A Policy's 'Flip' Side

Safeguards that the mortgage industry's aggregators have adopted to avoid fraudulent flipping schemes could be hurting the nascent recovery in housing prices.

Matthew Pineda, the president of Castle & Cooke Mortgage in Salt Lake City, said some markets in Nevada and Arizona have bottomed and are drawing investors who are bidding up property values.

But many purchases are falling through because there is no outlet for the loans.

If a property has previously changed hands in the past year, and the new buyer wants to pay 20% or more above what the last one paid, the aggregators — large banking companies — won't buy the loan, Pineda said. That effectively prevents his firm from making such a loan.

Flipping frauds occur when a house is resold at an inflated price — sometimes to an unwitting buyer, sometimes to an insider — and the lender ultimately forecloses on underwater collateral. So the aggregators' policy is understandable. But according to Pineda, "it makes the market stagnate."

Take a Number?

When David Lowman, JPMorgan Chase & Co.'s mortgage chief, invited distressed borrowers to "come to me," it's a safe bet he didn't mean "as soon as I get up from my chair."

During a hearing Tuesday, House Financial Services Committee Chairman Barney Frank, D-Mass., asked Lowman whom borrowers could turn to if JPMorgan Chase employees did not help them get loan modifications.

"Come to me," Lowman replied.

Minutes later, Reuters reported, about 50 borrowers mobbed Lowman.

They probably would have done so even if Lowman had answered differently. The borrowers were organized by Bruce Marks, the chief executive of Neighborhood Assistance Corp. of America, who is known for his confrontational style. The protestors complained to Lowman that JPMorgan Chase reneged on a pledge to participate in the nonprofit's loan mod events. JPMorgan Chase would not comment to Reuters or American Banker.

Quotable …

"Loan originators constantly threatened to quit and go to Countrywide or elsewhere if their loan applications were not approved."

James G. Vanasek, chief risk and chief credit officer at Washington Mutual from 1999 to 2005, at a Tuesday hearing of the Senate Permanent Subcommittee on Investigations.

"I don't trust Goldy on this. They are smart, but this is swimming with the sharks. They were shorting mortgages big time while they were giving CFC advice."

Former Wamu CEO Kerry Killinger, referring to Goldman Sachs Group Inc., which his subordinates wanted to retain as an adviser, and to Countrywide Financial Corp., in a 2007 e-mail unearthed by the subcommittee.

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