“This was the year thousands of U.S. homeowners with option adjustable-rate mortgages were supposed to default as their payments spiked. Low interest rates and a surge of early delinquencies mean the numbers probably won’t be as bad as forecast, softening the blow to a housing market where prices have resumed falling.”
Option ARM Time Bomb Blows Early, Easing Damage to U.S. Housing [Bloomberg]

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Comments from “Plugged-In” Readers

  1. Posted by tipster

    “almost half of the remaining ones are at least 30 days delinquent, in foreclosure or have been seized by lenders”
    Whew. Thank goodness only half are *currently* in default or in the process of being foreclosed. What a relief!

  2. Posted by Rillion

    Yeah it is kind of a weird glass is half full argument that article makes. “Things aren’t going to be as bad as predicted because they have already been worse then predicted.”
    So not as many loans are going to default in the 2nd half of this year cause 20% of them have already defaulted. Time to celebrate…

  3. Posted by tc_sf

    This appears to have some nuggets of refi-data that I was wondering about.
    “Terms on about 20 percent of option ARMs have been revised, sometimes with a switch to a fixed rate, said Michael Fratantoni, vice president of research at the Mortgage Bankers Association, a Washington-based trade group. JPMorgan, Bank of America Corp. and Wells Fargo & Co. hold the biggest portfolios of option ARMs.
    About half of the loans issued from 2003 to 2007 remain outstanding, he said.”
    Note that I’m a bit curious about the “sometimes with a switch to a fixed rate” clause and wondering what portion of the 20% this made up. Forestalling the minimum payment increase or increasing the neg-am cap from 110% to 125% could also be considered revising the terms.
    “Of those packaged into bonds, some 20 percent have been liquidated at losses to investors, and almost half of the remaining ones are at least 30 days delinquent, in foreclosure or have been seized by lenders, according to data from JPMorgan.”
    Note though that the universe of securitized mortgages is subset of all the mortgages out there.
    Particularly,
    “Sandler said Golden West structured its option ARMs more conservatively than competitors, using a 10-year recast period and eschewing 1 percent teaser rates. The company also kept its loans rather than package them into securities that were sold to investors, so it had more riding on their quality.”
    The tone of the article is definatly that disaster has already happened and people are being saved by low rates. But given that half of the securitized Option ARM’s are still out there, plus the predominantly California Golden West book and other non-securitized loans, and the lag between delinquency and forclosure, now quoted as two-years by a CS analyst in the article, I really don’t think we’ve seen the end of the impact of these loans on housing inventory.

  4. Posted by Rillion

    Here is some info on the golden west book of loans at wells, of course it raises just as many questions as it answers:
    “Wells Fargo has modified more than 80,000 loans since the beginning of 2009. The company’s outstanding balance of Pick-A- Pay Loans fell to $54 billion on Dec. 31, 2010, from $101.3 billion at the end of 2008, primarily through payoffs and modifications. The company has forgiven $3.7 billion in principal, Goyda said.”
    So about half of the golden west pick-a-pay problem has already been ‘resolved’. Again though it doesn’t say exactly what the modifications entail except for the amount of forgiven principal.
    So 101.3 billion – 3.7 billion = 97.6 – 54 = 43.6 billion that were paid off or modified (besides principal reduction). Big difference if 35 billion was covereted to regular I/O and 8.6 paid off or if 8.6 was converted to i/o and 35 billion paid off.

  5. Posted by EBGuy

    On the securitization front, the glass is less than half full (and leaking badly):
    Borrowers accounting for 42 percent of securitized option ARMs have never fallen behind on their payments, according to data from Amherst Securities Group, an Austin, Texas-based bond broker. This group on average owes 17 percent more than the value of their properties.
    I imagine we’ll see some of those folks throw in the towel next year as Don’t 1099 Me, Bro (aka. the Mortgage Forgiveness Debt Relief Act) is set to expire at end of 2012.

  6. Posted by Rillion

    “I imagine we’ll see some of those folks throw in the towel next year as Don’t 1099 Me, Bro (aka. the Mortgage Forgiveness Debt Relief Act) is set to expire at end of 2012.”
    It would not surprise me to see that extended if foreclosure levels remain high. Also anyone know (in the absence of that act) when the “income” would be recognized? Would it be when the bank finally takes back the house? When default first started? Some time in between, triggered by some notice?
    Cause if it is taking over a year to complete the foreclosure process, people would need to stop paying sometime this year to have a chance to finish their foreclosure by Dec 31, 2012. In which case if people are going to be defaulting to take advantage of the “Don’t 1099 me bro” act we should start seeing an uptick in default rates late in 2011, early 2012.

