$26 Billion Mortgage Settlement Is Being Called Historic

First appeared in USA Today

Five major mortgage servicers agreed to a $26 billion settlement with state and federal officials in a deal that is being called historic, but which critics are likely to say doesn't go far enough.

The deal could grow to $30 billion if nine more servicers sign on, and it's expected to cover almost all 50 states, a White House official said Thursday.

The settlement would be the biggest involving a single industry since a 1998 multistate tobacco deal.

A monitor will be appointed to see that it is carried out.

The five servicers involved so far —Bank of America, JP Morgan Chase, Citigroup, Ally Financial and Wells Fargo— will provide $17 billion in mortgage relief to more than 1 million homeowners. Another $1 billion will go to the federal government; $3 billion will help the servicers refinance borrowers into lower-interest rate loans.

Hundreds of thousands of borrowers are also expected to receive restitution, averaging $1500 to $2000, if they lost homes to foreclosure from 2008 to the end of 2011.

The relief must be extended within three years or servicers would have to pay any remaining part of the settlement in cash. To encourage servicers to do more work sooner rather than later, given the ongoing foreclosure crisis, they'll get more credit for modifying and refinancing loans in the first year of the deal.

The settlement, which has been a year in the making, will create the largest effort by servicers so far to write down the amount homeowners owe on underwater mortgages, where the homeowners owe more than the house is now worth. Falling property values have put many homeowners under water. Home Insurance in New York City may be able to help.

The reductions in loan principal are expected to account for at least 60% of the $17 billion pot. By writing down principal, officials hope fewer people will eventually default on their loans.

Most of the writedowns are expected to occur on loans that the five servicers own themselves, and will not include any loans owned by mortgage giants Freddie Mac, Fannie Mae or the Federal Housing Administration.

The impact of the principal reduction is expected to go farther than the actual dollars. Servicers will get "credits" for writing down loans at varying stages of being under water. They'll get more credit for some writedowns than for others, officials said.

All told, the $26 billion deal could provide up to $40 billion in mortgage relief, one official estimated.

If so, California officials said in a statement that state would get $18 billion of that, including $12 billion in principal reductions and other relief for an estimated 250,000 homeowners.

"This is an historic amount of relief for California homeowners, but it is one piece of a broader focus. We will continue our crackdown on mortgage fraud and quickly move to pass legislation that will simplify, reform and upgrade our broken mortgage system," California Attorney General Kamala Harris said.

In most cases, to be eligible for principal write downs, borrowers would need to be delinquent on their mortgages. While the principal writedowns, when averaged, might run just $20,000 or so on a national basis, writedowns could be much larger in some cases, officials say.

The servicers will be expected to devise a plan on how to reach out to borrowers to carry out the mortgage relief.

The settlement is expected to include most states; New York and California were prominent last-minute holdouts. A Brooklyn Homeowners Insurance company waits to hear.

In exchange for the settlement, the servicers will get some relief from future legal claims.

But disgruntled borrowers could still sue individually or as part of a class action. The settlement also does not prevent future or ongoing lawsuits in the arena of securitization, in which loans were packaged and sold to investors. Nor would it prevent any criminal investigations.

The nationwide settlement stems from abuses that occurred after the housing bubble burst. Many companies that process foreclosures failed to verify documents. Some employees signed papers they hadn't read or used fake signatures to speed foreclosures — an action known as robo-signing.

Along with financial costs, the settlement is expected to create what supporters say are the strictest standards to date for how mortgage servicers should treat distressed home loan borrowers in the future.

Support for the settlement by so many states increases chances that it'll be viewed as a win for the state attorneys general.

It also arms the Obama administration with more ammunition for its claims that it's addressing the foreclosure crisis.

But the settlement falls far short of fixing all that went wrong in the U.S. mortgage industry, after risky loans were extended to millions who couldn't afford the loans. That helped lead to a collapse in U.S. home prices, which are down an average of 33% nationwide since 2006.

The settlement will not compensate the vast majority of U.S. homeowners who have kept making payments while their home values plunged.

