KeNo's Housing and Economic Portal: Friday October 9 Housing and Economic stories

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Latest step in Taylor Bean mortgage fiasco plays out over Illinois ...‎ - (www.tampabay.com) The next nightmare in the Taylor, Bean & Whitaker national mortgage loan fiasco is playing out in Peoria and Joliet — actually, throughout Illinois and other places where property taxes were due in full this month. Thousands of property owners are receiving delinquency notes, because their taxes were never paid out of paralyzed Taylor Bean escrow accounts. Exhibit one is Will County, the fourth-largest county in Illinois (county seat: Joliet). Will County Treasurer Pat McGuire is charged with collecting taxes for 1,746 parcels that were escrowed by Taylor Bean. Only 398 of them, all serviced by Bank of America, made the Sept. 1 deadline; all the rest were shipped delinquency notices last week. On Monday, McGuire's office started receiving a deluge of calls from those homeowners caught in the ongoing struggle over accounting within Taylor Bean, the Ocala-based lender that abruptly shuttered its lending operation in early August and filed for bankruptcy. Taylor Bean's escrow problem centers on accounts the company has with Colonial Bank, which was seized by regulators last month in the biggest bank failure so far this year. Customers reported both insurance and taxes not being paid out of escrow; others who refinanced through the company have received the overage from their escrow accounts in checks from Taylor Bean, which bounced. The Federal Deposit Insurance Corp., as Colonial Bank's receiver, and Taylor Bean's attorneys are working on a bankruptcy court plan to resolve control of the escrow accounts and customer records, but regulators have indicated it could take weeks for borrowers to see relief. "We're in a tight time frame, and if people haven't paid (taxes) in full by mid October, I have to publish their names in the paper," McGuire said, acknowledging it isn't fair "to people who played by the rules." The unpaid taxes are not only assessed 1.5 percent monthly late fees, they could be sold at an auction if not paid in full by Nov. 3. That tacks on potentially much higher interest rates for property owners to catch up. McGuire contacted the Illinois Attorney General's Office, in essence asking to be sued so he can be restrained by a judge from going forward with publishing names. "I don't want to do this. … I've been looking for some guidance," he said. "We're trying to steer through this fog, but it's pretty thick."

Trustee Blocks Dykstra From Home Base | NBC Philadelphia - (www.nbcphiladelphia.com) A court-appointed trustee has barred former baseball star Lenny Dykstra from entering two California homes during bankruptcy proceedings, according to a published report. In a letter dated Sept. 11, a court-appointed trustee overseeing Dykstra’s bankruptcy proceedings issued the edict, saying: “It has come to our attention that the properties ... are being vandalized.” Dykstra owns two multimillion-dollar homes at Lake Sherwood, one formerly owned by hockey legend Wayne Gretzky. He allegedly went to the property and removed lighting fixtures, wood flooring and a La Cornue oven and cook top — which the Gretzkys installed for $51,750 — according to a bankruptcy court filing. Dykstra could not be reached for comment, but according to the New York Daily News he acknowledged removing some items, but denied selling them.

Housing: Short sales spread across real estate market, leaving frustration in their wake - (www.chicagotribune.com) Offers may roll in, but banks often slow to respond, prompting buyers to walk away. A few years ago, few people in the housing market had ever heard of a short sale. Mention the term today and people, whether they are homeowners or real estate agents, just roll their eyes. The practice, which involves selling a property for less than the amount owed on the mortgage, has grown in popularity as an exit strategy for financially strapped homeowners because it doesn't ding a credit report as deeply as a foreclosure. But because the transactions have to be approved by first and second lien holders, they are languishing. Some real estate agents try to steer clear of them entirely and even specify in their listings that a property is not a short sale. The Obama administration is aware of the frustrations. In mid-May, Treasury Secretary Tim Geithner announced plans to streamline the process by offering financial incentives to mortgage servicers and investors that accept short sales, much in the same way that they are rewarded for refinancing or modifying troubled mortgages. Four months later, homeowners, real estate agents and lenders are still waiting for specific details of how the plan would work. A Treasury Department spokeswoman said an update on the program is expected in a few weeks. Meanwhile, homeowners like Dallas O'Day are in limbo. O'Day, a Chicago attorney, and his family relocated from California in June 2004 and bought a Mediterranean-style home in Chicago's Beverly neighborhood for $395,000. They rewired the house, stripped and refinished the wood floors and the woodwork and did other work to restore its charm. Last year, personal circumstances prompted them to list the home for sale just as the housing industry's meltdown was picking up steam. With no takers and no longer even expecting to break even on his investment, O'Day relisted the 2,700-square-foot home in January as a short sale. Four months and three price reductions brought the house down to $384,900, at which point a potential buyer made an offer in late May. O'Day accepted it and submitted the paperwork to the lenders holding first and second mortgages on the home. He has yet to receive a response. Meanwhile, the family has moved into a North Side apartment, the refrigerator has broken in the home and there's evidence of mold in the basement. "The only thing we keep hearing is they keep wanting current payroll stubs, bank statements and taxes," said O'Day's real estate agent, Pam Decker at Prudential Biros Real Estate in Evergreen Park. "What has astonished me is that in the presence of one of the softest housing markets I can remember, we're hitting up on four months and they've just had a person assigned to look at it, that they would move at such a glacial pace," O'Day said. "My expectation is I'll be renting until whatever blemish is gone. I've just accepted the fact that at some point it'll be foreclosed upon because I just don't think the banks will pull it together. I feel like I've done everything I can do." During the second quarter, 14 percent of all home sales were short sales and they were made primarily to first-time buyers who may have more flexibility to deal with the long wait times, according to a survey by Campbell Communications. The sales volume could be much greater. Two out of three short sales never close.

