedures and record-handling, mortgage mods. When a group of bloggers met with the Treasury in mid-August, one senior Treasury official commented on how apparent servicer intransigence (my turn of phrase, not his) with Federal programs like HAMP raised credibility issues and Treasury planned to look into it. This move suggests they knew they’d be taking a tougher stance back then.
However, one element of the supposed “get tough” program has gotten comparatively little attention. Mortgage servicers are being directed to speed up foreclosures and sales of foreclosed properties. Per Kate Berry and Jeff Horwitz at American Banker (via e-mail, no online source):
Fannie Mae wants out of its defaulted residential mortgage holdings as quickly as possible and is warning loan servicers not to stand in its way.
The government-sponsored enterprise notified servicers Tuesday that it will begin monitoring them to determine why there are delays in moving delinquent loans into foreclosure. If servicers cannot properly account for the holdups, it will perform on-site reviews and assess fees to give servicers “a financial incentive to comply with Fannie Mae policies and improve the overall quality of their performance.”…
“This is a shot across the bow that servicers have to start paying attention,” said Kevin Kanouff, a founder of Statebridge Co., a Denver special servicer. “Now they’re going to put their feet to the fire and expect to move these loans along as opposed to throwing them in a program and just collecting the fees.”…
…the timing of the guidance suggests the GSE believes the process has grown unaccountably sluggish…
Repossessing a property can be expensive for a servicer, because it then must front property taxes and maintenance expenses until the home is disposed of. Homeowner association dues, grass-cutting and winterizing can run an average of $6,000 a month while a property sits on the market waiting to be sold.
Conventional servicers “are responding to incentives that encourage minimizing servicing costs,” said Steven Horne, the president of Wingspan Portfolio Advisors, a specialty servicer in Carrollton, Texas.
But delays force Fannie to incur bigger losses — the longer it takes to foreclose, the worse shape the property may be in.
The article also notes a second reason banks have reason to delay foreclosures: the biggest servicers are owned by banks that have large second lien portfolios. And quelle surprise, servicers don’t foreclose on borrowers with who has a second lien on the property at the same rate as other first mortgages. Thus, this acceleration ought to force price discovery on how worthless many second mortgages are. And demonstrating that the second mortgage holders in defaults are holding assets worth a big goose egg may break a critical logjam in mortgage mods. The second lien holders, who by virtue of being junior creditors really should have no bargaining leverage with defaults in properties that have negative equity have nevertheless been very effective in blocking mods and short sales. Are those days about to come to an end?
30 comments
Comments are closed.
Which route will be taken, then? Will servicers receive additional compensation for their cooperation, or will they be assessed a fee in penalty for lack of it?
The post quoted this: it will perform on-site reviews and assess fees to give servicers “a financial incentive to comply”
So that seems to say the latter of your two queries.
Makes you wonder how much crap has been hiding all this time? A sizable number of FNMA conforming mortgages were piggybacked with bank financed seconds. In every case where 90% and 95% financing was effected after 2005, the seconds are worth nothing. Then we had the HELOC’s, also worth nothing. I bet it is enough to wipe the capital totally out of WFC and BAC. It might be time to see how cheap this stuff can be bought.
I’m sure someone will explain to me why this analogy is incorrect…
Let’s say I go into an art gallery and see a painting I like. It is by an obscure artist but is honestly valued at $50,000. My buddy the banker agrees to lend me the money, I buy it, and start making loan payments. After a few months, the artist suddenly becomes famous and demand for his work increases. I have art collectors telling me they are willing to buy my painting for $100,000. I go back to my banker buddy with these offers and he agrees to loan me another $25,000 based on the new value of my painting. More time passes and one day I find my artist has been arrested and everyone hates his art. I try to sell my painting and no one wants it. It is appraised for $10,000.
I tell my banker that he has to modify my loan and reduce the principal to $10,000. And my banker buddy tells me to go to…
Why should the bank have to write down the value of the loan if I am still making payments?
Why must the bank modify the terms of my loan and let me keep the painting just because the value of my painting has fallen and I can’t / won’t make those payments?
Why is this any different than our housing situation?
I’m not very knowledgeable about loans and stuff, but your analogy seems full of holes so I’ll take a first shot.
One problem is that your banker probably would not have given you the full $50k for the first loan so you would be into the game a little deeper.
After the scenario you describe, why would you continue to make payments rather than cut your losses. (We are talking about foreclosures here.) Now the banker should come get the painting, try to recoup something and balance his books with some red ink.
