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.

 

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.

Goldman's Buying of Default Mortgages Not Without Risk

The Hill|  March 20, 2017        Goldman Sachs has launched an ambitious program to buy severely delinquent or nonperforming home mortgages as one element of a $5.1-billion settlement it has entered into with the federal government for its role in creating and selling mortgage-backed securities (MBS) in the years leading up to the financial crisis.

According to a Wall Street Journal article, Goldman has spent $4.5 billion to acquire 26,000 delinquent mortgages from Fannie Mae. Goldman did not originate any of these mortgages. It also has purchased similar troubled mortgages from Freddie Mac and private sellers.

Goldman intends to restructure the mortgages it has purchased with the expectation that the homeowners will then become current in making payments on them.  In accordance with its settlement agreement, Goldman will provide $1.8 billion of relief to homeowners, presumably by a combination of writing down principal balances, lowering interest rates on the mortgages and extending the repayment period.  Read more here.

Deutsche Bank and Justice Dept. Complete Deal on Mortgage Crisis

The New York Times |  January 17, 2017        The Justice Department completed a deal with Deutsche Bank on Tuesday that will require the bank to pay $7.2 billion for its sale of toxic mortgage securities in the run-up to the 2008 financial crisis, the department said.

The settlement calls on Deutsche Bank to pay a civil penalty of $3.1 billion and provide $4.1 billion in consumer relief to homeowners, borrowers and communities harmed by its practices.

The total is the largest amount ever paid to resolve charges against a single entity for misleading investors in residential mortgage-backed securities, the department said in a statement.  Read more here.

Wall Street as Landlord: Blackstone Going Public with a $10 Billion Bet on Foreclosed Homes

Invitation Homes IPO will test investors’ interest in the idea that the rental-home business can be institutionalized as apartments were before

Wall Street Journal | December 6, 2016       Jonathan Gray of Blackstone Group LP went on the biggest homebuying spree in history after the U.S. foreclosure crisis, purchasing repossessed properties from the courthouse steps and through online auctions.

Four years, $10 billion and roughly 50,000 homes later, he will find out if his gambit will pay off. Invitation Homes LP, the Dallas-based company Blackstone formed to maintain and rent those homes, has filed confidentially for an initial public offering that could come as soon as January.

Though Blackstone is unlikely to sell much or even any of its stake in an IPO, the stock market debut will test investors’ interest in the idea that the rental-home business can be institutionalized as apartments, shopping centers and office towers were before.

Blackstone and others investors believed that the housing collapse presented a rare opportunity to acquire homes for less than it cost to build them. Millions of foreclosures created a market large enough to justify investing in large systems to manage and maintain sprawling portfolios of rental homes.   

Now, these new institutional landlords say the move toward rentals further supports their business model. They point to tight lending standards and a generation of renters who are outgrowing apartments but are too burdened by student debt to buy homes.  Read more here.

To Fight Foreclosure, NYC Buying Mortgages

ABC News |  June 30, 2016    New York City is taking a novel approach to addressing enduring pockets of the home foreclosure crisis by buying long-unpaid mortgages, with plans to help owners stay in their homes if possible or use the properties as affordable housing if not, officials say.

It's among the first cities to pursue buying such loans directly from the federal Department of Housing and Urban Development, officials say. Housing advocates and some lawmakers have pressed HUD to make it easier for cities and nonprofit groups, as opposed to investors, to buy troubled mortgages.

New York is announcing the $13 million program Thursday. Details of the program were provided to The Associated Press ahead of a planned afternoon announcement.  Read more here.

Wells Fargo Pays $70M for Failures in Foreclosure Accord

The Charlotte Observer (Bloomberg News) | May 25, 2016      Wells Fargo & Co. agreed to pay a $70 million penalty in ending the bank’s five-year fight to settle legal claims over foreclosure missteps after the 2008 credit crisis.

U.S. regulators announced the fine for the San Francisco- based bank on Wednesday as part of an agreement that also frees the nation’s biggest mortgage lender from loan-servicing restrictions imposed last year.

The Office of the Comptroller of the Currency had accused Wells Fargo of failing to move fast enough in fixing deficiencies outlined in a series of settlements overimproper activity including so-called robo-signing of foreclosure documents. The agency, which said the bank is now in compliance, had also identified more recent problems, including faulty payment-change notices filed in bankruptcy courts and faulty escrow calculations.

Wells Fargo said it was pleased that the regulator accepted its work on the settlement. The bank neither admitted nor denied wrongdoing in the OCC agreement.  Read more here.

