Default Mode: How Ocwen Skirts California’s Mortgage Laws

Capital and Main  | by  David Dayen
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The following story was reported by Capital and Main and published here in collaboration with The Huffington Post.

Lost documents. Incomplete and confusing information. Mysterious fees. Payments received but not applied. Homeowners waiting for a loan modification and suddenly placed in foreclosure. A nightmare of uncertainty, frustration and fear.

These incidents, described to me by numerous homeowners, mortgage counselors and defense lawyers, were supposed to be a thing of the past in California. After revelations of fraud and abuse throughout the mortgage business, including tens of billions of dollars in corporate penalties, state Attorney General Kamala Harris pushed through the 2012 California Homeowner Bill of Rights (HBOR), designed to standardize conduct by mortgage servicers – those companies that manage day-to-day operations on mortgages by collecting monthly payments and making decisions when homeowners go into default and seek help.

Yet one company allegedly committed all these HBOR violations: Ocwen, the nation’s fourth-largest mortgage servicer. According to the complaints, Ocwen (“New Co.” spelled backwards) either skirts around the edges of California law or simply ignores it, causing headaches for homeowners – and potentially illegal foreclosures. (Ocwen did not respond to a request for comment for this article, but in the past, it has pointed to its track record of assisting homeowners to avoid foreclosure.)

“Ocwen is one of the worst servicers in the state,” says Kevin Stein, Associate Director of the California Reinvestment Coalition, a nonprofit advocate for low-income communities.

Ocwen may not even be aware of the rules of the road. One lawyer, who requested anonymity because his client is currently negotiating with Ocwen on a mortgage, described a conversation with one of the company’s specialized home retention consultants. The lawyer asked the Ocwen representative about the servicer’s HBOR compliance efforts and the representative replied that she had never heard of the statute, had no training for it and knew of no process established to conform to it.

“Ocwen doesn’t give a hoot about the Homeowner Bill of Rights,” the lawyer told me. “They ignore the statute. It’s cheaper for them to ignore than to implement.”

Ocwen’s suspected flaunting of the law could be traced to its aggressive growth strategy. Until the past few years, the largest mortgage servicers were divisions of major banks, such as Bank of America, JPMorgan Chase and Wells Fargo. After being sanctioned for their own misconduct, these banks were forced to adhere to new servicing standards that increased their costs, as well as new, higher capital requirements associated with servicing that came from the Dodd-Frank financial reform law. As a result, banks commenced a fire sale, selling off trillions of dollars in servicing rights to non-bank firms like Ocwen. These non-bank servicers don’t own the loans, only the rights to service them, in exchange for a percentage of the monthly payments.

Ocwen calls itself a “specialty servicer,” with a particular focus on subprime mortgages, loans that often come to them already in trouble. Managing delinquent loans is a “high-touch” business, demanding lots of personnel to work with homeowners to negotiate affordable payments or foreclosure proceedings. Yet Ocwen has claimed to its investors that it can service these loans at 70 percent lower costs than the rest of the industry, raising red flags from regulators.

“I don’t think you can handle subprime mortgages by being efficient, with better computers,” says Benjamin Lawsky, head of New York’s Department of Financial Services. “You’re going to have a lot of people looking for help, and they’re not just a number, they’re real people with real problems who need help in real time, right now.”

What Ocwen calls efficiency has already led to significant misconduct. The Consumer Financial Protection Bureau (CFPB) and 49 states, including California, fined Ocwen $2.1 billion last December for “violating consumer financial laws at every stage of the mortgage servicing process.” Many of the stories from California homeowners mirror the charges in the CFPB settlement – overcharging homeowners, misplacing documents, illegal denials of loan modifications and more. And Ocwen also violates HBOR, the controlling state law for mortgage servicing.

Janice Spraggins of NID Housing Counseling Agency says that Ocwen failed to honor prior agreements that her clients secured with their old mortgage servicers. This is consistent with a recent report from CFPB citing numerous problems with mortgage servicing transfers, including lost documents, unapplied payments and homeowners who, having already started down the road to fixing their problems, have had to start all over again.