But the banker didn’t want to have that red ink (especially since the painter was prolific and the banker had more than one crap painting loan.)
This story is about kicking the banker in the butt to get him to stop denying reality.
Oops – I posted my reply below.
I think the answer to why my analogy is different is the scale of the problem. My individual situation with a painting no one wants doesn’t affect anyone except me and the bank. My investment losses don’t affect you so you don’t care if I lose the painting or are sued by the bank.
The housing problem is different because suddenly those investment losses are affecting other people. That’s the justification for bailing me out of my soured real estate investment.
One item that all those who defend the mortgage holder and worry about their losses ~ When the Bank made the loan they are agreeing to the risk alongside the one who asks for the loan. Maybe we need the disclaimer to be printed for the bank’s to read when they make loans to the unwashed masses for houses, paintings, etc.
“Warning, may lose value. Past performance is no guarantee of future results.”
I think they agree to this risk when they choose to lend the money.
At least in California and other anti-deficiency states, there is a huge difference between paintings as collateral and real estate. If you walk away from the painting, the bank can come after you for the $40k deficiency. Not so with real estate, where the bank must “eat” the 40k after foreclosure.
‘6000 a month….’correct this please and do it quickly.
was someone using a calculator….?
The service fee on a fnma is 35 bp and on a gnma 44bp
they make a bomb when everything runs smoothly,years ago
they would measure how many loans one person could service
hence voicemail,long wait times etc.Now there;s less money
today and the servicers put money in their pockets with
these loan mods,partial payments,etc.Then there are sub-servicers who contract for 15 to 25 bp,I’m surprised they
even answer the phones.I’ve seen 73-75 and 81-85 with a
21.5 prime but who would believe such choas[Max&agent 99]
with a mortgage rate of 4.5%.Iremember alanGreendick coming
out and saying ‘Americans would have saved 10 billion
if they would’ve taken-out adjustables instead of a fixed
rate!’Can’t someone dig up that bit of film?The financials
steer the economy-this has to change then and only then can
we hope to move on.
Well we all know bankers made bad loans with no money down so I think that part of my analogy stands up to scutiny.
OK – the banker should revalue the loan. Why should I get to keep the the painting and pay only what its worth today?
I take it you agree that a loan modification means the borrowers go through foreclosure.
Among suggestions that the government somehow do something to keep people in their houses, Dean Baker has a kind of “rent to own” plan. IIRC the idea is that the government gets the upside of any future gain.
I’m with you, though. Just because homeowners who got in over their heads during the bubble are far less despicable than the banksters doesn’t mean they ought to receive largesse in the form of principle reduction.
No No No! You get to give the painting to the banker and receive a $10,000 credit against the unpaid balance. The banker gets to sue you for the deficiency. You get to claim bankruptcy and the judge gets to say the deficiency is erased and then the banker takes the write off. It’s the American Way.
If I were you, Neil D, I might think about using the words “should” and “must” a little less and then reading some materials on transactions costs. Methinks your answers lie therein.
Remember that only $50,000 was used to buy the painting. You got another $25,000 to spend on whatever. You didn’t buy the painting for $75,000!
People who originally paid $150,000 for a house, and maybe still owed $120,000, then did a cash-out refi for $300,000 — paying off the note and keeping the $180,000 — are complaining because now the house is worth $200,000.
Well guess what you still only paid $150,000 for it. You got the $180K cash, and you gotta pay it back, whether the collateral covers it or not.
A severe ramp up in the rates of foreclosures and evictions, combined with sharply increased downward pressure on home prices, will produce a range of society-wide effects.
This will attract a lot of political attention.
it seems to me that there is a typo in the article.
grass-cutting and winterizing can run an average of $6,000 a month while a property sits on the market waiting to be sold.
$6,000 a month in holding costs? Doubtful. Maybe it means to say that on some very few select properties the holding costs can run up to $6,000/mo (like on Manhattan luxury condo or something). but clearly we’re averaging only the most expensive of REOs.
=====
more importantly: I’m not sure if this is “real” or window dressing.
Fannie/Freddie pushing for faster foreclosures goes against everything that this admiinistration has done thus far.
The game is extend and pretend. not open disclosure.
Fannie/Freddie forcing foreclosures would cause immediate deterioration in all the house price indices and it would cause major write downs at all the banks that still have little capital cushion since they spent all their windfall profits on bonuses.
it would contradict the green shoots meme, and bring us back to the “mental” depression.
