Real Estate Journal Online

Many may not have know what title insurance is unless they have started buying property but many are surely about to title insurers as they get dragged into the foreclosure paperwork mess. And as title insurers push for a blanket agreement with banks, banks remain adamant refusing to sign such agreement.

As of late, everybody has been reading about foreclosure delays and state attorneys general investigation for the buzz created by banks’ admission that there might have been some employees signing off foreclosure without verifying the accompanying paperwork. This has led housing market insiders to talk about how much financial damage the banks will encounter if proven that some homes were indeed wrongly foreclosed. Lawsuits from wronged borrowers just may overwhelm not just these banks but also title insurers.

Operating in obscurity up until now, title insurance is a necessity when buying a property. It protects a home buyer against claims of former owner still legally owning the property. If the housing market is flooded with lawsuits on wrongly foreclosed properties, title insurers will have to defend these claims.

Read the rest of this entry »

The housing market has been on the dumps for two years now and solutions being implemented do not seem to work. Different analysts, economists, and other insiders are suggesting ways to help the market on its way to recovery. Sometimes, the most insane ideas come afloat but they do not necessarily have to be dismissed – as crazy as the idea may sound, it just might work.

Consider this one thought that has been bugging many people for quite some time: why do banks insist on keeping their underwriting standards regarding home mortgages when opening mortgages to non-prime borrowers just might be what the market needs? Most banks and mortgage lenders have held back on doing this because mortgage rates and their profitability margins remain low that lending to a non-AAA+ credit-worthy consumer may be too high of a risk. The implicit guarantee from Fannie Mae or Freddie Mac taken when making mortgage lending semi-palatable adds to this risk.

But suggesting that banks and mortgage lenders open their business to non-prime consumers does not necessarily mean going back to 2003 to 2007’s “no job, no income, no assets” requirements that eventually led to the housing market crash in 2008. The suggestion emphasizes that banks and mortgage lenders still place a huge importance on credit, income, and assets as they are the substantive components of mortgage qualification – only apply a more logical and flexible underwriting criteria.

Read the rest of this entry »

There has been much talk about the recent foreclosure crisis that led to major banks – like Bank of America and JPMorgan Chase – to suspend on foreclosure sales and proceedings. One of the topics that arose in the recent foreclosure mess is the role of mortgage registry in tracking down who has the right to foreclose on homes. Recent debates on the topic just might shed some light into the foreclosure mess.

The Mortgage Registration Systems Inc. allows banks to electronically register home loan sales. Its role in home foreclosures, if there is any, is currently being debated in a number of courts. The turnout of the debate can determine if the registry system can share the blame for the defective foreclosure process and the clouded titles for millions of properties.

MERS has played a big role in the process of bundling mortgages into securities. If a ruling against MERS happens, the same process will surely slow down.

“MERS is the central device by which the banks have tried to opt out of the legal system and the real-property record system. They have taken it upon themselves, with the supposed consent of the borrowers, to violate a system of property record-keeping that we’ve had going back centuries,” says U.S. Representative Alan Grayson of Florida.

Read the rest of this entry »

Have you ever heard of anyone collecting title insurance? Perhaps none; yet if you are going to buy a home or refinance a mortgage, a title insurance gets the largest chunk in the itemized estimate for closing costs and fees. Though most home buyers and refinancers don’t bother to question this anymore because of the tiresome process of asking and shopping for better insurance providers, the recent buzz on foreclosure freezing by some banks and mortgage providers bring to light the immense importance of title insurance.

A title insurance is supposed to cover a home buyer from cases wherein other people turn up after the house has been bought and claims rights to the house. Title insurance providers run a title search and sift through government filings related to the property prior to it being bought to lower the chances of insurance being claimed later on. But if the insurers miss something and someone else do turn up later on, insurers would have to provide legal counsel or settle with whoever is claiming.

Sounds like title insurers are indeed champions of home buyers and refinancers, right? Not really; the truth is, they are more concerned about lenders, real estate agents, and lawyers who can give them more business. Though kicking back money from companies and brokers who send insurers business is technically not allowed, there’s nothing much everybody can do since title insurance is required if there’s mortgage involved.

Read the rest of this entry »

As of June 2010, the Federal Deposit Insurance Corporation (FDIC) has reported that commercial banks and savings institutions under its protective wings have collected an aggregate profit of $21.6 billion, leading to an overall profit of $26 billion following the $4.4 billion net loss registered in the prior corresponding year.

The FDIC said that while the numbers reflected the biggest surge in quarterly earnings since September 2007, the improved performance still fall short of its historical norms yet only 20 percent of banks have reported of net loss by the June quarter, coming from the 29 percent posted in the same period last year while the quarter’s average return on assets (ROA) jumped to 0.65 percent from 0.13 percent from a year ago.

Following the Great Depression, the US Congress had legislated the birth of FDIC in 1933 to restore public confidence on the banking system and as of the current year, some 7,830 financial and savings institutions’ deposits were being insured by the federal corporation.

