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Truth-in-Lending Disclosure Failure Leads to Mortgage becoming "UnSecured"

Every now and again, a potentially significant story manages to slip through the cracks, barely noticed by anyone. A recent Dow Jones article by Jilian Mincer -- "Mtge Lawsuits Could Bail Out Some Borrowers" -- is just such an article. The only reason I even knew about it was because I spoke with the reporter and was quoted in it.

It is a fascinating tale that I suspect won't be ignored for long. For those few people familiar with the Federal Truth-in-Lending Act (TILA), this won't be much of a surprise. To everyone else, read on.

What happens if a lender fails to comply with the TILA rules? The boList Postsrrowers are allowed to RESCIND THE LOANS AND VOID THE MORTGAGES ON THEIR HOMES. The mortgage lender is then just another unsecured creditor, who must get in line behind everyone else who may have filed a lien on the property. Who ever files first (Credit card, auto finance, doctors, etc.) has first priority.

That makes the mortgage loan itself unsecured -- and worth a lot less -- due to the increased risk of loss of collateral:

"Some consumers burdened by escalating subprime mortgage payments are finding a way out. A growing number are suing lenders over inaccurate disclosure papers, and if they win they get to rescind the loans.

While that's good news for individuals, it's a potential problem for investors exposed to subprime mortgages. These investors, already buffeted by the subprime mortgage meltdown, are facing a new risk - the mortgages supporting some of their investments may not be enforceable because of violations of state and federal consumer protection laws.

It's not clear yet how widespread or successful these lawsuits may become. "Depending on how widespread, this could be a minor bump in the road or this could be a very significant factor," says Barry Ritholtz, chief market strategist at Ritholtz Research & Analytics.

The subprime market has been known for its lax standards in documentation and the proliferation of these loans in recent years is now fueling significantly more complaints. The subprime share of first mortgages rose to 13.4% in the first quarter of 2007 from 10.9% in the first quarter of 2004."

Let me put on my lawyer hat for a moment: The Truth-in-Lending Act requires "clear and conspicuous" disclosure to borrowers of the key provisions of their mortgages. This includes such details as the eventually reset interest rate, specific loan terms, and the total dollar amount the mortgage will cost over time:

§ 129.  Requirements for certain mortgages

(1)  SPECIFIC DISCLOSURES.--In addition to other disclosures required under this title, for each mortgage referred to in section 103(aa), the creditor shall provide the following disclosures in conspicuous type size:
(2)  ANNUAL PERCENTAGE RATE.--In addition to the disclosures required under paragraph (1), the creditor shall disclose

(A)  in the case of a credit transaction with a fixed rate of interest, the annual percentage rate and the amount of the regular monthly payment; or

(B)  in the case of any other credit transaction, the annual percentage rate of the loan, the amount of the regular monthly payment, a statement that the interest rate and monthly payment may increase, and the amount of the maximum monthly payment, based on the maximum interest rate allowed pursuant to section 1204 of the Competitive Equality Banking Act of 1987.
(emphasis added)

This seems to be where many of the subprime 2/28 ARMs ran afoul: They failed to meet the disclosure laws regarding actual interest amounts and payments.

Who has gotten tagged with these cases so far? Subprime lender NovaStar Financial Inc. (NFI) in Kansas City settled a class action suit for $5.1 million. And, consumers in Wisconsin recently won a class-action TILA suit (its under appeal).

