Judge Rules Wells Fargo Breached Terms of 2010 Mortgage Settlement

WellsFargoA federal judge ruled this week that Wells Fargo breached a nationwide 2010 settlement involving adjustable-rate mortgages, saying that the bank denied assistance to borrowers who were seeking loss mitigation solutions, according to multiple media reports.

The lawyers representing the homeowners were contending that Wells Fargo failed to properly evaluate thousands of borrowers who were at imminent risk of default for loan modifications or other type of assistance to prevent foreclosure, and that the bank used the wrong methods to determine financial hardship on the part of the borrowers. The San Francisco-based bank had agreed to grant loan modifications potentially worth up to $2.7 billion, according to the 2010 settlement. The original settlement also called for the bank to pay class members a total of $50 million.

Judge Richard Seeborg, in the U.S. District Court of Northern California, ruled that Wells Fargo had breached the terms of the settlement by using “evolving and perhaps ill-defined standards” when determining borrowers’ eligibility for a loan modification, according to one report. At the same time, however, Seeborg told both sides they had had “almost no idea” what they agreed to in the settlement.

“We’re very pleased,” Jeffrey Berns, counsel for the plaintiffs, told DS News. “The court has found on three separate occasions that Wells Fargo breached the settlement agreement – in reporting, pre-screening, and now imminent threat of default. And it’s only the beginning. We’re hoping that Wells Fargo will do the right thing.”

Seeborg instructed representatives from Wells Fargo to meet with the homeowners and determine a way to correct the violations, which may include allowing some homeowners to reapply for loan modifications. The judge gave both sides two weeks to submit either joint or competing proposals, according to the report.

Wells Fargo spokesman Tom Goyda told DS News in an email that “we are reviewing the decision and will be working to provide the judge with the additional information he has requested.”

The original 2010 settlement resolved complaints over Wachovia’s portfolio of “pick-a-payment loans” which Wells Fargo inherited when it acquired Wachovia for $15.1 billion in 2008. The pick-a-payment loans originally provided borrowers with lower mortgage payments, but adjustable rates later caused payments to escalate, resulting in massive defaults that led to the nationwide financial crisis.

Berns, of the Woodland Hills, California-based firm Berns Weiss, said his firm planned to bring at least three more cases to the court in which they believe Wells Fargo is guilty of breaching the terms of the settlement.

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FHFA: Current G-Fees Are at an Appropriate Level, Only Modest Adjustments Needed

money-fiveFollowing weeks of debate over whether the Federal Housing Finance Agency (FHFA) would be lowering its fees to guarantee mortgages backed by Fannie Mae and Freddie Mac, the Agency announced Fridaythat G-fees would stay at their current levels with only modest adjustments.

A comprehensive review of the G-fees determined that the current fees charged are at an appropriate level. The review also determined that some modest adjustments to upfront guarantee fees are appropriate, according to FHFA.

“This is the culmination of months of review and analysis and reflects input received from a wide range of stakeholders,” FHFA Director Melvin L. Watt said. “Our goal is to assure taxpayers, homeowners and industry that we are striving for an appropriate balance between safety and soundness and liquidity in the housing finance market.”

When considering adjustments to G-fees for certain categories of loans, FHFA took into account the decision (also announced Friday) to enhance the eligibility standards for mortgage insurance companies. Overall, the FHFA said, the modest changes being made to the upfront G-fees are revenue neutral and will mean little or no change for Fannie Mae and Freddie Mac.

FHFA is directing the GSEs to remove the adverse market charge put in place in March 2008 (six months before the FHFA’s conservatorship of the GSEs began) and replace the revenue that resulted from the adverse market charge with targeted G-fee increases to address various risk-based and access-to-credit considerations.

Click here to see a fact sheet on the current guarantee fees and the complete results of FHFA’s recently-completed review. According to FHFA, the Agency will continue to monitor the G-fees on an ongoing basis and make any appropriate changes as needed.

Massachusetts Court Rules in Favor of MERS

gavel-fiveThe Appeals Court of Massachusetts became the latest court to uphold the validity of the assignment of a mortgage by Mortgage Electronic Registration System (MERS) on Friday, according to an announcement from MERSCORP Holdings, parent company of MERS.

The borrowers in the case of Hoyt v. BAC Home Loan Servicing had previously challenged a lower court’s ruling that MERS’ assignment of a mortgage was valid. The Appeals Court ruled that under Massachusetts law, a mortgage’s legal interest may be separated from the beneficial interest in the debt it secures.