“The homeowner goes to the back of the line,” Spraggins says. “For whatever reason they’re not on the same page [as Ocwen].”

Other homeowners complain about how Ocwen satisfies the state requirement for a “single point of contact” — the one individual who is aware of their unique situation and who they can consult for timely updates on the status of their loan. Ocwen designates a “relationship manager” to handle these cases.

But homeowners say they get no specific email or phone number for their relationship manager; they must call the main customer service line, schedule an appointment and wait to hear back. The relationship manager, Ocwen clients allege, doesn’t always call at the designated appointment time, meaning the homeowner must go through the process all over again, dealing with customer service reps who frequently give out contradictory or misleading information.

“It doesn’t appear to be in compliance,” says Lauren Carden of Legal Services of Northern California, when describing Ocwen’s procedures. “They give you a single point of contact, but if you can never reach them, effectively you don’t have one.” Carden cited one client who tried for four months to reach their relationship manager, and only got the person on the phone once.

Saleta Darnell, a Los Angeles County child-support officer who lives in South Los Angeles, criticized Ocwen for adding charges to her loan, which the company took over from GMAC.

“I had a $1,389 monthly payment. When it got to Ocwen, the payment went up to $1,469,” Darnell says, adding that Ocwen had increased the total loan balance by $60,000 without explanation. Darnell immediately requested a loan modification. After several weeks of waiting, Ocwen notified Darnell by mail that she didn’t qualify for anything but an “in-house” modification. The in-house mod lowered the balance to the original amount, but with a significantly higher monthly payment of $2,316, more than half Darnell’s take-home pay.

LaRue Carnes, a Sacramento homemaker, needed a loan modification after her husband lost his job nearly two years ago. OneWest Bank transferred her loan to Ocwen last August. She had trouble getting her relationship manager on the phone, and had to deal with customer service representatives, often located overseas with limited English proficiency, who, Carnes says, never told her the same information twice.

“Dealing with the people answering the Ocwen line has been some of the most frustrating conversations of my life,” Carnes says.

Carnes says Ocwen lost the financial documents she submitted for her loan modification application on four separate occasions, which would violate state HBOR prescriptions for timely responses. Meanwhile, in the months of waiting, the family’s arrears ballooned from $11,000 to $54,000. And Ocwen would not post the payments Carnes did send in on time until as late as the 18th of the month, triggering additional hits to the couple’s credit report.

“How can you not process a check within your own system?” Carnes wondered. “I don’t understand how a company can do business like that.”

One reason is that Ocwen has a captive audience. Homeowners have no say in who services their loan. They get passed around from one company to the next, with the servicer having enormous power to tack on fees, deny loan modifications or pursue foreclosure. Homeowners experiencing difficulties must still work with Ocwen to keep their homes, creating pressure against speaking out. One lawyer had an Ocwen representative respond to a threat of a lawsuit for HBOR violations by asking, “Does your client want a modification or not?”

The homeowner who requested anonymity because of an ongoing negotiation submitted a completed loan modification application to Ocwen, only to find a notice of default taped to his front door. A completed loan application is supposed to freeze the foreclosure process while the servicer decides on eligibility, preventing a practice called “dual tracking,” perhaps the most serious HBOR violation. The homeowner, in this case, said he never received a letter required by California law, confirming receipt of the initial application, and was not assigned a single point of contact for months. In December, while waiting for an answer on a second application, the homeowner received notice of the pending sale of his property at auction. This led to the phone call, where an Ocwen representative claimed to never have heard of HBOR.

Attorney General Harris has urged homeowners to file any HBOR complaints with her office. That information goes to the Mortgage Fraud Strike Force and a state-appointed monitor for foreclosure-related matters, who spots trends and works with servicers on compliance. This can help at the margins but homeowner advocates are seeking stronger measures.

“There have been good reports about the monitor resolving problems on individual cases,” says Kevin Stein of the California Reinvestment Coalition. “But we would love to see the Attorney General more involved.”

