Tag Archives: Consumer Financial Protection Bureau

New York Judge Rules Consumer Financial Protection Bureau An Unconstitutional Construct…

The CFPB was constructed by Elizabeth Warren and her progressive ideologues as an extra-constitutional government agency.  This was entirely by design.

https://theconservativetreehouse.files.wordpress.com/2017/11/leandra-english-nancy-pelosi-elizabeth-warren-and-chuck-schumer.jpg

The CFPB had two primary, albeit unspoken, functions.  First, it was structured as a holding center for fines and assessments against any financial organizations opposed by progressives.  Second, it was a distribution hub for the received funds to be transferred to political allies and groups supportive of progressive causes.

To pull off this scheme Elizabeth Warren et al ensured it was structured to allow no congressional oversight; however, it was also structured to have no executive branch oversight – and the funding mechanism for the CFPB budget was directly through the federal reserve.  The lack of any legislative or executive branch oversight made the entire scheme unconstitutional according to an earlier court decision.

The CFPB defenders then appealed the decision to a select appellate court in Washington DC to continue the construct.  The Warren crew won the appeal; but today, in an unrelated jurisdictional ruling a New York judge affirmed the minority opinion setting up a possible supreme court pathway to get a final decision.

NEW YORK (AP) – The U.S. government’s beleaguered consumer finance watchdog agency is unconstitutionally structured, a judge said Thursday as she disqualified the agency from serving as a plaintiff in a lawsuit.

U.S. District Judge Loretta A. Preska in Manhattan reached the conclusion about the Consumer Financial Protection Bureau in a written decision.

Her ruling related to a lawsuit brought against companies loaning money to former National Football League players awaiting payouts from the settlement of a concussion-related lawsuit and to individuals slated to receive money for injuries sustained when they helped in the World Trade Center site cleanup after the Sept. 11, 2001, terrorist attacks.

She let claims brought by the New York State attorney general proceed, but dismissed those that were brought by the CPFB, saying it “lacks authority to bring this enforcement action because its composition violates the Constitution’s separation of powers.”

In ruling, Preska sided with three judges who dissented from the six-judge majority in a January ruling by the U.S. Court of Appeals in Washington. The majority found that the agency director’s power is not excessive and that the president should not have freer rein to fire that person.  (read more)

CFPB Interim Director Mick Mulvaney has already said the CFPB needs to be disassembled.

Taking the agency down is perfectly ok with the Trump administration.

https://theconservativetreehouse.files.wordpress.com/2017/11/mulvaney-work.jpg?w=1024&h=1024

CFPB Ruled Unconstitutional Again – National Real Estate Post

By Sundance | The Conservative Tree House

A Raw Deal for Real-Estate Agents

Real estate can be risky for agents themselves. Fickle buyers, unforeseen structural issues, setbacks in financing can all scuttle a deal.

THE COMMITMENT-PHOBE Known for repeatedly pulling out of the purchase right before the contract is signed. Illustration: Laszlito Kovacs

By Nancy Keates | Wall Street Journal, Feb. 19, 2015

She saw a ghost. That was the excuse, anyway, for one buyer’s decision to back out at the last minute from closing on a $1.4 million house in San Francisco, losing a roughly $21,000 deposit in the process.

Her real-estate agent, Amanda Jones of Sotheby’s International Realty, estimates she spent about 250 hours over six months showing the prospective buyer about 130 houses in the Bay Area. In the end, she believes the woman just changed her mind. “It was horrible,” the agent says.

Few professions demand as much upfront time and legwork with the risk of zero return on the effort as real-estate sales. Fickle buyers, unforeseen structural issues, setbacks in financing can all scuttle a sale. Now, there’s another common deal breaker: an overheated housing market in which frenzied bidding wars lead to rash decisions—followed by buyers’ remorse.

“It’s such a fast-paced market right now. Buyers are expected to make offers after seeing a place once at a packed house, so they don’t have time to think things through,” says Kaitlin Adams, an agent with New York-based Compass.

THE NERVOUS NELLIE Spends countless hours to find the perfect home, but backs out at the last minute, saying it just doesn’t ‘feel right.

Nationally, median home prices in 2014 rose to their highest level since 2007, while housing inventory continued to drop—falling 0.5% lower than a year ago, according to the National Association of Realtors. The percentage of buyers backing out of contracts has gone up by about 8%—to 19.1% in the third quarter of 2014 from 17.76% in the third quarter of 2012, according to Evercore ISI, an investment-banking advisory firm.

The war stories come mostly at the high end in select markets, where affluent buyers are less affected by the prospect of losing thousands in earnest money or down payments. Cormac O’Herlihy of Sotheby’s International Realty in Los Angeles recently had buyers he calls “nervous nellies” back out on a $6 million house. “They enjoy an overabundance of financial ability,” Mr. O’Herlihy says.

Julie Zelman, a New York-based agent with Engel & Völkers, spent the past year searching for an apartment for a recently divorced client in his 40s who said he wanted to move from Manhattan’s Upper East Side to a building downtown—preferably one populated by celebrities. Twice the client was about to close when he changed his mind: The first time was at a building called Soho Mews—he’d read it was the home of an Oscar-nominated actress and a Grammy-winning musician. The man offered $2.8 million for a two-bedroom unit but then backed out. Another time, he walked away after offering $3.1 million on a two-bedroom unit in 1 Morton Square, where a popular TV actress once lived.

“He was wasting everyone’s time. It was humiliating for me,” says Ms. Zelman, who thinks the client wasn’t mentally ready for such a big change. The client ended up renting an apartment on the Upper East Side.

THE FAULT FINDER Cites microscopic flaws to quash the deal—and get the earnest money back.

When buyers change their minds before signing a contract, they don’t lose any money. Nataly Rothschild, a New York-based broker, says she thought she had finally closed a deal after a couple’s yearlong house hunt. Because there were five other offers pending, her clients offered $200,000 over the almost $2 million asking price on the three-bedroom, three-bathroom listed for $1.8 million on Manhattan’s Upper East Side. Then Ms. Rothschild, an agent at Engel & Völkers, got a call from the couple’s attorney saying the buyer, who was nine months pregnant, had broken down in tears, saying she just couldn’t sign because it didn’t feel right. “I felt miserable for her,” says Ms. Rothschild. “But we were all shocked.”

Buyers who change their minds after signing a contract typically lose their earnest money, a deposit that shows the offer was made in good faith. That money is often held by the title company or in an escrow account and later applied to down payment and closing costs. If the deal falls through, whoever holds the deposit determines who gets the earnest money. In standard contracts, the earnest money goes to the seller. If, however, a contingency spelled out in the contract emerges—the buyer’s financing falls through, for example—the buyer usually gets the earnest money back.

Vivian Ducat, an agent with Halstead Property in New York, had a client lose $55,000 in earnest money after a change of heart on a $550,000 co-op. The woman, who was living in California, had wanted to buy a place in New York because one of her children was living there. At the last minute she balked, emailing that she “couldn’t handle the New York lifestyle.” She’d signed the contract and even filled out all the paperwork for the co-op board.

THE OVER BIDDER. Gets caught up in the frenzy of the bidding war, then realizes he didn’t mean to spend so much.

