Tracking Bad Eggs
The egg recall has provided a vivid metaphor for what state regulators are trying to accomplish with their national mortgage-tracking database.
In the same way that egg cartons are labeled with a number that can be traced back to the plant that produced the eggs, all loan officers and mortgage brokers will soon have a unique identifier that can also be tracked.
"The concept for the egg is the same for a mortgage," said Gavin Gee, Idaho's director of finance.
When the Centers for Disease Control saw a surge in salmonella cases in June and July, it was able to notify states where the eggs had been shipped by using the package number.
The egg plants then issued recalls to warn consumers.
Likewise, it will soon be possible to trace a default, foreclosure or possible instance of fraud to the loan officer or broker who originated the loan.
"It's a good analogy, because the whole idea for a unique identifier is to track the mortgage through the entire process," Gee said. "Let's get the bad eggs out of the business. Let's track them and identify who they are. Part of our goal is to weed out the bad eggs."
It was Gee who first came up with the idea back in 2003 — long before the housing crisis began — to create a national registry of mortgage brokers and loan officers and a uniform licensing application for all the states.
All nonbank mortgage lenders will complete the registration and licensing through the Nationwide Mortgage Licensing System by Dec. 31, allowing loans to be tracked immediately, Gee said.
Depositories begin the registration process in January. Those loan originators will all be added to the system some time in the next year, he said.
A Seattle real estate agent made national headlines in June when he found squatters living in a $3.3 million mansion in Kirkland, Wash. Even more incredibly, the squatters threatened legal action by staking a claim to the foreclosed property.
It turned out the squatters are former real estate agents.
The squatters have since tacked letters with similar legal-ownership claims to the front doors of three other multimillion-dollar properties listed by Mark von der Burg, the same agent who had discovered them in Kirkland, according to a story published in the Seattle Times on Saturday.
Because all the homes are foreclosures, the squatters apparently are hoping that the title documents to the properties were lost or improperly recorded — something not uncommon during the bubble years when Wall Street investment banks packaged mortgages into securitizations.
But lawyers say that even if the underlying mortgage note is lost, a person could live in a foreclosed property indefinitely (as some defaulted Florida borrowers are doing now) though they will never ultimately own the property, gain title and be able to sell it.
The damages to the Kirkland home alone have cost von der Burg's bank client $35,000 for legal bills, security and cleanup, not to mention changing the locks.
Time to Cut It Out
In the last two years, large banks and mortgage insurers have added tougher underwriting requirements than those of Fannie Mae and Freddie Mac. Now Fannie is eliminating one type of "overlay."
Starting next week Fannie will prohibit lenders that sell loans to it from changing appraisers' valuations — a practice known as appraisal cutting. An underwriter who has an issue with an appraised value must contact the appraiser to resolve any disagreements about the valuation, Fannie told lenders in June.
If it is not possible to resolve an opinion-of-value dispute, then the only option available to the lender is to order a second appraisal. The lender cannot just cut the value of the appraisal, which had become a common practice, and the lender cannot shop around for the best — in this case, the lowest — appraisal either.
A lender can still be conservative about loan-to-value while accepting the appraiser's opinion.
"They aren't rendering an opinion on the value, but the lender is saying they will only loan x amount," said Griff Straw, president of Solidifi Inc., a Chicago valuation and risk management company. "What Fannie Mae has done is put some definitions around the process that is fair to everyone so you don't arbitrarily have an underwriter who whacks the appraisal. You have the flexibility to question it."
"Well they really socked it to me. The whole motivation was to end my source of income. … This makes the collection business or buying/selling debt a federal charge for me. Anyway, I would like for you to manage my interest. I will not be buying any portfolios during my incarceration. … "
"The 10$ hr that Shannon is getting … is not enough. She's been there a year and is efficient in the data entry. She is considering quitting and moving back to Buffalo. Expand her duties and give her a raise."
A letter sent from the federal Batavia Detention Facility in New York by Lamont D. Cooper, whom state Attorney General Andrew Cuomo charged Wednesday with running a collection agency while incarcerated on unrelated charges.