The past few years have been lucrative for any regulator in the United States looking to enrich the public coffer in return to A. Impress voters or B. Spend proceeds on... say a new bridge over the Hudson River instead of returning fines to consumers who may have been hurt by unscrupulous mortgage lenders.
Putting the editorializing aside, it is good to realize that the average American in the judicial system is able to see the difference between actual mortgage abuse and a lender doing business. Today, the United States was set back by a jury when it tried to claim that Abacus Bank in New York City was found not guilty of grand larceny and
conspiracy
Two executives at the bank were acquitted on all charges.
Yiu Wah Wong, the bank's chief credit officer, and Wai Hung
"Raymond" Tam, the loan origination supervisor, were found not
guilty of 80 counts each
Prosecutors claimed the defective loans falsely represented
applicants' credit worthiness, employment, income and source of
downpayments. They claimed the bank and its managers trained and
directed the routine falsification of documents.
However, the bank's lawyer, Kevin
Puvalowski, called the state's case "a bizarro prosecution," . He stated that Abacus's loans went to borrowers capable of paying them, as
shown by the fact that the borrowers who received loans from Abacus bank are.... paying those loans. And, that the government is prosecuting a case by saying that Fannie and Freddie, who did not lose money, were harmed or would be harmed, in the future, by the loans - that are being paid, on time, every month.
Which is why the jurors threw out the charges. All 80 of them
The Funding Source Syracuse
Showing posts with label Phil LaTessa Syracuse. Show all posts
Showing posts with label Phil LaTessa Syracuse. Show all posts
Thursday, June 4, 2015
Wednesday, May 20, 2015
Are lenders afraid to lend? (Great article, re post from MPA. A must read with a link)
http://www.mpamag.com/mortgage-originator/defensive-lending-how-overregulation-is-hurting-our-industry-22533.aspx
By David Lykken
Special to MPA
On the May 11th episode of the Lykken on Lending Internet radio broadcast I host, I got the opportunity to discuss regulatory issues with David Stevens of the MBA. During our discussion, David brought up an interesting term to describe how the industry has become post-regulation. Rather than proactively pursuing home owners, many organizations have shrunken back in fear. Many in the industry have become "defensive lenders."
Rather than helping people get mortgages, the industry has become more about keeping people from getting mortgages. Due to the amount of regulation that has been placed on the industry, most organizations are more worried about compliance than anything. While I believe that much of the focus on compliance is a good thing and that the industry certainly needed a wake-up call, I've begun to wonder if the pendulum has swung too far in the other direction.
Making lenders afraid to lend isn't going to help the industry – and it isn't going to help the economy. You can't really go anywhere when you're backed into a corner. And that's how many organizations in the industry feel right now – that they’re backed into a corner fighting for survival. There's no time for thinking about progress when you're fighting for what little you have left.
Much of the regulation that has occurred recently was necessary. But if regulators don't find a way to work with organizations change this mentality in the industry, we aren't going to get anywhere. The economy needs the mortgage industry to succeed. And we need to feel like we have the freedom to do so. We need to feel like we can gain new ground again – rather than simply defending the ground we have left.
By David Lykken
Special to MPA
On the May 11th episode of the Lykken on Lending Internet radio broadcast I host, I got the opportunity to discuss regulatory issues with David Stevens of the MBA. During our discussion, David brought up an interesting term to describe how the industry has become post-regulation. Rather than proactively pursuing home owners, many organizations have shrunken back in fear. Many in the industry have become "defensive lenders."
Rather than helping people get mortgages, the industry has become more about keeping people from getting mortgages. Due to the amount of regulation that has been placed on the industry, most organizations are more worried about compliance than anything. While I believe that much of the focus on compliance is a good thing and that the industry certainly needed a wake-up call, I've begun to wonder if the pendulum has swung too far in the other direction.
Making lenders afraid to lend isn't going to help the industry – and it isn't going to help the economy. You can't really go anywhere when you're backed into a corner. And that's how many organizations in the industry feel right now – that they’re backed into a corner fighting for survival. There's no time for thinking about progress when you're fighting for what little you have left.
Much of the regulation that has occurred recently was necessary. But if regulators don't find a way to work with organizations change this mentality in the industry, we aren't going to get anywhere. The economy needs the mortgage industry to succeed. And we need to feel like we have the freedom to do so. We need to feel like we can gain new ground again – rather than simply defending the ground we have left.
Thursday, February 12, 2015
So you're buying a home?
So you’re buying a home?
Rates are low, prices are holding steady on homes and you’re
hearing that it really is a good time to buy.
You’ve read all about the banks and the fines. You think that perhaps the real estate bust
is in the rear view mirror. So, you’re
out looking.
You’ve also heard that lenders have made getting a mortgage
harder than pulling your molar out of your mouth with a toothpick and much more
painful. And, that is true. There were (and are) many average people who
just don’t get that lying on a mortgage application can (and should) land them
in prison. Even though the application
says so in fine print (see Housewives of New Jersey – one count against Theresa
was mortgage fraud).
In a nutshell, this concerned the government because it
really is important to have people buy homes.
It’s important that we as a nation have a system to allow people who are
starting out to get into their first home.
And, that is why the FHA loan system was set up in the 1930’s. To allow for loans that should be easier to
get than the average loan at the average bank.
And, many lenders offer FHA loans for this very purpose.
But, HUD, who handles FHA loans, made it tough. They tightened credit, increased the down
payment, introduced and increased the minimum credit score and came out with
the maximum amount a lender can lend to a borrower. If these rules were broken HUD would, and
they did, slap lenders with serious fines.
And, HUD raised what is called the mortgage insurance premium. This is an insurance premium that you pay
once at the time of your closing and every month as part of your mortgage
payment. The insurance is an insurance
policy that pays the bank back if you don’t pay your mortgage and the bank
forecloses on your house.
Lenders became skittish and backed away from doing FHA loans
because HUD did not want to pay out the insurance policies to lenders. The reason was that HUD was getting hit with
so many foreclosures in the height of
the meltdown that their insurance fund was depleted and they had to
borrow money from the US Congress to replenish it. Not only that, HUD is required to keep a
minimum of 2% cash buffer in their fund and they have not been able to get
there since the melt down. This is a
violation of the rules. Rules that if
lenders violated, HUD would fine, cite and close them down.
None of this fell on deaf ears in Congress. HUD Secretary Castro wants to lower the
mortgage insurance to make it so that borrowers pay less in their mortgage
payment when getting a mortgage. This
is great news for borrowers, as it will open the doors to individuals to buy
homes. It is questionable for HUD
because by lowering the insurance they are reducing the amount of money that
they need to collect to get to that magic 2% number.
Castro met with the House financial Services Committee to
discuss lowering the Mortgage Insurance Premium (MIP) by 50 basis points. He was met with some serious backlash from
Congresspersons who are concerned about the financial well being of HUD.
FHA is not a mortgage.
FHA is an insurance program that insures bank that underwrites loans to
FHA underwriting standards against future defaults by the borrowers. Provided that the lender properly underwrote
the loan, HUD should pay the premium. The problem from the perspective of the banks
is that when HUD saw their pool of money reducing they backed away from their
mandate to back loans – and looked for anything that could get them off the
hook from paying the bank on the loan.
This was so concerning that JP Morgan Chase openly stated they were
backing away from FHA loans and Wells Fargo did the same. Some cite a 70% reduction of FHA loans in
volume on the books of those two lenders from previous years. This is concerning to HUD because it reduces
the premiums. Yet, lenders say this should be no surprise since HUD regulators
were aggressive in their stance toward lenders during the worst of times. Why would anyone believe HUD would stand by
them in future times of crisis?
So, lenders in an effort to protect them put “overlays” on
FHA loans That means that, for example, if FHA said the minimum credit score is
580 lenders would reject anyone with a score under 640 period. And, if the score say was between 640 and
720 lenders were charging points or requiring more assets be proven – in an
attempt to build their own reserve fund against buy backs that HUD themselves
may attempt to back off from, as they had in the past.