In rare instances, buyers can get their earnest money back through arbitration if they can prove a valid cause. Ms. Adams, the Compass agent, represented the sellers of a one-bedroom apartment in Brooklyn Heights that was listed for just under $600,000. When a bidding war with five offers ensued, the unit went for $70,000 above asking price to a couple from the West Coast who wanted to use it as a part-time residence. After the contract was signed, the building’s co-op board enacted a new rule that owners had to live in the building full time. As a result, the West Coast couple got their earnest money back, and the unit sold to another buyer at about $80,000 above the asking price.

Even if the real reason is simply buyer’s remorse, real-estate agents say buyers can get back earnest money as long as they can find some valid-sounding reason for dissatisfaction. Ms. Jones in San Francisco had clients withdraw an offer on a $1.1 million house. They’d been looking for two years and when the house came up the wife was traveling abroad; the husband said he was sure she would love it. Turns out the wife didn’t like it at all. The couple used the excuse of a leak found in the inspection process and got their $33,000 deposit back.

And about that ghost. A buyer who put down $43,000 in earnest money pulled out after a neighbor told them the previous owner had died in the home, among other things. The matter went into arbitration, and the potential buyer got the entire deposit back.

Ever since then, Ms. Jones says she has sellers disclose in their contracts the possibility that there might be a ghost. “You have to prepare for anything,” she says.

Increasing Rent Costs Present a Challenge to Aspiring Homeowners

https://i0.wp.com/dsnews.com/wp-content/uploads/sites/25/2013/12/rising-arrows-two.jpgby Tory Barringer

Fast-rising rents have made it difficult for many Americans to save up a down payment for a home purchase—and experts say that problem is unlikely to go away any time soon.

Late last year, real estate firm Zillow reported that renters living in the United States paid a cumulative $441 billion in rents throughout 2014, a nearly 5 percent annual increase spurred by rising numbers of renters and climbing prices. Last month, the company said that its own Rent Index increased 3.3 percent year-over-year, accelerating from 2013 even as home price growth slows down.

Results from a more recent survey conducted by Zillow and Pulsenomics suggest that rent prices will continue to be a problem for the aspiring homeowner for years to come.

Out of more than 100 real estate experts surveyed, 51 percent said they expect rental affordability won’t improve for at least another two years, Zillow reported Friday. Another 33 percent were a little more optimistic, calling for a deceleration in rental price increases sometime in the next one to two years.

Only five percent said they expect affordability conditions to improve for renters within the next year.

Despite the challenge that rising rents presents to home ownership throughout the country, more than half—52 percent of respondents—said the market should be allowed to correct the problem on its own, without government intervention.

“Solving the rental affordability crisis in this country will require a lot of innovative thinking and hard work, and that has to start at the local level, not the federal level,” said Zillow’s chief economist, Stan Humphries. “Housing markets in general and rental dynamics in particular are uniquely local and demand local, market-driven policies. Uncle Sam can certainly do a lot, but I worry we’ve become too accustomed to automatically seeking federal assistance for housing issues big and small, instead of trusting markets to correct themselves and without waiting to see the impact of decisions made at a broader local level.”

On the topic of government involvement in housing matters: The survey also asked respondents about last month’s reduction in annual mortgage insurance premiums for loans backed by the Federal Housing Administration (FHA). The Obama administration has projected that the cuts will help as many as 250,000 new homeowners make their first purchase.

The panelists were lukewarm on the change: While two-thirds of those with an opinion said they think the changes could be “somewhat effective in making homeownership more accessible and affordable,” just less than half said the new initiatives are unwise and potentially risky to taxpayers.

Finally, the survey polled panelists on their predictions for U.S. home values this year. As a whole, the group predicted values will rise 4.4 percent in 2015 to a median value of $187,040, with projections ranging from a low of 3.1 percent to a high of 5.5 percent.

“During the past year, expectations for annual home value appreciation over the long run have remained flat, despite lower mortgage rates,” said Terry Loebs, founder of Pulsenomics. “Regarding the near-term outlook, there is a clear consensus among the experts that the positive momentum in U.S. home prices will continue to slow this year.”

On average, panelists said they expect median home values will pass their precession peak ($196,400) by May 2017.

CFPB Tells Lenders: Don’t Scrutinize Disability Recipients Applying For Home Loans

https://i0.wp.com/www.creditcardguide.com/credit-cards/wp-content/uploads/2012/07/cfpb-badge.jpgby IBD editorial

Disparate Impact: The president’s new credit watchdog agency is warning lenders they could be investigated for discrimination if they scrutinize welfare recipients applying for home loans. Here we go again.

In an agency bulletin, the Consumer Financial Protection Bureau specifically advised mortgage lenders not to verify the income of people receiving Social Security Disability Insurance benefits.

SSDI enrollment has exploded under Obama, and fraud is rampant in the program. A recent probe by Congress found doctors rubber-stamping claims for the generous benefits. A random review found more than 1-in-4 cases failed to provide evidence to support claims.

No wonder mortgage lenders are asking for verification.

Last year, the number of Americans receiving payments skyrocketed to a record 15 million-plus. A disproportionate share of enrollees are African-American — blacks make up 12% of the population, but over 17% of all SSDI recipients — and black groups have complained to regulators that mortgage underwriters are making unreasonable demands for income verification.

The NAACP argues disability payments are a “critical source of financial support” for blacks, noting their average monthly benefit is almost $1,000.

“The program’s benefits provide a significant income boost to lower-earning African-Americans,” NAACP asserted, noting the share of blacks on federal disability is more than double that for whites.

In response, CFPB has issued a five-page edict warning mortgage lenders they could face “disparate impact” liability if they question whether “all or part” of a minority applicant’s income “derives from a public assistance program.”

If they know what’s good for them, they’ll “avoid unnecessary documentation requests and increase access to credit for persons receiving Social Security disability income.”

In a separate warning, HUD was more forceful: “A lender shouldn’t ask a consumer for documentation or about the nature of his or her disability under any circumstances.”

We can’t say we’re shocked. As we’ve reported — contrary to other media reporting — CFPB’s new Qualified Mortgage rule mandates payments from “government assistance programs are acceptable” forms of income for home loan qualification. (It’s in the 804-page regulation, if financial journalists would just take the time to read it.)

More, the Justice Department has ordered the biggest mortgage lenders in the country, including Wells Fargo and Bank of America, to offer loans to people on “public assistance.” They’re even required to post branch notices promoting the risky welfare acceptance policy.

The administration is actually forcing banks to target high-risk borrowers for 30-year debt under threat of prosecution.

Though President Obama’s worried about a plunge in new-home buying among jobless minorities, he’s just setting them up for failure all over again. A mortgage requires a stable job and income to avoid defaults and foreclosures.

Failure to require income documentation contributed to the mortgage crisis and was something CFPB was created to stop.

Exempting public-assistance income from the rules exposes the bogus nature of Obama’s financial “reforms.”

The Next Housing Crisis May Be Sooner Than You Think

How we could fall into another housing crisis before we’ve fully pulled out of the 2008 one.

https://i0.wp.com/cdn.citylab.com/media/img/citylab/2014/11/RTR2LDPC/lead_large.jpgby Richard Florida

When it comes to housing, sometimes it seems we never learn. Just when America appeared to be recovering from the last housing crisis—the trigger, in many ways, for 2008’s grand financial meltdown and the beginning of a three-year recession—another one may be looming on the horizon.

