Sen. Ted Kaufman (D-DE) is now proposing systemic financial reform. One part of that reform — a big part — would clearly involve changes in the way mortgages are originated, underwritten, bundled, sold and re-sold. The impact on borrowers and the housing marketplace would be significant.

From the Senator’s speech, Wall Street Reform That Will Prevent The Next Financial Crisis:

“On one end of the securitization supply chain, regulators allowed underwriting standards to erode precipitously without strengthening mortgage origination regulations or sounding the alarm bells on harmful nonbank actors (not even those within bank holding companies over which the regulators had jurisdiction). On the other, securities backed by risky loans were transformed into securities deemed “hi-grade” by credit rating agencies, only after a dizzying array of steps where securities were packaged and repackaged into many layers of senior tranches, which had high claims to interest and principal payments, and subordinate tranches.

“The non-banking actors – investment banks, hedge funds, money market funds, off-balance-sheet investment funds — that powered structured finance came to be known as the shadow banking market. Of course, the shadow banking market could only have grown to surpass by trillions of dollars the actual banking market with the consent of regulators.”

Kaufman also looks at how companies on Wall Street sold mortgage-backed securities — and then bet that those securities would fail:

“t has also become known that some firms underwrite securities – promoting them to investors — and then short these same securities within a week and without disclosing this fact, which any reasonable investor would regard as adverse material information. In the structured finance arena, investment banks sold pieces of collateralized debt obligations — which were packages of different asset-backed securities divided into different risk classes — to their clients and then took proceeded to take short positions in those securities by purchasing credit default swaps. Some banks went further by shorting mortgage indexes tied to securities they were selling to clients and by shorting their counterparties in the CDS market. This is how a firm like Goldman Sachs could claim that they were effectively hedged to an AIG collapse.

“Unfortunately, the use of products like CDS in this way allows the banks to become empty creditors who stand to make more money if people and companies default on their debts than if they actually paid them. These and other problematic practices that place financial firms’ interests against those of their clients need to be restricted. They also completely violate the spirit of our seminal legislation from the 1930s, which insisted — for the first time — that the sellers and underwriters of securities disclose all material information. This is nothing less than a return to the unregulated days of the 1920s; to be sure, those days were heady and exciting, but only for a while — such practices always end in a major crash, with the losses disproportionately incurred by small and unsuspecting investors.”

For the full speech, see: Wall Street Reform That Will Prevent The Next Financial Crisis

Mortgage Reform — Getting Back To Basics is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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For Sale

It might seem that a property which is “for sale” is, well, being offered to the public for purchase. Actually, the sign has a somewhat different meaning. The owner IS saying that the property is available for sale, however it’s the buyer who is expected to bring in an offer. Once received, the owner may then accept, reject or counter the offer.

In other words, the sign and a price from the owner are an invitation to bid — it’s the buyer who actually makes the offer. This is why a home can be sold above the offering price even if another buyer makes a full-price offer.

Under Contract

In this case the owner has received an accepted an offer. Since there has been offer and acceptance it might seem as though we have a done deal, a contract. However, virtually all real estate offers are contingentoffers, meaning that each party is committed to the transaction IF certain conditions are met. The buyer might want a home inspection, appraisal, financing or some other requirement which must be satisfactory to him or her. The seller might want a certain deposit amount, quick loan application or other requirement. If the conditions are not met then, usually, the deal is off and the buyer’s deposit is returned.

Because a home “under contract” has not actually been sold — and because some percentage of contracts fall through — the owner of a home under contract may be willing to accept a back-up offer. If the first offer falls through then the owner will consider a back-up instead.

Sold

A sold sign means the deal is done and title has changed hands. This sign should only go up after closing has been completed, though absolutists might argue that a “sold” sign is only right after property records have actually been changed.

With a sold sign, if you want to buy the property you need to speak with the new owner.

Offers, contracts and back-up offers are all complex. Be sure to get help from a licensed real estate broker, attorney or legal clinic before signing such paperwork.

Compare “For Sale,” “Sold” & “Under Contract” Signs is a post from: 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: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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