(Here
is a sign at a local inn.)
Dogs
are welcome in this hotel.
We
never had a dog that smoked in bed and set fire to the blankets. We never had a
dog that stole our towels and played the TV too loud, or had a noisy fight with
his traveling companion. We never had a dog that got drunk and broke up the
furniture....
So if
your dog can vouch for you, you're welcome too.
In the
last 50+ years Detroit has lost nearly two thirds of its population. (Yes,
2/3.) And now the City of Detroit is offering up a mortgage pairing that
goes above 100% LTV to renovate houses - in some cases way above. Interesting.
But wait! In Ohio, houses "were scooped up after the financial crisis by
investors, who then make deals with low-income home buyers unable to get
traditional mortgages." I guess there are two sides to every
crisis, but the last thing we need as an industry is more bad press - like when
the word "trapped" is used. And per the WSJ, "Bank of America
Corp. is rolling out a new mortgage product that would allow borrowers to make
down payments of as little as 3%..." - non-FHA with no mortgage insurance.
As we
all know, you can't work in the residential mortgage biz, or own a company,
without paying attention to all the legal news that is out there. So as we wait
for the CFPB's next enforcement action, let's take a gander at some relatively
recent news.
Nevada's
mortgage industry continues to face consequences from the Nevada Supreme
Court's 2014 decision in SFR Investments Pool 1, LLC v. U.S. Bank, N.A.
Nevada lenders and servicers are heavily involved in litigation regarding the
propriety of HOA foreclosure sales. The Nevada Supreme Court issued another HOA-related opinion that did provide some clarity
to the pending litigation. But according to Bradley Arant
attorneys Jon Patterson and Aaron Chastain the ruling also indicates that
the lending community may have to individually litigate many or even most
HOA-lien cases all the way through trial.
Yes,
the ruling took place some weeks ago, but the industry is very concerned. An
excerpt from Jon and Aaron's most recent insight can be seen below, and numerous
additional analysis can be found here. "The upshot of the Court's ruling is that
there is still a long road ahead for mortgagees seeking to rescue their
security interests in Nevada. While the Court appeared to give some credence to
some of the lenders' main arguments-that foreclosure sales for less than 20
percent of market value were commercially unreasonable and due to be set aside,
and that an effort to pay the superpriority portion of an HOA's lien may serve
as an equitable reason for setting aside a foreclosure-the opinion indicates
that these issues will require extensive factual development before they are
ready for adjudication. It looks like the lending and servicing community is
left to fight each case on an individual basis-leading to incredibly expensive
litigation for all involved."
And
remember that in December the Rhode Island Supreme Court ruled that condominium association (COA) "super
liens" hold true priority, so that at foreclosure-which may be conducted
non-judicially-satisfaction of this lien can extinguish the condo's first lien mortgage
under certain circumstances. Specifically, the Court noted that Rhode Island law allows COAs the right to hold a super
lien-outside of their traditionally subordinate lien for delinquent assessments
and fees-which includes the assessments due for the six months prior to the
COA's foreclosure, plus certain attorneys' fees and foreclosure costs.
Accordingly, if sums collected from the COA super lien foreclosure sale are not
enough to satisfy junior liens, the first lien mortgage will be extinguished as
a now-junior lien and the new owner will not acquire the condo subject to this
mortgage.
The MBA
reported that, "The Rhode Island decision dangerously parallels decisions
recently made by the Nevada Supreme Court and the District of Columbia Court of Appeals. Notably though, Rhode Island law does grant the holder of a first
mortgage/deed of trust a limited 30 day right of redemption from the date of
the post-foreclosure sale notice. MBA vehemently supports the concept of
"first in time, first in right" (see MBA's Statement of Principles for more information) and believes
that common interest communities should never have the ability to extinguish a
property's first lien mortgage. The Rhode Island decision, if allowed to stand,
may adversely affect credit access and increase mortgage costs for qualified
borrowers. Moreover, mortgage lenders may be less likely to make loans on
properties subject to COA fees and/or charge higher rates and fees, considering
this risk."