This policy has reduced the number of FHA early payment
defaults in and of itself. .
So the debate rages on.
We shall see what happens. Does
HUD reduce the mortgage premium? Do they
limit the program to only first time borrowers? What’s the right balance to take from the
heady days of 2007 to the constricted days of 2012 and 2013? Time will tell.
Get an FHA loan for less?
Julian Castro, the current Sec for the US Dept of HUD, testified before the Committee on Financial Services on Wednesday, February 11, 2015 regarding the reduction of the Mortgage Insurance Premium
Before your eyes glaze -this is important. A reduction in the premium has huge benefit to everyday people buying a home and financing it with an FHA loan. About 5-years ago, HUD raised that premium and that cost borrowers a significantly higher amount to close their loans - money out of their pocket to HUD. And, each month, their monthly payment included hefty monthly premiums that went to HUD.
Castro is seeking to reduce this amount for two reason. 1. The high premium is forcing borrowers to look at big banks offering 3% down payment mortgages with lower insurance. 2. By reducing the premium and by offering a truce with banks who refuse to do FHA loans (by not forcing them to buy back FHA loans for immaterial defects), Castro is hoping that more people will apply for and get an FHA loan.
This is important to HUD and frankly to the US. First, HUD has seen a large drop in FHA loans for the reasons cited above. Consumers don't want to pay and banks don't trust FHA to punt loans back to them for small defects that don't affect the material soundness and quality of underwriting a borrower.
But, FHA loans provide borrowers who can't get a 3% down loan at a bank with the ability to get a mortgage. Those much talked about low down payment loans at major banks and bankers come with tougher credit, employment and asset requirements than an FHA loan
Since the 1930's FHA has played an important role in housing - providing loans to people who otherwise would not get one. So, HUD is an important player in the US economy.
The US Congress cares about this reduction because not so long ago FHA and HUD ran out of money as the foreclosures went through the roof. Castro stated that in response to this HUD increased the insurance amount from borrowers and toughened underwriting which brought in a 21 billion improvement to the insurance fund.
HUD remains under the limit required to have in reserve - a violation that a regulatory like HUD would not tolerate in a lender. Congresspersons grilled HUD about this very fact in light of the reduction of the insurance premium, which goes to increase their reserves.
Monday, February 9, 2015
Subprime mortgages are back
Subprime mortgages - what most consider the epicenter of the financial meldown - are coming back.
Sub prime mortgages were meant for borrowers with less than prime credit. It started out that a subprime loan came with a higher interest rate and a larger down payment. It slid into not requiring any income verification of the loans, then no asset verifications (with yet higher rates and higher down payments) to offering literally lowering the down payment and increasing the rate higher and higher. In fact, lenders were so hungry for the returns that they offered adjustable loans with teaser interest rates and moved into "interest only" mortgages - requiring the borrower to only pay the interest and never pay the debt off. If not bad enough, there were negative amort loans - which allowed the borrower to pay less than was required to pay the mortgage, which meant that their mortgage debt increased, not decreased. And, let's not forget that lenders got into giving out home equity loans with the subprime loans - so you got two mortgages. One for 80% of the value and one for 10%, 15% of the value - which meant you only put down 5%. It actually got worse when lenders came out with the "125's". Those were 125% loan to value loans - which meant if you bought a 100,000 dollar house, the bank would happily lend you 125,000.00 to buy the house..... The appetite for those loans by investors was voracious. Big banks bought sub prime lenders and got in the game. It got huge. In fact, in 2006 and 2007, more people were doing subs than doing your normal Fannie Mae or Freddie Mac loans. And, forget FHA - they required too much verification and too much insurance premiums - and Realtors steered borrowers away from an FHA for fear of the appraisal - which was more stringently done on an FHA financed property.
Subs are back. Now they are being hawked to borrowers who have fallen outside the tight lending criteria that came into place after the crisis. When lenders would lend without regard to income, now they lend with regard to ability to pay and most won't lend to someone with less than a 640 credit score - and that credit score will cost you in points and fees. Over 700 and maybe you won't have points. So, young people starting out are locked out of the housing market. And, we wonder why the housing market has stumbled and stumbled since 2010.
The new subprime loans come with higher interest rates than being offered to borrowers with 640 abd higher credit scores. The loans can not have rates that increase if a borrower defaults nor any pre payment penalty should the borrower pay off their mortgage sooner (inheritance, sale, re-finance). And, the borrowers do need to complete homeownership housing counsling.
But, while not as wild as before, they are back. Some do not call them sub prime, they call them alternative mortgage products. They argue it opens to doors to people who in other days easily qualified.
What ever happened to the days when common sense underwriting was done on each loan? No two borrowers and no two mortgage applications are the same. With automated underwriting and investment firms seeking every higher returns - all that went out the window. For every borrower who lied and fabricated supporting documentation for their loans - lending became a nightmare. In the good days, those who say got hit with a medical emergency were approved because an underwriter underwrote the loan and got the documentation proving they were on time with their payments prior to the emergency, have stable income and all that portends stability and ability to pay. But, that is all gone now and those and new home buyers are the ones aone's who today are paying the price.
Sub prime mortgages were meant for borrowers with less than prime credit. It started out that a subprime loan came with a higher interest rate and a larger down payment. It slid into not requiring any income verification of the loans, then no asset verifications (with yet higher rates and higher down payments) to offering literally lowering the down payment and increasing the rate higher and higher. In fact, lenders were so hungry for the returns that they offered adjustable loans with teaser interest rates and moved into "interest only" mortgages - requiring the borrower to only pay the interest and never pay the debt off. If not bad enough, there were negative amort loans - which allowed the borrower to pay less than was required to pay the mortgage, which meant that their mortgage debt increased, not decreased. And, let's not forget that lenders got into giving out home equity loans with the subprime loans - so you got two mortgages. One for 80% of the value and one for 10%, 15% of the value - which meant you only put down 5%. It actually got worse when lenders came out with the "125's". Those were 125% loan to value loans - which meant if you bought a 100,000 dollar house, the bank would happily lend you 125,000.00 to buy the house..... The appetite for those loans by investors was voracious. Big banks bought sub prime lenders and got in the game. It got huge. In fact, in 2006 and 2007, more people were doing subs than doing your normal Fannie Mae or Freddie Mac loans. And, forget FHA - they required too much verification and too much insurance premiums - and Realtors steered borrowers away from an FHA for fear of the appraisal - which was more stringently done on an FHA financed property.
Subs are back. Now they are being hawked to borrowers who have fallen outside the tight lending criteria that came into place after the crisis. When lenders would lend without regard to income, now they lend with regard to ability to pay and most won't lend to someone with less than a 640 credit score - and that credit score will cost you in points and fees. Over 700 and maybe you won't have points. So, young people starting out are locked out of the housing market. And, we wonder why the housing market has stumbled and stumbled since 2010.
The new subprime loans come with higher interest rates than being offered to borrowers with 640 abd higher credit scores. The loans can not have rates that increase if a borrower defaults nor any pre payment penalty should the borrower pay off their mortgage sooner (inheritance, sale, re-finance). And, the borrowers do need to complete homeownership housing counsling.
But, while not as wild as before, they are back. Some do not call them sub prime, they call them alternative mortgage products. They argue it opens to doors to people who in other days easily qualified.
What ever happened to the days when common sense underwriting was done on each loan? No two borrowers and no two mortgage applications are the same. With automated underwriting and investment firms seeking every higher returns - all that went out the window. For every borrower who lied and fabricated supporting documentation for their loans - lending became a nightmare. In the good days, those who say got hit with a medical emergency were approved because an underwriter underwrote the loan and got the documentation proving they were on time with their payments prior to the emergency, have stable income and all that portends stability and ability to pay. But, that is all gone now and those and new home buyers are the ones aone's who today are paying the price.