Between 1998 and 2006, approximately 2.2 million (nominal) home owners with subprime loans are expected to lose their homes, according to the Center for Responsible Lending. The consumers in this group who a) could not afford those loans and b) did not receive the proper disclosures are "talking with lawyers in an effort to prevent foreclosures."

~~~

Anyone who has worked in a corporate environment has used or heard the phrase "Send it to Legal," or "What did Legal say about that?" Of course, "Legal" being the internal corporate legal department.   

Didn't the legal departments of the mortgage underwriters prepare these loan forms?  Aren't these standardized? WTF did the various legal departments involved actually do, other than go to lunch and wear ugly ties ?

Astounding!

And, here's the real rub:    This kinda makes you wonder what sort of due diligence the secondary market actually did on these basic non-compliant loan errors in the sub-prime market. How about the CDO banking underwriters -- didn't their Legal review these docs for compliance with existing laws prior to purchasing trillions of dollars worth of the stuff? Was their fraud involvd, or did these guys just miss it?

This is basic stuff, and its amazing that in the headlong rush to write these garbage loans, no one caught very basic, banking 101 type rule.    

It just shows how little oversight by the regulators there was in this space. Hard to imagine, but the Central Bankers either never reviewed these loan documents, or never caught these basic disclosure errors.

And yes, I place some of the blame on the Greenspan Federal Reserve -- they were the regulatory authority in charge of bank mortgage lending when these junk mortgages were written . . .

>

>

Source:
Mtge Lawsuits Could Bail Out Some Borrowers
Jilian Mincer
Dow Jones Newswires Column, 7/16/2007 7:31 AM
Newswire only

CONSUMER CREDIT PROTECTION ACT
15 U.S.C. 1601 note]
May 29, 1968 (Pub. L. No. 90--321; 82 Stat. 146)
http://www.fdic.gov/regulations/laws/rules/6500-200.html

Wednesday, August 22, 2007 | 06:01 AM | Permalink | Comments (63) | TrackBack (1)
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Comments

And many of the securitization transaction documents - particularly for recent deals - may allow the purchasers of the paper to "put" mortgages like this back to the originators. If they haven't gone bankrupt.

And even those where the documents do not allow the purchasers to put back to the originators will probably result in lawsuits.

As Barry noted, this is a big deal - and shows how far out of hand things got. Not getting the truth-in-lending disclosures right - and all of the participants not picking up on these failures at the point of securitization - is a major failure in the mortgage process given the severity of the consequences.

Posted by: Greg | Aug 22, 2007 6:34:41 AM

boys don't get excited
same thing over here
the normal mortgage borrower can't pay his mortgage so how's he going to pay his lawyer
class actions for paupers against banks rarely get going let alone to first base
rgds pcm

Posted by: peter from oz | Aug 22, 2007 6:41:03 AM

Berry, this whole circus act, is making me think that the downward spiral on the economy after the crash of 2000, and the subsequent 9/11 tradgedy, had the FED thinking: cut, cut, cut, and then "ground out" the problem in the housing sector, and then once all the foreclosers, delinquencies, etc., are over, good hard assets will still be available to ultimately support an economy and a people going forward. Perhaps this is too simplistic?

Posted by: Justin L Tindall | Aug 22, 2007 7:15:41 AM

Not to worry - the same politicians who brought you the "Credit Card Company Welfare Act"- aka the bankuptcy bill -- (are you listening Joe Biden?) will get to work as soon as they come back from vacation in September to pass new laws retroactively rescinding the T-I-L Act, and the investors will again be saved.

Posted by: semper fubar | Aug 22, 2007 7:36:17 AM

So, with her homes unencumbered by debt, the beleaguered consumer can now take out large home equity loans. MEW, like Bird, lives. Buy consumer discretionary. The ecoonomy's saved!