In addition, under HBOR homeowners have a “private right of action” to hire legal counsel and sue Ocwen over violations. However, a California State Bar ruling stipulates that lawyers cannot collect fees for their services in loan modification-related cases prior to their completion. While this protects homeowners from foreclosure rescue scams, where lawyers would take money up front and skip town, it has significantly damaged HBOR enforcement. Though the HBOR statute includes provisions for attorney fees, the Bar ruled that HBOR suits are related to loan modifications, meaning that lawyers must for a period of time litigate for free against legal teams working for deep-pocketed servicers.

“I’m aware of many lawyers who have said, I can’t do this,” says one lawyer. “What appears to have been a good idea is now about as dangerous [for Ocwen] as wading into a pond and getting bitten by a guppy.”

The CFPB continues to investigate violations of its federal mortgage servicing laws. And Lawsky, the New York banking regulator, stopped a deal to transfer $39 billion in mortgages from Wells Fargo to Ocwen, citing concerns about Ocwen’s capacity and its relationships with subsidiaries that profit off Ocwen foreclosures, raising the possibility of conflicts of interest. Ocwen executive chairman William Erbey said on an earnings call that this has frozen all servicing transfer deals, stunting the company’s growth. Erbey runs four separate subsidiary corporations, including Altisource, which buys foreclosed properties to turn them into rentals. Critics argue that this gives Ocwen incentive to push homes into foreclosure, so Altisource can profit from them. But without new mortgage servicing rights to purchase, Erbey’s grand scheme will falter. In fact, Ocwen’s first-quarter earnings fell below expectations and the stock has sunk as regulatory scrutiny has increased.

But this doesn’t comfort those homeowners stuck with Ocwen, who have labored for years to get clarity on whether they can keep their homes. Some of these homeowners may yet get the modification they need – one Ocwen client I’ve spoken to is about to start a trial payment plan and another is negotiating terms. Still, the struggle exacts a real toll, both in financial terms with late fees and increased arrears, but also on an emotional level. Waking up day after day without knowing if you’ll have to pack up all your possessions and leave your home creates feelings of humiliation and shame that can’t be measured in dollars.

“We need to start repairing our credit, our good name,” says LaRue Carnes.

Meanwhile, homeowner advocates grumble that Ocwen executives, and their counterparts at other servicers, do not share such worries, because violating the law makes more financial sense to them than following it.

“All the power resides in the servicer,” says the anonymous lawyer. “Plainly they don’t care.”

(David Dayen is a contributing writer to Salon who also writes for The New Republic, The American Prospect, Politico, The Guardian and other publications. He lives in Los Angeles.)

Refinances Seen Falling to 38 Percent Market Share in 2014

Feb 4 2014, 1:16PM

Homeowners who refinanced through Freddie Mac in 2013 continued to display fiscal restraint, choosing fixed rate mortgages, keeping essentially the same mortgage balance, and in many cases opting for shorter-term loans to build equity more rapidly.  In doing so homebuyers who refinanced during the year will save approximately $21 billion on net over the first 12 months of their new loans.

The results of Freddie Mac’s fourth quarter refinance analysis showed borrowers are continuing to take advantage of low rates, with the refinancing shaving an average of about 1.5 percentage points off of their old rate; or an average reduction of 25 percent.  On a $200,000 loan this translates into $3,000 in interest over 12 months.  Homeowners who refinanced through the Home Affordable Refinance Program (HARP) benefited from an average rate reduction of 1.7 percentage points and will save an average of $3,300 in interest during the first 12 months.

Thirty-nine percent of those who refinanced during the fourth quarter of 2013 shortened the term of their loan compared to 37 percent in the third quarter.  This was the highest percentage since 1992.  Homeowners who refinanced through HARP continued to take advantage of incentives offered by the program to shorten loan terms with 42 percent choosing to do so compared to 35 percent of those financing outside of HARP.  Only 5 percent of borrowers picked longer loan terms for their new loans.

Only $6.5 billion in net home equity was cashed out through refinancing in the fourth quarter compared to $7.1 billion in the third quarter.  . The peak in cash-out refinance volume was $84 billion during the second quarter of 2006. Another $6.1 billion was used to consolidate home equity loan balances into the first mortgage at the closing table.  About 83 percent of those who refinanced their first-lien home mortgage maintained about the same loan amount or lowered their principal balance by paying in additional money at the closing table. That’s just shy of the 88 percent peak during the second quarter of 2012.

