Articles Posted in Mortgage

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The US Administration is trying to push through a deal requiring mortgage lenders to provide loan modifications that reduce the principal balance of residential loans. As reported in the Wall Street Journal Lenders have been reluctant to do so from fear that it would encourage borrowers to stop paying their mortgage, hoping for a principal reduction modification. If pressed, they may also say .. “Oh, by the way, we also do not like principal reduction because it means we get paid less over the life of the loan.” The reason California Real Estate law has anti-deficiency protection is to requires the lender to properly value the real estate in the first place, something lenders had failed to do over the last decade.

The proposal is intended as part of a global settlement which includes the Fed regulators, State’s Attorney Generals, and the lenders. The settlement could clear the uncertainty around foreclosures that has come to exist. Economists warn that foreclosures need to proceed to allow the housing market to continue on the path to recovery. The monetary fund is rumored to be around $20 billion. Is this enough?

Mark Hanson’s analysis points out that if all the $20-25 billion is used for loan modifications for the currently 4-7 million delinquent borrowers, it averages $2500 to $5000 dollars each, which is nothing. In fact, a settlement relieving servicers of potential liability for wrongful foreclosures unleashes them to more quickly proceed to foreclosure.

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In a recent California HESCA decision, a homeowner in Hillsborough was in trouble on their $1.3 million dollar home. On the day of the trustee’s sale, Monopoly Game LLC, owned by Gladney, made a deal to buy the owners equity for $100,000, plus another $50,000 if they moved out within a month. They signed a one page agreement, and the homeowner signed a deed to the LLC. The LLC eventually sold to a third party.

The former homeowner sued for, among other things, violation of the Home Equity Sales Contract Act (HESCA or the Act) (Civ. Code, § 1695 et seq.) HESCA is designed to protect homeowners in default against unfair purchases of their home equity. The Act regulates transactions between an equity purchaser and an equity seller

The Trial Court ruled for the homeowner. Among other things, it found the grant deed void because the property description was altered by the defendants (!). But as to the HESCA claim, notwithstanding the fact that Monopoly Game acquired title to the Property, the trial court found applicable an exception from the requirements of HESCA: under section 1695.1(a)(1), Monopoly Game was not an “equity purchaser” because Gladney intended to use the Property as a “personal residence.” It reasoned that Monopoly Game . . . and . . . Gladney were and are alter-egos of each other, such that . . . Gladney may benefit from the safe harbor established by HESCA.

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The insurer, MBIA , claims that Morgan Stanley made loans to homeowners who couldn’t afford them, and packaged the risky loans into securities that did not meet its underwriting guidelines. They also allege that Morgan’s servicing arm did not have the staffing or ability to service the loans. MBIA, relying on Morgan’s misrepresentations, insured the securities for over $200 million. The complaint can be found here.

A homeowner who cannot afford the mortgage unlikely could afford to prove, in a lawsuit, what really happened in their individual case. As the big money comes in to play, the evidence will start gushing out.

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Depositions in Bankruptcy cases are providing bits and pieces of how the mortgage industry worked the last few years. In addition to learning about the robosigners who were “vice presidents” of MERS, this recent revelation, noted by Mike Konczal, reveals a fundamental flaw that may exist in many Countrywide sourced- loan foreclosures.