Does the safe harbor provision created by Congress last March for mortgage servicers allow servicers to change the terms of loans owned by investors without the approval and authority of investors — even when it means that investor returns will fall and that asset values will decline? According to United States District Judge Richard J. Holwell, the answer is no — meaning the investors now have the right to take Countrywide to court.

A major issue here concerns potent conflicts of interest. For instance, if a mortgage servicer is a big bank can it modify loans owned by investors — but not loans that it owns?

Greenwich is headed by William Frey, perhaps the country’s best advocate of mortgage investor rights. In conversations with me, Frey has pointed out that protecting investor rights is important as a matter of law even if such rights may not be politically popular.

Moreover, Frey notes that mortgage “investors” are often insurance companies and pension funds which actually benefit average citizens such as retirees, state workers and other groups. Cutting mortgage rates or reducing the value of mortgage securities can impact individuals across the country who depend on such money for their retirement and lifestyle.

Incidentally, Greenwich is a securities broker-dealer and not a hedge fund.

Greenwich Financial Decision

Mortgage News: Investors Have Rights Too is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Now, however, the old rules are out and very much better rules are in. Under the?,? Helping Families Save Their Homes Act of 2009, tenants now have new rights.

First, a bona fide tenant must get at least 90 days notice before an eviction.

Second, if a bona fide tenant has a lease, the tenant may stay on the property until the end of the remaining term, except if the buyer of the foreclosure is going to occupy the property as a prime residence — then there must be 90 days notice.

Third, in some cases tenants may be able to hold over even longer. This would be the case for any Federal- or State-subsidized tenancy or of any State or local law that provides longer time periods or other additional protections for tenants.

Bona Fide Tenants

Notice that the legislation does not protect all tenants — only bona fide tenants. Okay, so who is a bona fide tenant?

First, if the borrower or the child, spouse, or parent of the borrower under the contract is not the tenant;

Second, if the lease or tenancy was the result of an arms-length transaction; and

Third, if the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a Federal, State, or local subsidy.

For a good explanation of the new rules, see the information posted by the National Low Income Housing Coalition.

Tenants Get New Rights When Homes Are Foreclosed is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Answer: There’s little doubt that owners are the world’s leading authority on the in and outs of their homes. But the real question ought to be: What are we trying to accomplish?

Your goal as an owner is to get as much for the property as possible, an offer with the fewest hurdles and costs as well as an offer from buyers qualified to purchase the property.

That means you want buyers to deal with someone who has negotiating experience — that’s one of the services for which you pay a broker.

As a practical matter, owners not only know a lot about their homes, they also have a certain psychic investment. How will you feel when buyers criticize your home or its d????cor? A third-party broker can easily ignore such comments and stick to the matter at hand, selling the home.

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Syndicated originally by Content That Works and posted with permission.

How Come My Broker Wants Me To Leave My Open House? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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At first this may seem unimportant. After all, when a home is financed doesn’t a lender own the loan? And if a borrower doesn’t pay shouldn’t the lender have a right to foreclose?

It turns out that the first question is not so simple. A large proportion of the institutions that we see as “lenders” don’t actually own the loans they make. Instead, they create loans and then sell them to issuers. The issuers package the loans to create mortgage-backed securities (MBS) and those securities are then sold to investors worldwide. The investors, in turn, are represented by a trustee.

That means, according to ruling by federal judge Christopher Boyko of the U.S. District Court in Ohio, that many foreclosures cannot proceed because the actual loan owners are not the lenders that originally issued the loans — even though the names of those original note holders continue to appear in official records.

Boyko 2007 Foreclosure Decision — Deutsche Bank Nat’l Trust Co. v. Steele, 2008 WL 111227

Who Owns The Loan?

Before someone can lose their home in a foreclosure a plaintiff must prove that it’s actually the loan owner. In more than a dozen Ohio foreclosure cases Deutsche Bank said it owned various notes and mortgages. However, Boyko found in each case that the paperwork actually identified the original lenders as the loan owners and said nothing about Deutsche Bank.