Who Can Go After Banks for the Foreclosure Crisis?

Cities are arguing that they, too, were damaged by risky loans, and that they should be able to take the lenders to court to regain their losses.

The Atlantic | May 3, 2016     In the wake of the housing crisis, surprisingly few people or institutions have been held accountable for the risky lending practices that nearly wrecked the U.S. economy.  That’s partly because the people who were most damaged by the foreclosure crisis—the people who lost their homes—don’t have the resources to bring lawsuits.

But the families who lost their homes weren’t the only ones hurt by the foreclosure crisis. So there’s an argument to be made that they shouldn’t be the only ones who can go after the lenders. Cities, for example, lost tax revenue when homes sat vacant, and saw property values within their boundaries decrease when vacant and boarded-up homes sat empty. Cities had to pay for police and fire protection to keep those homes from being vandalized and to respond to reported break-ins and criminal activity at the houses.

So should cities be able to sue the banks, too?

That’s the question making its way through courts across the country after municipalities including Los Angeles, Miami, Oakland, and Providence all filed lawsuits against lenders under the Fair Housing Act. The lawsuits, which the banks are fighting to have dismissed, argue that the lending practices of these banks harmed the cities too. When lenders targeted minorities for risky loans, knowing that the borrowers would likely lose their homes, they knowingly deprived cities of tax revenue while making them shoulder the expenses of blocks of foreclosures, the lawsuits allege. Oakland, for instance, argues in its complaint against Wells Fargo that the city “has suffered economic injury based upon reduced property tax revenues resulting from (a) the decreased value of the vacant properties themselves, and (b) the decreased value of properties surrounding the vacant properties.” Last month a judge declined to dismiss the suit.

In these cases, the municipalities have accused lenders, including Wells Fargo, JP Morgan, and Bank of America, of “redlining,” or the practice of denying credit to people in particular neighborhoods because of their race, and “reverse redlining,” or the practice of flooding a minority neighborhood with exploitative loan products. These practices, they say, violate parts of the Fair Housing Act.  Read more here.

Widows, Divorcees Struggle with Foreclosure Rules, Consumer Group Finds

Boston Globe |  March 23, 2016      Lenders and mortgage companies have been doing a better job in recent years helping homeowners avoid foreclosures, but widows, as well as other surviving family members, and the recently divorced continue to struggle to stay in their homes, according to a new report from the National Consumer Law Center.

The Boston-based consumer group estimates that thousands of homeowners, usually women who didn’t sign the original loan documents, are having trouble getting access to relief that new federal guidelines have provided other homeowners since the recent foreclosure crisis.

The center’s network of lawyers and housing counselors reports that while other foreclosure-related problems have declined, this remains an area of growing concern. It can still take years, reams of paperwork, and thousands in additional costs for spouses facing death, divorce, or domestic violence, who are seeking a loan modification to stay in the house, said Alys Cohen, a staff attorney at the consumer law center and author of the report.

“Every month of delay increases the interest that a homeowner owes, increases the fees on the loan amount, and decreases the chances of a loan modification,” Cohen said.

The law center is urging the federal Consumer Financial Protection Bureau to adopt rules that would expand protections to others who may have homeownership interest in a property, aside from just the primary borrower.  Read more here.

America's Foreclosure Crisis Isn't Over

CBS News |  January 26, 2016    With Goldman Sachs (GS) recently agreeing to pay $5.1 billion to settle claims related to its role in the 2008 mortgage scandal, the firm became the latest big Wall Street bank to reach a deal with the U.S. government. As part of the settlement, $1.8 billion is to be set aside for programs to help homeowners who are still trying to fend off foreclosure?

Yet nearly seven years since the Great Recession ended, the question remains: How well have these anti-foreclosure programs worked? It depends on whom you ask and where they live.

Back-stopping the nation's banking system was the top federal priority during the height of the 2008 financial crisis. But out of the $475 billion that Congress authorized for the Troubled Asset Relief Program (TARP), $46 billion was supposed to help millions of struggling families avoid foreclosure.

A subsequent 2014 settlement between prosecutors and Bank of America (BAC) netted an additional $16.6 billion, of which then-Attorney General Eric Holder said $7 billion would go to "provide relief to struggling homeowners, borrowers and communities affected by the bank's conduct."

All told, between the programs administered through the Treasury Department -- like the Home Affordable Modification Program (HAMP) -- and the pools of money committed by Wall Street banks as part of their settlements, tens of billions of dollars have been set aside to assist families facing foreclosure by modifying their mortgage terms so they can remain in their homes.  Read more here