Mortgage Lenders Request Delay of New Mortgage-Disclosure Rule

Click image to enlarge - from New York Times

Those of us in the real estate industry have known for well over a year and a half that new rules implemented by the Consumer Finance Protection Bureau to improve residential loan disclosures and force lenders to ceasing handling closing on a last second, chaos basis were coming on August 1, 2015.  My employer, Liberty Title & Escrow has been getting ready for the change, purchasing new software, educating real estate agents and working with lenders to be prepared.  Now, mortgage lenders - who typically do little on a timely basis based on my experience - are asking for delays in the effective date of the new disclosure laws which, among other things would require closing statements to be provided to borrowers not less than three days before closing (currently, we often do not have final figures from lenders until mere hours before closing).  Not surprisingly, some of the biggest lenders are the worse to deal with.  The New York Times looks at efforts by lenders to continue their bad old ways for a while longer.  Here are excerpts:

New rules intended to make mortgage terms more transparent and easier for consumers to understand are scheduled to take effect on Aug. 1. But although the changes have been in the works for almost two years, the lending industry says it is not prepared for the shift.

So with two months to go, banks are asking for a delay in enforcement.

Outwardly, the new requirements seem fairly simple. Instead of the four different mortgage disclosure forms now required under the Truth in Lending and Real Estate Settlement Procedures Acts, borrowers will receive an initial Loan Estimate at the time of application, and a Closing Disclosure shortly before they sign off.

The new forms are just one part of a nearly 1,900-page rule created by the Consumer Financial Protection Bureau to strengthen protections after the mortgage crisis. Known in the industry as TILA-RESPA, for its integration of the two existing acts, the rule was finalized in November 2013, with an implementation date of August 2015.

The American Bankers Association, however, says its members aren’t ready. And it blames the vendors who supply the software and system upgrades needed for regulatory compliance.

In a survey released earlier this month, 79 percent of responding banks said their vendors either had not verified a delivery date for the software updates or had said the systems wouldn’t arrive before June.

The association supports legislation recently filed in the House that would prohibit enforcement of TILA-RESPA until Jan. 1, 2016. The bill would also prohibit anyone from filing a lawsuit against a lender for violating the requirements, provided the lender had made a “good faith effort” to comply.

More than 20 consumer groups have signed a letter opposing the legislation, however, saying that it was borrowers who need protecting, not lenders.

“Doesn’t the homeowner have the right to get a reasonably accurate disclosure in advance of closing?” said Alys Cohen, a staff attorney for the National Consumer Law Center.

Richard Cordray, the director of the Consumer Financial Protection Bureau, has so far held firm on the Aug. 1 implementation date. At a May 12 speech before the National Association of Realtors, he acknowledged that the coming changes represent “a major undertaking.” 

Personally, I hope the CFPB refuses to extend the implementation date.  Lenders have known this was coming and need to be held strictly liable.  I've seen lender "good faith efforts" and if they are given any leeway, they will continue to abuse the system, consumers and others involved in the closing process.  The irony is that years ago, we used to have settlement statements prepared well in advance of closing, but then many lenders got greedy, cut staff and/or hired incompetent processors.  The good, competent lenders should not be penalized by the unpreparedness of the bad ones who created the problem the CFPB rules seek to fix.

Will "MERS" Create Another Blow to Residential Real Estate?

As homeowners, realtors and others continue to struggle with the the consequences of the residential real estate market meltdown (my firm's real estate related revenues are down over $100,000 and many realtors are facing bankruptcy) another possible issue of earth quake like proportions lurks over the horizon which could deal another huge blow to the industry and the economy. What is it? It's called MERS, which stands for Mortgage Electronic Registration Systems, and typifies the chaos in the mortgage industry where far too much documentation is missing and the actual owners of loans - i.e., those with the real legal right to foreclose on defaulted loans - may be unascertainable. It's a mess and is particularly ominous for those trying to effect loan restructures since servicers of loans are not the real noteholders who are the only ones who can agree to loan modifications. The result is that struggling homeowners cannot get answers or approval of restructures and find themselves with two options: bankruptcy and/or foreclosure - even though many of the foreclosures may in fact be invalid. Here are highlights from a New York Times article that looks at the looming debacle:
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[T]he MERS Corporation, claims to hold title to roughly half of all the home mortgages in the nation — an astonishing 60 million loans. Never heard of MERS? That’s fine with the mortgage banking industry—as MERS is starting to overheat and sputter. If its many detractors are correct, this private corporation, with a full-time staff of fewer than 50 employees, could turn out to be a very public problem for the mortgage industry.
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Judges, lawmakers, lawyers and housing experts are raising piercing questions about MERS, which stands for Mortgage Electronic Registration Systems, whose private mortgage registry has all but replaced the nation’s public land ownership records. Most questions boil down to this:
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How can MERS claim title to those mortgages, and foreclose on homeowners, when it has not invested a dollar in a single loan? And, more fundamentally: Given the evidence that many banks have cut corners and made colossal foreclosure mistakes, does anyone know who owns what or owes what to whom anymore?
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[T]he legal challenges to MERS, its practices and its records are mounting. The Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. Last month in Utah, a local judge made the no-less-striking decision to let a homeowner rip up his mortgage and walk away debt-free. MERS had claimed ownership of the mortgage, but the judge did not recognize its legal standing.
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“The state court is attracted like a moth to the flame to the legal owner, and that isn’t MERS,” says Walter T. Keane, the Salt Lake City lawyer who represented the homeowner in that case.
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And, on Long Island, a federal bankruptcy judge ruled in February that MERS could no longer act as an “agent” for the owners of mortgage notes. He acknowledged that his decision could erode the foundation of the mortgage business.
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[B]y the 1990s, the centuries-old system of land records was showing its age. Many county clerk’s offices looked like something out of Dickens, with mortgage papers stacked high. Some clerks had fallen two years behind in recording mortgages. For a mortgage banking industry in a hurry, this represented money lost. Most banks no longer hold onto mortgages until loans are paid off. Instead, they sell the loans to Wall Street, which bundles them into investments through a process known as securitization.
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MERS’s legal troubles, however, aren’t going away. In August, the Ohio secretary of state referred to federal prosecutors in Cleveland accusations that notaries deputized by MERS were signing hundreds of documents without any personal knowledge of them. The attorney general of Massachusetts is examining a complaint by a county registrar that MERS owes the state tens of millions of dollars in unpaid fees.
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Federal bankruptcy courts and state courts have found that MERS and its member banks often confused and misrepresented who owned mortgage notes. In thousands of cases, they apparently lost or mistakenly destroyed loan documents. The problems, at MERS and elsewhere, became so severe last fall that many banks temporarily suspended foreclosures.
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Alan M. White, a law professor at the Valparaiso University School of Law in Indiana, last year matched MERS’s ownership records against those in the public domain. The results were not encouraging. “Fewer than 30 percent of the mortgages had an accurate record in MERS,” Mr. White says. “I kind of assumed that MERS at least kept an accurate list of current ownership. They don’t. MERS is going to make solving the foreclosure problem vastly more expensive.”
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MERS is a legal fiction. If MERS owned nothing, how could it bounce mortgages around for more than a decade? And how could it file millions of foreclosure motions?
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The situation is a disaster. We are routinely asked to provide copies of documents from closings that occurred 4 0r 5 years ago - I suspect because entire loan files have been lost. In Virginia and many other states, to foreclose, one technically needs to be the holder of the ORIGINAL signed note - a standard that cannot be met when the loan file no longer exists or has been irretrievably lost.