FDIC chairman Sheila Bair is upbeat on the industry’s latest results, stressing that the June numbers represented the best quarterly profit in three years with about 70 percent of banks reporting improvements on their year-on-year earnings.

Bair conceded that the industry is still encountering rough roads though in general terms, the banking sector is slowly regaining its traction as shown by the earnings growth posted by many institutions and so long as “economic conditions remain supportive most institutions should maintain profitability and increase their capacity to lend.”

The FDIC said that this year’s gains were anchored on reduced provisions for loan losses, posting an improvement of $27.1 billion or 40.2 percent lower from last year while net income soared by 8.6 percent to $8.5 billion and non-interest expenses were slashed by up to 1.5 percent to $1.5 billion.

The federal corporation added that improvements were seen in asset-quality trends as loans and leases that were 90 days due dipped fort he first time since 2006 while net charge-offs by insured banks and thrifts retreated by 0.4 percent to $214, reporting only of $49 billion in uncollectible loans in the June quarter.

The FDIC said that overall loans and leases in the same quarter fell by 1.4 percent to $107.5 billion though at the same time, the industry’s total assets shrunk by 1.0 percent to $136.2 billion.

Also, loan-loss reserves saw marked improvements since the last quarter of 2006 as the industry’s total reserves dipped by 4.5 percent to $11.8 billion while its ratio of reserves to total loans and leases slid to 3.40 percent in June, prompting Bair to caution that “all banks should continue to exercise caution and maintain strong reserves,” considering the economic uncertainties.

The FDIC said that the industry’s coverage ratio of reserves to noncurrent loans went up in two consecutive quarters, notching 65.1 percent from 64.9 percent but the list of its problem institutions ballooned from 775 to 829, with assets decline of $403 billion.

The federal corporation reported too that 45 insured institutions succumbed to financial pressures in the June quarter but the Deposit Insurance Fund (DIF) balance improved from negative $20.7 billion to negative $15.2 billion, with the reserve slipping from $40.7 billion to $27.5 billion during the same period.

On the other hand, the FDIC said that the industry’s liquid resources remained stable as cash and marketable securities stood at $44 billion by the end of June, declining a bit from the $63 billion posted in the first quarter mainly due to three Puerto Rican bank failures on April 30.

Bair expressed confidence that FDIC’s current resources would be able to meet the expected demand spikes for cash this year and to resolve any bank failures that would occur as she noted that by the end of the June quarter, the industry’s total insured deposits have been reduced by 0.7 percent or up to $39 billion.

The US Treasury Department released a report on August 20 practically admitting that the government-sponsored Home Affordable Modification Program failed on its mission to avert foreclosures by facilitating loan modifications between lenders and distressed homeowners.

Since the start of the global financial crisis in December 2007, more than 2.3 million American homes have been either foreclosed or repossessed by banks and lenders and if economists were to be believed, an additional one million more would join the ranks of the homeless as the wave of foreclosures continue ravaging the housing market.

The treasury report revealed that HAMP was able to process some 1.3 million homeowners for possible loan modifications but as the Associated Press has reported, only 32 percent from those who initially enrolled for the program were able to obtain permanent loan modification to salvage their homes.

The same report admitted that 48 percent of homeowners who availed of the program were eventually released by July this year without getting any solid benefits from HAMP.

Case in point is Michigan, which is one the hardest hit by the real estate storm, where the state government launched the ‘Helping Hardest Hit Homeowners’ in July to help unemployed homeowners from losing their homes.

Economists said that Detroit bore the brunt of most of the devastation as foreclosures conspired with massive job losses and business bankruptcies in battering the city.

The state program, supported by $282.5 million in federal funds, aimed to help unemployed residents who were in the brink of losing their homes but seemed to fall short as many in the state were now labeled as ‘not unemployed, not because they have jobs but because they gave up looking for one.

And for the targeted and qualified 17,000 unemployed homeowners in the state, the Michigan program proved too difficult for actual implementation as most lending institutions refused to dip their fingers into the rescue program, as admitted by the state government itself.

Reports said that Michigan Governor Jennifer Granholm refused to exercise her executive power in forcing a moratorium on foreclosures or even enjoin banks to play their part in the program and instead made a plea to unemployed homeowners to try out giving their lenders a call.

Foreclosure activists called the governor’s actions as utterly inutile as they stressed that homeowners would never get a relief by merely calling on their lenders.

Jerry Goldberg of ‘Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs’ stressed on his radio address that the federal-sponsored HAMP and Michigan’s own homeowners’ relief program were bound to fail because the government elected not to put the necessary muscle in implementing the programs.

Goldberg insisted that foreclosures were preferred by banks because they make money through every foreclosure subsidized by the federal government, pointing out that majority of mortgages in the US were now controlled by federal surrogates such as Freddie Mac, Fannie Mae and HUD, with most of these loans grossly inflated from pre-foreclosure value.

He said that as much as $145 billion of taxpayers’ money have been remitted to banks via Freddie and Fannie, adding that the amount could easily reach $389 billion soon as the scheme effectively rewarded the predatory practices of banks for not effecting loan modifications.

