Nearly 80 percent of the Fannie Mae and Freddie Mac borrowers with negative equity were current on their payments, said FHFA Acting Director Edward J. DeMarco.

“FHFA estimates that principal forgiveness for all of these mortgages would require funding of almost $100 billion,” according to DeMarco in a Jan. 20 letter the FHFA posted on its website today.

DeMarco, whose agency was created by Congress to minimize losses at Fannie Mae and Freddie Mac and is independent of President Barack Obama’s administration, has maintained that principal forgiveness would increase the size of the government’s bailout of the companies, which have cost taxpayers more than $153 billion since they were taken under government control in 2008.

The agency compared the cost of principal forgiveness to the companies’ current practice of forbearance, which allows delinquent borrowers to defer payments.

“Given that any money spent on this endeavor would ultimately come from taxpayers and given that our analysis does not indicate a preservation of assets for Fannie Mae and Freddie Mac (FMCC) substantial enough to offset costs, an expenditure of this nature at this time would, in my judgment, require congressional action,” he said.

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According to the report, the percentage of loans in the FHA’s portfolio with three missed payments or more rose to 9.3% in November, up from 8.4% in August.

At the time, the agency’s auditor warned that if home prices continued to drop, FHA could run through the remainder of its reserves, forcing it to either seek a bailout from the Treasury Department or further increase the premiums it charges borrowers. Such a bailout could cost billions.

Joseph Gyourko, a Real Estate Professor at the University of Pennsylvania’s Wharton School and author of a report entitled “Is FHA the Next Big Housing Bailout?.”, argues that the FHA is so undercapitalized that it would need at least $50 billion, even if the housing markets don’t deteriorate further. But even by more conservative measures, the agency would need at least $20 billion to meet the capital requirements mandated by Congress.

“It’s highly likely that the FHA will need a taxpayer bailout over the next three to five years,” said Gyourko.

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Delinquent borrowers who face foreclosure are learning that they can stay in their homes for years, as long as they’re willing to put up a fight. Among the strategies: Challenging the bank’s actions, waiting to file paperwork right up until the deadline, requesting the lender dig up original paperwork or, in some extreme cases, declaring bankruptcy.

Many of these homeowners are staying in their homes based on a technicality. There is rarely any dispute over whether or not they have stopped paying their mortgage, said David Dunn, a partner at law firm Hogan Lovells in New York, who represents banks and other financial institutions in foreclosure cases.

“In my experience, they never say, ‘I’m not delinquent’ or ‘I want to pay my bill but I’m confused over who to send it to,’ or ‘oh my God, you mean I didn’t pay my mortgage?’ They’re not in technical default. They’re in default because they’re not paying,” he said.

Ironically enough, the banks have given delinquent borrowers some of the ammunition they need to delay the foreclosure process. When the Robo-Signing scandals revealed that bank employees signed paperwork attesting to facts they had no personal knowledge of. Now, borrowers are routinely challenging that paperwork.

Sometimes just asking the bank to produce the paperwork that shows it is the legal holder of the mortgage note can stall a repossession, said attorney Robert Brown. Since mortgages are often transferred electronically through MERS, the official paperwork often gets misplaced.

In some of the more extreme cases, borrowers will file for bankruptcy in order to block a foreclosure. In these instances, courts order creditors to cease their collection activities immediately. Home auctions can be postponed as the bankruptcy plays out, which can take months.

David Berenbaum of the National Community Reinvestment Coalition (NCRC), a community activism group, disputes any contention that owners are gaming the system for free rent and hurting the housing market. “Most people do everything in their power to maintain these homes,” he said. “They take in relatives, get second jobs and even rent out rooms.” What really needs to be done, he said, is for lenders to work harder to find solutions that allow delinquent borrowers who can afford to make reasonable mortgage payments to keep their homes.

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In the lawsuits she filed Harris says that Fannie and Freddie hold extensive information that is critical to her investigation. She notes that between 2007 and June 2011 over 768,000 homes have been foreclosed in California and says those foreclosed homes caused numerous problems in her state including criminal activity like prostitution and drug trafficking.

Fannie and Freddie play and central role in the mortgage and foreclosure issues in California, she says in her suit. As a result, Harris requested answers to questions she says are critical to protecting the health, safety and welfare of the state’s residents.

But instead of complying, Harris says in her complaint, Fannie and Freddie have failed and refused to provide any information her office requested.

In September Harris pulled her state of out a nationwide foreclosure probe of some of the nation’s biggest banks over their shady foreclosure practices. That investigation was assembled by the country’s attorneys generals nearly a year ago to look into fraudulent foreclosure practices by banks. Harris backed out of the settlement because “the the nation’s five largest mortgage servicers were not offering California homeowners relief commensurate to what people in the state had suffered.”

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The Massachusetts lawsuit, filed in state court in Boston, accuses Bank of America Corp, JPMorgan Chase & Co Inc, Citigroup Inc, Wells Fargo & Co and GMAC of deceptive foreclosure practices, such as using robo-signers and false documents.

