The robo-signing mess has just gotten messier in Massachusetts. The state’s Supreme Judicial Court ruled that a buyer who purchased a home on which the lender had foreclosed improperly did not have legal title to the property.
This closely-watched case (Bevilacqua v. Rodriguez) added a blow to the one the SJC delivered last January in U.S. Bank v. Ibanez and Wells Fargo Bank v. LaRace, when it invalidated two foreclosures because the lenders had been unable to produce documents proving that they held the mortgages when they initiated the foreclosure actions.
Bevilacqua, The plaintiff in the most recent decision, had bought the property on which U.S. Bank had foreclosed improperly, and attempted to clear the title flaw by bringing a “try title” action in the Land Court. But Land Court Judge Keith Long found that Bevilacqua did not have standing to initiate that action because he did not own the property. Bevilacqua was a victim of United Bank’s improper foreclosure, Judge Long agreed, but that did not alter the underlying fact: Bevilacqua never had legal title to the property. “His proper grievance and proper remedy,” Judge Long said, “is against that wrongfully foreclosing entity on which he relied.”
The SJC agreed. Because Bevilacqua was not a “bona fide good faith purchaser for value,” the court ruled, the ‘try title” remedy was not available to him. While the SJC slammed that legal door firmly, it suggested that lenders could establish their right to foreclose through securitization documents that properly transfer the mortgages combined with “a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned.”
Legal analysts have also identified another possible legal remedy for Bevilacqua and others like him, sitting precariously in improperly foreclosed homes. Although they do not have clear title to the properties, analysts note, they do have an “equitable assignment” to the foreclosing lender’s mortgage, which they might use as the basis for bringing another foreclosure action against the original owner. This approach is complicated and as yet untested in the robo signing landscape, and the SJC did not specifically address it, one blogger noted, but the court did “leave the option open.”
OUT OF THE MAINSTREAM
Despite efforts to expand banking services to lower-income consumers, the ranks of the unbanked continue to grow, a study by the Pew Charitable Trusts has found. According to this study of low-income households in Los Angeles, the number of consumers who withdrew from mainstream financial institutions last year (13 percent) exceeded the number (8 percent) who opened bank accounts.
Of those who closed existing accounts, 32 percent cited “hidden or unexpected fees” fees as the primary reason, compared with 27 percent who blamed a lack of funds or job losses.
Some households with bank accounts continue to use alternative financial services providers because they offer more useful products (check-cashing and bill-paying services) and faster processing of transactions. These factors draw many low income customers away from banks, the report noted, even though they rank banks higher in both customer services and convenient locations.
The rise in bank fees has contributed to the exodus from the banking system, according to the report, which notes that nearly half of the unbanked households cited minimum balance requirements as the major impediment to opening a bank account compared with 30 percent who targeted that issue last year. Nearly one-third of the households with bank accounts said they had incurred at least one overdraft fee in the past year and two-thirds complained that they had been charged multiple fees for a single overdraft.
"In today's economy, where every penny counts, more needs to be done to bring low-income families into the financial mainstream," Susan Weinstock, project director at the Pew Health Group, said in a press statement. "This data points to a real need for banks to better disclose their fees in a concise, easy-to-understand format," she added.
The study suggests that banks lower their minimum balance requirements, offer products low-income households need ‘at competitive prices” and improve transaction processing speeds. The Consumer Financial Protection Bureau (CFPB) “can bring more families into the financial mainstream,” the report said, by requiring banks to provide simple, concise disclosures of basic checking account rules, and order them to halt “the unfair practice” of processing transactions in ways that increase the overdraft fees customers incur.
RAISING THE CEILING ― AGAIN
The U.S. Senate has taken a step toward restoring the higher limits for “conforming” loans sold to Fannie Mae and Freddie Mac, undoing the sunset requirement imposed when Congress approved what was supposed to be a temporary increase in 2008.
That emergency measure, part of the Housing and Economic recovery Act, increased the maximum loan eligible for sale in the secondary market to $729,750 from $625,000 as part of an effort to bolster the housing market. The increase expired September 28th, despite housing industry warnings that lowering the loan ceilings would further impair a housing market that continues to struggle with falling prices, slack buyer demand, and an overhang of foreclosed properties.
