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State attorneys general have asked Congress to extend tax relief for borrowers who faced a foreclosure or a short sale and were granted mortgage debt forgiveness, HousingWire reported Nov. 20.
The five attorneys general leading the tax relief effort are Pam Bondi of Florida, Martha Coakley of Massachusetts, George Jepsen of Connecticut, Lisa Madigan of Illinois and Catherine Cortez Masto of Nevada.
Congress put tax relief efforts in place in 2007 with passage of the Mortgage Debt Relief Act, which dismissed distressed homeowners’ mortgage debt in cases of foreclosure, short sale or loan modification. The act is scheduled to expire on Dec. 31.
Should Congress fail to extend the act, hundreds of thousands of distressed homeowners could receive a huge tax bill.
In a letter to Congress, the attorneys general, citing data from the Congressional Budget Office, said that if the tax relief for borrowers expired, homeowners could face up to $1.3 billion in tax increases in the next two years, HousingWire reported.
“Unless Congress acts, any debt relief to be provided in 2013 under the national mortgage settlement, as well as other mortgage debt relief programs, will likely be considered taxable income,” Masto told HousingWire.
Coakley, whose home state of Massachusetts has seen mortgage debt relief savings on average of $67,457 per borrower, added, “We urge Congress to ensure families are not hit with an unexpected tax bill when seeking a loan modification.”
An extension of tax relief has been included in the Family and Business Tax Cut Certainty Act of 2012, which has so far passed the Senate Finance Committee — with bipartisan support — HousingWire reported.
The U.S. Securities and Exchange Commission, in coordination with the federal and state organized Residential Mortgage-Backed Securities Working Group, has charged JPMorgan Securities and Credit Suisse Securities with knowingly misleading investors in their offerings of residential mortgage-backed securities, National Mortgage Professional Magazine reported Nov. 20.
The two institutions quickly agreed to settle the case, accepting a $400 million penalty that will be distributed to investors harmed by the transactions. The settlement is subject to court approval.
JPMorgan has agreed to pay $296.9 million to settle with the SEC, while Credit Suisse will settle for $120 million.
In its filing, the SEC alleged that JPMorgan provided misleading information about the delinquency status of mortgages that were used to provide collateral for an RMBS offering that it underwrote. While JPMorgan received fees of $2.7 million, investors experienced losses of some $37 million on delinquent loans that JPMorgan failed to disclose. The firm also was on the hook for Bear Stearns’ failure to disclose its practice of acquiring and keeping cash settlements from loan originators on delinquent loans it sold into RMBS trusts.
Credit Suisse faced similar charges for failing to disclose its practice of retaining cash it received from settling claims against mortgage originators for problem loans it sold into RMBS trusts. The firm also misstated when it would repurchase loans from trusts if borrowers missed the first payments. Credit Suisse made $55.7 million from its bulk settlement practices, while investors lost more than $10 million.
“Misrepresentations in connection with the creation and sale of mortgage securities contributed greatly to the tremendous losses suffered by investors once the U.S. housing market collapsed,” Robert Khuzami, director of the SEC’s Division of Enforcement, told National Mortgage Professional Magazine.
The SEC filing concerned RMBS offerings made by JPMorgan in December 2006 and offerings and settlements made by Credit Suisse between 2005 and 2010.
In a Nov. 19 speech to the Economic Club of New York, Federal Reserve Chairman Ben Bernanke said that although the housing market continues to be a high point in the overall economic recovery, it still has a long road ahead, HousingWire reported Nov. 20.
Bernanke’s speech addressed housing and mortgage financing, and he noted that increases in home sales, prices and construction were indicators of a market recovery and “clear signs of improvement” that should remain a source for jobs and economic growth.
However, despite his positive notes, Bernanke said that a delay in a full-blown recovery was the result of numerous factors, including tighter lending conditions, HousingWire reported.
Mortgage rates remaining at record lows will be crucial to improving housing affordability, and the Fed currently is aiming to improve credit conditions. Bernanke explained that as mortgage lending improves, banks likely will increase mortgage origination capacity.
