Fannie Mae to Start Foreclosure Process on Reverse Mortgage Defaults

…are you sure about that?

June 6th, 2010  |  by Neil Published in Reverse Mortgage Daily

Against the backdrop of a recent New York Times story about borrowers in the forward mortgage world electing to stop paying their debt – and living sometimes for years cost-free – concerns in the reverse world about prolonged defaults is drawing more attention, and some official government action.

To wit: Fannie Mae (NYSE:FNM) reportedly has been reminding reverse servicers they must follow HUD guidelines regarding tax and insurance defaults for HECM customers. In the past, Fannie has elected not to have servicers follow these established guidelines – that is, beginning foreclosure when taxes, insurance or maintenance are not current – because of so-called “headline risk.”

 Now, however, servicers have been instructed to submit troubled loans to HUD to get approval to start the foreclosure process. Once approved, a demand letter is sent to the borrower(s) who has six months to cure the default. After that, the servicer must start the foreclosure process – one exception is when a borrower refuses to take necessary curative action, at which time the foreclosure process begins immediately.

“Tax and insurance defaults have gone up dramatically in the last few years,” says one servicer, who believes reactive changes now “would turn us into collection agencies.”

At the moment, the industry is waiting for HUD to issue a promised Mortgagee Letter regarding tax and insurance (T&I) defaults. An agency spokesman told RMD: “FHA is working closely with Fannie Mae and servicers of reverse mortgages to develop a plan to notify seniors of the delinquency and provide the necessary support and outreach to these seniors to find solutions to bring delinquent taxes and insurance current.”

Considering low default balances

According to Ryan LaRose, chief operating officer of Celink – a reverse mortgage servicer – an industry committee “presented HUD with a white paper awhile back that included industry recommendations for how to deal with the existing T&I default population. It included an analysis of the loan’s LTV [loan-to-value] and took into consideration those borrowers with a low default balance and put them into a ‘monitoring’ program,” according to LaRose, who is a member of that committee.

“If FHA is smart,” says another servicer, “they will approve foreclosing on high claim amounts because [if they don’t] the situation will come back to haunt us,” he warns, adding: “Fannie wants more loans assigned to HUD.” What’s missing in all this, he says, “is that the industry has no real loss mit program for seniors.”

In the aggregate, T&I defaults are relatively small. HUD’s Erica Jessup puts the current number at less than 2 percent of all reverse mortgages extant. Cheryl MacNally, national sales manager, senior products group, Wells Fargo Home Mortgage, puts a finer point on those numbers: “If we have someone in T&I default for only $500, we don’t want to foreclose [especially] if they have a 700 FICO score – we don’t torture them” with foreclosure threats. However, MacNally predicted that as more full draws are taken on reverse mortgage balances, “T&I defaults will increase.”

As to the aforementioned headline risk, John LaRose, CEO of Celink, expresses concern “over the possibility of thousands of senior homeowners being placed into foreclosure by the end of the year. The timing could not be worse,” he declared, because “those who have a proclivity for making negative comments about our industry could be energized to be even more aggressive in their attacks on us,” said LaRose.

Written by Neil Morse

DO YOU HAVE A FANNIE MAE LOAN?

Fannie Mae Announces its Own Foreclosure Prevention Plan Under HAFA

by AUSTIN KILGORE HousingWire

Tuesday, June 1st, 2010, 5:07 pm

[Update 1: Corrects current cash incentives for Treasury HAFA]

Fannie Mae (FNM: 0.94 -2.08%) announced its version of the Making Home Affordable Foreclosure Alternatives (HAFA) program Tuesday, implementing the program for all conventional mortgages that are held in Fannie’s portfolio, that are part of an mortgage-backed security (MBS) pool with a special servicing option, or that are part of a shared-risk MBS pool for which Fannie Mae markets the acquired property.

