Loss Mitigation

The U.S. Department of Justice has filed a civil lawsuit against Robert S. Luce, founder and president of MDR Mortgage Corp. a mortgage lending business located in Palatine, Illinois. The complaint centers around 90 Federal Housing Administration (FHA) loans that went into default. According to the complaint, HUD was required to pay more than $1.6 million in insurance claims on the loans, which Luce and MDR were not authorized to originate.

Studies have shown that minorities have been disproportionately impacted by the nation's housing crisis. The National Association of Real Estate Brokers, Inc. (NAREB) is taking steps to ease that impact. NAREB is partnering with Wall Street investors to launch an $800 million Homeowner's Assurance Program (HAP) to bring foreclosure mitigation to minority families and clean up neighborhood blight in their communities.

Realtors continue to be dissatisfied with short-sale transactions, with 77 percent categorizing short sales as ""difficult"" or ""extremely difficult"" according to the California Association of Realtors' (CAR) member survey. The current assessment shows an increase of 7 percent from the previous survey conducted in December 2010. Respondents cited servicers' slow responses to short-sale offers as a primary reason for their dissatisfaction. CAR says short sales account for a fifth of all transactions in California.

Varolii Corporation announced a new product to alleviate costs and streamline new processes servicers will have to adopt under the Single Point of Contact regulation requirements for all HAMP modifications. Varolii estimates its product will reduce servicer staffing requirements by 15 percent, while increasing borrower contact by 17 percent. The Varolii SPOC Mortgage Servicing Solution routes calls to the appropriate agents and incorporates borrowers' communication preferences.

An independent study conducted by Promontory Financial Group concludes that significantly more insured mortgages have survived the housing crisis than loans with ""piggyback"" second mortgages, which has been the most prevalent alternative to the use of mortgage insurance for the past decade. The study examined almost 5.7 million mortgages originated between 2003 and 2007. Compared with insured, low downpayment mortgages, loans with piggyback second mortgages were almost 21 percent more likely to go into default.

The Five Star Institute has announced a partnership with Fannie Mae to educate real estate agents on Fannie Mae's Short Sale Assistance Desk (SSAD). Fannie Mae's SSAD helps expedite the process by allowing real estate agents to reach out to the GSE directly for short sale approval of first-lien, Fannie Mae-backed loans. Agents can access the appropriate forms through multiple listing services. With 107,953 short sales in 2010, such transactions continue in significant numbers this year - 35,406 as of April, according to a federal report.

In its own private negotiations with state attorneys general and officials at HUD and the U.S. Justice Department, Bank of America is reportedly bringing principal reductions to the bargaining table. BofA and four other mortgage servicers have been in discussions with state and federal officials to settle investigations into foreclosure practices involving faulty paperwork and illegal affidavits, but talks have stalled. To move things along, BofA has put forth its own proposal for principal write-downs in exchange for liability protections.

At a Senate subcommittee hearing Tuesday, industry leaders voiced opinions on the creation of national mortgage servicing standards. While there was support for such a move on the grounds that it would protect homeowners and improve customer experience, witnesses expressed a variety of concerns, including the possibility of further complicating already complex standards from a variety of authorities; creating undue hardships for community banks; and negatively impacting responsible homeowners.

The Federal Housing Administration's (FHA) Mortgagee Review Board has announced sanctions against 240 FHA-approved lenders. The federal agency says these lenders failed to meet its underwriting requirements for home loans, which are designed to minimize the risk of default. Actions taken against the 240 lenders include reprimands, probations, suspensions, and civil money penalties. In addition, some lenders will have their FHA-approval revoked.

A recent report by the Lincoln Institute of Land Policy found that delinquency and foreclosure rates among owner-occupants living in homes in Community Land Trusts (CLT) were consistently lower than overall market numbers. While 1.3 percent of CLT homeowners were seriously delinquent at the end of 2010, 8.57 percent of homeowners nationwide were seriously delinquent. CLTs are a type of shared equity homeownership -- a resale-restricted housing model designed to help low- to moderate-income families achieve homeownership.