During the entire year the total cash-out from refinancing was $32.1 billion compared to $320.5 billion during the 2006 peak.  Adjusted for inflation, annual cash-out volumes during 2010 through 2013 have been the smallest since 1997.

More than 95 percent of refinancing borrowers chose a fixed-rate loan. Fixed-rate loans were preferred regardless of what the original loan product had been. For example, 94 percent of borrowers who had a hybrid ARM refinanced into a fixed-rate loan during the fourth quarter. In contrast, only 3 percent of borrowers who had a fixed-rate loan chose an ARM.

The median age of a mortgage that was refinanced during the quarter increased to 7.0 years, the oldest median since Freddie Mac began its analysis.  The company said this reflected the duration of prevailing low interest rates; that is few homeowners who took out their mortgages within the last four year have much incentive to refinance.

Frank Nothaft, Freddie Mac vice president and chief economist said, “Our latest refinance report shows the refinance boom continued to wind down as the pool of potential borrowers declined and as mortgage rates increased during the second half of 2013. We are projecting the refinance share will be just 38 percent of all originations in 2014 as refinance falls off further and the emerging purchase market consumes a bigger piece of the pie.”

Freddie Mac’s refinance analysis is based on a sample of properties on which Freddie Mac has funded two successive conventional, first-mortgage loans with the latest being for refinance rather than for purchase. During the fourth quarter of 2014, the refinance share of applications averaged 56 percent in Freddie Mac’s monthly refinance survey, and the ARM share of applications was 10 percent in Freddie Mac’s monthly ARM survey, which includes purchase-money as well as refinance applications.

Why the Homeownership Rate Is Misleading

By JED KOLKO
 
Jed Kolko, chief economist and vice president for analytics at Trulia.

Jed Kolko is chief economist and vice president for analytics at Trulia, an online marketplace for residential real estate.

On Friday, the Census Bureau will remind us that the homeownership rate is at or near an 18-year low. After rising to an all-time high of 69.2 percent in 2005 near the height of the housing bubble, the homeownership rate fell to 64.9 percent in 2013, the lowest level since 1995. This drop represents millions of people who lost homes to foreclosure, can’t get a mortgage or haven’t been able to save for a down payment. Furthermore, the homeownership rate is likely to fall further before hitting bottom. Shouldn’t we be panicking that the American dream of homeownership is drifting out of reach?

Nope. At this stage of the housing recovery, the falling homeownership rate turns out to be misleading. In fact, for young adults, who were hit especially hard in the recession and housing crisis, the decline in their homeownership rate might paradoxically be a sign of improvement. The rate can mislead in the other direction, too: During the worst of the housing crisis, the falling homeownership rate clearly understated the damage done.

Source: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics). Source: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics).

Let me explain. Households can be one of two things: owners or renters. The homeownership rate equals the share of households that are owners. But look at people instead of households, and people have a third option: living under someone else’s roof. When young adults live with their parents, or older people live with their grown children, or people live with housemates, they count as part of someone else’s household. Those people are technically neither owners nor renters, and they don’t count in the homeownership rate. That’s why the homeownership rate can mislead: It omits people who are not in the housing market themselves as owners or renters.

This is similar to the better-known shortcoming of the unemployment rate, which doesn’t count people who are “not in the labor force” for various reasons, including having given up looking. As we know, the unemployment rate understated the weakness in the job market during and after the recession because more people dropped out of the labor force. To get the full view of the job market, economists look not only at the unemployment rate, but also at labor force participation.

A simple illustration shows how the homeownership rate can mislead. Suppose you have 10 friends, each living alone; five own their homes and five rent. The homeownership rate among this group is 50 percent. Then, one homeowner loses the house to foreclosure, and three renters lose their jobs and can’t afford to keep their own apartment. These four people all move in with one of the remaining homeowners. Now there remain four homeowners (one of whom is doing lots of laundry and dishes) and two renters, which means the homeownership rate went up to four out of six, or 67 percent. The homeownership rate missed the real story, which is that four of 10 dropped out of the housing market and are now couch-surfing.

