Fed orders Goldman to review foreclosures (Reuters)

NEW YORK (Reuters) – The Federal Reserve ordered Goldman Sachs Group Inc to hire a consultant to review practices of a former mortgage subsidiary on Thursday and said it plans to assess a monetary penalty for wrongful foreclosures.

The Fed's crackdown sent Goldman shares down 3.5 percent on Thursday, even as the bank announced that it had completed the sale of Litton Loan Servicing LP, the mortgage-servicing business at the heart of its foreclosure problems.

Litton's regulatory troubles stem largely from the practice of "robosigning," in which bank employees signed foreclosure documents without reviewing case files as required by law.

Many large banks, including Bank of America Corp, JPMorgan Chase & Co, Wells Fargo & Co and Citigroup Inc, have been targets of probes by state and federal regulators over the same issue, in the clean-up after a world financial crisis triggered in large part by bad mortgages in the United States and bonds backed by those loans.

The Fed cited "a pattern of misconduct and negligence" at Litton in announcing its enforcement action against Goldman.

An outside consultant will have to review all of Litton's foreclosure activity in 2009 and 2010, to identify borrowers who suffered financial losses due to improper practices. Goldman will have to reimburse those customers and is also responsible for any fines that the Fed assesses after the review is complete.

Separately, Goldman also reached a foreclosure-practices pact on Thursday with New York Financial Services Superintendent Benjamin Lawsky, helping clear the way for the bank to sell the business to Ocwen Financial Corp for $264 million.

The bank agreed to forgive 25 percent of principal balances for struggling homeowners who are 60 days past due on mortgage payments, at a cost of $53 million. Goldman will also compensate some Litton home loan borrowers for wrongful foreclosures at an indeterminate cost.

As part of the deal, Goldman, Litton and Ocwen all pledged to stop the robosigning practice, institute new staffing and training requirements for employees handling foreclosures and withdraw pending foreclosure actions that are based on faulty paperwork. They also agreed to compensate borrowers for wrongful foreclosures and strengthen protections for homeowners in relation to late payment fees and insurance costs.

In return, Lawsky agreed to issue a "no objection" letter to the planned Litton-Ocwen transaction.

But the agreement "does not preclude any future investigations of past practices or release any future claims or actions whatsoever," the state agency said in a statement.

Goldman shares closed down $4.06, or 3.5 percent, at $112.16 on the New York Stock Exchange. Ocwen Financial shares closed down 52 cents, or 3.8 percent, at $13.28.

Goldman bought Litton in 2007 for $430 million, hoping to glean more information about the subprime mortgage market to help its trading business. But more recently, it has become a money-losing thorn in Goldman's side.

The bank began considering a sale of Litton late last year, as the mortgage market continued to suffer losses and state and federal regulators began investigating industry-wide foreclosure problems. Goldman wrote down the value of the business by $220 million in the first quarter.

In a quarterly filing on August 9, Goldman said Litton was facing probes by state attorneys general and banking regulators. A group of the nation's largest banks are said to be working toward a settlement that could resolve some of those investigations and cost the industry billions of dollars.

Ocwen is now the 12th largest mortgage-servicer in the United States after having acquired Litton, a relatively small player that ranked 23rd in the industry.

(Additional reporting by Sakthi Prasad in Bangalore; Editing by Robert MacMillan, Steve Orlofsky, Gary Hill)

Browse your computer here

Exclusive: Facing criticism, MERS cuts role in foreclosures (Reuters)

By Scot J. Paltrow Scot J. Paltrow – Wed Jul 27, 4:52 pm ET

NEW YORK (Reuters) – MERS, the electronic mortgage registry that faces multiple investigations for its role in thousands of problematic foreclosure cases, changed its rules to lower its profile in court-supervised foreclosures.

MERS, a unit of Merscorp Inc. of Reston, Virginia, owns the computerized registry, Mortgage Electronic Registration Systems. Mortgage loan giants Fannie Mae and Freddie Mac and several of the largest U.S. banks established MERS in 1995 to circumvent the costly and cumbersome process of transferring ownership of mortgages and recording the changes with county clerks.

In rule changes announced to MERS members on July 21, the company forbade members to file any more foreclosure actions in MERS's name.

It also required mortgage servicers to obtain mortgage assignments and record them with county clerks before beginning foreclosures.

Mortgage-loan servicers perform routine duties for the investment trusts that own pools of mortgages, including collecting mortgage payments and, when necessary, filing foreclosures.

Although these trusts are legally required to own the mortgages when they file to foreclose, the servicers in many cases did not obtain documents known as assignments on their behalf until weeks or months after launching a foreclosure action in court, a recent Reuters Special Report found. (http://link.reuters.com/kyb72s)

Since the collapse of the housing boom, many foreclosure cases were filed in MERS's name, even though the registry doesn't really own either the mortgage or the promissory note, the document which states the terms of the mortgage loan.