  7. Posted by A.T.

    The debt relief “income” is recognized for tax purposes at the time of the “relief” – when the foreclosure or short sale is completed. At that point, the borrower is no longer on the hook for the debt and has “earned” the debt foregiveness.
    So Rillion makes a good point that this effect could hit a bit earlier. But I doubt many people in this situation have this on their radar at all and thus likely will not affect behavior.
    I agree this is a good candidate for extension. The Dems will want to do so to bring relief to people in financial trouble. The Repubs will want to do so to avoid a “tax increase.”

  8. Posted by sfrenegade

    The form the bank usually sends you is a 1099-C. The income is recognized upon the debt being written off. Theoretically, if you had a debt you settled with any party, including a credit card company, you have cancellation of debt income.
    I don’t agree with extending the forgiveness (or the rationale for having it in the first place). Generally people should face *some* consequences of their bad decisions, and cancellation of debt income was a good way to give them a 65-90% haircut on their debts to avoid moral hazard.
    A good reform, if we are to extend it, would be a hard cap that is much lower than the current $1M/2M cap, which is way too high — this is a huge tax cut for the rich. At best, the number should be something like $50K. (e.g. you bought a $250K house in flyover country, and now it’s worth $200K).

  9. Posted by lyqwyd

    Somewhat off topic, but did anybody hear about MERS being ruled essentially fraudulent?
    http://www.zerohedge.com/article/judge-finds-mers-has-no-right-transfer-mortgages

  10. Posted by tc_sf

    Note that I believe that you do not incur cancelation of debt income for tax purposes when a non-recourse debt is canceled.
    Regarding how a federal tax court would interpret some of the california case law regarding what is and isn’t non-recourse, I couldn’t even begin to speculate.
    Regarding the MERS case, my interpretation is more that the transfers were ruled invalid then that a fraud was committed on the borrower. i.e The borrower is still not paying and has not suffered from the invalid transfer, but the bank bringing action didn’t make a valid transfer of the deed/mortgage from the originating bank.
    I’m sure there will be much ink spilled about this, but my guess at this point is that this will just make banks go through the process of doing an old-school non MERS transfer before a foreclosure.

  11. Posted by sfrenegade

    The MERS thing has been winding its way through the courts for a while. There have been prior cases that said that MERS has no standing as a nominee — the Kansas case:
    http://www.calculatedriskblog.com/2009/10/mers-v-kansas.html
    There are any number of questionable practices and technical problems from mortgage activity during the boom. We’re only just now learning about some.
    This MERS thing means that banksters may need to clean up the chain of title before foreclosing, which some of the moratoriums required anyway.
    However, beware that the banksters have already tried to get laws passed by Congress to paper over their fraud and missteps and will likely do so again.

  12. Posted by Brahma (incensed renter)

    tc_sf wrote:

    Note that I believe that you do not incur cancellation of debt income for tax purposes when a non-recourse debt is canceled.

    Not in the general case, but what Rillion refers to above as the “Don’t 1099 Me, Bro” act makes an exception for the mortgage on a qualified principal residence.
    I’m not a tax attorney and even doing legal research on the tax code makes my head start to spin in short order, but consider this FAQ:

    Is Cancellation of Debt income always taxable?
    Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
    •Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.

    I didn’t believe it the first time I read someone mention this on socketsite, either.
    The upper limit on the amount of qualified principal residence indebtedness is $2 million at the time the loan was forgiven, so it’s not as if this is some helping hand to the downtrodden. Crazy.

  13. Posted by lyqwyd

    I hadn’t heard about the Kansas ruling, but this latest ruling seems to be much broader in scope. I’m no lawyer so I could easily be competely wrong, but my interpretation of the Kansas ruling is that MERS didn’t have a special right to notification during foreclosure if there wasn’t already a requirement to do so in the mortgage document, so they couldn’t alter the ruling near the end of the legal process:
    “The only broad effect of this decision is that the court refused to make a special exception for MERS mortgages and require precautionary notice to MERS regardless of what the document said. Most MERS mortgages do say that MERS should get notice. If the mortgage document says that, most courts will enforce it.”
    Most mortgage documents do seem to have the requirement, so it was a relatively limited judgment.
    The latest ruling seems to say that MERS had no right to transfer any mortgage whatsoever, which vastly complicates foreclosure proceedings for all MERS mortgages, which seem to be about half of all of them out there. I don’t think it will invalidate all mortgages, but will most likely make it much more difficult and expensive to foreclose on properties.
    I do think it’s likely that the banks will try to push some legislation through absolving them of all this fraud. I hope it doesn’t go through, but I fear it probably will.

