Former Fannie Mae employee found guilty of making millions on shady foreclosure sales

Ordered to forfeit a property she bought with a duffle bag full of cash

February 15, 2019 | HousingWire A former Fannie Mae employee is now facing 40 years in prison after being found guilty of accepting millions of dollars in bribes and kickbacks in exchange for selling Fannie Mae-owned foreclosures for less than market value.

Back in January 2018, Shirene Hernandez was charged with accepting bribes for steering foreclosures to certain brokers and even allegedly buying some foreclosures herself at below market value.

And this week, Hernandez was found guilty of two wire fraud counts that involved the deprivation of honest services.

Hernandez formerly worked at Fannie Mae in California as an REO foreclosure specialist and was tasked with the sale of properties foreclosed on by Fannie Mae. 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

 

2,300 U.S. Foreclosures Show a Racial Divide in House Decay

The New York Times | December 13, 2016         The modest white house on Arlene Avenue in Dayton, Ohio, was an eyesore. The paint was peeling, and parts of the shutters were missing. The yard was thickly overgrown, and the back door, such as it was, had been jury-rigged from plywood.

The home on Jeanette Street in New Orleans didn’t look much better, with its broken steps, exposed wiring and vines sprouting from the gutter.

And the pale-green property on 64th Avenue in Oakland, Calif., ticked off many of the same complaints: broken windows, damaged fence, rotten wood, peeling paint.

houses.jpg

Each of these homes, among more than 2,300 foreclosures around the country visited by fair-housing testers between 2011 and 2015, sits in a census tract that is overwhelmingly nonwhite. Nonprofit housing advocacy groups allege in a federal district court lawsuit filed in California this month that the lender responsible for maintaining them, the quasi-government agency Fannie Mae, allowed them to deteriorate.  Read more here.

How to Get the Government Out of Mortgage Lending

Bloomberg View | December 20, 2016        One of the least discussed challenges of the incoming Trump administration may also be among the most economically consequential: what to do with Fannie Mae and Freddie Mac, the government-controlled entities that own or guarantee about half of all U.S. home mortgages.

Trump's pick for Treasury Secretary, Steven Mnuchin, has said he wants to put housing finance back into private hands. Sensible as the goal may be, the hard part will be getting there.

Fannie and Freddie illustrate how slippery the term "private" can be. The two operated as privately owned corporations for decades, albeit with a congressional mandate to promote access to mortgage credit. They generated ample profits for shareholders and gained a dominant position thanks in large part to the expectation that the government would rescue them in an emergency. That perception proved correct in 2008, and they have been wards of the state ever since.

The failure of Fannie and Freddie has drawn the government far deeper into U.S. housing finance than it ever intended, at a time when even its pre-crisis involvement appears excessive. Subsidized lending may have boosted home ownership, but it also contributed to a consumer-debt burden that has hobbled the recovery and rendered the economy more prone to crisis. Most other advanced-nation governments play a much smaller role, with little apparent effect on home ownership.  Read more here.

 

Agencies Release White Paper on Future of Foreclosure Prevention

ABA Banking Journal | July 25, 2016     In a white paper released today, the Department of the Treasury, the Department of Housing and Urban Development and the Federal Housing Finance Agency outlined five principles to guide the creation of future foreclosure prevention programs. With many of the crisis-era homeowner assistance programs winding down at the end of 2016, the agencies said that accessibility, affordability, sustainability transparency and accountability should guide the development of new loss mitigation programs and encouraged investors and servicers to collaborate on developing and implementing new initiatives.

“With the retirement of [the Making Home Affordable program], the industry will shoulder more responsibility for assisting struggling homeowners through proprietary modifications and other loss mitigation programs,” the white paper said. “One of the important things we have learned from the crisis-era efforts is that a collaborative process results in better outcomes for all stakeholders. That lesson should not be forgotten as the industry takes a more prominent role in defining the future of loss mitigation.”  Read more here.

Homeownership's Perfect Storm: Low Mortgage Rates, High Housing Starts

Housing affordability could become more prominent in the next few months, thanks in part to new home construction.