Bernanke said that the Fed would continue to urge banks to make more loans on the supervisory side, as well as offer foreclosure alternatives to struggling homeowners.
On the regulatory side, central banks will aim to achieve greater financial stability by capitalizing on rules within Basel III, although Bernanke gave no indication of a deadline to finish writing the rules.
Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said he would like to impose limits on the Federal Reserve’s monthly commitment to purchase $40 billion in mortgage-backed securities as part of the quantitative easing program known as QE3, HousingWire reported Nov. 20.
Speaking at the Shadow Open Market Committee Symposium in New York City Nov. 20, Lacker said the limits would help negate inflation risks and limit the government’s role in housing.
“Purchasing agency MBS encourages the continuation of a housing finance model based heavily on government-sponsored enterprises at a time when the housing sector would be better served by a new model that relies less on government-credit subsidies," Lacker told the conference, HousingWire reported.
Lacker also warned that pushing interest rates extremely low to help conform to current mortgage borrowers ignored the potential for re-inflation of the government-dependent housing finance model by the central bank and only served to artificially steer credit toward the housing market.
“To the extent that purchases of private claims have any effect, they do so by distorting the relative cost of credit among different borrowers,” Lacker told the conference, according to HousingWire. “Such differential effects are unlikely to be beneficial, on net, unless borrowers in the favored sector would otherwise face artificially high rates. I think it's difficult to make this case for agency MBS, a sector that historically has benefited from heavy subsidies, which arguably contributed to dangerously high homeowner leverage.”
Sen. Johnny Isakson, R-Ga., strongly encouraged the Obama Administration to heed Federal Reserve Chairman Ben Bernanke’s warning that restrictive lending standards pose a threat to the nation’s housing recovery, National Mortgage Professional Magazine reported Nov. 20.
Sen. Isakson has repeatedly asked the administration to adjust its proposed rule that would prevent responsible homebuyers from receiving qualified residential mortgages by requiring a 20 percent down payment.
Bernanke said in a speech to the Operation HOPE Global Financial Dignity Summit in Atlanta that attempts to rectify previously lax mortgage lending standards have created a too-tight lending environment. “It seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery,” National Mortgage Professional Magazine reported.
“By putting into effect the 20 percent down payment requirement for Qualified Residential Mortgages, the administration is exacerbating the housing recession and preventing recovery,” Sen. Isakson said, National Mortgage Professional Magazine reported. “If the administration is serious about improving the economy, it cannot impose overly restrictive rules like the one that is on the table now and expect economic recovery.”
Isakson collaborated with Sens. Kay Hagan, D-N.C., and Mary Landreau D-La., to add a provision in the Dodd-Frank Act to ensure that well-qualified borrowers have access to affordable mortgages. Isakson’s provision said that QRMs should be exempt from a section in the law that requires originators to maintain a minimum 5 percent stake in the loan pools, known as risk retention, sold to investors.
However, financial regulators working to implement this provision have interpreted the Isakson-Hagan-Landreau QRM provision in a manner that the senators did not intend, National Mortgage Professional Magazine reported. The regulators have proposed that homebuyers be required to have a 20 percent down payment in order to be eligible for the exempted loans.
Lawmakers and some industry and consumer groups have asked regulators numerous times in the past two years to revise the proposed 20 percent down payment requirement, insisting that the regulators did not follow Congress’ legislative intent and clear recommendations to mandate a logical down payment.
Last year, Sens. Isakson, Hagan and Landreau led a bipartisan group of 39 senators in writing a letter that urged federal regulators not to restrict credit to middle class families working toward homeownership. More than 250 members of the U.S. House of Representatives authored a subsequent letter opposing the rule.
Banks are backing the Consumer Financial Protection Bureau’s effort to simplify required mortgage disclosures, but they worry that simpler isn’t necessarily better, American Banker reported Nov. 20.