  14. Posted by tc_sf

    As Rillion was asking about how this was treated in absence of the Act, I was intending to indicate that even when the Mortgage Debt Relief Act expires, non-recourse debt forgiveness will not be treated as taxable income, as it was not treated so even before the MDRA.
    Referring to the IRS link you provided:
    “Is Cancellation of Debt income always taxable?
    Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
    [..]
    * Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

  15. Posted by tc_sf

    “I do think it’s likely that the banks will try to push some legislation through absolving them of all this fraud. I hope it doesn’t go through, but I fear it probably will.”
    I would again nit-pick here and posit that it’s a bit much to call this a fraud if the borrower is basically unharmed by this and would be in the exact same position were the banks to have correctly executed the transfer of the note.

  16. Posted by tipster

    There is an interesting article in the WSJ that lists the median downpayment for various cities.
    At the end of 2006, the median downpayment in SF was 0. At their respective lowest points, Phoenix and Miami had median downpayments of 5%, higher than the 0 we had.
    I think you need a subscription: search “Banks Push Home Buyers to Put Down More Cash”

  17. Posted by Brahma (incensed renter)

    tc_sf, I stand corrected, re: non-recourse debt cancellation. Thanks for the follow-up explanation.
    I still think the situation is crazy; I don’t know the legislative history, but if I had the legislative power, it wouldn’t matter whether the loan was recourse or not, strategic defaulters would face the tax consequences of having debt cancelled for the same reasons all the other kinds of borrowers do. This would also have the side-effect of deterring strategic default and allowing (hell, encouraging) borrowers forcing their debts onto the backs of innocent taxpayers.

  18. Posted by michael

    @Brahma,
    The theory is that there IS no debt to cancel if the loan is non-recourse: I stop paying my mortgage, you take back the house, we’re even.
    Since I don’t owe you anything now that you’ve taken the house back, there’s no debt, and therefore nothing to forgive.

  19. Posted by lyqwyd

    “I would again nit-pick here and posit that it’s a bit much to call this a fraud if the borrower is basically unharmed by this and would be in the exact same position were the banks to have correctly executed the transfer of the note.”
    I very strongly disagree that fraud is the wrong term. What about the person that bought the mortgage after this was done on the belief that they would be able to foreclose if the borrower defaulted? I certainly think they were defrauded. There is also lots of evidence of forged signatures and false notary stamps on thousands of mortgage documents, which I would also consider to be fraud.

  20. Posted by lyqwyd

    here’s (I believe) a link to the article tipster mentioned:
    http://online.wsj.com/article/SB10001424052748703312904576146532935600542.html
    interesting quote:
    “FHA-backed mortgages, which require 3.5% up front, made up about half of loans for home purchases last year”

  21. Posted by sfrenegade

    “I would again nit-pick here and posit that it’s a bit much to call this a fraud if the borrower is basically unharmed by this and would be in the exact same position were the banks to have correctly executed the transfer of the note. ”
    A lot of this is fraud. What you’re saying would be true if banks had the proper paperwork in order, MERS or not. Banksters don’t have the paperwork in order because they were lazy and trying to churn mortgages as fast as possible. Lots of paperwork that is legally required is missing, and there are foreclosures mills dedicated to forging documents to make a chain of title because the banks haven’t transferred notes and done proper filings over time.
    It’s also a fraud not to record title changes in my opinion, which is explicitly the purpose of MERS. The recorder is supposed to be able to provide notice of who owns a property and who has liens on a property, and the banksters have tried to subvert this process. Without proper chain of title, you don’t know who has the note and who’s allowed to foreclose and who has rights.

  22. Posted by tc_sf

    @ lyqwyd — “What about the person that bought the mortgage after this was done on the belief that they would be able to foreclose if the borrower defaulted? ”
    I believe that all the members of MERS signed up to these membership rules which attempted to make MERS a “common agent”. While it looks like the “common agent” concept was ruled invalid it would appear that all the MERS members agreed to the membership rules and were making good faith transfers between themselves.
    For a non-MERS member, if they took the note from MERS and had it traditionally recorded then they have not suffered. Regardless of that it still seems like a good faith transfer, compared to say knowingly selling a property to two different people.
    Regarding the article, to elaborate on the often misunderstood median, this:
    “At the end of 2006, the median downpayment in SF was 0.”
    Indicates that at least half of all conventional mortgages in 2006 had no money down.

  23. Posted by tc_sf

    Note that in some jurisdictions you are not legally required to record a title, but rather recording gives you certain legal standing if a dispute arises. i.e. Someone with a prior un-recorded sales contract cannot assert “first in time first in right” to invalidate your recorded title.
    But even if you are so required, committing a wrong is not the same as a fraud. If I jaywalk on the way to a business meeting with you, I’ve certainly broken the law, but I have not defrauded you.