The Fannie Mae program takes effect August 1, 2010 and is designed to mitigate the impact of foreclosures on borrowers who are eligible for a loan modification under the Home Affordable Modification Program (HAMP) but were unsuccessful in obtaining one, Fannie said. Like the Treasury Department‘s HAFA program, servicers cannot consider a borrower for HAFA until the borrower is evaluated and eliminated from eligibility for a Making Home Affordable Modification Program (HAMP) workout plan.

Also like the Treasury program, Fannie Mae will offer servicers cash incentives for completed HAFA transactions, $2,200 for short sales and $1,200 for deed-in-lieu of foreclosure agreements. Borrowers are also eligible for $3,000 in incentives.

That’s more than in the Treasury’s HAFA program, where servicers are eligible for $1,500. Under the Treasury program, borrowers receive $3,000. In addition, the investor is also eligible for a maximum of $2,000 incentive.

Participating servicers will be required to report on their Fannie Mae HAFA activities to both Fannie and the Treasury and the program sunsets on December 31, 2012.

After announcing the program in October 2009, Treasury’s HAFA program began in April. The Fannie Mae HAFA program is the latest in a string of programs designed to help borrowers avoid foreclosure. In addition to HAFA and HAMP workouts, Fannie Mae is letting some distressed borrowers stay in their homes as renters, under the deed for lease (D4L) program.

Under D4L, the homeowner-turned-renter is required to pay fair market rent to stay in their home for up to 12 months. The renter must have enough income to sustain a 31% income-to-rent ratio and rental payments are not subsidized by Fannie Mae, but could include renters eligible for Section 8 payments.

Also, in March 2010, Fannie Mae instructed its servicers to consider an “alternative modifications” for all mortgages that did not qualify for a permanent conversion under HAMP. That “Alt Mod” program, which sunsets on August 31, 2010, is similar to HAFA.

Write to Austin Kilgore.

The author held no relevant investments.

ARE FORECLOSURE MILLS Coercing Buyers for BANK OWNED homes? ARE ALL THE MILLS?

YOU MUST use Sellers Title Company! If you BUY before 6/30 I will give you an extra 3.5% towards your CC!
YOU MUST use Sellers Title Company! If you do by 6/30 I will give you an extra 3.5% towards your CC!
Found this in Trulia but it may get deleted once this is posted. It’s ok …thanks to Baby Jesus I saved it! But it goes exactly like this:

fannie mae owned.bank property. property is vacant.all offers requiring financing must have preapproval letter.all cash offer require proof of fund(see attachement).this property is eligible for home path renovation mortgage-as little as 3% down.buyer must close with seller closing agent(david j. stern law offices,p.a).investors not eligible for first 15days.*for showing instr please read broker remarks* note:offers must be submitted using attachment.close by 30 june and receive extra 3.5% in closing cost

Looking further into this I noticed the following:

  • Still in the name of the owner
  • NOT named under any REO
  • Home last sold for 245K
  • Now listed at 120K

Here is the BIGGEST:

I found a Bank-owned packet for this “SPECIALLY SELECTED” Agent/BROKER in many other REO’s and in this package it states the following:

9) Which title companies are the sellers and who do I make out the earnest money deposit to once offer is verbally accepted?

a. PLEASE LOOK ON MLX REMARKS FOR TITLE COMPANY. MLX WILL HAVE ONE OF THE FOLLOWING:
i. David Stern, P.A.
ii. Marshall C. Watson, P.A.
iii. Smith, Hiatt, & Diaz, P.A.
iv. Butler & Hosch, P.A.
v. Shapiro & Fishman, P.A.
vi. Spear & Hoffman, P.A.
vii. Adorno & Yoss, P.A.
viii. Watson Title

ix. New House Title (This is registered with FDLG address 9119 CORPORATE LAKE DRIVE, SUITE 300 TAMPA FL 33634)

10) Can the buyer use their own title company or must they use the title company selected by seller?

a. The buyer MUST HOLD ESCROW with Fannie Mae Title Company as stated on MLX.

NOW are we unleashing another dimension to this never ending SAGA?

We recently found out about WTF!!! DJSP Enterprises, Inc. Announces Agreement to Acquire Timios, Inc., Expand Presence Into 38 States , so is this a way for the Mills to Monopolize on the sales of these properties??

