Category Archives: Mortgage

Think Wells Fargo is Corrupt? A Suit Claims Another Big Bank is Worse

Wells Fargo has been in the news for allegedly doing all sorts of bad things to consumers.  One thing Wells hasn’t done is collect payments on loans that were owned by someone else.  Then, tell federal regulators that they are forgiving the loans they have sold to get federal credit under the huge federal mortgage settlement.  Supposedly, Chase hired to company with ties to the Church of Scientology to prepare releases on thousands of loans Chase no longer owned to get the federal credit.  A suit against Chase claims that is what the country’s largest bank did, allegedly with the CEO’s full knowledge.  It sounds too bizarre to be real but 21 companies who bought defaulted mortgages from Chase say that is what happened.  Consumers have been caught in the middle with Chase sending them notices that their loans were paid in full and the companies who say they bought the loans from Chase telling them they still owe the money.


https://www.thenation.com/wp-content/uploads/2017/10/Dayen-Robinson_img.jpg?scale=896&compress=80

Special Investigation: How America’s Biggest Bank Paid Its Fine for the 2008 Mortgage Crisis—With Phony Mortgages!

Alleged fraud put JPMorgan Chase hundreds of millions of dollars ahead; ordinary homeowners, not so much.

You know the old joke: How do you make a killing on Wall Street and never risk a loss? Easy—use other people’s money. Jamie Dimon and his underlings at JPMorgan Chase have perfected this dark art at America’s largest bank, which boasts a balance sheet one-eighth the size of the entire US economy.

After JPMorgan’s deceitful activities in the housing market helped trigger the 2008 financial crash that cost millions of Americans their jobs, homes, and life savings, punishment was in order. Among a vast array of misconduct, JPMorgan engaged in the routine use of “robo-signing,” which allowed bank employees to automatically sign hundreds, even thousands, of foreclosure documents per day without verifying their contents. But in the United States, white-collar criminals rarely go to prison; instead, they negotiate settlements. Thus, on February 9, 2012, US Attorney General Eric Holder announced the National Mortgage Settlement, which fined JPMorgan Chase and four other mega-banks a total of $25 billion.

JPMorgan’s share of the settlement was $5.3 billion, but only $1.1 billion had to be paid in cash; the other $4.2 billion was to come in the form of financial relief for homeowners in danger of losing their homes to foreclosure. The settlement called for JPMorgan to reduce the amounts owed, modify the loan terms, and take other steps to help distressed Americans keep their homes. A separate 2013 settlement against the bank for deceiving mortgage investors included another $4 billion in consumer relief.

A Nation investigation can now reveal how JPMorgan met part of its $8.2 billion settlement burden: by using other people’s money.

Here’s how the alleged scam worked. JPMorgan moved to forgive the mortgages of tens of thousands of homeowners; the feds, in turn, credited these canceled loans against the penalties due under the 2012 and 2013 settlements. But here’s the rub: In many instances, JPMorgan was forgiving loans it no longer owned.

The alleged fraud is described in internal JPMorgan documents, public records, testimony from homeowners and investors burned in the scam, and other evidence presented in a blockbuster lawsuit against JPMorgan, now being heard in US District Court in New York City.

JPMorgan no longer owned the loans because it had sold the mortgages years earlier to 21 third-party investors, including three companies owned by Larry Schneider. Those companies are the plaintiffs in the lawsuit; Schneider is also aiding the federal government in a related case against the bank. In a bizarre twist, a company associated with the Church of Scientology facilitated the apparent scheme. Nationwide Title Clearing, a document-processing company with close ties to the church, produced and filed the documents that JPMorgan needed to claim ownership and cancel the loans.

“If the allegations are true, JPMorgan screwed everybody.” —former congressman Brad Miller

JPMorgan, it appears, was running an elaborate shell game. In the depths of the financial collapse, the bank had unloaded tens of thousands of toxic loans when they were worth next to nothing. Then, when it needed to provide customer relief under the settlements, the bank had paperwork created asserting that it still owned the loans. In the process, homeowners were exploited, investors were defrauded, and communities were left to battle the blight caused by abandoned properties. JPMorgan, however, came out hundreds of millions of dollars ahead, thanks to using other people’s money.

