Commercial Mortgage Delinquency Soars to Historic High: Housingwire

All I can say is get the pantry ready with canned food. We are facing major problems!
by DIANA GOLOBAY housingwire.com

Tuesday, May 4th, 2010, 8:16 am

The delinquency rate among commercial mortgage-backed securities (CMBS) topped 8% to yet another historical high in April, according to the latest data from analytics firm Trepp.

The percentage of loans 30+ days delinquent, in foreclosure or real estate owned (REO) status jumped 41 basis points (bps) to an overall 8.02%, from 7.61% in March. The share of loans considered “seriously delinquent” — 60+ days delinquent, in foreclosure or REO status climbed 48bps to its own record-high of 7.14%.

The share of CMBS loans past due has marched higher and higher over the last year:

In April 2009, the 30+ day delinquency, foreclosure and REO rate was only 2.45%. Six months ago, that rate nearly doubled to 4.8% in October 2009.

The rate of growth is more pronounced in the seriously delinquent bucket. At the same time last year, 1.78% of CMBS loans were 60+ days delinquent, in foreclosure or REO status. That more than doubled to 3.91% by October 2009.

Despite the new records, the rate of growth in delinquency slowed somewhat from what Trepp called a “breakneck pace” in March.

“Last month, the market was taken by surprise when delinquencies shot up 89 basis points. About 40 basis points of that increase was due to the massive Stuyvesant Town loan becoming delinquent,” Trepp said in e-mailed commentary. “Even so, the 49 basis point net increase was more than twice the increase posted in February.”

Multifamily loans within CMBS were the only collateral type to post a decrease in delinquency in April. Trepp found this sector eased 13bps to 13.06% delinquent. Office loans grew to 5.37% delinquent, from 4.73% in March.

Retail delinquencies grew 41bps to 6.44%, while industrial delinquencies gained 5bps to 5.44%. Hotel delinquencies swelled 27bps to 17.16%, Trepp found.

Write to Diana Golobay

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First American sues 8 rivals over AVMs: LENDER PROCESSING SERVICES (LPS)

Things that make you go Hmmm…

Patent infringement lawsuit seeks damages from Zillow, LPS, others

BY MATT CARTER, TUESDAY, MAY 4, 2010.

Inman News

First American CoreLogic Inc. has filed a lawsuit against eight companies, including Zillow Inc. and Lender Processing Services Inc., claiming the companies’ automated property valuation services infringe on a 1994 patent.

In its complaint, CoreLogic seeks an injunction against the companies to prohibit them from using or selling any products that fall within the scope of the patent, and for triple damages to “compensate CoreLogic for its profits lost.”

None of the companies named in the April 16 lawsuit have filed formal a response to the complaint, and none would comment to Inman News.

The companies named in the lawsuit provide automated valuation model (AVM) services to businesses or consumers — computer-generated property value estimates that typically rely on a property’s unique characteristics, public property records and other market statistics.

A spokeswoman for Zillow — a site that became one of the Internet’s most popular real estate portals by offering instant, free property “Zestimates” to consumers — said the company was aware of the lawsuit, and “has no plans to change any aspect of our business as a result of this complaint.”

LPS — a technology and data provider for the National Association of Realtors’ Realtor Property Resource database — said the company does not comment on pending litigation, but “does intend to continue providing AVM services.”

NAR’s RPR LLC subsidiary intends to generate revenue by incorporating active and sold listings data into automated property valuations that the company hopes will become a standard for the lending industry, government agencies and others (see story).

Other companies named in the lawsuit include: Fiserv Inc., Intellireal LLC, Interthinx Inc., Precision Appraisal Services Inc., Real Data Inc. and RealEC Technologies Inc.

Patent lawsuits can sometimes take years to resolve, as defendants may be able to demonstrate that a patent was issued for an idea that was not new, or that a patent claim was overly broad or vauge.

In its lawsuit, CoreLogic claims the rights to U.S. Patent 5,361,201, issued Nov. 1, 1994, for an “automated real estate appraisal system” and assigned by its inventors to HNC Inc

Summarizing the system in their patent application, inventors Allen Jost, Jennifer Nelson, Krishna Gopinathan and Craig Smith described how predictive models could generate estimated property values based on individual property characteristics and neighborhood or area characteristics.