In comment letters responding to the CFPB’s plan, bankers noted that some requirements — including a rigorous timeline for providing the new forms to borrowers, limited disparity of estimated charges between preliminary and final disclosures and “all-in” annual percentage rate — would add difficulty and cause confusion.
“We are concerned that some aspects of the proposal will add ‘information overload,’ detract from the quality of disclosures and impose unwarranted and unnecessary burdens on creditors,” Sy Naqvi, chief executive of PNC Mortgage, wrote in a Nov. 6 letter, American Banker reported.
Several of the proposed reforms had been initiated by the Federal Reserve Board before the CFPB was created under Dodd-Frank and assumed rulemaking for disclosures and undertook the task of joining the Truth in Lending Act and the Real Estate Settlement Procedures Act forms.
In their response to the CFPB, financial institutions primarily focused on the proposed inclusion of additional details in estimates for finance charges and the annual percentage rate, American Banker reported.
However, the institutions also took issue with having to submit a closing disclosure three days prior to closing, along with lowering allowable tolerances — the kind of charges that are permitted to be higher on the closing disclosure than they were in the previous loan estimate form.
“Overly strict timeframes, lack of tolerances on fees and charges and the inability to accommodate last minute changes to avoid re-disclosure create a market environment where consumers will see higher charges for certain services, inflexible and extended timelines to complete the mortgage origination process, and possible restriction of mortgage credit for certain consumers,” Ron Haynie, executive vice president for mortgage services with the Independent Community Bankers of America, wrote in his bank’s response, American Banker reported.
Those submitting comments noted that consolidating the TILA and RESPA forms should not get weighed down because of additional requirements that were not included in regulation before the CFPB initiated the project to combine the two regimes.
“The bureau should continue to focus its energy on the enormous job of integrating the forms, which the (Mortgage Bankers Association) fully supports, without making undue changes to the rules,” David Stevens, president and chief executive officer of the MBA, noted in a Nov. 6 letter, American Banker reported. “MBA recognizes that RESPA and TILA disclosure requirements differ, necessitating some changes to the rules. Nevertheless, other proposed changes to the definition of application tolerances, timing and the introduction of a new APR, to name a few, extend far beyond what is needed and threaten to divert energy and support from this important effort.”
Others submitting comments to the CFPB noted potential in the bureau’s plans to simplify the forms.
Bill Himpler, executive vice president of the American Financial Services Association, noted problems with the proposed disclosure as they would pertain to some types of loans, yet he said that “proposed disclosures are much easier and more understandable for consumers for many transactions, particularly the standard home purchase money mortgage,” American Banker reported.
However, bankers and others strongly encouraged the bureau to reconsider the comprehensive finance charges and other proposed elements. For instance, including additional fees in rate calculations could result in loans appearing to be more expensive than they are and cause the loans to be disqualified for regulatory status as part of other regulations and may even restrict credit in some situations.
“The ‘all-in’ finance charge would result in higher ‘points and fees’ figures, which are calculated using the finance charge as the starting point,” wrote Michael S. Malloy, mortgage policy and counterparty relations executive at Bank of America, American Banker reported. “Consequently, this would reduce the number of loans that would otherwise be ‘qualified mortgages’ under Dodd-Frank’s ability-to-repay requirements, given that qualified mortgages, as proposed, will not have points and fees in excess of three percent of the ‘total loan amount.’”
Some consumer advocacy groups also expressed concerns about the more inclusive rate calculation.
A Nov. 6 letter from the Center for Responsible Lending said, “The bureau should not pursue a change in the finance charge definition at this time,” American Banker reported. “While the bureau correctly identifies the consumer benefits that could come from an all-in finance charge definition in terms of greater transparency and improved shopping ability, the inter-related nature of current mortgage laws makes changes at this time a complicated undertaking.”
Some bankers noted that institutions that do not consider themselves to be high-cost lenders would be pushing the envelope with the new requirement.