In the end, Goldberg asserted that the federal and state governments “have the authority to halt foreclosures, to mandate that banks modify loans and allow people to reclaim their homes at real value and based on payments that they can afford,” yet he stressed that instead of providing aid to troubled homeowners, it is the government which implements most of the eviction incidents.

The Federal Deposit Insurance Corp (FDIC) seized control of Chicago-based ShoreBank on Friday last week following months of flirting with financial difficulties, adding that Urban Partnership Bank agreed to absorb the troubled bank’s deposits and assets, which were last reported at $1.54 billion and $2.16 billion respectively.

The bank regulator also ordered the shutting down of seven more banks on the same day, roughly pushing to 118 bank failures that so far occurred in the United States this year as the country’s financial community is continuously battered by recession and piling loan defaults.

In its statement, the FDIC said that the takeover would not immediately affect ShoreBank’s existing executives who were instructed by the regulator to stay put while the bank is being restructured.

The FDIC added that ShoreBank executives who were recently hired would still manage Urban Partnership Bank as it stressed that “these managers did not contribute to the bank’s problems.”

The federal regulator and Urban Partnership jointly announced that they are poised to share the burden of ShoreBank’s loans and assets losses that run to $1.41 billion, with further deposit insurance cost estimated to reach $367.7 million to be funded by FDIC.

The FDIC revealed that ShoreBank suffered losses in soured real estate loans in the second quarter of the year and was ordered by the bank regulator to cease and desist from issuing any loans in order to buffer its capital reserves.

Initially, the bank managed to convince a number of Wall Street investors to shore up its capital by $146 this spring but eventually failed to get the nod of the Treasury Department’s Troubled Assets Relief Program for some form of federal bailout funding scheme.

ShoreBank was established back in 1973 and made its name as the country’s first community development and environmental bank with particular interest in serving the minority businesses operating in Chicago.

From its founding days, the bank eventually branched out to Detroit, Cleveland and further expanded overseas by establishing offices in some 40 foreign countries, and along the way rubbing elbows with luminaries of the Obama administration.

Presidential adviser Valerie Jarrett once sit on the board of a Chicago civic group chaired by a ShoreBank director while two former federal banking regulators, Ellen Seidman and Eugene Ludwig, were known supporters of the troubled bank.

The White House ‘connections’ prompted Republican Rep Darrell Issa to write President Barack Obama’s legal advisers and clarify the possible networks that may have been established between administration officials and ShoreBank’s executives and investors.

The Obama administration maintained that ties by some of its officials with ShoreBank were inconsequential with its pursuit of federal aid as it stressed that no administration official ever requested any help from any financial entities for the beleaguered bank.

The FDIC said that former First National Bank of Chicago president David Vitale would assume chairmanship of a new ShoreBank, who vowed that the new leadership would sustain the bank’s mission of supporting average income and minority communities.

Vitale also pledged to continue ShoreBank’s advocacy of promoting energy efficiency and environmentally constructive development.

Also, the FDIC announced that along with the Chicago bank, it has taken over Community National Bank and Independent National Bank in Florida; Imperial Saving and Loan Association of Martinsville in Virginia and Butte Community Bank, Pacific State Bank, Los Padres Bank and Sonoma Valley Bank all in California.

China’s economy relies heavily on the property sector, with one-fourth of its capital spending leaning towards it. This is the reason China has decided to enforce tighter rules earlier this year, including a stress test on loans given to industries – such as cement and steel – that are connected to the property market.

The stress tests, reported by the Chinese press on Friday, are meant to investigate on a bank’s ability to endure a downward trend on housing prices. Banks in seven cities – including Beijing, Shanghai, and Shenzen – are persuaded to look into the impact of a 60% plunge in housing prices. The results of their tests must be submitted before August 13 to their provincial regulator.

Analysts, though, say that one should not read too much into the results of these tests. Though the property market may weaken, it is highly unlikely to make such a dramatic fall.

There have been no official comments from the China Banking Regulatory Commission (CBRC) regarding the new stress tests. Their website, though, posted on Thursday that the hypothetical scenarios tested in the tests are not to be equated to actual property sector forecasts or policy changes. They should, as the website reiterates, be treated more as a risk management step.

The stress tests will differ from bank to bank. Each bank can decide on how the tests will be conducted according to their local real estate markets. Another thing that these banks need to do, according to CBRC, is to not extend mortgages to those buying third houses in Beijing, Shanghai, Shenzhen and Hangzhou, four of China’s booming cities.

The government is obviously not happy with the current property prices; hence the additional monetary and tax measures. A property analyst from Beijing’s Sinolink Securities says that if prices don’t drop fast enough, tighter measures may be implemented.

Industry think tank China Real Estate Association argues that this need not be the case. Chairman Zhu Zhongyi says that though sales have plummeted, price growth in key cities has declined.

Following the reports of new stress tests, real estate properties and China bank’s stocks fell.