Through a trial and error process, they said, the models could be fed “training data” in order to “learn” the relationships between individual property characteristics and area characteristics.

In the learning stage, the model’s predicted property values are compared to actual sales, and the weights assigned to different variables repeatedly adjusted to achieve the greatest degree of accuracy.

Although the process was similar in concept to established regression analysis techniques, the inventors said the application would also employ “neural networks” to automatically detect relationships between variables that would otherwise need to be detected and inputted manually by programmers.

Neural networks, they said, would allow rapid development of models and automated data analysis — a vital capability if the goal is to value properties in thousands of neighborhoods or areas, each requiring its own model.

Once the models had been developed, the inventors said, they could also be programmed to monitor their own performance and adjust their assumptions when performance dropped below a predetermined level.

In addition to an estimated property value, the models would be able to compute the predicted margin of error, allowing for a value range to be generated for each property — a common feature of AVMs offered to consumers.

The patent application described the algorithms and dozens of variables that could be used to generate valuations, and included source code written in ANSI C and Microsoft Excel macro.

The patent was assigned to Transamerica Intellitech Inc. in August 2000, and then to First American Real Estate Solutions, now part of CoreLogic.

First American is spinning off its information solutions group into a separate, publicly traded company, to be known as “CoreLogic.”

***

DISTURBING BEHAVIOR in FLORIDA: The $67K Water Lien! Revoked Homestead!

Individual does not want to disclose their name. I have authenticated this to be true.

I have spoke to others and this has happened to them …but without ANY violations.

Could this be the way that the MBA might get around to allow banks to foreclose on “Non-Homestead” properties?? Just CURIOUS?

“DISTURBING BEHAVIOR”

1. Non-Creditor places a Lis Pendens

2. County/City revokes your HOMESTEAD

3. County/City issues code violations

4. County/City places a lien on the subject property

5. County files a Foreclosure Notice for unpaid Code Violations (ie: not getting a $2-3K sewer connected that turns into $67K FASTand growing …while in Lis Pendens)

6. County sends you a letter letting you know that they CANNOT foreclose on a homestead residence.

GUESS WHAT? They revoked it! So now they can foreclose and get in first place of the bank(s) foreclosing… Kick you to the CURB!

Bank now pays the “County/ City” off. It can be any violation…Did you clean your pool? mow the lawn? ANYTHING!

“DISTURBING BEHAVIOR”

But why you ask…

It’s the only property you own!

It’s the only “Primary” residence you have!

It’s the only mortgage in the Country….So why is this not your Homestead property?

Good thing they weren’t working on a “Loan Mod”.

“DISTURBING BEHAVIOR”

Don’t believe me see for yourself…

Related Stories:

mortgage-banking-the-mers-alternative-to-vacant-property-registration-ordinances

state-supreme-court-seeks-to-relieve-foreclosure-pressure-valve

Too Big To Jail? Executives Unscathed As Regulators Let Banks Report Criminal Fraud: HUFFINGTON POST

Huffington Post Investigative Fund |  David Heath First Posted: 05- 3-10 09:24 PM   |   Updated: 05- 3-10 09:44 PM

Republished from the Huffington Post Investigative Fund.

The financial crisis has spawned hundreds of criminal prosecutions for alleged fraud. Yet so far, defendants have been mostly minor players such as real-estate agents, mortgage brokers, borrowers and a few low-level bank employees. No senior executives at large financial institutions face criminal charges.

Too Big To JailThats in stark contrast to prosecutions during the savings and loan scandal two decades ago, when the government’s strategy targeted and snagged some of banking’s most powerful players. The approach back then succeeded in sending scores of S&L executives to prison, as well as junk-bond king Michael Milken and business tycoon Charles Keating Jr.

One explanation for the difference may be that key bank regulators — who did the detective work during the S&L crisis and sent more than 1,000 criminal referrals to prosecutors — have this time left reporting fraud up to the banks themselves.

Spokesmen for two chief regulators, the Comptroller of the Currency and the Office of Thrift Supervision, say that they have not sent prosecutors a single case for criminal prosecution.

