How did mortgage risk pricing for securitized loans change during the lead-up to the 2008 financial crisis? Using a database from a major American bank that serves as trustee for private-label securitized loans, this paper shows that the decline in underwriting standards was accompanied by a decline in credit spreads on mortgages, after adjusting for loan/borrower characteristics. Observable information, including FICO and LTV, became less influential on mortgage risk pricing over time during the housing bubble. As the volume of mortgages expanded and lending terms eased during the bubble, the increase in risk failed to be reflected in higher risk premiums.… Read More
Tagged with: mortgage
As an initial matter, the 4th Circuit affirmed, in a published opinion, that pursuant to 11 U.S.C. §§ 506(a) and 1322(b)(2), a junior lien against real estate that serves as the debtor’s principal residence can be stripped-off if there is no equity above the senior lien(s).
The Court of Appeals next proceeded to the question of whether a Debtor, who had recently obtained and Chapter 7 discharge and was thus ineligible for a Chapter 13 discharge, could similarly strip-off a junior lien. The Chapter 13 Trustee argued that lien-stripping was contingent on receipt of a dsicahrge, as 11 U.S.C. § 132(a)(5)(B)(i)(I) provides that a lien is retained until either the underlying debt is paid or a discharge is granted.… Read More
In November of 2005, Arlington Hills executed a promissory note and Deed of Trust for $596,345, with such currently being held by Wells Fargo. Thereafter, John & Beverly Cobb, Max & Christy Smith, and Mark Carpenter executed personally guarantees for the note in order to obtain renewals and modifications of the terms. When Arlington Hills defaulted the balance on the note was nearly $2 million, Wells Fargo initiated both a foreclosure and suit against both Arlington Hills and the several guarantors. Carpenter answered this suit, including the affirmative defense of offset pursuant to N.C.G.S. § 45-21.36, but denied any knowledge as to the value of the property.… Read More
The first indorsement in a chain of transfers of a mortgage note was simply a stamp, without an accompanying signature or initials. After falling behind on mortgage payments, Bass, relying on Econo-Travel Motor Hotel Corp. v. Taylor, 301 N.C. 200 (1980), challenged the standing of U.S. Bank as the holder of the note, arguing that it had not been properly indorsed.
The North Carolina Supreme Court rejected this argument relying on the broad definition of “signature” in the Uniform Commercial Code (UCC), at N.C.G.S. § 25-3-201(b)(37), as “any symbol executed or adopted with present intention to adopt or accept a writing.” As the official comment to the UCC includes that such symbol can be “printed, stamped or written; it may be by initials or by thumbprint”, the term “signature” is not limited to “a long-form writing of an individual person’s name.” Bass at 7.… Read More
The Debtors refinanced their home original Sun Trust mortgage again with Sun Trust, which provided the Model Form H-8 “Notice of Right to Cancel”, which is used for closed-end secured consumer credit transactions. In fact it should have used Model Form H-9, which applies in a refinancing rather than new extension of credit. Form H-9 differs from Form H-8 in two ways- First, instead of Form H-8’s disclosure that the borrower is “entering into a transaction that will result in a security interest in your home,” Form H-9 provides that “[y]ou are entering into a new transaction to increase the amount of credit previously provided to you.” Second, Form H-9 adds a sentence, “If you cancel this new transaction, it will not affect any amount that you presently owe.”
In a divided opinion, the Court of Appeals held that neither the Truth in Lending Act nor Regulation Z, which is promulgated by the Federal Reserve to implement TILA, makes a distinction between a refinancing and an initial financing. … Read More
William Miller, Russell Grogan and Stephanie Grogan purchased a 21.394 acre tract (Tract I) in 1997 and subsequently a 0.15 acre tract (Tract II) to provide access to a road. In 2003, the owners granted a Deed of Trust to GMAC. The Deed of Trust included a tax parcel number that encompassed both Tract I and Tract II, but the legal description only referenced Tract II. In 2005, the owners subdivided Tract I into Tract IA, consisting of 10.932 acres owned by all three, and Tract IB, consisting of 10.389 acres which was henceforth to be owned solely by the Grogans. … Read More
Carver Pond executed a promissory note and Deed of Trust secured by an apartment complex to Red Capital Commercial Funding. This note was subsequently assigned to Nomura Credit & Capital and then LaSalle Bank. In 2008, LaSalle merged with Bank of America. In 2010, after defaulting on the note, Bank of America had a receiver appointed to operate the apartment complex. The receiver made no payments in the April or May of 2010, but did send sufficient funds in July for the missed payments. That notwithstanding, Bank of America accelerated the note and commenced foreclosure.
Carver Pond first asserted that Bank of America had failed to show the note was transferred from LaSalle with the merger. … Read More
This paper looks at the extent that differences in foreclosure and bankruptcy laws can jointly explain variation in default rates across states. The author finds that more generous homestead exemptions raise the cost of unsecured borrowing. Households in states with high exemptions therefore hold less unsecured and more mortgage debt compared to low exemption states, which leads to lower bankruptcy rates but higher foreclosure rates. The paper predicts higher bankruptcy rates and a higher coincidence of foreclosure and bankruptcy in states that allow recourse mortgages, where the lender can sue the borrower for any deficiency following a foreclosure. The author also finds that the reforms of BAPCPA pushed borrowers, particularly in states with low homestead exemptions, to take on more secured, rather than unsecured debts, ultimately increasing the number of bankruptcies and foreclosures. … Read More
The Debtors filed a Chapter 13 bankruptcy in 2004, which they successfully completed and received a discharge in 2008. Shortly before the entry of their discharge, the Bankruptcy Court granted a motion to declare their mortgage, serviced by Ocwen, to be current. Thereafter, the Debtors attempted to refinance their mortgage, but were refused because Ocwen provided an inaccurate payoff statement and loan history. After being notified, Ocwen persisted in failing to rectify the error and the Debtors reopened their bankruptcy, seeking to have Ocwen held in contempt.
The bankruptcy court ultimately found Ocwen in contempt, ordered $2,500.00 in compensatory damages, $2,250.00 in attorneys’ fees, lowered the mortgage interest rate to 6% and set the principal balance owed at $65,373.12. … Read More