What’s Going On Behind the Scenes at the Banks?
Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
What’s Going On Behind the Scenes at the Banks?
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Banks are trying to get their paperwork back in order as far as I know. The settlement with the government for foreclosure fraud was a front for the MERS (Mortgage Electronic Registry Service) debockle. Mortgage backed securities were sold and split in some cases over 20 - 30 times but know one kept track of who the actual deed owner was that had the securitized note. I have spoken to numerous people that have gotten cold calls from their bank (Usually BAC) saying that they wanted to refinance their loan for no fee's, no appraisal, no credit check and no employment verification. This was a tell tail sign that the bank had no deed to the house on record. By creating a refi on that house it enabled them to re-create the proper paper work. I dont think you have heard the last about the MERS nightmare. By the way, I am new to biggerpockets as of yesterday and I am trying to educate myself about investing in real estate.
I have 25 years experience in construction and 5 years of experience in property management. I am still nervous about the case-shiller report that real-estate prices will continue to go down but are stabilizing. The index was down 2.6% Y over Y as of 5/29/2012 the next report comes out in 2 weeks. The report ; http://mam.econoday.com/byshoweventfull.asp?fid=451761&cust=mam#top
Hello All !
26 Replies
- Real Estate Broker · Los Angeles, CA · Member since 2008 · 73 posts · 11 votes14y
Expecting same flow that we've seen since 2009. Loan mods and short sales have obviously become more prevalent as one off REO inventory has taken a backseat. The world hasn't ended yet, so probably no major change with regards to how the inventory is released necessary.
Obviously foreclosure activity has increased many places in the months following the $25 Billion settlements so the shadow inventory is and will continue to remain high for some time. But probably no deluge...
- Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes14y
I have heard several rumors.
1. The banks are going to turn properties over in bulk for them to sell for whatever they can bring in.
2. The government will become a landlord - taking over the properties for low income or Section 8 tenants.
3. Some are trying to get rid of the debt and increase their asset column as the FDIC is monitoring banks - 3 more were shut down today 6-15-2012.Anyone heard any other rumors?
- Real Estate Investor · Toronto, Ontario · Member since 2010 · 413 posts · 114 votes14y
I heard many of these things myself.
I definitely think they have many things up their sleeves and are testing a few out. i wouldn't think anything major will happen until the election is over. But definitely if any of these pilots are successful could be a game changer for areas that have a lot of REOs.
- Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes14y
Thanks for the great comments. This was all of the the same of what I've heard as well. I guess it's just all heresay...he said, she said. No one really knows anything. ha
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes14y
Nope, no proof of anything that I know of, but keepyou eye on the corporates cherry picking for bulk purchases for rentals.
Some time ago I simply asked if a local regional bank would entertain the tough of me taking all foreclosures and they were rather egar to talk to me, I said well, I'll investigate further and let them know, but how to hedge against the trash around here would be a problem, so nothing on that front!
But I'd bet they are looking at all options for a cleaner, less expensive way to get out of holding REOs.
Banks are trying to get their paperwork back in order as far as I know. The settlement with the government for foreclosure fraud was a front for the MERS (Mortgage Electronic Registry Service) debockle. Mortgage backed securities were sold and split in some cases over 20 - 30 times but know one kept track of who the actual deed owner was that had the securitized note. I have spoken to numerous people that have gotten cold calls from their bank (Usually BAC) saying that they wanted to refinance their loan for no fee's, no appraisal, no credit check and no employment verification. This was a tell tail sign that the bank had no deed to the house on record. By creating a refi on that house it enabled them to re-create the proper paper work. I dont think you have heard the last about the MERS nightmare. By the way, I am new to biggerpockets as of yesterday and I am trying to educate myself about investing in real estate.
I have 25 years experience in construction and 5 years of experience in property management. I am still nervous about the case-shiller report that real-estate prices will continue to go down but are stabilizing. The index was down 2.6% Y over Y as of 5/29/2012 the next report comes out in 2 weeks. The report ; http://mam.econoday.com/byshoweventfull.asp?fid=451761&cust=mam#topHello All !
