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Review of foreclosure cases as ordered by the regulators in 2011 will take many months longer than previously estimated according to documents submitted with the banking regulators of the feds. These delays will also cause postponement of compensation for those house owners who have been harmed by wrong foreclosure operations.

The reviews are covering the foreclosure activities undertaken during 2009 and also 2010 by 14 of America’s biggest servicers; the latter deals with nearly 65% of all the mortgages of the country. As per orders given last April by federal regulators these entities were expected to review the cases covering the above mentioned time period.

The reviews were to be done by independent agencies. The deadline for them was to complete the work by this January. These reviewing agencies were engaged by the servicers themselves.

It now seems that review of the foreclosure cases of Bank of America cannot be completed until next November as per a note that the consultant of BofA submitted with the Office of the Comptroller of the Currency. Bank of America is the biggest mortgage servicer in the country. Its consultant is Promontory Financial Group.

The consulting agency of JPMorgan Chase is Deloitte & Touche. The latter also hinted that it may require more or less the same time as per the letter it has submitted. For other servicers it is the same picture – the time schedule for review has been extended.

Last April the details, the scope and complexities of the cases were not fully gauged said Bryan Hubbard, spokesperson of OCC. Hubbard reiterated that the important point is to see that the reviews are fair and absolutely thorough rather than speedy. He said, “We need to make sure this is done right”.

Some of the hired agencies may complete earlier than the others. Some may even complete ahead of the time limit they have chalked out in their letters while others could take up even more time, commented Hubbard.

The OCC added that the house owners should be compensated even before completion of the reviews. There are 4 million cases qualified for these reviews. The consultants will not comb through all but sample some to find out the errors pertaining to illegal foreclosures and charging of unjust exorbitant fees.

Those house owners who were subjected to foreclosure on their primary homes by any one of these 14 servicers during 2009 and 2010 would be qualified for reviews. OCC informed that any person asking for a review by 30th April would be considered.

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There is a plethora of help programmes including legal and counseling assistance for house owners threatened with foreclosures. But these programmes are now themselves threatened with funds crunch because of budget woes of New York State. Governor Andrew M. Cuomo’s state budget is not kind on them.

The recent budget does away with financing for Foreclosure Prevention Services Program that had made its debut in 2008 when the house owners began to default on their house mortgage loans in staggering numbers. Previously $25 million was sanctioned per year.

Housing advocates are nursing hopes that the state legislature will bring back the funds. Senior staff attorney of Empire Justice Center based in Albany said, “If we don’t get this funding restored in the budget, services will go away for homeowners”. The centre offers legal assistance across New York State for those who are poor.

The programme is now gasping with only $1 million to cover the time when the new budget will come into force from 1st April.

Carol Yopp of Long Island Housing Partnership (foreclosure prevention manager) said that her group has been limping along and not yet allowed anyone to relinquish post. The agency staff comprises of Yopp, a counselor and an assistant overseeing administration. She reported that clients were continuing to knock on their doors.

Pundits are predicting another foreclosure surge in 2012 as the lenders complete their reviewing and resume usual operations. Cuomo planning a new move is set to introduce a Foreclosure Relief Unit under the Department of Financial Services. Its task will be to provide counseling. The office of the attorney general of the state announced that $1 million will be disbursed to non-profit agencies providing legal help to troubled homeowners.

Morris Peters, the spokesperson of the budget office of the state referring to the latest units said, “We believe the same level of services can be provided by this new entity”. But housing advocates complain that these two programmes would be insufficient to replace those that will be eliminated.

Attorney Mike Wigutow of Nassau / Suffolk Law Services in Hempstead said his agency has been receiving money even after the programmes have been trimmed but he is optimistic about getting new funds.

Temporarily he had to give up the help of two paralegals and two lawyers. He is now left with one full and one part time staff working on foreclosures. The agency is hesitating to take on new cases afraid of funds running out next March before the litigation came to a conclusion. He bemoaned, “We’re operating at less than normal”.

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The credit success of RMBS (Residential Mortgage Backed Securities) in America is facing multiple challenges in the current year. The biggest danger is from strategic defaults as per the findings of Moody’s Investors Service.

The general view is that in 2012 the waters will not be turbulent but calm. Moody’s study shows that stability signs are showing in the performances of outstanding loan pools of the residential housing sector. This means that the loss calculations from RMBS will remain unchanged.

Debash Chatterjee the managing director of an associate of Moody’s said, “Although Delays in loan liquidation timelines and an increase in distressed sales will continue to dampen housing prices and limit recovering on delinquent loans, they will not have a material impact on RMBS pools”.

Due to modification of loans, the delinquency among the loan pools has not only remained flat but in some instances these are also dropping. The rates of re-default on loans that have been modified have also dropped thanks to reduction of payments in the modifications being made bigger.