The Senate approved a bi-partisan amendment, sponsored by Johnny Isakson (R-GA) and Robert Menendez (D-NJ) restoring the higher loan limits and is expected to consider the spending bill to which the amendment is attached before the end of this year. It isn’t clear how the bill will far in the House, which recently approved a measure that would dismantle most of the housing assistance programs the Obama Administration has implemented.
“As House Republican leaders want to shrink the government’s role in housing finance, it is hard to see why they would advance legislation to make more of the mortgage market subject to government support,” Jaret Seiberg, a financial policy analyst with MF Global Inc., told MarketWatch. “This is why we don’t expect the higher conforming loan limits to get through the House.”
The National Association of Home Builders has estimated that reverting to the lower loan limits would add nearly 1.4 million owner-occupied homes to the 3.6 million currently ineligible for secondary market financing. A Federal Reserve study estimated that the impact would be far less severe.
A WELCOMING STRATEGY
Credit unions have developed a new growth strategy. It seems to consist largely of welcoming former bank customers infuriated by the new fees their institutions are imposing.
Bank of America’s announced plan to charge customers an annual fee for using their debit cards – to offset the impact of the cap on retail card ‘swipe’ fees – attracted a barrage of negative publicity, including suggestions from many consumer advocates that bank customers switch to credit unions.
One blogger reported that some of the “occupy Wall Street” protestors who attempted to close their accounts at Citibank “were apparently arrested. Fear not though,” this blogger said. “That reaction is an aberration. It’s still a free country and you can move your money if you want to. And credit unions are waiting with open arms – and incentives.”
Credit union membership has increased from 86.8 million to more than 91 million since 2007, according to statistics from the National Credit Union Administration (NCUA); Navy Federal, the nation’s largest credit union, reported opening 3,200 new checking accounts in one recent weekend, spurred in part by promotions featuring no-fee debit cards, credit union officials suggested.
Disgust with Wall Street is also leading more consumers to seek what credit union industry executives describe as the “main street” alternative they offer.
Large banks, for their part, don’t seem to be overly concerned about losing customers to credit unions and smaller community banks. The accounts they are losing represent a tiny portion of their customer base -- small and not particularly profitable, Ron Shevlin, a senior retail bank analyst with the Aite Group, points out. “Big banks are really trying to cull the bottom of their barrel,” he told DS News. “They are looking at their customer base and have to find ways of making it more profitable.”
The Depression shaped the financial attitudes of the generation affected by it, making them cautious, conservative, and less willing to borrow money than their children. The housing crash may be playing the same role for a new generation, making them less likely than their parents to view home ownership as desirable or attainable.
Boston Fed economists Anat Bracha and Julian Jamison used survey data to determine how the housing downturn affected attitudes toward home ownership. They found that older consumers were more likely to view the downturn as temporary and a good opportunity to buy a home, while younger consumers were “significantly less confident” about home ownership and more likely to view the market malaise as a permanent or at least long-lasting condition.
“One possibility is that relatively younger respondents were indeed more malleable, and hence they internalized the sharp drop as a regime change,” the authors suggest. The long-term implications of this development are disturbing, they believe, because “available evidence from economics and psychology further suggests that such a change is likely to be persistent.”
Interestingly, both the positive views of older consumers and the negative views of younger ones were based on their personal experience – either they had suffered foreclosures or lost money on real estate themselves or knew others who had. For those unaffected by the downturn, “attitudes towards the financial soundness of buying as opposed to renting were unchanged by the magnitude of the decline in home prices,” the authors found.
Another recent survey paints a slightly more nuanced view of the impact of the housing downturn, but also finds attitudes toward home ownership more shaken than stirred by the crisis. In this survey of 3000 homeowners and renters, 70 percent agreed that this would be a good time to buy a home; 20 percent of the owners and one-third of the renters said they hope to do so –but not any time in the near future.
“As long as buyers are uncertain about what's happening in the economy and where house prices are headed, they are going to be slow to move. There is no urging the market," said Kent Colton, a senior fellow at Harvard University's Joint Center for Housing Studies, who conducted the survey.
You can view this glass as either half-empty or half-full – we’re not likely to see a surge in home buying activity that will lift the housing market in the near term. On the other hand, Colton noted, government statistics indicate that large numbers of young adults and not-so-young ones have been doubling and tripling up, moving in with friends or with their parents. What that means, he told Reuters, is that “you have up to 2 million people who are part of what can easily be considered pent-up demand when the time changes.”