There are at several big red flags.

For one, the housing market never truly recovered from the recession. Trulia Chief Economist Jed Kolko points out that, while the third quarter of 2014 saw improvement in a number of housing key barometers, none have returned to normal, pre-recession levels. Existing home sales are now 80 percent of the way back to normal, while home prices are stuck at 75 percent back, remaining undervalued by 3.4 percent. More troubling, new construction is less than halfway (49 percent) back to normal. Kolko also notes that the fundamental building blocks of the economy, including employment levels, income and household formation, have also been slow to improve. “In this recovery, jobs and housing can’t get what they need from each other,” he writes.

Americans are spending more than 33 percent of their income on housing.

Second, Americans continue to overspend on housing. Even as the economy drags itself out of its recession, a spate of reports show that families are having a harder and harder time paying for housing. Part of the problem is that Americans continue to want more space in bigger homes, and not just in the suburbs but in urban areas, as well. Americans more than 33 percent of their income on housing in 2013, up nearly 13 percent from two decades ago, according to newly released data from the Bureau of Labor Statistics (BLS). The graph below plots the trend by age.

Over-spending on housing is far worse in some places than others; the housing market and its recovery remain highly uneven. Another BLS report released last month showed that households in Washington, D.C., spent nearly twice as much on housing ($17,603) as those in Cleveland, Ohio ($9,061). The chart below, from the BLS report, shows average annual expenses on housing related items:

(Bureau of Labor Statistics)

The result, of course, is that more and more American households, especially middle- and working-class people, are having a harder time affording housing. This is particularly the case in reviving urban centers, as more affluent, highly educated and creative-class workers snap up the best spaces, particularly those along convenient transit, pushing the service and working class further out.

Last but certainly not least, the rate of home ownership continues to fall, and dramatically. Home ownership has reached its lowest level in two decades—64.4 percent (as of the third quarter of 2014). Here’s the data, from the U.S. Census Bureau:

(Data from U.S. Census Bureau)

Home ownership currently hovers from the mid-50 to low-60 percent range in some of the most highly productive and innovative metros in this country—places like San Francisco, New York, and Los Angeles. This range seems “to provide the flexibility of rental and ownership options required for a fast-paced, rapidly changing knowledge economy. Widespread home ownership is no longer the key to a thriving economy,” I’ve written.

What we are going through is much more than a generational shift or simple lifestyle change. It’s a deep economic shift—I’ve called it the Great Reset. It entails a shift away from the economic system, population patterns and geographic layout of the old suburban growth model, which was deeply connected to old industrial economy, toward a new kind of denser, more urban growth more in line with today’s knowledge economy. We remain in the early stages of this reset. If history is any guide, the complete shift will take a generation or so.

It’s time to impose stricter underwriting standards and encourage the dense, mixed-use, more flexible housing options that the knowledge economy requires.

The upshot, as the Nobel Prize winner Edmund Phelps has written, is that it is time for Americans to get over their house passion. The new knowledge economy requires we spend less on housing and cars, and more on education, human capital and innovation—exactly those inputs that fuel the new economic and social system.

But we’re not moving in that direction; in fact, we appear to be going the other way. This past weekend, Peter J. Wallison pointed out in a New York Times op-ed that federal regulators moved back off tougher mortgage-underwriting standards brought on by 2010’s Dodd-Frank Act and instead relaxed them. Regulators are hoping to encourage more home ownership, but they’re essentially recreating the conditions that led to 2008’s crash.

Wallison notes that this amounts to “underwriting the next housing crisis.” He’s right: It’s time to impose stricter underwriting standards and encourage the dense, mixed-use, more flexible housing options that the knowledge economy requires.

During the depression and after World War II, this country’s leaders pioneered a series of purposeful and ultimately game-changing polices that set in motion the old suburban growth model, helping propel the industrial economy and creating a middle class of workers and owners. Now that our economy has changed again, we need to do the same for the denser urban growth model, creating more flexible housing system that can help bolster today’s economy.

https://i2.wp.com/www.thefifthestate.com.au/wp-content/uploads/2012/10/High_Density_Housing_____20120101_800x600.jpg
Dream housing for new economy workers
?

Energy Workforce Projected To Grow 39% Through 2022

The dramatic resurgence of the oil industry over the past few years has been a notable factor in the national economic recovery. Production levels have reached totals not seen since the late 1980s and continue to increase, and rig counts are in the 1,900 range. While prices have dipped recently, it will take more than that to markedly slow the level of activity. Cycles are inevitable, but activity is forecast to remain at relatively high levels.  

An outgrowth of oil and gas activity strength is a need for additional workers. At the same time, the industry workforce is aging, and shortages are likely to emerge in key fields ranging from petroleum engineers to experienced drilling crews. I was recently asked to comment on the topic at a gathering of energy workforce professionals. Because the industry is so important to many parts of Texas, it’s an issue with relevance to future prosperity.  

 

Although direct employment in the energy industry is a small percentage of total jobs in the state, the work is often well paying. Moreover, the ripple effects through the economy of this high value-added industry are large, especially in areas which have a substantial concentration of support services.  

Petroleum Engineer

Employment in oil and gas extraction has expanded rapidly, up from 119,800 in January 2004 to 213,500 in September 2014. Strong demand for key occupations is evidenced by the high salaries; for example, median pay was $130,280 for petroleum engineers in 2012 according to the Bureau of Labor Statistics (BLS).  

Due to expansion in the industry alone, the BLS estimates employment growth of 39 percent through 2022 for petroleum engineers, which comprised 11 percent of total employment in oil and gas extraction in 2012. Other key categories (such as geoscientists, wellhead pumpers, and roustabouts) are also expected to see employment gains exceeding 15 percent. In high-activity regions, shortages are emerging in secondary fields such as welders, electricians, and truck drivers.  

The fact that the industry workforce is aging is widely recognized. The cyclical nature of the energy industry contributes to uneven entry into fields such as petroleum engineering and others which support oil and gas activity. For example, the current surge has pushed up wages, and enrollment in related fields has increased sharply. Past downturns, however, led to relatively low enrollments, and therefore relatively lower numbers of workers in some age cohorts. The loss of the large baby boom generation of experienced workers to retirement will affect all industries. This problem is compounded in the energy sector because of the long stagnation of the industry in the 1980s and 1990s resulting in a generation of workers with little incentive to enter the industry. As a result, the projected need for workers due to replacement is particularly high for key fields.

The BLS estimates that 9,800 petroleum engineers (25.5 percent of the total) working in 2012 will need to be replaced by 2022 because they retire or permanently leave the field. Replacement rates are also projected to be high for other crucial occupations including petroleum pump system operators, refinery operators, and gaugers (37.1 percent); derrick, rotary drill, and service unit operators, oil, gas, and mining (40.4 percent).  

http://jobdiagnosis.files.wordpress.com/2010/03/petroleum-engineer.jpg

Putting together the needs from industry expansion and replacement, most critical occupations will require new workers equal to 40 percent or more of the current employment levels. The total need for petroleum engineers is estimated to equal approximately 64.5 percent of the current workforce. Clearly, it will be a major challenge to deal with this rapid turnover.