Thursday, February 5, 2015
M&T Bank accused of unfair lending practices
It's always discouraging to see lenders accused of unfair lending practices. Banks go to extremes to create tailored loans for low to moderate income borrowers in an attempt to reach out to protected groups and broaden homeownership.
Today, Reuters released a report citing that M&T Bank has allegedly been steering customers of minority status to LMI loans and to non-white neighborhoods.
In defense of M&T Bank, I find the last charge to be ludicrous. Mortgage Loan Officers at M&T Bank or the Bank of What not could care less where someone buys a home. They care about writing a mortgage.... but that's what this report claims
Here's the link http://www.reuters.com/article/2015/02/03/mt-bnk-us-discrimination-lawsuit-idUSL1N0VD24M20150203
And here's the text:
Today, Reuters released a report citing that M&T Bank has allegedly been steering customers of minority status to LMI loans and to non-white neighborhoods.
In defense of M&T Bank, I find the last charge to be ludicrous. Mortgage Loan Officers at M&T Bank or the Bank of What not could care less where someone buys a home. They care about writing a mortgage.... but that's what this report claims
Here's the link http://www.reuters.com/article/2015/02/03/mt-bnk-us-discrimination-lawsuit-idUSL1N0VD24M20150203
And here's the text:
M&T Bank accused in lawsuit of New York City lending bias
NEW YORK
- Share this
Feb 3 (Reuters) - M&T Bank Corp was sued on Tuesday by a nonprofit group that accused the large mid-Atlantic lender of discriminatory mortgage lending practices in New York City.
In a complaint filed in Manhattan federal court, the Fair Housing Justice Center said M&T in 2013 and 2014 used racial criteria to steer prospective borrowers to particular neighborhoods, and to determine their eligibility for mortgages.
The advocacy group said it hired various women to portray themselves to M&T loan officers as first-time home buyers who were married and had no children.
Most of the "testers" who were not white were encouraged by the bank to apply for mortgages in its "Get Started" program, which helps people buy homes in lower-income neighborhoods or "majority minority" neighborhoods such as Harlem in Manhattan, or St. Albans in Queens.
In contrast, the Buffalo, New York-based lender discouraged white testers from using that program, encouraged them to move to majority-white areas such as Murray Hill in Manhattan, and told them they could afford larger loans and costlier homes than more qualified non-white testers, the complaint said.
One loan officer told a white tester about Get Started, only to then express doubt about buying "in an area where you're a min ... more minority than majority," the complaint added.
Fred Freiberg, executive director of the nonprofit, said in a statement that such activity "serves to reinforce patterns of residential racial segregation in New York City."
M&T spokesman Michael Zabel said the bank has a "deep commitment" to fair lending, as reflected by its top scores from federal regulators examining its practices, and a recent report on bank reinvestment in New York City from the Association for Neighborhood and Housing Development, an advocacy group.
The lawsuit accuses M&T of violating the federal Fair Housing Act, and state and city human rights laws. It seeks to halt alleged discrimination, as well as compensatory and punitive damages. Nine testers were also named as plaintiffs.
M&T said it has more than 700 branches stretching from New York to Florida.
Its planned $3.7 billion purchase of Paramus, New Jersey-based Hudson City Bancorp Inc, which was announced in August 2012, has been repeatedly delayed by federal regulators to allow M&T to strengthen its money laundering controls.
The case is Fair Housing Justice Center Inc et al v. M&T Bank Corp, U.S. District Court, Southern District of New York, No. 15-00779. (Reporting by Jonathan Stempel in New York; Editing by Christian Plumb)
Tuesday, February 3, 2015
Wells wins case
We have all read about the numerous legal challenges that banks have faced.
Some have paid billions of dollars on behalf of banks that they purchased in 2009 at the direct request of the US Government, for the actions of the banks that failed. To re-iterate, as this is surreal, the President lined up the CEO's of healthy banks at a meeting and specifically requested that they purchase specific banks that were failing. The economy was a day away from another Great Depression and the successful banks did their good deeds and complied. But, the banks that they purchased had engaged in subprime loans that were not illegal then - but today are considered illegal lending practices.
So, fast forward from 2009 to 2012 and the US Government and various US Attorney General's began a slew of lawsuits against banks for the practices of the former banks they purchased at the direct request of the US Government to bail out the failing banks.
This resulted in billions and billions of dollars in fines, settlements, agreements and funded the US Government significantly. Various states also got into the free for all and settled with banks getting billions themselves.
While this was going on, Warren's unregulated regulator - the Consumer Financial Protection Bureau - born out of the Frank-Dodd legislation - began to hire individuals with no mortgage banking, banking or any real life experience to..... yes to regulate mortgage banking, banking and financial professionals.
And this led to more regulations that in the eyes of many banks and other groups have resulted in the closing of smaller lenders who can not afford the increased costs to meet the regulations, the closing of companies accused or found to have "violated" or been "sanctioned" for immaterial items. As smaller lenders closed, larger lenders have grown larger (the very thing the government and Sen. Warren rightfully did not want to have - the "too big to fail" banks). And, lending constricted because no one wanted to originate a loan that was going to be punted back for immaterial issues unrelated to sound underwriting that resulted in no harm to the consumer. Even JP Morgan announced they were throttling back on government mortgage lending themselves.
Then the US Government began to push for more lending because banks were not lending (why anyone was surprised banks were not lending is curious). They rolled out former Chairman Ben bernanke who said he himself was denied on his mortgage (because he did not have the required two-years of stable income as he had recently retired as Chairman - and those rules were in place by the regulators and agencies run by the government such as Fannie Mae and Freddie Mac - so again, no surprise.).
So, banks again bended in return for the agencies (Fannie, Freddie, HUD) agreement not to push back loans for immaterial findings. The banks announced with great fanfare the new expanded criteria in lending that really were just the old 97% LTV loans from the 1990's. And, in response, HUD lowered their crushingly high mortgage insurance premiums to lower the cost to get an FHA loan.
It would have been nice if it ended there.
It did not
Apparently, NYS decided that Wells Fargo violated an agreement they signed and paid into a 25 billion settlement (along with 4 other banks) regarding the servicing of loans. The claim was that bank was not responding to some struggling borrowers who were seeking loan modifications as quickly as timetables under the settlement.
The Judge rejected this overreach by the government stating " does not require absolute perfection in loan servicing" and ruled for Wells Fargo.
It's time that the public understand that banks lend money. People borrow money. What occurred between 2000 and 2008 was the result of greed. That greed was fueled by the US Government pushing banks in the 1990's to lend more and more to people with lower credit standards, lower income and to give them more borrowing power. And, the US Government tied that to the Community Re-investment Act - the more banks lent to those people the more CRA credits they got.
And, let us not forget that even the New York Times in the mid-2000's marveled how marginalized individuals got out of poverty and were now millionaires - having obtained homes that increased in value, or purchasing and fixing up run down houses that now were worth 2 and 3 times the amount invested.
And, let us not forget that mortgage fraud then came about as greedy people entered the mortgage business seeing a way to make a fortune and they ruined it for everyone - the professionals in the business, the borrowers, the banks - everyone. And, let's not forget that there were many people on the street who were just as guilty as the get rich boys and girls in the mortgage divisions of banks and mortgage bankers who were not ethical in the least.
The blame for what occurred can go from Bush and Clinton wanting to increase the level of individuals who own homes, to wall street investors looking to make a buck, to mortgage brokers looking to make a buck to average Joe and Jill seeing a shot at making money through real estate.
Consumers were not all victims. Bankers were not all bad people. This Elizabeth Warren story line has to come to an end. People who do not pay their mortgage should be foreclosed so that the banking industry is able to recoup it's money and lend to the next person. Not everyone in foreclosure was abused, used, ripped off and should gain our sorrow. They may have seen a big house they could not afford and bought it. Just as the lender should have better assessed their ability to re pay, the consumer should have sat down and thought "hmmm......Do I need the McMansion and the Suburban? Will I have enough for food after I pay those payments?". They did not think that one out. Pretty basic.
