ONE STEP FORWARD, TWO STEPS BACKWARD

This week, the S&P 500 is on track to have one of its best weeks in a year. The market closed last Friday, July 2, 2010 at about 1022.58. At time of this writing, the S&P stood at 1077.62; this yields a gain of more than 5% in a short (4 day) week of trading. Many big corporations, including some big banks like Bank of America, report earnings next week and investors continue to wonder whether we are on the edge of a double dip recession or a sustained rally.

Although the market has shown good signs of life this week, I think the best indicator of stability in the economy right now is going to be a stabilization and possible increase (albeit a very modest increase) in home values. Here in Arizona, the idea that home values will trend upward is optimistic but with all the foreclosures and bank owned properties, I am hesitant in thinking there will be a sustained bull housing market.

Politics aside, the current legal battle between Arizona and the Federal Government will likely have some implications for the housing market here. Time will tell whether the hot button immigration issues here will lead to an influx of homeowners or an outflow of people leaving, but personally I don’t think too many people will make the most important purchase of their life based on court battles.

Right now, so many homes are for sale, with many more owned by the banks, that it is truly difficult for stabilization to occur. Simple supply and demand dictates that too much supply and not enough demand will drive down prices because of a flooded market.

What scares me the most is the idea that even if there is stabilization, the banks could easily derail a recovery. Right now, the banks own massive amounts of homes, and a lot of banks are not putting them on the market because of the weak demand for housing. What this means is that as soon as the market starts to pick up, we will start to see more bank owned houses that are currently vacant put up for sale. This will again flood the market with supply without lockstep increases in demand, driving down prices yet again.

The obvious message of this is clear, people needing to sell their homes will face a saturated market; homeowners will be forced to compete for buyers with the banks that have the time and resources to wait out a sale and the means to finance a potential buyer.

With so many foreclosures happening the banks continue to stockpile their inventory of homes. Obviously the housing market is not a prime seller’s market right now, so these banks will likely sit on these repossessed houses, keeping them vacant, until property values show signs of appreciating. That’s when the market will be flooded yet again with these bank owned homes, killing off any increases in home values. One step forward, two steps backward.

The effect of supply without demand will also negatively impact the refinance market as well. When prices go up, the supply will be again flooded, bringing down values. What this means for homeowners needing to refinance is high volatility in appraisals. Imagine that in 2011, your neighborhood sees an increase in home prices and you successfully refinance given the newfound equity in your home; the bank suddenly puts two or three homes they own, that have sat vacant, for sale in your neighborhood to profit from the appreciation; this flood of supply will inherently drag down all the home values of the neighborhood; your home value will go down with the neighborhood, quite possibly putting the newly refinanced into a position of being underwater. This could lead to an increase in strategic defaults. One step forward, two steps backward.

Got questions? Send me an e-mail: Matt@desertedgelegal.com

DISCLAIMER:

****MATT AZARI IS NOT A LICENSED ATTORNEY. THIS BLOG IS COMPRISED OF HIS OPINIONS, OBSERVATIONS AND INTERPRETATIONS AND IS NOT INTENDED TO BE CONSTRUED AS LEGAL ADVICE. PLEASE CONSULT WITH AN ATTORNEY BEFORE RELYING ON OR TAKING ANY ACTION BASED ON THE INFORMATION IN THIS BLOG.****

MERS InvestorID = Public Identification of Investors

Thanks to Teresa Baker, who writes the SocialApocalypse.com blog, for sharing this with me today.

This is BIG news! Starting on June 14, you’ll be able to identify the investor and their contact information using MERS’ InvestorID feature.

A few days ago, MERS issued Training Bulletin 2010-5 . Apparently, they have been compelled to “help their members” comply with the Helping Families Save Their Homes Act of 2009.

From the training bulletin:

“MERS® System Release 19.0 on June 14, 2010, will include Phase II of MERS® InvestorID. Phase I was introduced on June 19, 2009, to help our Members meet the requirements of the Helping Families Save Their Homes Act of 2009 by using information entered on the MERS® System to generate a Notice of New Creditor when a Transfer of Beneficial Rights (TOB) transaction was completed.”

And:

“Besides providing a more robust solution for generating Mortgage Loan Transfer Notices, Phase II provides Investor contact information to the public in MERS® ServicerID and the telephone Servicer Identification System, and to MERS® Link Subscribers and MERS® Members in MERS® Link. Investor contact information also is provided to MERSMembers in MERS® OnLine, and in the XML and batch inquiry transactions.”

MERS Training Bulletin 2010-05

For those of you who aren’t familiar with how to search MERS’ ServicerID, (you can search the MERS ServicerID here). The easiest way to search is by using a MIN Number, usually found on the first page of the Deed of Trust or Mortgage on the right side just below the recorder’s line.

If you can’t find a MIN, you can search by your social security number. In my experience, trying to locate your servicer using any other method is usually useless. I consistently have difficulty finding mortgages in the database if I search without using one of these two methods.

I will update more on this issue after I’ve had a chance to search the InvestorID database after it is available on the 14th.

Questions? Send me an e-mail: christine@desertedgelegal.com

DISCLAIMER:

****CHRISTINE SPRINGER IS NOT A LICENSED ATTORNEY. THIS BLOG IS COMPRISED OF HER OPINIONS, OBSERVATIONS AND INTERPRETATIONS AND IS NOT INTENDED TO BE CONSTRUED AS LEGAL ADVICE. PLEASE CONSULT WITH AN ATTORNEY BEFORE RELYING ON OR TAKING ANY ACTION BASED ON THE INFORMATION IN THIS BLOG.****

Video: Kansas Supreme Court: MERS Has No Standing to Foreclose

Apparently the Arkansas Supreme Court recently decided the same thing…homeowners in these states just got a reprieve until the banks figure out how to perfect their security interest. Stay tuned for this one!