“If the allegations are true, JPMorgan screwed everybody,” says Brad Miller, a former Democratic congressman from North Carolina who was among the strongest advocates of financial reform on Capitol Hill until his retirement in 2013.

In an unusual departure from most allegations of financial bad behavior, there is strong evidence that Jamie Dimon, JPMorgan’s CEO and chairman, knew about and helped to implement the mass loan-forgiveness project. In two separate meetings in 2013 and 2014, JPMorgan employees working on the project were specifically instructed not to release mortgages in Detroit under orders from Dimon himself, according to internal bank communications. In an apparent public-relations ploy, JPMorgan was about to invest $100 million in Detroit’s revival. Dimon’s order to delay forgiving the mortgages in Detroit appears to have been motivated by a fear of reputational risk. An internal JPMorgan report warned that hard-hit cities might take issue with bulk loan forgiveness, which would deprive municipal governments of property taxes on abandoned properties while further destabilizing the housing market.

Did Dimon also know that JPMorgan, as part of its mass loan-forgiveness project, was forgiving loans it no longer owned? No internal bank documents confirming that knowledge have yet surfaced, but Dimon routinely takes legal responsibility for knowing about his bank’s actions. Like every financial CEO in the country, Dimon is obligated by law to sign a document every year attesting to his knowledge of and responsibility for his bank’s operations. The law establishes punishments of $1 million in fines and imprisonment of up to 10 years for knowingly making false certifications.

Dimon signed the required document for each of the years that the mass loan-forgiveness project was in operation, from 2012 through 2016. Whether or not he knew that his employees were forgiving loans the bank no longer owned, his signatures on those documents make him potentially legally responsible.

The JPMorgan press office declined to make Dimon available for an interview or to comment for this article. Nationwide Title Clearing declined to comment on the specifics of the case but said that it is “methodical in the validity and legality of the documents” it produces.

Federal appointees have been complicit in this as well. E-mails show that the Office of Mortgage Settlement Oversight, charged by the government with ensuring the banks’ compliance with the two federal settlements, gave JPMorgan the green light to mass-forgive its loans. This served two purposes for the bank: It could take settlement credit for forgiving the loans, and it could also hide these loans—which JPMorgan had allegedly been handling improperly—from the settlements’ testing regimes.

“No one in Washington seems to understand why Americans think that different rules apply to Wall Street, and why they’re so mad about that,” said former congressman Miller. “This is why.”

Lauren and Robert Warwick were two of the shell game’s many victims. The Warwicks live in Odenton, Maryland, a bedroom community halfway between Baltimore and Washington, DC, and had taken out a second mortgage on their home with JPMorgan’s Chase Home Finance division. In 2008, after the housing bubble burst and the Great Recession started, 3.6 million Americans lost their jobs; Lauren Warwick was one of them.

Before long, the Warwicks had virtually no income. While Lauren looked for work, Robert was in the early stages of starting a landscaping business. But the going was slow, and the Warwicks fell behind on their mortgage payments. They tried to set up a modified payment plan, to no avail: Chase demanded payment in full and warned that foreclosure loomed. “They were horrible,” Lauren Warwick told The Nation. “I had one [Chase representative] say, ‘Sell the damn house—that’s all you can do.’”

Then, one day, the hounding stopped. In October 2009, the Warwicks received a letter from 1st Fidelity Loan Services, welcoming them as new customers. The letter explained that 1st Fidelity had purchased the Warwicks’ mortgage from Chase, and that they should henceforth be making an adjusted mortgage payment to this new owner.

The alleged shell game put JPMorgan hundreds of millions of dollars ahead—with federal permission.

Lauren Warwick had never heard of 1st Fidelity, but the letter made her more relieved than suspicious. “I’m thinking, ‘They’re not taking my house, and they’re not hounding me,’” she said.

Larry Schneider, 49, is the founder and president of 1st Fidelity and two other mortgage companies. He has worked in Florida’s real-estate business for 25 years, getting his start in Miami. In 2003, Schneider hit upon a business model: If he bought distressed mortgages at a significant discount, he could afford to offer the borrowers reduced mortgage payments. It was a win-win-win: Borrowers remained in their homes, communities were stabilized, and Schneider still made money.