Potential solutions which have been attempted or discussed present problems, and it will require cooperative efforts between the industry and higher education and training institutions to adequately deal with future workforce shortages. Universities have had problems filling open teaching positions, because private-sector jobs are more lucrative for qualified candidates. Given budget constraints and other considerations, it is not feasible for universities to compete on the basis of salary. Without additional teaching and research staff, it will be difficult to continue to expand enrollment while maintaining education quality. At the same time, high-paying jobs are enticing students into the workforce, and fewer are entering doctoral programs.  

Another option which has been suggested is for engineers who are experienced in the workplace to spend some of their time teaching. However, busy companies are naturally resistant to allowing employees to take time away from their regular duties. Innovative training and associate degree and certification programs blending classroom and hands-on experience show promise for helping deal with current and potential shortages in support occupations. Such programs can prepare students for well-paying technical jobs in the industry. Encouraging experienced professionals to work past retirement, using flexible hours and locations to appeal to Millennials, and other innovative approaches must be part of the mix, as well as encouraging the entry of females into the field (only 20 percent of the current workforce is female, but over 40 percent of the new entries).

Industry observers have long been aware of the coming “changing of the guard” in the oil and gas business. We are now approaching the crucial time period for ensuring the availability of the workers needed to fill future jobs. Cooperative efforts between the industry and higher education/training institutions will likely be required, and it’s time to act.

https://i1.wp.com/oilandcareers.com/wp-content/uploads/2013/04/Petroleum-Engineer.jpg

Today’s Hottest Trend In Residential Real Estate

The practice of multigenerational housing has been on the rise the past few years, and now experts are saying that it is adding value to properties.
by Lauren Mennenas

The practice of multigenerational housing has been on the rise the past few years, and now experts are saying that it is adding value to properties.

In a recent Wall Street Journal article, several couples across the country are quoted saying that instead of downsizing to a new home, they are choosing to live with their adult children.

This is what many families across the country are doing for both a “peace of mind” and for “higher property values.”

“For both domestic and foreign buyers, the hottest amenity in real estate these days is an in-law unit, an apartment carved out of an existing home or a stand-alone dwelling built on the homeowners’ property,” writes Katy McLaughlin of the WSJ. “While the adult children get the peace of mind of having mom and dad nearby, real-estate agents say the in-law accommodations are adding value to their homes.”

And how much more are these homes worth? In an analysis by Zillow, the homes with this type of living accommodations were priced about 60 percent higher than regular single-family homes.

Local builders are noticing the trend, too. Horsham based Toll Brothers are building more communities that include both large, single-family homes and smaller homes for empty nesters, the company’s chief marketing officer, Kira Sterling, told the WSJ.

https://i2.wp.com/media-cache-ec0.pinimg.com/736x/88/da/9b/88da9b983c6165c6ecfde072e1c7876f.jpg

Single Family Construction Expected to Boom in 2015

https://i0.wp.com/s3.amazonaws.com/static.texastribune.org/media/images/Foster_Jerod-9762.jpgKenny DeLaGarza, a building inspector for the city of Midland, at a 600-home Betenbough development.

Single-family home construction is expected to increase 26 percent in 2015, the National Association of Home Builders reported Oct. 31. NAHB expects single-family production to total 802,000 units next year and reach 1.1 million by 2016.

Economists participating in the NAHB’s 2014 Fall Construction Forecast Webinar said that a growing economy, increased household formation, low interest rates and pent-up demand should help drive the market next year. They also said they expect continued growth in multifamily starts given the nation’s rental demand.

The NAHB called the 2000-03 period a benchmark for normal housing activity; during those years, single-family production averaged 1.3 million units a year. The organization said it expects single-family starts to be at 90 percent of normal by the fourth quarter 2016.

NAHB Chief Economist David Crowe said multifamily starts currently are at normal production levels and are projected to increase 15 percent to 365,000 by the end of the year and hold steady into next year.

The NAHB Remodeling Market Index also showed increased activity, although it’s expected to be down 3.4 percent compared to last year because of sluggish activity in the first quarter 2014. Remodeling activity will continue to increase gradually in 2015 and 2016.

Moody’s Analytics Chief Economist Mark Zandi told the NAHB that he expects an undersupply of housing given increasing job growth. Currently, the nation’s supply stands at just over 1 million units annually, well below what’s considered normal; in a normal year, there should be demand for 1.7 million units.

Zandi noted that increasing housing stock by 700,000 units should help meet demand and create 2.1 million jobs. He also noted that things should level off by the end of 2017, when mortgage rates probably will  rise to around 6 percent.

“The housing market will be fine because of better employment, higher wages and solid economic growth, which will trump the effect of higher mortgage rates,” Zandi told the NAHB.

Robert Denk, NAHB assistant vice president for forecasting and analysis, said that he expects housing recovery to vary by state and region, noting that states with higher levels of payroll employment or labor market recovery are associated with healthier housing markets

States with the healthiest job growth include Louisiana, Montana, North Dakota, Texas and Wyoming, as well as farm belt states like Iowa.

Meanwhile Alabama, Arizona, Nevada, New Jersey, New Mexico and Rhode Island continue to have weaker markets.

BLS: Midland Texas Again Posts Third Lowest Jobless Rate In Nation

https://i1.wp.com/www.eaglefordshalephotos.com/wp-content/uploads/2012/07/night-photo-pumpjack-and-power-lines-1024x653.jpg

Midland Reporter-Telegram

For the second straight month, Midland posted the third lowest unemployment rate in the nation, according to figures released Wednesday by the Bureau of Labor Statistics.

Bismarck, North Dakota, topped the list for the fourth straight month with a jobless rate of 2.1 percent. Fargo, North Dakota, was second at 2.3. Midland and Logan, Utah, tied for third at 2.6.

 

A total of 10 metropolitan statistical areas around the nation posted unemployment rates of 3.0 percent or lower. Midland was the lone MSA in Texas at or below 3.0.

Midland again ranked near the top of the list of MSAs in the nation when it came to percentage gain in employment. Midland’s 6.4 percent growth ranked second to Muncie, Indiana (8.9 percent). In September, Midland showed a work force 100,100, an increase of nearly 5,000 from September 2013.

The following are the lowest unemployment rates in the nation during the month of September, according to the Bureau of Labor Statistics.

Bismarck, North Dakota 2.1

Fargo, North Dakota 2.3

Midland 2.6

Logan, Utah 2.6

Sioux Falls, South Dakota 2.7

Grand Forks, North Dakota 2.8

Lincoln, Nebraska 2.8

Mankato, Minnesota 2.9

Rapid City, South Dakota 2.9

Billings, Montana 3.0

Lowest rates from August

Bismarck, North Dakota 2.2, Fargo North Dakota 2.4; Midland 2.8. Also: Odessa 3.4

July

Bismarck, North Dakota, 2.4; Sioux Falls, South Dakota, 2.7; Fargo, North Dakota, 2.8; Midland 2.9. Also: Odessa 3.6

June

Bismarck, North Dakota, 2.6, Midland 2.9, Fargo, North Dakota, 3.0. Also: Odessa 3.6

May

Bismarck, North Dakota, 2.2, Fargo, North Dakota, 2.5, Logan, Utah, 2.5, Midland 2.6. Also: Odessa 3.2

April

Midland 2.3, Logan, Utah 2.5, Bismarck, North Dakota 2.6, Ames, Iowa 2.7. Also: Odessa 2.9

