Rep. Maxine Waters will have servicers and their regulators in her sights when she chairs a House Financial Services subcommittee hearing Thursday on problems in the foreclosure process.
In a background call with reporters Wednesday on the hearing, subcommittee staffers said robo-signing is just the tip of the iceberg.
"The robo-signing issue actually goes much deeper and is essentially papering over a deeper level of fraud and systemic problems within the mortgage servicing industry," said a subcommittee staffer who could not be identified by name.
Subcommittee staff said key issues to examine will include problems discerning who owns mortgages given sloppy, missing or faulty paperwork; how Merscorp Inc.'s Mortgage Electronic Registration System has made tracking the loans more difficult; and who has the right to foreclose if a note is missing.
The hearing also plans to harshly question the role of regulators. In particular, staff said that the Office of the Comptroller of the Currency appeared to be asleep at the switch with regard to robo-signing and other servicing issues, failing to be aware of the issue until it hit the newspapers, and failing to sufficiently consider servicing pitfalls.
License to Expand
One ripple effect of the SAFE Act has been to nudge one of the few surviving mortgage dot-coms born in the 1990s to acquire a branch network.
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 mandated that states adopt standards for the licensing of loan officers at nonbank mortgage companies and have their loan officers licensed by July 31.
To continue making loans across the country, any one of the loan officers who work in LendingTree Loans' Irvine, Calif., call center would now have to be licensed in all 50 states — an extremely costly and challenging undertaking.
Moreover, competition for loan officers among nonbank lenders has been heating up in the Orange County area, as more such companies pop up, according to David Norris, the president of LendingTree Loans. That's contrary to what had been expected when the SAFE Act was first announced. Many nonbank lenders worried they'd lose qualified loan officers to big banks, which were exempt from the new licensing requirements.
"A lot of people that had done well in mortgages in the past that got out [of the business] … are now coming back in," Norris said. "If you have to start a company with new loan officers, [you] need to recruit licensed loan officers."
So to follow through on an ambitious expansion plan for the direct lending business, "we thought it would be easier to acquire" than try to grow organically, he said. On Tuesday the company announced a deal to buy SurePoint Lending, a traditional retail mortgage bank with offices in four states and more than 300 loan officers. "Geographic diversity is really more about making sure we have licensed loan officers," Norris said. "To be able to obtain that in one physical location is difficult."
On average, LendingTree's loan officers hold 13 different state licenses, he said; SurePoint's officers are licensed in fewer states.
LendingTree, which is owned by Tree.com Inc. of Charlotte, N.C., was founded in 1998 as an online lead generator. The company has had a direct lending operation since 2004, when it bought HomeLoanCenter.com and renamed it LendingTree Loans, which operates solely online and by phone.
Today, the direct lending business generates more than twice as much in revenues as the online lead generation unit.
The $6 million deal for SurePoint is expected to close in the first quarter of 2011. Once the integration is complete, LendingTree Loans will have a total of six locations, in Irvine, Charlotte, Louisville, Ky., Tampa, Fla., Nashville, Tenn., and Indianapolis.
Containing the Spill
New research has found that default rates are lower in areas where there are high concentrations of subprime loans versus areas where subprime loans are more sporadic.
The study, conducted by Brent Ambrose, a professor of real estate at Pennsylvania State University; Sumit Agarwal of the Federal Reserve Bank of Chicago; Souphala Chomsisengphet of the OCC; and Anthony Sanders, a professor at George Mason University, examined more than 450,000 mortgages in Maricopa County in Arizona, which includes Phoenix, from January 2000 to December 2007.
They found that subprime mortgages were highly concentrated in certain Zip codes. Contrary to what one might assume, borrowers in neighborhoods with higher concentrations of subprime borrowers weren't necessarily more likely to default on their loan. The so-called spillover effect was minimal. This is because areas with high concentrations of subprime mortgages actually experienced the greatest home-price appreciation during the boom years, they said.
Regardless, the researchers found that certain types of subprime loans, including hybrid adjustable-rate and no- or low-documentation loans, were hazardous to the housing market.
The study will be published in a forthcoming issue of Real Estate Economics.