MERS's role in foreclosure cases has made it a lightning rod in recent months in court decisions which have held that loan servicers' use of the registry violates basic real estate and mortgage laws.

In the last week, state attorneys general in Massachusetts and Delaware have announced investigations of MERS, and several other states have broader inquiries into foreclosure practices that include MERS.

It is unclear how much the rule changes will help MERS with its legal problems.

Under the new rules, servicers are required to stop filing foreclosures in MERS's name, but MERS's role in foreclosures won't actually be eliminated. The servicers will continue to obtain the needed mortgage assignments from MERS. In past cases examined by Reuters, such assignments have included ones of questionable legitimacy, such as mortgages owned by now-defunct lenders.

O. Max Gardner III, a North Carolina lawyer who is specialist in foreclosure actions in bankruptcy courts, said the change will have the effect of making MERS's role in assigning mortgages invisible in court.

The assignments will still come from MERS, but "they just won't be in the court files any more," he said.

MERS spokeswoman Janice Smith said the new rules make mandatory a trend that already was under way.

She noted that Fannie Mae, Freddie Mac and several large banks already had stopped filing foreclosures in MERS name. Smith said the change would avoid confusing homeowners facing foreclosure by eliminating MERS, a company they had never heard of, from court documents.

She also said that MERS' s original purpose was to keep track of changes in servicers and mortgage ownership. "Foreclosure really was not central to MERS's core business," she said, adding that MERS received no income from foreclosures.

Mortgage-law specialists say that lenders and servicers for a long time relied heavily on bringing foreclosures in MERS's name. This helped make possible foreclosures that otherwise might not have taken place because the necessary original documents were missing.

MERS says that it is the holder of record of 32 million, or 60 per cent, of U.S. mortgages. But it has only a handful of employees. Instead, it has designated some 20,000 employees of banks and other servicers as MERS "officers."

Some courts and homeowners' lawyers have criticized this system because in effect it enables servicers to assign mortgages to themselves whenever they needed one to foreclose.

The rule change also comes amid a growing movement against MERS among county clerks around the U.S. They have been pressing state attorneys general and local prosecutors to investigate MERS for allegedly failing to record documents with them and pay the associated filing fees. The rule change, by requiring servicers to record mortgage assignments sooner and pay recording fees, will partly address the clerks' concerns.

(Editing by Michael Williams)

Browse your computer here

2 firms to pay for improper military foreclosures (AP)

By DEREK KRAVITZ and PETE YOST, Associated Press Writers Derek Kravitz And Pete Yost, Associated Press Writers – Thu May 26, 5:42 pm ET

WASHINGTON – Two mortgage lenders will pay more than $22 million combined to settle federal civil charges that they improperly foreclosed on 178 military personnel, some of whom were serving in the Iraq or Afghanistan wars.

Subsidiaries of Bank of America Corp. and Morgan Stanley failed to obtain court orders before imposing the foreclosures between 2006 and 2009, the Justice Department said Thursday. The cases will result in an average of $125,562 in payments per person. The foreclosed homes were in 22 states.

The settlement is "easily the largest amount recovered" in a case of improper military foreclosures, said Thomas E. Perez, an assistant attorney general.

"The men and women who serve our nation in the armed forces deserve, at the very least, to know that they will not have their homes taken from them wrongfully while they are bravely putting their lives on the line on behalf of their country," Perez said.

Among those foreclosed upon were several service members who had been wounded or who suffered from post-traumatic stress disorder, officials said. One involved an Iraq war veteran who was foreclosed upon while he was receiving counseling for nightmares and "nervous conditions" stemming from his service.

Under the settlement, Perez said, the lenders agreed to create additional mortgage loan protections for military personnel.

The Bank of America subsidiary, BAC Home Loans Servicing, formerly known as Countrywide Home Loans Servicing, and the Morgan Stanley subsidiary, Saxon Mortgage Services, also agreed to look into possible cases of improper foreclosures from the summer of 2009 through 2010.

The law the lenders were accused of violating, the Servicemembers' Civil Relief Act, provides protections to military personnel. Under the law, they can't be evicted and creditors can't seize their property while they're on active duty.

The Justice Department began its investigation earlier this year after separate inquiries from the U.S. Marine Corps and Sgt. James Hurley, whose home in Hartford, Mich., was foreclosed upon by Saxon in 2005 while he was in Iraq. Hurley settled with Saxon earlier this year for an undisclosed amount.

Foreclosure cases involving military personnel serving overseas began coming to light in 2005. Last month, New York-based JPMorgan Chase agreed to settle a class-action lawsuit for more than $60 million. The case involved a Marine Corps captain who said JPMorgan overcharged its military customers who took out mortgages with the bank.

