September 23, 2021

Attorneys General Press White House to Fire F.H.F.A. Chief

WASHINGTON — Prominent state attorneys general are calling on President Obama to fire the acting director of the Federal Housing Finance Agency and name a new permanent director, arguing that current policies are impeding the economic recovery.

Under its current leader, Edward J. DeMarco, the F.H.F.A., which oversees the bailed-out mortgage financiers Fannie Mae and Freddie Mac, has refused to put in place a White House proposal to reduce the principal on so-called underwater mortgages — a move that might prevent foreclosures and thus save the mortgage giants money, but also might expose taxpayers to additional losses.

Led by Eric T. Schneiderman of New York and Martha Coakley of Massachusetts, the attorneys general argue that writing down the principal on underwater mortgages — those where the outstanding mortgage is greater than the current value of the home — would aid the recovery. They note that write-downs were a central part of a multibillion-dollar mortgage settlement that 49 state attorneys general negotiated with five major banks a year ago. And they say the White House should name a director to take that action.

“Our nation’s economy will never fully recover until we address this foreclosure crisis,” Ms. Coakley said in a statement. “Fannie Mae and Freddie Mac have been an obstacle to progress for far too long, and it is time for new leadership and a new direction to ensure that homeowners receive this important relief.”

Mr. DeMarco has held the position at the head of the F.H.F.A for more than three years. In the last year, especially, he has clashed with the administration over the issue of write-downs, also called principal forgiveness.

The Treasury Department has argued that write-downs would save money by reducing the chances homeowners would default. An F.H.F.A. analysis released last year seemed to show that a carefully directed program could save Fannie and Freddie money. But Mr. DeMarco has rejected the idea on the grounds that it would expose taxpayers to more losses. Fannie and Freddie have already required tens of billions of dollars of taxpayer aid.

The administration has frequently criticized Mr. DeMarco’s decision. “F.H.F.A. is an independent federal agency, and I recognize that, as its acting director, you have the sole legal authority to make this decision,” Timothy F. Geithner, who stepped down as Treasury secretary in January, wrote Mr. DeMarco last year. “However, I do not believe it is the best decision for the country.”

Yet the White House has failed to replace Mr. DeMarco.

That decision has troubled some members of Congress. “Ensuring that F.H.F.A. implements Congressional directives to support the most liquid, efficient, competitive and resilient housing finance markets is a matter of national urgency,” said a letter to Mr. Obama signed by 45 members of the House last month. “We strongly urge you to nominate an F.H.F.A. director who is ready to fulfill this mission and address the many challenges still facing the nation’s housing finance markets.”

Some housing advocates suggest the White House has not named a new director in order to keep Mr. DeMarco as a scapegoat for what they perceive as a failed housing policy.

The administration has struggled to find a qualified person to take the job. There is speculation that the White House may finally be close to naming a director. The Wall Street Journal reported that officials were considering nominating Representative Mel Watt, Democrat of North Carolina, perhaps next month.

The White House declined to comment on personnel policy.

Any director would probably be named as a recess appointment because he or she would be unlikely to win Congressional approval. Many Republicans concerned about the cost of Fannie and Freddie to the taxpayer have said the two agencies should not adopt principal-reduction policies. In 2010, the White House nominated Joseph A. Smith Jr., a North Carolina banking commissioner, for the position, but his nomination died in the Senate.

Attorneys general who have signed the letter also include Kamala D. Harris of California, Beau Biden of Delaware, Lisa Madigan of Illinois, Douglas F. Gansler of Maryland, Catherine Cortez Masto of Nevada and Bob Ferguson of Washington.

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New-Home Sales Increased in March, but Stayed Low

Buyers signed contracts in March at a seasonally adjusted annual rate of 300,000, an 11 percent increase from the month before but down from 384,000 in March 2010, the Census Bureau said Monday.

In March 2005, when a lack of income or savings was no deterrent to getting a dream home with granite countertops and a walk-in pantry, families and investors flocked to new homes at an annual rate of 1.43 million houses.

The millions of homes built during the boom have created a drag on the current market as the owners surrender them to foreclosure. Builders cannot compete against relatively new construction offered by banks for large discounts.

The March sales numbers modestly exceeded analysts’ expectations but nevertheless did not impress. “Still miserable,” concluded Joshua Shapiro, chief United States economist for MFR Inc. While February sales were revised up to 270,000 from an initial 250,000, it was still the lowest of any month since records were first kept in 1963.

Builders told potential buyers in March that they might want to make a deal before new rates came from the Federal Housing Administration, which guarantees many loans. That probably contributed to the rebound.

In a separate report issued Monday, the HousingPulse Tracking Survey indicated that nearly half of the housing market is distressed properties. Because banks generally pulled back on foreclosures over the last six months, the survey underlined the long-term pressures facing the market.

