State Court Voids Home Sale Due to Improper Foreclosure

A Massachusetts man lost something he never had – his home. The Masachusetts Supreme Judicial Court ruled this week that when Francis Bevilacqua purchased the home from U.S. Bank in 2006, the bank did not actually hold the home’s title. The court ruled that because U.S. bank did not hold the mortgage note when it foreclosed on the property, it did not obtain the title in the foreclosure. Therefore, Bevilacqua did not purchase a legal title when he made the purchase. In its ruling in Bevilacqua v. Rodriguez, the court referenced a case tried in the same court last January, U.S. Bank, N.A. v. Ibanez, in which the court ruled that if a bank cannot provide proof it owns the mortgage note, any foreclosure filings it initiates are void. The Ibanez case, however, simply involved a foreclosure action. Bevilacqua extends that ruling to instances when a new homeowner has already purchased the property. “As we recently held in the Ibanez case, Massachusetts ‘adhere[s] to the familiar rule that ‘one who sells under a power [of sale] must follow strictly its terms’‘ so, where a foreclosure sale occurs in the absence of authority, ‘there is no valid execution of the power, and the sale is wholly void,’” the court wrote. “This case is just one example of a much larger problem,” stated Massachusetts Attorney General Martha Coakley in response to the ruling. “In the rush to foreclose, the banks’ reckless origination and foreclosure practices have created a domino effect that has harmed Massachusetts homeowners as well as third-party purchasers who purchased properties after foreclosure.” “This is yet another clear demonstration that the only way we are going to restore a healthy economy is to address the foreclosure crisis and hold the banks accountable for their actions,” she continued.

REOs: Where Are They Now?

Five years into the housing crisis, and foreclosures remain elevated. We’ve seen temporary lulls in home repossessions that coincided with the implementation of new state and municipal mediation efforts, moratoria enacted as federal programs ramped up, and suspensions of filings as lenders initiated paperwork reviews last fall. But by all accounts, the foreclosure tide has yet to ebb, and the massive supply of bank-owned homes building over the last half-decade has taken its toll on market fundamentals. What’s become of all those properties seized by banks? CoreLogic delved into the stats to find out. The company’s analysts took a closer look at the post-foreclosure outcomes of properties since 2006. In 2006, just as the housing bubble popped, over 355,000 properties proceeded through a foreclosure auction. CoreLogic’s data show that approximately 34 percent (122,000) were successfully bid on by an investor. The remaining 66 percent (233,000) went back to the banks as REO properties. Of the properties that went into REO, CoreLogic reports that 90 percent (210,000) were liquidated as REO sales to third-party buyers. Nearly half of those sales took six months or less to complete, but 21 percent took 12 months or longer. Nearly 10 percent (23,200) of the properties added to the REO inventory in 2006 remained in REO as of mid-2010, according to CoreLogic’s analysis. Similarly, of 2007’s REOs, 10 percent have never left the banks’ books. CoreLogic says investors have shifted from buying properties at foreclosure auction to buying properties at the REO sale, increasing the burden of losses on banks holding REO properties. The company also found that only 2 percent of the bank-owned homes bought with a mortgage in 2006 have since been foreclosed on again and made an encore appearance as REO. “This indicates that REO recidivism is not as significant a concern as previously thought,” CoreLogic said in its report.

New-Home Building Soars 15% in September

Last month, home building was at its fastest pace in 17 months, rising 15 percent from August and posting the new-home sector’s best pace since April 2010, the Commerce Department reported Wednesday. In September, single-family home building increased 1.7 percent, while apartment building jumped 53.4 percent. Builders began work on a seasonally adjusted 658,000 homes in September. While that marks a big improvement, the level still remains only about half of the 1.2 million pace that economists consider healthy for the new-home sector. Builders are continuing to struggle to compete against heavily discounted foreclosures and short sales that are plaguing many markets. Building permits, which serve as a measure of future building, dropped 5 percent in September, the Commerce Department reported. Yet, builders seem to be getting more optimistic that the new-home market is showing signs of improvement. The National Association of Home Builders reported on Tuesday that industry sentiment rose in October to 18, the highest level in over a year. However, overall sentiment about the industry remains low--any reading below 50 indicates negative sentiment about the housing market (a level that hasn’t been reached since April 2006). Source: “September Home Building Rose 15%, But Permits for Future Homes Fell 5%” Associated Press (Oct. 19, 2011)

