Are Asset Managers Lying?

Is it time that they too come under investigation?

Federal agencies are questioning how banks are handling foreclosures. The banks in turn, have chosen REO specialists to manage and dispose of these “toxic” properties.

Despite all the noise from the Fed and Attorney Generals investigating banks as primary lenders, maybe someone should be looking into how asset managers are handling these very same properties.

Case in point:

According to a recent email forwarded to us, First American is emailing California brokers and agents to say that one particular asset management company has new and exclusive rules, when it comes to any property handled by NRT REOExperts.

…”for all Chase, WAMU and EMC properties you will need to order the NHD Report with First American. First American will supply the report at the approved fee. Any orders placed with another company will be paid by the Listing Agent.”

This sounds like a highly dubious claim.

After all, would a bank in today’s highly contentious and litigious times really require a single sourced provider and incur the full burden of responsibility that might result from any errors or omissions?   Recent examples of this trend are the ongoing Bank of America vs. First American Title lawsuit among numerous others.

Would a bank truly put every real estate agent and broker at litigation risk for their involvement in this sole source practice?  This doesn’t make sense to us; in fact we think it’s worth the Feds looking into these kinds of claims.

So far, we could not get any of the above mentioned banks to confirm that they were aware of this practice nor that this sole source mandate originated with them.
We’d like to know what you think.

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Who Wants a 30-Year Mortage?

The following is an excerpt from a New York Times Article.  Read the full article here.

Who Wants a 30-Year Mortgage?

By BETHANY McLEAN

As we all move forward with our New Year’s resolutions, it’s a good time to remember the promises our politicians have been making about the American mortgage market. The Obama administration, at a conference last August on the future of housing finance, pledged to have, come January, a plan for Fannie Mae and Freddie Mac, the mortgage giants that are now wards of the government. Congressional Republicans, in their recent position paper, made an even bolder resolution: to build a mortgage market that “does not rely on government guarantees” and “does not make private investors and creditors wealthy while saddling taxpayers with losses.”

This latter promise is pleasing populist rhetoric. The problem is, it may be neither politically nor practically feasible. Even if we forget about the gigantic near-term problem — namely, that the federal government is in the housing market mainly because most banks simply won’t issue mortgages that can’t be guaranteed by Fannie, Freddie or the Federal Housing Administration — there’s the fact that federal involvement in housing has been a constant since the 1930s. A market without government support would almost certainly involve the demise (for most of middle-class America) of that populist favorite, the low-cost 30-year fixed-rate mortgage.

For a homeowner, a mortgage with a 30-year fixed rate (especially one that he can pay off early without a penalty) is a wonderful thing. For lenders and investors, however, it is a financial Frankenstein’s monster, an unnatural product filled with the potential for losses. Absorbing some of the risk of those losses is a large part of what the government does in the housing market.

Fannie Mae and Freddie Mac, for instance, were created by the federal government to buy up mortgages from lenders, thereby enabling them to turn around and issue more mortgages. Among other things, this allowed the lenders to get off their books the two kinds of risk that a mortgage carries. We’re all now sadly familiar with one kind, credit risk — that is, the danger that a borrower won’t pay back the mortgage. The second is interest-rate risk, the danger that interest rates will rise sharply after the mortgage has been made, thereby burdening the bank with money-losing loans. (Interest-rate risk was the root cause of the savings and loan crisis.) The longer a mortgage lasts, the more difficult it is to manage both of these risks. And 30 years is an awfully long time.

Wouldn’t a better solution be for banks and other financial institutions to offer mortgage products that they actually want to keep on their own books? Maybe these would take the form of 15-year mortgages with a rate that would be adjusted after five years so that the banks wouldn’t have to worry about long-term interest-rate risk. This might not even mean the disappearance of 30-year fixed-rate mortgages — the private market has historically provided them to consumers whose mortgages are too big to qualify for a Fannie and Freddie guarantee. But these are usually issued only to the wealthiest, most credit-worthy consumers.

So be wary of politicians bearing promises of a perfect world where average Americans can get the mortgages to which we now all feel entitled and the government is nowhere to be seen. It’s a mirage.

WHO IS CUTTING A FAT HOG?

Forbes Magazine reported back in a November 2006 cover story that First American Title was selling more than $5.8 billion dollars a year for title insurance in a story called, “America’s Richest Insurance Racket”  Read the full story here: http://www.forbes.com/forbes/2006/1113/148.html

Reporter Scott Woolley extensively interviewed Parker Kennedy, head of First American.  Forbes noted that thanks to computerized record-keeping, the cost of searching for a home’s ownership records online has fallen to as low as $25. The average cost for claims on title insurance policies was running approximately $74 per policy. Although Forbes concluded that everyone should agree that this is a pretty lucrative business, and title companies are fat and thriving, First American’s Parker Kennedy claimed that “Nobody is cutting a fat hog,” whatever that means.