For more than a year, state and federal officials have been negotiating a deal in which banks would pay billions of dollars in fines – to go toward housing relief – in exchange for legal protection against future suits.

“Our suit alleges that the banks have charted a destructive path by cutting corners and rushing to foreclose on homeowners without following the rule of law,” Coakley said in a statement.

The attorney general in Iowa, Tom Miller, who is leading the negotiations for the states, said in a statement they hope to reach a settlement “soon.” He also said Coakley had indicated she is still open to joining the settlement.

“We’re optimistic that we’ll settle on terms that will be in the interests of Massachusetts,” Miller said.

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Tuesday’s report, Interim Status Report: Foreclosure-Related Consent Orders identifies the independent consultants retained by the servicers to conduct file reviews (under the direction of OCC) for borrowers requesting redress. According to the report, work is underway on actions to comply with the consent orders with efforts to correct deficiencies in foreclosure processes management oversight, and internal audit the most advanced. An integrated claims processor has begun mailing letters to borrowers who were in any stage of foreclosure between January 1, 2009 and December 31, 2010 to inform them of the process for requesting reviews of their cases if they believe they suffered financial injury through servicer misfeasance. Outreach will also be made to borrowers using such methods as mass media advertising in national publication such as People, and TV guide, online marketing, social media marketing, media news coverage, and outreach to community groups.

In addition to the reviews of borrow claims, a “look-back” review will be undertaken, sampling to identify files for a review which is intended to further identify servicer deficiencies, errors, or misrepresentations that may have caused financial injury. This review will look at such information as whether the foreclosing party had properly documented ownership or was otherwise a proper party to the action; whether a foreclosure may have taken place while a modification was underway, or whether fees were improperly charged. Results of the sampling may lead to more in depth reviews.

Under the consent order servicers were required to submit plans for correcting deficiencies in a number of servicing areas, address their use of MERS, manage third parties, and correct other operational difficulties. Those plans have been submitted at various times over the last few months. Plans to correct servicing deficiencies include such measures ensuring that loss mitigation staff routinely communicate with staff processing foreclosures; that deadlines for responding to communication from borrowers and for making loan modifications requests be met; that there is a reliable single point of contact for each borrower and that be identified in writing; and that staff is trained adequately to handle delinquencies, loss mitigation and loan modifications. Other factors included in the plan include procedures and controls to ensure that a loan is protected from “dual tracking”, i.e., that a loan approved for modification is pulled from foreclosure proceedings; and that payments are promptly and properly credited;

Plans addressing oversight of third-party service establish processes for appropriate due diligence in evaluating the qualifications of potential third-party service providers before entering into new contractual arrangements, provide for regular, periodic reviews of third-party service providers and assessment of their performance based on qualitative standards for competence, completeness, and legal compliance rather than standards based solely on the volume of foreclosures processed or the speed of processing. Additionally, the plans provide for the secure custody and accuracy of records transferred to these third parties during the foreclosure process.

Other plans ensure appropriate oversight and controls of servicer activities with respect to MERS and compliance with MERSCORP’s membership rules, terms, and conditions These plans include enhancing controls and standardizing processes for executing mortgage assignments by MERS certifying officers, improving processes for controlling data quality, and establishing periodic-in some cases daily-reconciliations of key reports and data to ensure compliance with MERS requirements and prompt resolution of discrepancies.

Other plans address improving the management information systems that support servicing and foreclosure processing, assessing risks posed by servicer operations, and setting up compliance committees responsible for the development and implementation of compliance programs, action plans, policies and procedures, and strengthened operating processes to correct the deficiencies cited by the enforcement actions.

While much of the work to correct identified weaknesses in policies, operating procedures, control functions and audit processes will be substantially complete in the first part of 2012, other longer term initiatives will continue through the balance of 2012. Actions and progress vary by servicer. OCC examiners continue to provide ongoing oversight of activities to ensure compliance with the consent orders.

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While Nevada still leads the nation in foreclosure activity there was a 34 percent decrease in activity from the previous month, driven by a 75 percent drop in new default notices. This was probably the result of a new law that requires lenders to sign an affidavit with key information about the foreclosure and record it in public records.

Other states with a high level of activity were California with one in every 243 housing units receiving a notice, a 17 percent monthly increase; Arizona with one in every 259 units involved and an 18 percent monthly increase, and Florida with a spike in both default notices and scheduled options that bounced it back up to a 12 month high and to fourth place from sixth in September. One in 268 housing units was the subject of a filing.

• Notice of Default (NOD) and Lis Pendens (LIS). This is the first legal notification from a lender that the borrower on a mortgage loan has defaulted under the terms of their mortgage and the lender intends to foreclose unless the loan is brought current.

• Auction – Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS): if the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.

• Real Estate Owned or REO properties: “REO” stands for “real estate owned” and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.