“Macon Bank does not presently originate high-cost loans. However, the proposed changes to the definition of finance charge will cause APR’s to increase and more loans will exceed the high-cost, higher-priced and higher-risk thresholds,” wrote Patti Morgan, lending compliance specialist at the Franklin, N.C.-based bank, American Banker reported.
Banks further cautioned that a provision requiring lenders to provide consumers a closing document three days early — which in many cases would compel lenders to restart the three-day timeframe if an estimate was revised — does not account for typical last-minute changes that are difficult to control.
“Bank of America requests that the CFPB expand the category of changes that allow for provision of an updated disclosure at the closing table, instead of requiring re-disclosure and a new three-day waiting period, to include changes in costs that are outside the control of the lender,” Malloy wrote, American Banker reported.
As part of the proposal, some portions of the disclosure would get an exemption from the three-day requirement, including charges resulting from negotiations between a buyer and seller after a final walk-through, and other small adjustments that lead to less than $100 in increased costs.
However, lenders want additional flexibility.
“Regarding subsequent re-disclosures, we believe the rule needs to provide more flexibility to ensure that an additional three business day waiting period is imposed only when it will truly benefit the customer,” Michael J. Heid, president of Wells Fargo Home Mortgage, wrote in a Nov. 5, letter, American Banker reported.
Lenders also said the lower tolerances permitted after the release of an initial disclosure form would be excessive. The rule dictates that select charges could not increase between the time the lender initially shared the loan estimate and the closing. Those charges would include the amount the lender charged for its own services, charges for services provided by a lender’s affiliate and charges that accumulated when the lender prevented the borrower from shopping for a more favorable price. Additionally, charges for other services could not rise by more than 10 percent.
Still, parties indicated that they saw minimal justification for lower tolerances.
“There is no indication that current tolerances are inadequate, and CFPB should not make such changes unless it has data that a tightening of tolerances is necessary to prevent ongoing abuses at closing, and that unintended consequences will not result,” Robert Davis, the American Bankers Association’s executive vice president of mortgage markets, financial management and public policy wrote in a Nov. 6 letter, American Banker reported.
Multifamily housing starts hit a 4-year high in October, totaling 894,000 — a 3.6 percent increase over September, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, MBA NewsLink reported Nov. 21.
“Multifamily starts are now up 37 percent on a year-to-date basis from the prior year and permits are up even more than that, climbing 54.5 percent, suggesting building activity will remain strong for some time to come,” Mark Vitner, senior economist with Wells Fargo Securities in Charlotte, N.C., told MBA NewsLink.
Single-family housing starts remained consistent, rising just 0.2 percent from September (594,000) to October (595,000), while the rate for units in buildings with five units or more surged to 285,000 from September’s 259,000 — an 11.9 percent increase and nearly 63 percent higher than a year ago, MBA NewsLink reported.
“The report is generally good news,” Vitner told MBA NewsLink. “Housing is one area poised to do better during the coming year, even if the overall economy stumbles a bit.”
On the regional level, housing starts rose by 17.2 percent in the West since September (a 73.1 percent improvement from a year ago) and 8.9 percent in the Midwest since September (a 4.5 percent improvement from a year ago).
However, housing starts fell by 6.5 percent in the Northeast since September (but improved by 10.8 percent from a year ago) and 2.5 percent in the South (which improved 34.3 percent improvement from a year ago).
The commercial mortgage market is booming, having experienced some of the most favorable lending conditions since 2008, The Wall Street Journal reported Nov. 20. The market likely will see $46 billion of new mortgage issues by the end of the year, and as much as $65 billion in 2013.
The market also is experiencing an increase in the availability of mezzanine debt, something that has been even rarer than commercial mortgage-backed securities, the Journal reported. Mezzanine debt is a subordinated debt or preferred equity instrument that represents a claim on a company's assets and is senior only to that of common shares.
With greater financing availability, borrowers are obtaining much needed capital while benefiting from lower interest rates. The Journal reported that the rate on recent CMBS issues has been as low as 0.83 percentage points over interest rates swaps — the lowest since 2007 and down from 1.6 points earlier this year.