In California (known for its fruits & nuts) late last week the California Supreme Court rendered its decision in Yvanova versus New Century Mortgage Corp. (Case No. S218973, Cal. Sup. Ct. February 18, 2016), holding that borrowers have standing to challenge an assignment of a note and deed of trust in an action for wrongful foreclosure on the ground that the assignment is void. Fredrick S. Levin, a partner with BuckleySandler in Los Angeles, wrote saying, "This is a potentially significant decision for the mortgage industry in that it reverses the rule followed by the overwhelming majority of California courts that borrowers lacked such standing. The decision thus opens the door to lawsuits by borrowers claiming that their homes were
improperly
foreclosed upon by persons who allegedly lacked power under California law to
institute foreclosure."
Mr.
Levin further noted, "This decision has potential to increase
litigation challenging securitized loans. For example, in Yvanova, the
borrower challenged the validity of her foreclosure on the ground that her
loans was assigned into a securitized trust after the trust closing date set
forth in the pooling and servicing agreement governing the securitized trust,
allegedly voiding the assignment. To date, California courts have rejected
hundreds of similar claims. The Court's ruling breathes new life
into this favorite theory of the foreclosure defense bar. The Court,
however, left unaddressed, and thus unanswered, the question of whether
this theory can survive on the merits."
In other words the Court ruled that borrowers
may challenge a wrongful foreclosure on the grounds that the assignment of the
deed of trust was invalid. The decision in Yvanova versus New Century Mortgage Corp.
has the potential to radically increase the number of lawsuits brought by
borrowers, particularly on loans that were pooled into securitized trusts. Can
a defaulted homeowner contest the validity of the chain of assignments involved
in the securitization of loans? It is just what owners of small lenders want:
the potential for a flood of litigation. This particular case involved names
like New Century, Ocwen, Deutsche Bank, and Morgan Stanley.
As
ace financial reporter Kate Berry points out, 'Multiple lower courts in
California had ruled in high-profile cases such as Jenkins v. JPMorgan Chase
that borrowers have no standing to file a claim of wrongful foreclosure because
they are not a party to or holder of the debt. However, the state Supreme Court
disagreed with those rulings and essentially sided with a 2013 state appellate
ruling in Glaski v. Bank of America, which held that a borrower has standing to
challenge a nonjudicial foreclosure sale based on alleged violations of the
terms of a pooling and servicing agreement."
"The
borrower owes money not to the world at large but to a particular person or
institution, and only the person or institution entitled to payment may enforce
the debt by foreclosing on the security," the Supreme Court stated in a
33-page ruling. "A homeowner who has been foreclosed on by one with no
right to do so has suffered an injurious invasion of his or her legal rights at
the foreclosing entity's hands. No more is required for standing to sue."
Yes,
the fun never ends for residential lenders. "This was the court in
California directing lenders and Wall Street securitizers to be very careful in
documenting their instruments and assignments," said Kenneth Styles, a
litigator at the law firm Miller Starr Regalia. "They've been more than
sloppy in the past, and this was a directive to make sure their procedures are
clean."
Antognini,
the attorney for Yvanova, put it this way: "if you claim you own a debt,
you have to prove it. And if you claim to own a debt, the borrower has the
ability to allege and later to prove that you don't own it."
Turning
our collective gaze to the bond markets & interest rates, the Fed was
looking for inflation and we finally found a little in the Producer Price Index
for January (+.3%). In fact core inflation reportedly rose at its fastest pace
in four years during the month of January. Aside from that, not much else
happened to end the week.
Rule
changes required under Dodd-Frank are impacting the biggest banks due to the
amount of capital they must hold against securitizations. As such, the extra
yield relative to benchmarks needed to sell commercial mortgage-backed
securities has surged to the highest level in 5Ys.
This
week we have quite a bit of scheduled news, and are hoping for peace and quiet
overseas. There is nothing on the slate for today, however, aside from a minor
number from Chicago. Tomorrow we'll see the December Case-Shiller 20-city
Index, February Consumer Confidence, January Existing Home Sales, and a $26
billion 2-Year Treasury Auction. Wednesday is the MBA Mortgage Index, January
New Home Sales, and a $34 billion 5-Year Treasury Auction.
Thursday
is the usual Initial Jobless Claims, but also January Durable Goods Orders and
December FHFA Housing Price Index. And don't forget the $28 billion 7-Year
Treasury Auction. To end the week we have Q4 GDP and GDP Deflator (second
estimate), January Personal Income and Spending, January Core PCE Prices, and
the February Michigan Sentiment number. When the sun set Friday the yield on
the 10-year was 1.75% and this morning we're at 1.78% with agency MBS prices
worse about .125.
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