  24. Posted by EBGuy

    Cause if it is taking over a year to complete the foreclosure process, people would need to stop paying sometime this year to have a chance to finish their foreclosure by Dec 31, 2012.
    I’m thinking that their is a certain class of opportunistic refinancer (not bankrupt, sophisticated, urban?) in CA that sees the writing on the wall and will go for a deed-in-lieu to avoid the 1099 before the window closes. Perhaps I am overestimating the effects of this law in CA (given the one action rule and the non-recourse status of purchase money); it may trigger more jingle mail in the recourse states. I suppose you have to weigh the deed in lieu against the free rent you receive if you stop paying the mortgage all together.

  25. Posted by lyqwyd

    Fraud, Forgery, illegal activity or some other term is fine with me. I’m not too interested in debating the semantics of it. It’s been ruled illegal activity in a number of trials, but maybe another judge will overturn it.
    What’s much more important is the ultimate outcome of all this. The best case scenario is that all things were done on the up and up and the foreclosures are legit. That seems to be less and less likely. Perhaps it will turn out that only a small portion of the mortgages were handled improperly. This also seems less and less likely now, but still reasonably possible.
    If it does in fact turn out that a large portion of mortgages have been handled improperly it’s a pretty huge deal, with only 3 options as far as I can see it:
    1) The mortgages will have to be properly cleaned up to the point where the improper activities began. I’m not sure if this is even possible, and it will certainly be expensive and time consuming. It will also most likely lead to lots and lots of lawsuits. Unfortunately this appears to be the best case scenario.
    2) The banks will be unable to foreclose, effectively canceling a huge number of mortgages. This means possibly trillions of dollars of loans will basically become worthless. The economic consequences of this would be huge. I believe it would make the recent recession look like a holiday. This would obviously be very bad, and I think the least likely to occur.
    3) The government passes some laws absolving all of the wrongdoing and allowing the banks to continue with business as usual. This would keep the banks finance system from collapsing, but would send another signal to the finance sector that they can do pretty much anything without any repercussions. Some may think this would be a good solution, I think it would be a tragedy as to me it would be an indication that our government no longer has any concern for the constitution or the public good. Sadly I think this is the most likely outcome, as the banks are already lobbying for this without even a final determination of the mortgage fraud scandal. It’s similar to when PG&E tried to get a law passed absolving it of liability for the San Bruno explosion, but on a much bigger scale.
    Hopefully there’s another option that I’m missing or it turns out the illegal activity was just on a small portion of all mortgages, because none of the above possibilities look very good to me.

  26. Posted by tc_sf

    “What’s much more important is the ultimate outcome of all this.”
    Which is why I think the distinctions I made above are important. Were an actual fraud to have been committed on the borrower then the borrower would be entitled to some redress, possibly even your #2 scenario.
    If this was merely an improper transfer which doesn’t give the ultimate recipient of the note standing to foreclose, then it seems like the ultimate recipient could just record a transfer from the last recorded holder of the note before foreclosing.
    Like your #1, but without much hassle.
    Were *members* of the MERS accusing each other of fraud, then your #1 could be very expensive and time consuming as all parties in the chain could fight over what got recorded.

  27. Posted by lyqwyd

    the borrower is not the only party who fraud can be committed against.
    As I mentioned above, the buyers of the illegally transferred mortgage notes are the ones who have been defrauded.
    If many mortgages are ruled invalid you can be assured the parties who bought the mortgages notes will be suing MERS and the banks.
    The buyers of the home stand to gain from the mess, they’ve defaulted on their mortgage and would normally be foreclosed on, but since things were done wrong, the person who thinks they have the right to foreclose does not actually have that right. The buyer worst case gets to live in the house much longer than they would otherwise be able without payments, or possibly gets to own the property free and clear.
    “If this was merely an improper transfer which doesn’t give the ultimate recipient of the note standing to foreclose, then it seems like the ultimate recipient could just record a transfer from the last recorded holder of the note before foreclosing. Like your #1, but without much hassle”
    Sorry, but this possibility has already been ruled out. There has been documented forgeries in thousands of transfers. Nobody really knows how many have been forged, to what extent they have been forged, or when the forgeries started happening. There is no simple way to know where to unwind to. Mortgages have been chopped, sliced, and diced and resold many times in securitized packages. sometimes it’s hard to know who, or even how many people, own a particular mortgage.
    A party that is trying to foreclose at best has added legal costs due to more and longer legal proceedings, likely large losses due to dropping housing prices, and possibly 100% losses if the mortgage is completely ruled invalid. This will cause lawsuits.
    If there was an easy way to unwind this stuff they would already be doing it, since the current level of liability is so great.