I don’t see it happening. if it does happen it shows how far Obama et al have fallen since they no longer have the ability to keep their wards of state even nominally in line.
nah… it’s talk. always talk. no action.
Your tenants get to stay.
This is the current federal law.
S.896
To prevent mortgage foreclosures and enhance mortgage credit availability.
(Enrolled as Agreed to or Passed by Both House and Senate)
TITLE VII–PROTECTING TENANTS AT FORECLOSURE ACT
SEC. 701. SHORT TITLE.
This title may be cited as the `Protecting Tenants at Foreclosure Act of 2009′.
SEC. 702. EFFECT OF FORECLOSURE ON PREEXISTING TENANCY.
(a) In General- In the case of any foreclosure on a federally-related mortgage loan
or on any dwelling or residential real property after the date of enactment of this
title, any immediate successor in interest in such property pursuant to the
foreclosure shall assume such interest subject to–
(1) the provision, by such successor in interest of a notice to vacate to any
bona fide tenant at least 90 days before the effective date of such notice;
and
(2) the rights of any bona fide tenant, as of the date of such notice of
foreclosure–
(A) under any bona fide lease entered into before the notice of
foreclosure to occupy the premises until the end of the remaining
term of the lease, except that a successor in interest may terminate
a lease effective on the date of sale of the unit to a purchaser who
will occupy the unit as a primary residence, subject to the receipt
by the tenant of the 90 day notice under paragraph (1); or
(B) without a lease or with a lease terminable at will under State
law, subject to the receipt by the tenant of the 90 day notice under
subsection (1),
except that nothing under this section shall affect the requirements for
termination of any Federal- or State-subsidized tenancy or of any State or
local law that provides longer time periods or other additional protections
for tenants.
(b) Bona Fide Lease or Tenancy- For purposes of this section, a lease or tenancy
shall be considered bona fide only if–
(1) the mortgagor or the child, spouse, or parent of the mortgagor under
the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; and
(3) the lease or tenancy requires the receipt of rent that is not substantially
less than fair market rent for the property or the unit’s rent is reduced or
subsidized due to a Federal, State, or local subsidy.
(c) Definition- For purposes of this section, the term `federally-related mortgage
loan’ has the same meaning as in section 3 of the Real Estate Settlement
Procedures Act of 1974 (12 U.S.C. 2602).
SEC. 703. EFFECT OF FORECLOSURE ON SECTION 8 TENANCIES.
Section 8(o)(7) of the United States Housing Act of 1937 (42 U.S.C. 1437f(o)(7))
is amended–
(1) by inserting before the semicolon in subparagraph (C) the following:
`and in the case of an owner who is an immediate successor in interest
pursuant to foreclosure during the term of the lease vacating the property
prior to sale shall not constitute other good cause, except that the owner
may terminate the tenancy effective on the date of transfer of the unit to
the owner if the owner–
`(i) will occupy the unit as a primary residence; and
`(ii) has provided the tenant a notice to vacate at least 90
days before the effective date of such notice.’; and
(2) by inserting at the end of subparagraph (F) the following: `In the case
of any foreclosure on any federally-related mortgage loan (as that term is
defined in section 3 of the Real Estate Settlement Procedures Act of 1974
(12 U.S.C. 2602)) or on any residential real property in which a recipient
of assistance under this subsection resides, the immediate successor in
interest in such property pursuant to the foreclosure shall assume such
interest subject to the lease between the prior owner and the tenant and to
the housing assistance payments contract between the prior owner and the
public housing agency for the occupied unit, except that this provision and
the provisions related to foreclosure in subparagraph (C) shall not shall not
affect any State or local law that provides longer time periods or other
additional protections for tenants.’.
SEC. 704. SUNSET.
This title, and any amendments made by this title are repealed, and the
requirements under this title shall terminate, on December 31, 2012
My particulars… (no victim thing here… just laying it out… it’s only in the particulars that the universal may be found):
Trustee sale of my ‘former’ home back to bank (REO’d) took place on Feb 16.
Short sale negotiation had been in progress and yes, holder of second (B of A) was critical obstacle from what I understand.
As I’ve previously commented, mine is perhaps a bit unusual in that I had built a ‘granny-unit’ in anticipation of reduced income prior to the downturn and rented out the house… (expressly so as to be able to cover mortgage with my hopefully temporarily reduced income.
