America’s Mortgage Market Is Still Broken

Ten years after the 2008 crisis, crucial flaws need fixing.

May 14, 2018 | Bloomberg           Regulators have done a lot to reform the financial system since the 2008 crisis, but they still haven’t fixed the market where the trouble started: U.S. mortgages. It’s an omission they need to put right before the next crisis hits.

Looking back, it’s easy to see what made U.S. housing finance so vulnerable. Loosely regulated companies, financed with flighty short-term debt, did much of the riskiest lending. Loan-servicing companies, which processed payments and managed relations with borrowers, lacked the incentives and resources needed to handle delinquencies. Private-label mortgages (which aren’t guaranteed by the government) were packaged into securities with extremely poor mechanisms for deciding who — investors, packagers or lenders — would take responsibility for bad or fraudulent loans.  Read more here.

 

RBS Clears Path to Pay Dividends After $4.9 Billion DOJ Deal

May 10, 2018 | Bloomberg     Royal Bank of Scotland Group Plc cleared one of the last barriers keeping the U.K. from reducing its stake in the lender and resuming dividends after it reached a tentative deal to pay $4.9 billion to resolve a U.S. mortgage probe.

Top executives said the U.K.’s biggest government-owned bank will begin discussions with British regulators about restarting dividends after a decade.

“The investment case for this bank is much clearer,” RBS Chief Executive Officer Ross McEwan said on a call with reporters on Thursday. This is “a milestone moment to restore capital distribution,” he said.

A preliminary settlement with the U.S. Department of Justice makes it easier for the U.K. government to attract buyers for its approximate 70 percent stake after bailing out RBS during the financial crisis. Chancellor of the Exchequer Philip Hammond welcomed the agreement in principle. “It marks another significant milestone in RBS’s work to resolve its legacy issues, and will help pave the way to a sale of taxpayer-owned shares,” he said in a statement.  Read more here

Wells Fargo Plans to Refund Some Mortgage Customers

April 13, 2018 | USA Today        Wells Fargo outlined plans Wednesday to refund customers who were charged extra fees to extend rate locks on mortgages because of delays that were caused by the bank, not the customers.

The San Francisco-based bank, which is still working to repair its reputation following last year's fake account scandal, said it will refund customers who paid fees to extend interest rate locks between Sept. 16, 2013, through Feb. 28, 2017 but "who believe they shouldn't have paid those fees."

In a rate lock, the lender guarantees that it will provide the borrower with a mortgage at a specific rate, say 4%, for a specific time period, such as 60 days. There is often a charge to extend the rate-lock period.

In the Wells Fargo case, borrowers were hit with additional fees for allegedly getting their loan paperwork in late. But the bank, after a review of its rate-lock fee policies, acknowledged that the delays in some cases were caused on its end.

In a statement, the bank said its rate-lock extension policy put in place in September 2013 was "at times, not consistently applied, resulting in some borrowers being charged fees in cases where the company was primarily responsible for the delays that made the extensions necessary."

Effective March 1, 2017, Wells Fargo changed how the company manages the mortgage rate-lock extension process.

The company said it would reach out to customers and start issuing refunds in the final months of this year.

While roughly $98 million in rate-lock fees were assessed to about 110,000 loan applicants in the nearly two-and-a-half-year period in question, the company believes a "substantial number" of those fees were "appropriately charged."

As a result, Wells Fargo said "the amount ultimately refunded likely will be lower, as not all of the fees assessed were actually paid and some fees already have been refunded."

The move was the latest attempt by the bank to rebuild trust with customers, its CEO Tim Sloan said in a statement.

"We want to serve our customers as they would expect to be served, and are initiating these refunds as part of our ongoing efforts to rebuild trust," Sloan said.

Big Bank Custody Fight

March 8, 2018  |  WSJ         The Senate is debating a bill that would relax Dodd-Frank’s chokehold on small banks, but a couple of provisions that ease capital and liquidity standards for the giants will make the financial system more vulnerable in a panic.

Tucked into Banking Chairman Mike Crapo’s legislation is a directive to federal agencies to amend the “supplementary leverage ratio” for custodial banks by excluding deposits at a central bank. Custodial banks secure assets for clients such as large institutional investors and fund managers.

At first glance, this provision would appear to apply only to Boston-based State Street , Chicago’s Northern Trust and Bank of New York Mellon . But Citigroup and J.P. Morgan also offer custodial services and are trying to join the party. You can bet others will want in too. “As Congress has sought to make a common sense change to the way capital rules treat custody assets, we have asked that they apply that change to all custody banks to maintain a level playing field in this important business,” a Citi spokesman said last week.  Read more here.

Royal Bank of Scotland Reaches $500 Million Settlement with New York Over Mortgage Securities

March 6, 2018  |  CNBC         Royal Bank of Scotland Group has reached a $500 million settlement with New York state to resolve claims over its sale of risky residential mortgage-backed securities that contributed to the 2008 global financial crisis.

New York Attorney General Eric Schneiderman on Tuesday said the accord includes a $100 million cash payment to the state, plus $400 million of consumer relief for homeowners and communities.