HERE IS same Agent/Broker for a FLORIDA DEFAULT LAW GROUP property:

THIS IS FANNIE MAE HOMEPATH PROPERTY.BANK OWNED.ALL OFFERS REQUIRING FINANCING MUST HAVE PREAPPROVAL LETTER. ALL CASH OFFERS REQUIRE PROOF OF FUNDS. THIS PROPERTY IS APPROVED FOR HOMEPATH AND HOMEPATH RENOVATION MORTGAGE FINANCING-AS LITTLE AS 3% DOWN,NO APPRAISAL OR MORTGAGE INSURANCE REQUIRED! ** FOR SHOWING INST PLEASE READ BROKER REMARKS** YOU MUST SUBMIT OFFER USING ATTACHMENT! INVESTORS NOT ELIGIBLE FOR FIRST 15DAYS.CLOSE BY JUNE 30 TO BE ELIGIBLE FOR EXTRA 3.5% SC. EMD: FL DEFAULT LAW GROUP.

Here is another same Agent/Broker for MARSHALL C. WATSON property:

FANNIE MAE OWNED.BANK PROPERTY. PROPERTY IS VACANT.ALL OFFERS REQUIRING FINANCING MUST HAVE PREAPPROVAL LETTER.ALL CASH OFFERS REQUIRE PROOF OF FUNDS(SEE ATTACHEMENT).THIS PROPERTY IS ELIGIBLE FOR HOME PATH RENOVATION MORTGAGE-AS LITTLE AS 3% DOWN.BUYER MUST CLOSE WITH SELLER CLOSING AGENT (LAW OFFICES OF MARSHALL C. WATSON).INVESTOR NOT ELIGIBLE FOR FIRST 15DAYS.*FOR SHOWING INSTR PLEASE READ BROKER REMARK* NOTE:OFFERS MUST BE SUBMITTED USING ATTACHMENT.CLOSE BY JUNE 30 TO GET 3.5% EXTRA IN CLOSING COST

Does the JUNE 30th Closing Day have any significance??

MAYBE it’s because of this? MERS May NOT Foreclose for Fannie Mae effective 5/1/2010I am just trying to make sense of this…Is there a grace period that followed?

  • What “if” the BUYER selects their own Title company? Does this eliminate their chances of ever even being considered as a buyer?
  • Why even bother to state this?
  • Is this a way for the selected Agent/ Broker to find the buyer and discourage other agents or buyers from viewing?
  • Was this at all even necessary to state?
  • Is this verbiage to coerce agents to get a higher commission rather than pass down the incentive of 3.5% towards closing cost “if” under contract by 6/30?
  • Why do investors have to refrain from buying for the first 15 days?

Coercion (pronounced /koʊˈɜrʃən/) is the practice of forcing another party to behave in an involuntary manner (whether through action or inaction) by use of threats, intimidation, trickery, or some other form of pressure or force. Such actions are used as leverage, to force the victim to act in the desired way. Coercion may involve the actual infliction of physical pain/injury or psychological harm in order to enhance the credibility of a threat. The threat of further harm may lead to the cooperation or obedience of the person being coerced. Torture is one of the most extreme examples of coercion i.e. severe pain is inflicted until the victim provides the desired information.

RELATED STORY:

LENDER PROCESSING SERVICES (LPS) BUYING UP HOMES AT AUCTIONS? Take a look to see if this address is on your documents!

Tracking Loans Through a Firm That Holds Millions: MERS

Kevin P. Casey for The New York Times: Darlene and Robert Blendheim of Seattle are struggling to keep their home after their subprime lender went out of business.

By MIKE McINTIRE NYTimes
Published: April 23, 2009

Judge Walt Logan had seen enough. As a county judge in Florida, he had 28 cases pending in which an entity called MERS wanted to foreclose on homeowners even though it had never lent them any money.

