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U.S. Attorney General Michael Mukasey addressed questions from reporters this week about the need to tackle mortgage fraud and the subprime crisis through a national investigation, spearheaded by a government entity like the Justice Department.

Mukasey told reporters that while he sees the need to probe for mortgage fraud and to not turn a blind eye towards practices that led to the subprime crisis, he does not believe a national “Enron-type” task force is needed to handle the investigations and spawn changes.

"I have a sense that it is a problem that arises in particular markets, many of them. A lot of them in the same way but that there is no Enron-type task force that is a proper response,” Mukasey said. “I think what’s a proper response is information sharing. Is getting familiar with the way in which it arises starting from over evaluation of properties to turning a blind eye to the over evaluation, to putting together securitization packages that are then marketed to not letting people know what the true terms of their mortgages are, to rating those security packages in a way that overstates their value by disregarding the risk and that has happened over and over again. Somebody who I met with characterized it as white collar street crime.” Kerri Panchuk | 06.06.08

FreedomWorks, a nonprofit that advocates for the rights of taxpayers, continues its protest of both a Senate and House Bill that propose an additional $300 billion in funding to help distressed borrowers.

FreedomWorks this week announced the launch of a print and radio ad campaign in Kentucky, which includes a request asking U.S. Senator Mitch McConnell (R-Kentucky) to take a lead in stopping the movement of the Senate’s version of the foreclosure prevention bill.

“Most Americans live within their means and pay their mortgages on time, but some people took risky mortgages, betting that the price of homes would continue to rise. That bet isn’t paying off for some, and now Congress wants to give out $300 billion in new taxpayer loans to some of the riskiest borrowers with the worst credit,” FreedomWorks said.

FreedomWorks argues on its Web site that the average home in Kentucky is priced at $110,000, yet taxpayers in the Southern State will be among millions of Americans paying to fund loans for distressed borrowers that are priced up to $500,000. The organization also alleges that most of the crisis is confined to states where risky lending and borrowing fueled the mortgage crisis.

To date, more than 54,000 Americans have signed a petition on a FreedomWorks sponsored Web site opposing the bailout. Kerri Panchuk | 06.06.08

The delinquency rate for mortgage loans on one-to-four unit residential properties rose 53-basis points between the fourth quarter of 2007 and the first quarter of 2008 to reach a rate of 6.35-percent of all loans in delinquency on a seasonally-adjusted basis, according to the Mortgage Bankers Association's (MBA) latest National Delinquency Survey.

The MBA says the delinquency rate also is up 151-basis points when compared to a year ago.

“The seasonally-adjusted total delinquency rate is the highest recorded in the MBA survey since 1979, however the non-seasonally adjusted delinquency rate is not,” the MBA concluded in its latest report. “Delinquency rates normally peak at the end of the year and drop to their lowest point for the year at the end of the first quarter.”

The MBA also documented increases in the percentage of loans entering the foreclosure process. According to the latest survey, 2.47-percent of all mortgage loans were in foreclosure at the end of the first quarter in 2008, a 43-basis point increase when compared to the fourth quarter of 2007, and a 119-basis point jump when compared to the year before.

Despite the significant increases in the delinquency and foreclosure rate, the MBA asserted in its study that most of the findings are dictated by regional trends and certain local markets are fueling the dramatic increase in foreclosures and delinquencies.

“The problems in California and Florida are extraordinary and they are the main drivers of the national trend,” the MBA said. “The quarterly rate of foreclosure starts on subprime ARM loans in California was 9.24-percent. This rate, combined with Florida's rate of 8.25-percent, drove up the national average foreclosure start rate to the point where 43 states were below the national average of 6.32-percent. California saw a total of approximately 109,000 foreclosure starts and Florida 77,000.”

Another factor played a role in what type of loans went delinquent.

“While the foreclosure start rates were up for all types of mortgages, a reflection of the decline in home prices, the magnitude of the national increases is clearly driven by certain loan types and certain states,” said Jay Brinkmann, vice president for research and economics at the MBA. “For example, while subprime ARMs represented 6-percent of the loans outstanding, they represented 39-percent of the foreclosures started during the first quarter.”Kerri Panchuk | 06.05.08

Massachusetts Attorney General Martha Coakley announced Tuesday that her office has filed suit against mortgage lender Option One Mortgage Corp., a subsidiary of H&R Block, Inc., and is accusing the company of contributing to the state's foreclosure crisis by issuing deceptive loan products and targeting black and Latino borrowers.

Coakley's office says Option One specifically targeted minority borrowers who had fewer mortgage options to choose from. In a press statement, Coakley's office asserts that Option One charged minority borrowers higher points and fees at closing and failed to inform them about the risky loan products they were about to take on. Coakley's office says, “For example, Option One and H&R Block provided information to their employees about how the limited choices available to these borrowers made them good candidates for subprime loan products. Specifically, the companies encouraged employees and brokers to focus on the “emerging markets” of black and Latino home buyers, who Option One and H&R Block described as having credit concerns, a lack of familiarity with the credit system and difficulty demonstrating conventional credit history.”

Of the 30,000 loans Option One made in Massachusetts between the years 2004 and 2007, 5,700 were issued to black and Latino homeowners.