So why is this relevant to the off shoring of jobs?  According to Forbes, Kennedy attributes his profit margins to several things including the efforts his company has made to deploy technology and move jobs offshore.  Forbes noted that in 5 years, First American closed 48 out of 50 offices in California replacing people and paper with databases and offshore data entry clerks.

Kennedy says, “In the old days, if you wanted to double your business you had to double your people. Now you can double your business and increase your staff maybe 10%.”

The Forbes article suggests that off shoring of jobs has been part of First American’s long term business strategy aimed at adding to the huge profit margins they enjoy.

Given these kinds of profits, do you think it is really necessary for them to continue their policy of sending jobs offshore?

We’d love to hear your thoughts.

An open letter to California Senators Dianne Feinstein, Barbara Boxer and HUD Secretary Shaun Donovan

Dear Secretary Donovan, Senator Feinstein, and Senator Boxer:

Thank you in advance for your attention to this vitally important matter. As a Californian and a reporter, I am writing this open letter requesting clarity regarding Natural Hazard Disclosure statements and their status within the Real Estate Settlement Procedures Act (RESPA).

In a highly publicized legal action brought by HUD last year, an agreement was made with all parties that the Natural Hazard Disclosure Statement (NHDS) in California would be considered a “settlement service” as part of the escrow process and would be subject to RESPA federal regulations.

While HUD vigorously pursued a determination, they have yet to put in writing the fact that the NHD report is a settlement service under RESPA.

I have spent several months researching the law and inspecting HUD required documents, and along with my associates, have interviewed various HUD executives and experts. We have yet to find anything in writing to indicate that NHD reports in California are to be treated as settlement services.

The NHDS along with the TDS (Transfer Disclosure Statement) are the most important consumer protection documents in a real estate transaction. They are required by law and under the California Civil Code are the only documents that give the buyer the right of rescission during escrow. The NHD report gives notice to the buyer of known material facts that can impact the desirability and/or value of the property.

When you buy a home in California, there are a host of fees charged for “settlement services” that must be paid by the seller before the deal closes. These include such things as city and county taxes; the appraisal fee; the credit report fee; title and escrow fees; and additional costs for such things as insurance and the lender’s inspection fee.

The determination made by the HUD lawsuit was that the NHDS must be included in this list of services; and is thus subject to strict federal laws, and must be paid for before the escrow disburses funds. Furthermore, by not notifying real estate agencies and consumers, they run the risk of being sued for not complying with a federally mandated settlement service.

Although HUD vigorously pursued its belief that NHDS companies are indeed settlement services, they still have nothing in writing that reflects this position to the public.

The fact remains that HUD continues to give out misinformation. For instance, last month one of my associates spoke to Kevin Stevens, a compliance protection specialist with HUD. When asked if NHD’s are a required settlement service in California, he replied they were, and that they were listed in Section 1300 of HUD-1, a document that outlines various settlement services for homebuyers.

Well, I checked and they’re not listed there.

We also asked Brian Sullivan, a HUD spokesman, if NHDS reports are a settlement service and he too said they were ‘most certainly a settlement service,’ and when asked if HUD was enforcing this mandate, he stated, “We believe so. If not, it’s a violation of RESPA.”

So we asked Sullivan that if HUD is really enforcing this new mandate, why weren’t the NHDS included in HUD-1 as a settlement service for real estate transactions that occur in California?” Sullivan didn’t exactly have an answer for that one. “It’s not a requirement across the country, just in certain states,” he said.

No one here at RE-Insider can find any communication from HUD that reflects Mr. Sullivan comments. No mention on HUD-1 was made and there was no official or unofficial communication posted.

Kirsten Ivey-Colson, an attorney with HUD’s Office of Finance and Regulation Compliance, insists that California state law requires that this disclosure is made. “Because it is paid at closing, it appears on HUD-1,” she said.

Well, it doesn’t appear on HUD-1. We checked.

There is nothing that tells buyers, sellers, real estate agents, lenders, title companies or escrow companies in California that NHD’s are a settlement service and legally required.

I believe that as U.S. Senators representing the people of California, you want buyers to receive all legally-required full disclosure documents for the properties they are about to buy. I also believe that it is Secretary Donovan’s agency’s responsibility to ensure that everyone across the board is treated equally and fairly by being made aware of this requirement before they are lead down a legally sticky path of ignorance of the law.

Look at it this way: In the United States of America, we are taught that a law requirement MUST be in writing, posted and readily available. Well, when buying a home, which is the biggest and most important purchase most of us will ever make in our lives, shouldn’t the legal process be transparent?