Multifamily Sector Shows Positive Movement

While the homeownership rate falls, rental demand rises bringing rental rates up and apartment vacancies down – all of which has led Freddie Mac’s chief economist to label the multifamily sector “a positive signal for the U.S. housing industry.” “[T]he improvement in the economics of apartment management has prompted an increase in structure values, property sales, and new construction for larger buildings,” states Freddie Mac’s chief economist Frank Nothaft in his October U.S. Economic and Housing Market Outlook. After a 32 percent drop from 2008 to 2009, the’ U.S. apartment values rose 18 percent in the first quarter of this year, Nothaft reports, referencing the National Council of Real Estate Investment Fiduciaries apartment value index. This rise is a result of the fact that many newly-formed households are choosing to rent rather than own in the current, unstable economy, according to Nothaft. From June 2010 to June 2011, the number of households renting rose 4 percent with an additional 1.4 million households moving into rental units, according to the Census Bureau. At the same time, the homeownership rate fell by 1.5 percent to 65.9 percent, according to the Bureau. Freddie Mac notes the decline in homeownership has been greatest amongst the under-30 population. Compared to the national average of 1.5 percent, homeownership amongst those under 25 years of age has declined by 4.4 percent, and by 7 percent amongst those between 25 and 29 years of age, according to Nothaft. This decline in homeownership has translated to a decline in apartment vacancy. Nothaft points out the Census Bureau’s recent finding that in buildings with at least five units, vacancy rates have fallen to 10 percent during the second quarter of this year. This is the lowest vacancy rate among these properties in more than five years. Additionally, a survey by A Reis Inc., found the vacancy rate among professionally managed buildings in metropolitan areas was 5.9 percent as of the second quarter of this year. This is the lowest vacancy rate for these properties since 2007. As demand for apartments increases, so do prices. “Apartment rents, which have been flat to falling in many projects during the 2008-2009 recession, have begun to rise, albeit slowly,” Nothaft states in his outlook. According to Nothaft, rental property sales and multifamily lending are both increasing, and there has even been a rise in construction in this segment. Measured in dollars, rental property sales volume reached its highest level since 2007, according to Red Capital Analytics. Nothaft attributes the rise in originations among multifamily properties to low mortgage rates as well as the return of traditional lenders to the market. In fact, The American Council of Life Insurers reported 165 apartment loan commitments for the second quarter of this year. This is the largest multifamily commitment by a single insurer in 39 years, according to Nothaft’s outlook.

States and Servicers Consider New Proposal for Aiding Those Underwater

Help for underwater homeowners has moved from principal writedowns to refinancing in the settlement negotiations between state attorneys general and the nation’s five largest mortgage servicers. According to a widely circulated Wall Street Journal report, the proposal was put on the table at a meeting last week between representatives from both sides. DSNews.com has received confirmation from a source involved in the negotiations that the parties are indeed considering a proposal to incorporate refinancing for underwater homeowners into an agreement to settle allegations of robo-signing and improper foreclosure practices. While the Journal concedes that discussions are ongoing and “any final outcome is uncertain,” reporters Nick Timiraos, Ruth Simon, and Dan Fitzpatrick lay out the framework for who would qualify for such assistance. Borrowers who are current on their mortgage payments but unable to take out a new loan due to the equity constraints of a typical refinance would fit the bill. The main caveat is that the borrower’s loan must be owned directly by one of the five banks involved in the

Fannie Mae and Freddie Mac to Do Away With Attorney Networks

The Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to transition away from their current foreclosure attorney network programs, and move to a system where mortgage servicers will select law firms based on minimum qualifications and uniform criteria. Currently, each GSE designates eligible law firms for individual states. Servicers then choose a firm from these lists to handle their foreclosure work. FHFA says the new approach is in line with the Servicing Alignment Initiative that has been rolled out by Fannie and Freddie, which is intended to standardize procedures for handling past-due mortgages and processing foreclosures. “FHFA believes these efforts will lead to greater transparency and benefit delinquent borrowers who become subject to the foreclosure process,” the GSEs’ conservator said in a statement. “Further, the change will be supportive of the Consent Orders entered into by financial regulators and servicers.” Fannie Mae’s Retained Attorney Network currently consists of 247 law firms that are pre-selected by the GSE to handle foreclosure-related matters for its loans in specified states. Freddie Mac’s Designated Counsel Program includes 92 pre-approved firms for certain states. FHFA has instructed Fannie and Freddie to work together to develop and implement consistent requirements, policies, and processes for managing default and foreclosure-related legal services. As part of this effort, the GSEs are to “pursue an eventual restructuring” of their respective attorney networks, Freddie Mac explained in a bulletin to servicers Tuesday. That includes discontinuing the practice of maintaining a network of designated law firms for servicers, the company said. FHFA says the dismantling of the networks will occur after a transition period in which the agency will seek input from servicers, regulators, lawyers, and other market participants. During this period, existing contracts remain in place and in effect. In a report released earlier this month, FHFA’s inspector general disclosed the results of an investigation prompted by “widespread allegations of abuse by … law firms hired to process foreclosures” for the GSEs. The inspector general said “FHFA had not previously considered risks associated with foreclosure processing to be significant,” and as a result, “lacks assurance that law firms with histories of performance deficiencies do not jeopardize the safety and soundness” of the nation’s two largest mortgage financiers.

Study: Economic Woes Cause Birth Rate to Fall

The sour economy is being blamed on a sharp decline in births in the country. An analysis by Pew Research Center found that since a 2007 record of 4,316,233 births in the U.S., fertility rates have been steadily falling--even though the nation’s population continues to grow. In reviewing preliminary data from 2009, Pew found that births dropped to 4,131,018 in 2009--which is the lowest number since 2004--and that births were even lower in 2010 at 4,007,000. In all states, Pew found fertility declines occurred within one to two years of the beginning of economic declines. States facing the greatest economic hardships were found to have the largest drop in fertility rates, while states that had only minor economic declines were found to have smaller declines in fertility rates, according to Pew. By race and ethnicity, Pew found that Hispanics had the largest drop in fertility rates. Hispanics also have been one of the hardest hit racial groups in the recession with sinking employment levels and household wealth. Birth rates dropped by 5.9 percent among Hispanic women from 2008 to 2009 compared to dropping 2.4 percent among black women and only 1.6 percent among white women. Source: “In a Down Economy, Fewer Births,” Pew Research Center (Oct. 12, 2011)