The court also ruled that the assignment of the mortgage by MERS was valid, and because MERS held the record legal interest in the mortgage when it executed the assignment, the assignment conveyed legal interest in the mortgage to the foreclosing entity. The Appeals Court went on to rule that the foreclosing entity (assignee of the mortgage) had the legal right to foreclose on the property because a foreclosing entity was not legally required to hold the mortgage note at the time the foreclosure was initiated.

Moreover, the Appeals Court ruled that the lower court was not in error with its judgment that the borrower lacked standing to challenge MERS’ assignment of the mortgage.

“MERS has legal authority to execute mortgage assignments,” MERSCORP Holdings VP for Corporate Communications, Janis Smith said. “This authority is granted by plain language in the mortgage document signed at closing by the borrower.”

MERS has won victories in courts in many states in the last two years over borrowers facing foreclosure who challenged the company’s authority to act as mortgagee or assign the deed of trust, including Illinois, Massachusetts, Rhode Island, Ohio, New Hampshire, Montana, Idaho, Arkansas, and Texas. The latest such decision occurred in the U.S. Ninth Circuit Court of Appeals in late March.

CFPB Amends Guidelines For Providing Lists of Housing Counseling Organizations

ChecklistThe Consumer Financial Protection Bureau earlier this week issued a final interpretive rule on how lenders are to provide mortgage applicants with a list of local homeownership counseling organizations, amending its 2013 guidelines.

Wednesday’s update spells out how lenders are to provide mortgage applicants with homeownership lists of HUD-approved housing counseling agencies, homeownership counseling lists, the use of a consumer’s mailing address to provide the list, and high-cost mortgage counseling qualifications. Part of the last is an update of the bureau’s anti-steering measure designed to keep unwary borrowers from being directed towards predatory lenders.

Housing counselors‒‒which can be the lenders themselves‒‒can provide advice on buying a home, renting, defaults, foreclosures, and credit issues at little or no cost to consumers. The Dodd-Frank Act of 2010 included a requirement that mortgage lenders provide applicants with a list of local housing counselors, which consumers are to receive shortly after they apply for a mortgage. Lenders comply with this requirement when they provide a list of ten HUD-approved housing counseling agencies.

Lenders may counsel applicants by using CFPB-developed housing counseling lists, available through an online CFPB tool. Lenders may also create their own lists using the same Department of Housing and Urban Development data that the CFPB uses to build its lists.

“Buying a home is often the largest financial decision in a consumer’s lifetime, and we want to ensure that consumers can access the independent and informed advice they deserve before making that decision,” said CFPB director Richard Cordray. “Housing counselors are a crucial source of that helpful advice.”

The changes to the bureau’s counseling rules come after a January report that found that nearly half of all mortgage seekersdo not shop around for mortgages. This, the bureau stated, is a major disservice to borrowers, who could save thousands if only they knew to look around, and where to look. In fact, the CFPB estimates that over the first five years of their mortgage, a borrower with a 4.0 percent 30-year fixed rate could save up to $3,500 in mortgage payments over one with a 4.5 percent rate.

Blight Elimination Program Gets Underway in Indiana

foreclosure-twoA blighted property in the northwestern Indiana town of East Chicago was the first to be demolished last week as part of Indiana’s Hardest Hit Fund Blight Elimination Program (BEP), according to anannouncement from Indiana Lt. Governor Sue Ellspermann.

Ellspermann was in attendance along with East Chicago city officials to watch the demolition of the property, which is the first of approximately 62 in the city that will be demolished under the program. The BEP has made about $75 million (approved by the U.S. Department of Treasury) available to the state of Indiana to eliminate blight by reducing foreclosures and stabilizing neighborhoods, and about $1.5 million of that money was allocated to East Chicago.

“Indiana’s Blight Elimination Program is a helpful tool in the fight to prevent avoidable foreclosures,” said Mark McArdle, U.S. Treasury Chief of the Homeownership Preservation Office. “Through Indiana’s efforts, neighborhoods like East Chicago that have experienced the negative effects of vacant and blighted properties will soon see the benefit of these federal funds. We are proud to continue to work with the leadership of Indiana in their efforts to revitalize and stabilize hard hit communities.”

The BEP is administered by the Indiana Housing and Community Development Authority (IHCDA) with the goal of not just demolishing blighted and/or abandoned properties and improving the lots they sit on, but in stabilizing property values by preventing avoidable foreclosures in the state.

“The Blight Elimination Program assists Indiana municipalities in their efforts to remove blighted properties that depress property values and endanger neighborhoods,” Ellspermann said. “Through the collaboration of recipients and their program partners, cities and towns around our state will see 4,000 houses demolished in support of efforts for neighborhood revitalization along with a reduction in area foreclosures.”