Earlier this year, JPMorgan acknowledged that it had overcharged about 4,000 service members on mortgages and had wrongfully foreclosed on 14 of them. At the time, it paid $2 million to those affected and reversed the foreclosures.

Federal officials say they're working to provide greater financial protections for military families. A federal office dedicated to military financial issues, the Office of Servicemember Affairs, was launched in January and is to be incorporated within the newly created Consumer Financial Protection Bureau.

Browse your computer here

Pace of foreclosures slowed further in April (AP)

LOS ANGELES – Fewer Americans had their homes repossessed by banks or were put on notice for being behind on their mortgage payments in April compared to a year ago.

That would ordinarily suggest improving fortunes for U.S. homeowners, but the decline had less to do with any turnaround in the housing market than with foreclosure processing delays that appear to be getting worse. That is threatening to drag out a housing recovery, foreclosure listing firm RealtyTrac Inc. said Thursday.

It's taking longer for lenders to move against homeowners who have stopped paying their mortgage and to take back homes already in some stage of the foreclosure process. In states like New York, for example, it now takes an average of more than two years for a home to go from the initial stage of foreclosure to being repossessed by a bank, the firm said.

Those delays, partly due to banks working through foreclosure documentation problems that came to light last fall, means it could take many more years for lenders to deal with a backlog of seriously delinquent properties, which numbers up to 3.7 million, by some estimates.

"It's going to take between three to four years just to get those loans into foreclosure at our current pace," said Rick Sharga, a senior vice president at RealtyTrac. "And that doesn't spell good news for the housing market."

Banks repossessed 69,532 homes last month, down 5 percent from March and down 25 percent compared with April of last year, according to RealtyTrac, which tracks warnings sent to homeowners throughout the foreclosure process.

The number of properties receiving an initial notice of default fell to 63,422, down 14 percent from March and down 39 percent from April, 2010.

Homes scheduled for auction for the first time also declined in April, falling to 86,304. That's down 7 percent from March and 37 percent below April of last year.

A weak housing market, sliding home prices and pressure on lenders to give troubled homeowners more time to work out new payment arrangements or loan terms have all contributed to the longer time frame for foreclosures.

Many banks also have taken steps to revisit thousands of foreclosure cases since last fall, delaying the processing of new foreclosures. The logjam has been compounded by court delays in states like Florida, New York and New Jersey, where foreclosures must be approved by a judge.

In the first three months of this year, it took an average of 400 days for a U.S. home to go from receiving an initial notice of default to being foreclosed on, RealtyTrac said.

That's up from an average of 340 days in the same period last year and more than double the 151-day average in the first quarter of 2007.

The delays are even lengthier at the state level. In New York and New Jersey, the foreclosure process took more than 900 days, on average, to run its course in the first quarter — more than three times the average length of time in the first quarter of 2007 for both states.

In Florida, one of the states hardest hit by the foreclosure crisis, the process took an average of 619 days in the first quarter, up from 470 days a year earlier. In the first quarter of 2007, it took an average of 169 days for the process to play out, RealtyTrac said.

Barring a pickup in the pace of foreclosures, it is likely fewer homes will be repossessed this year than in 2010, when lenders took back more than a million, Sharga said.

Despite the drop in foreclosure activity last month, several states continue to have outsized foreclosure rates.

Nevada had the highest foreclosure rate in the nation, with one in every 97 households receiving a foreclosure notice in April. It also bucked the overall national trend, as bank repossessions jumped 23 percent from March and climbed 12 percent from April of last year, RealtyTrac said.

Lenders may have elected to pick up the pace of foreclosures in Nevada to take advantage of brisk foreclosure sales in Las Vegas. In March, sales of previously occupied homes in Las Vegas hit a five-year high, with distressed properties accounting for 69 percent of sales, according to DataQuick.

Browse your computer here

Mortgages, foreclosures top agenda at BofA meeting (AP)

CHARLOTTE, N.C. – Foreclosures and home mortgage modifications took center stage at Bank of America Corp.'s annual meeting Wednesday.

Outside the headquarters of the nation's largest bank, protesters held signs and gave testimonials about their own foreclosure experiences. At the meeting, which was held inside the bank's new 32-story building located adjacent to its headquarters, shareholders confronted CEO Brian Moynihan about mortgage woes in their communities.

Reverend Clyde Ellis, a pastor from Virginia, said Bank of America should take responsibility for its role in the foreclosure crisis. Ellis invited Moynihan to visit Prince William County in Virginia to see the damage that foreclosures have caused, including families that have lost homes and empty homes.

"Come to Prince William County and I will show you disaster," said Ellis.