Into the Mortgage NetherworldGraphicInto the Mortgage Netherworld

MERS, a tiny data-management company, claimed the right to foreclose, but would not explain how it came to possess the mortgage notes originally issued by banks. Judge Logan summoned a MERS lawyer to the Pinellas County courthouse and insisted that that fundamental question be answered before he permitted the drastic step of seizing someone’s home.

Daniel Rosenbaum for The New York Times R. K. Arnold, MERS president, said the company helped reduce mortgage fraud and imposed order on the industry.

“You don’t think that’s reasonable?” the judge asked.

“I don’t,” the lawyer replied. “And in fact, not only do I think it’s not reasonable, often that’s going to be impossible.”

Judge Logan had entered the murky realm of MERS. Although the average person has never heard of it, MERS — short for Mortgage Electronic Registration Systems — holds 60 million mortgages on American homes, through a legal maneuver that has saved banks more than $1 billion over the last decade but made life maddeningly difficult for some troubled homeowners.

Created by lenders seeking to save millions of dollars on paperwork and public recording fees every time a loan changes hands, MERS is a confidential computer registry for trading mortgage loans. From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.

If MERS began as a convenience, it has, in effect, become a corporate cloak: no matter how many times a mortgage is bundled, sliced up or resold, the public record often begins and ends with MERS. In the last few years, banks have initiated tens of thousands of foreclosures in the name of MERS — about 13,000 in the New York region alone since 2005 — confounding homeowners seeking relief directly from lenders and judges trying to help borrowers untangle loan ownership. What is more, the way MERS obscures loan ownership makes it difficult for communities to identify predatory lenders whose practices led to the high foreclosure rates that have blighted some neighborhoods.

In Brooklyn, an elderly homeowner pursuing fraud claims had to go to court to learn the identity of the bank holding his mortgage note, which was concealed in the MERS system. In distressed neighborhoods of Atlanta, where MERS appeared as the most frequent filer of foreclosures, advocates wanting to engage lenders “face a challenge even finding someone with whom to begin the conversation,” according to a report by NeighborWorks America, a community development group.

To a number of critics, MERS has served to cushion banks from the fallout of their reckless lending practices.

“I’m convinced that part of the scheme here is to exhaust the resources of consumers and their advocates,” said Marie McDonnell, a mortgage analyst in Orleans, Mass., who is a consultant for lawyers suing lenders. “This system removes transparency over what’s happening to these mortgage obligations and sows confusion, which can only benefit the banks.”

A recent visitor to the MERS offices in Reston, Va., found the receptionist answering a telephone call from a befuddled borrower: “I’m sorry, ma’am, we can’t help you with your loan.” MERS officials say they frequently get such calls, and they offer a phone line and Web page where homeowners can look up the actual servicer of their mortgage.

In an interview, the president of MERS, R. K. Arnold, said that his company had benefited not only banks, but also millions of borrowers who could not have obtained loans without the money-saving efficiencies it brought to the mortgage trade. He said that far from posing a hurdle for homeowners, MERS had helped reduce mortgage fraud and imposed order on a sprawling industry where, in the past, lenders might have gone out of business and left no contact information for borrowers seeking assistance.

“We’re not this big bad animal,” Mr. Arnold said. “This crisis that we’ve had in the mortgage business would have been a lot worse without MERS.”

About 3,000 financial services firms pay annual fees for access to MERS, which has 44 employees and is owned by two dozen of the nation’s largest lenders, including Citigroup, JPMorgan Chase and Wells Fargo. It was the brainchild of the Mortgage Bankers Association, along with Fannie MaeFreddie Mac and Ginnie Mae, the mortgage finance giants, who produced a white paper in 1993 on the need to modernize the trading of mortgages.

At the time, the secondary market was gaining momentum, and Wall Street banks and institutional investors were making millions of dollars from the creative bundling and reselling of loans. But unlike common stocks, whose ownership has traditionally been hidden, mortgage-backed securities are based on loans whose details were long available in public land records kept by county clerks, who collect fees for each filing. The “tyranny of these forms,” the white paper said, was costing the industry $164 million a year.