The problem is that the original lenders who created the loans — the lenders listed as the loan owners in public records — were not seeking to foreclose. Instead, it was Deutsche Bank that was taking homeowners to court and Deutsche Bank, said Boyko, had no grounds to foreclose because it did not own the loans or have any authority to foreclose.

Given that borrowers make monthly payments and that the money ultimately goes to those who own the mortgages, the Boyko decision seems odd. Aren’t the loan owners the ones getting the monthly payments?

It used to be that if you wanted a mortgage you went to a local lender such as a savings & loan association or a commercial bank. The lender actually owned the loan.

The Secondary System

However, the system changed with the development of the “secondary” market. Now local lenders could sell their loans to investors around the country. Big institutions, such as Fannie Mae and Freddie Mac, would buy local loans, but only if those loans met certain standards. The loans that could readily be sold on the secondary market were called “conforming” mortgages because they conformed to the requirements established by Fannie Mae and Freddie Mac.

With the secondary system a local lender could make loans, sell those mortgages, replenish its capital with the money it got from selling, and then make more loans. More loans meant the lender could generate more fees and charges. More loans also meant more money was available for local loans, and that helped lubricate the local housing market.

Within the secondary market Fannie Mae, Freddie Mac and others would create securities backed by mortgages. Those securities would be sold to investors worldwide. The securities sold well because home mortgages were believed to represent little risk and because Fannie Mae and Freddie Mac made certain guarantees. Since Fannie Mae and Freddie Mac were “government-sponsored enterprises” that could borrow directly from the U.S. Treasury, many investors thought mortgage-backed securities were just about risk-free.

Fannie Mae and Freddie Mac are not the only ones packaging mortgages, however. Wall Street firms got into the act and began accepting loans that did not meet conforming loan standards — mortgages with little down, loans with “nontraditional” terms and supersized “jumbo” loans that neither Fannie Mae nor Freddie Mac would buy.

In the past few years it would not be uncommon for a lender to put up capital to fund a loan. The loan would be marketed to borrowers by a mortgage banker or a mortgage broker who, essentially, was a salesman for the lender. To borrowers, the mortgage broker or the mortgage banker was their “lender,” however that was not usually the case. Instead, the loan was typically sold by the original lender to an “issuer” and borrowers would make payments to a “servicer.”

The actual owner of the loan at this point was not the original lender, not the mortgage broker, not the mortgage banker nor the servicer or the issuer. Why? When the loan was sold to the issuer, the issuer took that one mortgage, packaged it with other loans, and created a private-label mortgage-backed security (MBS). In effect, the issuer sold the loan to the holders of the mortgage-backed security.

Equitable Interest

But those who invest in the MBS do not actually own the loan either. They have, perhaps, an “equitable interest” in the sense that they are entitled to interest from the mortgage payments and a return of their capital when the loan is sold, paid off or foreclosed.

However, it could be that a single loan might wind up in several loan pools, each with a different level of investor risk — more risk would hopefully produce a higher level of return. Or, it could be that a loan is in one pool today and another pool tomorrow.

In such circumstances, as lawyers might ask, who is the real party in interest, the party who actually owns the loan?

“This court acknowledges the right of banks, holding valid mortgages, to receive timely payments,” said Boyko. “And, if they do not receive timely payments, banks have the right to properly file actions on the defaulted notes — seeking foreclosure on the property securing the notes. Yet, this court possesses the independent obligations to preserve the judicial integrity of the federal court and to jealously guard federal jurisdiction. Neither the fluidity of the secondary mortgage market, nor monetary or economic considerations of the parties, nor the convenience of the litigants supersede those obligations.”

In other words, a borrower can only be foreclosed when the actual owner of the loan goes to court. In the cases seen by Boyko, the paperwork said the loan owners were various banks, not the trustee for the owners of a mortgage-backed security.

What does it all mean?

First, the Boyko decision could be stayed or over-turned by higher courts. It may have no standing in other districts. It could also be voided with new laws from Congress.

