Pipeline

Keith.Wright

Double Take

The housing crisis has given rise to tales of homeowners being mistakenly foreclosed on and locked out of their own homes. The latest horror story to make headlines involves a Miami-area home being sold to two different buyers within a week's time.

According to a Dec. 4 report in the Sun Sentinel, Miami resident and real estate investor Marjorie Oster recently purchased a four-bedroom house in Cutler Bay, Fla. — complete with swimming pool — for $95,000 in a foreclosure auction.

The day after the sale, Oster's husband drove by the property and discovered "someone cleaning the pool, a lawn service cutting the grass and a note it was being tented for termites," Oster told the newspaper.

The services had been ordered by Osberto Jimenez, who had bought the home seven days earlier in a short sale for $123,000.

According to the report, the Law Offices of David J. Stern, the firm handling the foreclosure for CitiMortgage, a unit of Citigroup Inc., had failed to cancel the auction sale after the short sale was completed.

The Stern law office is one of the firms that Florida's attorney general is investigating for alleged mishandling of paperwork in foreclosure cases. Citi declined to comment on this specific case. However, spokesman Mark Rodgers said Citi stopped referring new matters to the firm in September and has since withdrawn all pending matters from the firm.

Oster ended up vacating the sale after reaching an agreement with Citi, the Sun Sentinel reported. Oster told the paper she will be refunded her money as well as be paid for legal fees and some interest.

Voice of Authority

The problem with so many of the books that have been written about the mortgage meltdown and the subsequent credit crisis is that they aren't easy for the average consumer to understand, says mortgage banker Kenneth Clark.

So the founder and chairman of First Guaranty Mortgage Corp. of McLean, Va., has taken a crack at explaining what happened in simple terms in his new book, "The Story Behind the Mortgage and Housing Meltdown: The Legacy of Greed."

"Ask 10 people what caused the crisis and you'll get 10 answers," Clark said in a press release Monday. "Some feel it is all on the lenders, others feel it was all about Wall Street, and many blame the government. I felt it was time to face facts and recognize the real structural defects that precipitated the downfall."

Clark points to lenders' overreliance on credit scores and technology as one of the reasons the housing system eroded.

"With volumes going through the roof and Wall Street clamoring for even more loans, good judgment was sacrificed in favor of three-digit credit scores that ultimately had no meaning," he said. "As predictors of default, credit scores did far more harm than good, and they are still being overly relied upon today."

First Guaranty Mortgage, which specializes in Federal Housing Administration loans, originates more than $1 billion of mortgages annually and is licensed in 44 states.

Clark hopes an understanding of what went wrong in the mortgage industry will help prevent future crises.

"If the average American can understand the reasons it all happened, it will greatly minimize the chances of something like this ever happening again," he said.

Published by AuthorHouse in August, the 164-page book is available from such retailers as Amazon and Barnes & Noble.

Policy Proposal

As part of its overhaul of the housing finance system, the government should establish a public utility-type regulator to set servicing standards, oversee borrower protections and establish guarantee pricing, among other things, a report from the Center for Financial Policy at the Robert H. Smith School of Business at the University of Maryland, proposed.

Additionally, 10 new privately capitalized guarantor companies of comparable size and with similar geographic exposure should be created, author Clifford Rossi wrote. The report was released Nov. 18.

These companies would provide the regulator with explicit guarantee pricing, manage the guarantee reserve and pay out claims as needed. A separate servicing unit would be established to service the federally-guaranteed mortgages.

"The crisis has clearly demonstrated that poor governance practices coupled with weak product and process oversight, provide incentives for lenders to rationally maximize short-term profit at the expense of long-term performance," Rossi wrote.

"Therefore a fully private solution to the [government-sponsored enterprise] issue is not desirable. Likewise, a fully public solution is not optimal as this misplaces financial responsibility for housing finance on the U.S. government and taxpayer," he said. "The need for some federal credit guarantee to resuscitate secondary markets must in return require a strong public utility style of regulation. Such a regulator determines the products under which taxpayers would be willing to accept risk."

Rossi envisions mortgage-backed securities being the main securitization vehicle, with covered bonds also playing an important role.