“Before MERS,” said John A. Courson, president of the Mortgage Bankers Association, “the problem was that every time those documents or a file changed hands, you had to file a paper assignment, and that becomes terribly debilitating.”

Although several courts have raised questions over the years about the secrecy afforded mortgage owners by MERS, the legality has ultimately been upheld. The issue has surfaced again because so many homeowners facing foreclosure are dealing with MERS.

Advocates for borrowers complain that the system’s secrecy makes it impossible to seek help from the unidentified investors who own their loans. Avi Shenkar, whose company, the GMA Modification Corporation in North Miami Beach, Fla., helps homeowners renegotiate mortgages, said loan servicers frequently argued that “investor guidelines” prevented them from modifying loan terms.

“But when you ask what those guidelines are, or who the investor is so you can talk to them directly, you can’t find out,” he said.

MERS has considered making information about secondary ownership of mortgages available to borrowers, Mr. Arnold said, but he expressed doubts that it would be useful. Banks appoint a servicer to manage individual mortgages so “investors are not in the business of dealing with borrowers,” he said. “It seems like anything that bypasses the servicer is counterproductive,” he added.

When foreclosures do occur, MERS becomes responsible for initiating them as the mortgage holder of record. But because MERS occupies that role in name only, the bank actually servicing the loan deputizes its employees to act for MERS and has its lawyers file foreclosures in the name of MERS.

The potential for confusion is multiplied when the high-tech MERS system collides with the paper-driven foreclosure process. Banks using MERS to consummate mortgage trades with “electronic handshakes” must later prove their legal standing to foreclose. But without the chain of title that MERS removed from the public record, banks sometimes recreate paper assignments long after the fact or try to replace mortgage notes lost in the securitization process.

This maneuvering has been attacked by judges, who say it reflects a cavalier attitude toward legal safeguards for property owners, and exploited by borrowers hoping to delay foreclosure. Judge Logan in Florida, among the first to raise questions about the role of MERS, stopped accepting MERS foreclosures in 2005 after his colloquy with the company lawyer. MERS appealed and won two years later, although it has asked banks not to foreclose in its name in Florida because of lingering concerns.

Last February, a State Supreme Court justice in Brooklyn, Arthur M. Schack, rejected a foreclosure based on a document in which a Bank of New York executive identified herself as a vice president of MERS. Calling her “a milliner’s delight by virtue of the number of hats she wears,” Judge Schack wondered if the banker was “engaged in a subterfuge.”

In Seattle, Ms. McDonnell has raised similar questions about bankers with dual identities and sloppily prepared documents, helping to delay foreclosure on the home of Darlene and Robert Blendheim, whose subprime lender went out of business and left a confusing paper trail.

“I had never heard of MERS until this happened,” Mrs. Blendheim said. “It became an issue with us, because the bank didn’t have the paperwork to prove they owned the mortgage and basically recreated what they needed.”

The avalanche of foreclosures — three million last year, up 81 percent from 2007 — has also caused unforeseen problems for the people who run MERS, who take obvious pride in their unheralded role as a fulcrum of the American mortgage industry.

In Delaware, MERS is facing a class-action lawsuit by homeowners who contend it should be held accountable for fraudulent fees charged by banks that foreclose in MERS’s name.

Sometimes, banks have held title to foreclosed homes in the name of MERS, rather than their own. When local officials call and complain about vacant properties falling into disrepair, MERS tries to track down the lender for them, and has also created a registry to locate property managers responsible for foreclosed homes.

“But at the end of the day,” said Mr. Arnold, president of MERS, “if that lawn is not getting mowed and we cannot find the party who’s responsible for that, I have to get out there and mow that lawn.”

Q & A: What’s Next for Fannie and Freddie? WSJ

MAY 24, 2010, 9:53 AM ET

By Nick Timiraos

It turns out that Fannie Mae and Freddie Mac, already becoming the most expensive legacy for taxpayers from the financial crisis, aren’t just too big too fail. As my column in Monday’s WSJ explains, they’re also proving too tough to reform.

