Tag: mortgages

Ginnie Mae Investigating Churning Used Against Vets and Servicemen and Women

Ginnie Mae, the government-owned corporation which lends money for home purchases to qualified people at more affordable rates, is conducting an investigation into unethical practices involving lenders possibly pressuring veterans and other members of the military into mortgage refinancing which they do not need.

The corporation is able to keep its costs down by guaranteeing repayment on $2 trillion worth of mortgage bonds, even when the borrowers default on the underlying loans. Ginnie Mae is investigating because the securities backed by them support a number of federally sponsored housing projects, including a few which loans are made via the Department of Veterans Affairs.

Ginnie Mae is afraid that some lenders are unethically putting pressure on veterans and military personnel to refinance loans that are part of Ginnie securities. According to Michael Bright, acting president of Ginnie Mae, lenders are pestering consumers relentlessly to try and convince them refinance. This behavior, which is called churning, creates high fees for the lenders and harms the servicemen and women by leaving them with larger loan balances in the end.

Congress is starting to take notice of the practice. Senator Elizabeth Warren, one of the finance industry’s most vocal critics, wrote to Bright, asking him if some of these lenders were abusing the Ginnie Mae program by using strong-man marketing tactics.

Bright answered Warren that he launched a task force to look into churning and any other abusive practices engaged in by lenders who were approved to issue Ginnie Mae-backed bonds. It is possible that the agencies could block the lenders from their programs if they believe restrictions on refinancing can’t be imposed or will not work.

“There are clearly some Ginnie Mae-approved issuer companies who appear to be taking advantage of the VA program to aggressively market and churn loans in our securities,” Bright wrote to Warren.

 

Housing Market Unlikely to Grow Without Government Guarantee

The majority of housing experts see little hope for the American mortgage market unless the government pledges to repay lenders.

A recent report stated:

“For the foreseeable future, there is simply not enough capacity on the balance sheets of U.S. banks to allow a reliance on depository institutions as the sole source of liquidity for the mortgage market.”

The report, entitled “Housing America’s Future: New Directions for National Policy,” was issued by a group of members of the housing establishment.

According to the panel, this is not an indictment of the American banking system, because it would prefer to trade leveraged derivatives then hold on to mortgage loans.

The report adds, “Given the size of the market and capital constraints on lenders, the secondary market for mortgage-backed securities must continue to play a critical role in providing mortgage liquidity.”

Investors are unlikely to to finance mortgages without a government guarantee.

 

Outlook for Mortgage Delinquency Optimistic

The Chicago-headquartered credit reporting agency TransUnion says that as long as the US economy continues without any more serious setbacks, the number of people with mortgages who are behind on their payments should go down impressively by next year’s end.
The percentage of people who are 60 days or more late on their mortgage payment, known as the delinquency rate, will most probably slightly increase to about 6 percent in the first quarter of 2012, announced TransUnion in its annual forecast for delinquency rates on Wednesday.
But by the end of 2012 that rate could further fall to only 5 percent, according to TransUnion. That is a large change from the high point at the end of 2009 when the delinquency rate reached 6.89 percent.
The prediction weighs a number of economic factors when forecasting the future of mortgage delinquency rates, including consumer confidence and an improved general economy. In addition, banks are most likely removing a large portion of pending foreclosures from their books this coming year, according to Charlie Wise, director of research and consulting for TransUnion.
There is still a large backlog of foreclosure in the computers of banks partly due to the robo-signing scandal earlier this year.  In that event bank officials signed off on mortgage documents, often using computerized, automatic “robot” programs, without human intervention verifying that the mortgage requests were legitimate or if the borrowers could pay back their loans.

This issue blew up last year, forcing banks to backtrack and review foreclosures across the country, verifying that all the paper work was in order.
Because of this backlog the entire process was dragged out, leaving mortgages listed as delinquent longer than they should have been which caused a temporary rise in the delinquency rates.

“We have a long way to go to get back,” said Steven Chaouki, a TransUnion vice president.