  28. Posted by tc_sf

    Rumor, but interesting to think about:
    “Whalen also has harsh words for Bank of America(BAC_), writing that loss rates on residential mortgage backed securities and whole loans for the overall market suggest the pictures painted Wells Fargo and Bank of America are too rosy.
    This overly optimistic view “is also visible in many other large US banks, but [Bank of America] and [Wells Fargo] are the worst offenders in our view,” Whalen writes, adding, “simply stated, the loss rates are far too low compared with loss experience visible on RMBS and whole loans.””
    http://www.thestreet.com/story/11009340/2/wells-fargo-cfo-exit-tied-to-disclosure-analyst.html
    Given practices like Lehman’s repo 105, and the above innuendo, when you see statements like: “The company’s outstanding balance of Pick-A- Pay Loans fell to $54 billion on Dec. 31, 2010,” it does make you wish you knew what the loan balance was a few weeks prior or after.
    This is the type of bank behavior that would annoy me were it to be true.

  29. Posted by sfrenegade

    “Note that in some jurisdictions you are not legally required to record a title”
    Sorry, should have been more clear when I said it was fraud not to record — I didn’t complete the sentence. It’s fraud not to record, when you indeed do not have the paperwork necessary to record, and try to foreclose anyway as if you had recorded and had the necessary paperwork.
    Second, in many cases, there would be a senior lienholder above you if you didn’t record, and yet you’re still trying to claim you’re senior when foreclosing. The recording thing is part of the fraudulent scheme, but not fraud itself — you are right on that part.

  30. Posted by tc_sf

    “As I mentioned above, the buyers of the illegally transferred mortgage notes are the ones who have been defrauded.”
    While it would be possible for a note buyer to claim this, this does not seem to be present in the cases mentioned above. Additionally, if both parties were MERS members it would seem hard to claim fraud since both agreed to the “rules of the game”
    “Sorry, but this possibility has already been ruled out.”
    While obviously biased, MERS lists cases to the contrary.
    Particularly notable is,
    ” IN RE Mortgage Electronic Registration Systems (MERS) Litigation, a multi-district litigation case in federal court in Arizona who issued a favorable opinion, stating that “The MERS System is not fraudulent, and MERS has not committed any fraud.””
    http://www.mersinc.org/news/details.aspx?id=245#1
    Just posted today is a favorable ruling in Kansas and their spin on the NY ruling,
    Reston, Virginia Feb. 16, 2011—The United States Bankruptcy Court for the District of Kansas on Feb. 10, 2011 found that mortgages naming Mortgage Electronic Registration Systems, Inc are valid and enforceable. The ruling in Martinez v. Mortgage Electronic Registration Systems, Inc. upholds MERS’ role as an agent to hold the Mortgage for its member-lenders.
    “The Kansas Bankruptcy Court held that the note and mortgage were never split due to this agency relationship,” said MERS spokeswoman Karmela Lejarde. “The Court found that Countrywide’s interest is secured, and it has the right to enforce the Note and Mortgage through its agent, MERS, or on its own by directing its agent to assign the mortgage to it.”
    http://www.mersinc.org/newsroom/press_details.aspx?id=257
    ” There is no simple way to know where to unwind to. Mortgages have been chopped, sliced, and diced and resold many times in securitized packages. sometimes it’s hard to know who, or even how many people, own a particular mortgage.”
    This is the whole raison-d’etre of MERS. To be a database to keep track of all the above slicing and dicing. Now there is obviously a garbage-in/garbage-out issue if people report bad data to MERS.
    Note that even as an average joe (or homeowner even) you can search MERS. See:
    “MERS is the only comprehensive, publicly available source of the servicing and ownership of more than 64 million loans in the United States. If a homeowner needs to identify the servicer or investor of their loan, and it is registered in MERS, they can be helped through MERS® ServicerID or via toll-free number at 888-679-6377.”
    “Second, in many cases, there would be a senior lienholder above you if you didn’t record, and yet you’re still trying to claim you’re senior when foreclosing. ”
    If you claim to be a senior lienholder while knowing this to be actually untrue and harm the actual senior lienholder then I would agree that you are committing fraud. But the cases I’ve read about seem nothing like this.

  31. Posted by Willow

    With the large interest rate spread between ARMs and traditional 30 year fixed mortgages at the moment, I’d suggest that ARMs are still a better product for most Bay Area consumers.

  32. Posted by lyqwyd

    As I already said, it’s still possible that only a small portion of mortgages are problematic, and if that turns out to be the case then the whole thing is no big deal but from my observation of the number of cases going against MERS, the likelihood of this is low and getting lower. It will probably have to go to the supreme court in the end.
    Again, I’m not interested in debating the semantics of whether fraud happened or not, or if the fraud was conducted by MERS or the robo-signers, or whether the MERS members can claim fraud or if they will. We can agree to disagree on the matter of fraud, but fraud or no fraud it’s already making the foreclosure process much more expensive and time consuming, and some foreclosures are being overturned… which basically defeats the whole purpose of MERS.
    I am much more interested in the broader scope. If a large portion of mortgage were improperly handled (still undetermined, but in my opinion likely) there will be major losses somewhere, which will result in a large number of lawsuits. There are literally trillions of dollars at stake, and it could be a massively destabilizing event to the financial system.

