Borrower interest in reverse mortgages is increasing, and so are concerns about them. Citing a long list of those concerns in a recent report, consumer advocacy groups are urging the new Consumer Financial Protection Agency to increase oversight of the loans, which lenders have begun marketing more aggressively as demand for other loan products (including subprime mortgages) has waned.
Like a car with worn tires, the U.S. economy is struggling to gain traction. It’s not skidding off the road and it is heading generally toward recovery. But it’s not there yet. And while the forward momentum is encouraging, the slipping and sliding is making for an uncomfortable and unsettling ride.
Consumer advocates are assailing a Federal Reserve proposal that would scale back (opponents say “eviscerate) the right of borrowers to rescind a loan found to have predatory characteristics. Attorneys have successfully used the right of rescission, which can be exercised for up to three years after a loan is originated, to extricate borrowers from high-cost loans on which payments have adjusted beyond the consumers’ ability to repay.
Layoffs are declining, the employment numbers look better, tight credit is getting looser, retail spending forecasts are becoming more optimistic and the service sector shows signs of strengthening. In fact, many indicators suggest the economy is improving – but not fast enough to reduce the unemployment rate nor dramatically enough to lift an increasingly downbeat consumer mood.
Standard advice when you’re in a hole is – before you do anything else, stop digging. But that strategy doesn’t seem to be working for the financial institutions trying to find a way out of the foreclosure morass in which they are buried. While the institutions have tossed their shovels aside, lawmakers, consumer advocates, class action attorneys and investors are digging furiously around them, widening a hole that is already plenty deep.
As the shock waves from robo-signed and otherwise flawed foreclosures intensify, it is becoming clear that the collateral damage may spread to the paperless mortgage system that has taken root and flourished over the past decade.
Keeping track of the foreclosure mess is becoming almost a full time job. New developments surface almost daily and the implications widen with each analysis of the sloppy (and potentially fraudulent) paperwork that has spawned foreclosure challenges nationwide, triggered calls for foreclosure moratoria, launched multiple investigations, and raised question not just about the legitimacy of many foreclosure actions but about the credibility and viability of the paperless mortgage system that has evolved over the past several years.
What began as a ripple of concern about a few isolated foreclosure actions is threatening to reach tsunami proportions, possibly delaying or reversing thousands of foreclosures nationwide and adding further insult to the housing market’s already substantial injuries.
September employment report disappointed just about everyone, from the job seekers looking for a sign that their prospects are improving, to Democrats, hoping the statistics would not be used to batter them at the polls in November, to economists, who had predicted that the numbers would be weak – but not this weak.
The two indicators currently creating the most angst for economists and policy makers (employment and housing) produced some moderately encouraging signals at the end of the month - sufficiently positive to ease concerns about a recessionary double dip (a little), but not enough to eliminate those fears entirely.
If analysts subscribed to the “if you can’t say something nice, don’t say anything” philosophy, they wouldn’t be saying much about the Home Affordable Mortgage Program (HAMP), the Obama Administration’s flagship foreclosure assistance initiative. What they are saying continues to be largely, if not entirely, negative.
Critics of Fannie Mae and Freddie Mac have argued for years that the quasi-governmental secondary market giants competed unfairly in the mortgage market, had grown too large and too dominant, and posed outsized risks to taxpayers. The implosion of the credit markets and near failure of the GSEs, triggering a multi-billion-dollar governmental rescue that is still ongoing, seemed to prove their point.
Poor underwriting left lenders and investors with untold millions of dollars in failed loans; now poor documentation is making it difficult for them to foreclose. That problem, long simmering in the background, exploded into view late last month when Ally Financial (a reincarnated GMAC Mortgage, in which the U.S. government now owns a majority share) announced that it was suspending foreclosure sales and temporarily halting the evictions of delinquent borrowers in 23 states, pending a review of the company’s foreclosure procedures.
Lender concern about strategic defaults has been increasing as more borrowers who can afford to make their payments are making a “business decision” to walk away rather than continuing to make payments on homes that are worth less than their outstanding mortgage. Now, this trend has no taken a new twist as borrowers who are planning to default seek to secure a mortgage on a new home first --a strategy known as “buy and bail.”
Responding to concerns that seniors obtaining reverse mortgages are not fully informed about those loans, the Department of Housing and Urban Development (HUD) has issued new requirements for the counseling sessions that are mandatory for FHA-insured Home Equity Conversion Mortgages (HECMs), which represent the lion’s share of reverse mortgage originations.
The financial crisis that drove the economy into a disastrous recession also appears to be challenging conventional wisdom about the primacy of homeownership and the sanctity of policies supporting it.
If financial institutions should have learned anything from the financial crisis, it is that lax underwriting is dangerous. But recent reports suggest that some lenders are in the process of repeating history rather than learning from it, as the pressure to increase earnings leads them to offer loans to marginal borrowers much like those whose defaults drove banks and the country to the financial brink three years ago.
Private sector economists, trade associations, and government agencies are generating mounds of economic data, some of it positive, some of it negative, and much of it, in the aggregate, contradictory and confusing. With investors responding viscerally and instantly to every report, the stock market has been whipsawed for weeks. It is easy to understand why, though the Thomson Reuters/University of Michigan Consumer Confidence Index reached its highest level in two years in June, the Conference Board’s confidence index, released just two weeks later, suggested a collective need for Zoloft.
Moving to curb the rise in “strategic defaults,” Fannie Mae intends to impose a seven-year ban on new mortgage loans for borrowers who walk away from mortgages they could potentially afford to repay. The new rules, announced last month, require borrowers to negotiate “in good faith” with their lenders to obtain an affordable repayment plan.
We’re looking at a “yes-but” economy. Yes, many sectors are improving steadily, but the improvements are: a) Not as great as analysts predicted; b) offset, or likely to be, by other negatives; c) too fragile to be sustained; or some combination of all of the above. Consider these examples from recent business news reports:
Concerns about the demise of overdraft protection programs, and the loss of fee income for banks resulting from it, may be overstated. After surveying more than 1,300 consumers nationwide, ACTON Market Intelligence found that 58 percent of them will, in fact, opt out of overdraft protection when given the opportunity to do so. But the vast majority of bank customers who use the overdraft service will opt in, the survey found, and they will pay a higher fee, if necessary, in order to continue the service.
Mortgage delinquency rates increased in the first quarter, up 59 basis points from the fourth quarter and 94 basis points above the year-ago-level. But the rate at which lenders are initiating foreclosure actions declined by 14 basis points (2 percent) year-over-year. So is the delinquency/foreclosure picture getting better or worse? Good question, with statistical evidence to support either conclusion.
Homeowners in Massachusetts and other states have successfully challenged foreclosures initiated by lenders and servicers that could not document their right to foreclose. But what about the innocent buyers who purchase properties at foreclosure sales later found to have been improper? Should they be allowed to retain ownership of those homes?
The unemployment rate increased to 9.9 percent in April, and that represents good news for the economy. Good news? Well, yes, actually, counterintuitive though that seems. The increase from 9.7 percent in March indicates that workers who had previously given up on finding jobs have re-entered the market, encouraged by reports that employers are beginning to hire again. And that appears to be the case.
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