But strategic defaults where the borrower intentionally walks away from the house and foreclosure are posing risk causing the possibility of property prices to tumble again in 2012.

The agency predicts that the risk is coming from the big sector of mortgages where over half the house owners have gone underwater – the value of the house being less than the loan due amount. Till now they have been regular in making payments on their housing mortgages but since the latter part of 2010 the negative equity among the big borrowers have “risen significantly”.

The sub-prime sector however is facing the least risk of deterioration in this current year because the weaker borrowers have already been weeded out. The risk clouds hover over Alt-A and option-ARM loans but not as much as in the jumbo segment; of the two option-ARM is posing greater risk.

William Fricke of Moody’s (vice president cum senior credit officer)  explained that modifications and forgiveness of principal are the two key factors that can stop strategic defaults. But he apprehends that servicers will be reluctant to take recourse to this because GSE does not allow and that many RMBS too carry clauses putting brakes on this practice.

The methods of servicers are changing – they are becoming more easily accessible to the borrowers through single point of contact. The issuance of RMBS will be small because of GSE dominance and uncertainty about what moves the regulators will take.

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Foreclosure numbers in Hawaii have tumbled by 53% since the time the Legislature initiated sweeping changes in mortgage laws in 2011.

Hawaii ranked 11th as regards foreclosure rate and this prompted legislators to set up Mortgage Foreclosure Task Force to review all the facets pertaining to both judicial as well as non-judicial foreclosure processing in Hawaii State.

In 2011 the task force helped in the drafting of the laws that gives wide protection to the troubled house owners threatened with foreclosures because of dubitable operations that were unfair.

Jeff Gilbreath, one of the members of the task force said that already an impact is visible – thanks to the passage of the law. Gilbreath speaking before House as well as Senate committees committed to consumer protection recently referring to the report said that it “showed a 53% decrease in foreclosures in the state of Hawaii that I think we can attribute to Act 48”.

In 2012 the task force is scheduled to see to further analysis of rules and regulations pertaining to foreclosure so as to suggest betterment. The aim is to make the law understandable and equally applicable to all the stakeholders involved in the process of foreclosure.

Everett Kaneshige the chairperson of the panel and the deputy director of the Department of Commerce and Consumer Affairs said that the members of the task force had divided into groups for working purposes to comb through the new Act “line by line” focusing on the issues related to particular groups and finding solutions to issues relating to foreclosures that are specific to condo and the homeowner associations.

The legislators will mull over the recommendations of the task force when they take up legislation this session relating to foreclosure. The concerns continue about increasing the protective umbrella to shield the house owners from the bite of foreclosures.

Senator Rosalyn Baker said related legislation would be introduced in the next session. She wanted to know what else could be undertaken to put brakes on highly focused fraudulent advertising that target those house owners who are desperately trying not to lose their houses.

They are so anguished that they fall for these advertisements and court risk. She is keen on introducing more measures to stop these dishonest practices and “really shine a light on these folks”.

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Foreclosures have become happy breeding ground for scams relating to mortgage modification. The crisis has enveloped the entire country and there are signs of another epidemic – scams. The hapless house owners are being targeted by vultures trying to take away from them whatever little they have left over following the crisis years; even their houses are at jeopardy.

The Deputy Special Inspector General of TARP, Christy Romer, is in charge of monitoring potential fraud. During the early part of December his agency, (SIGTARP) teamed up with the Treasury and the Consumer Financial Protection Bureau to sniff out and tackle scams that are targeting the house owners who are anxious to modify their mortgages under HAMP (Home Affordable Modification Program).

An amount totaling to $29.9 billion from TARP has been kept apart for various programmes of the federal government for prevention of foreclosures. It does not need money to apply for HAMP and the advice given by the HUD approved counselors are also free. But despite this the scammers have persuaded the house owners to give them fees; in return are given false promises regarding lowering of debt on mortgage dues.

Some other cheats have crafted a shrewd strategy by which they take over the deeds of the properties by telling them to stop making any payments on their mortgages; often they were advised not to have any truck with the mortgage servicers.

These fraudsters, artists in their line, boldly advertise their services over the Internet, television and also the radio. Their stationeries flaunt government logos and the names they use smack of government departments. They also resort to scare tactics.

Oakland County treasurers, Andy Meisner said, “The last thing a family facing foreclosure needs is a scam artist picking their pockets and making the situation worse, when all they’re trying to do is dig out”.

House owners with mortgages numbering millions are threatened with loss of their properties. From January till November last year (2011) 756,407 borrowers across America were served with default notice, 742649 houses were taken over by the lenders according to RealtyTrac; in Michigan 51,354 houses were repossessed.