March

Midland 2.7, Houma-Bayou Cane-Thibodaux, La. 3.1, Bismarck, N.D. 3.1, Odessa 3.3, Fargo, N.D. 3.3, Ames, Iowa 3.3, Burlington, Vt. 3.3

February

Houma-Bayou Cane-Thibodaux, La. 2.8; Midland 3.0; Lafayette, La. 3.1

January

Midland 2.9; Logan, Utah 3.3; Bismarck, N.D. 3.4

December

Bismarck, N.D. 2.8; Logan, Utah 2.8; Midland 2.8

OCWEN Fakes foreclosure Notices To Steal Homes – Downgrade Putting RMBS at Risk

foreclosure for sale

by Carole VanSickle Ellis

If you really would rather own the property than the note, take a few lessons in fraud from Owen Financial Corp. According to allegations from New York’s financial regulator, Benjamin Lawsky, the lender sent “thousands” of foreclosure “warnings” to borrowers months after the window of time had lapsed during which they could have saved their homes[1]. Lawskey alleges that many of the letters were even back-dated to give the impression that they had been sent in a timely fashion. “In many cases, borrowers received a letter denying a mortgage loan modification, and the letter was dated more than 30 days prior to the date that Ocwen mailed the letter.”

The correspondence gave borrowers 30 days from the date of the denial letter to appeal, but the borrowers received the letters after more than 30 days had passed. The issue is not a small one, either. Lawskey says that a mortgage servicing review at Ocwen revealed “more than 7,000” back-dated letters.”

In addition to the letters, Ocwen only sent correspondence concerning default cures after the cure date for delinquent borrowers had passed and ignored employee concerns that “letter-dating processes were inaccurate and misrepresented the severity of the problem.” While Lawskey accused Ocwen of cultivating a “culture that disregards the needs of struggling borrowers,” Ocwen itself blamed “software errors” for the improperly-dated letters[2]. This is just the latest in a series of troubles for the Atlanta-based mortgage servicer; The company was also part the foreclosure fraud settlement with 49 of 50 state attorneys general and recently agreed to reduce many borrowers’ loan balances by $2 billion total.

Most people do not realize that Ocwen, although the fourth-largest mortgage servicer in the country, is not actually a bank. The company specializes specifically in servicing high-risk mortgages, such as subprime mortgages. At the start of 2014, it managed $106 billion in subprime loans. Ocwen has only acknowledged that 283 New York borrowers actually received improperly dated letters, but did announce publicly in response to Lawskey’s letter that it is “investigating two other cases” and cooperating with the New York financial regulator.

WHAT WE THINK: While it’s tempting to think that this is part of an overarching conspiracy to steal homes in a state (and, when possible, a certain enormous city) where real estate is scarce, in reality the truth of the matter could be even more disturbing: Ocwen and its employees just plain didn’t care. There was a huge, problematic error that could have prevented homeowners from keeping their homes, but the loan servicer had already written off the homeowners as losers in the mortgage game. A company that services high-risk loans likely has a jaded view of borrowers, but that does not mean that the entire culture of the company should be based on ignoring borrowers’ rights and the vast majority of borrowers who want to keep their homes and pay their loans. Sure, if you took out a mortgage then you have the obligation to pay even if you don’t like the terms anymore. On the other side of the coin, however, your mortgage servicer has the obligation to treat you like someone who will fulfill their obligations rather than rigging the process so that you are doomed to fail.

Do you think Lawskey is right about Ocwen’s “culture?” What should be done to remedy this situation so that note investors and homeowners come out of it okay?

Thank you for reading the Bryan Ellis Investing Letter!

Your comments and questions are welcomed below.


[1] http://dsnews.com/news/10-23-2014/new-york-regulator-accuses-lender-sending-backdated-foreclosure-notices

[2] http://realestate.aol.com/blog/2014/10/22/ocwen-mortgage-alleged-foreclosure-abuse/

http://investing.bryanellis.com/11703/lender-fakes-foreclosure-notices-to-steal-homes/


Ocwen posts open letter and apology to borrowers
Pledges independent investigation and rectification
October 27, 2014 10:37AM

Ocwen Financial (OCN) has taken a beating after the New York Department of Financial Services sent a letter to the company on Oct. 21 alleging that the company had been backdating letters to borrowers, and now Ocwen is posting an open letter to homeowners.

Ocwen CEO Ron Faris writes to its clients explaining what happened and what steps the company is taking to investigate the issue, identify any problems, and rectify the situation.

Click here to read the full text of the letter.

“At Ocwen, we take our mission of helping struggling borrowers very seriously, and if you received one of these incorrectly-dated letters, we apologize. I am writing to clarify what happened, to explain the actions we have taken to address it, and to commit to ensuring that no borrower suffers as a result of our mistakes,” he writes.

“Historically letters were dated when the decision was made to create the letter versus when the letter was actually created. In most instances, the gap between these dates was three days or less,” Faris writes. “In certain instances, however, there was a significant gap between the date on the face of the letter and the date it was actually generated.”

Faris says that Ocwen is investigating all correspondence to determine whether any of it has been inadvertently misdated; how this happened in the first place; and why it took so long to fix it. He notes that Ocwen is hiring an independent firm to conduct the investigation, and that it will use its advisory council comprised of 15 nationally recognized community advocates and housing counselors.

“We apologize to all borrowers who received misdated letters. We believe that our backup checks and controls have prevented any borrowers from experiencing a foreclosure as a result of letter-dating errors. We will confirm this with rigorous testing and the verification of the independent firm,” Faris writes. “It is worth noting that under our current process, no borrower goes through a foreclosure without a thorough review of his or her loan file by a second set of eyes. We accept appeals for modification denials whenever we receive them and will not begin foreclosure proceedings or complete a foreclosure that is underway without first addressing the appeal.”

Faris ends by saying that Ocwen is committed to keeping borrowers in their homes.

“Having potentially caused inadvertent harm to struggling borrowers is particularly painful to us because we work so hard to help them keep their homes and improve their financial situations. We recognize our mistake. We are doing everything in our power to make things right for any borrowers who were harmed as a result of misdated letters and to ensure that this does not happen again,” he writes.

Last week the fallout from the “Lawsky event” – so called because of NYDFS Superintendent Benjamin Lawsky – came hard and fast.

Compass Point downgraded Ocwen affiliate Home Loan Servicing Solutions (HLSS) from Buy to Neutral with a price target of $18.

Meanwhile, Moody’s Investors Service downgraded Ocwen Loan Servicing LLC’s servicer quality assessments as a primary servicer of subprime residential mortgage loans to SQ3 from SQ3+ and as a special servicer of residential mortgage loans to SQ3 from SQ3+.

Standard & Poor’s Ratings Services lowered its long-term issuer credit rating to ‘B’ from ‘B+’ on Ocwen on Wednesday and the outlook is negative.

http://www.housingwire.com/articles/31846-ocwen-posts-open-letter-and-apology-to-borrowers

—-
Ocwen Writes Open Letter to Homeowners Concerning Letter Dating Issues
October 24, 2014

Dear Homeowners,

In recent days you may have heard about an investigation by the New York Department of Financial Services’ (DFS) into letters Ocwen sent to borrowers which were inadvertently misdated. At Ocwen, we take our mission of helping struggling borrowers very seriously, and if you received one of these incorrectly-dated letters, we apologize. I am writing to clarify what happened, to explain the actions we have taken to address it, and to commit to ensuring that no borrower suffers as a result of our mistakes.