Posted by: Scott Frew | Aug 22, 2007 7:44:44 AM

Please elaborate on Biden's role in rewriting the bancruptcy laws.

Anyone involved in foisting that garbage on America is not fit to be president!

Posted by: blam | Aug 22, 2007 7:59:18 AM

Barry none of this matters. This statement by Lacker makes clear they will accept pure crap at the window. They are calling these loans at this point, but who in the Hell in their right mind would touch the toxic paper except the FED? Marked to Goldilocks is alive and well. It's called monetizing the debt at some point in the future.

"Lacker told risk managers yesterday that the Fed's district banks would even accept boat loans as collateral. It's up to the banks to establish a value for the assets as they make the loan, he said."

Posted by: SPECTRE of Deflation | Aug 22, 2007 8:01:37 AM

Barry, I'm going to run, not walk, and check my loan documentation (and lawyer's phone number/e-mail address) right away!

Notwithstanding the letter of the Truth-in-Lending law and the remedies perhaps available to borrowers when the lender fails to comply with disclosure requirements, it would be the ultimate irony if sub-slime borrowers could recover under these provisions when so many of them egregiously misrepresented income, assets, intent to be an owner-occupant, and just about every other element in the borrowing process. Truth-in-Lending? Hah! But, then again, I'm not a lawyer (thank God)!

Posted by: Bengal | Aug 22, 2007 8:05:39 AM

Second Largest Private Mortgage Lender Goes Poof. Looks contained to me. Maybe next the FED can take TV's, camcorders, sound systems and other goodies we all just had to have.

First Magnus, Mortgage Lender, Files for Bankruptcy Protection

By Steven Church

Aug. 21 (Bloomberg) -- First Magnus Financial Corp., the second-largest privately held U.S. mortgage company, filed for bankruptcy, less than one week after it shut down its lending operations.

First Magnus had $942.1 million in assets and $812.5 million in debt as of May 31, according to its Chapter 11 bankruptcy petition filed today in federal bankruptcy court in Tucson, Arizona.

The company said Aug. 16 that it shut down its lending operation after investors quit buying the company's loans. Today's court filing makes it the 14th lender since December to seek bankruptcy protection and one of more than 90 to either shut down or seek a buyer.

First Magnus was the 16th-largest U.S. home lender overall during the first half of this year, according to trade newsletter Inside Mortgage Finance. Katie Myers, a spokeswoman for the Tucson-based company, didn't return a call seeking comment.

The case is In re First Magnus Financial Corp. 07-01578, U.S. Bankruptcy Court, District of Arizona (Tucson).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net .

Last Updated: August 21, 2007 15:18 EDT

Posted by: SPECTRE of Deflation | Aug 22, 2007 8:08:40 AM

"It just shows how little oversight by the regulators there was in this space. Hard to imagine, but the Central Bankers either never reviewed these loan documents, or never caught these basic disclosure errors."

"And yes, I place some of the blame on the Greenspan Federal Reserve -- they were the regulatory authority in charge of bank mortgage lending when these junk mortgages were written . . ."

Greenspan was too busy hawking the damn exotic loans to be concerned with regulatory oversight. The next bubble had to be blown...

Posted by: SPECTRE of Deflation | Aug 22, 2007 8:15:19 AM

Shouldn't some of the blame fall on the consumer that lied about how much money they make? The banks deserve a lot of the blame, but so does the borrower. If they had told the bank the truth in the beginning, half of these loans wouldn't exist today.

I purchased my first home when I was 24. My first loan was a 30 year fixed loan and my refi was a 5/1 ARM. All of the terms and conditions were clearly laid out for me (I know because I initialed next to each section). If there was something in the loan that I didn't understand, it is up to me to ask for clarification because I am the one signing for the loan.

Dan