So, now we have NYS being slapped down in their attempt to, again, get a payment from a bank for allegedly violating some new regulation put in place to stop some practice that was A-Okay with the government when they wanted the banks to lend lend and lend some more.
Now, let's end it. Let's figure what part of the regulations need to go and what parts need to stay and lets adjust it. And, lets educate the regulators about life and the politicians about taking private sector money to fuel government spending.
The public should really ask - where did that settlement money go to that the government got? I think in New York it went to re-build a bridge. I am not sure how, if there were injured and harmed tax payers, that the re-building of a bridge gets their homes back. Maybe I'm just naive and dumb. But, it is not ethical and it is not fair and it needs to stop.
Some have paid billions of dollars on behalf of banks that they purchased in 2009 at the direct request of the US Government, for the actions of the banks that failed. To re-iterate, as this is surreal, the President lined up the CEO's of healthy banks at a meeting and specifically requested that they purchase specific banks that were failing. The economy was a day away from another Great Depression and the successful banks did their good deeds and complied. But, the banks that they purchased had engaged in subprime loans that were not illegal then - but today are considered illegal lending practices.
So, fast forward from 2009 to 2012 and the US Government and various US Attorney General's began a slew of lawsuits against banks for the practices of the former banks they purchased at the direct request of the US Government to bail out the failing banks.
This resulted in billions and billions of dollars in fines, settlements, agreements and funded the US Government significantly. Various states also got into the free for all and settled with banks getting billions themselves.
While this was going on, Warren's unregulated regulator - the Consumer Financial Protection Bureau - born out of the Frank-Dodd legislation - began to hire individuals with no mortgage banking, banking or any real life experience to..... yes to regulate mortgage banking, banking and financial professionals.
And this led to more regulations that in the eyes of many banks and other groups have resulted in the closing of smaller lenders who can not afford the increased costs to meet the regulations, the closing of companies accused or found to have "violated" or been "sanctioned" for immaterial items. As smaller lenders closed, larger lenders have grown larger (the very thing the government and Sen. Warren rightfully did not want to have - the "too big to fail" banks). And, lending constricted because no one wanted to originate a loan that was going to be punted back for immaterial issues unrelated to sound underwriting that resulted in no harm to the consumer. Even JP Morgan announced they were throttling back on government mortgage lending themselves.
Then the US Government began to push for more lending because banks were not lending (why anyone was surprised banks were not lending is curious). They rolled out former Chairman Ben bernanke who said he himself was denied on his mortgage (because he did not have the required two-years of stable income as he had recently retired as Chairman - and those rules were in place by the regulators and agencies run by the government such as Fannie Mae and Freddie Mac - so again, no surprise.).
So, banks again bended in return for the agencies (Fannie, Freddie, HUD) agreement not to push back loans for immaterial findings. The banks announced with great fanfare the new expanded criteria in lending that really were just the old 97% LTV loans from the 1990's. And, in response, HUD lowered their crushingly high mortgage insurance premiums to lower the cost to get an FHA loan.
It would have been nice if it ended there.
It did not
Apparently, NYS decided that Wells Fargo violated an agreement they signed and paid into a 25 billion settlement (along with 4 other banks) regarding the servicing of loans. The claim was that bank was not responding to some struggling borrowers who were seeking loan modifications as quickly as timetables under the settlement.
The Judge rejected this overreach by the government stating " does not require absolute perfection in loan servicing" and ruled for Wells Fargo.
It's time that the public understand that banks lend money. People borrow money. What occurred between 2000 and 2008 was the result of greed. That greed was fueled by the US Government pushing banks in the 1990's to lend more and more to people with lower credit standards, lower income and to give them more borrowing power. And, the US Government tied that to the Community Re-investment Act - the more banks lent to those people the more CRA credits they got.
And, let us not forget that even the New York Times in the mid-2000's marveled how marginalized individuals got out of poverty and were now millionaires - having obtained homes that increased in value, or purchasing and fixing up run down houses that now were worth 2 and 3 times the amount invested.
And, let us not forget that mortgage fraud then came about as greedy people entered the mortgage business seeing a way to make a fortune and they ruined it for everyone - the professionals in the business, the borrowers, the banks - everyone. And, let's not forget that there were many people on the street who were just as guilty as the get rich boys and girls in the mortgage divisions of banks and mortgage bankers who were not ethical in the least.
The blame for what occurred can go from Bush and Clinton wanting to increase the level of individuals who own homes, to wall street investors looking to make a buck, to mortgage brokers looking to make a buck to average Joe and Jill seeing a shot at making money through real estate.
Consumers were not all victims. Bankers were not all bad people. This Elizabeth Warren story line has to come to an end. People who do not pay their mortgage should be foreclosed so that the banking industry is able to recoup it's money and lend to the next person. Not everyone in foreclosure was abused, used, ripped off and should gain our sorrow. They may have seen a big house they could not afford and bought it. Just as the lender should have better assessed their ability to re pay, the consumer should have sat down and thought "hmmm......Do I need the McMansion and the Suburban? Will I have enough for food after I pay those payments?". They did not think that one out. Pretty basic.
So, now we have NYS being slapped down in their attempt to, again, get a payment from a bank for allegedly violating some new regulation put in place to stop some practice that was A-Okay with the government when they wanted the banks to lend lend and lend some more.
Now, let's end it. Let's figure what part of the regulations need to go and what parts need to stay and lets adjust it. And, lets educate the regulators about life and the politicians about taking private sector money to fuel government spending.
The public should really ask - where did that settlement money go to that the government got? I think in New York it went to re-build a bridge. I am not sure how, if there were injured and harmed tax payers, that the re-building of a bridge gets their homes back. Maybe I'm just naive and dumb. But, it is not ethical and it is not fair and it needs to stop.
Thursday, January 29, 2015
FHA loans - more accessable?
Everything that goes up must come down they say. And we have seen that with the price of gasoline (now expected to go back up).
And, we're seeing an increase in new home sales on the rise - something we have not seen since the crash.
So, that brings us to the question - what's happening? A lot in the industry are seeing a big divide between high point and lower point pricing sales. In other words, new homes in the luxury sector are beginning to see movement.
But, FHA and other federal agencies have pushed to open the door to credit after slamming in shut in the face of the financial meltdown of 2009 and blaming mortgage lenders for lending to people who should not have gotten mortgages (even though they qualified at the time of getting their mortgages).
So, for example, FHA has come out with a lower Mortgage Insurance Premium (MIP) for 2015. The MIP is what HUD collects on FHA loans to put in their insurance pot to pay out on foreclosed homes.
A few years back, facing numerous claims on foreclosed homes, HUD raised the MIP to 1.35% of the loan amount. That was a hefty payment. It's been reduced to .500% which is a hefty reduction.
This requires congressional approval, but it means so many more people can now qualify for an FHA loan - or if they could qualify before it means they can either buy a higher priced home or pay less on the home that they wanted initially. Good thing, right?
What about those that declared bankruptcy? If you filed Chap 7 you still need to wait 2-years from the discharge date before you can qualify for an FHA loan. If you filed Chapter 13 the rule is 1 year with the Trustee permission. So, use the time to re-establish your credit with the use of pre paid credit cards that are easily obtained. I'd go to a major bank that offers a Visa or M/C and ask if they will report it on your credit. You want to show that you've taken out - and paid - credit after the bankruptcy and used credit properly to re-establish your credit while you sit out the bankruptcy.
And - if you have declared bankruptcy don't feel defeated or shamed. I know of a mortgage underwriter for a mortgage lender who herself filed Chapter 13 which is listed in the public records. Maybe the person underwriting your loan declared bankruptcy himself or herself. Remember that when you apply for a loan and be honest, sincere and explain what caused the bankruptcy. Overzealous use of credit is not an excuse. Documented loss of work because of the economy or medical reasons are some of the reasons that will assist you in overcoming the black mark on your credit report
And, we're seeing an increase in new home sales on the rise - something we have not seen since the crash.