An assistant of Wayne County corporation Jamele Hage, who administers the Mortgage Foreclosure Prevention Program of the county said one of the scammers included the words ‘Wayne County’ in their name to give the stamp of the enterprise being official. They target the elderly and the ailing to get their signatures on documents.

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A new development is taking place in the real estate industry of the US. As foreclosures increase and people are evicted from their homes, rented apartments are becoming more popular. Architect Brian Keith is now more preoccupied than he ever was. He is trying to finish work on an apartment unit in Dallas. Amidst foreclosures, the demand for rental apartments is increasing.

This is just one order that that Brians’ firm, JHP Architecture, has with it. There is a flood of orders for rental properties in the US. That is because the demand for these properties has increased.

Even JHP has expanded operations in tune with the demand. The firm will be expanding till the first half of next year. Keith, who is the director of urban design in JHP, said, “We’re seeing overall work come back and there’s a backlog of contracts to go through. There’s strong interest in multi-family units and plenty of pent-up demand.”

The unemployment level in the US is quite high at 8.6 %. Foreclosures are increasing. Although property prices are still low, most Americans do not have the wherewithal to pay for the mortgage amount. Hence, they are shifting to rented homes. And that is the new reality in the real estate industry.

In fact, the percentage of people owning homes in the US has seen a sharp drop. It dropped from 69.2 % in late 2004 to 65.9 % in September 2011. The figures improved slowly to 66.3 % by late 2011.

However, the number of empty rental properties has dropped too.  The percentage fell from 10.3 % to 9.8 % recently. A Morgan Stanley analyst, Oliver Chang said that 2012 would be the year of the landlord. The report said, “Rents are rising, vacancies are falling, household formations are growing and rental supply is limited. We believe the demand for rental properties will continue to grow.”

New housing is being developed. This has fueled optimism that the real estate market is slowly reviving. Multi-family housing is the one to gain. Also prices are indicative of the demand shift.

Rental costs have gone up by 2.4 % compared to 2010. The senior economist at IT Investment Research, Steve Blitz, said what is giving a boost to the construction of apartment buildings, is the prospect of good returns. That indeed spells good news for the entire economy.

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Out of one hundred defaulting house owners, eighty are not qualified for programmes pertaining to loan modification. Thus only 20% are eligible for the government programmes as per a report released by Treasury while foreclosures are threatening 80%.

A whopping 4.6 million house owners are lagging behind two months on their mortgage dues. This makes them eligible technically for the flagship programme of the government – Making Home Affordable. But 80% of them cannot avail of it. As per the report of the Treasury merely 900,000 actually are eligible for the programme.

Dean Baker of Center of Economic and Policy Research (co-director) said that this exposes the weakness of the programme – too few people have been targeted. He said, “If 900,000 are eligible, and this is your main programme for helping underwater borrowers, we know that not all 900,000 can be helped, this doesn’t look very ambitious”.

The numbers prove again the glaring shortfall in the programme that the President had started off with much hype in the early part of 2009. It has not come anywhere near its goals. This makes the voice of the critics louder regarding its ineffectiveness. Baker added, “This programme, in its design, is set up to help a very small portion of people”.

Under this programme –  Making Home Affordable – those house owners who are current on their mortgage dues but facing risk of default in near future may also be eligible. The data given by the Treasury did not include this group.

The borrowers are kept out of this government programme for multiple reasons – type of loan and the property. Rental units, ‘manufactured’ houses with FHA loans and also houses bought with loans taken from Department of Veteran Affairs are not included in the programme.

Those whose incomes are calculated to be affordable are not deemed to be eligible. No serious note is taken about whether for that particular borrower it is really so.

The motivation behind this programme is to see that the borrower can afford the monthly housing payments. The definition is that the payment on dues has to be less than 31% of the income of the house owner. Taken into consideration are various other debts apart from housing, that might be on the cards – car loans, education loans, dues on credit cards etc.

Borrowers who have walked away from their properties are also considered ineligible. It is assumed that they do not need the house.

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One section of the Justice Department that monitors bankruptcy cases in courts is known as U.S. Trustees Program. In its annual report of 2010 noted that the mortgage servicing problems were all pervasive and long standing. These were not just technical but result in causing “real harm to homeowners in bankruptcy”.

The Trustee Program has accused the banks of falsifying affidavits by stating that the house owners owe them fees for some services that they never provided; the amount that the borrowers owed to the banks was inflated.

Professor Daniel Richman dealing with criminal law, of Columbia University Law School was formerly a federal prosecutor. He said the pivotal issue was who would be the targets of criminal investigation by the prosecutors.

Richman explained that a good number of workers who under the orders from supervisors churned out large number of affidavits could be sitting ducks. But that would not be worth the effort. Perhaps criminal investigations are necessary but it would be difficult to bring them against particular individuals who actually did the string pulling.