 

U.S. News & World Report | July 19, 2016       Home construction bounced back in June after an unimpressive May, potentially setting the stage for more moderate home price growth, with mortgage rates already hovering near historic lows.

Housing starts jumped 4.8 percent last month, according to a report published Tuesday by the Census Bureau. That's the best rate of home construction improvement since February and well ahead of analysts' more modest expectations.

The number of building permits issued in June, likewise, ticked up 1.5 percent over the month, while the number of housing completions skyrocketed 12.3 percent. These finished projects showed improvement in all four of the country's major geographic regions, though the Northeast led the charge with an 89.7 percent spike, spurred mostly by multifamily units and apartment buildings.

All told, June was a welcome step in the right direction following what has thus far been a lackluster year in the world of home construction. Despite the monthly improvement, housing starts are still down 2 percent over the year. And building permits are down a whopping 13.6 percent from June 2015. 

"June's data release shows monthly starts are still about 20 percent below historical averages," Ralph McLaughlin, chief economist at real estate hub Trulia, said in a statement Tuesday. "Nationally, new housing supply relative to demand is about 15 percent below the historical average."

All of this means fewer job opportunities for domestic construction workers. Such payrolls were unchanged in the month of June, according to the Bureau of Labor Statistics. But construction employment fell in April and May, which hadn't happened in consecutive months since mid-2012.  Read more here.

 

Fannie and Freddie Give Birth to New Mortgage Bond

The Wall Street Journal |  December 29, 2015     The federal government is trying to get taxpayers off the hook for billions of dollars of potential losses if another mortgage crisis arrives—and in the process, it is quietly giving birth to a new asset class.

Under government control, mortgage-finance giants Fannie Mae and Freddie Mac next year plan to ramp up sales of new types of securities that in effect transfer potential losses in a housing downturn to private investors.

Called Connecticut Avenue Securities by Fannie Mae and Structured Agency Credit Risk by Freddie Mac, the securities are essentially bonds whose performance is tied to that of a pool of mortgages. If the mortgages default, investors in the bonds could lose some or all of their principal.  Read more here.

Texas Mortgage Settlement Millions Misspent, Critics Say

News 8 WFAA ABC |  November 9, 2015     Texas homeowners who fell behind and lost their homes during the mortgage crisis were given hope three years ago.

It came in the form of a $25 billion national settlement with five lenders – Ally, Bank of America, Citi, JPMorgan Chase and Wells Fargo – all accused of wrongly forcing people out of their homes.

But how much relief did the State of Texas provide to its citizens?  Read and watch video investigation here.  

Freedom Caucus Votes For $17 Billion In Government Payments To Banks

Huffington Post |  November 5, 2015    The House voted overwhelmingly on Thursday to preserve $17 billion in government payouts to banks, as part of a major highway funding bill.  The GOP had initially pressed to include other bank-friendly measures in the highway bill, including a plan to hamstring the new Consumer Financial Protection Bureau and deregulate large banks. Those efforts were scrapped in favor of the more straightforward $17 billion payment.  Read more here.

Delinquencies and Foreclosures Up Again; Time in Foreclosure at 1056 Days

The Economic Populist |  November 10, 2015     The Mortgage Monitor for September from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 737,254 home mortgages, or 1.46% of all mortgages outstanding, remaining in the foreclosure process at the end of September, which was down from 747,930, or 1.48% of all active loans that were in foreclosure at the end of August, and down from 1.89% of all mortgages that were in foreclosure in September of last year.  These are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and the September "foreclosure inventory" remains the lowest percentage of homes that were in the foreclosure process since late 2007.   New foreclosure starts, however, rose for the second month in a row, from 76,180 in August to 79,899 in September, up more than 10% from July, while they remain lower than the 95.400 new foreclosures started in September of 2014, they've been volatile from month to month, and they have remained in a range about 50% higher than number of new foreclosures we saw in the precrisis year of 2005.  Read more here.