So, that brings us to the question - what's happening? A lot in the industry are seeing a big divide between high point and lower point pricing sales. In other words, new homes in the luxury sector are beginning to see movement.
But, FHA and other federal agencies have pushed to open the door to credit after slamming in shut in the face of the financial meltdown of 2009 and blaming mortgage lenders for lending to people who should not have gotten mortgages (even though they qualified at the time of getting their mortgages).
So, for example, FHA has come out with a lower Mortgage Insurance Premium (MIP) for 2015. The MIP is what HUD collects on FHA loans to put in their insurance pot to pay out on foreclosed homes.
A few years back, facing numerous claims on foreclosed homes, HUD raised the MIP to 1.35% of the loan amount. That was a hefty payment. It's been reduced to .500% which is a hefty reduction.
This requires congressional approval, but it means so many more people can now qualify for an FHA loan - or if they could qualify before it means they can either buy a higher priced home or pay less on the home that they wanted initially. Good thing, right?
What about those that declared bankruptcy? If you filed Chap 7 you still need to wait 2-years from the discharge date before you can qualify for an FHA loan. If you filed Chapter 13 the rule is 1 year with the Trustee permission. So, use the time to re-establish your credit with the use of pre paid credit cards that are easily obtained. I'd go to a major bank that offers a Visa or M/C and ask if they will report it on your credit. You want to show that you've taken out - and paid - credit after the bankruptcy and used credit properly to re-establish your credit while you sit out the bankruptcy.
And - if you have declared bankruptcy don't feel defeated or shamed. I know of a mortgage underwriter for a mortgage lender who herself filed Chapter 13 which is listed in the public records. Maybe the person underwriting your loan declared bankruptcy himself or herself. Remember that when you apply for a loan and be honest, sincere and explain what caused the bankruptcy. Overzealous use of credit is not an excuse. Documented loss of work because of the economy or medical reasons are some of the reasons that will assist you in overcoming the black mark on your credit report
Friday, January 2, 2015
Lower down payment mortgages back
In an effort to stimulate the economy, Fannie and Freddie have re-introduced the low down payment conventional mortgage.
Fannie and Freddie both had "Low to Mod Income" loans and the "97%" loans available before the mortgage meltdown. Lending became tight as home prices dropped and borrowers defaulted.
After much debate between lenders and the federal government, the national Fannie and Freddie agencies have re-introduced the 3% down mortgage.
Fannie and Freddie usually are more cautious than FHA/HUD. FHA requires 3.5% down (up from 3% before the crisis) with a very low credit score (usually 580, but very few lenders will go that low). Fannie and Freddie are back to 620 credit score
Both require mortgage insurance and typically FHA is not as good. It's usually more costly than a conventional mortgage insurance policy - and you can push off a conventional mortgage insurance policy once you've established enough equity (see your lender's rules regarding this).
So the question is how a lower down payment for conventional loans will impact housing. Overall, it will open the door to those who otherwise would not qualify or did not have enough for their down payment.
But, it also increases the risks of lending - as the less a borrower puts down the less "skin in the game" they have. We can't forget the "keys in the mailbox" route that many borrowers took just a few years ago when they owed significantly more than what their home was worth. That's what happens when the down payments are not enough to make a person feel vested in the transaction.
The second question is what type of credit over lays will there be for the 620 borrower versus the 740 borrower, both with just 3% down? Will it be a point or two points? Will it be via rate? If the rate is higher, how will that impact the DTI and will that then impact the lower income borrower from getting the 3% down loan?
We shall see how this plays out. The banks have not forgotten the costs of mortgage lending, nor should they. Prudence will most likely rule the day on the part of the banks.
Fannie and Freddie both had "Low to Mod Income" loans and the "97%" loans available before the mortgage meltdown. Lending became tight as home prices dropped and borrowers defaulted.
After much debate between lenders and the federal government, the national Fannie and Freddie agencies have re-introduced the 3% down mortgage.
Fannie and Freddie usually are more cautious than FHA/HUD. FHA requires 3.5% down (up from 3% before the crisis) with a very low credit score (usually 580, but very few lenders will go that low). Fannie and Freddie are back to 620 credit score
Both require mortgage insurance and typically FHA is not as good. It's usually more costly than a conventional mortgage insurance policy - and you can push off a conventional mortgage insurance policy once you've established enough equity (see your lender's rules regarding this).
So the question is how a lower down payment for conventional loans will impact housing. Overall, it will open the door to those who otherwise would not qualify or did not have enough for their down payment.
But, it also increases the risks of lending - as the less a borrower puts down the less "skin in the game" they have. We can't forget the "keys in the mailbox" route that many borrowers took just a few years ago when they owed significantly more than what their home was worth. That's what happens when the down payments are not enough to make a person feel vested in the transaction.
The second question is what type of credit over lays will there be for the 620 borrower versus the 740 borrower, both with just 3% down? Will it be a point or two points? Will it be via rate? If the rate is higher, how will that impact the DTI and will that then impact the lower income borrower from getting the 3% down loan?
We shall see how this plays out. The banks have not forgotten the costs of mortgage lending, nor should they. Prudence will most likely rule the day on the part of the banks.
Saturday, December 13, 2014
Tuesday, December 2, 2014
Looser lending misrepresented by press
It's all over google, yahoo and other search engines. Banks are loosening up lending and that will make getting a mortgage easier. Pundits are stating the doors are now opening up for individuals who otherwise would be denied a loan.
But, after the housing crash and the accusations of mortgage misdeeds - demanding that lenders know who they are lending money to - how could this occur?
In actuality, it really is about the documentation. Not the standards of underwriting such as credit scores, how long you're employed or how much you're trying to borrow.
Lenders have gotten into lawsuits with each other and with national agencies such as HUD, Fannie Mae and Freddie Mac demanding what is called a "put back". A "put back", in mortgage parlance, is when a national agency like HUD or a lender who bought a loan from another lender "puts the loan back" to the original lender.
Say you went to a bank and got a mortgage. Your loan probably was sold once or more times since you received the initial loan. That's normal in the industry - it keeps the cash flowing for more borrowers to get more loans.
But, lets' say you miss one or two payments. You had severe medical bills, you were out of the country, whatever the reason - it is not important. What happens? As far as you're concerned, you get late payments (which you do not want) on your credit reported on your mortgage payment history.
However, behind the scenes, the action unfolds. Someone somewhere is tasked with going through your loan and looking at every single document that you provided and that you signed. The intention is to determine one of four things: 1. You signed something incorrectly (a mistake by your original lender) with the wrong date or the wrong information on the disclosure. 2. You lied and are a fraud. 3. The Underwriter made a mistake and improperly underwrote your loan to the proper guidelines. Or 4. There is some paper that has some error or something missing.
The employee who finds this gets a big slap on the back and the company then sends a demand letter to the bank that originally gave you the loan saying "We're sending the loan back to you ("put back") and you need to wire us the money for the loan ASAP or we are going to sue you"
For cases like egregious underwriting errors or fraud, this is common practice
But, this practice was abused by many major banks who kicked loans back and forth to one another and abused by agencies who did not want to insure loans to banks. They looked for simple, tiny, errors that they could use as an excuse to trigger the "put back" or "buy back" clause
After much discussion in Washington, there was an agreement that limits this practice. Because, typically, if an Agency like HUD, Fannie, Freddie or the VA refuse to insure a loan -you can bet that every bank between San Fran and Miami start kicking the loan back and putting it back - because none of them want an uninsured loan.
So, the agencies have come to an agreement to limit the demands to egregious issues and not to smaller items that do not materially change the fundamental quality of the original loans.
