Dropping Mers
Fannie Mae is now
With foreclosures on the rise, homeowners have challenged the system's authority to foreclose on behalf of mortgage lenders even though public records often list a Merscorp subsidiary as the holder of the mortgage and not the originating lender.
The system's members include the top-100 mortgage originators and servicers.
Fannie alerted servicers on Tuesday that any foreclosure actions filed after May 1 can no longer name Mers as a plaintiff on mortgage loans owned or securitized by the government-sponsored enterprise.
Since December 2006, Fannie has required that servicers bring foreclosure actions in their own name but only in judicial states such as Florida, New York and New Jersey where foreclosures are processed through the courts.
The change now also applies to nonjudicial states such as California, Michigan and Texas where foreclosures are processed without court intervention.
A Fannie spokeswoman said the change was made to align its policies on how judicial and nonjudicial foreclosure actions are handled, and to bring more transparency to the foreclosure process.
More Reform Urged
The Association of Mortgage Investors is asking regulators to consider a number of guidelines to protect investors and increase transparency in the asset-backed securities market.
In a
As a result, "it is important for the government to consider the policy recommendations of investors, whose participation and capital are needed for there to be an asset-backed securities market at all," the report said.
Among the group's recommendations are a requirement that loan-level information be provided and a "cooling off" period be given to investors to review and analyze such data before making an investment decision.
Currently, financial and other due diligence information about the loans underlying the securities is not required to be publicly disclosed, the association said.
"The data already exists and the creation of standard data fields and automation of this process would create little regulatory burden," the report said.
The association requested that regulators require servicers to disclose any conflicts of interest that could adversely affect the investor, such as whether the servicers have affiliates that hold second liens, and also called for changes in the ratings process.
The report comes as the Federal Reserve ends a number of its
The guidelines are meant to encourage the securitization of mortgage loans not backed by the government, which has been essentially nonexistent since the financial crisis began.
"Decreasing uncertainty would be an incredible, significant first step in restarting the securitization market without the need for tremendous government involvement," said Chris Gamaitoni, vice president of equity research at Compass Point Research & Trading LLC. "There really is no private-label mortgage market right now."
In an encouraging sign, however, Redwood Trust Inc.
Ferreting Out Fraud
Mortgage lenders are reporting far more incidents of fraud than in the past, though many of the suspicious activity reports are the result of loans that lenders have been forced to repurchase from Fannie Mae and Freddie Mac.
Tim Grace, a senior vice president of fraud analytics at First American CoreLogic, said the actual rate of fraud has dropped since 2009. Fraud reports have
The biggest challenge is that lenders don't always catch fraud before funding a loan, Grace said.
"There is a lag between the time a loan is funded and the time a fraud actually appears, which can be up to two years," he said. "Lenders are now finding and reporting lots of fraud from 2005 to 2007."
Banks filed 15,697 SARs related to mortgage fraud in the third quarter of 2009, up 7.5% from a year earlier, according to the
First American released a fraud report Wednesday that found far higher incidents of fraud on Federal Housing Administration loans. Roughly 25% of foreclosures have some evidence of fraud in the initial application, the report found.
The highest incidences of fraud come from borrowers falsifying their income, followed by internal fraud and collusion among insiders, which can be far more difficult to detect, Grace said.
"No one wants to fund a fraudulent loan because there is a downstream financial loss," Grace said. "Now we have identified a victim — the lender."