- FL · Member since 2009 · 2k+ posts · 357 votes14y
Chris S.,
Welcome to the site.
Linked for you:
http://mam.econoday.com/byshoweventfull.asp?fid=451761&cust=mam#topRaymond
- Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes14y
Chris S. welcome to BP, Thanks for your thoughts, found your observation about re finance interesting. Have not seen this in the north east .
- 14yDion DePaoliPro MemberReal Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
It was projected that we would process through 8 million foreclosures. So far we have been through 2.7 million and there is approximately 3.6 million accounts in foreclosure or more than 60 delinquent. The other 1.7 million include modifications which have a mix bag of results with a high re-default rate.
Foreclosure starts are up 16% and we had the highest starts over the last 27 months just recently. The lull in processing those stem from the nationwide investigation into the "robo-signing" situation. This has come to a settlement and states have received their shares of the settlement proceeds (how they spent the money is another issue). The banks and servicers have amended their process to avoid this pitfall moving forward.
MERs is really not an issue although the public and media want to make a mountain out of a molehill. When the foreclosure volume picked up in 2009 and MERs was brought to center stage, the issue was does MERs as a nominee and have a right to enforce the rights within the security instrument to foreclosure. It has been found time over that MERs has a right to foreclose and assign. The "MERs has no authority" theory has no legal merit, it does in fact have the rights that are transferred with the instrument. The additional theory of "split note" also has been found to have no legal bearing either. The security instrument in a securitization is not "split" that is a misconception. The security owns the whole loan sometimes less the servicing rights and has the capacity to assign its rights to MERs and MERs can act accordingly. MERs since has amended some of the process of how they carry out their duties which further invalidates these arguments.
The other two types of legal complaints against MERs are 1) Deceptive and Unfair trade practices and 2) County revenue loss for recording fees for instruments which involve MERs as nominee.
In the deceptive practices complaint the matter was found to have no material support. MERs may have a system that is not as best suited for the foreclosure mess as once thought that is not the same as any illegal behavior.
In the revenue cases MERs may stand to pay some fines for lost revenue if substantiated. However the arguement is still in its early stages. One answer to the complaint is that there is not a specific duty in all states to file Assignments of Mortgage and thus there can be no loss.
The statement above of a lost deed is inaccurate. The law provides for remedies for lost physical security instruments and notes, they can be re-formed or affirmed as lost or destroyed and still carry the same legal rights they always have. I am assuming when the term deed was used above it is referring to security instruments. In order for the security instrument to be perfected it must include recording typically those mistakes were not made and it they a statistical part of the population the percent is so small it is meaningless and would fall under Error & Omission claims since it is a matter of practice. The loss of an actual deed would be covered by the title insurance issued at the time of sale and the O&E of the title company/attorney as a deed is the only way to convey property rights. The banks would not really deal with that but would be harmed if done incorrectly or not done and thus title insurance and O&E amongst other things.
The refinance boom, which is now around 78% of new origination does not stem from banks needing to remedy faulty paperwork. As describe above there are remedies outside of making a new loan. A bank is in the business of making loans, this is how they make revenue so they are aggressively in the market trying to refinance. Refinances are easy targets since many folks have equity and payment history. The banks make money selling the new loan at a premium and that profit offsets the loss on the servicing of the loan which is typically hedged any way.
I will admit, IMO, there is not enough pressure to force banks to move through this process faster than they currently are and that has served two functions. The slow drip of foreclosures and thus REO lessens the downward pressure on values. Additionally the slow process has allowed banks to sort of kick the can down the road, spreading losses out lessening the blow to their P&L. I am sure we will see additional out of the box complaints against banks, servicers and other industry members, that however will not ever change the fact that if you do not pay your mortgage payments you are subject to foreclosure.
- Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes14y
Dion,
I find your comment very provoking but I'm curious as to where you get your information? - 14yDion DePaoliPro MemberReal Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
Originally posted by Corey Dutton:
Dion,
I find your comment very provoking but I'm curious as to where you get your information?Corey, I am not exactly sure how to answer this or what specific information you are asking about. I know this information because I work in this industry. I have purchased distressed loans with defective collateral and loans held at MERs. I often field questions similar to yours from folks outside the industry. Most of this information is all over trade media.
Regarding the foreclosure numbers, those are pretty widely know and have been commented on by several folks. Here is a study you can read regarding the same: http://www.responsiblelending.org/mortgage-lending/research-analysis/Lost-Ground-2011.pdf
Regarding MERs you can read the judicial decisions that have come and gone here on their website, you can Google the two that are pending in New York and Texas link: http://www.mersinc.org/downloads/index.aspx?id=19
Foreclosure starts increase link: http://www.americanbanker.com/issues/177_115/mortgage-foreclosures-RealtyTrac-1050136-1.html
Refinance percent link: http://mbaa.org/NewsandMedia/PressCenter/81017.htm
Hope that helps.
- Residential Real Estate Broker · Silver Spring, MD · Member since 2012 · 8 posts · 6 votes14y
Dion,
I agree with your positions......the banks can't take the hits to their P&L's. They've strategically spread the losses over time. This is the only logical reason for the process to take a minimum of 8 weeks for bank responses. Operational obstacles should have been overcome years ago. It's just not that hard to staff up and move the inventory.
I find that statistics, particularly national statistics regarding real estate tend to be misleading. I track activity by zip code and find that it can be equally misleading. I prefer community by community analysis.
Even in our market (MD side of Wash DC), where the relatively consistent employment situation supports a slow real estate recovery, a substantial portion of the listing inventory is "distressed" (either short sale or foreclosure). I don't see this changing. Discretionary sellers aren't selling. This has had the effect of degrading the listing inventory now dominated by short sales which are typically difficult to get to the closing table.
I see the process evolving just the way it should. The majority of buyers are investors, first time homebuyers and deal seeking move up buyers. This will take time......The good news ......it seems rates will stay very competitive for the foreseeable future. Two additional factors will also contribute to the real estate recovery......1) Real Estate returns compare very favorably to competing investments and 2) It is cheaper to purchase than it is to rent in the entry-level price ranges. Better days are coming. In order to take advantage of them, one must act prior to the anticipated recovery.
- Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes14y
Corey Dutton Dion DePaoli isn't sharing anything that can't easily be found if you care to look for it. Trouble is most people, even investors, don't care to look for it. Or study it. Or think about it. Case law is abundant for issues involving produce the note theories, MERS, and loan assignments. Stats for defaults and foreclosures are available in many places. There's a lot of expedient media coverage of these issues and stats. There are very few RE news sources that are thorough. I suggest trying to look at the primary source material whenever possible.
- Real Estate Agent · Weatherford, TX · Member since 2011 · 726 posts · 284 votes14y
Originally posted by George King:
It is cheaper to purchase than it is to rent in the entry-level price ranges. Better days are coming.Hi George King! This is exactly true, as my wife and I are now looking for something to buy. We live/rent in Texas, southwest of DFW, and are a perfect fit for USDA loans. From what I've seen in the past few weeks, there are many properties around us that we could buy cheaper than market rent.
(We're way under market rent right now, so not really chomping at the bit, but the home prices are becoming quite hard to resist).
Welcome!!!
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes14y
I think the problem here is that investors are trying to get a CONSENSUS as to what is going to happen with the banks.
There is NO CONSENSUS.You will find common traits or thoughts among bankers as too what to do.
To pigeon hole all banks into one way of dealing with things isn't going to happen.
There are too many variables.
It comes down to is the bank local,regional,or national in size??
When was the bank opened?? How many deposits does the bank hold and what is the amount per location??
