How 2 Buy a House

If you have ever tried working with a mortgage servicer to have a modification made on your loan, odds are you have experienced one of Dante’s levels of hell. The combination of terrible service, overwhelmed employees, and an ever changing federal mandate has made mortgage servicers the scourge of the financial community. And that is saying a great deal.

Now Bankruptcy judges are starting to take notice, which could lead to some interesting situations. The failure of mortgage companies and servicers to respond in a timely and ethical manner to customer inquiries is creating a stir in the bankruptcy courts.

While the onus is still on the borrowers to repay the loans, the banks also have a responsibility to follow through in a timely manner to let the customer know if the modifications have been approved, or that the paper work needs additional information.

Hopefully, as this Bankruptcy Judge has done in Arizona, the banks and servicers will be held accountable.

On Thursday, something happened. She questioned a Wells Fargo official about the bank’s lack of response — under oath.

The spectacle of a high-ranking banking executive being grilled by an ordinary homeowner was the result of an unusual decision by Judge Randolph J. Haines of the United States Bankruptcy Court to summon a senior executive from Wells Fargo to appear in Mrs. Giguere’s bankruptcy case.

At the hearing, Judge Haines made it clear that he was acting out of concerns about Wells Fargo’s mortgage modification practices generally.

“This is certainly not an isolated case,” he said. “The kind of story I hear from this debtor is one that I and other bankruptcy judges around the country are hearing over and over and over again.” via the  NYTimes.com.

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Frustration With Mortgage Servicers Enters The Courts

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The Mortgage Bankers Association has proposed the replacement of Freddie Mac and Fannie Mae with a new organization that would provide a government guarantee.

As being not a fan of intrusive government, the idea to me stinks to high heaven. Sure it will reassure those buying the mortgage securities, but that is my money backing poorly written mortgages.

The excesses we saw in the past few years were a boon to lenders as the business it generated was substantial, but the cost to society was even bigger. Mortgages should be written to people who can pay them. There should be a dog in the fight for the borrower, meaning a down-payment that will make them take a painful loss.

But the idea that we start a new system for backing mortgages makes no sense unless the lending criteria is commensurate to the risk lenders take. Bundling has a terrific multiplier effect, but that will come back to bite us if we do not do the due diligence to ensure a proper market is created, not just a vehicle to write more mortgages.

The proposed framework, to be released Wednesday by the Mortgage Bankers Association, would give successor entities to Fannie and Freddie the authority to create securities backed by certain types of mortgages. The new companies would guarantee the securities against defaults on the underlying mortgages.

The new companies would also pay fees into a federal insurance fund, which would guarantee interest and principal payments to bondholders if the companies were unable to make them.

Such an insurance fund, designed to kick in only if the companies were to suffer catastrophic losses, would provide explicit federal backing. That would replace the current system, in which investors have long assumed that the government would stand behind Fannie and Freddie. via the WSJ

Edit Headline changed from Brokers to Bankers. Thanks for the heads up Rhonda Porter!

Thanks for reading this post. If you would like to see more articles like this, please come visit The Real Estate Bloggers. where it was originally published.

Mortgage Bankers Association Propose Dismantling of Freddie, Fannie

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