“The October foreclosure numbers continue to show strong signs that foreclosure activity is coming out of the rain delay we’ve been in for the past year as lenders corrected foreclosure paperwork and processing problems,” said James Saccacio, chief executive officer of RealtyTrac. “However, recent state court rulings and new state laws keep changing the rules of the foreclosure game on the fly, creating more uncertainty in the housing market and threatening to prolong the road to a robust real estate recovery.”
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(1) Rescind your Loan under Truth in Lending Law (TILA). Ex. you rescind your loan prior to filing bankruptcy, and then list property as unsecured on your schedules and then filing the adversary proceeding.

(2) Fair Credit reporting Act (FCRA) credit reporting violations;

(3) Violations of Fair Debt Collections Practices Act (FDCPA);

(4) Violations of State Unfair and Deceptive Business Practices Statute (Like pre-filing mortgage rescue scams);

(5) Pursuing violations stemming from filing false and fraudulent proof of claim (ex. creditor has no proof of secured status yet asserts they are a secured creditor using false affidavits);

(6) Filing lawsuit for violation of RESPA (ex. QWR violations seeking attorney fees and actual damages, or damages for unauthorized fees charged);

(7) Lawsuit challenging the extent, validity, or priority of alleged liens (proving your “creditor” is not a legitimate creditor, or is not secured creditor).

In many cases, you may have grounds to assert legal challenges that could either lead to settlement, or to an award of actual damages, costs, attorney fees, and other damages. Please keep in mind you mortgage is a legally binding contract. You should always consult a Attorney when dealing with legal matters.
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MERS was created for the purpose of reducing recording costs and the inefficiencies of transferring ownership of residential mortgages among mortgage brokers, lenders, Fannie Mae and Freddie Mac, the secondary market system and investors. The concept was to record the initial loan documents in the name of MERS and retain that record even as paper documents were passed along from originator to subsequent holders of the debt.

AG Biden’s suit charges that MERS “engaged and continues to engage in deceptive trade practices that sow confusion among homeowners, investors, and other stakeholders in the mortgage finance system, seriously damaging the integrity of the land records that are central to Delaware’s real property system and leading to improper foreclosure practices.”

Listed below were three broad categories of the deception outlined:

• MERS, through its private mortgage registry knowingly obscures important information or provides inaccurate information to borrowers. The opacity of the registration database makes it difficult for consumers to know of or challenge inaccuracies in the MERS System which harms borrowers when MERS forecloses on borrowers in its own name, thus impairing a borrower’s ability to raise defenses and hampering the ability to seek out the owner of the loan to pursue relief.

• MERS often acts as an agent without authority from its proper principal and is often unaware of the proper identity of that principal. Where the name of the owner of the mortgage loan recorded in the MERS system is not accurate, MERS often takes action on behalf of the purported owner without authority.

• MERS is effectively a “front” organization that has created a systemically important mortgage registry which does not properly oversee or enforce its own rules on participating members. Rather than maintaining an adequate staff, it works through a network of over 20,000 deputized non-employee corporate officers who act without meaningful oversight. It is this network that was behind the robo-signing of foreclosure documents.

Over the years loan documents became separated from the loans themselves and as more banks consolidated, big mortgage companies began to fail, and foreclosures ramped up, more and more loan transfers were not properly recorded on the MERS system and documents were actually lost. This has led, not only to improper foreclosure procedures but even instances where properties were foreclosed where there was no outstanding mortgage. MERS is currently the repository for about 65 million mortgages.

Biden is reported as saying that “American has historically had a robust recordation system where people could walk into the proper registry and “see, read, and touch” documents revealing who had a security interest in property.
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The Obama administration is hoping at least 1 million of these borrowers will take advantage of its refinancing program under more lenient rules unveiled Monday. Homeowners who are current on their payments will be eligible to refinance no matter how much their home’s value has dropped.

Still, it’s unclear how many borrowers will benefit. Lenders will remain under no obligation to refinance a mortgage they hold.

The Federal Housing Finance Agency announced that it is making a series of changes to the Home Affordable Refinance Program (HARP). The changes are intended to allow even more underwater homeowners refinance under HARP. The biggest change is the elimination of the 125% Loan To Value ceiling on HARP loans. This means that theoretically, a borrower can refinance no matter how far they are underwater.

Some of the proposed changes include:
• Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;

• Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;

• Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;

• Eliminating the need for a new property appraisal where there is a reliable AVM

• (automated valuation model) estimate provided by the Enterprises; and

• Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.

Only those who have a job and are current on their Freddie Mac- or Fannie Mae-owned mortgages are eligible for the new program. Those who have already refinanced with HARP are not eligible.

Edward Demarco, the Acting Director of the FHFA commented:

“We know that there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach. Building on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by the Enterprises. Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets”.

Fannie Mae and Freddie Mac will issue guidance on the HARP updates to lenders and servicers by November 15, 2011. At that time we should have additional clarity on the eligibility requirements for the new version of HARP. It is possible that these changes could take effect as soon as December 2011.
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