When the homeownership rate steers us wrong, the “headship rate” — housing’s answer to the labor force participation rate – can come to the rescue. It’s the percent of adults who head a household. Put another way, it is the ratio of households to adults. If there are 200 million adults living in 100 million households, the headship rate is 50 percent. A higher headship rate means fewer adults, on average, per household. Over the longer term, demographics explain shifts in the headship rate (and in labor force participation, for that matter). An aging population, for instance, typically increases the headship rate because older adults are more likely to head their household than younger adults are because many young adults live in their parents’ home or with housemates.

In the short term, though, economic swings affect the headship rate, just as they affect labor force participation. When people lose their home to foreclosure or can no longer pay the rent and move in with someone else, the headship rate falls. When they get back on their economic feet and move out of their parents’ or roommate’s home into their own place – either as an owner or a renter – the headship rate rises.

Let’s go to the numbers. The headship rate can be calculated from two different government surveys, the Annual Social and Economic Supplement of the Current Population Survey, a joint project of the Census Bureau and the Bureau of Labor Statistics, and the American Community Survey compiled by the Census Bureau. To the frustration of housing economists, these surveys sometimes show inconsistent trends. Among other differences, the latest Current Population Survey is more recent, but the American Community Survey is based on a much larger sample.

Sources: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics) and American Community Survey (Census Bureau). Sources: Current Population Survey, Annual Social and Economic Supplement (Census Bureau and Bureau of Labor Statistics) and American Community Survey (Census Bureau).

The headship rate peaked just before the height of the housing bubble, reaching 52.3 percent in 2003 and then falling to 51.2 percent in 2010, according to the Current Population Survey; the American Community Survey showed a similar decline over the period 2006-10. That drop in the headship rate translates into 2.5 million fewer households in 2010 than there would have been if the headship rate hadn’t fallen. That means that the decline in actual homeownership was steeper than the homeownership rate alone showed. The rate fell by 3.2 percent, but the actual share of all adults who owned a home dropped 4.9 percent — half again as much – because people dropped out of the housing market altogether.

Since 2010, the trend in the headship rate is murkier. The Current Population Survey shows an increase in the headship rate in 2011, 2012 and 2013, while the American Community Survey shows continued decline in 2011 and a near-flattening in 2012, the most recent survey. That means people have either started returning to the housing market or, at least, are dropping out at a slower rate.

Looking at the headship rate is especially important to understand what happened to young adults. The headship rate for 18- to 34-year-olds dropped three times as much as for adults over all, largely because the share living with their parents climbed to the highest level in decades. But this trend has either slowed or reversed. The survey shows that the number of young homeowners has stabilized (adjusting for population growth), and the number of young renters rose by 3 percent as young adults have slowly begun to move out of others’ homes and re-enter the housing market from 2011 to 2013. (The American Community Survey shows their headship rate still falling through 2012, but by less than in the several years prior.)

In fact, the headship rate is the key to how much the housing recovery contributes to economic growth. The headship rate and the population determine the total number of households, so a rise in the headship rate means more new households, all else equal. New household formation stimulates construction activity, and construction adds jobs and investment to the economy. Builders have already increased construction to keep pace with new rental demand: 2013 saw construction begin on the most new rental apartment units in 15 years.

Headship is poised to increase. Young adults still living with their parents won’t do so forever, and the Current Population Survey headship rate in 2013 – even with its recent rise — is still below its 20-year average. That will prompt more new construction. Of course, an increasing headship rate isn’t necessarily a good thing: at the extreme, a 100 percent headship rate would mean that each adult has his or her own household, either alone or with children. That would make for a huge construction boom but a lot of loneliness. Age, marital patterns and even cultural preferences all affect living patterns: Among those 65 or older in the United States, for instance, the foreign-born are four times as likely as the native-born to live with relatives rather than in their own household.

How soon will homeownership recover? It depends on job and income growth, mortgage credit availability, affordability and more. But today, since many young adults are still living with their parents, let’s watch first for an increase in the headship rate. And we should not be alarmed by the falling homeownership rate if it’s falling because people are renting their own place instead of living in someone else’s.