“I was in a position where I could do what banks didn’t want to,” Schneider says. In fact, his business model resembled what President Franklin Roosevelt did in the 1930s with the Home Owners’ Loan Corporation, which prevented nearly 1 million foreclosures while turning a small profit. More to the point, Schneider’s model exemplified how the administrations of George W. Bush and Barack Obama could have handled the foreclosure crisis if they’d been more committed to helping Main Street rather than Wall Street.

The Warwicks’ loan was one of more than 1,000 that Schneider purchased without incident from JPMorgan’s Chase Home Finance division starting in 2003. In 2009, the bank offered Schneider a package deal: 3,529 primary mortgages (known as “first liens”) on which payments had been delinquent for over 180 days. Most of the properties were located in areas where the crisis hit hardest, such as Baltimore.

Selling distressed properties to companies like Schneider’s was part of JPMorgan’s strategy for limiting its losses after the housing bubble collapsed. The bank owned hundreds of thousands of mortgages that had little likelihood of being repaid. These mortgages likely carried ongoing costs: paying property taxes, addressing municipal-code violations, even mowing the lawn. Many also had legal defects and improper terms; if federal regulators ever scrutinized these loans, the bank would be in jeopardy.

In short, the troubled mortgages were the financial equivalent of toxic waste. To deal with them, Chase Home Finance created a financial toxic-waste dump: The mortgages were listed in an internal database called RCV1, where RCV stood for “Recovery.”

Unbeknownst to Schneider, the package deal that Chase offered him came entirely from this toxic-waste dump. Because he’d had a good relationship with Chase up to that point, Schneider took the deal. On February 25, 2009, he signed an agreement to buy the loans, valued at $156 million, for only $200,000—slightly more than one-tenth of a penny on the dollar. But the agreement turned sour fast, Schneider says.

Among a range of irregularities, perhaps the most egregious was that Chase never provided him with all the documentation proving ownership of the loans in question. The data that Schneider did receive lacked critical information, such as borrower names, addresses of the properties, even the payment histories or amounts due. This made it impossible for him to work with the borrowers to modify their terms and help them stay in their homes. Every time Schneider asked Chase about the full documentation, he was told it was coming. It never arrived.

As CEO, Jamie Dimon is potentially legally responsible for JPMorgan’s apparently phony mortgages.

Here’s the kicker: JPMorgan was still collecting payments on some of these loans and even admitted this fact to Schneider. In December 2009, a Chase Home Finance employee named Launi Solomon sent Schneider a list of at least $47,695.53 in payments on his loans that the borrowers had paid to Chase. But 10 days later, Solomon wrote that these payments would not be transferred to Schneider because of an internal accounting practice that was “not reversible.” On another loan sold to Schneider, Chase had taken out insurance against default; when the homeowner did in fact default, Chase pocketed the $250,000 payout rather than forward it to Schneider, according to internal documents.

Chase even had a third-party debt collector named Real Time Resolutions solicit Schneider’s homeowners, seeking payments on behalf of Chase. In one such letter from 2013, Real Time informed homeowner Maureen Preis, of Newtown Square, Pennsylvania, that “our records indicate Chase continues to hold a lien on the above referenced property,” even though Chase explicitly confirmed to Schneider that it had sold him the loan in 2010.

JPMorgan jumped in and out of claiming mortgage ownership, Schneider asserts, based on whatever was best for the bank. “If a payment comes in, it’s theirs,” he says; “if there’s a code-enforcement issue, it’s mine.”

The shell game entered a new, more far-reaching phase after JPMorgan agreed to its federal settlements. Now the bank was obligated to provide consumer relief worth $8.2 billion—serious money even for JPMorgan. The solution? Return to the toxic-waste dump.

Because JPMorgan had stalled Schneider on turning over the complete paperwork proving ownership, it took the chance that it could still claim credit for forgiving the loans that he now owned. Plus the settlements required JPMorgan to show the government that it was complying with all federal regulations for mortgages. The RCV1 loans didn’t seem to meet those standards, but forgiving them would enable the bank to hide this fact.

The Office of Mortgage Settlement Oversight gave Chase Home Finance explicit permission to implement this strategy. “Your business people can be relieved from pushing forward” on presenting RCV1 loans for review, lawyer Martha Svoboda wrote in an e-mail to Chase, as long as the loans were canceled.