What Happened
Historically letters were dated when the decision was made to create the letter versus when the letter was actually created. In most instances, the gap between these dates was three days or less. In certain instances, however, there was a significant gap between the date on the face of the letter and the date it was actually generated.

What We Are Doing
We are continuing to investigate all correspondence to determine whether any of it has been inadvertently misdated; how this happened in the first place; and why it took us so long to fix it. At the end of this exhaustive investigation, we want to be absolutely certain that we have fixed every problem with our letters. We are hiring an independent firm to investigate and to help us ensure that all necessary fixes have been made.

Ocwen has an advisory council made up of fifteen nationally recognized community advocates and housing counsellors. The council was created to improve our borrower outreach to keep more people in their homes. We will engage with council members to get additional guidance on making things right for any borrowers who may have been affected in any way by this error.

We apologize to all borrowers who received misdated letters. We believe that our backup checks and controls have prevented any borrowers from experiencing a foreclosure as a result of letter-dating errors. We will confirm this with rigorous testing and the verification of the independent firm. It is worth noting that under our current process, no borrower goes through a foreclosure without a thorough review of his or her loan file by a second set of eyes. We accept appeals for modification denials whenever we receive them and will not begin foreclosure proceedings or complete a foreclosure that is underway without first addressing the appeal.

In addition to these efforts we are committed to cooperating with DFS and all regulatory agencies.

We Are Committed to Keeping Borrowers in Their Homes
Having potentially caused inadvertent harm to struggling borrowers is particularly painful to us because we work so hard to help them keep their homes and improve their financial situations. We recognize our mistake. We are doing everything in our power to make things right for any borrowers who were harmed as a result of misdated letters and to ensure that this does not happen again. We remain deeply committed to keeping borrowers in their homes because we believe it is the right thing to do and a win/win for all of our stakeholders.

We will be in further communication with you on this matter.

Sincerely,
Ron Faris
CEO

YOU DECIDE

Ocwen Downgrade Puts RMBS at Risk

Moody’s and S&P downgraded Ocwen’s servicer quality rating last week after the New York Department of Financial Services made “backdating” allegations. Barclays says the downgrades could put some RMBS at risk of a servicer-driven default.

http://findsenlaw.wordpress.com/2014/10/29/ocwen-downgraded-in-response-to-ny-dept-of-financial-services-backdating-allegations-against-ocwen/

Home Ownership Rate Since 2005

https://i1.wp.com/lifeinbeta.com/wp-content/uploads/2011/07/CuteHouse-473x580.jpg

by Wolf Richter

The quintessential ingredient in the stew that makes up a thriving housing market has been evaporating in America. And a recent phenomenon has taken over: private equity firms, REITs, and other Wall-Street funded institutional investors have plowed the nearly free money the Fed has graciously made available to them since 2008 into tens of thousands of vacant single-family homes to rent them out. And an apartment building boom has offered alternatives too.

Since the Fed has done its handiwork, institutional investors have driven up home prices and pushed them out of reach for many first-time buyers, and these potential first-time buyers are now renting homes from investors instead. Given the high home prices, in many cases it may be a better deal. And apartments are often centrally located, rather than in some distant suburb, cutting transportation time and expenses, and allowing people to live where the urban excitement is. Millennials have figured it out too, as America is gradually converting to a country of renters.

So in its inexorable manner, home ownership has continued to slide in the third quarter, according to the Commerce Department. Seasonally adjusted, the rate dropped to 64.3% from 64.7 in the prior quarter. It was the lowest rate since Q4 1994 (not seasonally adjusted, the rate dropped to 64.4%, the lowest since Q1 1995).

This is what that relentless slide looks like:

US-quarterly-homeownership-rates-1995-2014

Home ownership since 2008 dropped across all age groups. But the largest drops occurred in the youngest age groups. In the under-35 age group, where first-time buyers are typically concentrated, home ownership has plunged from 41.3% in 2008 to 36.0%; and in the 35-44 age group, from 66.7% to 59.1%, with a drop of over a full percentage point just in the last quarter – by far the steepest.

Home ownership, however, didn’t peak at the end of the last housing bubble just before the financial crisis, but in 2004 when it reached 69.2%. Already during the housing bubble, speculative buying drove prices beyond the reach of many potential buyers who were still clinging by their fingernails to the status of the American middle class … unless lenders pushed them into liar loans, a convenient solution many lenders perfected to an art.

It was during these early stages of the housing bubble that the concept of “home” transitioned from a place where people lived and thrived or fought with each other and dealt with onerous expenses and responsibilities to a highly leveraged asset for speculators inebriated with optimism, an asset to be flipped willy-nilly and laddered ad infinitum with endless amounts of cheaply borrowed money. And for some, including the Fed it seems, that has become the next American dream.

Despite low and skidding home ownership rates, home prices have been skyrocketing in recent years, and new home prices have reached ever more unaffordable all-time highs.

https://i0.wp.com/lostworld.pair.com/trips/uk2007/edinburgh/IMG_0610.jpg

U.S. To Ease Repurchase Demands On Bad Mortgages

Mel WattMelvin Watt, director of the Federal Housing Finance Agency, outlined ways in which his agency would clarify actions it takes against bankers on loans that go bad. (Jacquelyn Martin / Associated Press).

by E. Scott Reckard, John Glionna & Tim Logan

Hoping to boost mortgage approvals for more borrowers, the federal regulator of Fannie Mae and Freddie Mac told lenders that the home financing giants would ease up on demands that banks buy back loans that go delinquent.

Addressing a lending conference here Monday, Melvin Watt, director of the Federal Housing Finance Agency, outlined ways in which his agency would clarify actions it takes against bankers on loans that go bad after being sold to Freddie and Fannie.

The agency’s idea is to foster an environment in which lenders would fund mortgages to a wider group of borrowers, particularly first-time home buyers and those without conventional pay records.

To date, though, the agency’s demands that lenders repurchase bad loans made with shoddy underwriting standards have resulted in bankers imposing tougher criteria on borrowers than Fannie and Freddie require.

A lot of good loans don’t get done because of silly regulations that are not necessary. – Jeff Lazerson, a mortgage broker from Orange County

Those so-called overlays in lending standards, in turn, have contributed to sluggish home sales, a drag on the economic recovery and lower profits on mortgages as banks reduced sales to Fannie and Freddie and focused mainly on borrowers with excellent credit.

Watt acknowledged to the Mortgage Bankers Assn. audience that his agency in the past “did not provide enough clarity to enable lenders to understand when Fannie Mae or Freddie Mac would exercise their remedy to require repurchase of a loan.”

Going forward, Watt said, Fannie and Freddie would not force repurchases of mortgages found to have minor flaws if the borrowers have near-perfect payment histories for 36 months.

He also said flaws in reporting borrowers’ finances, debt loads and down payments would not trigger buy-back demands so long as the borrowers would have qualified for loans had the information been reported accurately.  And he said that the agency would release guidelines “in the coming weeks” to allow increased lending to borrowers with down payments as low as 3% by considering “compensating factors.”

