FEDERAL LEGISLATION
Since the Presidential inauguration, Congress has been focused on devising an economic stimulus bill and next up will be how to spend the remaining TARP funds. The speculation is that the government will provide “insurance” that the assets will have a minimum value and then encourage private money funds to buy the troubled assets off of the bank’s balance sheets. This is very similar to the plan as it was originally put forth by then Secretary Paulson to buy the “bad loans” from the banks and free up their capital. That plan was abandoned in favor of directly putting the $350 billion into the banks. We all know what a mistake that decision was. We can only hope that this new/old plan will result in loosening of credit.
House Committee Approves Mortgage Bankruptcy Bill
On January 27, the House Judiciary Committee approved a bill that would grant a judge the ability to modify the terms of a mortgage for a homeowner in chapter 13 bankruptcy. H.R. 200, the 'Helping Families Save Their Homes in Bankruptcy Act of 2009,' passed by a vote of 21-15. The bankruptcy foreclosure legislation allows the courts to modify loan terms while also allowing lenders to share in the appreciation of a home's value with borrowers who discharge mortgage debt in bankruptcy. In addition, the bill includes a requirement that a borrower contact their servicer to discuss options before filing for bankruptcy.
The approved bankruptcy foreclosure legislation is facing a cool reception from the banking industry, which, in general, have been opposed to changes in America’s mortgage bankruptcy laws. However, Citigroup recently agreed to support a version of the bill with several modifications that limit the scope of the eligible loans. You can bet the additional risk will be passed on the the borrower with increased fees.
The ability of bankruptcy judges to modify loans existed prior to 1994, when the code was changed to eliminate rewriting of mortgages. Before 1994 judges routinely handled the property valuations as they do now for commercial properties. 'The system did not collapse before 1994,' Judge Klein said. 'Valuation occurs every day in the courts of this country. It's a well-understood procedure used with great regularity.' Lawyers typically agree on a net present value based on evidence from appraisers and comparable sales data, so not all valuations would be decided by judges, he said.
RESPA Rule from HUD
The new mandated Good Faith Estimate form and HUD-1 Settlement Statement forms will be required as of January 1, 2010 unless the lawsuit filed by the National Association of Mortgage Brokers succeeds in preventing the rule from being finalized. The less than sympathetic response from HUD was “In this housing market, the nation is crying out for reasonable regulation to help families shop for and save money on the largest purchase of their lives. This rule is a reasonable regulation and it helps consumers….it’s mystifying why anyone would stand in the way of the kind of transparency this rule brings to the marketplace.”
I think that statement shows just how absurd the entire situation has become. HUD seems to think that separate rules for Brokers and Bankers will some how enlighten borrowers. They have no clue that instead it is just creating a migration of brokers to bankers. In the last 18 months, the number of HUD approved correspondents lenders in Dallas jumped from 300 to 900 and HUD is now getting 3,000 to 4,000 new applications a week instead of the previous 30-40 per week. If the YSP disclosure would make it easy for every consumer to understand their true costs, then why would HUD not be insisting that banks make the same disclosure? It’s mystifying to me.
Home Valuation Code of Conduct Updated - By now you have probably heard that brokers are going to have to order appraisals from the lenders’ preferred appraisal management firm. If you have spoken to your favorite appraiser about this impending change, he might have told you he really didn’t know what to expect or maybe that he wasn’t sure what all the details of the HVCC were. I recently spoke to one appraiser who told me he thought most brokers would be able to order the appraisal if they designated one person who did not originate as the person to order appraisals. I do not think this is what the code intended and besides, there are many brokers who do not have the additional staff that is not involved in the origination process.
DFWAMB held a conference with members of the Houston chapter of the Appraisal Institute and each discussed their concerns. It was a terrific opportunity to hear from a politically active group of appraisers and share thoughts over the potential impact of this regulation. Although most appraisers do not want to be held captive by appraisal management firms, they do believe some of the changes will be healthy, especially eliminating undo influence on appraisers to hit specific values.
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