FDIC Considers New Mortgage Disclosure Rule Aimed At Banks Owning Servicers And Home Equity Loans
Very cool video below on unconventional housing.
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WASHINGTON (MarketWatch) — Responding to a growing wave of foreclosures, the Federal Deposit Insurance Corp. is considering whether to impose new disclosure requirements on big banks seeking to package and sell mortgage securities to investors.
Specifically, the FDIC is considering whether big banks that own both servicers and second-lien loans should need to disclose to mortgage investors, before loans are packaged and sold, what would happen to the second-lien loan if the first mortgage comes into distress, according to people familiar with the agency.
These second loans were taken out in large numbers during the housing boom that led to the financial crisis. Many homeowners took out second liens to fund home-improvements or expensive purchases.
In many cases big bank holders of second lien loans haven’t disclosed what their arrangement is on those loans with the corresponding owner of the primary mortgage.
Mortgage investors, Democratic lawmakers and academics argue that the lack of transparency is a key reason why big, bank-owned mortgage servicers have been opposed to modifying many mortgages for troubled homeowners even when loan bondholders want to lower interest payments for borrowers.
They argue that internal conflicts at big banks are blocking critical loan modifications that they believe are necessary to revive the economy and limit the expected 8 to 13 million foreclosures expected by 2012.
The vast majority of U.S. second-lien loans, a huge part of the $11 trillion mortgage industry, are owned by large financial institutions. The largest banks hold roughly $500 billion in second-lien loans. They also own the largest servicers, which collect a fee for administrating all aspects of a loan, including sending monthly payments to mortgage investors, maintaining records and collecting and paying taxes and insurance.
The top four U.S. mortgage servicers are owned by Bank of America, Wells Fargo, J.P. Morgan Chase, and Citigroup according to Inside Mortgage Finance. These four companies are also top securitizers of mortgage loans. None returned requests for comment.
Regulatory observers warn that there is a major conflict of interest inherent in this arrangement. They contend servicers are reticent to modify primary mortgages owned by bondholders, even if those mortgage investors want to alter the loan to help troubled borrowers, because they are under pressure from their parent bank not to modify the second mortgages the large institution owns.
“The servicer won’t modify the second-lien loan because of what it means for their parent bank’s balance sheet, and the mortgage investors of the primary loan, in return, won’t want to modify the primary mortgage if the second lien is not being modified,” says Henry Sommer, director at the National Association of Consumer Bankruptcy Attorneys. “However, the servicer is supposed to act in the best interest of all parties, not just the second-lien loan its parent bank owns.”
Continue reading at Marketwatch...
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Alternative housing...check this out...
Houses made of unconventional materials can be a tough sell when it comes time to refinance, especially if there are no comparable homes in the area.
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Jan 10, 2011 at 3:53 PM
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