According to the announcement, the property that was demolished in East Chicago last week will be maintained as a green space by the East Chicago Redevelopment Commission until the city identifies a suitable development opportunity.

The BEP provided local government units in all 92 of Indiana’s counties to compete for funding to prevent foreclosures through the elimination of blighted properties. The government allocated $221.7 million to Indiana under the Hardest Hit Funds, and Treasury approved the use of $75 million in February 2014 for the IHCDA to use for successful BEP applicants. The partnership between Treasury and IHCDA will allow not only for the elimination of blighted structures, but to offer a variety of uses for the newly cleared parcels of land. According to the announcement, the IHCDA estimates that approximately 4,000 blighted properties across the state will eventually be demolished as part of the program.

Fed Accepting Statements of Interest for Community Advisory Council Membership

federal-reserveThe Federal Reserve Board is now acceptingStatements of Interest from individuals wishing to be considered as members of the Community Advisory Council (CAC) originally announced in January, according to an announcement from the Fed.

The CAC will complement two of the Fed’s other advisory councils, the Federal Advisory Council and the Community Depository Institutions Advisory Council – both of which focus on issues relating to depository institutions, according to the Fed.

The Fed plans to fill the 15 seats on the CAC with a diverse group of experts who will represent consumer and community development organizations and interests, according to the announcement. Those organizations and interests will include affordable housing, community and economic development, small business, and asset and wealth building. While the CAC will advise the Fed on a broad range of issues and offer diverse perspectives on economic circumstances of different consumers and communities, the council’s particular focus will be on concerns of low- and moderate-income areas.

The first meeting between the CAC and the Fed is planned for the fourth quarter of 2015, and the council will subsequently meet semiannually with members of the Board of Governors in Washington.

The appointment of CAC members will be announced in Fall 2015, according to the Fed. Information about selection process for membership on the council, including instructions on how to submit a Statement of Interest, can be found in this Federal Register notice.

The Fed previously had a consumer advisory council to advise the Board on consumer regulatory issues, but that council dissolved in 2011 when Dodd-Frank charged the formation of the Consumer Financial Protection Bureau with issues regarding consumer protection and regulation.

With the Announcement of Fannie Mae’s First Bulk NPL Offering, More Sales Could Be Coming

money-stepsFannie Mae just announced last week that it is in the process of marketing its first-ever bulk sale of non-performing loans. Bids are due for this bundle of NPLs, worth about $786 million, on May 6 and the sale is expected to close in mid- to late June – but there could be more similar sales coming later.

“We plan to build these sales into a programmatic offering, and look forward to working with a diverse range of potential buyers over time, including smaller investors, nonprofit organizations and minority- and women-owned businesses,” Joy Cianci, Fannie Mae’s SVP for Credit Portfolio Management, said last week.

Fannie Mae’s fellow GSE, Freddie Mac, has already conducted three bulk NPL sales in the last eight months totaling approximately $1.97 billion in UPB. The last such sale by Freddie Mac, completed on March 25, was its largest bulk NPL sale ever – it included nearly 5,400 loans totaling $985 million in UPB.

While the Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac’s conservator, has instructed the two GSEs to clear out non-performing and deeply delinquent single-family residential mortgage loans from their portfolios, the FHFA has made it clear that these bulk NPL sales are not simply a house-cleaning; FHFA wants to make sure the borrowers in all of the deeply delinquent loan cases know all the options available to them and avoid foreclosure at all costs.

“These transactions are intended to reduce the number of seriously delinquent loans that Fannie Mae owns, to help stabilize neighborhoods, and to offer borrowers access to additional foreclosure prevention options,” Cianci said.

To this end, the FHFA released enhanced requirements in early March for the buyers and servicers of Agency non-performing loans. As part of the new requirements, servicers who purchase non-performing Agency loans must apply a “waterfall of resolution tactics” before resorting to foreclosure. When foreclosure cannot be avoided, the loan owner is required to market the property exclusively to owner-occupants and non-profits before seeking out investors to purchase it.

According to the FHFA’s most recent foreclosure prevention report issued in late March, Fannie Mae and Freddie Mac completed 307,200 foreclosure prevention actions combined in 2014 and have completed 3.4 million such actions since the conservatorship began in September 2008. Foreclosure prevention actions include home retention actions such as permanent loan modifications, repayment plans, and forbearance plans as well as home forfeiture actions such as short sales and deeds-in-lieu of foreclosure.