December 1, 2023

Bucks Blog: Deadline Extended for Mortgage Help

The federal government has extended the deadline until Sept. 15 for strapped homeowners in 27 states to apply for emergency help.

Initially, the Department of Housing and Urban Development had set a July 27 deadline for the Emergency Homeowners’ Loan Program, to ensure that funds could be distributed by the end of the fiscal year on Sept. 30. But the deadline was extended a second time to give people more time to apply. Instructions on how to apply can be found here.

The program offers “bridge” loans to homeowners who have fallen behind on their mortgages due to a job loss or medical problem. (Homeowners must be at least three months behind on their mortgages.) Eligible homeowners can receive financial help to pay their mortgage for up to two years, or up to $50,000, whichever comes first. The loans do not have to be repaid, as long as the homeowner continues making mortgage payments on time for five years.

The $1 billion program was expected to help 20,000 to 30,000 distressed homeowners. An estimated 84,000 people sent in preliminary applications, and 40,000 of those passed the initial eligibility screening, said a housing department spokesman, Brian Sullivan.

But to receive final approval for assistance, applicants must provide detailed documentation of their need, like a letter of termination from an employer and a notice of delinquency from the lender.

The emergency program is available in the following states: Alaska, Arkansas, Colorado, Hawaii, Iowa, Kansas, Louisiana, Maine, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Mexico, New York, North Dakota, Oklahoma, South Dakota, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

The program aims to offer aid to homeowners in states ineligible for the larger, $7.6 billion “hardest hit” fund, which provided assistance to 18 states and the District of Columbia that absorbed the worst of the housing crisis. Those 18 states were Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina and Tennessee.

In addition, five other states have similar programs of their own: Connecticut, Delaware, Idaho, Maryland, and Pennsylvania. About 11,000 applications were received in those states, with about 3,000 approved as of the end of August, according to the housing department.

Have you applied for assistance under the program? Let us know about your experience.

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U.S. Sues Deutsche Bank Over Loan Practices

The mortgages, guaranteed by the Federal Housing Administration, are expected to cost the government more than $1 billion. They came from loans issued by a company called MortgageIT, which Deutsche acquired in 2007.

The F.H.A. said it discovered the fraud in 2009, while reviewing its overall portfolio. At the time, loans were defaulting at record levels and worries were growing about the ultimate cost to taxpayers. Since the financial crisis, the F.H.A. has broadened its role in the housing market and now backs about one-third of all new mortgages, up from just 5 percent a few years ago. In the last couple of years, the F.H.A. has also overhauled its processes to improve quality control, and loans made more recently are performing better.

Officials from the Justice Department and the Department of Housing and Urban Development said the lawsuit should serve as a warning to other lenders that are issuing loans using a government guarantee. At a news conference on Tuesday, the United States attorney for the Southern District of New York, Preet Bharara, said Deutsche “cannot get away with lies and recklessness.” He said there was not evidence to justify a criminal complaint and declined to say whether there would be more cases claiming F.H.A. fraud.

In an interview, Helen R. Kanovsky, the general counsel of the Department of Housing and Urban Development, said that Deutsche Bank was an outlier and that most loan originators had not had such high incidences of fraud.

Responding to the government’s case, filed in Federal District Court in New York, the bank issued a statement saying it was not involved in most of the 39,000 loans cited in the complaint. Almost 90 percent were issued before the bank acquired MortgageIT, a real estate investment trust, the bank said. At the time of its acquisition, MortgageIT had been operating under H.U.D. oversight for nearly a decade, the bank said.

“We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously,” the bank statement said.

Of the MortgageIT loans backed by the F.H.A. from 1999 to 2009, worth $5 billion in total, about one-third have defaulted, according to the government’s complaint against the bank. MortgageIT was not a large F.H.A. partner — it ranked 33rd by volume at the end of 2008 — and it stopped issuing government-backed loans in 2009.

The F.H.A. referred the problems it spotted with MortgageIT to the Justice Department because it could not bring its own action once the company stopped issuing loans. The case was pursued by a civil fraud unit that Mr. Bharara set up about a year ago.

The complaint against Deutsche Bank stands out because the government has filed relatively few cases against big banks related to the financial crisis. Its actions have mainly been civil complaints, as was the one against Deutsche Bank. The government has found it difficult to prove intent to defraud, a requirement for a criminal case, and investigators got off to a slow start in building possible cases during the crisis because regulators were primarily focused on stabilizing the system. The Justice Department has generally had more success prosecuting small mortgage brokers and borrowers for mortgage fraud than it has had in pursuing major financial institutions.

The Deutsche suit does not name any individual bank employees. And it is not centered on the subprime loans that kicked off the housing collapse.