Chase dubbed this the “pre DOJ Lien Release Project.” (To release a lien means to forgive the loan and relinquish any ownership right to the property in question.) The title page of an internal report on the project lists Lisa Shepherd, vice president of property preservation, and Steve Hemperly, head of mortgage originations, as the executives in charge. The bank hired Nationwide Title Clearing, the company associated with the Church of Scientology, to file the lien releases with county offices. Erika Lance, an employee of Nationwide, is listed as the preparer on 25 of these lien releases seen by The Nation. Ironically, Schneider alleges, the releases were in effect “robo-signed,” since the employees failed to verify that JPMorgan Chase owned the loans. If Schneider is right, it means that JPMorgan relied on the same fraudulent “robo-signing” process that had previously gotten the bank fined by the government to help it evade that penalty.

On September 13, 2012, Chase Home Finance mailed 33,456 forgiveness letters informing borrowers of the debt cancellation. Schneider immediately started hearing from people who said that they wouldn’t be making further payments to him because Chase had forgiven the loan. Some even sued Schneider for illegally charging them for mortgages that he (supposedly) didn’t own.

When Lauren and Robert Warwick got their forgiveness letter from Chase, Lauren almost passed out. “You will owe nothing more on the loan and your debt with be cancelled,” the letter stated, calling this “a result of a recent mortgage servicing settlement reached with the states and federal government.” But for the past three years, the Warwicks had been paying 1st Fidelity Loan Servicing—not Chase. Lauren said she called 1st Fidelity, only to be told: “Sorry, no, I don’t care what they said to you—you owe us the money.”

JPMorgan’s shell game unraveled because Lauren Warwick’s neighbor worked for Michael Busch, the speaker of the Maryland House of Delegates. After reviewing the Warwicks’ documents, Kristin Jones, Busch’s chief of staff, outlined her suspicions to the Maryland Department of Labor, Licensing and Regulation. “I’m afraid based on the notification of loan transfer that Chase sold [the Warwicks’] loan some years ago,” Jones wrote. “I question whether Chase is somehow getting credit for a write-off they never actually have to honor.”

After Schneider and various borrowers demanded answers, Chase checked a sample of over 500 forgiveness letters. It found that 108 of the 500 loans—more than one out of five—no longer belonged to the bank. Chase told the Warwicks that their forgiveness letter had been sent in error. Eventually, Chase bought back the Warwicks’ loan from Schneider, along with 12 others, and honored the promised loan forgiveness.

Not everyone was as lucky as the Warwicks. In letters signed by vice president Patrick Boyle, JPMorgan Chase forgave at least 49,355 mortgages in three separate increments. The bank also forgave additional mortgages, but the exact number is unknown because the bank stopped sending homeowners notification letters. Nor is it known how many of these forgiven mortgages didn’t actually belong to JPMorgan; the bank refused The Nation’s request for clarification. Through title searches and the discovery process, Schneider ascertained that the bank forgave 607 loans that belonged to one of his three companies. The lien-release project overall allowed JPMorgan to take hundreds of millions of dollars in settlement credit.

Most of the loans that JPMorgan released—and received settlement credit for—were all but worthless. Homeowners had abandoned the homes years earlier, expecting JPMorgan to foreclose, only to have the bank forgive the loan after the fact. That forgiveness transferred responsibility for paying back taxes and making repairs back to the homeowner. It was like a recurring horror story in which “zombie foreclosures” were resurrected from the dead to wreak havoc on people’s financial lives.

Federal officials knew about the problems and did nothing. In July 2014, the City of Milwaukee wrote to Joseph Smith, the federal oversight monitor, alerting him that “thousands of homeowners” were engulfed in legal nightmares because of the confusion that banks had sown about who really owned their mortgages. In a deposition for the lawsuit against JPMorgan Chase, Smith admitted that he did not recall responding to the City of Milwaukee’s letter.

If you pay taxes in a municipality where JPMorgan spun its trickery, you helped pick up the tab. The bank’s shell game prevented municipalities from knowing who actually owned distressed properties and could be held legally liable for maintaining them and paying property taxes. As a result, abandoned properties deteriorated further, spreading urban blight and impeding economic recovery. “Who’s going to pay for the demolition [of abandoned buildings] or [the necessary extra] police presence?” asks Brent Tantillo, Schneider’s lawyer. “As a taxpayer, it’s you.”