While this letter comes from me, I urge anyone who will ever consider purchasing a home or who has recently purchased a home to contact Sen. Dianne Feinstein, D-Calif., Sen. Barbara Boxer, D-Calif., and HUD Secretary Shaun Donovan and urge them to bring some clarity to this issue.

Ask them — Is this a service that I, the homeowner, must pay for before my escrow can close? And if I am a real estate agent, or escrow or title officer, must I pay for this service out of escrow monies?

Federal requirements should be able to be read someplace, somewhere. It’s the least we can do for California homeowners and the real estate industry.

Sincerely,

Serena Ehrlich

P.S. For those who are interested, here’s the contact information for Feinstein, Boxer and Donovan:

Senator Dianne Feinstein
United States Senate
331 Hart Senate Office Building
Washington, D.C. 20510
Phone: (202) 224-3841
Fax: (202) 228-3954 TTY/TDD: (202) 224-2501

Senator Barbara Boxer
112 Hart Senate Office Building
Washington, D.C. 20510
Phone:(202) 224-3553
Fax;(202) 224-0454 (fax)

Shaun Donovan
Secretary of the U.S. Department of Housing and Urban Development
451 7th Street S.W., Washington, DC 20410
Phone: (202) 708-1112
TTY: (202) 708-1455

ATTENTION: AB 957 Assembly Judiciary Committee votes this TUESDAY! Show your support!

Readers,

We did it! As you know by now, AB 957 passed the first round of votes with solid bipartisan support just two weeks ago. Thank you so much for all the letters you sent. They made a real difference.

This coming Tuesday, the Assembly Judiciary Committee is holding their vote on AB 957 and once again we need your help to prompt these legislators to vote YES.

Below is a list of committee members and their contact information. Please do me and the entire real estate industry a favor and print out this letter, sign and fax it to the assembly members listed below.

Two weeks ago, AB 957 passed the Banking and Finance Committee with bipartisan support! That first committee meeting victory is due to all of you who faxed a letter of support.
*************************************************************************************
SUGGESTED LETTER TO FAX

RE: Assembly Bill 957 – The Buyer’s Choice Act

Dear Assembly Member:

I support AB 957, The Buyer’s Choice Act. This is important legislation that affects my business and must be enacted!

I understand that this bill will prohibit banks (sellers who acquired title to residential real property at a foreclosure sale) from requiring the buyer to purchase title insurance or use escrow services chosen by the seller/bank. And it would prohibit a seller/bank from, without good cause, disapproving the use of a title or escrow company chosen by the buyer.

Of particular importance is the language in the bill that prevents a bank who is a seller from disapproving of a buyer’s choice of title, escrow and settlement companies without good cause. This will help prevent the current practice of large banks from putting inappropriate pressure on buyers to agree to use companies that provide an advantage to the banks in the transaction.

This bill will put the choice of affiliate services back where it belongs, with the consumer. Thank you for undertaking this important legislation in California.

Sincerely,

____________________________
(Signature)

____________________________
(Printed Name)

____________________________
(Company Name)

____________________________
(Street Address, City, State, Zip)

____________________________
(Phone Number)

CC: Assembly Member Cathleen Galgiani, FAX 916-319-2117

Assembly Judiciary Committee

Assemblymember Mike Feuer (D) – Chair
State Capitol, Room 3146
Sacramento, CA 95814
Fax: 916-319-2142
Counties: Portions of Los Angeles
Main Cities: Beverly Hills, Sherman Oaks, West Hollywood, West Los Angeles

Assemblymember Van Tran (R) – Vice Chair
State Capitol, Room 4130
Sacramento, CA 95814
Fax: 916-319-2168
Counties: Portions of Orange
Main Cities: Costa Mesa, Garden Grove, Westminster, Fountain Valley, Stanton, Anaheim, Newport Beach

Assemblymember Julia Brownley (D)
State Capitol, Room 2163
Sacramento, CA 95814
Fax: 916-319-2141
Counties: Portions of Los Angeles, Portions of Ventura
Main Cities: Agoura Hills, Calabasas, Los Angeles, Malibu, Oxnard, Port Hueneme, Santa Monica, Westlake Village

Assemblymember Noreen Evans (D)
State Capitol, Room 6026
Sacramento, CA 95814
Fax: 916-319-2107
Counties: Napa, Solano, Sonoma
Main Cities: American Canyon, Calistoga, Napa, St. Helena, Santa Rosa, Vallejo, Yountville

Assemblymember Dave Jones (D)
State Capitol, Room 6005
Sacramento, CA 95814
Fax: 916-319-2109
Counties: Portions of Sacramento
Main Cities: Sacramento