Deutsche was, however, a large player in the subprime market, and mortgage bonds created by the bank sit in many investors’ portfolios. Its mortgage bundling behavior was outlined in a recent report issued by the Senate’s Permanent Subcommittee on Investigations.

The Deutsche loans that were backed by the F.H.A. jumped out during the portfoliowide review of mortgages, said Ms. Kanovsky. “The real harm to us was clear,” she said.

MortgageIT had been warned by the F.H.A. for years, Ms. Kanovsky said, long before Deutsche bought it. Workers there frequently told the government that they were taking care of the problems, “all of which turned out to be not true.”

The problems at MortgageIT are rooted in the same sort of behavior that plagued the overall lending market — bankers did not take enough care to ensure the quality of their mortgages because they could resell the loans to private investors. Deutsche, the complaint said, had “powerful financial incentives to invest resources into generating as many F.H.A.-insured mortgages as quickly as possible for resale to investors.”

MortgageIT was qualified by H.U.D. to issue mortgages guaranteed by the F.H.A. MortgageIT and Deutsche filed annual certifications that the loans they issued complied with H.U.D. rules. The complaint says the bank had a fiduciary duty to make correct representations to the government.

Yet, the complaint says, Deutsche “repeatedly lied to H.U.D. to obtain and maintain MortgageIT’s direct endorsement lender status.” In particular, the complaint said Deutsche did not monitor how often home owners defaulted on their mortgages immediately after receiving the loans.

Trouble was apparent at MortgageIT as early as 2003, according to the complaint. When a HUD audit revealed that the company had not met quality control levels, the company assured the government that it had altered its practices to comply. But it had not, the complaint says. There were several other instances where the company made similar false statements about its quality control unit, which was chronically understaffed, the complaint says.

MortgageIT, based in New York even before the Deutsche acquisition, once had over 2,000 employees, mortgage loan offices across the country and licenses to issue loans in all 50 states.

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Bucks: Good News for Spouses of Reverse Mortgage Holders

In the face of a lawsuit from the AARP Foundation, the Department of Housing and Urban Development has backed off an apparent policy change that was putting some widows and widowers on the brink of foreclosure.

The dust-up involves reverse mortgages, financial products that allow older Americans with a decent amount of home equity to tap some of that equity if they are at least 62 years old. Unlike a home equity loan, where you have to pay the money back, with a reverse mortgage the bank pays you, say in a lump sum or in monthly payments. Once you no longer live in the home, you or your executor (if you’re dead) sells it and pays the bank back.

The foundation and Mehri Skalet, a law firm, sued HUD in the wake of a policy letter in 2008 that seemed to state that widows or widowers who were not listed on a spouse’s reverse mortgage would have to repay the full amount of the deceased spouse’s mortgage. They’d have to do so even if the home was worth less than the outstanding loan.

Not long after, some surviving spouses found themselves unable to pay off the loans or get a new mortgage for the outstanding balance on the old reverse mortgage. As a result, they ended up in foreclosure proceedings. The foundation had sued on behalf of three of them.

In a letter it released this week, HUD rescinded the 2008 letter. And while this week’s letter didn’t say so specifically, Jean Constantine-Davis, a senior attorney for AARP Foundation Litigation, reports that the lenders will now halt foreclosure proceedings against its three plaintiffs for the time being. A HUD spokesman did not return a call seeking comment.

The lawsuit is not over, though. The foundation hopes that a judge will confirm that HUD cannot ever force a widow, widower or heir to pay a reverse mortgage lender more than a home is actually worth, whatever the balance may be on the mortgage.

It also wants to establish surviving spouses’ right to stay in the home if they so choose, even if they weren’t party to the original reverse mortgage. That might mean that the lender is on the hook for the reverse mortgage loan longer than it expected to be. But Ms. Constantine-Davis said she thought that as the guarantor, HUD ought to buy the loans from the lender if this became a problem for the lender.

If that becomes too burdensome, HUD might make new rules that could, say, require that both spouses always be listed on the mortgage, while making some kind of provision for people who get married after one of them has gotten the reverse mortgage loan and wants to add a spouse to the mortgage.

Meanwhile, Ms. Constantine-Davis notes that HUD does not currently require both spouses to undergo counseling when only one of them applies for a reverse mortgage. (One spouse may apply alone because the monthly payout from the lender is usually higher if just the older spouse applies.) Without explicit counseling, spouses who are not on the mortgage may not know that they could end up in a situation like those of the plaintiffs in this case.

One easy fix might be for HUD to make both spouses come for counseling no matter what. Another, as I mentioned in a column a few weeks ago, is much simpler and doesn’t require more regulation: Don’t ever take yourself off the loan, even if it does mean that the payout is lower.

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