The mortgage trade group’s chief executive, David Stevens, said Watt’s remarks “represent significant progress in the ongoing dialogue” among the industry, regulators and Fannie and Freddie. Several banks released positive statements that echoed his remarks.

Others at the convention, however, said Watt’s speech lacked specifics and did little to reassure mortgage lenders that the nation’s housing market would soon be back on track.

“The speech was horribly disappointing,” said Jeff Lazerson, a mortgage broker from Orange County, calling Watt’s delivery and message “robotic.”

“They’ve been teasing us, hinting that things were going to get better, but nothing new came out,” Lazerson said. “A lot of good loans don’t get done because of silly regulations that are not necessary.”

Philip Stein, a lawyer from Miami who represents regional banks and mortgage companies in loan repurchase cases, said the situation was far from returning to a “responsible state of normalcy,” as Watt described it.

“When the government talked of modifications in the process, I thought, ‘Oh, this could be good,'” Stein said. “But I don’t feel good about what I heard today.”

Despite overall improvements in the economy and interest rates still near historic lows, the number of home sales is on pace to fall this year for the first time since 2010 as would-be buyers struggle with higher prices and tight lending conditions

Loose underwriting standards–scratch that, non-existent underwriting standards–caused the mortgage meltdown. If borrowers are willing to put down just 3% for their down payment, their note rate should be 0.50% higher and 1 buy-down point. The best rates should go to 20% down payments.

Once-torrid price gains have cooled, too, as demand has subsided. The nation’s home ownership rate is at a 19-year low.

First-time buyers, in particular, have stayed on the sidelines. Surveys by the National Assn. of Realtors have found first-time owners making up a significantly smaller share of the housing market than the 40% they typically do.

There are reasons for this, economists said, including record-high student debt levels, young adults delaying marriage, and the still-soft job market. But many experts agree that higher down-payment requirements and tougher lending restrictions are playing a role.

Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA, said he’s of a “mixed mind” about the changes.

On one hand, Gabriel said, tight underwriting rules are clearly making it harder for many would-be buyers to get a loan, perhaps harder than it should be.

“If they loosen the rules a bit, they’ll see more qualified applicants and more applicants getting into mortgages,” he said. “That would be a good thing.”

But, he said, a down payment of just 3% doesn’t leave borrowers with much of a cushion. If prices fall, he said, it risks a repeat of what happened before the downturn.

“We saw that down payments at that level were inadequate to withstand even a minor storm in the housing market,” he said. “It lets borrowers have very little skin in the game, and it becomes easy for those borrowers to walk away.”

Selma Hepp, senior economist at the California Assn. of Realtors, said lenders will welcome clarification of the rules over repurchase demands.

But in a market in which many buyers struggle to afford a house even if they can get a mortgage, she wasn’t sure the changes would have much effect on sales.

“We’re still unclear if we’re having a demand issue or a supply issue here,” said Hepp, whose group recently said it expects home sales to fall in California this year. “It may not have an immediate effect. But in the long term, I think it’s very positive news.”

Watt’s agency has recovered billions of dollars from banks that misrepresented borrowers’ finances and home values when they sold loans during the housing boom. The settlements have helped stabilize Fannie and Freddie, which were taken over by the government in 2008, and led many bankers to clamp down on new loans.

Fannie and Freddie buy bundles of home loans from lenders and sell securities backed by the mortgages, guaranteeing payment to investors if the borrowers default.

scott.reckard@latimes.com

john.glionna@latimes.com

tim.logan@latimes.com

Reckard and Logan reported from Los Angeles; Glionna from Las Vegas

Many Seniors Trying To Retire With A Mortgage

http://www.trbimg.com/img-541cd768/turbine/la-baby-boomer-mortgages-20140919/750/750x422 By Andrew Khouri

When Tom Greco bought his four-bedroom home three decades ago, he assumed he’d pay off the mortgage before retirement — just as his parents did.

Things didn’t work out that way.

Instead, his $4,500 monthly mortgage payments — a consequence of several equity withdraws over the years — became a financial drag.

“It’s pretty hard to retire with that,” the Irvine attorney, 66, said.

More and more older homeowners are carrying mortgage debt, a burden that threatens to delay their retirement and curtail spending among the massive baby boomer population.

Nearly a third of homeowners 65 and older had a mortgage in 2011, up from 22% in 2001, according to an analysis from the Consumer Financial Protection Bureau, using the latest available data.

Tom Greco and his wife are downsizing
Tom Greco and his wife are downsizing from an Irvine house to a Lake Forest condo. To retire, Greco needs to reduce his mortgage payment. (Allen J. Schaben / Los Angeles Times)

The debt burden also grew — with older homeowners owing a median of $79,000 in 2011, compared with an inflation-adjusted $43,400 a decade earlier.

For decades, Americans strove hard to pay off their mortgages before retirement, an aspiration that when achieved was celebrated with mortgage-burning parties.

But for the latest retirees, reaching that goal, if they ever had it, is increasingly less likely.

Baby boomers bought homes later in life, and with smaller down payments, than previous generations, said Stacy Canan, deputy assistant director of the consumer bureau’s Office for Older Americans. Many also refinanced during the housing bubble and used cash from their equity withdraws to pay off other debt, take vacations or put children through college. Surging home prices and low interest rates made that possible.

Then the recession hit. Job losses delayed attempts to pay off mortgages. And many baby boomers took in their adult children after the collapse, refinancing to help their kids weather a brutal job market, said James Wells, a housing counselor with ClearPoint Credit Counseling Solutions.

“Before, the children could take care of themselves,” he said. “Now, not so much.”

The number of mortgage-holding households headed by someone 65 or older rose from 3.8 million in 2001 to 6.1 million a decade later, the consumer bureau said.

Rising debt levels also reflect a psychological shift among Americans, financial advisers and economists say.

“People who lived through the Great Depression came out of that period with a great aversion to debt,” said Lori Trawinski, director of banking and finance with AARP’s Public Policy Institute. “As a culture we have loosened our opinion of debt.”

As baby boomers enter retirement age — 10,000 per day, according to one estimate — the decisions that once supported an easier lifestyle could make later years tougher. Some may have to keep working to pay their mortgage, and others will have to cut back on other expenses to retire, the bureau’s Canan said.

“People will indeed have to do some juggling of their budgets,” she said.

Jacqueline Murphy is doing just that. The former clerical worker for the New York City Police Department retired in March, thinking her pension and Social Security, coupled with a part-time job, would allow her to live comfortably and cover mortgage payments on the Bronx town home she bought for $375,000 during the housing bubble.

But the 63-year-old hasn’t yet found a part-time gig, and a large chunk of her income is going to the $2,200-a-month mortgage.

So she’s cutting back. She keeps the lights off as much as possible, has cut back on gardening to reduce the water bill, and sometimes gets help from family to buy groceries.

“I thought retirement was going to be wonderful,” she said. “Now that I am retired, I am sorry that I did. I am focused on how I am going to make it to next week, how am I going to make it to the next mortgage payment, and I am constantly worried.”

Wells, the housing counselor, said those he counsels often didn’t budget for reduced retirement income when they refinanced to help their children, fix a car or take a vacation. They were working then, so the payments seemed reasonable.

“They are not really thinking long term at that point,” he said.

Greco, the Orange County attorney, said he took a “shortsighted view.” Enticed by dropping interest rates, he refinanced his Irvine home four times.

