Abacus Bank, New York and the US Government

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

Mortgage Brokers versus Mortgage Bankers - Function and Purpose

The Funding Source opened in Syracuse, New York, in 1996 as a state-approved mortgage broker. Five years later, The Funding Source of Syracuse received its approval from the New York State Department of Banking to become a mortgage banker.

Both a mortgage broker and a mortgage banker help borrowers to secure the funds that they need to purchase property. The difference between the two lies in the way that each sources a loan and arranges for its dispersal to the customer.

Rather than providing financing directly, a mortgage broker serves as an intermediary between a borrower and a lender or a bank. The broker is able to shop for different rates and packages in order to provide choice to the customer.

A mortgage banker, by contrast, provides financing on a retail basis directly to the customer. The banker gathers all appropriate information about the property and the customer, then uses that information to select loans for which that customer would qualify. The banker can only offer in-house products but does not charge a commission or broker fee. As a result, a banker can often provide the borrower with a comparatively lower rate.

Countrywide, Bank of America, Met Life Bank and a One Hundred and Twenty-three million dollar fine over mortgages

Countrywide, Bank of America, Met Life Bank and a One Hundred and Twenty-three million dollar fine over mortgages

From Denver, news has been announced that Met Life has entered into an agreement to pay 123 million dollar penalty in response to allegations from the government that MetLife Bank approved loans that did not comply with federal underwriting standards and therefore the borrowers did not qualify for the loans approved by MetLife Bank.

The US Attorney in Colorado announced the agreement recently stating that MetLife Bank approved loans for borrowers who did not comply nor qualify under government rules and regs for federally backed mortgages.

Basically, the allegation is that Met LifeBank approved borrowers who did not qualify for FHA loans and put those loans into the FHA insurance program expecting HUD to pay the banks should those loans go into default. If a loan certified for FHA insurance defaults, the holder of the loan may submit an insurance claim to the FHA for the losses resulting from the defaulted loan.

The US Attorney stated “MetLife Bank took advantage of the (Federal Housing Administration) insurance program by knowingly turning a blind eye to mortgage loans that did not meet basic underwriting requirements, and stuck the FHA and taxpayers with the bill when those mortgages defaulted,”

“MetLife Bank took advantage of the (Federal Housing Administration) insurance program by knowingly turning a blind eye to mortgage loans that did not meet basic underwriting requirements, and stuck the FHA and taxpayers with the bill when those mortgages defaulted,” the US Attorney stated.

MetLife Bank, Walsh said, was among many banksc ountry whose irresponsible lending practices contributed to a “catastrophic wave of home foreclosures across the country.”
MetLife Bank, which was headquartered in Bridgewater, N.J., merged in June 2013 into MetLife Home Loans, an Irving, Texas, mortgage finance company. It had been a “Direct Endorsement Lender” in the FHA’s insurance program.

“MetLife Bank’s improper FHA lending practices not only wasted taxpayer funds but also inflicted harm on homeowners and the housing market that lasts to this day,” said acting assistant attorney general Joyce R. Branda of the Justice Department’s civil division.

From September 2008 through March 2012, MetLife Bank repeatedly certified for FHA insurance mortgage loans that did not meet HUD underwriting requirements.

Between 2009 and August 2010, up to 60 percent of the loans administered by MetLife Bank had “the most serious deficiencies,” the news release says. MetLife Bank’s senior managers, including the CEO and board of directors, were aware of the troubling statistics, according to the release.

EDITORIAL: 

(Opinions expressed herein are editorial in nature and based on opinion summarized from factual events and in no way is based on the case and facts cited above)

It is important to remember history is the indicator here. There once was a giant banker in California called “Countrywide” that was feared by its’ competitors because they set up branches everywhere, gave their employees the ability to approve mortgages and were a monster origination firm.

Met Life, an insurance company, decided to get into the mortgage business. That makes sense because insurance companies buy mortgages as an investment to get interest payments to pay out on life insurance premiums, using the proceeds of life insurance payments from the insured.
This was done  before in the late 80’s and early 90’s when various well known insurance companies opened up mortgage bankers. 

It was viewed as a way to get mortgage backed loans by insurance companies, as investments at a lower price point, than buying them through retail channels after those loans are funded, sold, bundled and ready to go.