  33. Posted by sfrenegade

    “The Kansas Bankruptcy Court held that the note and mortgage were never split due to this agency relationship,” said MERS spokeswoman Karmela Lejarde. “The Court found that Countrywide’s interest is secured, and it has the right to enforce the Note and Mortgage through its agent, MERS, or on its own by directing its agent to assign the mortgage to it.”
    http://www.mersinc.org/newsroom/press_details.aspx?id=257
    This release is extremely misleading and extremely self-serving. They are trying to defend themselves against the Kansas Supreme Court ruling by saying “Kansas Bankruptcy Court,” but the Bankruptcy Court in the District of Kansas cannot possibly overrule the ruling of the Kansas Supreme Court as a matter of Kansas law. This is propaganda at its best.
    I’m not really interested in the semantics of whether MERS itself committed fraud or if banksters used MERS in combination with their fraud, but housing busts always result in this sort of thing, just like housing bubbles always result in borrower-side fraud.

  34. Posted by tc_sf

    Again, while your definition of fraud may not be relevant to the broader scope issue of how this will affect outstanding mortgages, and considering the possibility of bias given that MERS selected this quote, the opinion of a federal district judge shown above ( ““The MERS System is not fraudulent, and MERS has not committed any fraud.”) would seem very relevant to this question.
    Still keeping in mind the possibility of quoting bias, their take on the NY ruling mentioned in your zero hedge link (Emphasis theirs):
    “The United States Bankruptcy Court in the Eastern District of New York (IN RE Agard, February 10, 2011) considered the same type of evidence as was before the Martinez court and did grant the motion for relief from stay in favor of U.S. Bank, the moving party in Agard. However, Judge Robert E. Grossman found that “MERS did not have authority as “nominee” or agent, to assign the Mortgage absent a showing that it was given specific written directions by its principal” (emphasis added).
    “We disagree with the Court’s interpretation because State Courts in New York have already ruled that a written assignment of the note and mortgage by MERS, in its capacity as nominee, confers good title to the assignee,” said Lejarde, citing to U.S. Bank v. Flynn 897 NYS 2d 855 (Suffolk County Supreme Court, 2010).

    Would seem to indicate that the court is merely requiring “specific written direction” from a principal in order for MERS to be allowed to assign a mortgage. This seems like a very low bar for MERS to meet and seems light years away from a mortgage being ruled invalid. Note also that the homeowner lost the case in question.
    Regarding Kansas, Note that bankruptcy is an enumerated power of the Federal government and thus Federal courts have exclusive jurisdiction over bankruptcy cases. i.e. the Kansas Bankruptcy court is a Federal court, there are no state bankruptcy courts to overrule and bankruptcy cases cannot be filed in state court including the Kansas Supreme court. It would be commonplace though for Federal bankruptcy courts to consider state law and court rulings. Note though that the US bankruptcy courts operate under the the District courts and consider the ruling of a federal district court judge above. Finally, note that the case referred to in lyqwyd’s zero hedge link was also from a bankruptcy court.

  35. Posted by Skirunman

    “Short-term Delinquencies Fall to Pre-Recession Levels, Loans in Foreclosure Tie All-Time Record in Latest MBA National Delinquency Survey”
    http://www.mortgagebankers.org/NewsandMedia/PressCenter/75706.htm
    Delinquency %’s:
    Prime Fixed ——- 4.51%
    Prime ARM ———11.23%
    Sub-Prime Fixed —21.26%
    Sub-Prime ARM —-25.32%
    Foreclosure Inventory %
    Prime Fixed ———2.67%
    Prime ARM ———10.22%
    Sub-Prime Fixed — 9.92%
    Sub-Prime ARM —- 22.04%
    Note: These numbers are assumed to be seasonally adjusted.

  36. Posted by tc_sf

    This CR graph helps shed context on the above: http://cr4re.com/charts/charts.html?Delinquency#category=Delinquency&chart=MBAQ4Delinquency.jpg
    Our MERS discussion seems timely, WSJ has this “Big Banks Face Fines on Role of Servicers” which may require a subscription.
    http://online.wsj.com/article/SB10001424052748703961104576148714202500304.html
    “A review of 2,800 foreclosures also uncovered a “small number” of wrongful sales that shouldn’t have occurred, since the borrowers were on military deployment, filed for bankruptcy-court protection shortly before the foreclosure or had been approved for a trial loan modification, Mr. Walsh said.
    Loan-servicing firms are likely to cite the outcome as proof of their insistence since the robo-signing mess erupted last fall that paperwork problems haven’t caused an epidemic of mistaken foreclosures. Still, the penalties and operational changes being imposed by regulators will be embarrassing and expensive. Regulators want to “get closure on this pretty quickly,” said one person familiar with the discussions.