Instead, much of the settlement will help homeowners who are on the brink of foreclosure — but have continued to make payments — with principal reductions.

If the principal reductions help prevent foreclosures, that will mean fewer distressed homes for sale, which could help overall home prices.

But U.S borrowers collectively owe $700 billion more on their homes than their homes are worth. The principal forgiveness is "not going to be enough to generate a significant and sustained housing market recovery," says Capital Economics economist Paul Diggle.

For weeks, attention has largely focused on how much the servicers would end up paying in the settlement, and what states would sign on.

But state and federal officials say new servicing standards, which affect how companies interact with distressed borrowers, are equally important.

"There's no doubt that they are an improvement," says Ira Rheingold, executive director of the National Association of Consumer Advocates.

The new standards are expected to restrict one practice that has long been criticized, dubbed "dual track." That's where servicers proceed with foreclosures even if someone is pursuing a loan modification. Not even the best Queens Homeowners Insurance can fix everything.

The agreement won't ban that completely, but it would prevent servicers from completing a foreclosure sale of a home if a modification is being considered.

Servicers will also be required to provide borrowers with a single point of contact, something other new standards also require. Most large servicers already have that or are implementing it, companies say.

In addition, the settlement monitor will periodically test that foreclosure affidavits are executed properly.

NY Attorney General Sues Banks Using an Electronic Mortgage Database

First appeared in Reuters

New York State Attorney General Eric Schneiderman on Friday sued three major U.S. banks, accusing them of fraud for using an electronic mortgage database that resulted in deceptive and illegal practices.

Schneiderman filed the lawsuit against Bank of America Corp (BAC.N), Wells Fargo & Co (WFC.N) and JPMorgan Chase & Co (JPM.N) in New York state court in Brooklyn.

The lawsuit is over the banks' use of MERS, the Mortgage Electronic Registration System the industry created in the mid-1990s to track the ownership and servicing of residential mortgage loans.

Schneiderman claims the system is plagued by inaccuracies. The lawsuit also names MERS and its parent as defendants.

"The mortgage industry created MERS to allow financial institutions to evade county recording fees, avoid the need to publicly record mortgage transfers and facilitate the rapid sale and securitization of mortgages en masse," Schneiderman said.

Schneiderman's lawsuit claims that banks saved $2 billion in recording fees by using MERS.

The suit also said the use of MERS resulted in the filing of improper NY foreclosures and created "confusion and uncertainty" over property ownership interests.

Over 70 million mortgage loans, including millions of subprime loans, have been registered in the MERS system, rather than in local county clerks' offices, according to the lawsuit.

Schneiderman is seeking to stop the banks from filing New York foreclosure actions in MERS name, and executing false or defective mortgage assignments in state foreclosure proceedings. He is also seeking to obtain the profits the banks obtained through MERS, along with other damages.

JPMorgan spokesman Patrick Linehan declined to comment on the lawsuit. Wells Fargo spokesman Ancel Martinez said the company was reviewing the lawsuit. Bank of America spokesman Rick Simon declined comment.

Merscorp and its subsidiary MERS comply with the law and mortgage regulations, spokeswoman Janis Smith, a spokeswoman said in a statement.

"We refute the attorney general's claims and will defend the case vigorously in court," Smith said.

MERS was sued by Delaware in October and similarly accused of deceptive practices that led to unlawful shortcuts in dealing with the foreclosure crisis.

MORTGAGE SETTLEMENT NEARS

Schneiderman filed the suit in his capacity as New York attorney general, but he also serves as co-chair of a working group President Barack Obama formed last month to investigate misconduct in the pooling and sale of risky home loans.

Schneiderman is also a central figure in widely publicized negotiations to reach a federal-state settlement with the top U.S. banks over mortgage abuses.

A key question is whether holdouts, including Schneiderman and California Attorney General Kamala Harris will join the settlement.

Danny Kanner, a spokesman for Schneiderman, declined comment on what Friday's lawsuit may mean for the prospects of the settlement, which could be announced as soon as next week.