When Countrywide stumbled, Bank of America (BOA) took them over. BOA did so at the behest of the US Government in its’ attempt to stop the financial meltdown.

BOA has a strong interest in Countrywide at that time.  BOA was very interested in using the Countrywide origination software platform and integrating that into the BOA platform. The Countrywide software was called “CLUES” and it was powerful in it’s day. It was a front end and back end IT magical system that integrated so many moving parts of the mortgage process that it made originating and closing a loan almost seamless. BOA saw value in that.  It was the backbone that made Countrywide a powerhouse mortgage company.

After acquisition, BOA found out what everyone in the mortgage business who did not work at Countrywide knew:   Countrywide valued quantity and profit to such a degree that the used car salespeople of the mortgage world went to Countrywide to get bigger commission and in turn brought more business because they cut corners (broke the law in many cases) and their Realtors (r) did not care “so long as the deal closed” - cutting out the reputable professional loan officers who made sure that their loans complied with the credit policies of the product their borrower was applying.  As a result, the professional loan officers lost business, were shut out and moved to other industries because the wild west Countrywide loan officers were eating their dinner, desert and leaving no crumbs behind

BOA knew they had quite a few bad apple loan originators when they took over Countrywide. To their credit they quickly made adjustments in pay, systems, and other areas to stop the wild cowboy atmosphere at Countrywide. To BOA’s shame, the countrywide CLUES system was good they proceeded anyway, which in the end caused BOA to pay out on legacy Countrywide loans that soured. 

The Countrywide loan officers were known as used car salespeople by their competitors at Banks, Bankers and Brokers who were true professionals.  BOA should have looked at that as a very strong indicator of what they were purchasing in Countrywide, instead of thinking that they could become the new Countrywide in the new mortgage world order

As a result of the changes by BOA, the former Countrywide loan officers became unhappy with the “constraints” that BOA placed on them following their freedom at Countrywide.  Many made upwards and over $200,000.00 dollars a year in commissions simply for taking a mortgage application and had in-house staff that approved those loans (no "Chinese wall" to stop influencing of processors with credit approvals and in some cases, those who approved the loans reported to the sales manager and not an Operations Manager -a case ripe for abuse).

So the ex-Countrywide loan officers left.

Where did they all go?

The vast majority went to…………MetLife. 

And MetLife kept them on until regulatory changes came along and Met Life had to transition to a Bank in order to keep some of the loan officers who could not be licensed. 

Why? Because Sen Warren, in one of the only good things that she did, established the National Mortgage Licensing System (NMLS) - under the Consumer Financial Protection Bureau (CFPB) that set standards and required that people who originated loans be licensed. 

To get licensed to originate mortgage loans a person must go through a strenuous background check, a credit check and take courses and then pass various tests. 

Unfortunately, many of the former Countrywide,officers could not pass the background test, let alone pass the tests. 

Sen Warren, who is anti banking as they come, is not as bright as her liberal mob pit fans think. The reason is she left a huge loophole in the licensing of loan officers that consumers do not know about and she has left consumers exposed and at danger.

The CFPB and the NMLS system forced individuals who worked for Mortgage Brokers and Mortgage Bankers to pass the background tests to become licensed.

Those mortgage loan officers who worked at a bank were exempt from taking the tests and the courses.

That is right, they said that if you worked for a Mortgage Broker or a Mortgage Banker you had to be licensed through the NMLS, have a background, take the courses and pass the tests

But…..yes….it is true as ridiculous as it sounds —— Sen Warren's CFPB exempted banks from this requirement. 

Banks simply had to sponsor their mortgage loan officers in the NMLS system and give them an NMLS number. 

To the consumer, a bank loan officer had an NMLS number. A Mortgage Banker Loan Officer had an NMLS number. So, there was no difference to the consumer.

In reality, the bank loan officer had no professional requirement to get that NMLS number. It was as simple as entering their name and clicking a button for the bank loan officers.

Met Life for many reasons, but also because they did not want to lose the  high producing loan officers who were unable to pass the background tests or unable to pass the courses mandated by the licensing of a non-bank simply applied and became a Bank. 

As a result, Met Life Bank no longer required the cowboy high commission loan officers who brought in a lot of business to be go through a rigorous licensing process.