    Actual wrongful foreclosures or other servicing glitches do seem like issues begging to be corrected. Note though that MERS was not cited as the reason for any of the wrongful foreclosures.
    This references an OCC investigation which could potentially shed more light on the MERS issue:
    “The OCC conducted a separate investigation of the Mortgage Electronic Registration Systems, an electronic-lien registry set up by the mortgage industry to handle documentation on loans bundled into pools and sold as securities. That probe is on a separate track, and it isn’t clear when it will be finished, people familiar with the situation said.
    MERS’s legal standing has faced criticism from some judges, who raised questions about the company’s practice of certifying bank executives to handle foreclosures by naming them “vice presidents” of MERS.
    On Wednesday, MERS issued a series of corporate-governance changes that will overhaul those processes. For example, servicers that use MERS will be required to foreclose in their own names, not in that of MERS.”

  37. Posted by tipster

    One in 5 people in the bay area got an option arm loan.
    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/20/MNOR19N2B1.DTL
    Those loans are the only ones with INcreasing delinquencies.
    Page 10 (numbers in bottom right corner):
    http://www.lpsvcs.com/NewsRoom/IndustryData/Documents/2010%20-%2012%20Mortgage%20Monitor/LPSMortgageMonitorDecember2010.pdf
    So Milwaukee is saved! SF is still trending down.

  38. Posted by [anon.ed]

    One in 5 people in the bay area got an option arm loan.
    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/20/MNOR19N2B1.DTL

    Do you never tire of spinning? That article is talking about a 2010 eventuality that has come and gone.

  39. Posted by tipster

    The article states that one in 5 people in the bay area got an option arm loan. I cited it as my source for that fact.
    Where is the spinning? ski run man, master of using statistics to mislead people, cited a national stat showing delinquencies were declining. But he “forgot” to include 20% of the loans in the bay area, for which delinquencies are increasing.
    I noted the 20% and cited my source. I noted in increasing delinquencies for that loan product and cited my source.
    The only thing that appears to be spinning is the number of delinquencies — up.
    And as for coming and going, what the article doesn’t get is that once the loans go delinquent, it’s over a year to foreclosure. Come and gone? Don’t make me laugh. Barely getting started is more like it.

  40. Posted by tc_sf

    @annon — Note that the while the article’s prediction of recast timing being concentrated in 2010-2012 is subject to some debate as in this thread, the data tipster quoted is related to % Option ARM loan origination which seems independent of the recast predictions.
    Noting that 1 in 5 is only 20%, one shouldn’t consider Option ARM data exclusively representative of SF, but as the article notes since this is more then twice the national average Option ARM delinquency data should be given greater then average importance for the SF market.

  41. Posted by tc_sf

    I would again recommend that people take a look at the CR graph for context as to the change in delinquencies.

  42. Posted by [anon.ed]

    Sure. Except for the fact that the dreaded recasts are to a lower percentage and it’s documented by links in this very thread. Get real, Tipster. Nobody takes anything you say seriously any more with three exceptions. You blew it.

  43. Posted by tc_sf

    @anon — Again, a reset to a lower interest rate will probably result in lower payments. A recast, which could be up to ten years from origination, would require a fully amortizing payment of the original loan plus accumulated interest which is likely to result in a substantially higher payment.

  44. Posted by [anon.ed]

    And again, that is one type of recast. But either way it’s not what Tipster thought he was gloating about, and Tipster’s characterization of that link was once again typically incorrect.

  45. Posted by Skirunman

    @tipster: I refrained from responding to your other ad hominen, but really? Come on, this is so lame as to be pitiful. [Yes, I stooped to your level in this case.]
    I posted this information as I thought it was apropos to the discussion and that others may find it interesting. I stated no conclusions as frankly I had not made any yet from the data. Unlike you, I actually don’t have an agenda except to learn more about SF RE and to discuss relevant topics. You need to find a fresh approach as what you are doing now really does not help your “cause”.

  46. Posted by sfrenegade

    Would seem to indicate that the court is merely requiring “specific written direction” from a principal in order for MERS to be allowed to assign a mortgage. This seems like a very low bar for MERS to meet and seems light years away from a mortgage being ruled invalid. Note also that the homeowner lost the case in question.
    It’s not *that* low a bar because sometimes these banks can’t find the note. You’d need written direction from the right principal, which doesn’t always happen.
    No need to be pedantic regarding bankruptcy court. My point is that MERS is trying to imply the Kansas decision was overturned, or at least they are trying to cast doubt on it, by phrasing it as they did.
    Note though that MERS was not cited as the reason for any of the wrongful foreclosures.
    MERS is not the exact reason, but banks are lazy because of MERS. They assume they have the proper paperwork because MERS says so, but meanwhile, the note has never been assigned properly, or hasn’t been put into the trust properly. There are all kinds of problems in chain of title that banks ignore because they rely on MERS, and that’s what has led to some judges setting aside some foreclosures, and in extreme cases invalidating mortgages. In many cases banks or their lawyers have forged paperwork to correct the chain of title because MERS made them so lazy. The significance of the court cases, generally, is that the banks can’t rely on MERS as a substitute for proper documentation, like they wanted to do when they created MERS.