In exchange for up to $25 billion, the banks are expected to resolve state and federal lawsuits about servicing misconduct and faulty foreclosures. The states have until Monday to decide whether to sign on.

A draft settlement circulated to the states would have released the banks from liability for their use of MERS - claims at the heart of the new lawsuit.

The New York lawsuit suggests Schneiderman and other attorneys general opposed to the settlement may have been successful in working to narrow the broad releases of liability.

Last week Schneiderman told Reuters that the releases in the settlement had "become narrow enough" so that a "full investigation" by the new mortgage crisis unit could move forward.

However, Schneiderman said last week he was not yet ready to sign on to the settlement.

On Thursday, California AG Harris told Reuters that she is not focusing on the Monday deadline for states to sign up.

"I'm less concerned with the timeline than the details," Harris said on the sidelines of a Harvard Women's Law Association conference in Boston.

Harris said any settlement should address the priorities she has previously laid out, like enforcement.

She also said she was aware of Schneiderman's lawsuit against banks over MERS, but that MERS was less of a priority in the scope of California's mortgage problems than it was in other states.

"But we support that MERS work," she added.

Is Desegregation Really Happening?

First appeared in the Wall Street Journal

An exodus of African-Americans from struggling industrial cities such as Detroit and the growth of Sunbelt states have pushed racial segregation in U.S. metropolitan areas to its lowest level in a century, according to a new study.

The report, released by the conservative Manhattan Institute, said U.S. cities are more integrated now than at any time since 1910, based on analysis of census data from neighborhoods.

Fifty years ago, nearly half the black population lived in a ghetto, the study said, while today that proportion has shrunk to 20%. All-white neighborhoods in U.S. cities are effectively extinct, according to the report.

Immigration and gentrification have helped convert ghettos into racially mixed communities and contributed to diversifying suburbia, said economists of Harvard University and of Duke University, who co-wrote the study. "Segregation is as low as we have ever seen it," said the economists. "It's an unprecedented scenario."

Some scholars said the report, titled "The End of the Segregated Century: Racial Separation in America's neighborhoods, 1890-2010," paints too rosy a picture and argued the country is far from being fully integrated.

"That segregation is declining in most places is a real plus," said a Brown University sociologist who has published research on the topic. "But it is declining at a rate that will leave the country with a very high level of segregation for a long time."

From around 1910, rural blacks began moving in large numbers to urban centers in search of work, in what became known as the Great Migration. Government policies and discriminatory practices in areas such as mortgage lending promoted residential segregation, which peaked in the 1960s. The civil-rights movement then paved the way for integration, and the 1968 Fair Housing Act specifically banned housing discrimination.

By the 1980s, blacks were moving to suburbs, which both altered the face of the urban areas they left behind and created racially mixed neighborhoods where they settled.

Using the most common measure of segregation, the "dissimilarity index," the authors found that segregation is lower now than it was in 1970 in all but one of the 658 housing markets tracked by the Census Bureau. Between 2000 and 2010, segregation declined in 522 out of 658 housing markets, the report said.

The index of dissimilarity measures how evenly two groups are distributed in a neighborhood. The score indicates what share of the members of one group would need to move neighborhoods to enable the two groups to be equally distributed.

In 2010, Dallas-Fort Worth and Houston were the country's least segregated large cities. Atlanta's index fell 28 points to 54.1 in 2010 from 82.1 in 1970; Dallas-Fort Worth's fell to 47.5 from 86.9 over the same period.

Still, segregation hasn't been eliminated. The typical urban African-American still lives in an area where more than half the black population would need to move to achieve overall integration.

"There are still segregated places, like the South Side of Chicago, the East Side of Cleveland and Detroit," said a sociologist. "But those places have fewer people."

Many of the people leaving industrial cities moved to the Sunbelt, which stretches from California to North Carolina and has experienced rapid growth in recent decades. As cities such as Phoenix, Houston and Charlotte expanded to accommodate the new population, many neighborhoods became more racially mixed than those left behind in the Rust Belt, a sociologist said.

