Mortgage investor group wants loans ensnared in robo-signing snafu repurchased, by JASON PHILYAW, Housingwire.com


The Association of Mortgage Investors wants trustees of residential mortgage-backed securities “to hold servicers accountable for negligence in maintaining the assets of trusts.”

The Washington firm, which advocates on behalf of institutional and private MBS investors, said in a press release that the recently uncovered robo-signing debacle – first reported by HousingWire two weeks ago – “undermines the integrity and the operational framework of the housing finance and mortgage system as it exists today.”

Most of the nation’s largest mortgage lenders, includingBank of America, Ally Financial, formerly GMAC Mortgage, and JPMorgan Chase, have suspended foreclosures to amend faulty affidavits that may have been signed without looking at the documents or a notary present.

The AMI wants bond trustees to investigate the process and assure investors that mortgages bundled and sold into MBS are repurchased by the loan originators, who failed in their “fiduciary responsibilities [to] protect millions of American pensioners and retirees.”

“The capacity constraints at our nation’s largest servicers continue to be an issue of great concern to investors,” said Chris Katopis, executive director of the AMI. “We urgeAllyJPMorgan Chase, and all other servicers to invest the time and resources necessary to improve their operational infrastructure and to avoid situations where efficient mortgage servicing and collection practices are compromised.”

He said the may snafus may cause inaccurate legal filings for the mortgages and underlying properties in the MBS pools.

“The unfortunate and little-known consequence of these operational breakdowns is the destruction of capital needed to sustain fixed-income investors reliant upon cash flow from pensions and retirement accounts,” Katopis said.

Write to Jason Philyaw.

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Inside Lending Newsletter From Geoffrey Boyd, Prime Lending


Ben Bernanke (lower-right), Chairman of the Fe...

Image via Wikipedia

INFO THAT HITS US WHERE WE LIVE  Last week’s housing market data centered on Standard & Poor’s S&P/Case-Shiller Home Price Index. This showed home prices UP in July for the fourth month in a row, but the pace of their gain had slowed from prior months. With the expiration of the government’s home buyer tax incentives, some observers wonder if the S&P/Case-Shiller will keep moving up. The composite 20-city index, a broad measure of U.S. home prices, showed a 3.2% increase year over year, the sixth month in a row it posted an annual gain.

Nonetheless, home price gains did slow in the waning days of the tax credits. In July, only 12 of the 20 cities surveyed showed price gains, compared to 17 cities reporting rising prices in June. Analysts pointed out that these results underscore the fact that the spring/early summer months are the best for home sales. Most experts feel the next few months should give us a better idea of the true strength of the housing market.

>> Review of Last Week

A BIT OF A BREATHER… Investors on Wall Street took a rest last week from bidding stock prices up the way they had earlier in the month. Performance of the major market indexes was uninspiring, though slippages were all less than a half a percent. But performance for the month was impressive. The broad-based S&P 500 index, favored by professional investors, shot up 8.8% for September, its best monthly gain since April 2009 and its best September reading in over 70 years.

Perhaps investors took the week off because they remain cautious about the near-term economic recovery. Consumers seem to agree, as the week began with a surprise drop in September’s Consumer Confidence Index, which hit a seven-month low, falling far short of consensus expectations. The ISM Manufacturing Index also slid a bit from August to September, missing estimates, but remaining in expansion territory.

Upside economic data included better than forecast weekly initial jobless claims, although 453,000 is still not a good number. Continuing claims dropped by 83,000 for the week, but that number remains well above 4 million. Personal income and spending (PCE) for August were up better than expected and Core PCE was up just 0.1%, so inflation is still in check.

For the week, the Dow ended down 0.3%, to 10829.68; the S&P 500 was down 0.2%, to 1146.24; and the Nasdaq was off 0.4%, to 2370.75.

The bond market ended the week with investor interest helping prices in some areas. One was the FNMA 30-year 4.0% bond we watch, which ended UP 10 basis points for the week, closing at $102.27. According to Freddie Mac‘s weekly survey, national average mortgage rates for fixed-rate mortgages dropped a tad, remaining at historically low levels.

>> This Week’s Forecast

WHERE WE’RE GOING WITH HOMES AND JOBS… The week begins with August Pending Home Sales, which count signed contracts and therefore tell us what will be happening with closings a few months out. Unfortunately, the consensus expects the August reading to be down a bit from July. But September ISM Services is expected to show the non-manufacturing sector still indicating expansion, with a reading just over 50.

