As housing market improves, NY attorney takes banks to task

Rates Jump

Mortgage rates in the U.S., after increasing at the fastest pace in a decade, have jumped after Bernanke confirmed on June 19 that the central bank is ready to slow its purchases amid signs of an improving economy and housing market. Wells Fargo & Co., the largest mortgage lender, increased the rate on a 30- year mortgage to 4.5 percent Tuesday from 4.13 percent on June 18 and 3.88 percent last month.

The average rate for a 30-year fixed loan climbed to 3.93 percent earlier this week from 3.35 percent last month and the record low 3.31 percent reached in November, according to Freddie Mac.

The prospects of higher rates and the ending of the bond-buying program have roiled stock markets around the world. U.S. homebuilders fell 0.7 percent June 21 in New York after dropping 7.1 percent the day before. PulteGroup Inc., the largest homebuilder by market value, plunged 9.1 percent June 20.

Market Surging

Higher borrowing costs so far haven't held back the housing market, which is surging after the worst downturn since the 1930s. Sales of previously owned U.S. homes climbed more than forecast in May to the highest level since November 2009 and the median price jumped 15.4 percent from a year earlier to the highest in almost five years, the National Association of Realtors said June 20.

Home prices are still 28 percent below the 2006 peak, and mortgage rates, still near historic lows, are down from 6.8 percent in 2006 and more than 10 percent in 1990.

The rebound has helped rebuild household wealth, which jumped to a record in the first quarter, after falling in 2007 when the housing crash plunged the U.S. into the longest recession since the 1930s.

Credit Pendulum

The credit pendulum swung from irresponsibly loose during the middle of the last decade when lenders granted mortgages even to people with no income, no job or assets — known as Ninja loans — to extremely tight after the 2007-2009 recession. Even as Bernanke resorted to unprecedented measures, including holding borrowing costs near zero, the central banker said at the start of last year that housing was being held back partly by tight credit.

It's now tilted closer to the averages seen in the late 1990s based on a combination of factors, such as loan-to-value, debt-to-income and credit scores, CoreLogic Inc. chief economist Mark Fleming said.

While credit may be opening, the process of getting a new or refinanced mortgage remains frustrating, because lenders are making more meticulous demands for evidence of borrowers' finances, Fleming said.

That didn't matter much to lenders last year as reduced competition and low mortgage rates allowed them to charge high prices for selling home loans into mortgage pools. Loan originations totaled $1.75 trillion in 2012 and the four biggest bank lenders reported more than $24 billion of revenue from originations as homeowners replaced their loans to cut costs.

Refinancing Slows

Rising rates have already quashed refinancing, which has fallen to 68.7 percent of the market from 76 percent at the start of May, according to the Mortgage Bankers Association.

Further increases will flatten the wave of refinancing and force lenders to compete more aggressively for homebuyers, said Doug Duncan, chief economist at Washington-based Fannie Mae. In addition to easing underwriting standards, banks will also have to consider layoffs to cut costs and lowering margins to make up for lost refinancing revenue, Duncan said.

Lenders will see their refinance business fall to 45 percent of originations in the second half of this year and 35 percent next year, according to a Mortgage Bankers Association forecast.

"Companies, if they want to stay in business, they're going to compete," Duncan said.

Down Payments

Zillow Mortgage Marketplace, an online comparison shopping site for home loans, saw a 570 percent increase in the number of lenders offering conforming loan quotes with down payments of 3.5 percent to 5 percent in March 2013 compared with two years earlier, said Erin Lantz, director of the site, which received 15 million loan requests during the past 12 months.

"More lenders are willing to lend to borrowers with lower down payments — it's an indication that they are able to extend credit more broadly," Lantz said.

More buyers are also getting low down-payment loans backed by government sponsored mortgage enterprises, Fannie Mae and Freddie Mac, said Credit Suisse Group AG mortgage strategists Mahesh Swaminathan and Vikram Rao.

In May, 20 percent of purchase mortgages in the U.S. were Fannie Mae or Freddie Mac loans requiring private mortgage insurance, up from 9 percent two years earlier. The share of Federal Housing Administration and Veterans Administration mortgages remained at about 40 percent in May from May 2011.

Meanwhile, for the first time ever New York Attorney General Eric Schneiderman is suing units of HSBC Holdings, alleging the bank put mortgage borrowers at greater risk of losing their homes by repeatedly delaying the filing of paperwork that could have helped homeowners stave off foreclosure.

Schneiderman claims HSBC Bank USA and HSBC Mortgage Corp. violated state law by failing to file so-called Request for Judicial Intervention forms when pursuing foreclosures against borrowers, the attorney general's office said. The forms, which entitle a homeowner to a conference with their lender to discuss loan workouts and other alternatives to foreclosure, are required to be filed when a lender files a proof of service, or legal notice of the foreclosure, with a county clerk.

"Companies like HSBC are brazenly ignoring state law, leaving homeowners across New York stuck in legal limbo where they can't even get the legally required settlement conference that could help them keep their homes," Mr. Schneiderman said in a statement.

The lawsuit, filed in New York State Supreme Court, seeks an order requiring HSBC to immediately file the RJI forms in cases it has already filed a proof of service and to waive interest, penalty fees and other charges that accrued. It also calls for the bank to pay restitution and damages.

The action is the latest move by Mr. Schneiderman's office to challenge major lenders' handling of foreclosures and loan modifications in the wake of a national $25 billion settlement reached last year with some of the U.S.'s largest mortgage servicers.

In May, Schneiderman said he planned to sue Bank of America Corp. and Wells Fargo & Co. for allegedly violating terms of that settlement by not adhering to servicing standards under the agreement.

Mr. Schneiderman filed the suit in New York Supreme Court, the highest trial-level court for civil cases in the state.

Tune in to WMBF News next week for a local story of one woman's foreclosure nightmare, and what you can do to make sure you don't wind up in a similar situation.