This does not translate to easing of credit.
This translates to less lawsuits from "put backs"
After all, if the government is going to legislate to a lender that they can only lend you what you can afford - (google "ability to repay") - do not thing for one second that they just loosened lending up like it was 2002 all over again
But, after the housing crash and the accusations of mortgage misdeeds - demanding that lenders know who they are lending money to - how could this occur?
In actuality, it really is about the documentation. Not the standards of underwriting such as credit scores, how long you're employed or how much you're trying to borrow.
Lenders have gotten into lawsuits with each other and with national agencies such as HUD, Fannie Mae and Freddie Mac demanding what is called a "put back". A "put back", in mortgage parlance, is when a national agency like HUD or a lender who bought a loan from another lender "puts the loan back" to the original lender.
Say you went to a bank and got a mortgage. Your loan probably was sold once or more times since you received the initial loan. That's normal in the industry - it keeps the cash flowing for more borrowers to get more loans.
But, lets' say you miss one or two payments. You had severe medical bills, you were out of the country, whatever the reason - it is not important. What happens? As far as you're concerned, you get late payments (which you do not want) on your credit reported on your mortgage payment history.
However, behind the scenes, the action unfolds. Someone somewhere is tasked with going through your loan and looking at every single document that you provided and that you signed. The intention is to determine one of four things: 1. You signed something incorrectly (a mistake by your original lender) with the wrong date or the wrong information on the disclosure. 2. You lied and are a fraud. 3. The Underwriter made a mistake and improperly underwrote your loan to the proper guidelines. Or 4. There is some paper that has some error or something missing.
The employee who finds this gets a big slap on the back and the company then sends a demand letter to the bank that originally gave you the loan saying "We're sending the loan back to you ("put back") and you need to wire us the money for the loan ASAP or we are going to sue you"
For cases like egregious underwriting errors or fraud, this is common practice
But, this practice was abused by many major banks who kicked loans back and forth to one another and abused by agencies who did not want to insure loans to banks. They looked for simple, tiny, errors that they could use as an excuse to trigger the "put back" or "buy back" clause
After much discussion in Washington, there was an agreement that limits this practice. Because, typically, if an Agency like HUD, Fannie, Freddie or the VA refuse to insure a loan -you can bet that every bank between San Fran and Miami start kicking the loan back and putting it back - because none of them want an uninsured loan.
So, the agencies have come to an agreement to limit the demands to egregious issues and not to smaller items that do not materially change the fundamental quality of the original loans.
This does not translate to easing of credit.
This translates to less lawsuits from "put backs"
After all, if the government is going to legislate to a lender that they can only lend you what you can afford - (google "ability to repay") - do not thing for one second that they just loosened lending up like it was 2002 all over again
Friday, November 14, 2014
Should we loosen up lending?
Reuters reports BOA won’t take the bait from government policy makers to loosen credit
Here’s the rub. While government leaders bemoan the real estate market lackluster recovery and go on Sunday morning talk shows ginning up need for looser mortgage underwriting credit -- one wonders if they are surprised that banks are not only ignoring their cries, but are openly saying “no”.
First, the government called for more home ownership in the 1990’s and pushed for greater capacity by increasing the amount of one’s income used for housing expenses (higher DTI). Then, the government enticed that by tying the higher DTI to handing out candy to banks via CRA credits. Without those CRA credits, banks could not operate fully. So, out came “Low to Moderate Income” loans (“LMI”) and the slippery slide to no income verification loans and the sub prime was greased all the way to 2008 when it crashed.
During the crash the government sold banks on acquiring the now defunct banks. The Banks followed through. BOA took over Countrywide. Wells took over Wachovia. You remember the famous picture of the banks lined up alphabetically in a room with government regulators looking for bail outs for failing banks?
Fast forward from 2008 to 2013 and 2014 and the regulators created by the government went on a PR campaign to blame banks and then fine banks – billions of dollars – for the acts that the government asked them to do.
Politicians felt pretty good. They had banks save the failing banks (and they lent a large sum of money to failing banks themselves) and the went on a new PR campaign blaming banks (not themselves) for the reckless lending, tying it to high profits over sound lending.
So, lending got tight. Now the economy is not recovering as quickly as they would like. So, now they want the banks to loosen up again.
So – after creating the mess, blaming it on the banks, lending untold billions to bail everyone out, failing to tell anyone they got their money back with interest, now the government wants banks to loosen lending?
JP Morgan Chase already said they are re-evaluating FHA mortgages and may exit from it. HSBC pretty much has throttled back. Mortgage brokers are for the most part, extint. Small mortgage bankers are closed. Mid sized mortgage bankers are seeking out marriage partners to survive. Big banks won’t loosen lending. Bank of America said “
In October, the top regulator for the U.S. housing market announced plans to allow many more Americans to buy homes by making a down payment of as little as 3 percent of the purchase price.
But Bank of America CEO Brian Moynihan said at an investor conference his bank hosted on Wednesday that it will require borrowers to make larger down payments "to make sure that can withstand the bumps in the road" of homeownership, such as "unemployment, divorce or sickness."
"I don't think there's a big incentive for us to start to try to create more mortgage availability where the customers are susceptible to default," Moynihan said.
"I know that that doesn't sound good for an instant housing recovery and faster housing markets but it's actually good because in the long term it keeps the housing more fundamentally based," Moynihan added.
Now, is that not what the regulators and government screamed on top of Mount Rushmore about? Isn’t Moynihan giving them what they demanded? As one said, be careful of what you ask for – you may get it.
Harsh? Perhaps. The losers? Sound borrowers with credit scores in the low to mid 600’s who had an issue that they got past and want to buy into a home – who just a few years ago a good underwriter would have worked hard to get them approved for their mortgage. Today – no way without a large down payment and higher credit score.
Why after paying billions of dollars, facing exuberant regulators who do not know the 5-C’s of underwriting but are quick to judge a file’s compliance to underwriting. Years of regulators issuing out “Sanctions” that lenders have to sign or face more severe penalties. Years of dealing with regulators like the North Carolina Commissioner of Banks who simply make decisions and issue out findings without rationale or the New York State Financial Services Department who literally employs individuals who not only have no clue about lending; but can not speak English. Yet, these people can and will close down a company or fine another or issue out edicts. And, that’s the state level. Try facing the feds.
Why would anyone lend a penny more that could default or comes within 10 feet of what was “wrong” two-years ago?
That is like you being told by a policeman that you went 35 miles an hour three years ago when the speed limit was 35 mph, so now you face a 10,000 dollar fine and they release your mug shot. Then, the mayor complains that people are literally doing 30 miles an hour and encourages people to take it up to 35 MPH, the posted speed limit.
I’d be the first to keep it at 30MPH, below the posted high speed limit and above the minimum – just in case someone gets in an accident at 35mph and the police go backwards in time to issue out more tickets again……
Silly? That’s what happened. And, now we must live with that irrationality.
Wednesday, November 5, 2014
Cost of Regulation
According to the MBA, higher costs and concerns about buybacks are
driving the decline in mortgages for home purchases. It will slow to $635 billion this year, a 13 percent drop from 2013.
Banks have constrained home lending to many borrowers deemed creditworthy by mortgage finance companies Fannie Mae (FNMA) and Freddie Mac. Applicants approved for mortgages to purchase homes had an average FICO credit score of 755 in August, according to Ellie Mae, a company that makes software used to process mortgage applications. In contrast, Fannie Mae and Freddie Mac guidelines allow for credit scores as low as 620 for fixed-rate mortgages in some cases.
Lenders reported a 30 percent median increase in compliance costs this year from 2013, according to a survey by Fannie Mae released this month. And 72 percent of lenders surveyed said they spent more on compliance this year compared with last year
Banks have constrained home lending to many borrowers deemed creditworthy by mortgage finance companies Fannie Mae (FNMA) and Freddie Mac. Applicants approved for mortgages to purchase homes had an average FICO credit score of 755 in August, according to Ellie Mae, a company that makes software used to process mortgage applications. In contrast, Fannie Mae and Freddie Mac guidelines allow for credit scores as low as 620 for fixed-rate mortgages in some cases.