Attorney General Coakley issued a statement about Option One's practices saying, “A borrower should be able to obtain a loan based upon creditworthiness alone and not because of his or her ethnicity. Our office will continue to enforce civil rights laws in order to keep discrimination out of the mortgage lending process.”

Below is a list of some of the loans that Option One is accused of marketing to minority borrowers:

Stated Income, No-Doc or Low-Doc Loans

Substantial Prepayment Penalties

Incentives for Brokers for Selling Subprime Loans

100-percent Financing

2/28 Loans with “Teaser Rates”

With a U.S. Senate bill and House Bill receiving so much attention for their ideas on how to tackle the housing crisis, many in the default servicing business are starting to wonder how proposed legislation could impact the industry as a whole.

Rick Sharga, vice president of marketing for online foreclosure marketer RealtyTrac, has a few thoughts on the pending legislation that he will share at the upcoming 2008 USFN National Default Servicing Seminar and Technology Forum in San Antonio.

“The housing slump—accompanied by a surge in foreclosures—in the midst of a presidential election year has pushed foreclosure prevention legislation to the top of many politicans' priorty lists,” Sharga said. “The U.S. House and Senate both recently passed legislation aimed at providing relief to homeowners facing foreclosure, and many states have passed or proposed similar measures. Many of the laws being considered, or already enacted, could have a significant impact on the default servicing industry.”Kerri Panchuk | 06.04.08

As more proof that foreclosures affect every economic bracket, entertainer Ed McMahon—mostly known for his long stint as Johnny Carson's “Tonight Show” sidekick—is possibly facing foreclosure on his $4.8 million home in California.

News reports say McMahon has been unable to work since breaking his neck more than a year ago, causing him to fall behind on his mortgage. A subsidiary of Countrywide Financial Corp. filed a notice of default three months ago. McMahon is currently working with his lender to see if the loss of his home can be mitigated. Kerri Panchuk | 06.04.08

Cleveland, Ohio-based law firm Ulmer & Berne, LLP, which is known for representing publicly and privately-held companies and financial institutions, announced the formation of an internal Subprime Task Force this week.

The new unit, which is made up of attorneys with expertise in subprime-related cases, regulations and transactions, will offer services related to banking and commercial litigation, financial services regulatory law, internal corporate investigations and complex litigation.
Kerri Panchuk | 06.03.08

For the 15th consecutive month in a row, single-family home sales in Rhode Island dropped in April, according to a new report from publisher and real estate data provider The Warren Group.

The data provider elaborated on this phenomenon saying single-family home sales have dropped 18.4-percent since hitting 659 in 2007, compared to 538 this year. Meanwhile, year-to-date sales dropped 20.2-percent from 2,336 last year to 1,864 this year.

“Rhode Island sank deeper into its housing slump this winter,” said Timothy Warren Jr., chief executive officer of The Warren Group. “But the warm weather is here, and spring is a critical time for the housing market.”

In April, the New England state also saw the median price of single-family home sales drop 11.3-percent from $270,000 last year to $239,500 this year.

“With prices falling as steadily as they have been in the Ocean State, the hope is that first-time homebuyers might see 2008 as a good year to take the leap and buy a home,” Warren said. “We’re not seeing evidence of that yet, and we still don’t know when we’ll see the bottom of this slump. But opportunities for a good deal certainly abound in this market.” Kerri Panchuk | 06.03.08

Federal Reserve Chairman Ben Bernanke said in a statement Tuesday that financial conditions “remain strained” in the country with some “key funding and securitization markets” showing only minor signs of recovery, while lagging housing prices and skyrocketing oil expenses continue to create significant risks to growth.

“Overall economic growth was quite slow but apparently positive in both the fourth quarter of 2007 and the first quarter of this year,” Bernanke concluded. “Activity during the current quarter is also likely to be relatively weak. We may see somewhat better economic conditions during the second half of 2008, reflecting the effects of monetary and fiscal stimulus, reduced drag from residential construction, further progress in the repair of financial and credit markets, and still solid demand from abroad. This baseline forecast is consistent with our recently released projections, which also see growth picking up further in 2009.”

Bernanke, who has reduced the federal funds rate several times since late last year, hinted Tuesday to the effect that monetary policy will remain somewhat consistent in the coming months.

“Our decisive policy actions were premised on the view that a more gradual reduction in short-term rates could well have failed to contain the financial and economic problems confronting us,” Bernanke said. “For now, policy seems well positioned to promote moderate growth and price stability over time. We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.” Kerri Panchuk | 06.03.08

New York State Senator Jeff Klein is one of several lawmakers supporting New York State Senate Bill 7028, a piece of legislation that would require the “winning party” in a foreclosure action to ensure a home is cared for properly, especially if a local neighborhood homeowners’ association requires that specific maintenance measures occur.

Senate Bill 7028 specifically says, “Where a final judgment for the holder of a mortgage has been rendered in an action to recover any part of the mortgaged debt, it shall be the duty of the prevailing party to enter into control and possession of the foreclosed property and to maintain it in a safe and habitable condition until said premises are sold.” Kerri Panchuk | 06.03.08