Assemblymember Steve Knight (R)
State Capitol, Room 2016
Sacramento, CA 95814
Fax: 916-319-2136
Counties: Portions of Los Angeles, Portions of San Bernardino
Main Cities: Adelanto, Lancaster, Palmdale, Victorville

Assemblymember Paul Krekorian (D)
State Capitol, Room 4005
Sacramento, CA 95814
Fax: 916-319-2143
Counties: Portions of Los Angeles
Main Cities: Burbank, Glendale, Los Angeles, North Hollywood

Assemblymember Ted Lieu (D)
State Capitol, Room 3173
Sacramento, CA 95814
Fax: 916-319-2153
Counties: Portions of Los Angeles
Main Cities: Lomita, Torrance, Redondo Beach, Hermosa Beach,
Manhattan Beach, El Segundo, Venice, Westchester, West Los Angeles,
Marina Del Rey, Playa Del Ray, Mar Vista

Assemblymember William Monning (D)
State Capitol, Room 5150
Sacramento, CA 95814
Fax: 916-319-2127
Counties: Portions of Monterey, Portions of Santa Clara, Portions of Santa Cruz
Main Cities: Carmel by the Sea, Monterey, Morgan Hill, Santa Cruz

Assemblymember Jim Nielsen (R)
State Capitol, Room 6031
Sacramento, CA 95814
Fax: 916-319-2102
Counties: Portions of Butte, Colusa, Glenn, Modoc, Shasta, Siskiyou, Sutter, Tehama, Portions of Yolo
Main Cities: Alturas, Anderson, Chico, Colusa, Orland, Red Bluff, Redding, Weed, Yuba City

Assemblymember Cathleen Galgiani (D)
State Capitol, Room 5155
Sacramento, CA 95814
Fax: 916-319-2117
Counties: Merced, Portions of San Joaquin, Portions of Stanislaus
Main Cities: Atwater, Lathrop, Merced, Newman, Stockton, Tracy

Escrow officer’s selective practices

As you remember, the point of my investigation is to bring to the surface violations in the California real estate market. Certain lack of protection and accountability to homebuyers when they are making the largest purchase of their lifetime is fueling my interest in this subject. In particular, my current effort is on escrow diversions. I am finding that on many occasions Escrow officers are deliberately ignoring written instructions in RPA’s from buyers and sellers.

Can an escrow officer breach their commitment to impartiality? This is hot material! One of the biggest complaints I hear is that buyers and sellers select a particular settlement service company but their selection is overwritten by the escrow officer during closing. So last week I called over 20 different Southern California Escrow companies to see if I could get someone on the phone to talk to me about this switcharoo.

Folks, getting an Escrow manager or officer to speak to me on the phone is not easy. In many cases, when I told the receptionist why I was calling, I was put on hold and then into a voice mail. In other cases, I was forwarded to a manager in another regional office or sent to their corporate offices. Going one better Stewart Title sent me to their Public Relations agency! And in each engagement the response was virtually the same. No response. No response. However, I was lucky enough to get managers from different Chicago Title & Escrow branches on the phone. Success!

Chicago Title & Escrow is one of the firms I hear complaints about. I was thrilled to get not one but TWO folks from the company to speak with me. My first interview was with “Dave” (not his real name) from Chicago Title & Escrow’s LaJolla office. “Dave” openly acknowledged that Chicago Title & Escrow funnels business to their sister company, Chicago Title Insurance. “Dave” explained that by using a sister company, they were able to manage expectations and work with people they trusted. Nice PR answers but is it legal? Are the buyers and sellers aware that their decision is funneled to the escrow’s sister company? Is ownership disclosed and agreed in writing by the parties? My understanding is that HUD considers this practice to be a violation of RESPA. Am I wrong? Is any escrow officer willing to respond? Is a HUD/RESPA agent willing to respond?

My last call of the day was to Chicago Title’s Temecula office, who forwarded me to “Martha,” (not her real name) who discussed the practice of Escrow officers being paid on referral aka “on title” (usually around $50) as an incentive for them to recommend their company’s sister title services. When I asked “Martha” about recommending settlement services, she was quick to reiterate that that Escrow officers were not allowed to change the buyer’s/seller’s selected vendors. When pushed, however, “Martha” admitted that there were bad eggs in every industry.

So how does this affect you? You as a buyer and or seller trusted your escrow agent and believed that he she will review the legal documents and advice you in the event that your instructions were to be changed. Now, how do you feel knowing that your instructions were ignored?

While the escrow industry remains impacted by the economy and more escrow officers are let go, my chances of getting to talk with an escrow officer (or former) are getting brighter. Have you got an experience of an ignored instruction in an RPA? If so, I’d love to hear from you and pursue this further. And I will keep your name and situation anonymous if you’d like.