Pipeline

Legal Attachment

Arizona bankers are fighting for the right to pursue deficiency judgments against some borrowers.

The Grand Canyon State is one of about a dozen that restrict mortgage lenders from going after borrowers for a deficiency — the amount owed on a defaulted loan not covered by the sale of the home.

The original 1971 law protected all mortgage borrowers from such claims. In July, the law was amended to require that the borrower have lived in the home for at least six consecutive months, and have a certificate of occupancy to prove it, in order to enjoy such protection.

Bankers had lobbied for the amendment, arguing that property flippers who walk away from their loans should be liable for the full debt.

But the measure was controversial, in part because the burden of proof was placed on the troubled borrower.

Before it even took effect, the amendment was repealed last month as part of the state budget. Last week, the Arizona Bankers Association filed a lawsuit in the Arizona Supreme Court seeking to block the repeal, claiming it violated the state constitution since it was tacked on to unrelated legislation.

Of course, critics had said the same about the amendment, which was attached to a criminal justice bill.

Eye on Applications

The Mortgage Bankers Association said Wednesday that its index of refinance loan applications decreased 16.2% in the week that ended Friday, and its seasonally adjusted index of purchase applications decreased 5.2%.

That reduced the share of refinance applications by 2.7 percentage points to 62.3%.

If the Loan Won't Fit

There's a darkly funny detail in The Seattle Times' exhaustive series on Washington Mutual Inc.'s mortgage lending practices. The four stories published this week focus on the Seattle thrift company's journey down the path of low-documentation lending and other risky products. At one point, Wamu even made a low-doc loan to O.J. Simpson.

Yes, that O.J. Simpson.

Fay Chapman, Wamu's chief legal officer from 1997 to 2007, is quoted describing the deterioration of the lender's underwriting standards. She offered this example: "Someone in Florida had made a second-mortgage loan to O.J. Simpson, and I just about blew my top, because there was this huge judgment against him from his wife's parents."

Simpson had been acquitted of killing his wife Nicole Brown Simpson and her friend but was later found liable for their deaths in a civil lawsuit; that judgment took precedence over other debts, such as Simpson's Wamu loan. "When I asked how we could possibly foreclose on it, they said there was a letter in the file from O.J. Simpson saying 'the judgment is no good, because I didn't do it.' "