Such economic fallout may help explain why Jamie Dimon directed that JPMorgan’s mass forgiveness of loans exempt Detroit, a city where JPMorgan has a long history. The bank’s predecessor, the National Bank of Detroit, has been a fixture in the city for over 80 years; its relationships with General Motors and Ford go back to the 1930s. And JPMorgan employees knew perfectly well that mass loan forgiveness might create difficulties. The 2012 internal report warned that cities might react negatively to the sheer number of forgiven loans, which would lower tax revenues while adding costs. Noting that some of the cities in question were clients of JPMorgan Chase, the report warned that the project posed a risk to the bank’s reputation.

Reputational risk was the exact opposite of what JPMorgan hoped to achieve in Detroit. So the bank decided to delay the mass forgiveness of loans in Detroit and surrounding Wayne County until after the $100 million investment was announced. Dimon himself ordered the delay, according to the minutes of JPMorgan Chase meetings that cite the bank’s chairman and CEO by name. Dimon then went to Detroit to announce the investment on May 21, 2014, reaping positive coverage from The New York Times, USA Today, and other local and national news outlets. Since June 1, 2014, JPMorgan has released 10,229 liens in Wayne County, according to public records; the bank declined to state how many of these were part of the lien-release project.

Both of Larry Schneider’s lawsuits alleging fraud on JPMorgan Chase’s part remain active in federal courts. The Justice Department could also still file charges against JPMorgan, Jamie Dimon, or both, because Schneider’s case was excluded from the federal settlement agreements.

Few would expect Jeff Sessions’s Justice Department to pursue such a case, but what this sorry episode most highlights is the pathetic disciplining of Wall Street during the Obama administration.

JPMorgan’s litany of acknowledged criminal abuses over the past decade reads like a rap sheet, extending well beyond mortgage fraud to encompass practically every part of the bank’s business. But instead of holding JPMorgan’s executives responsible for what looks like a criminal racket, Obama’s Justice Department negotiated weak settlement after weak settlement. Adding insult to injury, JPMorgan then wriggled out of paying its full penalties by using other people’s money.

The larger lessons here command special attention in the Trump era. Negotiating weak settlements that don’t force mega-banks to even pay their fines, much less put executives in prison, turns the concept of accountability into a mirthless farce. Telegraphing to executives that they will emerge unscathed after committing crimes not only invites further crimes; it makes another financial crisis more likely. The widespread belief that the United States has a two-tiered system of justice—that the game is rigged for the rich and the powerful—also enabled the rise of Trump. We cannot expect Americans to trust a system that lets Wall Street fraudsters roam free while millions of hard-working taxpayers get the shaft.

By David Dayen | The Nation

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Highly Unusual US Treasury Yield Pattern Not Seen Since Summer of 2000

Curve watchers anonymous has taken an in-depth review of US treasury yield charts on a monthly and daily basis. There’s something going on that we have not see on a sustained basis since the summer of 2000. Some charts will show what I mean.

Monthly Treasury Yields 3-Month to 30-Years 1998-Present:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07b1.png?w=768&h=448

It’s very unusual to see the yield on the long bond falling for months on end while the yield on 3-month bills and 1-year note rises. It’s difficult to spot the other time that happened because of numerous inversions. A look at the yield curve for Treasuries 3-month to 5-years will make the unusual activity easier to spot.

Monthly Treasury Yields 3-Month to 5-Years 1990-Present:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07a3.png?w=768&h=454

Daily Treasury Yields 3-Month to 5-Years 2016-2017:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07c1.png?w=768&h=448

Daily Treasury Yields 3-Month to 5-Years 2000:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07d.png?w=768&h=453

One cannot blame this activity on hurricanes or a possible government shutdown. The timeline dates to December of 2016 or March of 2017 depending on how one draws the lines.

This action is not at all indicative of an economy that is strengthening.

Rather, this action is indicative of a market that acts as if the Fed is hiking smack in the face of a pending recession.

Hurricanes could be icing on the cake and will provide a convenient excuse for the Fed and Trump if a recession hits.