~~~

BR: Remember, the consumer of these loans is not very sophisticated -- the mortgage broker says "Its a no income, no doc loan, so just put down anything." And the consumer complies . . .

Posted by: Dan | Aug 22, 2007 9:07:01 AM

If TILA claims are successful, there would probably be a breach of the reps & warranties made by the originator. I think there is a time limit on the reps and warranties though, and I'm not sure how long it is.

If a securitized loan has to be taken by the originator, the AAA part of the deal will prepay by that amount. Losses will be borne first by the overcollateralization account, and then the tranches, starting with the most junior, and then moving in order of increasing seniority.

If a bank goes insolvent as a result of this, any claims against the bank by the securitization trust would be general claims against the bank.

Very interesting, Barry. Thanks for posting this. It's just another reason why in securitization, it is better to be a AAA holder, or an equity holder. They have all of the rights -- the AAAs when things are bad, and the equity when things are good to modestly bad.

Posted by: David Merkel | Aug 22, 2007 9:07:33 AM

If I remember correctly, under Federal contract law, If it aint in the closing doc's it don't exist. I ran afoul of this during the RTC witch hunts in the late 1980's. An obscure ruling in the 1940's allowed the Gov. to ignore handshakes, side agreements and in some cases even amended closing documents. Even a resulution of the board of an S%L expost facto of a closing could be ignored.
My point is that the law is what Government says it is. The point above about affording $300/hour lawyers to bail out of a residential mtg is a good one.

Posted by: Ross | Aug 22, 2007 9:09:50 AM

The lawyers are drooling over this -- sue the lender for TILA failures! countersue the borrowers for lying on docs!

My gut sense is that many of these borrowers didn't understand the loan terms even though they were laid out in front of them. And how do you prove that something (i.e., disclosure) *didn't* happen? Proving a negative is always tricky, unless the docs themselves plainly omit any mention of the reset.

Posted by: zero529 | Aug 22, 2007 9:16:40 AM

From Ambrose Evans-Pritchard of the Telegraph. Found this at "The Mess That Greenspan Made" which is so apropo:

We can presume that Ben Bernanke did not undertake this volte face lightly, given his determination to end the Greenspan practice of reflexive bail-outs - and to shake off his own image as an easy money man. I suspect Mr Bernanke now fears the economy is hurtling into a brick wall.
...
America is sliding into the worst housing slump since the Depression.
...
The bond markets know the fuse is already lit on mass default, which is why $2,000bn of US sub-prime and Alt-A debt packaged as securities is being marked down so violently on books - German, French and Dutch books as it turns out.

The hit to the real economy will follow soon. Americans now face wealth deflation on both the housing and equity markets.
...
In the end, the world's central banks can always reflate the markets - if they are willing to tolerate the side-effects. The 1930s liquidity trap has been overtaken by new methods of stimulus, as Mr Bernanke made all too clear in his "helicopter" speech in November 2002. "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost," he said.

The Fed can "expand the menu of assets that it buys", he said, citing agency mortgage debt, a gamut of bonds and even use of "commercial paper" as collateral. The process began gingerly last week. The markets may come to know real fear before it is finished.
And now comes this one today on who should be blamed for the mess:

The witch hunt has begun. French president Nicolas Sarkozy has vowed to hunt down the "speculators". Germany's Angela Merkel is eyeing laws to curtail hedge funds.Brussels has launched a probe of the rating agencies, suspected of sticking "AAA" and "AA" grades on sub-prime debt for venal motives. The US Congress is orchestrating a show trial of "predatory lenders".

The blame-game was ever thus. Wall Street bankers were hounded after the 1929 crash: some went to prison. But if you track down the root cause of this credit bubble - now popped - the "blame" lies with Asian, European and Anglo Saxon central banks.

They created this mess, if that is what we now face. It was they - in effect governments - who intervened in countless complex ways to push down the price of global credit to levels that warped behaviour, as the Bank for International Settlements (BIS) has repeatedly noted. By setting the price of money too low, they encouraged debt and punished savings.
...
The central banks have said their task is to fight inflation, not to police asset prices. Critics retort that the US asset bubble in the 1920s and Japan's bubble in the 1980s both occurred at a time of low inflation. Belatedly the Bank of Japan, the ECB, the Swiss, the Scandies and the Bank of England are questioning the wisdom of ignoring asset prices, deeming it wise to "lean into the wind" to slow excesses. But it is very late in the day. The credit bubble is already with us.