How QM Harms Homeowners -House Committee Hearing

Jan 14 2014, 4:14PM

The House Financial Services Committee heard testimony from five persons, almost all representing mortgage lenders, at a hearing today entitled How Prospective and Current Homeowners Will Be Harmed by the CFPB’s Qualified Mortgage Rule.  Given the title of the hearing it is not surprising that four of the five spoke out against the regulations.

Jack Hartings, President and CEO of The Peoples Bank Company and Vice Chairman of the Independent Community Bankers of America told the committee that reform of QM is a key plank of ICBA’s Regulatory Relief Agenda.

Mortgage lending by community banks represents approximately 20 percent of the national mortgage market and is often the only source of mortgage lending in the small communities they serve, he said.  The 20 percent actually understates the significance of their mortgage lending as they make a larger share of their home purchase loans to low-or moderate-income borrowers or borrowers in low- or moderate-income neighborhoods and make a larger share of home purchase loans than loans for other purposes such as refinancing or home improvement.

Hartings said there is question that the QM rule will adversely affect his own bank’s mortgage lending even though it qualifies as a small creditor making fewer than 500 mortgage loans annually and having less than $2 billion in assets.  “Even though my asset size is well below the $2 billion, in 2012 I made 493 mortgage loans.  We believe this threshold is far too low and is not consistent with the asset threshold.”   He later pointed out that such low thresholds could prevent his bank from expanding its lending as the economy recovers.

Non-QM loans will be subject to significant legal risk under the Ability to Repay (ATR) rule and the liability for violations is draconian, he said.   Non-compliance with ATR could also serve as a defense to foreclosure if the loan is deemed not to be a QM loan and small community banks do not have the legal resources to manage this degree of risk. Thus these banks, he said, will not continue to make some of the loans they have made in the past such as low dollar amount loans, balloon payment mortgages, and higher priced mortgage loans.

The full impact of ATR goes beyond QM compliance as banks must still analyze each loan for ATR compliance, a costly and time consumer procedure.  It is necessary to expect that regulators will want to see documentation of the eight ATR underwriting factors and if they are not sufficient the asset could be downgraded and subject to high capital requirements.

Without “small creditor” status, he said, his loans will be subject to a 43 percent debt-to-income limitation, a lower price trigger for “high cost” QM status which carries higher liability risk, and restrictions on balloon loans.  ICBA is urging Congress to raise the loan volume threshold. The problem could be easily addressed by disregarding loans sold into the secondary market in applying the threshold,” Hartings said.

Daniel Weickenand CEO, Orion Federal Credit Union testifying on behalf of The National Association of Federal Credit Unions said that credit unions have always been some of the most highly regulated of all financial institutions, facing restrictions on who they can serve and their ability to raise capital and the Federal Credit Union Act has strict consumer protection rules.  Despite the fact that they were not the cause of the financial crisis, they are still firmly within the regulatory reach of rules promulgated by CFPB.

The impact of this growing compliance burden is evident as the number of credit unions continues to decline, he said, dropping by more than 900 institutions since 2009.  One cause of this decline is the increasing cost and complexity of complying with the ever-increasing onslaught of regulations.  “We remain concerned about the QM standard and that this rule will potentially reduce access to credit and hamper the ability of credit unions to continue to meet their member’s needs,” he said.

A number of mortgage products sought by credit union members and offered by credit unions are non-QM loans and may disappear from the market.  He said a forty-year mortgage loan, a product sought by credit union members in high costs areas, exceeds the maximum loan term for QMs, and because of a problematic definition, a number of credit unions make mortgage loans with points and fees greater than 3% because they can leverage relationships with affiliates to get the best deal for their members.

Because a credit union will not receive any presumption of compliance with the ability-to-repay requirements for a non-QM loan, the least risk to credit unions would be to originate only QM loans.  His own credit union, Weickenand said, has decided to go that route and a recent NAFCU survey revealed that a majority of credit unions will cease or greatly reduce their offerings of non-QMs.