The beacon of economic opportunity is luring ambitious young African Americans such as a 28 year old, who left Cleveland for Houston a year and a half ago for a promotion in the Veterans Administration. He now manages outpatient care at Houston's Michael E. DeBakey VA Medical Center.

"It was a good promotion, and with the economy being the way it is, it was too good to pass up," said the young man.

A 59 year old, who moved to Phoenix from Racine, Wis., in 1987 to run a janitorial business, said: "Everybody here came from somewhere else so they are not just living next to their own kind."

Immigration has been a factor in desegregation. The Hispanic population has climbed and spread across the U.S. since the 1990s, with Latin American immigrants settling in both predominantly black and white neighborhoods, the report says. The typical African-American now lives in a neighborhood that is 14% Latino.

Access to credit has also fostered mobility and integration. Minority home buyers were affected by the subprime mortgage crisis, but many buyers were able to stay in their homes, the report said.

But the decline in desegregation in residential areas hasn't meant an end to racial inequality. Minorities at every income level tend to reside in poorer neighborhoods than whites with comparable incomes, according to the scholar at Brown.

Home Foreclosures Looking Up

First appeared in CNN Money

Foreclosure filings and repossessions fell to their lowest level since 2007 last year.

Total filings, including default notices and bank repossessions were down 33% for the year to 2.7 million, according to RealtyTrac, the online marketer of foreclosed properties.

One in every 69 homes had at least one foreclosure filing during the year, while 804,000 homes were repossessed. That's a significant improvement from the peaks reached in 2010 -- when 1.05 million homes were repossessed -- and the lowest levels seen since 2007.

More than 4 million homes have been lost to foreclosure over the past five years.

While the declines seem like good news for the housing market, where a flood of foreclosed homes has depressed home prices, much of it is due to processing delays caused by fall-out from the "robo-signing" scandal that broke in late 2010.

During the year, banks spent more time making sure paperwork was legal and proper, creating a backlog in the foreclosure pipeline. As a result, the average time it took to process a foreclosure climbed to 348 days during the fourth quarter, up from 305 days a year earlier.

"Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year," said Brandon Moore, chief executive officer of RealtyTrac.

However, Moore said there were "strong signs" during the second half of the year that lenders are working through foreclosure backlogs in certain markets. He expects foreclosure activity to rise above 2011's level but remain below the peak hit in 2010.

Low rates offer some help for homeowners

Early in 2011, many forecasters were predicting a wave of foreclosures due to resetting adjustable-rate mortgages, but low mortgage rates helped many borrowers refinance into more affordable loans, said Moore.

The government helped as well, through efforts like the Home Affordable Refinance Program (HARP), which made refinancing easier for borrowers who owe more on their mortgage than their homes are worth.

Turning foreclosures into rentals

Government foreclosure prevention programs, including HARP and the Home Affordable Modification Program (HAMP), have started about 5.5 million mortgage modifications since April 2009, according to the U.S. Department of Housing and Urban Development.

"Programs like HAMP and HARP have definitely made a dent in the foreclosure problem," said Moore "However, they are certainly not living up to their billing of preventing several million foreclosures. In addition, many [HAMP] homeowners fall back into foreclosure later on."

Of course, there were still plenty of factors working against homeowners in 2011, including the continued erosion in home prices. Falling prices rob homeowners of home equity, which they can tap if they need emergency cash.

Foreclosure hot spots

Hot spots for foreclosures remain mostly in "bubble states," where speculative investors helped drive up home prices beyond their fundamental values during the mid-2000s housing boom.

Nevada, where one out of every 16 households received some kind of default notice during the year, was the worst hit of all, a distinction it has held for the fifth consecutive year.

Foreclosure free ride: 3 years, no payments

Arizona had the second highest foreclosure rate and California came in third. Florida, which had been running neck-and-neck with the other "Sand States" in past years, fell to seventh, behind Georgia, Utah and Michigan.

Among metro areas, Las Vegas suffered from the highest foreclosure rate in 2011. California put seven cities in the top 10, led by Stockton in the second slot. Other cities in the top 10 included Phoenix, which finished sixth, and Reno, Nev. was eighth.

Rental Demands Changes Housing Outlook

First appeared on Yahoo! News
Brian Keith is busier than ever as the architecture firm he works for rushes to wrap up work on a 300-unit apartment complex in Dallas.

The project is one of dozens the firm, JHP Architecture, has on its hands -- a surge of business driven by a rise in demand in the United States for rental properties.

The increased demand has forced JHP to expand, and it expects to keep hiring at least through the first quarter.

"We're seeing overall work come back and there's a backlog of contracts to go through," said Keith, director of urban design and planning at JHP. "There's strong interest in multi-family units and plenty of pent-up demand."

With U.S. unemployment at a lofty 8.6 percent, home foreclosures rising and property prices under pressure, more and more Americans have given up the dream of owning, opting instead to rent, a shift that is remaking the face of the U.S. housing industry.

The percentage of Americans who own their home dropped from a peak of 69.2 percent in late 2004 to a 13-year low of 65.9 percent in the second quarter. It edged up to 66.3 percent in the third quarter of this year.

On the flip side, the percentage of rental properties that are empty fell to 9.8 percent in the third quarter from 10.3 percent a year earlier.

In a recent report, Oliver Chang, an analyst at Morgan Stanley, dubbed 2012 "The Year of the Landlord."
"Rents are rising, vacancies are falling, household formations are growing and rental supply is limited," the Morgan Stanley report stated. "We believe the demand for rental properties will continue to grow."

Groundbreaking for new housing jumped 9.3 percent in November to the highest level in 19 months, fueling optimism that the battered housing market was regaining its footing.

The gains, however, were almost solely in multifamily housing. Groundbreaking for structures with five or more units shot up more than 30 percent from October to now stand at nearly double the year-ago level.
Prices reflect the shift in demand. Rental costs are up 2.4 percent over the last year, compared with an increase of just 0.6 percent in 2010.

Steve Blitz, senior economist at ITG Investment Research, says the lure of higher returns is spurring the development of apartment buildings. He argued the next "boom" in residential construction has already started.

"The reason rents were rising is that through the past 15 years there has been an under-building of rental properties because typical renters were increasingly able to garner cheap financing to buy a house," he wrote in a research note.

While the rise in demand is great news for builders and developers, it remains unclear what the pick-up in homebuilding will mean for the economy as a whole.

"Residential construction will be a plus to GDP in 2012, but house price declines will be a negative. So net, net housing will be neutral or a small drag on the economy," said Mark Zandi, chief economist at Moody's Analytics.

At its peak at the end of 2005, homebuilding accounted for about 6.2 percent of overall economic activity. Now, it is only about 2.4 percent.

U.S. housing starts in April 2009 hit their lowest level on records dating to January 1959. While multifamily starts have given them a lift, 2011 may be the weakest year ever for construction of single-family homes.

"Business is slightly down from last year," said Bill Zach, a third-generation homebuilder. His family business, the Zach Building Co. in the Milwaukee, Wisconsin, area, is mainly focused on single-family units.

To Zach, that his firm is still in business when so many of his competitors have gone bust represents some success.

"It used to be my competition was every guy that owned a pick-up truck and called himself a builder. Hundreds of them," Zach said. "That's no longer the case, those guys are dropping by the wayside."

But there are signs of a turn and signals that the housing market may be close to finding a bottom.

The Architecture Billings Index, a gauge of future construction, picked up last month, breaking above the 50 level to signal growth in billings.

And the stock of homebuilders, as measured by a Dow Jones index, has shot up more than 30 percent since early October.

"Residential construction is finally beginning to rise from its post-recession lows," said Joseph Lavorgna, chief U.S. economist for Deutsche Bank. "The true test for starts and (building) permits, as well as most of the sales metrics, will come during the spring buying season."