Posted by: SPECTRE of Deflation | Aug 22, 2007 9:21:43 AM

From Bloomberg. This is what we are left with. Start the monetization. It looks as if the Regulators all decided to take a holiday that lasted for years:

Wells Fargo Gorges on Mark-to-Make-Believe Gains: Jonathan Weil
2007-08-22 00:02 (New York)

Commentary by Jonathan Weil
Aug. 22 (Bloomberg) -- There's the kind of earnings
investors can take to the bank. And then there's the kind the
bank can show to investors.
Word to Wells Fargo & Co. investors: Beware the second
kind.
Last quarter Wells Fargo reported record net income of
$2.28 billion, up 9 percent from a year earlier. Read the
footnotes to its latest quarterly report, though, and you will
see a new term in accounting lingo called ``Level 3'' gains.
Without these, the financial-services company's earnings would
have declined.
So what are Level 3 gains? Pretty much whatever companies
want them to be.
You can thank the Financial Accounting Standards Board for
this. The board last September approved a new, three-level
hierarchy for measuring ``fair values'' of assets and
liabilities, under a pronouncement called FASB Statement No.
157, which Wells Fargo adopted in January.
Level 1 means the values come from quoted prices in active
markets. The balance-sheet changes then pass through the income
statement each quarter as gains or losses. Call this mark-to-
market.
Level 2 values are measured using ``observable inputs,''
such as recent transaction prices for similar items, where
market quotes aren't available. Call this mark-to-model.
Then there's Level 3. Under Statement 157, this means fair
value is measured using ``unobservable inputs.'' While companies
can't actually see the changes in the fair values of their
assets and liabilities, they're allowed to book them through
earnings anyway, based on their own subjective assumptions. Call
this mark-to-make-believe.

Antennae Up

``If you see a big chunk of earnings coming from
revaluations involving Level 3 inputs, your antennae should go
up,'' says Jack Ciesielski, publisher of the Analyst's
Accounting Observer research service in Baltimore. ``It's akin
to voodoo.''
For San Francisco-based Wells Fargo, whose stock is up 5
percent this year at $37.37, last quarter was a veritable mark-
to-make-believe feast.
About $1.21 billion, or 35 percent, of its $3.44 billion in
pretax income came from Level 3 net gains on the $18.73 billion
portfolio of residential mortgage-servicing rights that Wells
Fargo marks at fair value. These assets, known as MSRs, consist
of rights to collect fees from third parties in exchange for
keeping mortgages current, by doing things like collecting and
forwarding monthly payments.
Wells Fargo's July 17 earnings release didn't mention Level
3 items. This isn't how the second-largest U.S. home lender
wants investors to parse its earnings either.

Hurting Earnings

Instead it stresses a metric called ``market-related
valuation changes to MSRs, net of hedge results,'' which was
minus $225 million last quarter. Spun this way, it looks like
changes in the servicing rights' values actually hurt earnings.
To get that figure, the company first broke the $1.21
billion of net gains on MSRs into two parts.
Part one was $2.01 billion of gains ``due to changes in
valuation model inputs or assumptions.'' Part two was $808
million of fair-value declines from changes related to the
servicing rights' expected cash flows over time. (All figures
are rounded.)
Next, Wells Fargo took the first part -- the $2.01 billion
in gains -- and netted it against $2.24 billion in fair-value
losses on certain ``free-standing derivatives.'' The company
says it uses these derivatives as ``economic hedges'' against
changes in MSR values, although they don't qualify for hedge
accounting under the accounting board's rules.

The Rub

Here's the rub: The footnotes show the vast majority of the
$2.24 billion in derivative losses were Level 1 or Level 2,
while the $2.01 billion in MSR gains were all Level 3.
In other words, it's a safe bet the losses were real, while
the gains had all the substance of a prayer. Indeed, Wells Fargo
said in its Aug. 6 quarterly report that ``the valuation of MSRs
can be highly subjective and involve complex judgments by
management about matters that are inherently unpredictable.''
Moreover, to get to minus $225 million for ``market-related
valuation changes to MSRs, net of hedge results,'' Wells Fargo
excluded the other $808 million in MSR losses, meaning these
fair-value changes weren't hedged at all.
In an e-mail, Wells Fargo spokeswoman Janis Smith Appleton
said ``it would be inaccurate to characterize one component of
our servicing revenue for the quarter in relation to our total
results.'' She said that's ``because it would ignore the
effect'' rising interest rates had ``on both the increase in
fair value of our residential MSRs as well as the corresponding
net derivative losses associated with the economic hedges of our
MSRs.''