The MERS Database: Another Piece of the Mortgage Mess

The lending industry has created a nifty way for themselves to get out of properly recording the chain of assignment on your mortgage note. It’s called the Mortgage Electronic Registration Systems database (“MERS”).

MERS’ website says “MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.”

So what’s wrong with this system? A couple of things, but the most disturbing thing about the MERS database is that the entire system is set up so that you, the homeowner, have very little information about the ownership of the Note to your property.

The MERS system completely lacks transparency. Because the database was created by the lenders, they are the only entities who have access to it. You can find out who the servicer of your mortgage is, but that’s all the information that is available to you as a homeowner.

The database is also problematic from a legal standpoint, because it completely circumvents the proper legal process that was already in place.

Ownership of the Note to your property should always be recorded at the recorder’s office in the county in which the property is located. However, when lenders began packaging mortgage loans into mortgage-backed securities, it was too much work and expense to properly record the transfer of ownership at the local county recorders offices, which is why the lending industry came up with this database. They could buy and sell mortgages and track the ever changing ownership of Notes and servicing rights within their own industry and without prying eyes to point out that what they were doing was really improper and illegal.

This is why the “produce the note” issue is so compelling: there is a very real possibility that the true owner of your Note cannot properly document or prove that they own the Note, because the chain of assignment was never properly recorded, or the original Note was lost or destroyed in the rush to package it up with other mortgages and sell them off.

When I audit a loan, I usually see that the Note and Deed of Trust are properly recorded at the county recorder’s office at closing, and there are typically no other documents that show any transfer of the Note.

Many times, the original owner of the Note is no longer in business. If the original lender doesn’t exist, who is receiving the payments on the loan? This usually points to a mortgage that has been pooled and placed into a mortgage-backed security. These were sold on the stock market and had many investors who owned a piece of these securities.

Another interesting issue I’ve seen with MERS relates to the issue of standing.

Typically, when a Note is initially recorded, it lists MERS as the beneficiary on the Deed of Trust. MERS’ alleged status as a “beneficiary” under the Deeds of Trusts is false, as demonstrated by its own website. 

MERS’ website also notes that “MERS remains the nominal mortgagee no matter how many times servicing is traded,” and that it is nothing more than a computer system designed by the mortgage industry (and capitalized by investors from the mortgage industry) to protect them from having to pay recording fees so that the entity that owns any mortgage loan is available. 

MERS’ entire business operation is premised on the wholesale and ever changing sale or transfer of “servicing rights.” MERS does not own the loans; rather they are acting as a “nominee” for whomever might or might not say that it owns the note at any given time.  Further, since MERS never obtains possession of the Promissory Note which secures the Deed of Trust, it cannot ever have the right to enforce the terms of the Deed of Trust, since that right is reserved to the owner and holder of the secured instrument, the Promissory Note. 

MERS’ also purports to appoint unidentified and unspecified persons as “officers” of MERS for the purpose of executing documents to effect transfers.

A corporation cannot create corporate officers for the purpose of foreclosing on your property. Under this premise, MERS is contending that anyone who works for a mortgage lender, servicing company, foreclosing trustee, title company, etc. can become an officer of MERS without providing it with notification, without getting its approval or taking actions in its name that affect the property rights and security interests of others.

There have recently been quite a few challenges to MERS’ standing and its right to foreclose, and many courts are finding that MERS cannot foreclose because they lack standing, because they don’t actually own the Note.

The big problem for homeowners comes back to who actually owns the Note on your property. Let’s say you are in foreclosure, but somehow manage to “self correct” and bring the arrearage current. You scrape for a couple of months and manage to catch up on your mortgage payments, and you think you’re safe because you’ve paid the past due amounts.

Then, a few months later, you find out that your property is in foreclosure again, because the party who collected your money a few months ago didn’t actually own the Note, and the true owner was never properly paid. What a nightmare! This could happen to you.

So what’s a homeowner to do? If you are in foreclosure, and you live in a judicial foreclosure state (meaning they have to actually file a lawsuit to take your home), you can file a motion to request that the foreclosing party produce the original note to prove they have standing. You’ll want to do some research on how to do this in the state where you live, because local court rules vary.

If you live in a non-judicial foreclosure state (meaning they can just take your home through a trustee’s sale), such as Arizona, it’s much harder to challenge the foreclosure because you have to sue the lender or file a temporary restraining order and make these legal challenges within the framework of that lawsuit. Many times, if the homeowner is losing their home, they don’t have the money to fight a lender, and finding a sympathetic attorney to help you is difficult.

Josh and I are still working on finding attorneys who will work with homeowners for a reasonable fee; e-mail us for more information.

Judges in Arizona are not particularly sympathetic to homeowners who are waiting until the last minute to ask them to stall a foreclosure, so you need to be more proactive. If you decide to sue the lender, you need to do it around the time you receive the Notice of Default or a few months before the actual foreclosure date. Otherwise, it just looks like you’re retaliating against the lender because they are foreclosing. Also, the judges in Arizona don’t get that the federal laws really do tie their hands. TILA says that you only need to find $35 in undisclosed finance charges if you’re in foreclosure, and the judges aren’t buying it.

I wish I had some better answers for the homeowners in non-judicial foreclosure states, but at this point, your best option is to get a loan audit and consider hiring an attorney who “gets it” to force the lender to modify your loan in exchange for your waiver of rights under TILA.

As always, I encourage you to contact your elected officials and let them know you’re mad as hell about what’s happening with the lending industry. Demand that they represent your interests as the taxpayers. Together, we can change the way things are done in this country.

Got questions about MERS, loan audits or anything else related to foreclosure? Send me an e-mail at Christine@desertedgelegal.com or post a question in our forum.