When tenant had an accident summer of ’08 which caused a lapse in my ability to make mortgage payments for two months (also provoked by simultaneous revocation of $65,000 HELOC which could have covered the lapse for several YEARS if it had come to that)…
No catch-up forbearance was available from Wachovia (now Wells Fargo) and then once N.O.D. and then foreclosure it was no longer possible to achieve full tenancy though I got partial tenancy (but now at insufficient price to support mortgage)
Naturally no HAMP possibility (though I tried) since my income was obviously insufficient… (THAT’S why I build the granny-unit and moved into it in the first place.)
Bottom line…
I accept bank’s right to make the best of the foolish decisions of us both in the disposition of its asset… I expect and expected no ‘bailout’…
In fact, all-in-all I believe I expect much, much less than the assistance these banks received from their wise and powerful friends in government.
Since my personal goal is merely to retain the right to rent the granny unit I built… and they could easily have had an agreement to receive rents during a process of search for new ownership as far back as early ’09…
And since there’s some fairly big fault that I believe is shared by several banks in this Kafkaesque debacle…
And I’m quite positive I can be helpful in finding a buyer who will want to continue this as a rental… (NO, not as some scam where I secretly am part of the deal except for the right to continue my tenancy at fair rent)…
I’m just not sure how it’s in the bank’s interest to forcibly evict me, my tenants and her 12 year-old daughter (and they’ve been taking good care of the house… gardening, repairs, etc?) during any such search?
I do understand how difficult it must be for these mega-banks to deal with the thousands of situations they must face.
However, the ‘granularity of decision’ that was available to the big banks… (in other words… they had political ability to ‘make their cases’ to those who could be creative with solutions) has not been available to the rest of us.
Whether or not that constitutes an imbalance in due process… I can’t say… I’m not an attorney… though I believe there may be issues to consider… and shall seek to share those considerations via such legal overview as may be available.
But from a political standpoint…
Both party establishments should understand that the ‘bi-partisan’ bias in favor of the TBTF banks is bad for citizens, communities and the nation.
Every case is individual… the ‘one-size-fits-all’ approach (it’s procedurally helpful to the banks to be able to just grind everyone through) is what’s going on here… and I have no doubt there are scoundrels on both sides…
(That’s why some see “every” defaulting homeowner as a high-living scumbags… and others see them as helpless victims… BOTH are undoubtedly true in particular situations.)
This massive indiscriminate’ lumping’ of all the ‘little people’ into one bag for a steamroller of banking convenience… and all done with the approval of both parties, the Obama administration, it’s Treasury and other agencies is very bad for our nation AND the economy… in my opinion. (I hope opposing TBTF banks is not yet considered subversive!)
No victimhood here. No rolling over either.
Though I really want to move on to other things… no kidding. But sometimes ya just gotta stand up for sanity.
Meanwhile… happy to note that my piece:
On Creating Communities
http://culturalengineer.blogspot.com/2009/08/on-creating-communities-part-1.html
is to be re-posted by the Peer-to-peer Foundation while I prepare a series on the Commons-dedicated Account concept.
Empowering the Commons: The Dedicated Account (Part I)
http://culturalengineer.blogspot.com/2010/08/empowering-commons-dedicated-account.html
P.S. To all… Don’t let the spreading idiocy from the top turn US into either victims… or patsies for a demagogue (when Establishment institutions prove themselves this unconscionably incompetent… its a prime environment for demagoguery)
P.P.S. Anybody have a cheap place to rent? Preferably either in or near New York or D.C.? Could be time for a change of scenery.
Tom,
You need to see a Doctor. You need to review your meds and what the various side effects are.
You borrowed more than you could repay. End of story. Get a life!
Thanks I will. You’re right I borrowed too much (though for home improvement and biz development… NOT toys or trips)
As I said I’m not looking for any support or bailout.
While it’s certainly in my interest to be able to continue to rent here… I also believe its in the bank’s interest, my tenants, the neighbors the general economy and even whoever ends up buying the place.
And, you’re also right… I don’t want this to occupy an excessive part of my attention. I DO want better banking and better governance. And intend to work for it. Not through bigger govt. and NOT through bigger biz… but through better decision systems for both.
Tom, you write: “I’m just not sure how it’s in the bank’s interest to forcibly evict me, my tenants and her 12 year-old daughter (and they’ve been taking good care of the house… gardening, repairs, etc?) during any such search?”