Here’s a closer look at five common questions about what’s happening with—and what’s next for—Fannie and Freddie:

1. Why doesn’t the financial-overhaul bill address Fannie and Freddie?

The Obama administration says it’s too soon to take action to address the future of the housing-finance giants because markets are still fragile, and others have said the bill is already too complex without Fannie and Freddie in the mix.

Revamping the housing-finance giants, which own or guarantee around half of the nation’s $10.3 trillion in home mortgages, was never going to be easy. But the fact that, together with the Federal Housing Administration, the companies guaranteed 96.5% of all new mortgages last quarter has made the challenge only greater.

During the debate on financial-overhaul legislation, Republicans proposed measures that would have wound down the companies and limited the amount of further government aid. But the amendments didn’t specify what would take the place of Fannie and Freddie.

Both parties are “ignoring the issue,” says Lawrence White, an economics professor at New York University. Yes, markets may be too fragile for action now, but he says a plan now would give markets time to prepare for the future.

2. Why are Fannie and Freddie still losing money?

The companies have taken $145 billion in handouts, including $19 billion this quarter, from the U.S. Treasury so far, and that number could rise as foreclosures mount. Each quarter, as more mortgages go delinquent, Fannie and Freddie have to set aside more cash in reserve to cover losses if those loans end up defaulting and the homes they’re secured by go through foreclosure.

Nearly all of those defaults are coming from loans that the companies made during and immediately after the housing boom. Loans today have significantly tighter lending standards and should be profitable.

While losses could continue for several quarters, there are signs that delinquencies may have peaked during the first quarter. Fannie Mae and Freddie Mac each said that the number of its loans that were seriously delinquent fell in March, from February.

3. Why is the government still putting money into the companies?

Each quarter, the government injects new money into Fannie and Freddie to keep the companies afloat. That allows the firms to meet their obligations to investors, which keeps the mortgage market moving. If the government decided to stop keeping the firms afloat, that could send borrowing costs up sharply for future homeowners and could create new shocks for the housing market.

In February 2009, the Obama administration said it would double to $200 billion the amount of aid it was willing to put into each of the two firms. Then in December, it said it would waive those limits, and allow for unlimited sums over the next three years. The companies are now akin to government housing banks, with an independent regulator, but one that ultimately must answer to the Treasury Department, which controls the purse strings.

The current arrangement has raised concerns that the companies could continue to make business decisions that might lead to higher losses and that they wouldn’t be making if they were still being run for private shareholders. “Unregulated pots of money—that was a cause of their demise, and now we’ve taken that monster and turned it into a super-monster” with little independent oversight, says David Felt, a former senior lawyer at the companies’ federal regulator, the Federal Housing Finance Agency.

What would the mortgage market look like today without government support?

Consider the market for “jumbo” loans, or those too large for government backing. Rates on jumbos are around 0.6 percentage points higher than conforming loans. That’s nearly double the historical spread, but an improvement over the peak 1.8 percentage point spread during the financial crisis.

Lending standards are also much tighter for loans without government backing, and 30-year fixed rate loans are much less common. Mike Farrell, chief executive of Annaly Capital Management, estimates that mortgage rates today would be two to three percentage points higher without government guarantees.

What will ultimately happen to Fannie and Freddie?

Congress has to decide what it wants the housing-finance system of the future to do. “Everyone acknowledges that the model is broken, that the model was flawed, yet we don’t know how to run a mortgage market without them and we have nothing with which to replace the broken system,” says Howard Glaser, a Clinton administration housing official and housing-industry consultant.

Still, a consensus is growing between some academics and policymakers that the government will continue to play some role at least in backstopping mortgages. Recent testimony from top administration officials over some general insight into what the administration wants the future system to do.

What will ultimately happen to Fannie and Freddie?

Congress has to decide what it wants the housing-finance system of the future to do. “Everyone acknowledges that the model is broken, that the model was flawed, yet we don’t know how to run a mortgage market without them and we have nothing with which to replace the broken system,” says Howard Glaser, a Clinton administration housing official and housing-industry consultant.