  47. Posted by tipster

    Anon.ed, I wasn’t “gloating about” anything. I was backing up an assertion of the amount of option arm loans. My post had notthing to do with recasts. I made two statements and backed them both up with links to credible sources. The chronicle link pointed out the one in five figure and so that’s what I used as the source for my post.
    Sometimes I can’t tell what goes on in that head of yours…

  48. Posted by tc_sf

    “Wednesday, February 23rd, 2011, 12:22 pm
    An appellate judge in California last week upheld the rights of the Mortgage Electronic Registration Systems to the deed of trust, giving MERS the right to foreclose, according to court documents.
    San Diego County Judge Steven Denton late Friday upheld an earlier finding in Gomes v. Countrywide that gave MERS the authority to initiate a non-judicial foreclosure.
    “The California decision validates the MERS process and procedures that we’ve used in non-judicial states for many years,” said Karmela Lejarde, spokesperson for MERS. “This decision, combined with a variety of other recent decisions in state and federal courts, confirms the legality of MERS’ role in the mortgage and helps to provide further clarity for all parties engaged in the foreclosure process.””
    […]
    “”The recognition of the right to bring a lawsuit to determine a nominee’s authorization to proceed with foreclosure on behalf of the noteholder would fundamentally undermine the nonjudicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures,” wrote Judge Denton in his earlier decision, which three appellate court judges upheld..”
    http://www.housingwire.com/2011/02/23/mers-rights-upheld-in-largest-foreclosure-state

  49. Posted by sfrenegade

    I saw that, tc_sf, but what’s strange is that MERS just told its members not to foreclose in its name last week:
    http://www.housingwire.com/2011/02/17/mers-to-members-don%E2%80%99t-foreclose-in-our-name

  50. Posted by tc_sf

    “A California appeals court handed MERScorp, the operator of Mortgage Electronic Registration Systems, another legal victory by ruling MERS can launch foreclosure procedures even when it lacks possession of a promissory note.
    In its Ferguson v. Avelo Mortgage verdict, the California Second District Court of Appeals refused to accept the plaintiff’s assertion that MERS as nominee of lender lacked possession of the original promissory note. Ferguson argued MERS could not foreclose if it did not hold the note.”
    http://www.housingwire.com/2011/06/09/mers-scores-another-legal-victory-in-california

  51. Posted by sfrenegade

    That’s a pretty crappy summary of Ferguson by HousingWire, which is disappointing, since HousingWire usually does slightly better with court decisions than the typical publication.
    The Ferguson case is an odd factual situation, because the original buyer fraudulently signed a quitclaim deed to Ferguson almost 1 year after the property was foreclosed. Then Ferguson tried to challenge the foreclosure, but in challenging the foreclosure, Ferguson refused to plead tender. The decision is largely about whether Ferguson had to plead tender or not.
    It does speak to the MERS as nominee issue, but only barely. The court largely applied Gomes (http://login.findlaw.com/scripts/callaw?dest=ca/caapp4th/192/1149.html) with respect to MERS, which is pre-existing law. Gomes hinges on two things: 1) that you can’t stop a nonjudicial foreclosure in the way Gomes tried without alleging a specific factual basis, and 2) the deed of trust that is granted by the borrower contractually allows MERS to foreclose in a nonjudicial foreclosure.
    Here is the slip opinion for Ferguson:
    http://login.findlaw.com/scripts/callaw?dest=ca/caapp4th/slip/2011/b223447.html [login required]
    As I mentioned before, the problem is not necessarily with MERS per se. Some courts say MERS has no standing to do anything, and then the problem is with MERS per se in those jurisdictions. In other cases, however, the problem is more that banks got lazy with the proper paperwork and used MERS as a short-cut for that laziness.

  52. Posted by tc_sf

    Thanks for the link!
    Note though, they do explicitly say: “The role of MERS is central to the issues in this appeal”
    And specifically mention some federal precedents unfavorable to MERS and explicitly states that they are not binding and conflict with California case law.
    “Appellants cite two federal cases for the proposition that MERS, as the nominee of the lender under a deed of trust, does not possess the underlying promissory note and cannot assign it, absent evidence of an explicit authorization from the original lender.
    […]
    We are not bound by federal district and bankruptcy court decisions, and the cases cited by appellants are in direct conflict with persuasive California case law.”

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