Related Articles

  1. Confident Dudley Expects Rate Hikes Will Continue, Hurricane Effect to Provide Long Run “Economic Benefit”
  2. Hurricane Harvey Ripple Effects: Assessing the Impact on Housing and GDP
  3. “10-Year Treasury Yields Headed to Zero Percent” Saxo Bank CIO

By Mike “Mish” Shedlock

NYC Commercial Real Estate Sales Plunge Over 50% As Owners Lever Up In The Absence Of Buyers

So what do you do when the bubbly market for your exorbitantly priced New York City commercial real estate collapses by over 50% in two years?  Well, you lever up, of course. 

As Bloomberg notes this morning, the ‘smart money’ at U.S. banking institutions are tripping over themselves to throw money at commercial real estate projects all while ‘dumb money’ buyers have completely dried up.

A growing chasm between what buyers are willing to pay and what sellers think their properties are worth has put the brakes on deals. In New York City, the largest U.S. market for offices, apartments and other commercial buildings, transactions in the first half of the year tumbled about 50 percent from the same period in 2016, to $15.4 billion, the slowest start since 2012, according to research firm Real Capital Analytics Inc.

At the same time, the market for debt on commercial properties is booming. Investors of all stripes — from banks and insurance companies to hedge funds and private equity firms — are plowing into real estate loans as an alternative to lower-yielding bonds. That’s giving building owners another option to cash in if their plans to sell don’t work out.

“Sellers have a number in mind, and the market is not there right now,” said Aaron Appel, a managing director at brokerage Jones Lang LaSalle Inc. who arranges commercial real estate debt. “Owners are pulling out capital” by refinancing loans instead of finding buyers, he said.

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/09/06/2017.09.06%20-%20NYC%20Real%20Estate.JPG

But don’t concern yourself with talk of bubbles because Scott Rechler of RXR would like for you to rest assured that the lack of buyers is not at all concerning…they’ve just “hit the pause button” while they wander out in search of the ever elusive “price discovery.”  

At 237 Park Ave., Walton Street Capital hired a broker in March to sell its stake in the midtown Manhattan tower, acquired in a partnership with RXR Realty for $810 million in 2013. After several months of marketing, the Chicago-based firm opted instead for $850 million in loans that value the 21-story building at more than $1.3 billion, according to financing documents. The owners kept about $23.4 million.

“The basic trend is you have a really strong debt market and a sales market that has hit the pause button while it seeks to find price discovery,” said Scott Rechler, chief executive officer of RXR.

The debt market has become so appealing that landlords are looking at mortgage options while simultaneously putting out feelers for buyers, said Rechler, whose company owns $15 billion of real estate throughout New York, New Jersey and Connecticut. That’s a departure for Manhattan’s property owners, who in prior years would pursue one track at a time, he said.

Of course, this isn’t just a NYC phenomenon as sales of office towers, apartment buildings, hotels and shopping centers across the U.S. have been plunging since reaching $262 billion nationally in 2015, just behind the record $311 billion of real estate that changed hands in 2007, according to Real Capital. Property investors are on the sidelines amid concern that rising interest rates will hurt values that have jumped as much as 85 percent in big cities like New York, compounded by overbuilding and a pullback of the foreign capital that helped power the recent property boom.

The tough sales market has put some property owners in a bind — most notably Kushner Cos., which has struggled to find partners for 666 Fifth Ave., the Midtown tower it bought for a record price in 2007. The mortgage on the building will need to be refinanced in 18 months.

Thankfully, at least someone interviewed by Bloomberg seemed to be grounded in reality with Jeff Nicholson of CreditFi saying that it just might be a “red flag” that buyers have completely abandoned the commercial real estate market at the same time that owners are massively levering up to take cash out of projects.

Some lenders view seeking a loan to take money off the table as a red flag, according to Jeff Nicholson, a senior analyst at CrediFi, a firm that collects and analyzes data on real estate loans. It may signal the borrower is less committed to the project, and makes it easier to walk away from the mortgage if something goes wrong, he said.

But, it’s probably nothing …

Source: Zero Hedge

Breaking: HUD To Raise Premiums, Tighten Limits On Reverse Mortgages

The Department of Housing and Urban Development on Tuesday will formally announce plans to increase premiums and tighten lending limits on reverse mortgages, citing concerns about the strength of the program and taxpayer losses.

Mortgage insurance premiums on Home Equity Conversion Mortgages will rise to 2% of the home value at the time of origination, then 0.5% annually during the life of the loan, The Wall Street Journal reported Tuesday morning. In addition, the average amount of cash that seniors can access will drop from about 64% of the home’s value to 58% based on current rates, the WSJ said.