With lower interest rate refinancing opportunities, many borrowers have been taking cash out of their properties. Centerbridge Partners, Paulson & Co. and Blackstone Group, owners of hotel chain Extended Stay America, are looking to borrow $3.5 billion by selling CMBS and mezzanine debt with the hope of pocketing $700 million of the proceeds and using the rest to replace existing debt. And Cerberus Capital Management shored up its balance sheet by taking out a $1.8 billion loan to refinance hotels in Hawaii and San Francisco. The deal included mezzanine debt as well as a senior mortgage, the Journal reported.
A year ago, there was concern about the availability of refinancing for commercial mortgages. Investors were facing $41 billion of CMBS scheduled to mature in 2012 and $30 billion in 2013. However, the easing of credit and less-than-anticipated defaults and foreclosures have opened up the market. However, some analysts expressed concern that the expansion of mezzanine debt can raise loan-to-value ratios to unhealthy levels, the Journal reported.
Fixed mortgage rates dropped further, reaching a new low for the second consecutive week, Freddie Mac reported Nov. 21 in its weekly Primary Mortgage Market Survey.
The 30-year fixed-rate fell 0.02 percentage points to 3.31 percent (down from 3.98 percent a year ago). The 15-year fixed-rate dropped 0.01 percent to 2.64 percent (down from 3.30 percent a year ago).
However, the one-year adjustable-rate mortgage saw a slight increase, climbing 0.01 percentage points to 2.56 percent (down from 2.98 percent a year ago). The five-year Treasury-indexed adjustable-rate remained steady at 2.74 percent (down from 2.91 percent a year ago).
“Fixed mortgage rates continued to ease somewhat this week to record lows and should help the ongoing housing recovery,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a news release. “Already, new construction on homes was up 3.6 percent in October to the strongest pace since July 2008. In November, homebuilder confidence rose for the sixth straight month to its highest reading since June 2006 according to the NAHB/Wells Fargo Housing Market Index. And existing home sales increased 2.1 percent in October to an annualized pace of 4.79 million, exceeding the market consensus forecast.”
View Freddie Mac’s weekly Primary Mortgage Market Survey.
Appraisal Institute President Sara W. Stephens, MAI, once again addressed claims that appraisals were killing real estate deals, this time appearing Nov. 19 in the Orange County (Calif.) Register.
The article cited testimony that Stephens delivered in June to Congress in which she said that “We often hear from real estate agents, homebuilders and others that appraisals are 'killing deals,' and/or holding back the economic recovery. These accusations are unfounded and misguided ... appraisals are not meant to simply support contracts — they are obtained to help lenders assess their overall risk. Fundamentally, it does neither the borrower nor lender any good to enter into a mortgage for more than the value of the property.”
Huntington Beach, Calif., appraiser Gilbert Valdez, MAI, SRA, also was featured in the article where he explained the factors that carry the most weight in an appraisal, including location, size and condition. He said that upgrades don't necessarily pay off as much as a homeowner may expect, and also noted the effect of the price gap between foreclosures and standard sales.
“The biggest misconception is we're out there creating value. We're not. We have a mirror. We're going to reflect it exactly the way it is,” Valdez said.
The story also was featured Nov. 25 in the Bend (Ore.) Bulletin.
That story is among the recent media coverage included in the “AI in the News” feature on the members-only section of the Appraisal Institute website.
Appraisal Institute members appearing recently in local media coverage include Sandra K. Adomatis, SRA, Sarasota (Fla.) Herald-Tribune; Shannon Hansen, MAI, Sioux City (Iowa) Journal; and Frank Robinson, SRA, South Bend (Ind.) Tribune.
See the latest media coverage about the real estate valuation profession, the Appraisal Institute and its members. Media coverage at “AI in the News,” found on the member log-in page of the Appraisal Institute’s website, is updated daily and also includes the latest news releases from the Appraisal Institute.