Posts tagged ‘Freddie Mac’

New York Law Makes it More Difficult to Get Title Insurance on Foreclosed Property

It has not taken long for a law providing extra protection to individuals facing foreclosure to have a devastating impact on New York’s mortgage market. If you provide mortgages in New York State, you should read this blog, and if you think I am exaggerating, reach out to colleagues in the title insurance industry. For more background on this issue, take a look at this blog.

One of the bills signed by the Governor during the final days of 2019 created a new section 1302-a of the Real Property Actions Law which reads as follows:

“Notwithstanding the provisions of subdivision (e) of rule thirty-two hundred eleven of the civil practice law and rules, any objection or defense based on the plaintiff’s lack of standing in a foreclosure proceeding related to a home loan, as defined in paragraph (a) of subdivision six of section thirteen hundred four of this article, shall not be waived if a defendant fails to raise the objection or defense in a responsive pleading or pre-answer motion to dismiss. A defendant may not raise an objection or defense of lack of standing following a foreclosure sale, however, unless the judgment of foreclosure and sale was issued upon defendant’s default.”

This legislation has two major consequences. First, it raises the very real possibility that New York’s already cumbersome mortgage foreclosure process will become even more complicated and time consuming. This concern pales in comparison; however, to the reality that under this legislation, anyone buying foreclosed property subject to a default judgment or a foreclosure proceeding in which lack was not raised cannot be assured that they have clean title to the property. In other words, the previous owner could, under this law, contest the purchase of his or her home even after the sale is final in most circumstances.

As one of my colleagues pointed out, this is going to be a mess. The title insurers agree, which is why I’ve heard of two prominent title insurance companies that do business in New York which plan to either refuse to grant title insurance in the state, or grant it with an exception accounting for this new loophole. The latter option will be of little benefit for the new homeowner, let alone the mortgage holder.

This is bad news not only for lenders and borrowers, but for the communities in which these properties are located. Although the intent of the legislation was to make sure that homeowners at risk of losing their house don’t lose the right to raise this defense, the legislation has been drafted in such a way that it will actually make it more difficult to interest people in buying foreclosed property, contributing to the blight which disproportionately impacts poorer neighborhoods. In addition, theses title insurance exceptions will, in my opinion, make it impossible to sell these properties to Fannie Mae and Freddie Mac given the uncertainty of title.

January 22, 2020 at 9:28 am Leave a comment

A Wednesday Hodgepodge

Good morning. Yours truly is back from a college tour in the great Northeast, and there are a lot of odds and ends I need to catch you up on. First, however, congratulations to all you Nats fans out there. Your team finally won a big game. Now don’t get me wrong, all you won was the right to lose to the Dodgers, but at least that’s something. Besides, that was the most fired up Washington crowd I’ve heard since the Redskins were good. Maybe D.C. can get united about something after all. Now onto the material you read the blog for.

Beware of the Business Appraisal Rule

CU Today is reporting that an advisory group of the National Association of Credit Union Service Organizations put out a welcomed reminder telling credit unions to practice “careful restraint” when it comes to taking advantage of the new commercial real estate appraisal requirements for credit unions, which take effect in this month.

Their warning should be taken to heart. In July, the NCUA finalized a regulation that increases the threshold for required appraisals in commercial real estate transactions from the current $250,000 to $1 million. The regulation was an aggressive move by Chairman Hood and Board Member McWaters, who argued that the increased threshold did not raise safety and soundness concerns and would help credit unions provide member business loans. The decision was a controversial one. Credit unions now have more commercial real estate transaction flexibility than do banks. Board Member Harper voted against the proposal. Against this backdrop, even though only 4% of credit unions make these types of loans, you can bet that the industry will be under the microscope with critics anxious to point to this new regulation as an example of NCUA being too aggressive.

Treasury Moves Forward with GSE Reform

Lest anyone doubt that the Trump Administration is serious about moving forward with major reforms of the secondary housing market, those doubts should be put to rest once and for all. On Monday, the Treasury announced that it would be authorizing Fannie Mae and Freddie Mac to retain up to $25 and $20 billion in earnings, respectively, as opposed to the $3 billion capital cushion at which they are currently capped. This means that the government is deciding that it will no longer be taking almost all the profits being generated by the GSEs.

More than a decade ago now, when the government gave the GSEs a $200 billion line of credit and a huge bailout, it received preferred shares which made it the first in line to receive dividend payments. This has proven to be an incredibly lucrative investment for the government, and has led to lawsuits with irate shareholders claiming that the government has effectively taken their profits for themselves. The cynics among us have even suggested that the profits are so appealing that the government would never want to privatize Fannie and Freddie. This is the clearest sign yet that their cynicism is misplaced. The Treasury’s ultimate goal is to allow Fannie and Freddie to build up huge capital reserves and then function as private entities absent implicit government support. Just how much of this goal can be accomplished without Congressional support remains to be seen.