What amount and type of assets make up the banks portfolio??
Are the assets originated from the bank that owns them or did the bank purchase the notes,buy out a whole bank,or have loss share agreements with the FDIC??
I talk to different asset managers and how they view a workout is on a file by file basis.Did the owners personally guarantee the loan? Is it non-recourse with carve outs? Is the property cross collateralized?
Does the bank want to own this property or do they not want the liability??
On the residential side you have more red tape but I play in the commercial side.The type of workout and thought process for commercial properties and businesses is a whole other world compared to a homeowner or a small time investor with a house for a rental.
I'm new to BP and this is my first reply pot but I agree with @Joel Owens. There is no consensus as to what the "banks" strategy will be today or in the near future in dealing with the real estate conundrum. Like others have mentioned in this thread, there are simply too many variables that affect how banks will deal with these troubled assets.
I've been working with a number of regional, national and international lenders with regards to purchasing their distressed commercial assets and each has a unique view of how to handle these assets. Some have understood that they will be taking significant losses on assets whether they sell today or try to hold the asset and wait for a recovery in value. Others, IMO primarily international lenders, still have no clue what's going on within their own portfolio(s) so they continue to hold assets and allow borrowers to bleed the asset until nothing is left and the bank has no choice but to take back the keys.
In addition, these asset managers are simply overwhelmed with the number of troubled assets that they are responsible for handling. Prior to the RE downturn they were responsible for handling 10-15 files/assets/accounts (max 20) at any given time. Now they have 30+ to handle and are so swamped they are only able to do what they can do in a day.
All that said, banks will continue to act in an irrational manner to RE Investors. To try and understand the mentality or course of action banks/lenders will take with regards to troubled pptys/assets is like trying to understand what your dog is saying when it barks. You think you know, but in actuality you have no clue. Same goes for the banks/lenders at this point in time. We can all speculate and have an opinion, but no one truly knows what tomorrow holds.
- Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes14y
Nick, you said --
"To try and understand the mentality or course of action banks/lenders will take with regards to troubled pptys/assets is like trying to understand what your dog is saying when it barks. You think you know, but in actuality you have no clue. Same goes for the banks/lenders at this point in time. We can all speculate and have an opinion, but no one truly knows what tomorrow holds."
I think I tend to agree...
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes14y
Nick I agree that banks are scratching their heads.Some asset managers I talk to have it together.
Others look like a deer in headlights and tell themselves "everything is going to be all right".
@ Tod R
I have a vast experience regarding construction. I have serviced the Commercial, Industrial, Institutional, Hospitality, Restaurant, High-rise and high-end private residential markets. I would like to learn more about Real-Estate investing (why I am here) I am looking to meet up with like minded people in the Chicago area to toss around Ideas.- 14yDion DePaoliPro MemberReal Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
Chris S., thank you for copying and pasting an article from 2010 which has concepts already addressed. Next time please just paste the link so the reader can decide to review the article if they wish and they also understand where it came from since the post contains none of your own thought or interpretation.
As previously stated, the basis of all of this information is myth. State Supreme and Appellate courts are holding that MERs has authority.
Posted after your article:
http://www.martindale.com/litigation-law/article_Sheppard-Mullin-Richter-Hampton-LLP_1361478.htm
You can find one of these for most states: http://www.cga.ct.gov/2012/PDdata/Tmy/2012SB-00407-R000316-MERS-TMY.PDF
A couple other base facts:
1. - All MERs mortgages/deed of trust are record as a matter of practice (perfected)
2. - There is not a duty in all states to record an Assignment of Mortgage/DOT. This is the base and answer to the fees that MERs may or may not owe to state counties.
3. - Promissory note assignments of rights are NOT recorded.
4. - The process which this all deals with has been amended since 2010 when it came to light. All interim assignments and allonges are recorded and stored in file. The chain of ownership is perfected prior to the foreclosure complaint eliminating MERs myth answers to complaint validity ever more so.