Real Stretch

Inaccurate? No. The real stretch is calling these
derivatives hedges.
Nobody forced Wells Fargo to start running quarterly fair-
value changes for MSRs through its income statement. The
accounting standard that let it do so, called Statement 156,
gave it a choice.
SunTrust Banks Inc., by comparison, elected not to. Why?
``In my mind there is no effective hedging strategy out there
that captures all those risks that would move in offsetting
directions to MSR,'' says Tom Panther, SunTrust's chief
accounting officer. So, SunTrust waits until the servicing
rights are sold before recognizing any pent-up gains.
MSR values normally rise when interest rates do, because
fewer customers refinance and prepay their mortgages. At some
point if rates rise too high, though, delinquencies on
adjustable-rate mortgages could soar, as customers' rates reset,
pushing MSR values down.
With mortgage markets now crashing, SunTrust looks like it
made the more prudent choice. Yet in the lunch buffet of
generally accepted accounting principles, both companies'
approaches are permitted.
Someday, Wells Fargo investors may regret this.

Posted by: SPECTRE of Deflation | Aug 22, 2007 9:28:24 AM

Two words: PREDATORY BORROWING!

Posted by: Anonymous | Aug 22, 2007 9:35:14 AM

My thoughts until now have been "Yeah, good luck sticking it to the lender/buyer, little guy". Perhaps the morons in legal will find jobs at law firms involved in these cases - schwing!

Posted by: L'Emmerdeur | Aug 22, 2007 9:52:44 AM

As Hank Paulsen said:

"we have a problem with a few bad loans"

nevermind that your industry packaged them up and gift wrapped them to the rest of the world under the guise of "investing" in american (i.e. price ALWAYS goes up) real estate.

How this man has any credibility left is beyond me. thank god that he and his fiscally irresponsible policies will be out on his ass come next year....that is if we get a chance to vote. I have a hard time thinking that the neo-cons. will just hand over anything to hillary/obama in a fairly contested election. That is if we actually get to vote. I still think Rudy G. will be involved somehow..but that's a different discussion.

Now back to your regularly scheduled bullshit "rally".

Ciao
MS

Posted by: michael schumacher | Aug 22, 2007 10:00:38 AM

Level 3 accounting huh... I was going to make a witty comment but actually started to worry....

Posted by: mhm | Aug 22, 2007 10:16:10 AM

More containment kids. Getting pretty close to 100,000 in reductions in the financial market jobs, but not to worry because it's contained:

Accredited to Lay Off 1,600; Halts Lending
August 22, 2007

Accredited Home Lenders Holding Co. said this morning that it will lay off 1,600 of its 2,600 employees and that it has halted originating new loans amid what it called “ongoing turmoil in the non-prime mortgage industry.”

The San Diego-based lender said it would close “substantially all” of its retail lending business — 60 branch locations and 5 retail support locations; that it would shutter five of its ten wholesale divisions; and that it would “substantially” reduce staffing at its Inzura Settlement Services division; and that it would cut roughly half of the company’s headquarter’s based staff.

The company’s servicing platform is not impacted by the downsizing effort, the company said in its statement:

James A. Konrath, chairman and chief executive officer, commented, “These difficult decisions were made out of necessity in light of the continued and widely publicized turbulence in the mortgage and financial markets, but with a heavy heart. Many of the people who are affected by these decisions have been productive, dedicated, and loyal colleagues for many years. We will miss them and the enthusiasm and creativity that they brought to their jobs every day at Accredited.”

The Company reported that neither its Canadian operations nor its servicing platform for its loan portfolio of $8.4 billion as of June 30, 2007 will be affected by the restructuring. Mr. Konrath added, “Accredited’s delinquency and loss numbers have historically been among the best in the industry. Even though our servicing ratings have been downgraded over liquidity concerns in recent months, we intend to maintain the quality of our servicing operations and expect to continue providing the highest level of loan servicing for our bond investors.”