Arbitration Update

In a recent blog, I said that all medium to large sized credit unions should consider putting arbitration agreements into their account agreements and their HR handbooks. Now that the Supreme Court has consistently and emphatically upheld the legality of such arrangements, it is almost negligent not to consider making this move if your credit union is large enough to be the target of class action lawsuits. Those of you interested in looking into the issue further would be well advised to take a look at this excellent analysis of the issue provided by the Weil, Gotshal & Manges LLP’s September employment law report. The firm summarizes several cases demonstrating how courts are going to scrutinize arbitration agreements to make sure that employees affirmatively agree to be subject to arbitration clauses. I also think some of the concepts are useful when getting your members onboard with arbitration.

Collins Pleads Guilty, Resigns

Western New York Republican Congressman Chris Collins resigned yesterday after pleading guilty to insider trading charges. Nationally, Collins is best known for being the first sitting Congressman to endorse Donald Trump. Trump ended up winning the district by 26 points, but Collins only narrowly won reelection in 2018 after being arrested on the insider trading charges. Credit unions in New York will also remember Collins and his staff for being well-informed and generally supportive of credit unions and their issues. Governor Cuomo will call a special election to fill the vacancy.

October 2, 2019 at 9:12 am Leave a comment

Fannie Buyback Relief On the Horizon

When I got in this morning and perused the headlines for what I thought you most need to know, the one that caught my eye may not sound like that big a deal, but it could be. Some industry journals, including the American Banker, are reporting that Fannie Mae is planning to offer financial institutions that sell it mortgages greater relief from loan repurchases.
Fannie Mae and its GSE brother Freddie Mac purchase loans from credit unions and banks. Under the standard purchase contracts, mortgage sellers make a series of representations and warrantees about the quality of the loan and its underwriting. As I explained in a previous blog, no one cared much about these representations and warrantees when the mortgage market was flying high. But once the foreclosure crisis started, many lenders realized for the first time that they had signed off on a “heads, I win; tails, you lose” arrangement in which the GSEs would retroactively scour loan files and use an underwriting oversight to force lenders to buy back mortgages that had long ago been taken off their books.

In theory, the system makes sense because a financial institution’s failure to live up to its side of the bargain led to the purchase of the mortgage loans for which the American taxpayer is ultimately on the hook. In practice, Fannie and Freddie’s aggressive use of this power resulted not only in poorly underwritten loans being repurchased, but also loans for which the alleged defect had no material impact on the loan going into foreclosure.
Since 2012 both Fannie and Freddie have taken steps to address this issue by, for example, being less likely to mandate repurchases for loans that go delinquent after three years. Nevertheless, problems remain with the system. According to the American Banker, early next year Fannie will implement changes under which it will retain some home loans that have defects. In return, lenders would pay a “risk fee” of roughly 3-4 percent of the loan value. This sounds like a further step in the right direction, but we still won’t know how big a step until we see more of the specifics.

McWatters Proposes Appeal Reform

NCUA’s resident gadfly, bomb-thrower extraordinaire, board member J. Mark McWatters is at it again. He used his column in the December issue of NCUA’s publication to call on NCUA to develop an independent appeals process for credit unions to use when they disagree with examiner findings. This is an issue worthy of its own blog, but I couldn’t help but mention it today. In the meantime, here is a link to a CU Times article on his proposal.

December 16, 2015 at 8:51 am Leave a comment

Further Proof That MBL Reform Would Help Small Businesses

If you are one of those hopeless idealists who actually think that facts, as opposed to the exercise of pure political power, make a difference in credit union efforts to raise the cap on Member Business Loans, then a recent report issued by Filene is a must read. Its most important finding is that “increasing the percentage of total assets that credit unions may lend to businesses should be beneficial to local communities,” particularly where there are already larger bank and savings institutions.

David A. Walker is a long-serving business professor at Georgetown University, who previously served as the director of research for the Office of the Comptroller of the Currency as well as a senior financial economist for the FDIC. In order to gauge the impact that raising the MBL cap would have on business lending activities, he analyzed 120 federally insured credit unions nationwide that were up against the cap in 2012. Specifically, 84 had business loans between 9.5% and 12.25% of their assets; 15 had a percentage below 9.48 and 21 had a percentage above 12.25. The report has special resonance in New York since 12 of the credit unions are based in this state. If you have a Filene password you can access the full report at https://filene.org/research/report/room-to-grow-credit-union-business-lending

One of the big policy debates in recent years has been the extent to which a decline in bank lending to small businesses has been the inevitable result of a down turn in economic activity resulting in fewer businesses needing loans, as the banks argue; or the result of tougher bank lending standards. Based on Walker’s research, a strong argument can be made that small businesses have been squeezed by banks and would benefit from greater access to credit union loans. Most importantly, he points out that in the profiled credit unions, credit unions actually lend out a greater share of their assets in Member Business Loans in counties where banks and savings institutions are larger.