“Given the losses we’re seeing in the program, we have a responsibility to make changes that balance our mission with our responsibility to protect taxpayers,” HUD secretary Ben Carson told the WSJ via a spokesperson.

The HECM program’s value within the Mutual Mortgage Insurance Fund was pegged at negative $7.72 billion in fiscal 2016, and the WSJ noted that the HECM program has generated in $12 billion in payouts from the fund since 2009. The value of the HECM program fluctuates over time, however: In 2015, the reverse mortgage portion of the fund generated an estimated $6.78 billion in value; in 2014, the deficit was negative $1.17 billion.

Unnamed HUD officials told the WSJ that without this change, the Federal Housing Administration would need an appropriation from Congress in the next few years to sustain the HECM fund. The officials also said that the drag created by reverse mortgages has prevented them from lowering insurance premiums on forward mortgages for homeowners.

“You have this cross-subsidy from younger, less affluent people who are trying to achieve homeownership,” HUD senior advisor Adolfo Marzol told the WSJ.

The move took the industry by surprise, with the WSJ reporting that leaders were not briefed on the changes beforehand. 

By Alex Spanko | Reverse Mortgage Daily

Serious Credit Card Delinquencies Rise for the Third Straight Quarter: Trend Not Seen Since 2009

Every quarter, the New York Fed publishes a report on Household Debt and Credit.

The report shows serious credit card delinquencies rose for the third consecutive quarter, a trend not seen since 2009.

Let’s take a look at a sampling of report highlights and charts.

Household Debt and Credit Developments in 2017 Q2

  • Aggregate household debt balances increased in the second quarter of 2017, for the 12th consecutive quarter, and are now $164 billion higher than the previous (2008 Q3) peak of $12.68 trillion.
  • As of June 30, 2017, total household indebtedness was $12.84 trillion, a $114 billion (0.9%) increase from the first quarter of 2017. Overall household debt is now 15.1% above the 2013 Q2 trough.
  • The distribution of the credit scores of newly originating mortgage and auto loan borrowers shifted downward somewhat, as the median score for originating borrowers for auto loans dropped 8 points to 698, and the median origination score for mortgages declined to 754.
  • Student loans, auto loans, and mortgages all saw modest increases in their early delinquency flows, while delinquency flows on credit card balances ticked up notably in the second quarter.
  • Outstanding student loan balances were flat, and stood at $1.34 trillion as of June 30, 2017. The second quarter typically witnesses slow or no growth in student loan balances due to the academic cycle.
  • 11.2% of aggregate student loan debt was 90+ days delinquent or in default in 2017 Q2.

Total Debt and Composition:

https://mishgea.files.wordpress.com/2017/08/household-debt-2017-q2a.png?w=768&h=545

Mortgage Origination by Credit Score:

https://mishgea.files.wordpress.com/2017/08/household-debt-2017-q2b.png?w=988&h=700

Auto Origination by Credit Score:

https://mishgea.files.wordpress.com/2017/08/household-debt-2017-q2d.png?w=975&h=700

30-Day Delinquency Transition:

https://mishgea.files.wordpress.com/2017/08/household-debt-2017-q2e.png?w=994&h=700

90-Day Delinquency Transition:

https://mishgea.files.wordpress.com/2017/08/household-debt-2017-q2f.png?w=941&h=700

Credit card and auto loan delinquencies are trending up. The trend in mortgage delinquencies at the 30-day level has bottomed. A rise in serious delinquencies my follow.

By Mike “Mish” Shedlock

Number Of Homebuyers Putting Less Than 10% Down Soars To 7-Year High

A really long, long time ago, well before most of today’s wall street analysts made it through puberty, the entire international financial system almost collapsed courtesy of a mortgage lending bubble that allowed anyone with a pulse to finance over 100% of a home’s purchase price…with pretty much no questions asked.

And while the millennial titans of high finance today may consider a decade-old case study on mortgage finance to be about as useful as a Mark Twain novel when it comes to underwriting mortgage risk, they may want to considered at least taking a look at the ancient finance scrolls from 2009 before gleefully repeating the sins of their forefathers.

