by Anonymous on 4/13/2008 08:50:00 AM

A long piece from the Washington Post, which I recommend reading in its entirety.

In late 2006, as economists warned of an imminent housing market collapse, housing Secretary Alphonso Jackson repeatedly insisted that the mounting wave of mortgage failures was a short-term "correction."

He pushed for legislation that would make it easier for federally backed lenders to make mortgage loans to risky borrowers who put less money down. He issued a rule that was criticized by law enforcement authorities because it could increase the difficulty of detecting and proving mortgage fraud.

As Jackson leaves office this week, much of the attention on his tenure has been focused on investigations into whether his agency directed housing contracts to his friends and political allies. But critics say an equally significant legacy of his four years as the nation's top housing officer was gross inattention to the looming housing crisis. . . .

In speeches, he urged loosening some rules to spur more home buying and borrowing. "I'm convinced this spring we will see the market again begin to soar," Jackson said in a June 2007 speech at the National Press Club to kick off what HUD dubbed "National Homeownership Month." He also told the audience that he had no specific laws to recommend to prevent a repeat of the lending abuses that caused the mortgage crisis.

"When Congress calls up and asks us, we'll give them advice," he said. "You have 534 massive egos up there, so unless they ask you, you don't volunteer anything."

HUD spokesperson D.J. Nordquist defended Jackson's record in pushing for more flexibility in government-backed loans. "Secretary Jackson is a big believer in the U.S. housing market and won't apologize for saying so," Nordquist said. . . .

I once opined that it would take Armageddon to get Jackson's attention. It turns out I was wrong; all it took was a shrimp buffet.

by Calculated Risk on 4/12/2008 03:39:00 PM

Professor Stiglitz discusses the current economic situation: recession ("worst since Great Depression", "long and deep"), house prices (probably fall another 10% to 20%), stimulus package ("not well designed"), exports will help, and more.

by Anonymous on 4/12/2008 12:12:00 PM

UPDATE from CR: Comment on Advertising. I haven't applied editorial control over the Ads that appear on this site. I don't accept adult, gambling, or suggestive ads, and I also don't accept flashing, sound, pop-under, pop-up, floating, or certain other ads that annoy me when I'm reading a site. I've blocked several Ads based on requests from readers.

In no way am I endorsing a product or service because an Ad appears on this site. Perhaps in the future I'll apply other standards.

Best to all, CR

Original from Tanta:
This is for those of you who aren't here to discuss the post beneath it. Knock yourselves out.

by Anonymous on 4/12/2008 12:02:00 PM

This post is going to be lawyer bait. I'm just warnin' you civilians.

Housing Wire reported the story yesterday:

Maryland governor Martin O’Malley joined with local elected officials and consumer advocates last week to sign emergency legislation that targets troubled borrowers in the state.

Perhaps the most immediate mortgage industry impact will be felt by just one of the three bills that was passed — the obscenely-long-named Real Property–Recordation of Instruments Securing Mortgage Loans and Foreclosure of Mortgages and Deeds of Trust on Residential Property bill. (Yes, that’s the actual name).

The legislation significantly lengthens the foreclosure process from 15 days to approximately 150 days, by requiring a lender to wait 90 days after default before filing the foreclosure action and to send a uniform Notice of Intent to Foreclose to the homeowner 45 days prior to filing an action.

It also requires personal service to notify a homeowner of impending foreclosure action, and requires that a sale may not occur for 45 days after service. A lender must also produce “proof of ownership” when filing a foreclosure action, according to a press statement put out by the governor’s office. . . .

Longer foreclosure timelines are being considered in other states as well, as state and local governments grapple with a surge in borrower defaults, sources tell Housing Wire. Such changes can be bad news for investors and insurers, who see so-called carry costs increase beyond whatever expectations had been in place when a deal was originally structured or a particular loan pool was purchased.

For insurers, the new law may mean increased loss severity on borrower default claims in the state, sources said.

I hate to disagree with my friend PJ on this--or with Yves at naked capitalism, who also picked up the story--but I'm going to. (Y'all can use the comment thread to beat on me about it, if you want.)

This legislation does very substantially increase Maryland's FC timeline, but then MD had a shorter than national average timeline to begin with. (I really have no idea where Governor O'Malley came up with "15 days" as the current timeline--that's a bit of an exaggeration.) According to Freddie Mac economists Amy Crews Cutts and William A. Merrill, the "statutory timeline" for MD under the old regime was 249 days from date of last payment made by the borrower (last paid installment or LPI) to the final confirmation of the foreclosure sale. The actual average timeline was 274 days. That compares to a national "statutory" average of 292 days and an actual average of 355 days.