If the banks start processing foreclosures faster, that will create further downward momentum on the housing market. A coalition of state attorneys general and the Obama administration is negotiating with the lenders to persuade them to do more loan modifications instead.

Home prices have been falling for the last six months, and the release on Tuesday of the Standard Poor’s Case-Shiller Home Price Index for February is expected to show another decline. Before that release, Morgan Stanley lowered its forecast for prices by an additional 4 percent. Morgan Stanley analysts now say prices will drop 6 percent to 11 percent from their levels at the end of last year.

The drop in home construction and sales is in some ways good news for would-be sellers, because it means new supply is not coming to a market that already has excess inventory. But lackluster construction is a drag on the larger economy, contributing to high unemployment and weak consumer spending.

It would take about seven months to find buyers for all the new homes now on sale, a period only slightly longer than normal. Builders are clearly skittish about anything for which they do not have a contract.

No relief is in sight.

“Sales remain very low by historical standards and, considering that a number of home builders reported large drops in orders recently, there is likely more weakness ahead,” wrote Jennifer Lee, senior economist at BMO Capital Markets.

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Wealth Matters: Insurance Dictated by the Bank

I quickly found out that we were not alone. Management companies for condominiums all around Florida offered similar tales, involving several big banks.

“It’s always one unit’s mortgage company that sends you a letter saying the condo association doesn’t maintain adequate flood insurance,” said James W. Hart Jr., president of Sentry Management Inc., which manages more than 1,300 properties. “We’ll write back and say we’re not required to do so because the condo is not in a flood plain or the association has adequate coverage. Then they say we have to prove it.”

And then, I spoke to legal services lawyers who said that the practice of bank-imposed insurance — what’s known as force-placed insurance — has become more widespread in parts of the country where foreclosures are prevalent. Property managers said areas prone to natural disasters like floods and hurricanes are also affected.

Of course, banks have every right to require homeowners to carry insurance. It’s in the mortgage contract. And if the homeowners do not have insurance, the bank buys it for them. This sounds straightforward enough, since the lender is trying to protect its investment.

But for homeowners who are already having trouble paying their mortgages, the insurance is a hefty additional burden because the bank’s insurance is far more expensive than what’s available through a commercial vendor. And then there are the homeowners like me who already have flood or hazard coverage — or do not need it — and cannot understand why they’re getting these letters.

The complaints have been numerous enough that 50 state attorneys general recommended, as part of a nationwide inquiry into mortgage practices, that limits be placed on the ability of banks to use force-placed insurance. “There are many practices that need to be changed, and this is one of them,” said Geoff Greenwood, spokesman for the Iowa attorney general’s office.

The problem is that homeowners often don’t pay much attention to the initial bank notice. And if they don’t react quickly, they will soon see the new insurance bills. Bank of America, for example, gives 45 days from the first letter to force-placing insurance on a home, said Frank Dunn, senior vice president for insurance. He said that once proof was shown, the bank would remove the policy and the charges.

Mr. Hart said he himself received a letter last year from Citibank saying he needed to buy flood insurance on his house in Longwood, Fla., or the bank would buy it for him.

“I had the home 20 years and suddenly out of the blue some guy in Philadelphia said I needed flood insurance,” he said. “They started out the letter with buying me flood insurance. I said if anyone is going to be buying flood insurance it’s me because I’m not going to buy it at your exorbitant rates.”

In the end, he said, he spent $150 for a surveyor — less than the $1,000 that he said condo associations often pay — and six weeks going back and forth to prove to the bank that his home was still not in a flood plain.

So what should you do if you receive these letters or find that you are now expected to pay into an escrow account to cover insurance that has been placed on your home?

LARGER ISSUE The first thing to understand is that there are serious ramifications if you do not quickly respond to a bank notice.

At the extreme, Alice Vickers, a lawyer with Florida Legal Services, said force-placed insurance policies often push homeowners into foreclosure. “In some cases, the homeowner has insurance and they haven’t responded at all or quickly enough to show they have the insurance,” she said. “In real time, they end up paying double. It’s difficult to extricate yourself from that.”

The proposals from the attorneys general aim to curtail how force-placed insurance is applied, how much it costs and what commissions banks receive from the companies that sell this insurance. It also bans banks from using subsidiaries to provide the insurance.

A spokeswoman for the QBE Insurance Group, which owns Seattle Specialty Insurance and Balboa, two big force-placed insurers, declined to discuss the company’s business practices.

WHO’S AT RISK For people not in foreclosure, condominiums, by their very nature, seem to prompt more letters. Part of the problem is how the insurance is written. The mortgage company is not named as a beneficiary, as it would be on a home mortgage. Instead, the association is named.

Mr. Dunn said that letters at Bank of America were automatically generated when a third-party processor noticed that a policy had lapsed.

In calling three of the major mortgage banks — Bank of America, JPMorgan Chase and Citibank — I received different explanations for why the letters were sent.

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