Alas, it may be too late.  As Black Knight Financial Services points out, down payments, the very thing that is supposed to deter rampant housing speculation by forcing buyers to have ‘skin in the game’, are once again disappearing from the mortgage market.  In fact, just in the last 12 months, 1.5 million borrowers have purchased a home with less than 10% down, a 7-year high.

Over the past 12 months, 1.5M borrowers have purchased a home by putting down less than 10 percent, which is close to a seven-year high in low down payment purchase volumes

– The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upwards in market share over the past 18 months

– Looking back historically, we see that half of all low down payment lending (less than 10 percent down) in 2005-2006 involved piggyback second liens rather
than a single high LTV first lien mortgage

– The low down payment market share actually rose through 2010 as the GSEs and portfolio lenders pulled back, the PLS market dried up, and FHA lending buoyed
the purchase market as a whole

– The FHA/VA share of purchase lending rose from less than 10 percent during 2005-2006 to nearly 50 percent in 2010

– As the market normalized and other lenders returned, the share of low-down payment lending declined consistent with a drop in the FHA/VA share of the purchase market

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On the bright side, at least Yellen’s interest rate bubble means that today’s housing speculators don’t even have to rely on introductory teaser rates to finance their McMansions...Yellen just artificially set the 30-year fixed rate at the 2007 ARM teaser rate…it’s just much easier this way.

“The increase is primarily a function of the overall growth in purchase lending, but, after nearly four consecutive years of declines, low down payment loans have ticked upward in market share over the past 18 months as well,” said Ben Graboske, executive vice president at Black Knight Data & Analytics, in a recent note. “In fact, they now account for nearly 40 percent of all purchase lending.”

At that time half of all low down payment loans being made involved second loans, commonly known as “piggyback loans,” but today’s mortgages are largely single, first liens, Graboske noted.

The loans of the past were also far riskier – mostly adjustable-rate mortgages, which, according to the Black Knight report, are virtually nonexistent among low down payment mortgages today. Instead, most are fixed rate. Credit scores of borrowers taking out these loans today are also about 50 points higher than those between 2004 and 2007.

Finally, on another bright note, tax payers are just taking all the risk upfront this time around…no sense letting the banks take the risk while pretending that taxpayers aren’t on the hook for their poor decisions…again, it’s just easier this way.

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Source: ZeroHedge

Seniors Only Keeping < = 75% Of Social Security After Medical Expenses

Concerns over the future of Social Security play a starring role in American seniors’ overall retirement uncertainty — and that’s before considering how much of the benefit might eventually need to go toward unexpected medical expenses.

After factoring in supplemental insurance premiums and other uninsured health costs, the average retiree only takes home 75% of his or her Social Security benefits, according to a new study from researchers at Tufts University and Boston College.

“A substantial share of other households have even less of their benefits left over,” researchers Melissa McInerney of Tufts and Matthew S. Rutledge and Sara Ellen King of BC wrote.

In fact, for three percent of retirees, out-of-pocket health expenses actually exceed their Social Security Old Age and Survivors Insurance (OASI) benefits, the team concludes.

These findings are part of an overall trend: Despite positive steps such as the introduction of Medicare Part D coverage for prescription drugs in 2006, seniors have increasingly paid more for health expenses directly from their pockets.

“Until a slowdown during this decade, out-of-pocket costs for Medicare beneficiaries rose dramatically — costs increased by 44% between 2000 and 2010 — and they are expected to continue to rise faster than overall inflation,” the researchers wrote.

To perform their study, which was introduced at the annual Joint Meeting of the Retirement Research Consortium in Washington, D.C. last week, the team analyzed individual data points for Social Security recipients aged 65 and older between 2002 and 2014. They found a wide range in medical spending among that cohort: For instance, while the median retiree spent $2,400 in 2014, the total group averaged $3,100 per person, with retirees in the 75th percentile logging $4,400.

The researchers also warn that they only analyzed medical expenses, citing a 2017 paper that concluded that housing costs, taxes, and “non-housing debt” eat up about 30% of a retiree’s income.

“Although out-of-pocket medical spending has declined somewhat since the instruction of Part D … these findings suggest that Social Security beneficiaries’ lifestyles remain vulnerable to a likely revival in medical spending growth,” the team concludes.

Read McInerney, Rutledge, and King’s full findings here.

By Alex Spanko | Reverse Mortgage Daily