As a matter of fact, it doesn't look to me as if this adds more than about 45 days to the MD timeline at most. The trouble is that our good Governor is talking about an old legal regime that gave a servicer a statutory ability to begin FC much earlier than servicers, in actuality, do. As far as I can tell, the new MD law simply enshrines in statute what is a fairly typical servicer practice of waiting until a loan is severely delinquent before initiating foreclosure. The really significant change from the timeline perspective is the requirement that the foreclosure order be (attempted twice to be) served in person to the borrower (and sent by certified mail if that fails) no less than 45 days prior to the actual foreclosure sale. I'm not quite sure how long process service attempts in MD are likely to take in actual practice, but certainly if we are talking about owner-occupied properties, it shouldn't take long.

The new law says (if I am in fact reading the final version signed by the Gov) that a foreclosure action may not be filed until the later of 1) 90 days after a "default" as defined in the mortgage or deed of trust (one may use either security instrument in MD) or 2) 45 days after a Notice of Intent to Foreclose (a new requirement of this law) is sent to the borrower. (This timeline does not apply if the mortgage was fraudulent, no payment has ever been made on the mortgage, the property is destroyed, or the FC is commencing after a bankruptcy stay is lifted.)

The key is that this isn't 90 days plus 45 days. The actual foreclosure filing (which is a docket file in MD) cannot take place until the later of those two timelines, but the Notice of Intent can certainly be sent to the borrower long before the 90th day after default, so that really we're looking at the 90-day timeline to the docket order. In the interests of clarity and trying to line up these timelines with conventions of reporting on loans that you all may already be familiar with, here's my attempt to lay it out.

I put calendar dates in there as examples for those of you who like to see them. I included days from Last Paid Installment, since that's how servicers measure things. The last column translates this into the kind of category you see reported for MBS or mortgage portfolios.

I am assuming here that the servicer does not declare the loan "in default" for legal purposes until a payment is 30 days past due at minimum. The servicer then makes normal collection efforts for 15 days, and if the payment has not been received within 45 days of its due date, the servicer sends out that Notice of Intent (NOI). This establishes "default," from which the statutory 90 days begins.

The "June" timeline here is approximate; much will depend on the attorneys' and court's caseload and the time it takes to serve the borrower and schedule the sale. The three separate sale notices are no different, as far as I can tell, from old MD law. The big difference in the new law is that the foreclosure sale cannot be held earlier than 45 days from process service.

The 60 days for sale confirmation and audit is also approximate; I have seen estimates (like here) of 45 days. Freddie Mac uses 60 days. This period of time doesn't particularly matter to a borrower, unless the borrower did in fact have equity in the home (a borrower would not receive his proceeds until the sale is confirmed and audit complete) or, of course, if the lender were pursuing a deficiency judgment (which also can happen only after the audit when a deficiency is established). But it matters to servicers and investors, so I am including it here. The final "delinquency status" of the loan becomes REO if the lender takes the property, and "zero" or "default" if a third party does.

Thus, I come up with a "fastest case" timeline of 150 days from LPI to FC referral (or 120 days delinquency), which is pretty much what servicers do as a matter of policy anyway. As I said, the MD statute basically just builds that into law. Then the timeline is around 60 days from referral to sale, and around 120 days from referral to final completion.

At a total of 270 days from LPI, that puts Maryland right under the "statutory" or fastest-case national average. More importantly, it keeps Maryland in reasonable proximity to what the Freddie Mac researchers have called the "sweet spot" of foreclosure timelines: "short enough to give borrowers a strong incentive to cure out of foreclosure if they have the means and long enough to allow those who have a reasonable chance of economic recovery a chance to avoid the loss of their home." I have to agree with Cutts and Merrill that foreclosure timelines that are too long just don't end up helping borrowers; without the "strong incentive" of looming loss of the home, borrowers can fall into "waiting out" those long timelines, meaning that when the FC sale does actually arrive, they now owe too much back interest and fees and costs to be able to reinstate. On the other hand, timelines that are much too short simply don't give anyone--borrowers or servicers--enough of a chance to work things out or sell the home voluntarily.

I therefore really don't think it's worth getting up in arms over the MD law; I think it really just makes MD "typical" rather than relatively short. There are also a couple of other provisions in this law that I think are great ideas--and no doubt explain that unwieldy title. First, new recorded mortgages must contain the broker's name and license number, if the loan was originated by someone other than the actual mortgagee (that's the wholesale lender). This will help track FCs back to the originator of the loan, even if the loan changes hands several times afterwards.

Second, the law specifically does not "extinguish" a lease in a foreclosure: the new owner of the property has all rights vis-a-vis the tenants that the old owner did, but then again the tenants have all rights they had under the old owner. That seems perfectly fair to me, and it especially protects tentants "recruited" into a property by a desperate owner just before foreclosure.