He then used the money from the cash-out refinancings to pay down credit card debt and finance home renovations, including a pool he himself designed.

“A foolish move,” he said of the refinancing, but one that many others, including friends, did as well.

A recent study from Harvard University’s Joint Center for Housing Studies showed that of mortgage holders ages 65 to 79, nearly half spent 30% or more of their income on housing costs. Of mortgage holders 80 or older, 61% pay that amount on housing.

And the debt carries further risks.

Sudden changes in expenses, such as those stemming from health problems, can expose seniors with mortgages to greater financial peril, the consumer bureau’s study said. And if another downturn comes, retirement savings and investments are likely to take a hit, raising the chance of foreclosure.

One option is to downsize.

That’s the choice Greco made. In August, he and his wife sold their Irvine house. Next month they plan to move into a Lake Forest condo, knocking down their mortgage payment by thousands of dollars. Even after downsizing, Greco said, he simply can’t retire as he wishes. There’s the condo mortgage and other debt he must pay.

So instead, he plans to gradually work less and less. He started this month, a day after his 66th birthday, by working half-days on Fridays.

In five years, he hopes to have paid down the condo loan enough to get a reverse mortgage that will allow him to only take on cases that interest him.

Reverse mortgages allow people at least 62 years old to receive payments based on the equity in their homes. But unlike a traditional home equity loan, a reverse mortgage does not require monthly payments. The loan, which is easier to qualify for than a home equity line of credit, doesn’t come due until the home is sold or the borrower moves out or dies.

Having to still work is not the ideal situation, Greco said, but retirement will be far easier without the Irvine house as an anchor.

“I needed to get out of that mortgage,” he said.

andrew.khouri@latimes.com  Copyright © 2014, Los Angeles Times

‘1,000 Shades of Non-QM’: Home Lenders Court Niche Borrowers

By Kate Berry, National Mortgage News    Nonstandard. Atypical. Irregular. One-off.

These are just a few of the terms that mortgage lenders have coined to describe loans that do not meet the Consumer Financial Protection Bureau’s definition of an ultra-safe “qualified mortgage.”

Since the CFPB’s mortgage rules went into effect in January, some mortgage lenders and investors have been desperately trying to figure out how to originate loans that fall outside the definition.

Non-QM loans offer lenders the potential to earn the kind of profits last seen during the heady days of subprime lending. At a time when loan volumes have plummeted, lenders can charge consumers significantly higher mortgage rates for these products. The profit potential would be even greater if the loans eventually get pooled together, securitized and sold to investors.

“Mortgage bankers are looking to find other sources of business in order to remain profitable or to get back to profitability,” says Michele Perrin, a principal at Perrin & Associates, a warehouse lending advisory firm in Tustin, Calif. “Everybody is looking for financing for non-QM loans.”

Many lenders are wading into the non-QM space by initially offering loans to self-employed borrowers, foreign nationals and borrowers with blemished credit from a past short sale or foreclosure. Some lenders also are focusing on specific property types like condominiums that do not meet standards set by Fannie Mae or Freddie Mac.

“There will be 1,000 flavors of non-QM like 1,000 shades of gray,” says Brian Hale, the CEO of Stearns Lending, in Santa Ana, Calif. “I believe all lenders will have to do some portion of their volume in the non-QM space. It’s easy to race in and there’s no shortage of demand because there are an awful lot of customers that don’t fit the QM box.”

But non-QM loans come with significant legal risks. The “ability to repay,” rule, a crucial provision of the Dodd-Frank Act, requires that lenders consider eight specific underwriting factors to verify the borrower’s income.

Failure to do so can result in possible criminal liability, fines of $5,000 per day, enforcement actions by federal and state agencies, and civil and class action lawsuits by individual borrowers. Borrowers have three years to bring a legal action against a lender for potential violations of the ability to repay rule and also can raise a defense to a foreclosure years down the road.

Lenders are dividing the market into various niches that they deem safe enough to compensate for legal dangers. Most are identifying well-qualified borrowers with ample assets but income that might be difficult to document.

“I think you’ll find that non-QM loans are pristine loans otherwise that could be challenged on the ability to repay rule,” says Raymond Natter, a partner at the law firm of Barnett Sivon & Natter, who conceded that “nonbank lenders might be more comfortable with a riskier business model.”

Of course, the nation’s top banks originally claimed they would not make any non-QM loans, but they all have continued to make interest-only jumbo mortgages to wealthy borrowers. Such loans are held on bank balance sheets and tend to have very low default rates. Interest-only loans are excluded from being considered ultra-safe “qualified mortgages” because borrowers often face payment shock once they are required to start paying principal, typically after five to seven years of paying just interest.

Non-QM lenders are replicating the playbook of banks that naturally gravitated toward interest-only and jumbo loans to borrowers with lots of reserves and income.

“They’re not making an IO loan to a part-time Wal-Mart worker who lives paycheck to paycheck,” says Michael Kime, the chief operating officer at W.J. Bradley Mortgage, a Colorado lender. “Banks feel grounded to defend the non-predatory nature of the loan. How do we identify underserved markets, make responsible loans and have enough of them to get…deal flow?”

This month, W.J. Bradley will start originating nonagency condo loans. Many condominiums are tied up in litigation or have too many unoccupied units that make them ineligible for sale to Fannie Mae or Freddie Mac. Mortgages on certain mixed-use commercial and residential properties also can’t be sold to the government-sponsored enterprises and exemplify the types of niche non-QM loans W.J. Bradley will originate from now on, Kime says.

“We’re wringing our hands at the opportunity,” he says. “How do we parlay the same logic a bank is using into a nonbank securitization?…The real issue is ability-to-repay: Are you [the lender] behaving in a predatory manner or are you originating assets to reasonable borrowers?”

A handful of lenders and investors are lining up to originate nonagency, non-QM loans. They include Caliber Home Loans, an Irving, Texas, lender owned by private equity firm Loan Star Funds, and Legg Mason Inc.’s bond firm Western Asset Management, which plans to buy non-QM loans from lenders.

Perrin is working with non-QM lenders including some hard-money lenders that are offering short-term financing at rates ranging from 11% to 13% to individual investors who are buying and flipping properties. The biggest hurdle, she says, is trying to get warehouse lines of credit.

“Warehouse lenders do not want to be anywhere near the origination piece of the transaction,” says Perrin. “They do not want to be potentially sued and most of these firms believe attorneys will be lining up to sue non-QM lenders.”

Some warehouse lenders are considering creating special purpose entities that would serve as a buffer between them and the originating lender as a shield from being sued, Perrin says.

Non-QM lending is still in the very early stages and many lenders believe it will evolve as lenders become more comfortable with the litigation risk.

“You’re going to have non-QM, it’s just another asset to throw in there along with reperforming and nonperforming securitizations,” says Michele Patterson, a senior director at Kroll Bond Rating Agency.

Still, the lack of a secondary market take-out for lenders, the dearth of available capital and historically low interest rates, which make the risks harder to justify, are all headwinds for non-QM loans.

Finding a catchy moniker also would help.

“We started internally calling these nonprime loans but that has a connotation of subprime, and you can’t call them alt-A because of the stigma,” says Kime, referring to alternative-A, a boom-era subcategory of loans that had less than full documentation and lower credit scores but higher loan-to-value ratios.

Related: