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By Tony McMahon | Agent in 20601
  • US Suit Alleges 'Brazen' Fraud At Countrywide

    Posted Under: Market Conditions, Financing, Foreclosure  |  October 24, 2012 6:10 PM  |  393 views  |  No comments


     The latest federal lawsuit over alleged mortgage fraud paints an unflattering picture of a doomed lender: Executives at Countrywide Financial urged workers to churn out loans, accepted fudged applications and tried to hide ballooning defaults.

    The suit, filed Wednesday by the top federal prosecutor in Manhattan, also underscored how Bank of America's purchase of Countrywide in July 2008, just before the financial crisis, backfired severely.

    The prosecutor, Preet Bharara, said he was seeking more than $1 billion, but the suit could ultimately recover much more in damages.

    "This lawsuit should send another clear message that reckless lending practices will not be tolerated," Bharara said in a statement. He described Countrywide's practices as "spectacularly brazen in scope."

    He also charged that Bank of America has resisted buying back soured mortgages from Fannie Mae and Freddie Mac, which bought loans from Countrywide.

    Bank of America spokesman Lawrence Grayson said the bank "has stepped up and acted responsibly to resolve legacy mortgage matters." He called the allegation that the bank has failed to buy back loans "simply false."

    "At some point," Grayson said, "Bank of America can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn."

    Countrywide was a giant in mortgage lending, but was also known for approving exotic, even risky, loans. By 2007, as the market for subprime mortgages collapsed, Countrywide was anxious for revenue.

    The lawsuit alleged that the company loosened its standards for making loans while telling Fannie Mae and Freddie Mac, which were buying loans from Countrywide, that standards were getting tighter.

    Fannie and Freddie, which packaged loans into securities and sold them to investors, were effectively nationalized in 2008 when they nearly collapsed under the weight of their mortgage losses.

    To churn out more mortgage loans, Bharara said, Countrywide introduced a program called the "Hustle," shorthand for "High-Speed Swim Lane." It operated under the motto, "Loans Move Forward, Never Backward."

    The program eliminated checks meant to ensure that mortgages were being made to borrowers who could afford them, according to the lawsuit.

    For example, loan processors no longer had to complete worksheets that helped them assess whether income levels that borrowers entered on their loan applications were reasonable.

    If processors entered a borrower's information into a computerized underwriting program and the program raised flags, employees had incentives to change the numbers, the suit said.

    It also said that bonuses were awarded based solely on the number of loans that an employee could generate, not on their quality.

    The process led to "widespread falsification" of mortgage data, Bharara charged. And when Countrywide executives became aware of the dangerously high number of borrowers defaulting, it hid the problem, according to the lawsuit.

    In early 2008, for example, Countrywide offered bonuses for employees who could "rebut" the high rate of defaults. The standards were low, according to the lawsuit: If a review found that the income a borrower listed on his application seemed unreasonable, an employee could rebut the finding "simply by arguing that the stated income was reasonable."

    The lawsuit gives seven examples of mortgages made for homes in California, Alabama, Florida and Georgia in which the borrowers' income and other qualifications were falsified.

    For example, one loan application, for a home in Miami, said that the borrower was an airline sales representative earning $15,500 per month, when the borrower worked for a temp agency and earned $2,666 per month. The borrower defaulted within seven months, the suit said.

    A loan application for a home in Birmingham, Ala., failed to disclose $81,000 in debt that the borrower was carrying. That borrower defaulted within a year, the suit said.

    The lawsuit accused Countrywide, and later Bank of America, of selling thousands of Hustle loans to Fannie and Freddie. The lawsuit says that that the Hustle program continued through 2009.

    According to the lawsuit, Fannie and Freddie don't review loans before they purchased them. Instead, they relied on banks' statements that the loans met certain qualifications.

    Bharara said the lawsuit was the first civil fraud suit brought by the Justice Department concerning loans later sold to Fannie and Freddie. When Fannie and Freddie collapsed, investors were wiped out.

    Taxpayers have spent $170 billion to keep Fannie and Freddie afloat, and it could cost $260 billion more to support the companies through 2014 after subtracting dividend payments to taxpayers, according to the government.

    The lawsuit says that Fannie and Freddie suffered $1 billion in losses because they had to pay for Countrywide's defaulted loans. The lawsuit also complains that Bank of America is refusing to buy back mortgages "even where the loans admittedly contained material defects or even fraudulent misrepresentations."

    Bank of America's purchase of Countrywide originally earned it plaudits from lawmakers because Bank of America was viewed as stepping in to eliminate a bad actor from the mortgage market.

    But the purchase, instead of padding Bank of America's mortgage business, has drawn a drumbeat of regulatory fines, lawsuits and losses.

    Bank of America reported last week that while it is issuing more mortgages — $21 billion worth last quarter, up 18 percent from a year earlier — its mortgage unit is still losing money as the bank works through crisis-era problems.

    For at least two years, Bank of America and other banks have been sifting through so-called repurchase demands from Fannie, Freddie and other investors who bought its mortgages. The repurchase demands contend that the bank should buy back mortgages that have since gone bad.

    Bank of America has bought back mortgages from investors but has also said it's not going to honor demands unless they're valid, and won't buy back loans that went bad simply because of the bad economy.

    In 2010, Countrywide's former CEO, Angelo Mozilo, agreed to pay $67.5 million to settle the Securities and Exchange Commission's accusations that he had misled investors and engaged in insider trading.

    He was also permanently barred from serving as an officer or director of a public company. In 2011, federal prosecutors shelved a criminal investigation of Mozilo, saying his actions did not amount to criminal wrongdoing.

    Bank of America had planned to put Countrywide's president, David Sambol, in charge of the mortgage unit, but reversed course before it bought Countrywide. At the time, Bank of America said it wanted one of its own to run the unit because of how much was at stake.

    In the past year and a half, Bharara's office has settled lawsuits against CitiMortgage, Flagstar Bank and Deutsche Bank over mortgages. Its lawsuits against Wells Fargo and Allied Home Mortgage are pending.

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  • Tighter Rules For Some Borrowers

    Posted Under: Market Conditions, Home Buying, Financing  |  October 18, 2012 10:34 AM  |  253 views  |  No comments

    By Polyana da Costa · Bankrate.com

    Condo buyers and self-employed borrowers may soon have to jump through additional hoops to get a mortgage as Fannie Mae tightens underwriting standards.

    Starting Oct. 20, borrowers who put less than 20 percent down on a condo will have to provide documentation to demonstrate that the homeowners association is financially stable. Fannie currently requires the info for buyers putting less than 10 percent down. The documentation includes a reserve study to show that the association has enough cash saved for emergencies, a request for proof that the association has adequate insurance and a questionnaire detailing the association's finances.

    No matter how good a credit history you have, if the association of the building you are buying into is perceived as financially risky, your mortgage deal is dead.

    On the other hand, why would you want to buy a condo in a building that has financial issues? If you are thinking about buying a condo, here are a few things to consider.


    The latest underwriting changes will also affect borrowers who are self-employed or receive most of their pay based on commissions.

    As of Oct. 20, self-employed borrowers will be asked to submit two years of personal tax return when they apply for a mortgage. Currently, borrowers need to provide tax returns for the most recent year.

    The requirement can be an obstacle for borrowers who earned enough to qualify for a mortgage in the last year or so but went through financial difficulties in a previous year.

    Fannie claims the tighter standards are needed to minimize its risks. What do you think of the changes?

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  • How can a first-time homebuyer ward off PMI?

    Posted Under: Home Buying, Financing, How To...  |  September 18, 2012 12:30 PM  |  406 views  |  No comments

    By Dr. Don Taylor, Ph.D., CFA, CFP  

    Dear Dr. Don,

    Is there any way for a first-time homebuyer to get away from private mortgage insurance? I indicated to my lender that my goal was to have a mortgage payment of $1,000, and I ended up with $1,000 plus mortgage insurance.

    -- Christina Complains

    Dear Christina,
    Sure, there are several ways for a first-time homebuyer to avoid paying private mortgage insurance, or PMI. The first is to have a loan-to-value, or LTV, ratio on the property of 80 percent or less, based on the home's appraised value.

    One way to get to an 80 percent LTV when you don't have a 20 percent down payment is to do a piggyback loan. With a piggyback loan, you borrow 80 percent LTV on a first mortgage and at the same time take out a second mortgage, typically for 10 percent of the home's appraised value. Then, you come up with a 10 percent down payment. This is also known as an 80/10/10 mortgage. The downside of this type of mortgage is that the interest rate on the second mortgage tends to be significantly higher than the interest rate on the first mortgage.

    Another alternative to making PMI premium payments is to have the mortgage insurance payment baked into the interest rate. You have a higher interest rate on your loan but aren't making separate premium payments. It will, however, show up in the form of a higher monthly mortgage payment.

    I try to remind homeowners that PMI on a conventional mortgage doesn't last forever, and it gives them the opportunity to buy a home with a down payment less than 20 percent. The lender must cancel the policy when a strong payment history allows your loan balance to fall to 78 percent of what had been the appraised value of the property at closing.

    Your lender has an annual obligation to remind you about your options concerning canceling PMI. A lender isn't required to consider any increase in your home's value over time (which would shrink your LTV) but may be willing to do so with proper documentation.

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  • An Enigma in the Mortgage Market That Elevates Rates

    Posted Under: Market Conditions, Home Buying, Financing  |  September 18, 2012 12:21 PM  |  236 views  |  No comments


    Imagine a 30-year mortgage on which you only pay 2.8 percent in interest a year.

    Such a mortgage could already exist, but something in the banking system is holding it back. And right now, few agree on what that "something" is.

    Getting to the bottom of this enigma could help determine whether mortgage lenders are dysfunctional, greedy or simply trying to do their job in a sensible way.

    Right now, borrowers are paying around 3.55 percent for a 30-year fixed rate mortgage that qualifies for a government guarantee of repayment. That's down from 4.1 percent a year ago, and 5.06 percent three years ago.

    Mortgage rates have declined as the Federal Reserve has bought trillions of dollars of bonds, a policy that aims to stimulate the economy. Last week, the Fed said it would make new purchases, focusing on bonds backed by mortgages. 

    The big question is whether those purchases lead to even lower mortgage rates, as the Fed chairman, Ben S. Bernanke, hopes.

    But mortgage rates may not decline substantially from here. Something weird has happened. Pricing in the mortgage market appears to have gotten stuck. This can be seen in a crucial mortgage metric.

    Banks make mortgages, but since the 2008 crisis, they have sold most of them into the bond market, attaching a government guarantee of repayment in the process.

    The metric effectively encapsulates the size of the gain that banks make on those sales. In September 2011, banks were making mortgages with an interest rate of 4.1 percent. They were then selling those mortgages into the market in bonds that were trading with an interest rate, or yield, of 3.36 percent, according to a Bloomberg index.

    The metric captures the difference between the bond and mortgage rates; in this case it was 0.74 percentage points. The bigger the "spread," the bigger the financial gain for the banks selling the mortgages. That 0.74 percentage point "spread" was close to the 0.77 percentage point average since the end of 2007. Banks were taking roughly the same cut on the sales as they were in previous years.

    But something strange has happened over the last 12 months. That spread has widened significantly, and is now more than 1.4 percentage points. The cause: bond yields have fallen a lot more than the mortgage rates banks are charging borrowers.

    Put another way, the banks aren't fully passing on the low rates in the bond market to borrowers. Instead, they are taking bigger gains, and increasing the size of their cut.

    So where might mortgage rates be if the old spread were maintained? At 2.83 percent - that's the current bond yield plus the 0.75 percentage point spread that existed a year ago.

    It's important to examine why the tight relationship between bond yields and mortgage rates becomes unglued.

    One explanation, mentioned in a Financial Times story on Sunday, is that the banks are overwhelmed by the demand for new mortgages and their pipeline has become backlogged. When demand outstrips supply for a product, it's less likely that its price -- in this case, the mortgage's interest rate -- will fall. There are in fact different versions of this theory.

    One holds that bank mortgage operations are still poorly run, and therefore it's no surprise they can't handle an inundation of new applications. Another says banks deliberately keep rates from falling further as a way of controlling the flow of mortgage applications into their pipeline. If mortgages were offered at 2.8 percent, they wouldn't be able to handle the business, so they ration through price, according to this theory.

    Another backlog camp likes to point the finger at Fannie Mae and Freddie Mac, the government-controlled entities that actually guarantee the mortgages. The theory is that these two are demanding that borrowers fulfill overly strict conditions to get mortgages. Banks fear that if they don't ensure compliance with these requirements, they'll have to take mortgages back once they've sold them, a move that can saddle them with losses.

    As a result, the banks have every incentive to slow things down to make sure mortgages are in full compliance, which can add to the backlog. Once this so-called put-back threat is decreased, or the banks get better at meeting requirements, supply should ease.

    But there is a weakness to the backlog theories.

    The banks have handled two huge waves of mortgage refinancing since the 2008 financial crisis. During those, the spread between mortgage and bond rates did increase. But not anywhere near as much as it has recently. And the spread has stayed wide for much longer this time around.

    For instance, $1.84 trillion of mortgages were originated in 2009, a big year for refinancing, according to data from Inside Mortgage Finance, a trade publication. In that year, the average spread between bonds and loans was 0.89 percentage points. And the banking sector was in a far worse state, which would in theory make the backlog problem worse.

    Today, the sector is in better shape, with more mortgage lenders back on their feet. But the spread between loans and bonds is considerably wider. In the last 12 months, when mortgage origination has been close to 2009 levels, it has averaged 1.1 percentage points. This suggests that it's more than just a backlog problem

    Some mortgage banks seem to be having little trouble adapting to the higher demand. U.S. Bancorporiginated $21.7 billion of mortgages in the second quarter of this year, 168 percent more than in the second quarter of last year.

    Wells Fargo is currently the nation's biggest mortgage lender, originating 31 percent of all mortgages in the 12 months through the end of June. In a conference call with analysts in July, the bank's executives seemed unfazed about the challenge of meeting mounting customer demand.

    "We've ramped up our team members in mortgage to be able to move the pipeline through as quickly as possible," said Timothy J. Sloan, Wells Fargo's chief financial officer. He also said that the bank had increased its full time employees in consumer real estate by 19 percent in the prior 12 months. Not exactly the picture of a bank struggling to expand capacity.

    But if banks are readily adding capacity, why aren't mortgage rates falling further, closing the spread between bond yields? Perhaps a new equilibrium has descended on the market that favors the banks' bottom lines.

    The drop in rates draws in many more borrowers. The banks add more origination capacity, but not quite enough to bring the spread between bonds and loans back to its recent average.

    The banks don't care because mortgage revenue is ballooning. But it all means that the 2.8 percent mortgage may never materialize.

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  • Half of Homeowners Under 40 Are Still Underwater

    Posted Under: Market Conditions, Home Selling, Financing  |  August 24, 2012 3:36 PM  |  238 views  |  No comments


    The country's underwater homes are slowly resurfacing as the housing market improves. But younger borrowers are still more likely to be submerged, a new report from real estate site Zillow.com finds.

    Overall levels of negative equity improved in the second quarter of the year compared with the first quarter, as home values continue to rise. But about half of borrowers under 40 still owe more than their homes are worth, the analysis found.

    Younger borrowers are more likely to be affected by negative equity in part because they generally have been in their home for shorter periods of time and had less time to build equity before the housing debacle. But on the bright side, younger borrowers tend to be in relatively "shallow" water compared to older borrowers and are less likely to be delinquent on payments, said Stan Humphries, chief economist at Zillow.com.

    The disproportionate impact on younger borrowers may actually have a helpful effect on home values, by creating tight inventory of homes for sale. Younger borrowers trapped by negative equity tend to be reluctant to sell, even though their homes are often the most attractive to first-time buyers who might be ready to plunge into the market. "Sellers don't want to sell, even if buyers want to buy," he said.

    When they do sell, prices are higher - which helps push values up. The process is actually moving the market toward recovery, but it's a gradual process, he said. "Over all, the second-quarter report is positive," said Mr. Humphries. "The housing market is healing, albeit slowly."

    These results come from the second edition of the new Zillow Negative Equity Report, which looks at current, outstanding loan amounts for individual, owner-occupied homes, and compares them to those homes' current estimated values.

    Of the 30 largest markets tracked by Zillow, negative equity fell the most from the first to the second quarter in the Phoenix metropolitan area (from nearly 56 percent to about 52 percent) and the Miami-Fort Lauderdale area (from 46 percent to roughly 44 percent). The Las Vegas market continues to have the highest rate of negative equity, with nearly 69 percent of borrowers underwater (down from 71 percent in the first quarter.)

    Are you an under-fortysomething with negative equity in your home? What will it take to get you to sell?

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  • Mortgage Rates Continue To Tick Back Up

    Posted Under: Market Conditions, Home Buying, Financing  |  August 17, 2012 7:42 AM  |  295 views  |  No comments
    By MARCY GORDON, Associated Press

    WASHINGTON -- Average U.S. rates on fixed mortgages ticked up for the third straight week, staying slightly above record lows. Cheap mortgages have helped fuel a modest housing recovery this year.

    Mortgage buyer Freddie Mac says the rate on the 30-year loan increased to 3.62 percent, up from 3.59 percent last week. Three weeks ago, the rate fell to 3.49 percent, the lowest since long-term mortgages began in the 1950s.

    The average rate on the 15-year fixed mortgage, a popular refinancing option, rose to 2.88 percent. That's up from 2.84 percent last week and record low of 2.80 percent three weeks ago.

    The availability of low rates has lifted home sales higher this year. Home prices have also increased, largely because the supply of homes has shrunk while sales have risen. And builder confidence is at its highest level since March 2007, according to a survey by the National Association of Home Builders.

    Homebuilders broke ground on slightly fewer homes in July, down from June when they started homes at the fastest pace since October 2008. Single-family homes and apartments started in July dipped 1.1 percent to a seasonally adjusted annual rate of 746,000, the government said Thursday.

    Still, builders in July requested the most building permits since August 2008, suggesting many expect demand for newly built homes to rise in the months ahead.

    The pace of home sales remains well below healthy levels, however. Many people are still having difficulty qualifying for home loans or can't afford larger down payments required by banks.

    Mortgage rates are low because they tend to track the yield on the 10-year Treasury note. A weaker U.S. economy and uncertainty about how Europe will resolve its debt crisis have led investors to buy more Treasury securities, which are considered safe investments. As demand for Treasurys increase, the yield falls.

    To calculate average rates, Freddie Mac surveys lenders across the country on Monday through Wednesday of each week.

    The average does not include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

    The average fee for 30-year loans was 0.6 point, unchanged from last week. The fee for 15-year loans also held steady at 0.6 point.

    The average rate on one-year adjustable rate mortgages rose to 2.69 percent from 2.65 percent last week. The fee for one-year adjustable rate loans was unchanged at 0.4 point.

    The average rate on five-year adjustable rate mortgages declined to 2.76 percent from 2.77 percent. The fee was steady at 0.6 point. 

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  • What Your Home Is Really Worth

    Posted Under: Market Conditions, Financing, Property Q&A  |  August 9, 2012 5:31 PM  |  448 views  |  No comments

    By Alison Rogers 

    When it comes to assessing a home's value, real estate agents and homeowners tend to be an optimistic bunch.

    In the post-bust world, appraisers are a different story. They have to predict a realistic value for your home that the bank can use to extend credit to a borrower -- and that number can make or break your sale or refinance.

    Appraisers say the following five areas are where homeowners often misjudge the worth of their abode.

    1. The outside

    The appraiser sees: Overgrown bushes and chipped paint.

    What he does: Slices as much as 3% off the value of an average-size home.

    Why: Curb appeal is primo. And an unkempt yard is a sign that there may be other issues.

    "A good-looking lawn and bushes imply that you also take care of the internal systems in the house," says Jonathan Miller, president and CEO of a New York City-based appraisal firm that works throughout the tri-state area.

    Moreover, the more meticulous your neighbors are about grooming, the more your appraiser will downgrade the value of your home.

    "If a lot of the nearby properties are professionally maintained, the one that sticks out like a sore thumb will get a harder adjustment than in a subdivision where there's more variation," says San Diego appraiser Armando Ortiz.

    2. Basic systems

    The appraiser sees: A brand-new roof.

    What he does: Nothing.

    Why: Just as a knee replacement won't make you look 20 years younger, a new roof, furnace, or boiler isn't considered an improvement to your home.

    That said, if your roof is in disrepair, replace it: Signs of leaks or discoloration can knock a significant amount off the home's value.

    "When people buy a home, they expect the roof to be working," says Columbus appraiser Mike Armentrout. "So while a new one isn't an added feature, it will help your chances of a sale."

    3. The basement

    The appraiser sees: A recently finished basement with a half bath.

    What he does: Adds about 2% to the value of the home.

    Why: Yes, your finished basement adds value -- but don't expect it to count like first-floor space.

    The addition of a bedroom and quarter bath on the ground floor could increase your home's value by up to 20%, especially if you've got only one other bathroom.

    "A below-ground basement normally isn't included in the square footage of the house," says Miller.

    The same rule applies to outbuildings like a pool-house casita, painting shed, or studio.

    4. The market

    The appraiser hears: Two nearby homes just went into contract above their asking prices.

    What he does: Nothing.

    Why: While a broker might pump up a home's asking price based on the sense that the market is "hot," by and large, appraisers are bound by the data of recent comparable sales.

    What if prices are suddenly up in your area, and you're nervous that your house won't appraise for contract price? In that case, you might want to delay your appraisal until one of those recently contracted sales closes.

    5. A remodel

    The appraiser sees: An expensive, custom-made, built-in entertainment center.

    What he does: Makes a negative adjustment to the valuation.

    Why: "Cost doesn't equal value," says Miller.

    Renovations that are at all trendy -- or not in keeping with the historical period of the home -- will be assessed at the cost of ripping them out.

    Timeless improvements, on the other hand, such as a deep sink or new wooden cabinets in the kitchen, will add value.

    So if you're thinking of remodeling, ask a local real estate agent to tell you what's on the wish list of today's buyers.

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