Schneiderman said RBS admitted to having sold investors residential mortgage-backed securities that did not meet underwriting guidelines, contrary to its representations, and did not comply with applicable laws and regulations.  Link to article here.

U.S. Bank Cited by Federal Authorities for Lapses on Money Laundering

February 15, 2018 | The New York Times       U.S. Bank, the fifth-largest commercial bank by assets in the United States, was charged by the federal authorities on Thursday with failing to guard against illegal activity and, in at least one instance, even abetting it.

The Justice Department accused U.S. Bank, which is based in Minneapolis, of severely neglecting anti-money laundering rules, helping a payday lender operate an illegal business and lying to a regulator about its plans for tracking potential criminal activity by bank customers.

Federal prosecutors in Manhattan reached an agreement with U.S. Bank to defer prosecution as long as the bank could show it had improved its monitoring of customer transactions. To settle the Justice Department charges and cases brought by other regulators, the bank agreed to pay various fines and penalties totaling $613 million.  Read more here.

PHH Reaches Nationwide Settlement Over Crisis-Era Mortgage Servicing

PHH will pay $45 million in settlement with 49 states

January 3, 2018 | HousingWire         PHH Corp. will pay $45 million as part of a nationwide settlement over mortgage servicing and foreclosure issues during the housing crisis, a group of nearly every state attorney general announced Wednesday.

The settlement requires PHH to adopt new servicing standards and provide monetary relief to affected borrowers, though the company counters it already currently uses said standards.

The settlement covers the company’s mortgage servicing practices, including foreclosure activities, between Jan. 1, 2009 and Dec. 31, 2012.

The settlement is between PHH and the Multi-State Mortgage Committee, including more than 45 state mortgage regulators, along with 49 state attorneys general, and the District of Columbia.

Every state took part in the settlement, with the exception of New Hampshire. It is unknown at this time why New Hampshire is not a party in the settlement. HousingWire contacted the New Hampshire Attorney General, and this article will be updated should the AG respond.

According to the complaint filed by the state attorneys general, PHH “threatened foreclosure and conveyed conflicting messages to certain borrowers engaged in loss mitigation.”  Read more here.

Mortgage Industry Panics Over Obscure Provision in Senate Tax Bill

November 29, 2017 | Bloomberg            The mortgage industry is panicking over a provision in the Senate tax bill that some analysts and trade groups say may drive small lenders out of the business.

The Mortgage Bankers Association and other bank and mortgage trade groups scrambled over Thanksgiving weekend after staff members discovered a provision in the bill that would change the time at which lenders pay taxes on the streams of income they earn from managing borrowers’ mortgages.

That change could cost banks tens of billions of dollars as the value of those income streams drops. The reduction would be enough to drive smaller lenders and non-bank lenders to either exit the mortgage market altogether or restructure their businesses, said MBA president David Stevens.

“It’s a fire drill,” Stevens said. “We’re scrambling to get people on phone calls. It would cause a significant disruption in the industry.”

It’s unclear whether Senate tax writers intentionally targeted lenders -- or whether they intend to leave the provision in place. The episode may reflect the unusual speed with which the Senate is trying to approve legislation that was introduced in written form only nine days ago. Senate leaders plan to vote on the bill Thursday or Friday.

“As Congress continues to debate the Senate’s tax reform plan that was reported out of the Finance Committee, Chairman Hatch will work with members to make the appropriate policy decisions to help deliver a comprehensive tax overhaul that will grow the economy, boost job creation, and increase paychecks for the American people,” Julia Lawless, a Senate Finance Committee spokeswoman, said in an email.

For lenders, the issue surrounds a central way they make money. When a borrower takes out a loan, lenders often sell that loan to government-backed companies, while keeping the right to collect borrower payments and manage the loan. Those so-called mortgage servicing rights are a valuable asset, and lenders often sell them to each other or to outside investors such as hedge funds when they want cash.  Read more here.

Should Texas loosen lending laws that shielded the state from foreclosures?

Banks and realtors want to make more money on home equity loans.

Houston Chronicle | August 7, 2017        Twenty years ago, Texas became the last state in the union to legalize the home equity loan, allowing people for the first time to use their own homes as collateral. But lawmakers also kept tight restrictions on the loans, which saved Texans from the excesses that contributed to a housing bust that nearly brought down global economy.

Across the country, homeowners borrowed against the value of their properties to supplement their incomes as a bubble grew, piling on debt that became unsustainable when the market tanked. Texas' limits on home equity loans were widely credited with saving the state from the worst of the foreclosure crisis.

Now, a coalition of lenders and realtors is trying to loosen the rules on those loans in ways that homeowner advocates say could get borrowers in trouble.

"It's a wolf in sheep's clothing," says Charlie Duncan, a fair housing planner at the advocacy non-profit Texas Low-Income Housing Information Service. "Make no mistake, more families will lose their homes because of the irresponsible lending this amendment will allow."

The proposed changes will be on the ballot this fall as a constitutional amendment, having passed unanimously through both houses of the Legislature. (The section of the Texas Constitution that deals with home equity loans is the longest in the entire document, spelling out all terms and regulations rather than leaving them to statute, because of Texas' historic emphasis on property rights.)