Posted by: SPECTRE of Deflation | Aug 22, 2007 10:16:58 AM

so level 3 by Wells Fargo is a bad thing for investors right??

how come i dont see a correction in wells fargo share price? is this a old news?
or we are the first ones to know about it?
or the market does not care, today is wednesday and it has to go up?
or market knows that FED has promised to cut the rate anytime.....and hence there is nowhere but up to go

Posted by: techy2468 | Aug 22, 2007 10:43:09 AM

here's the real rub: This kinda makes you wonder what sort of due diligence the secondary market actually did on these basic non-compliant loan errors in the sub-prime market.

My guess is this is a feature, not a bug: There's no money in spoiling the party. Just as stock analysts were corrupted by the investment banking side, or accounting firms by big bucks made by consulting for the same firms they were auditing.
Probably more lawsuits in the works.

"Lacker told risk managers yesterday that the Fed's district banks would even accept boat loans as collateral. It's up to the banks to establish a value for the assets as they make the loan, he said."

So this is essentially a bailout by the Fed. Socialize the risk, again. So if the Fed is essentially the buyer of last resort for this toxic waste, shouldn't they have some regulatory power over this market? I know, don't laugh.

Posted by: ronin | Aug 22, 2007 10:52:05 AM

TILA is the best predatory lending law, but unfortuantely, it has a one year statute of limitations. All of the loans that come across my desk so far have been beyond that point.

So this is not really the law that is going to get the mortgage pool guys.

Mortgages are generally a negotiable instrument so defenses a borrower has against the lender may not be used against a "holder in due course." This means that a s soon as a mortgage goes into a trust, you basically have 1 year from origination to bring a TILA claim for recission or the borrowers' only remedy is against the lender (see the implode-o-meter). The Wall Street system of mortgage pools is very good at cutting off legal risk.

There are a couple of other ways to win against a mortgage pool. If the loan was in default when it was "negotiated" the new owner is not a "holder in due course" and thus claims against the lender can be used against the new owner. This usually happens when a loan is transferred after the original sale to the mortgage pool.

The other way is to attack the servicer for RESPA violations (fee jamming, failing to properly credit, forced placed insurance, etc.).

But getting back to TILA, it's really not the killer law that it sounds like because of the 1 year statute.

Cheers,

Ken

Posted by: Ken | Aug 22, 2007 11:13:42 AM

More positive news, and it's probably why we are up today. END SARCASM!

WASHINGTON -(Dow Jones)- The number of troubled assets among federally regulated thrifts rose rose 49% in the second quarter from 12 months before to the highest level since the savings and loan crisis, the Office of Thrift Supervision reported Tuesday.

The agency also reported that the number of "problem thrifts," or companies rated poorly by regulatory standards, had risen to 10, up from just 4 in the second quarter of 2006.

Still, the regulator said that although the 836 thrifts it regulates are continuing to feel stress from housing and liquidity markets, the overall health of the companies remains strong, based on earnings and capital.

Thrifts are federally regulated banks that originate one out of every four mortgages. The companies largely originate prime or jumbo loans, so their stressed loan portfolios suggest that more loan types - not just subprime mortgages - are under pressure.

The thrift industry had $14.2 billion in troubled loans, which are either noncurrent loans or repossessed assets, the OTS said. That's up from $9.5 billion in the second quarter of 2006. This is the highest level of troubled assets since 1993, though as a percentage of total assets its only the highest level since 1997. Noncurrent loans include mortgage delinquencies, which have grown precipitously as the adjustable-rate mortgages that were very popular during the recent housing boom reset into much higher monthly commitments.

"This is what is keeping us as regulators up at night," James Caton, director of financial monitoring and analysis, said at a press briefing to discuss the data.

Posted by: SPECTRE of Deflation | Aug 22, 2007 11:42:16 AM

December 2008

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