An OTS spokesman said the agency, much like the banks themselves, does not see much evidence of criminal fraud inside the financial institutions. The spokesman, Bill Ruberry, citing the agency’s enforcement director, said, “There may be some isolated cases, but certainly there’s no widespread patterns.”

That surprises William K. Black, a former OTS official who helped coordinate criminal investigations during the S&L crisis.

“Dear God,” Black said when told bank regulators haven’t made any criminal referrals. “Not a single one?”

Black sees many signs the the government is less aggressive than during the S&L era — and could result in more bad behavior.

“This crisis was not bad luck,” he said. “It was done to us. When you bring those convictions, you hope that at least for a while to deter.”

Banks have reported massive amounts of fraud to the Treasury Department but have not held themselves — or their top executives — responsible, instead pinning blame on borrowers, independent mortgage brokers, and others.

That may account for the dearth of prosections against big fry. For instance, in California, among states where the mortgage meltdown hit hardest, the Huffington Post Investigative Fund identified 170 mortgage fraud prosecutions in federal courts. Only two are against employees of a regulated lender.

An Investigative Fund analysis shows that two-thirds of the 170 prosecutions are against mortgage brokers, real-estate professionals or borrowers — the same groups blamed by the banks when they report suspicious activities to regulators.

Besides the absence of criminal referrals, other plausible factors for the lack of major prosecutions may include a skittishness among prosecutors about filing cases they could have trouble winning, and a severe decline in investigative resources. The FBI dramatically shifted resources away from white-collar crime after the 2001 terrorist attacks.

To be sure, there are also notable differences between the S&L and current financial crisis, in the behavior of lenders during both periods, and between civil allegations of fraud and proving that someone committed a crime — all of which could account for the lack of big prosecutions.

But interviews with several law enforcement authorities suggest another explanation: A lack of active assistance to prosecutors by bank regulators who played key roles during the S&L crackdown. Those regulators sent detailed reports to prosecutors of known and suspicious criminal activity.

“Only the regulators can make a lot of these cases,” Black said. “The FBI can make a few, but the regulators are the ones that understand the industry.”

Under intense political pressure in the late 1980s, the Justice Department and thrift regulators developed a strategy to thoroughly investigate failed S&Ls for evidence of fraud and to focus their resources on the highest ranking executives.

In the early years, between 1987 and 1989, there were more than 300 prosecutions. Some bank executives were already behind bars. In 1989, Woody Lemons, chairman of Vernon Savings and Loan in Texas, was sentenced to 30 years.

In June 1990, then-OTS director Timothy Ryan told Congress that his agency had established criminal-referral units in each of 12 district offices. In addition, more than 30 OTS employees were assigned as full-time agents of grand juries or assistant US attorneys to help prosecutions. And the agency prioritized prosecutions to a Top 100 list, targeting senior S&L executives and directors.

While data on criminal referrals during the S&L crisis is spotty, the Government Accountability Office reported that in the first ten months of 1992 alone — a random snapshot — financial regulators sent the Justice Department more than 1,000 cases for criminal prosecution.

One study showed that 35 percent of criminal referrals in Texas — ground zero for the S&L problems — were against officers and directors.

This time, prosecutors are relying more heavily on banks to report suspicious activity to the Treasury Department. Banks are required to report known or suspected criminal violations, including fraud, on Suspicious Activity Reports designed for the purpose. In effect, the reports, which can be many pages in length, provide substantive leads for criminal investigations.

Black scoffs at the strategy of leaving it to banks to ferret out all the fraud. “Institutions will not make criminal referrals against the people who control the institutions,” said Black.

A white-collar criminologist and law professor at the University of Missouri-Kansas City, he argues that there’s ample evidence of fraud. Insiders working for lenders openly referred to loans they made without proof of income as “liar loans.” Many banks actively sought inflated appraisals in their rush to make as many loans as possible. As previously reported by the Investigative Fund, such lending practices contributed to the demise of Washington Mutual.

Not everyone agrees that such a case can be successful. Benjamin Wagner, a U.S. Attorney who is actively prosecuting mortgage fraud cases in Sacramento, Calif., points out that banks lose money when a loan turns out to be fraudulent. An investor in loans who documents fraud can force a bank to buy the loan back. But convincing a jury that executives intended to make fraudulent loans, and thus should be held criminally responsible, may be too difficult of a hurdle for prosecutors.