Banks love to argue that behemoth credit unions are gobbling up Member Business Lending at the expense of smaller community banks. Walker’s research strongly suggests that this is more fiction than fact. He notes that “it is not the largest credit unions that lend the largest percentage of their assets to businesses.” The 120 credit unions studied had a median asset size of $170.8 million. In contrast, the 10 largest credit unions had a median size of $8.8 billion in 2012.

This next part is my own extrapolation. The data also suggests that small business lending is particularly beneficial during an economic downturn. The profiled credit unions shifted a larger percentage of their loan volume from consumer to business loans. Between 2010 and 2012, their business lending portfolios increased faster than their credit card loans, real estate loans and auto loans. This is further proof for the proposition that since credit unions are generally much more dependent on local community lending than are regional and national banks, they are more willing to offer business loans during economic downturns than are their commercial banking counterparts.

So the next time you talk to your friendly neighborhood Congressman, you can point out that a vote for raising the MBL cap is a vote for helping small businesses grow, keeping the economy strong, and making sure that local money is spent locally. To me, raising the MBL cap is a no-brainer; but then again, I don’t have to worry about running for re-election.

FHFA Benchmarks Raised

As mandated by Congress, the Federal Housing Finance Administration (FHFA) has adopted affordable housing benchmarks for Fannie Mae and Freddie Mac for 2015 through 2017. Specifically, both GSEs are given the goal that 24% of their purchases be of low-income homes. A low-income home is one to borrowers whose income is no greater than 80% of the area’s median income. The benchmark increases the goal by 1% over the 2014-2015 period.

I’m taking tomorrow off, have a great weekend.

August 20, 2015 at 8:58 am Leave a comment

Score One For The Trolls

The Supreme Court feels your pain when it comes to those increasingly ubiquitous demand letters sent to your credit union by Patent Trolls out to shakedown your credit union for using technology which allegedly  violates an obscure paten but there is not much it  can do about it.  That’s the takeaway from a case decided yesterday by the Supreme Court.  The Court is clearly frustrated with the state of patent law.  Hopefully Congress shares its frustration.

Let’s say you buy a cutting edge ATM.  If a patent holder feels that the ATM maker is using technology for which they have a patent your ATM maker could be sued not only for using the patented technology without permission but also  for inducing third party’s-like your credit union-to violate the patent  by buying the ATM.

The Issue  debated in Commil USA, LLC v. Cisco Sys., Inc., No. 13-896, 2015 WL 2456617,  (U.S. May 26, 2015)( http://www.supremecourt.gov/opinions/14pdf/13-896_l53m.pdf)  was whether a company could defend itself against inducement claims by proving that it had a good faith belief that it was not violating a patent.  The Court said no.  This means that, so long as my fictitious  ATM maker was using technology that violated a patent,  it  violated the law by inducing your credit union to buy its ATM regardless of how earnestly it believed it  was doing nothing wrong.

This clearly is a nice win for patent Trolls, those companies that specialize in buying up patents and then shaking down companies with threats of lawsuits unless they pay them. Credit unions have seen their Demand Letters.   A victory for Cisco would have made the patent trolls business model less cost effective.

In the closing paragraphs of his majority opinion Justice Kennedy almost apologetically explained that    “{S}ome companies may use patents as a sword to go after defendants for money, even when their claims are frivolous. This tactic is often pursued through demand letters, which may be sent very broadly and without prior investigation, may assert vague claims of infringement, and may be designed to obtain payments that are based more on the costs of defending litigation than on the merit of the patent claims.” He reminded the district courts that hear these cases that “If frivolous cases are filed in federal court, it is within the power of the court to sanction attorneys for bringing such suits “and award attorney’s fees to prevailing parties in “exceptional cases. ”

When a justice really disagrees with a decision they signal their displeasure by reading their dissent from the bench.  The majority’s decision drew the ire of Justice Scalia, who complained that it “increases the in terrorem power of patent trolls” That is a bad thing.

The need to protect patents was considered so important by our Founders that they put it in the constitution.  They undoubtedly thought they were fostering innovation.  Today the law is being used to stifle innovation via the threat of lawsuits.  The system is a serious mess that is beginning to hurt our economy. It’s time for Congress to step in so that paten law furthers innovation instead of legal careers

Freddie to offer Free Underwriting

On June 1st it’s going to get a little cheaper to underwrite loans to secondary market standards.  Freddie Mac has announced that it will no longer charge $20 to run applications through its Loan Prospector automated underwriting system.