While no one can predict how courts may rule, help for lenders, trustees and MBS investors from Washington is unlikely. The politics of the time — with an estimated two million homeowners facing foreclosure this year — make assistance from Capitol Hill improbable, regardless of PAC contributions.

Second, Judge Boyko asked a simple question: If a borrower fails to pay their mortgage then who is hurt? It’s not the original lender because they sold the loan. It’s not servicers because they do not have title to the mortgage. It may not be an individual trustee if a single mortgage has been used to support several mortgage-backed securities. Lastly, since mortgage-backed securities can be sold with electronic speed, it may not be the investor who held a stake in one particular MBS 10 minutes ago.

If the Boyko decision spreads to other districts and courtrooms, then issuers will have to tie specific loans to particular mortgage-backed securities. In the same way that real estate titles are recorded in official records, a similar system will be needed for loan documents. Such a system will support investor claims when borrowers default, but at the same time such a system will also prevent unjustified foreclosures and forfeitures.

“Given the huge stakes in this matter, everyone benefits by knowing who actually owns individual loans,” says Jim Saccacio, Chairman and CEO at RealtyTrac.com, the leading online marketplace for foreclosure properties. “There’s no doubt that some foreclosures can be avoided if only borrowers and loan owners communicated at the earliest possible moment. For such a situation to arise the name of the loan owner has to be disclosed in a way that’s easily accessible to borrowers, disclosure which is not common today.”

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Published originally by RealtyTrac.com during November 2007 and posted with permission.

Judge To Lenders: Show Me The Note is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Your mortgage may be a debt to you, but in the world of mortgage financing it’s an asset to lenders and also to those who “service” loans — the companies that collect payments, pay property taxes, and administer mortgages.

It used to be that when loans were sold or new servicers named, it was the borrowers who were often the last to know. The result was that payments were sent to the wrong address, late fees were assessed, and credit reports needlessly dinged.

But today it’s understood that borrowers have rights under RESPA — the Real Estate Settlement and Procedures Act. Now when a mortgage is sold or a new company is named to provide servicing, it’s the lender’s job to provide proper notice and instructions. No less important, federal law prohibits some of the abusive practices of the past.

To start, when a loan is sold it does not mean the terms can be changed. Your mortgage is a contract between you and the lender, and the fact that a new lender or servicer is in the picture does not mean the interest rate, monthly payments or any other loan conditions will be altered.

What can change is where you send your check. A new lender or servicer typically means a new payment location and the result is that when loans or servicing change hands, borrowers must be told in writing about new payment addresses and account numbers.

Under RESPA, there is a 60-day period after the transfer date during which you can send payments to the old lender. If the payments are timely, the new lender cannot impose a late fee. In essence, the idea is not to encourage payments to a wrong address, but to provide a reasonable transition period — a grace period.

Also under RESPA, when a mortgage is transferred you have a right to file a “qualified written request” to your lender concerning any loan issues. A “qualified written request” is generally a letter from you and not just the lender’s payment form, a letter which must include your name, account number, and specific concerns. The letter is probably best sent by certified mail with a return receipt requested. The lender then has 20 business days from delivery to acknowledge your request.

Once your request is received, the lender has 60 business days to correct any errors in the account or to clarify any questions.

Do lenders take such requirements seriously? You bet. A lender who fails to follow RESPA guidelines can face individual and class-action lawsuits.

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Published originally by Realty Times on April 27, 1999 and posted with permission.

What Happens If My Mortgage Is Sold? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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The lender now has 60 days to answer your inquiry.

Be certain to keep a copy of your letter, the postal receipt, and the postal return card so that, if needed, you can press a claim.

Note that most lenders will respond quickly to any concerns regarding account accuracy. Resolving such problems is far better than class-action lawsuits and regulatory problems.

What If My Lender Is Wrong? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Suppose you have a farm. The local government wants you to keep the farm intact and not subdivide. So, to encourage the retention of open farm land, the local government will allow you to sell your right to subdivide to someone else who can use the rights for another property.

In other words, the farm stays in one piece and another property becomes the site of more intense development, thus there is a transfer of development rights.

What are “transfer development rights?” is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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