Losses and litigation related to foreclosures and poorly-written mortgages have haunted Bank of America for several quarters. In its latest quarter, the bank's income dropped 39 percent on higher costs related to mortgages and legal expenses. At the end of the first quarter, the bank had $2 billion of foreclosed properties on its book, and its customers were late by 90 days or more on $24 billion of its total loans, which included commercial and residential properties.

Moynihan tried to separate the rest of the bank's business from its mortgage woes. In his address to shareholders at the start of the meeting, he described the company as being made up of two stories, with the mortgage business on one side and all its other business units on the other.

"The power of the franchise is held back by the mortgage challenges we face," he said.

The bank's stock is one of the worst performers of the S&P 500 index this year. Recently, the stock slid after the Federal Reserve rejected the bank's capital plan and its request for a dividend increase.

BofA was the only bank among the country's four largest that didn't pass a stress test from the Fed. The central bank examined the 19 largest banks in the country to see if they were strong enough to withstand another economic downturn. Bank of America will submit a revised plan later this year.

Moynihan said the bank will pay dividends once it resolves more of its mortgage issues and submits a plan that is acceptable to regulators.

Some shareholders want the bank to scrutinize itself more closely. Michael Garland, who was representing several large public pension funds at the meeting, said he had written to Bank of America's audit committee asking that it conduct an independent review of mortgages and foreclosures to show that they conform with the laws.

Garland said that audit committees of other banks responded soon after he sent them a similar letter in January. He said was disappointed that there had been no response from Bank of America's audit committee until just five days before the annual meeting.

"If this is your response to shareholders with a $1.3 billion stake in the company, I can only imagine how you treat your residential mortgage customers," said Garland, who was also representing the New York City Comptroller's Office, which oversees the public pension funds of New York. The New York Comptroller had put forth a shareholder proposal for the bank to conduct the independent review. The plan didn't get enough votes to pass on Wednesday.

The annual shareholder meeting was held in a brand-new auditorium with red velvet seats in its 32-story Bank of America tower, which opened last year.

Browse your computer here

Home building rises, foreclosures a threat (Reuters)

WASHINGTON (Reuters) – U.S. home building and permits for future construction rebounded strongly last month from February's weather-depressed levels, but a glut of housing on the market will make further gains difficult.

Housing starts rose 7.2 percent to an annual rate of 549,000 units from an upwardly revised 512,000-unit pace in February, the Commerce Department said on Tuesday.

The rise marked a bounce back after an 18.5 percent drop in February when severe winter weather restrained activity.

Although the increase beat Wall Street's expectations for a 549,000-unit pace, economists said it did not signal a decisive shift in construction, which continues to be dragged down by stiff competition from a flood of foreclosed properties.

"The rebound in housing starts in March does little to hide the fact that home building activity remains close to rock bottom," said Paul Dales, a senior U.S. economist at Capital Economics in Toronto.

"With both the demand and need for new homes still very low, housing starts aren't going to enjoy a more meaningful recovery for a few years yet."

Residential construction accounts for about 2.4 percent of gross domestic product, and the latest data suggest it would do little, if anything, to lift the economy in the first quarter. Investment in home building grew at a 3.3 percent annual rate in the last three months of 2010.

Faced with a poor market, builders have shown little appetite to break ground on new projects. An index of builder sentiment in April, released on Monday, slipped a notch with builders viewing sales conditions now and in the next six months as unfavorable.

LIGHT AT END OF TUNNEL?

Housing starts have declined about 76 percent from their 2006 peak of 2.27 million units, but some economists see light at the end of the tunnel.

"Even though there remains a huge glut of unsold properties inhibiting construction activity, that glut is diminishing. There is a relative scarcity of new properties," said Richard DeKaser, an economist at Parthenon Group in Boston.

"Though used properties ... are super-abundant and are a very effective competitor for new properties ... some people put a premium on new homes and at some point that scarcity is likely to result in improved construction."

According to the National Association of Realtors, new home prices have been running 45 percent higher than prices for existing homes. That premium is historically about 15 percent, and the unusually wide spread indicates previously owned homes are currently selling well below the cost of construction.

U.S. financial markets were little moved by the data as investors focused on other issues ranging from solid earnings from banking giant Goldman Sachs to European debt worries and concern over the United States' credit outlook.

Groundbreaking for single-family homes rose 7.7 percent last month, while construction of multifamily units climbed 5.8 percent.

New building permits advanced 11.2 percent to a 594,000-unit pace last month, rebounding from a record low in February.

The rise in permits reflected a 25.2 percent jump in the multifamily segment to the highest level since January 2009, likely reflecting growing demand for rental properties.

Permits to build single-family homes rose 5.7 percent.

(Editing by Neil Stempleman)

Browse your computer here