Legal junkies may also be amused to note that this law specifically allows that "proof of ownership" of a loan required to be provided with the docket file may be certified copies of mortgages, notes, and assignments in lieu of the originals. That should end all the hoo-haw over missing originals. It will surely take a while for MD courts to clear up their "standing orders" in this regard in terms of exact requirements, but I hope that puts to bed some frivolous objections to copies, as well as servicers' temptation to keep submitting Lost Note Affidavits in order to get around having to file one's original note with the court.

by Calculated Risk on 4/12/2008 01:57:00 AM

From the WSJ: G-7 Sets Aggressive Tone On the Sagging Dollar

The world's major economic powers issued a warning to financial markets Friday that they won't sit by and watch the dollar continue to slide against other big currencies.

In a highly unusual move, Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and their counterparts from the Group of Seven nations said in a statement: "Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability."

Earlier this week, when asked about the possibility of a dollar crisis, Volcker responded "You don't have to predict it, you're in it." With these highly unusual comments, the G-7 clearly agrees with Volcker.

by Calculated Risk on 4/11/2008 04:52:00 PM

For those that missed Volcker's speech this week, it is now available on YouTube in five parts. I've also added a speech Volcker gave in February 2005 that was both prescient and still relevant to the crisis today.



Volcker: Part 2

Volcker: Part 3

Volcker: Part 4

Volcker: Part 5

Volcker in February 2005: Circumstances "dangerous and intractable"

Click image for video.Former Fed chief Paul Volcker spoke in Feb 2005 at the second annual summit of the Stanford Institute for Economic Policy Research. In his keynote speech he warned that the nation was facing 'huge imbalances and risks'.

A few selected excerpts:

"Altogether, the circumstances seem as dangerous and intractable as I can remember."

"Boomers are spending like there is no tomorrow."

"Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security."

"I come now to the heart of the problem, as a Nation we are consuming and investing, that is spending, about 6% more than we are producing. What holds it all together? - High consumption - high leverage - government deficits - What holds it all together is a really massive and growing flow of capital from abroad. A flow of capital that today runs to more than $2 Billion per day."

"What I'm really talking about boils down to the oldest lesson of financial policy in Central Banking: A strong sense of monetary and fiscal discipline."

by Calculated Risk on 4/11/2008 02:30:00 PM

From MarketWatch: Fitch warns on darker outlook for home builders

Home builders are facing the twin specters of a slowing U.S. economy and a housing contraction that looks likely to extend through 2008, Fitch Ratings said Friday.
...
"[A] modest recession, declining home prices, tighter mortgage standards even for conventional loans, poor buyer psychology and record levels of new and existing homes for sale will continue to define the current environment for housing."
[said Bob Curran, Fitch's lead home-building analyst]

Press Release from Fitch: U.S. Housing Contraction Has Legs, Teleconference 4/15 @ 11AM ET

Following are the details of the teleconference:
--Date: Tuesday April 15, 2008
--Time: 11:00 a.m. ET
--Conference ID: 43464842
--U.S/Canada: +1-866-529-2924

Might be an interesting conference call.

by Calculated Risk on 4/11/2008 01:49:00 PM

From Reuters: Japan's Mizuho stung by $5.5 billion in subprime pain (hat tip learning james)

Japan's Mizuho Financial Group Inc (8411.T) cut a third off its earnings estimate for the year just ended, stung by $5.5 billion in subprime-related losses, mostly at its brokerage arm.

The losses are everywhere - from Wall Street, to a small town in Norway, to banks in Japan.

by Calculated Risk on 4/11/2008 10:33:00 AM

From Bloomberg: Washington Mutual Falls on Short Sale Recommendation

``Given WaMu's disproportionate exposure to states'' where home prices are forecast to decline, Goldman expects losses between $17 billion and $23 billion, the analysts wrote. Washington Mutual may have a $14 billion provision charge in 2008 ...

Yes - a rare 'short sale' recommendation - but what really got my attention was the loss estimate!

by Calculated Risk on 4/11/2008 09:33:00 AM

From the WSJ: Import Prices Show Pervasive Jump, Even When Oil Costs Are Excluded

Import prices surged in March, lifted by not only oil but also the biggest jump in nonpetroleum costs on record, a worrisome sign for inflation.

Overall import prices rose 2.8% last month, after increasing an unrevised 0.2% in February, the Labor Department said Friday. ...

During the 12 months since March 2007, prices increased 15%. ...

Excluding petroleum, all other import prices rose 1.1% in March, after increasing 0.7% in February. Prices excluding petroleum increased 5.4% in the 12 months since March 2007, nearly double the 2.8% climb between March 2006 and March 2007.

Rising import prices have a somewhat small impact on U.S. inflation, because total imports (about $2.3 trillion in 2007) are relatively small compared to GDP ($13.8 trillion in 2007) - or about 17% of GDP. But the 5.4% increase in import prices does add - as a rough estimate - about 1% to U.S. inflation.

Also, increases in the trade deficit, associated with rising prices (as opposed to more imported goods and services), is unwelcome news.