Still, a consensus is growing between some academics and policymakers that the government will continue to play some role at least in backstopping mortgages. Recent testimony from top administration officials over some general insight into what the administration wants the future system to do.

There have been other clues: The Obama administration has made clear its view that the failure of Fannie and Freddie shouldn’t be pinned on government affordable-housing mandates, which suggests that any future housing-finance entities would continue to serve a role supporting that function. And an administration report on the foreclosure crisis said that better regulation of the entire mortgage market, and not just any government-related entities, would be a “high priority” for the future.

Readers, what do you think the government should do with the firms?

Calling on MERS “In fact, all the paper in the process is gone”.: Scott Cooley

Calling on MERS

VIENNA, VIRGINIA–BASED MERS IS A great example of how technological solutions can work for the betterment of our industry. MERS’story is more typical, though, in terms of how long it took the company’s solution to become mainstream.

I’ve found that typically new technologies or new technology firms take five to seven years to become successful in this industry. Of course, it is difficult for startup companies to last that long, which is one of the main reasons there is such a high failure rate among these firms. From the start, MERS had widespread support from the Mortgage Bankers Association(MBA) and all the major mortgage companies. Originally, MERS wasn’t well-funded ($5.2 million), but in 1998 it was recapitalized with significant contributions from MBA, FannieMae and Freddie Mac—mostly interms of a line of credit. Still, it took five to seven years until MERS wash and handling millions of loans. Today, it has handled more than 30 million loans and just launched it’s next endeavor, called the MERS® eRegistry. It’s a great success story overall.

MERS’ eRegistry for eNotes was started in March 2003 (see http://www.mersinc.org for details). Its purpose is to provide a“pointer” to the location of the eNote, and it holds the legal identity of the controller. Any lender can then find the vault where the eNote is stored, as well as who controls it.

MERS provides the very valuable solution of tracking the eNote’s location without trying to compete with the private industry for all of the other actions that occur around an eNote, such as storage in a vault. By MERS’ own admission, this solution will take years before it becomes mainstream.

R.K. Arnold, MERS’ president and chief executive officer, stated at the time of the eRegistry’s launch, “Although it will take many years for the industry to fully adopt this system, it will become widely used because the market place is demanding a move toward less paper in the home-buying process.” As you might guess, I’ll say it will take five to seven years.

I applaud MERS in taking this step and for building the eRegistry in short order. Still, I’m calling on MERS to take it to the next level. In its current form, I expect the eRegistry might save the industry a few dollars per loan. Yet, MERS is so close to providing the one key component of a solution that I believe will save the industry hundreds of dollars per loan. This solution is what I call the virtual loan folder (VLF), and I consider it the holy grail of mortgage technology.

VLF is the use of an electronic vault where the entire loan file is stored—not just the note but every document from all the various parties. MERS would be the pointer so the industry’s computer systems will know where to look to post, retrieve or just view a document. Every person involved in the loan process would use the VLF. A few examples follow.

■ Realtor: The Realtor would post a purchase agreement and other supporting documents, and might also view the Good Faith Estimate to know about the terms of the loan.

■ Loan Officer: The loan officer would post the loan application and other supporting origination documents. He or she would also retrieve documents such as the appraisal, preliminary title and credit report.

■ Borrower: The borrower could view his or her predisclosure and closing documents, and could post documents such as a copy of a W-2.

■ Appraiser: The appraiser could view the loan application and would post the entire appraisal.

■ Loan Underwriter: The underwriter could view all of the documents and post a list of conditions.

■ Loan Closer: The closer could view the upfront disclosures and post the entire closing package.

■ Loan Servicer: The servicer could view all of the documents, even while talking on the phone with the borrower, at any time during the life of the loan.

Today, most of the aforementioned parties are shipping the documents at great cost through carriers such as Federal Express. With VLF, all such shipping and the manual handling of the traditional loan folder is eliminated. In fact, all the paper in the process is gone. Yes, this is a form of imaging that some mortgage companies are using today. However, it goes much further, in that it would be used by all parties involved with each loan. In addition, it would also store the electronic data file of the loan and do so in a Mortgage Industry Standards Maintenance Organization Inc . (MISMO) format.