US Credit Card Defaults Rise to Record: Moody's - (www.cnbc.com) The U.S. credit card charge-off rate rose to a record high in August, as more Americans lost their jobs, Moody's Investors Service said on Wednesday, in another sign consumers remain under stress. The Moody's credit card charge-off index -- which measures credit card loans that banks do not expect to be repaid -- rose to 11.49 percent in August from 10.52 percent in July. The index resumed an upward trend after declining in July for the first time in almost a year, vanishing hopes of stabilization in the industry after record high credit losses. "We continue to call for a recovery of the credit card sector to begin once industry average charge-offs peak in mid-2010 between 12 percent and 13 percent," Moody's said in a report. Credit card losses usually follow the trend of unemployment, which rose in August to 9.7 percent, the highest level in 26 years. Moody's estimated unemployment will peak next year at 10 percent to 10.5 percent. The Moody's index showed credit card delinquencies -- payments more than 30 days late -- rose to 5.80 percent in August from 5.73 percent in July. "Even early-stage delinquencies rose, ending a trend of four consecutive months of improvement," Moody's said in a report. Data released by companies earlier this month based on the performance of credit card loans that were securitized showed defaults rose to record highs at Bank of America Corp and Citigroup Inc , among some of the biggest card issuers. Both Citigroup and Bank of America hold the highest exposure to riskier credit card borrowers.

Steinbrück: G20 should tax financial trades - (www.ft.com) Foolish article arguing that banks must pay their “fair share” by paying a tax for every financial transaction. These articles are foolish as any tax will eventually just be passed along to end consumers. What went wrong with global financial markets? In a nutshell: the implosion of the brave new world of modern finance, and the economic crisis that followed, was rooted in the idea that free capital markets are all that is needed for economic prosperity. The prologue to the crisis was a combination of cheap money, deregulation, and a race for returns by executives undeterred by the risks. When the housing bubble burst and financial markets collapsed in its wake, the worldwide slump was the worst since the Great Depression. Despite all this pain, the remaining financial market participants gained significant benefits from government bailouts. The Group of 20 nations’ average support for the financial sector is more than 30 per cent of gross domestic product (including capital injections, guarantees, treasury lending and asset purchases, liquidity provision, and other central bank support). In our political response to this crisis, new forms of fiscal burden-sharing will be needed. One of these is a global financial-transaction tax. Remaining financial market participants are not pulling their weight in this crisis. But Main Street sees what happens on Wall Street – and in London and Frankfurt. Citizens are aware of the hundreds of billions of euros and dollars used to prop up banks. Bonus payments in the financial sector now go hand in glove with massive job losses in the real economy. The political answer to this crisis must encompass more than improved regulatory regimes, risk-management strategies, and capital requirements. How governments handle the burden-sharing between Wall Street and Main Street will determine social cohesion, market stability, and political leaders’ reputations for years to come. Of course, compensation payments and fees for government guarantees are being levied on banks participating in taxpayer-funded stabilisation schemes. But that is not enough. Financial market participants need to show they understand their role in causing the crisis, and that they are willing significantly to contribute to preventing its recurrence.

Mortgage Electronic Registration Systems Loses Legal Shield - (www.ritholtz.com) Back in April, we mentioned the The Mortgage Netherworld of MERS — the Mortgage Electronic Registration Systems. MERS is the firm that (technically) holds 60 million US (securitized) mortgages on behalf of the actual buyers. They were created by a consortium of lenders in part to save money (on paperwork and recording fees) every time a loan changes owners. In the era of securitization, these savings amounted to billions of dollars. But MERS also acts as a shield, making it all but impossible for many borrowers to deal directly with whoever happens to be holding their mortgage at the moment. As the NYT noted, it has “made life maddeningly difficult for some troubled homeowners.” Now, the Kansas Court of Appeals has called foul. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. (Other than GlobalResearch.ca, I have yet to see any MSM coverage of the issue). The Court stated that MERS’ relationship is not that of a true party possessing all the rights given a buyer. Hence, the court ruled: “By statute, assignment of the mortgage carries with it the assignment of the debt. . . . Indeed, in the event that a mortgage loan somehow separates interests of the note and the deed of trust, with the deed of trust lying with some independent entity, the mortgage may become unenforceable. The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note. Without the agency relationship, the person holding only the note lacks the power to foreclose in the event of default. The person holding only the deed of trust will never experience default because only the holder of the note is entitled to payment of the underlying obligation. The mortgage loan becomes ineffectual when the note holder did not also hold the deed of trust.” (emphasis added). What does this mean for the 60 million people — over half of all US mortgages — whose loans have been securitized, sliced and diced, and are now held by MERS? To start, it potentially gives a powerful weapon to homeowners who are being foreclosed upon. If their mortgage is held by MERS, they certainly have a strong basis for challenging the action on the grounds of standing. (Note that this was a Kansas COURT OF APPEALS decision, and while it is not binding on other states the way a US Supreme court ruling would be, it is likely to be influential). I also think the Kansas Court of Appeals could also review this case. I don’t quite agree with Ellen Brown, who in an extensive legal analysis of the decision, writes: “The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose.” It may be possible for trustees for the securitized loans to somehow perfect standing, i.e., develop the ability to claim loan ownership (perhaps via a purchase) and then move to foreclose. (Brown also calls it a Kansas Supreme Court decision, but it appears to be the intermediate 3 judge panel of the Court of Appeals that heard the case, not the full Kansas Supreme Court). But Brown is correct when she states this is a very significant legal development, one that might dramatically impact foreclosure litigation.