The week ends with the September Employment Report and the forecast is for no increase in payrolls overall, although 70,000 jobs are expected to be added to the private sector. However, population growth outpaces this rate of job creation, so unemployment is predicted to tick up to 9.7%.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of October 4 – October 8

Date Time (ET) Release For Consensus Prior Impact
M
Oct 4
10:00 Pending Home Sales Aug 1.0% 5.2% Moderate
Tu
Oct 5
10:00 ISM Services Sep 51.8 51.5 Moderate
W
Oct 6
10:30 Crude Inventories 10/2 NA –0.475M Moderate
Th
Oct 7
08:30 Initial Unemployment Claims 10/2 455K 453K Moderate
Th
Oct 7
08:30 Continuing Unemployment Claims 9/25 4.450M 4.457M Moderate
F
Oct 8
08:30 Average Workweek Sep 34.2 34.2 HIGH
F
Oct 8
08:30 Hourly Earnings Sep 0.1% 0.3% HIGH
F
Oct 8
08:30 Nonfarm Payrolls Sep 0K –54K HIGH
F
Oct 8
08:30 Nonfarm Private Payrolls Sep 70K 67K HIGH
F
Oct 8
08:30 Unemployment Rate Sep 9.7% 9.6% HIGH

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months  There’s been a lot of talk about the Fed’s readiness to provide a second round of quantitative easing (QE-2) if needed. This has led economists to believe that the Fed Funds Rate will remain at its rock bottom levels for quite some time. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%

After FOMC meeting on: Consensus
Nov 3 0%–0.25%
Dec 14 0%–0.25%
Jan 26 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Nov 3 <1%
Dec 14 <1%
Jan 26 <1%
Geoffrey Boyd
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Study Finds Foreclosure Crisis Had Significant Racial Dimensions, Asanet.org


Residential segregation constitutes an important contributing cause of the current foreclosure crisis-

Newswise — Although the rise in subprime lending and the ensuing wave of foreclosures was partly a result of market forces that have been well-documented, the foreclosure crisis was also a highly racialized process, according to a study by two Woodrow Wilson School scholars published in the October 2010 issue of the American Sociological Review.

Woodrow Wilson School Ph.D. candidate Jacob Rugh and Woodrow Wilson School’s Henry G. Bryant Professor of Sociology and Public Affairs, Douglas Massey, assessed segregation and the American foreclosure crisis. The authors argue that residential segregation created a unique niche of minority clients who were differentially marketed risky subprime loans that were in great demand for use in mortgage-backed securities that could be sold on secondary markets.

The authors use data from the 100 largest U.S. metropolitan areas to test their argument. Findings show that black segregation, and to a lesser extent Hispanic segregation, are powerful predictors of the number and rate of foreclosures in the United States – even after removing the effects of a variety of other market conditions such as average creditworthiness, the degree of zoning regulation, coverage under the Community Reinvestment Act, and the overall rate of subprime lending.

“This study is critical to our understanding of the foreclosure crisis since it shows the important and independent role that racial segregation played in the housing bust,” said Rugh.

A special statistical analysis provided strong evidence that the effect of black segregation on foreclosures is causal and not simply a correlation.

“While policy makers understand that the housing crisis affected minorities much more than others, they are quick to attribute this outcome to the personal failures of those losing their homes – poor credit and weaker economic position,” noted Massey. “In fact, something more profound was taking place; institutional racism played a big part in this crisis.”

The authors conclude that Hispanic and black racial segregation was a key contributing cause of the foreclosure crisis. “This outcome was not simply a result of neutral market forces but was structured on the basis of race and ethnicity through the social fact of residential segregation,” the authors note in the article.

“Ultimately, the racialization of America’s foreclosure crisis occurred because of a systematic failure to enforce basic civil rights laws in the United States,” the authors write in the article. “In addition to tighter regulation of lending, rating, and securitization practices, greater civil rights enforcement has an important role to play in cleaning up U.S. markets. It is in the nation’s interest for federal authorities to take stronger and more energetic steps to rid U.S. real estate and lending markets of discrimination, not simply to promote a more integrated and just society but to avoid future catastrophic financial losses.”

Jacob Rugh’s research focuses on urban policy and the intersection of housing markets, land use regulation, and local politics. His forthcoming dissertation will focus on the social, economic, and local regulatory roots of the recent U.S. housing crisis and their implications for public policy.

Douglas Massey’s research focuses on international migration, race and housing, discrimination, education, urban poverty, and Latin America. He is the author, most recently, of Brokered Boundaries: Creating Immigrant Identity in Anti-Immigrant Times (Russell Sage Foundation, 2010), coauthored with Magaly Sanchez. He has also authoredReturn of the L-Word: A Liberal Vision for the New Century(Princeton University Press, 2005) and Strangers in a Strange Land: Humans in an Urbanizing World (Norton, 2005). Massey currently serves as President of the American Academy of Political and Social Science and is past-President of the American Sociological Association and the Population Association of America. He is a member of the National Academy of Sciences, the American Academy of Arts and Sciences, and the American Philosophical Society.

The research article described above is available by request for members of the media. For a copy of the full study and a two page summary, contact Daniel Fowler, ASA‘s Media Relations and Public Affairs Officer, at pubinfo@asanet.org or (202) 527-7885, or Elisabeth Donahue, WWS Assistant Dean for Public and External Affairs, at edonahue@princeton.edu or (609) 258-5988.

About the American Sociological Association and the American Sociological Review
The American Sociological Association (www.asanet.org), founded in 1905, is a non-profit membership association dedicated to serving sociologists in their work, advancing sociology as a science and profession, and promoting the contributions to and use of sociology by society. The American Sociological Review is the ASA’s flagship journal.

About the Woodrow Wilson School
Founded in 1930, the Woodrow Wilson School at Princeton University is a major international center of advanced training and research in public affairs. The Woodrow Wilson School is an institution with the energy and strength to tackle the most serious issues of the present day, and the vision and experience to prepare the leaders who will shape the public policies of the future.