Will Fannie Mae be following suit? Not if it can help it.  This morning’s American Banker quotes a Fannie Mae spokesperson explaining that its automated underwriting service is a valuable tool whose “value to lenders is clear.” Translation: Don’t expect Fannie to follow suit unless it loses market share.  The paper points out that the price reduction is a sign of renewed competition between the Government-supported housing behemoths.

So the Alice In Wonderland World that is the post Mortgage Meltdown housing market gets even stranger.  The bailed out and bankrupt GSEs are not only continuing to act as the backbone of the secondary housing market but they are back to competing against each other.  I’m happy for those of you who are going to save money but this is an awfully strange way to make housing policy.

 

May 28, 2015 at 9:22 am Leave a comment

HAMP and HARP to be Extended

To no one’s surprise, FHFA Director Mel Watt announced in a speech Friday in California that the GFE’s would extend their participation in the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) until the end of 2016. This coincides with the end of the Obama Administration. What a coincidence.

Started in 2009, these programs were the primary Administrative response designed to assist consumers affected by the Mortgage Meltdown. Under the HARP and HAMP programs, eligible mortgages are either refinanced or modified to make them more affordable. Despite the fact that these programs have been around since 2009, the Director estimated that there are more than 600,000 eligible mortgage holders who have not yet taken advantage of them, including close to 19,000 New Yorkers.

The announcement follows the FHFA’s announcement last month that it was not raising the guarantee fees charged by Fannie and Freddie.

Some quick thoughts. Regardless of a whether or not you agree that HAMP and HARP are worth keeping, the fact that we are still utilizing these programs six years later indicates yet again how slow moving and unimaginative the nation’s response to the mortgage meltdown has been.

Hopefully, there will come a time when Congress has a thoughtful debate about restructuring the nation’s housing support system or comes to the conclusion that Fannie Mae and Freddie Mac should be reformed but not eliminated. Right now, nothing new is being done. The country is as dependent on Fannie and Freddie today as it ever has been. It’s as if they never really went bankrupt.

May 11, 2015 at 8:20 am Leave a comment

GSEs To Aggressively Lend A Helping Hand

Whether or not your credit union offers mortgages, you got some good news yesterday.  Former North Carolina Congressman turned head of the Federal Housing Finance Administration Mel Watt used his first major address since taking over in January to signal that Fannie and Freddie will move aggressively to help prop up the U.S. housing market.  Considering that economic gurus as important as Janet Yellen have signaled that continued weakness in the housing market remains a key threat to a sustained economic growth, the fact that Fannie Mae and Freddie Mac are going to more aggressively try to jump start the housing market even though they are both in conservatorship is big news.

Among the steps announced by Watt are that:

  • The size of mortgage loans that can be purchased by Fannie and Freddie will not be reduced.  He explained that this decision was “motivated by concerns about how such a reduction could adversely impact the health of the current housing finance market.”
  • Fannie and Freddie will increase the circumstances under which they will purchase mortgages that exceed a 43% debt to income ratio.  Keeping in mind that any mortgage that Fannie and Freddie will purchase is considered a qualified mortgage, this has the potential of giving lenders greater underwriting flexibility.
  • Fannie and Freddie will expand the use of more flexible buy back requirements.  This may sound like boring stuff, but Fannie and Freddie have taken such a hard line when it comes to making lenders buy back mortgages with even minor regulatory defects that many lenders have imposed stricter lending requirements than they have to in order to ensure they comply with Fannie and Freddie guidelines.  Remember when it comes to selling mortgages to Fannie and Freddie, it’s seller beware, not buyer beware.
  • Fannie and Freddie will continue to move toward consolidating their securitization platform.  Remember that Fannie and Freddie buy mortgages and then sell them in packages of mortgage-backed securities.  Although we are a long way from finalizing housing reform, all parties seem to agree that whatever entity replaces Fannie and Freddie should be streamlined to avoid needless duplication.

 

As important as the specifics outlined in yesterday’s speech are  is what the change in tone signals about the goals of Fannie and Freddie.  The primary responsibility of the  FHFA is to conserve Fannie and Freddie after they were bailed out by the American taxpayer,  Watt’s predecessor Edward DeMarco emphasized the conservatorship responsibilities of the agency by, for example, resisting pressure from the Administration to loosen lending standards.  Fannie and Freddie have become more not less important to the U.S. housing market in the last five years. 

Critics will argue that yesterday’s speech is yet another example of government not of law but of regulation since the FHFA’s primary goal should be to wind down the GSEs.  Proponents of yesterday’s announcements will argue that with Congress unable to formulate a coherent housing policy, regulators  should use whatever powers they have to get the housing market going again. Both sides have a point and sooner or later, Congress has to come to consensus about what it thinks a “post-Fannie and Freddie” world should look like.

May 14, 2014 at 9:05 am 2 comments

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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