U.S. Weighs Takeover of Fannie Mae and Freddie Mac; Families Traumatized

If there was any doubt that the U.S. economy and housing market in particular are in dire straits, the numerous news reports of a possible government takeover of Fannie Mae and Freddie Mac like this one ought to strike terror in the hearts and minds of pretty much everyone. These two federally chartered entities more or less ARE the secondary mortgage market. Were they to fail, the residential mortgage market would largely collapse. If any proof was needed that the GOP/Chimperator mantra of "let the markets regulate themselves" was lunacy, this should be "Exhibit A." Not only are foreclosures causing incredible stress on families as discussed further below, the ripple effect of the housing crash keeps on spreading. No matter who I talk with in businesses relating to residential real estate - other than firms doing foreclosure work - everyone is hurting and seeing their revenues drastically reduced. People need to wake up to the fact that a lack of any rational regulation per the GOP mantra has set the stage for this potential economic disaster. Here are highlights on the Fannie Mae and Freddie Mac mess:

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WASHINGTON — Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.

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The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.

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Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

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A conservatorship or other rescue operation would be the second time in four months that the Bush administration has stepped in to engineer a rescue to prevent the financial system from collapsing. Last March, it forced the sale of Bear Stearns to JPMorgan Chase to avert a bankruptcy of that venerable investment house. Officials have also been concerned that the difficulties of the two companies, if not fixed, could damage economies worldwide. The securities of Fannie and Freddie are held by numerous overseas financial institutions, central banks and investors.

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The companies are by far the biggest providers of financing for domestic home loans. If they are unable to borrow, they will not be able to buy mortgages from commercial lenders. In turn, that would make it more expensive and difficult, if not impossible, for home buyers to obtain credit, freezing the United States housing market. Even healthy banks are reluctant to tie up scarce capital by offering mortgages to low-risk home buyers without Fannie and Freddie taking the loans off their books.

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As this USA Today story shows, it is not just adults who are being traumatized by the current economic melt down. It is a frightening situation and will scare some children just as during the Great Depression. Here are highlights:

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Shelby and millions of other young people have become the largely overlooked victims of a real estate crisis that's led to record foreclosures, sinking home prices and rising numbers of families straining to pay mortgage bills as adjustable-rate loans grow more costly and home equity shrinks. Children and teenagers are enduring a variety of consequences — forced to move and say goodbye to friends, leaving behind schools and teachers, and losing the ability to take family vacations or take part in summer camps because of the financial strain.

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Some are giving away family pets or suddenly finding themselves in charge of babysitting siblings because parents can no longer afford child care. In the most drastic cases, some wind up living with relatives or even in temporary shelters for the homeless. "This housing crisis is taking away the innocence of our kids," says Phillip Lovell, vice president of education policy for First Focus, a Washington, D.C.-based bipartisan advocacy group focused on families and children.

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Researchers are beginning to study the impact of the current housing crisis on children, and their findings are bleak: An estimated 2 million children will be directly affected by the subprime mortgage crisis as their families lose their homes to foreclosures, according to an April report by First Focus. That number is considered low, the group says, because the study didn't include families who were renters when they were evicted as a result of foreclosures on their buildings, or families who bought homes with prime mortgages.

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More than 300 school districts in the USA have reported a rise in homeless children because of the foreclosure crisis, according to a soon-to-be-released report by the National Association for the Education of Homeless Children and Youth and First Focus. Areas that are absorbing the biggest surges include Michigan, California, Florida, parts of Illinois and the suburbs around Houston. As of April 1, Cleveland schools enrolled more than 2,100 homeless students, a 30% increase from last year.

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In Los Angeles, the school district has lost 8% of its enrollment over the past few years as many families who can't afford to stay in their homes have moved out of the area, says Monica Carazo, a spokeswoman at the Los Angeles Unified School District. A number of high schools had to let teachers go. Before, schools were so crammed, some children didn't even have desks.