They could get their NMLS numbers at Met Life Bank and continue to be sloppy loan officers driven by commissions with little moral and ethics driving their production. 

All they needed was  the desire to earn six figures a year. And, this was just fine with everyone. 



Not all Metlife loan officers fit this description by a long shot.  However, it is a known fact that MetLife Bank had the vast majority of Countrywide loan officers.  And, the many of the Countrywide loan officers were high producing loan officers who came from a culture of no restraint, cutting corners and breaking rules in order to sustain the high volume that they produced.

No bank, banker or broker who followed the rules and underwrote loans in compliance with government requirements had a shot at recruiting these loan officers from Met Life.







The result was, literally, Met life Bank had a lot of Countrywide sales managers  opening Met Life Bank branches in every town in the United States. In some cases, there were two or three Sales Managers who disliked one another.  Met Life simply opened up separate offices in the next town over to assuage the egos of the Managers so they would feel self-important and self-directed, bring their loyal high producing loan officers with them and operate as stand alone branches with autonomy. 

This brought in loans to Met Life and this was what Countrywide did.

It also brought in poorly originated, poorly underwritten and most likely non-compliant loans into Met life.

At some point Met Life either realized the risk and exposure or had other regulatory concerns.  Regardless, Met Life quickly and abruptly exited and closed their mortgage business. 

The Met Life loan officers then moved onward and split up in different directions because there was no large mortgage company (like a Metlife or a Countrywide) that would take them all.  This is because the mortgage regulatory environment had changed to such a degree that this business model was viewed as too risky for lenders.

As a result, some loan officers left the business because it was clear to them that there was no safe harbor anymore to do business they way they were used to doing it. 

Others, found lenders licensed as banks where they could continue onward.  This may have been a risk that some of these banks felt they could sustain as they were not taking hundreds or thousands of Countrywide loan officers - just a few high producers who they could monitor from a distance to mitigate risk.

However, there were others who were able to pass the NMLS licensing requirements.  That group of ex-Countrywide/MetLife loan officers quickly found small and mid-sized Mortgage Bankers and cut deals.  Some cut large commission deals for themselves.  Others went to mortgage bankers and brought with them a lot of business with a caveat.  They took over the control of the mortgage banker.  There is one in that literally changed their name and handed complete control to a Sales Manager to run the entire operation, unknown to Federal and State regulators.  

As a result, there are many mid sized mortgage bankers that today are making a lot of money from the ex Countrywide, BOA, Met Life loan officers.

The owners of these Mortgage Bankers are doing exactly what Met Life and Countrywide managers  did - -sit back and let those loan officers take control of their operations and systems in return for the commissions and volume.  Which is fine, provided they are compliant.  However, the ex Met Life Sales Managers no little to nothing about compliance and Operations nor risk management and underwriting.

In time, that will lead those mortgage bankers to the same fate as Countrywide, the same fate as Met life. They will implode and the owner will be left holding the back.

Only BOA was smart enough to say “good bye, it’s our way or the highway” to this group of originators.

And Sen. Warren was stupid enough to allow banks to get away with not properly licensing loan officers - leaving consumers victims to prey by individuals unable to pass basic licensing requirements of the NMLS system.

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.

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:

M&T Bank accused in lawsuit of New York City lending bias

BY JONATHAN STEMPEL

NEW YORK Tue Feb 3, 2015 3:44pm EST

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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)

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.

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

Bank fund pay outs

 How bank funds are being spent:

 

http://www.wsj.com/articles/new-york-gov-andrew-cuomo-legislators-jockey-over-bank-settlement-proceeds-1418436720?mod=WSJ_hps_MIDDLE_Video_second 

 

Just clicking on the above link will take you to the fight over the bank settlement funds in New York State.  One city wants water pipes.  Another wants a bridge.  The state wants economic development.

 

But....wait.  Wasn't this from the big, bad, criminal banks?  Wasn't this over the mortgage crisis - they lent money recklessly to make bazillions from unsuspecting citizens?

 

If that premise is correct, and the government is fully repaid on the monies lent out, with interest, why are these proceeds not going to the victims?

 

Does this not remind you of the 1990's and the lawsuits against the cigarette manufacturers? 

 

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

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.

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

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.

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.