Weickenand said that NAFCU strongly supports bipartisan pieces of legislation in the House (H.R. 1077/ H.R. 3211) to alter the definition of “points and fees” prescribed by the QM standard and an exemption from the QM cap on points and fees: (1) affiliated title charges, (2) double counting of loan officer compensation, (3) escrow charges for taxes and insurance, (4) lender-paid compensation to a correspondent bank, credit union or mortgage brokerage firm, and (5) loan level price adjustments which is an upfront fee that the Enterprises charge to offset loan-specific risk factors such as a borrower’s credit score and the loan-to-value ratio.

Like Hartings, he supports an increase in the exemption’s asset size and 500 mortgage thresholds.  He said many credit unions are approaching one or both thresholds which will render the small lender exemption moot for them.

The Association also believes that all mortgages held in portfolio should be exempt from the QM rule not just small credit unions and would like to be able to continue to offer mortgages of 40 years or less duration as QMs.  NAFCU also supports Congress directing the CFPB to revise aspects of the ‘ability-to-repay’ rule that dictates a consumer have a total debt-to-income (DTI) ratio of 43 percent or less which will prevent otherwise healthy borrowers from obtaining mortgage loans and will have a particularly serious  impact in rural and underserved  areas where consumers  have  a limited number of options.

Bill Emerson, CEO of Quicken Loans and Vice Chairman of the Mortgage Bankers Association spoke on behalf of the trade group, starting his testimony by saying, “I can tell you categorically that Quicken Loans, like the overwhelming majority of lenders, will not lend outside the boundaries of QM. In fact, even if we wanted to, we wouldn’t be able to make non-QM loans because there is no discernible secondary market for them. The only place these loans can be kept is on a bank’s balance sheet.”

“Beyond that, the liability for originating non-QM is simply too great. Claimants can sue for actual and statutory damages, as well as a refund of their finance charges and attorney’s fees, and there is no statute of limitations in foreclosure claims. By MBA’s calculations, protracted litigation for an average loan can exceed the cost of the loan itself.

Given this uncertainty, at least for the foreseeable future he said non-QM lending is likely to be limited to three categories; loans where there are unintended mistakes, higher balance and non-traditional loans to wealthier borrowers, and loans made by a few lenders to riskier borrowers, but at significantly higher rates. He said the rate sheets he had seen suggest borrowers could pay an interest rate of 9-10 percent for non-QM loans.

Emerson said it remains very important to make adjustments to the QM rule. “The CFPB (Consumer Financial Protection Bureau) deserves enormous credit for working with all stakeholders, lenders and consumer groups alike, and fashioning a rule we think is a substantial improvement over Dodd-Frank. We are also grateful the Bureau is open to making additional revisions in the near future.”

There is a major problem with the 3 percent cap on points and fees for QM eligibility.  Because so many origination costs are fixed, a lot of smaller loans, particularly in the $100,000 to $150,000 range, will trip the 3 percent cap and fall outside the QM definition, pricing consumers, especially first-time homebuyers and families living in rural and underserved areas, out of the market.

“Additionally, the final rule picks winners and losers between affiliated and unaffiliated settlement service providers, even though their fees are subject to identical regulation. At Quicken Loans, we have chosen to affiliate with title and other service providers to ensure our customers have the best loan experience and that there are no surprises at the closing table.”  His company, he said, has won awards because its affiliated arrangements have led to a smooth closing process.

Emerson said the MBA urges the House to promptly pass H.R. 3211, the Mortgage Choice Act.

Michael D. Calhoun, President of the Center for Responsible Lending was the only one of the five presenting testimony in favor of the CFPB’s rules.  Calhoun said those rules strike the right balance of providing borrower protections while also ensuring access to credit.

The QM rule covers 95 percent of current originations according to Moody Analytics he said that this broad coverage is because CFPB established four different pathways for a mortgage to gain QM status. The first uses a 43 percent back-end debt-to-income ratio. A second is based on eligibility for purchase by Fannie Mae and Freddie Mac and a third is specifically crafted for small creditors holding loans in portfolio. Lastly, there is a pathway for balloon loans as well. This multi-faceted approach will maintain access to affordable credit for borrowers.