Lenders reported a 30 percent median increase in compliance costs this year from 2013, according to a survey by Fannie Mae released this month. And 72 percent of lenders surveyed said they spent more on compliance this year compared with last year
Wednesday, October 29, 2014
FHA Flipping Policy
FHA
flipping policy
In
an effort to stimulate repairs and sales in neighborhoods hard hit by the
mortgage crisis and recession, the FHA waived its standard prohibition against
financing short-term house flips. Before the policy change, if you were an
investor or property rehab specialist, you had to own a house for at least 90
days before reselling — flipping it — to a new buyer at a higher price using
FHA financing. Under the waiver of the rule, you could buy a house, fix it up
and resell it as quickly as possible to a buyer using an FHA mortgage —
provided that you followed guidelines designed to protect consumers from being
ripped off with hyper-inflated prices and shoddy construction.
Thursday, October 23, 2014
Access to Credit
Removing barriers to getting a mortgage
HUD has been talking to their counterparts in the government
about the reduction in FHA loans.
Jamie Dimon from JP Morgan stated in a conference call that perhaps its’ time to
re-think doing FHA loans.
Mortgage Bankers are looking at alternatives to Fannie Mae
and Freddie Mac loans.
Why is all this going on?
Lenders are tired of being sued for lending. That one-sentence probably best sums it
up. The days of subprime mortgages and
bad lenders were cleansed when the market crashed and rinsed and washed a
second time with some valuable Frank-Dodd reforms.
However, the US government continues to sue lenders and
announce large settlements, regulators continue to overzealously enforce
provisions that even they do not fully understand and banks and bankers seek to
settle because the cost of litigating is high, but to litigate your regulator
is toxic.
What choices do lenders have? Lend without using Fannie, Freddie or
FHA. Tighten lending standards above and
beyond what CFPB requires and deny credit to anyone who would have gotten a
loan as recently as 2011. And, lenders
now over underwrite and over request documentation while over disclosing and
demanding proof from the borrower that they received the disclosures to ensure
they are in compliance.
So, HUD and Fannie have taken a step back. HUD is in the process of re-writing their FHA
lending requirements and Fannie and Freddie are looking at providing a more
concise lending matrix that is very clear about how lenders can protect
themselves from claims over bad loans.
The claims over bad loans are a big issue to lenders. Fannie, Freddie and HUD all look to kick a
loan back to the lender for the smallest of things when that loan is,
typically, found to be 30 or 60 days late.
The late payment status of a particular loan triggers a complete review
of the loan. Any “t” not crossed or “I”
not dotted triggers buy back demands.
This then triggers lenders to demand buy backs from other lenders and
the game of “Hot Potato” with Mr. and Mrs. Smith’s mortgage begins. As the game heightens and the loan gets sent
from lender to lender back down the chain, the borrowers find themselves
getting notices that their loan payment is not due to lender X, it’s due to
lender Y now and maybe in 3-months it may be due to lender Z. This hurts everyone and typically is caused
by Mr. Smith forgetting to make the mortgage payment and everyone from Fannie
to the small mortgage banker that originally originated the loan getting
involved in who has what exposure.
Now, Fannie, Freddie and HUD realize that the mortgage
market has gone too far in tightening credit.
They don’t cite the reasons, but the reasons are clearly outlined above
– they and the government went too far and became too punitive following the
market crash of 2008 and 2009.
To ease the situation Fannie, Freddie and HUD know they have
two issues to attack. One is the
reduction in credit to individuals that is pushing potential homeowners into
the rental market and slowing the home buying market. The second is being clear to lenders that if
they lend in good faith and follow the rules, they will not be held accountable
if a loan becomes non-performing.
Recently, Fannie and Freddie announced that they were
working to clarify what constitutes a buy back.
In 2013 they stated that no buy back would be demanded if the borrower
did not miss any payments for three years.
In May they announced that the borrowers could miss two nonconsecutive
payments within three-years without triggering a buy back demand.
The agencies are now working on other issues including small
mistakes (minor clerical errors or missing paperwork that does not alter the
soundness of the underwriting decision made while processing and approving the
loan). That’s a big concern for lenders
because many banks and agencies will look for a missing pay stub or a missing
disclosure to trigger a buy back on a loan that they just want to find a reason
to demand it be purchased because they simply do not want that loan.
Also, fraud is coming into view in the horizon. They are finally looking at what constitutes
fraud and the definition of that. This
is an important point because lenders have met and exceeded due diligence in
making a mortgage to a borrower only later to find out that the borrower was
slick in providing false and misleading information to the lender to induce the
lender to provide a mortgage. This has
led many lenders to close, others to be wrongfully accused of fraud and yet
still others to lose a lot of money on fraudulent loans. And, this problem, comes from consumers and
individuals outside the mortgage industry.
The general public has been sold the story by the US Government that the
bad guys are the mortgage professionals and they do not know the story of the
bad person who may be living next door to them that pulled off a sophisticated
mortgage fraud scheme to acquire their home (which, is the equivalent of
stealing hundreds of thousands of dollars from a bank but since it was not done
with a stick up they are not, in many cases, being prosecuted. Instead, the lenders is being scrutinized by
investigators from three, four and five federal agencies looking for anything
to indict a company or staff of a felony; when in fact they were a victim. Most people don’t view lenders as victims
following the outrage of the crisis and the shrill voice of uniformed
politicians throwing red meat to the angry voter)
So, how does the government provide lenders with the
protections that they need so that they can make solid, good loan decisions
based on information provided to them and received by them using third party
tools to verify said information without fear of being second-guessed later
on?
How does the government reduce angst by lenders so that they
loosen up credit?
And, how does the government address the fraud question and
determine who is culpable (and this is a sticky one because, in the defense of
the government, anyone could have committed the crime since there’s gain to be
had for everyone in the process from the lender to the loan officer to the
borrower to the attorney to the realtor and so on).
Well, that process has begun.
Fannie & Freddie are coming out with new “road rules”
that address buy backs and addresses expanding credit to borrowers with lower
down payments. And, they’ve begun to
attack the buy back issue along with the fraud issue.
HUD also has begun that process
So, it may be a new day in the mortgage industry where saner
heads prevail and the adults take control of the room from the crazy kids who
ran rampant.
Perhaps returning to vanilla products that were available
before Clinton pushed for expanded home ownership is a sound decision. Perhaps throwing in a few more products like
one or two expanded ratio products geared specifically to LMI borrowers as
defined by HUD medium incomes, issued by Fannie/Freddie is wise. Sticking to
basic DTI’s and sticking to basic credit requirements is key.
In 1995 the mortgage market began to see the lugs that held
the wheels to their cars loosen when first the government announced that
certain minorities lacked access to traditional credit and an underwriter could
use alterative credit sources – and such began the process of tiered credit
(Tier I, Tier II and Tier III credit) that could be used instead of traditional
credit reports.
That lead to tossing the basics out of underwriting and off
loaded tax returns, eliminated proving income, went off only credit if the
borrower put “enough down” and lent to borrowers at higher and higher DTI’s to
get the coveted CRA’s from the government.
That was insanity.
And, that led to the subprime market.
And, that is a story the government does not want told - its’ to arcane a story to tell and the
public would prefer to dumb down what happened and blame the lenders. This works for the likes of Barney Frank who
pushed for the very rules he railed against in hearings in 2008 and 2009.
Maybe now we realize that too far left and too far right is
simply too far. Perhaps we now get that
lending soundly means lending rules should be clear, concise and across the
board. The basic underwriting tools used
from the 1990s were sound,: they should be used universally.