In 2010 October the Congress put pressure on the Justice Department to go ahead with investigations about foreclosure fraud. Eric Holder, the Attorney General said that it would be best to leave the matter to states with Justice Department’s help.

The OCC hastily came to a settlement with fourteen mega servicers to bring about operational changes and suggest compensation for those house owners who had been harmed.

The settlement leaves the banks to select their own agencies to determine who has been harmed and by how much. The arrangement has come in for harsh criticism from legislators and housing advocates for obvious reasons; the reviewing agencies would get their payments from the banks.

Since the eruption of the robo-signing scandal the Justice Department’s civil section has been working with a wobbly coalition comprising of all the fifty states seeking a settlement with the five mega banks that are also the biggest loan servicers. The settlement is leading towards a $20 billion (or maybe more) payment as penalties – a fraction of which would go towards paying the wronged house owners.

Law enforcement by the federal government has been practically non-existent even in those regions that have been decimated by the foreclosure crisis like Las Vegas.

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The Federal law is there but enforcement? It does not exist, even in those area worst hit by the foreclosure crisis like Las Vegas. Last year in 2010 the FBI downed shutters on the office of its task force dealing with mortgage fraud. It had been focusing on petty swindlers.

Tim Gallagher of the financial crimes division of FBI (chief) said that the agents have been transferred to attend to other operations. Many states like Massachusetts, Delaware, California and New York have become frustrated and impatient with the absence of prosecution by federal agents. It has started to investigate the lapses of the banks on its own.

Last November Nevada was the first among the states to file criminal lawsuit against a financial entity. The attorney general indicted two executives of Lender Processing Services (606-count). They were charged with paying notaries of Nevada for forging their signatures and falsely notarizing these on default notices and documents that are mandatory as per Nevada State laws. The officials of the state informed that more indictments are expected.

John Kelleher, the chief deputy A.G. of Nevada said that the investigations were kicked off following complaints by citizens. He said they became concerned and then later shocked at the sheer volume of these forged documents filed with the recorder of the county.

Investigations dug up “tens of thousands’ of dubitable records that had been filed on the behalf of mega mortgage servicers. The two executives are contending that they are not guilty. LPS in a press release admitted to flaws in some of the documents but “these documents were properly authorized and their recording did not result in any wrongful foreclosure”.

Traditionally the office of the U.S. Attorney has filed the majority of cases against the big brass in the financial world. But it has failed to bring any criminal cases relating to foreclosures abuses involving any Wall Street giant.  Till now the only step that it has publicly taken was last October when it reached a settlement (civil) with the biggest law firm of the state – that of Steven J. Baum of Buffalo.

It had handled 40% of all the foreclosure cases in New York recently representing the bankers and servicers. The records of the court show that the judges were angry with the firm for submitting false statements and posting dubitable documents.

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Those who designed the foreclosure crisis is now helping to solve the problem of huge numbers of foreclosed houses Fannie and Freddie are sitting on. The top brass from some of the mega companies that brought about the foreclosures crisis are now submitting proposals to the FHFA about what can be done with the millions of residences that Fannie Mae and Freddie Mac are sitting on and how these could be turned into rentals.

Daniel Mudd of Fortress (CEO) decided to take leave, a strategic move, after facing a lawsuit on 16th December by SEC questioning his part while he was CEO of Fannie Mae from 2005 till 2008. Fannie and Freddie have been helped by the Treasury to tune of $170 billion after being taken over in 2008 by the federal government.

Mudd and the former CEO of Freddie Mac, Richard Syron have been charged by SEC of making understatements regarding the sub-prime loans that the firms had held amounting to billions. Mudd has replied that the investors as well as the government knew of “every piece of material data about loans held by Fannie Mae”. The lawyer of Syron, Tom Green said there “was no shortage of meaningful disclosures” on the part of Freddie Mac.

Fortress’ spokesperson Gordon Runte did not make any comments regarding the issue of submission of proposal by his firm. In a statement dated 16th December Fortress has said that the suit filed against Mudd is not related in any way to Fortress.

Greg Lippman of Deutsche Bank (trader) hosted a meeting, the first of its kind, of lawyers and investors who had crafted the contracts and the financial tools that were used while betting against the housing market. During the time of the crisis from 2007 till 2008 Lippman had assisted Deutsche Bank to counterbalance the losses it had incurred on mortgage related investments.

A spokesperson of Deutsche Bank, Renee Calabro did not make any comments. Lippman is now the chief-investment-officer with LibreMax Capital – hedge fund based in New York. It has not made any submissions to FHFA. FHFA cited five examples of the proposals that had been submitted. The details were not disclosed because of trade policies; the privacy of those who submitted the proposals also required to be honoured.

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