All of the software systems in use by our industry would need to be modified to support the VLF system. Each system (such as title plant software, Realtor systems, appraiser software, loan origination systems, etc.) wouldinterface to the VLF to store and retrieve the documents and the data.

MERS is an important piece because it contributes to marketplace competition and adds validity to the system. The known problem with the VLF system is that if the vault is owned by a single entity, the power of that entity would become enormous (generating almost unlimited profits).

There have been reports that the government-sponsored enterprises (GSEs) have considered promoting the development of a VLF system for the industry, and they would then own the vault. However, it’s better if we have many vaults that would each compete on price and service. MERS would simply provide the pointer for every VLF. The vault would charge fees for posting and retrieving documents. Having many vaults would keep such transaction fees to a bare minimum. If MERS adopts a VLF solution, I believe the industry would move faster to adoption. MERS would certainly add validity to the concept, and it would push others to build the needed technological pieces.

Another significant contribution that MERS provides is the industry-standard MERS Identification Number (MIN). The MIN is more crucial than it might otherwise seem, because it’s the only way to uniquely assign an identification number for every new loan originated. Without the MIN, it would be almost impossible for all the computer systems to correctly identify each loan for such circumstances as a borrower applying for the same home loan with two different mortgage companies at the same time.

The step MERS has taken with eRegistry is a good one, but it’s just a baby step in terms of what needs to be done. I challenge MERS to announce a broader initiative with the hope of having something tangible in a year or so. From that  point in time, I know it’ll be five to seven years before the industry will be operating far more efficiently, and originating loans for about half the cost of what it takes today, in my opinion.

Scott Cooley is an independent mortgage technology consultant, analyst and author based in Los Gatos, California. He  can be reached at scooley@scooley.com.

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R E P R I N T E D  W I T H  P E R M I S S I O N  F R O M  T H E  M O R T G A G E  B A N K E R S  A S S O C I A T I O N  ( M B A )

Threat of Shadow Inventory Diminishing: Barclays

Imagine what your value will be worth after all these “shadow inventory” is finally released. Again, I hold a real estate license and can tell you I have access to some of this shadow inventory and it is not pretty to look at. Barclays report below is only one source!

In Michigan they are demolishing homes like you cannot imagine…But I may know exactly why…”Greece” is a hint.

BY: CARRIE BAY DSNEWS.com

Analysts at Barclays Capital say the industry’s ominous shadow inventory is close to topping out.

New research published by the firm says the supply of homes nearing REO status, defined as 90 or more days delinquent or in the process of foreclosure, will peak this summer and then begin falling gradually as the market becomes stable enough to absorb 130,000 distressed properties a month.

“While we expect REO levels to remain elevated, the trickle of homes from foreclosure into REO implies moderate levels of inventory reaching market,” Barclays said in its report.

The company estimates the current REO supply to be 478,000 and expects it to rise to 536,000 by late 2011.

Barclays’ delinquency pipeline snapshot shows that as of February, there were 2.4 million mortgages at least 90 days past due and 2.1 million more already winding through the foreclosure process, which combined makes up a shadow inventory of 4.5 million.

It’s a daunting tally and could grow larger as foreclosure alternatives are exhausted, but Barclays’ model forecasts 4.7 million distressed sales over the next three years, with 1.6 million coming in 2010, 1.6 million in 2011, and 1.5 million in 2012.

The research firm notes, however, that an orderly liquidation of shadow inventory will require both “more robust household formation and job growth.”

Some market indicators, though, are looking favorable. This week, Fannie Mae reported only a minor increase in its March serious delinquency rate – 5.59 percent versus 5.51 percent in February. RealtyTrac also reported a 12 percent month-to-month decline in default notices for April.

Barclays says this data supports its forecast that the industry is only a few months away from reaching peak levels of shadow inventory.