Oct. 11, 2011: Holders of 2nds are going to lose how many billions? Appraisal lawsuits; US Government defines "flood"
Rob Chrisman

Sweet home, Chicago…Chicago's City Council published an ordinance that would require banks, mortgage servicers and institutional investors to maintain vacant properties before the homes have gone through foreclosure. It requires securitization trustees to assume liability for the maintenance, security, and upkeep of properties in their trusts within 30 days of a property becoming vacant. But Tom Deutsch, executive director of the American Securitization Forum, called the ordinance "illegal," because it does not require that a borrower be in default or foreclosure as a condition of vacancy. Rather, the banks, mortgage servicers and investors will now be responsible for determining if a property is vacant even if a borrower is not delinquent or has not been foreclosed upon, he said. ASF is a trade group that represents investors and servicers.

Of course this is a big deal with servicers: how would a servicer know when a home becomes vacant? Under the ordinance, the borrower could still be making payments, but if the property is vacant, then the servicer is on the hook for internal and external maintenance. There’s always the nuclear option – to stop buying loans with homes that are secured with Chicago properties! No servicers that I know of are contemplating that, but it has been done in the past – when Georgia passed some compliance legislation with Assignee Liability. Once again - unintended consequences.

A mortgage banking conference is not simply a few thousand mostly male mostly Caucasian mostly dressed in suits mostly age 35-55 folks standing in the lobby. "A gathering of protesters from a variety of community groups congregated late Monday afternoon outside the Hyatt Regency in Chicago, where more than 2,100 people in the mortgage-banking field are attending their industry’s annual convention this week. Protesters demanded relief for struggling homeowners, including loan-principal reduction for those underwater on their mortgages, said Tracy Van Slyke, co-director of New Bottom Line, a campaign that challenges big bank interests on behalf of struggling and middle-class communities. The group also thinks banks aren’t paying their fair share of taxes and wants them to invest more in small businesses, she said. One estimate put the crowd at 250 people, many of them chanting, “Hey, hey, ho, ho, Wall Street bankers got to go.” Some hoisted signs, including one that read, 'They get rich. We get foreclosed.'" It was all very exciting, and some of the folks in the biz glanced up from their Blackberries.

The third quarter is over, but word is in from the second quarter that the eight national banks and single federal savings association servicing the largest loan portfolios reported that first mortgage performance declined across all categories of delinquencies during the second quarter of 2011.  The information is part of the Office of Comptroller of the Currency (OCC) Mortgage Metrics Report which covers 63% of all outstanding first mortgages in the nation. According to the report, current and performing loans represented 88.6 percent of the banks' portfolios in the first quarter but declined to 88 percent by the end of the second quarter.  This is still an improvement from the second quarter of 2010 when 87.3 percent of the loans in the portfolios were current. But hey, why take my word for it? Seeing is believing: http://www.occ.treas.gov/news-issuances/news-releases/2011/nr-occ-2011-124.html

REIT’s continue to be in the news. Residential REIT’s constitute a noticeable portion of the demand for MBS’s, and their health is judged as important to loan originations. Losses over the past two days among certain REIT’s, however, have been more than 11% in share price before rebounding yesterday. “While the repurchase-agreement, or repo, market for government- backed mortgage bonds that many REITS rely on for funding is in ‘good’ shape, it may face pressure if Europe's banks need to retrench,” on executive noted. I know that the article is a little dated, but one can read more at: http://www.sfgate.com/cgi-bin/article.cgi?f/g/a/2011/10/04/bloomberg_articlesLSK7EP07SXKX.DTL#ixzz1ZqtT7PHy.

A few years ago, a friend of mine bought a foreclosed-upon home "on the courthouse steps." He made quite a bit of money on the deal, much of from the 2nd lien holder, in this case a large money center bank, walking away from their $200,000 2nd in spite of there being plenty of equity. According to people who do this regularly, this is not uncommon ("there are just too many properties for banks to deal with out there"), and it made me wonder about the financial situation of any large holders of 2nd mortgages. These concerns have definitely become mainstream: http://www.bloomberg.com/news/2011-10-07/second-mortgages-may-cost-u-s-banks-23-billion-nomura-says.html

For appraisers who like to follow lawsuits, here is a good site passed along by Jason Oelrich in Washington (thank you!): http://appraiserlaw.com/AMCCaseDocuments.aspx

But appraisals determine values and owner’s equity. And the Washington Post carried an article by Ken Harney addressing equity on a state level: http://www.washingtonpost.com/realestate/whos-got-positive-equity-you-might-be-surprised/2011/09/26/gIQAtHZq9K_story.html.

David C. writes, "I've been working in the AMC space on for about 2 years.  I feel like I drank a lot of cool-aid initially.  I really believed the national AMC's had the best interests of the industry in mind in the way they conducted their businesses.  Now having been closely involved I see many of them for what they are, a bunch of completely self-serving, poorly managed, liars. I know that sounds harsh but the goal in the business is to get the appraiser to do as much work as possible at the lowest possible cost. Who cares what the finished product looks like? I don't want to come across too commercial but I joined InHouse because they have an excellent platform at a fair price for the mortgage banker to self-manage. 8 out of 10 appraisals flow through the system with relatively few issues, there's no reason someone needs to take $150 to $200 for placing and order and getting it to the client.  AMC's should only be used for the hard to do outliers.  Let them earn the spread. I could go on for hours, but suffice to say, in a year most originators will be self-managed and the mortgage banking industry will be much better off."

What is a flood? I guess Webster’s Dictionary isn’t adequate, so the U.S. Government would like to tell you: http://www.floodsmart.gov/floodsmart/pdfs/NFIP_Summary_of_Coverage.pdf. I bring this up because much of our nation is subject to flooding, which directly impacts mortgage lending. And those who follow it know that what we have now only goes through November 18th, so it is subject to the typical last-minute whims of our government: http://www.fema.gov/business/nfip/.

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