Borrowers who don’t meet the criteria of vanilla conforming
or vanilla govy loans or even vanilla expanded credit loans (lower LTV) should
be viewed as tomorrow’s borrower. Not
today’s reject or the need for some politician to interject about unfair and
discriminatory lending demanding new lending laws.
Lenders and agencies need clear rules of the road that
dictate when a loan does not conform to agencies guidelines or regulations that
then does trigger a buy back.
And, regulators and the government need to let people know
that they will prosecute Joe Blow for lying on his mortgage application and
getting a mortgage in addition to prosecuting rings of thieves who do so and
rings of those in the industry who do so.
Breaking lending laws is not just the provence of those inside the
lending industry.
Saturday, October 11, 2014
Editorial: What are we to think of CPFB action against M&T?
M&T Bank signed a consent order and settled with the CPFB, in essence stipulating that they are to refund bank account fees to consumers who had opened accounts advertised as "free accounts".
What got M&T Bank in hot water was not that they did not offer this product.
In essence M&T Bank was spanked for two reasons: 1) M&T bank failed to tell the consumer that this particular free account required a threshold of transactional history to qualify as a free account. 2) M&T Bank automatically transferred customers accounts to fee accounts if their account did not qualify transactionally for the free one that the consumer initially opened. 3. And, M&T did not notify their customer that they were going to be moved to the new account automatically.
Regulators have, for a long time, overseen banks advertising. False or misleading advertising to lure customers has always been a hot button issue. State and Federal regulations have even gone so far as to stipulate that the font size be of a certain number.
New York, where M&T is headquartered (Buffalo) has since the 1990's (and maybe before) stated clearly that deceptive ads were a very large concern. This is why NYS was one of the first to push that anyone who advertised "no fees" on, say a mortgage transaction, make sure that they list the APR that shows clearly the fees are being rolled into the loan amount forcing the APR higher when compared to a fee based mortgage transaction, for example.
So, while M&T states this is a new regulation and one that they are compliant today, they are probably on face value stating the truth.
But, at the end of the day, advertising free and then moving clients to fee-based products and not telling them never was viewed by regulators as proper.
That is why advertising for financial products must be transparent and truthful so that consumers are not being nickeled and dime'd that, when taken in the aggregate, brings a large swath of cash to an institution.
So, M&T stating that the CPFB was not in existence and the rules are changing is correct. And, M&T's statement in essence that they are in compliance probably correct.
But truthful advertising has always been a mainstay of regulators.
And, M&T's actions at the base level were certainly not ethical.
What got M&T Bank in hot water was not that they did not offer this product.
In essence M&T Bank was spanked for two reasons: 1) M&T bank failed to tell the consumer that this particular free account required a threshold of transactional history to qualify as a free account. 2) M&T Bank automatically transferred customers accounts to fee accounts if their account did not qualify transactionally for the free one that the consumer initially opened. 3. And, M&T did not notify their customer that they were going to be moved to the new account automatically.
Regulators have, for a long time, overseen banks advertising. False or misleading advertising to lure customers has always been a hot button issue. State and Federal regulations have even gone so far as to stipulate that the font size be of a certain number.
New York, where M&T is headquartered (Buffalo) has since the 1990's (and maybe before) stated clearly that deceptive ads were a very large concern. This is why NYS was one of the first to push that anyone who advertised "no fees" on, say a mortgage transaction, make sure that they list the APR that shows clearly the fees are being rolled into the loan amount forcing the APR higher when compared to a fee based mortgage transaction, for example.
So, while M&T states this is a new regulation and one that they are compliant today, they are probably on face value stating the truth.
But, at the end of the day, advertising free and then moving clients to fee-based products and not telling them never was viewed by regulators as proper.
That is why advertising for financial products must be transparent and truthful so that consumers are not being nickeled and dime'd that, when taken in the aggregate, brings a large swath of cash to an institution.
So, M&T stating that the CPFB was not in existence and the rules are changing is correct. And, M&T's statement in essence that they are in compliance probably correct.
But truthful advertising has always been a mainstay of regulators.
And, M&T's actions at the base level were certainly not ethical.
Friday, October 10, 2014
CFPB Takes Action Against M&T Bank for Deceptively Advertising Free Checking
M&T to Refund $2.9 Million to Approximately 59,000 Account Holders Who Paid Fees for Free Checking
WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) took action against M&T Bank for deceptively advertising free checking accounts. The CFPB found that M&T lured in consumers with promises of “no strings attached” free checking, without disclosing key eligibility requirements. When consumers failed to meet the requirements, M&T automatically switched them to checking accounts with fees. M&T will provide $2.9 million in refunds to the approximately 59,000 consumers deceived into paying fees and it will pay a $200,000 penalty for the violations.
“Although M&T promised people free checking, tens of thousands of consumers ended up paying for a product they had thought was free,” said CFPB Director Richard Cordray. “This is an important reminder to all banks and credit unions that they cannot misstate to consumers whether a financial product or service is free. Today we are putting $2.9 million back in the pockets of consumers as a result.”
The M&T consent order can be found at:http://files.consumerfinance.gov/f/201410_cfpb_consent-order_m-t.pdf
M&T Bank, headquartered in Buffalo, N.Y., is a retail bank that offers various deposit account products and has hundreds of branches in the northeastern U.S. During a routine CFPB supervision exam, the CFPB found that M&T was advertising a “Free Checking” account, then converting many consumers into a fee-based “M&T First” account. Banks and credit unions are prohibited from deceptively advertising deposit accounts. If an account is described as free or no cost, it cannot, for example, have any maintenance or activity fees, or any fees to deposit, withdraw, or transfer money.
The CFPB found that M&T:
- Deceptively advertised checking accounts with no strings attached:M&T’s free checking account advertisements included such ads as, “Untangle yourself from monthly service fees. Get a free checking account at M&T. No strings attached.” But M&T did not disclose in such ads that the free checking account customers had to maintain a minimum level of account activity with deposits and withdrawals to maintain the free account. These kinds of ads for free checking ran in various geographic regions through mediums including television, print, and radio. M&T also marketed the free checking accounts to its customers on their account statements and on ATM screens and receipts.
- Automatically converted many free checking accounts into accounts with fees: If there was no account activity for 90 days, M&T automatically converted the “Free Checking” accounts to “M&T First” checking accounts. Consumers with “M&T First” accounts who failed to maintain an average or combined monthly balance of $1,500 were charged fees of $5 to $14 per month.
- Did not adequately alert consumers to the account conversions: The only indication customers received that their “Free Checking” account had been converted to an “M&T First” account due to account inactivity was that “M&T First” would appear on account documents, such as paper statements.
During the period covered in today’s order, M&T converted approximately 80,000 “Free Checking” accounts to “M&T First” accounts. Of those, about 59,000 were charged account fees because they did not meet the $1,500 threshold required in the “M&T First” accounts. M&T assessed approximately $2.9 million in monthly maintenance fees from these consumers.
Enforcement Action
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices. Today’s order covers from Jan. 1, 2009 to Sept. 25, 2012, when M&T stopped the conversions. Among the things the CFPB’s order requires of M&T:
- Refund $2.9 million to consumers: M&T must refund each of the approximately 59,000 affected consumers the sum of all monthly maintenance fees they paid under the “M&T First” accounts. If the consumers have a current checking, savings, or money market account with the bank, they will receive a credit to their account. For closed or inactive accounts, M&T will send a check to the affected consumers or reduce charged-off balances by the amount they were charged in fees.
- Update credit reports: In the cases where M&T closed an account due to a negative balance, M&T will provide updated information to each credit reporting agency to which M&T had previously furnished information.
- End all deceptive advertising: M&T cannot misrepresent, or assist in misrepresenting, that a checking account is free when the terms and conditions of the account impose account activity requirements or when the account will convert to an account with monthly maintenance fees if the account activity requirements are not met.
- Pay a $200,000 fine: M&T will make a $200,000 penalty payment to the CFPB’s Civil Penalty Fund.
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