“This broad definition is key for borrowers, including borrowers of color who represent 70% of the net household growth through 2023.  The broad definition means that borrowers will not be boxed out of getting a home loan and will also benefit from the protections that come with a Qualified Mortgage.  In addition, several lenders have said they will originate mortgages that do not meet QM requirements, holding them in their own portfolios.  Calhoun said he expects this will only grow over time.

As a whole, these rules continue the CFPB’s approach of expanding access to credit while ensuring that loans are sustainable for the borrower, the lender and the overall economy, Calhoun said.

Also testifying was Frank Spencer, President and CEP of Habitat for Humanity’s Charlotte, North Carolina Chapter.  Spencer was primarily asking for relief from QM and ATR requirements for his organization which currently services approximately 780 mortgages.  Spencer said that despite the fact that the mortgages are non-interest bearing and that most of the chapters that originate them fall far below the thresholds of QM, some of the charity’s operations trigger the requirements and present significant liability for its officers and community partners.

Housing Scorecard: Nearly 6 Million Fewer Underwater as Prices Hit 2005 Levels

Jan 13 2014, 10:49AM

Rising home prices are continuing to drive down the number of homeowners who are underwater according to the December Housing Scorecard published by the Departments of Treasury and Housing and Urban Development (HUD).  HUD Associate Deputy Assistant Secretary for Economic Affairs Edward J. Szymanoski said, “Since the beginning of 2012, the number of homeowners underwater has declined by 5.7 million and homeowners’ equity has risen by 55 percent to $9.7 trillion.”  Homeowners’ equity jumped $418 billion, or 4.5 percent, to $9.669 trillion in the third quarter of 2013, returning to a level slightly higher than at the end of 2003.

As of October 2013, the Federal Housing Finance Agency (FHFA) purchase-only index rose 8.2 percent from last year and ticked up 0.5 percent (seasonally adjusted) from September, showing that home values are now on par with prices in early 2005. The S&P/Case-Shiller 20-City Home Price Index for October posted returns of 13.6 percent over the past 12 months and was up 0.2 percent (not seasonally adjusted) over September, indicating that home values are at the same level as in mid-2004.

The Scorecard notes there is much good news to report but the overall recovery remains fragile.  Szymanoski said there remains more work to do to address the 6.4 million homeowners who remain underwater; “Nevertheless, these are encouraging signs that the housing market recovery is providing millions of American homeowners with more economic security.”

The Scorecard is a monthly recap of housing data from sources such as FHFA and S&P Case-Shiller as well as RealtyTrac, the National Associations of Home Builders and Realtors®, and the Census Bureau, most of which has been previously reported by MND.  It also contains by reference the monthly record of the Making Home Affordable (MHA) Program and nearly half dozen initiatives operating under that umbrella.

The MHA report this month contains data through November 2013 and this month spotlights the Second Lien Modification Program (2MP).  That program was expanded in September and now, when a borrower’s first lien is modified under the GSE Standard Modification requirements (which applies to loans owned or guaranteed by Fannie Mae or Freddie Mac) and the first lien satisfies the Home Affordable Modification Program (HAMP) eligibility criteria, the 2MP servicer must offer to modify or extinguish the borrower’s second lien under 2MP.

The report says that more than 123,000 second lien modifications have now been completed through 2MP and homeowners with an active permanent 2MP modification save a median of $153 per month on their second mortgage and a median total of  $784 on first and second mortgages, 41 percent of the pre-modification payment.  Homeowners who receive a full extinguishment of their second lien receive a median total first and second lien monthly payment reduction of $1,047, or 53 percent of their before-modification payment.

MHA says the various programs it operates, HAMP, 2MP, Home Affordable Foreclosure Alternatives (HAFA) and the UP Forbearance Program, have assisted 1.9 million homeowners since they were initiated in 2009 and later.  Of these, 1.3 million were modifications done through HAMP.  Since the last HAMP report there have been 22,814 permanent first lien modifications initiated and a total of 35,869 assisted through all MHA programs except its . Principle Reduction Activity (PRA).   That program has eliminated $10,124,838,950 in outstanding principal and another $2.5 billion in principle has been reduced outside of PRA.  GSE loans are not eligible for principle reduction.