The Federal Reserve is urging government policy makers to consider more aggressive responses to the housing debacle, including a government-backed program to transform much of the real estate owned overhang into rental housing. In a white paper sent to Congress, the Fed suggested that a government-facilitated REO-to-rental program can boost the housing market and improve loss recoveries on REO. Such a program could take many forms, the Fed noted. “The REO holder could rent the properties directly, sell the properties to a third-party investor who would rent the properties, or enter into a joint...

Fed Governor Sarah Bloom Raskin late last week stumped for creating an effective enforcement system to deal with shortcomings in the mortgage servicing industry that have come to light since the foreclosure crisis, as state officials pressed to expand a potential settlement over past abuses. “The law is not a scarecrow where the birds of prey can seek refuge and perch to plan their next attack,” Raskin said in a speech to a group of attorneys. The Fed governor said it’s important for servicers to have transparent, enforceable and sensible rules, adding that deferring to “standard industry...

Mortgage industry groups are urging the U.S. Supreme Court to pay close attention to the wording of the Fair Housing Act – specifically phrasing that’s not in the 1968 law – in deciding whether fair lending charges can be brought on the basis of disparate impact. In an amicus brief filed in the case of Magner v. Gallagher, mortgage trade groups said the Fair Housing Act “requires proof of intentional discrimination and does not envision a violation based on disparate impact.” The brief was filed by K&L Gates on behalf of the Independent Community Bankers of America, the Consumer Mortgage...

Refinance activity has represented more than half of home loan originations every year since 2006, and housing sales have been in a slump for the past five years. But individual mortgage lenders continue to carve out their own production strategies, including in some cases a devotion to the smaller purchase-mortgage sector. A new Inside Mortgage Finance analysis of loans originated under the four major agency mortgage programs through the first nine months of 2011 shows that many of the top overall producers beefed up their market share by aggressively originating...(Includes one data chart)

The N.Y. Supreme Court Appellate Division overturned a ruling that dismissed a foreclosure case because attorneys representing the lender failed to meet a deadline for filing a conflict-of-interest document. Judge Arthur Schack dismissed the case brought by U.S. Bank because its attorneys, the now infamous Steven J. Baum law firm, submitted a conflict-of-interest filing 123 days after it was due. The case involved Kelvy Guichardo, a defendant who defaulted on his mortgage. Schack was concerned that there might be a conflict of interest for Steven J. Baum and ordered the law firm to submit an...

In Commonwealth Property Advocates LLC v. MERS, the 10th Circuit Court of Appeals in Denver recently ruled that Mortgage Electronic Registration Systems, Inc. must be granted the right to foreclose.The 10th Circuit Court of Appeals unanimously ruled that “by the clear language of the deeds of trust, MERS has the authority to foreclose and sell the property on behalf of both the original lender and the ‘lender’s successors.’”The judges rejected all of the plaintiff’s arguments that MERS lacked the authority under state law to foreclose, noting that the Utah Court of Appeals had previously decided this issue and found that MERS has the ability to foreclose and act as the beneficiary on a Utah deed of trust. The court also noted that the Utah Supreme Court declined to review the Utah Court of Appeals case.

California. Late last month, the state Department of Real Estate warned consumers about illegal loan modification schemes and urged victims to submit formal complaints. The most common ploy is for a scammer to guarantee a loan mod in exchange for a fee paid ahead of time (which is against the law in the state), and then to do little or nothing to obtain the loan mod for the borrower once the fee has been paid. The DRE advised consumers who are looking for a loan mod to never pay an upfront fee for such services, and to be wary of guaranteed success. Indiana. The state Department of Financial Institutions recently expanded the purpose of Title 750, Article 9 of the Indiana Administrative Code to conform the mortgage lending regulation to state and federal laws, rules and regulations, as well as policies and guidance from state and federal authorities. The DFI also revised the IAC to specify that an expunged criminal conviction does not result in an automatic denial or revocation of a mortgage lender or originator’s license. However, the underlying facts of the crime at issue can still be considered.

The mortgage securitization and servicing industries say proposed changes to the servicing compensation model for Fannie Mae and Freddie Mac securities would have a negative effect on liquidity in the to-be-announced market, hurt investors in agency MBS and increase the cost of mortgage credit for borrowers. The Federal Housing Finance Agency released a discussion paper last fall that outlined two potential new approaches to servicing compensation: a fee-for-service approach favored by the two government-sponsored enterprises, and a reserve account approach developed by lender...

In 2011, high-touch subprime servicer Carrington Mortgage Services significantly decreased its delinquency processing timelines and had its servicer rating confirmed at the end of the year. The servicer also made adjustments after facing criticism from non-agency mortgage-backed security investors who claimed that Carrington’s practices improperly favored investments made by the hedge fund that also owns the servicer. Carrington serviced $11.73 billion in subprime mortgages as of the end of the third quarter of 2011, according to estimates by Inside Nonconforming Markets. The servicer received a mid-range rating for subprime and special servicing from Fitch Ratings, with the rating service recently confirming that Carrington “demonstrates proficiency in overall servicing ability.” ...

Loan modifications with principal reduction have significantly increased in the past year, with servicers seeing improved performance compared with other types of mods. The mods remain concentrated on securitized non-agency mortgages as well as portfolio loans, but performance varies considerably. After falling to a 2.7 percent share in the fourth quarter of 2010, principal reduction mods have accounted for a growing share of bank and thrift mod activity, according to the Office of the Comptroller of the Currency. Principal reduction was used in 7.8 percent of the mods completed by nine major bank and thrift servicers in the third quarter of 2011. ...