That is the great tragedy of this engineered depression: not only the deliberate wasting of recoverable assets but also human potential. Derelict banksters should know that abandoned houses bleed value profusely and infectt all the neighbors. But the crumbling foundations of human security, the loss of confidence, imagination and creative/productive capacity is a far greater, IMO, an incalculable aggregate cost to our economy (let alone happiness and social cohesion).
So as you say, at the granular level, this “blind” bankster steamrolling makes no sense. But consider this: all of the same criminals and warriors are firmly in charge at every level with not one in prison or even under indictment (not even a token scapegoat!?), so there is surely a deeper agenda afoot, which also tracks with the perplexing behavior of the deaf-mute eunuch currently residing in the WH, strangely devoid of insight, voice, and cajones in all of this. Your agony, shared by millions, means exactly nothing to them in the pursuit of Social Security and a decidedly rank new world odor.
Thus, Siggy’s swipe seems uncharacteristically callous, given that your pain and suffering has been inflicted on millions (of little people). This may be a symptom to guard against: the calculated suppression of empathy (shared pain) and incited divisiveness that is part of the “social engineering” angle to this manufactured depression—a cultivated blame and shame the victim phenomenon that Naomi Klein mentions in Shock Doctrine—an effective self-censorship strategy.
We sold our house pre-peak in ’05 because the unsustainability here in Phoenix was so obvious and currently have no debt, but I would not presume that was so in all areas or that “little people” one or two rungs down deserve even a modicum of the shame, scorn (or prison terms) richly earned by the masters of the universe.
Banks should be forced to take a haircut / writedown on second liens for underwater borrowers when Fannie Mae and Freddie Mac bondholders are forced to take a writedown on their senior debt holdings
Won’t happen, because the central bankers got away with it. Forcing a bottom? Good luck! We’ll all be lucky if we get out of this with a hair cut, and not bald.
I wonder if this will result in making more delinquent owners homeless than the current SOP. If that is the case, it’s the wrong political move for treasury 10 weeks before the midterm elections. Another consideration is the increase in the number of available properties on the market with little chance of being sold. If a lot of the mortgage owners are banks, this move make banks appear in a worse shape than today and for smaller banks with heavy mortgage load may become insolvent.
The effects of Fannie’s move depends a lot on the actual numbers, locations and banks involved, but overall, the move is highly questionable.
Politically this is actually fairly astute, as it allows the admin (and Dems in general) to say “See, we are taking hard but necessary steps to deal with the housing morass, even if it displeases the TBTF banks.”
On the other hand, it is timed such that few foreclosees will be on the streets in the run-up to November (I am guessing there will be a lot of mid-winter moveouts, which are always so pleasant and cheery). The brunt of the political sh*t storm will fall on the next (perhaps Republican dominated) Congress, which can then be nudged into QE2 or a 2nd stim package by current admin. With luck (think Timmay and Larray) the worst will be over by the time New Hampshire and Iowa voters are locked and loaded.
See how this works, people? We are rats in a Skinner Box.
I actually think I had this happen to me last week. I’m a listing agent in Southern California and one of the properties I had listed went to foreclosure without a notice to anyone. I think Fannie put pressure on them to take it. If this reall does materialize it wil create a new flood of foreclosures on the market, which in turn will drive prices down.
The market doesn’t need fnma foreclosing to lower home prices. The market is doing it already on its own with 12 months inventory and generational low sales volume. Bring it on. Cheaper homes for everyone is one way to help the economy to heal.
How are lower housing prices going to effect a recovery if no one has a job to qualify?
The bottom line is that stimulus money that doesn’t create the environment to put people back to work isn’t going to work. When the investment firms were allowed to loot the national treasury, the economy deflated.
Two decades of shipping jobs overseas can’t be undone overnight. Where is the next period of prosperity going to come from? Doesn’t matter, to be sure, if greed is allowed to reign supreme, the rich will only get richer. We’ll see how well they like spending their gains on physical security and walled compounds when the masses rise against them after the food riots start.
This is a bit confusing since many of the “approved council” aka Forclousure Mill’s paid by Fannie Mae with the taxpayers money , Stern, Shapiro aka LOGs are under investigation for fabricating false documention in the very states that Fannie want’s facilitaed rapid forclousures… is this recent dircetive a “green light” to the courts and the Forclousure Mill’s in the states they opertae in to continue this fraud on the courts will displacing thousands of Americans and depriving them of due process?
Excellent point, this seems to be less about finding the market bottom, than in preserving the mortgagors interest.
No jobs = there is no bottom.