“It doesn’t make any sense to me that they would be deliberately defrauding themselves,” Wagner said.

So far, only sporadic news reports suggest that the Justice Department has ongoing criminal investigations against major banks such as Washington Mutual and Countrywide, as well as investment bank Goldman Sachs.

Fewer Cops on the Beat

The Justice Department, in response to written questions from the Investigative Fund, acknowledged the absence of criminal referrals from financial regulators. Months into the financial crisis, a new Financial Fraud Enforcement Task Force, formed by President Obama last fall, was trying to work out communication problems between Justice and the regulatory agencies, according to the head of the task force, Robb Adkins. Adkins has said that criminal referrals from regulators have been “too often the exception to the rule.”

At a Congressional hearing in December, Assistant Attorney General Lanny Breuer was asked why there have been no criminal cases brought yet against CEOs. “Don’t for a moment think [these cases] aren’t being investigated,” Breuer replied. “They are complicated cases. It took a long time in hatching them and developing them. But they will be brought.”

The system that tracks Suspicious Activity Reports, or SARs, detected a dramatic increase in mortgage fraud starting in 2003, when reports of mortgage fraud nearly doubled within a year from 5,400 to 9,500. By 2007, the number had exploded to 53,000. During those same years, many mortgage lenders dramatically lowered their lending standards. Banks often required no proof of income. Borrowers could even get loans without be able to repay them.

Yet in their reports, banks overwhelmingly have blamed others for fraud. Whenever a borrower’s income was wrong on a loan application, the banks fingered borrowers 87 percent of the time and independent mortgage brokers 64 percent of the time, according to a 2006 Treasury analysis of the SARs. But the bank’s own employees were almost never blamed — only about four times in every 1,000 reports.

That might explain why so few prosecutions have targeted bank insiders.

Another reason for fewer prosecutions against bank employees is that the Federal Bureau of Investigation has far fewer agents working on the current crisis. Deputy Director John Pistole testified before Congress last year that the bureau had 1,000 people working on the S&L crisis at its height. That compares to about 240 agents working on mortgage fraud cases last year.

The FBI dramatically shifted its resources away from white-collar crime and to terrorism after the Sept. 11 attacks.

“We just didn’t have the cops on the beat” during the recent crisis, said Sen. Ted Kaufman, the Delaware Democrat who conducted a hearing on the lack of criminal prosecutions. “I was around during the savings and loan crisis [as a Congressional aide] and we had a lot more folks working it when it went down.”

Even with additional funding from Congress, which Kaufman helped push through, the FBI is budgeted to have 377 people working mortgage fraud cases this year, about a third as many as during the S&L investigations.

Charges Harder to Prove?

Charges in the recent banking crisis may be harder to prove, said Robert H. Tillman, who teaches at St. John’s University and who analyzed data about S&L prosecutions. Savings and loan executives who were convicted often personally approved large commercial loans for projects doomed to fail. Some would use federally insured deposits to pay themselves excessive salaries or to lend money to their own real estate projects. A few even took kickbacks.

This time, lending executives may have encouraged the making of bad loans, but they generally did not personally approve the loans, Tillman said. They didn’t send emails telling the troops to make fraudulent loans but paid big commissions to loan offers who made risky loans. Then the executives were able to reap huge bonuses for making the company look so profitable.

So far, the biggest cases have been civil lawsuits brought by the Securities and Exchange Commission, including most recently a highly publicized securities fraud case against Goldman Sachs and one of its vice presidents, Fabrice P. Tourre. News reports suggest that a referral from the SEC’s enforcement division to the Justice Department has led to a criminal inquiry.

Typically, federal authorities deal with massive financial scandals by picking a few cases they are confident they can win, said Henry Pontell, an expert on fraud at the University of California — Irvine.

This time, the administration may have been more focused on saving failing banks — and an entire financial system — than in prosecuting bank executives, Pontell said. Giving billions in bailout dollars to executives who encouraged fraudulent practices not only could complicate a case, it could prove embarrasing, he added.