5. - Lastly, the cost to record an assignment, which is typically a two or three page document is $15 +/- and is not comparable to document stamp fees in states which are a percent of the security instruments.The MERs myth is so popular as it resonates with homeowners who look to demonize the banks and system for the foreclosure mess. As I said before, aside from who's fault it is, not much is going to obstruct the fundamental concept that if you do not pay your mortgage you will be foreclosed on. These MERs myths are just hopes that is not true.
Originally posted by Dion DePaoli:
Chris S., thank you for copying and pasting an article from 2010 which has concepts already addressed. Next time please just paste the link so the reader can decide to review the article if they wish and they also understand where it came from since the post contains none of your own thought or interpretation.As previously stated, the basis of all of this information is myth. State Supreme and Appellate courts are holding that MERs has authority.
Posted after your article:
http://www.martindale.com/litigation-law/article_Sheppard-Mullin-Richter-Hampton-LLP_1361478.htm
You can find one of these for most states: http://www.cga.ct.gov/2012/PDdata/Tmy/2012SB-00407-R000316-MERS-TMY.PDF
A couple other base facts:
1. - All MERs mortgages/deed of trust are record as a matter of practice (perfected)
2. - There is not a duty in all states to record an Assignment of Mortgage/DOT. This is the base and answer to the fees that MERs may or may not owe to state counties.
3. - Promissory note assignments of rights are NOT recorded.
4. - The process which this all deals with has been amended since 2010 when it came to light. All interim assignments and allonges are recorded and stored in file. The chain of ownership is perfected prior to the foreclosure complaint eliminating MERs myth answers to complaint validity ever more so.
5. - Lastly, the cost to record an assignment, which is typically a two or three page document is $15 +/- and is not comparable to document stamp fees in states which are a percent of the security instruments.The MERs myth is so popular as it resonates with homeowners who look to demonize the banks and system for the foreclosure mess. As I said before, aside from who's fault it is, not much is going to obstruct the fundamental concept that if you do not pay your mortgage you will be foreclosed on. These MERs myths are just hopes that is not true.
So your saying that because I did not write any of the afformentioned article that all my facts are deemed false because you supplied a link yourself ?
Can you explain this lawsuit filed in the State of NewYork by the Attorney General representing the people of NewYork. Dated February 3, 2012 Merscorp "is" named as a defendent.
Is the AG of NewYork's facts also to be wisked away as a MERS Myth ?
Just because you think you know what you are talking about does not make it fact and a matter of legal law.
The NewYork AG Has since settled this suit for 25 Million but it still does not negate the fact that these practices were illegal.
http://www.dsnews.com/articles/new-york-reaches-25m-settlement-over-mers-actions-2012-03-14Respectfully,
The link to the lawsuit:
http://www.scribd.com/doc/80390257/NYAG-Complaint- 14yDion DePaoliPro MemberReal Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes
No that is not what I insinuated. The article you posted is dated and the case and law have been updated since the article was written in 2010, it is now 2012. BTW just like the civil complaint you just posted, that has been settled. A settlement is not an admission of guilt nor does it prove the same.
In the New York cases a couple of things have happened. First the settlement paid was a function of the servicing departments and the signature affidavits. The AG tried to bring suit for fraud and deceptive practices which was dismissed for no legal merit. Which I sated two posts ago. Additionally the New York Supreme court has upheld the authority of MERs as nominee to act in the manner it has and has upheld the validity of all MERs security instruments and notes.
Additionally it is important to note, which I have stated twice, that MERs has since updated the process by which it conducts foreclosure and servicing policies have been updated around affidavits. You will find that most of the underlying cases pre-date the MERs and servicer updates.
"Just because you think you know what you are talking about does not make it fact and a matter of legal law."
I sort of do know what I am talking about as I have purchased mortgages where MERs was nominee and foreclosed with no issues. i am aware of the updates to the MERs system since they came into the lime light.
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