In the ballot language, the changes seem innocuous, but may carry risk.

One provision would expand the list of entities able to make home equity loans from primarily banks to savings and loan companies, mortgage bankers, subsidiaries of banks and credit unions.

Another provision lowers the cap on fees that lenders can charge homeowners from 3 percent of the loan to 2 percent. But the change would likely would increase the amount borrowers end up paying by shifting most of the large expenses in closing costs — surveys, appraisals, and title insurance — outside the cap. In that way, the fees paid by homeowners could rise to 4 to 5 percent of the loan, according to Chip Lane, a Houston attorney who represents homeowners in foreclosure cases.

Banks say the change is necessary to make it worth it for them to do smaller loans. Their profits took a hit in 2013, when the Texas Supreme Court overturned interpretations by the Texas Finance Commission that allowed lenders to add expenses on top of the 3 percent cap.

State-chartered banks how hold about $6.6 billion in home equity loans, which is down significantly since 2009. (That doesn't include loans made by national banks, which don't have to break out that loan category by state.) 

"There was a hesitance on the part of lenders to make smaller home equity loans," says Steve Scurlock, executive vice president of the Independent Bankers Association of Texas. "What we tried to do is get the banks back in the game, and get those homeowners who may not have a $2 million home to have an ability if they needed to borrow $20,000 or $30,000 a bit more opportunity to do it."

But Robert Doggett, a lawyer who has represented homeowners for decades and led the litigation that resulted in the 2013 Supreme Court decision, says the change would make these loans more expensive, and prompt lenders to pressure homeowners into taking out loans they don't need.

"Lender fees are not about simply bilking homeowners out of money," Doggett says. "Up-front fees are very dangerous because they incentivize bad loans, they give loan officers and bad originators a reason to make up stuff so the loan is approved." 

Banks shouldn't need to make money on up front fees, Doggett says, because interest on the loan generates a steady income, as long as lenders keep them on the books. Many lenders instead sell those loans, reducing their incentive to make sure the loan is sound in the first place — especially if they've already been paid well at closing.  

Advocates are also alarmed by a provision that would allow homeowners to convert their home equity loans into regular mortgage loans, which have lower interest rates, but fewer protections.

In order to foreclose on a home equity loan, a lender must get a ruling from a judge, and can't go after a homeowner's other assets if the value of the property doesn't cover the amount owed. Lenders can foreclose on regular mortgage loans more quickly and easily, and can claim the borrower's other assets if necessary in order to be paid back in full.

When it originally helped negotiate the legalization of home equity loans back in 1997, the Texas Association of Realtors had insisted that home equity loans should always have a thicker layer of protections, because a rash of foreclosures could be bad for the entire market. This year, they joined lender groups to allow homeowners to convert their home equity loans into regular mortgage loans.

"In order to have that protection, you pay a premium," says Daniel Gonzalez, legislative director for the Realtors' association. "We want to make sure we're not standing in the way of homeowners getting lower interest rates. What this amendment will do is simply give folks an option."

But advocates worry that sometimes people under financial stress will choose to convert their home equity into conventional loans loans for lower interest rates, and not  realize that they could more easily lose their properties if they fell behind on payments.

"If you're a regular homeowner in Texas, you're not going to know that you've got all these protections with a home equity loan," says Lane, who testified against the amendment in committee. "If they come along and say 'I can save you $200 on your monthly mortgage payment,' you're going to do it."  

One important part of the law, limiting the amount of the loan to 80 percent of the value of the home, will stay put. 

Along with the Realtors and community banks, the amendment is supported byJPMorgan Chase, Wells Fargo, the Texas Credit Union Association, the the Texas Land Title Association, the Texas Farm Bureau and Texas Mortgage Bankers Association.

Several of those organizations have been top donors  to  state Sen. Kelly Hancock, a Fort Worth Republican and chairman of the Senate Business and Commerce Committee, and state Rep. Tan Parker, R-Flower Mound,  chairman of the House Investments and Financial Services Committee. They were the lead sponsors of the bills underlying the constitutional amendment.

Hancock declined to comment. Parker said the Legislature approved the bill "as as a result of Texans sharing their challenges concerning the current home equity law" with him an his colleagues.

Correction: An earlier version of the story included data that reflected only home equity loans issued by lenders regulated by the Office of the Consumer Credit Commissioner. The story has been updated to include data from state-chartered banks. 

Link to Article:  Click Here

 

Wells Fargo Says 3.5 million Accounts Involved in Scandal

AP via Houston Chronicle | August 31, 2017           The scope of Wells Fargo's fake accounts scandal grew significantly on Thursday, with the bank now saying that 3.5 million accounts were potentially opened without customers' permission between 2009 and 2016.

That's up from 2.1 million accounts that the bank had cited in September 2016, when it acknowledged that employees under pressure to meet aggressive sales targets had opened accounts that customers might not have even been aware existed. People may have had different kinds of accounts in their names, so the number of customers affected may differ from the account total.

Wells Fargo said Thursday that about half a million of the newly discovered accounts were missed during the original review, which covered the years 2011 to 2015.  Read more here.