Reuters Investigates

Fake documents suggest bigger problem

Action in March by federal  bank regulators wasn’t enough to scare banks away from the way they handled foreclosures. Reuters found that big banks that service mortgage loans continue to use robo-signers, file false documents and mislead courts in their efforts to take houses from homeowners delinquent on their mortgages.

The findings point to the need for a widespread audit of mortgage documentation by federal bank regulators, a step they have so far strongly resisted. The pervasive use of questionable documents in foreclosures suggests that the cause is deeper than just corner-cutting by mortgage loan servicers. It suggests that to a large extent, original lenders never turned over the required ownership documents when pools of new mortgages were securitized and sold to investors. Investors may have spent billions to buy mortgages they never received.

By Scot Paltrow

Link to PDF: http://link.reuters.com/kyb72s

Jamie Dimon: Good banker? Bad banker?

The U.S. mortgage business is a “mess” in need of overhaul, JPMorgan Chief Executive Jamie Dimon reckons.

(See our special report on Dimon today: “Jamie Dimon wants some R-E-S-P-E-C-T”)

Of course, his own bank is the third-largest U.S. mortgage lender. And JPMorgan is sitting on billions in not just prime mortgages, but risky home-equity loans too.

But Dimon has made a career out of being the one Wall Street banker who likes to stand up, stick up for his views and tell it as he sees it. He can talk in a way that resonates with the mood of the country. He can cross the divide between Wall Street and Washington D.C. And while his peers might talk about doing God’s work, Dimon will admit making mistakes.

The thing is, when you scratch the surface at JPMorgan, the bank doesn’t seem so different from its peers, with large consumer loan exposure and sometimes questionable business decisions. So what do you think? Does Dimon deserve your R-E-S-P-E-C-T?

Find the special report by Elinor Comlay and Matthew Goldstein in multimedia PDF format here.

Appraisal hell

Senior personal finance correspondent Linda Stern has been delving into the housing market for a special report on home appraisals — “What’s a home worth? Pick a number, any number”

It turns out a lot of people are in home appraisal hell.

The reasons for this new form of real estate limbo include new and proposed federal rules governing appraisals along with changes in the way appraisals are conducted. Plus, the uncertain housing market is creating price instability. The end result? Borrowers are missing out on low interest rates. And lenders are leery of the appraisals they get.

According to Walt Molony of the National Association of Realtors:

…in October, one in 10 member agents said they’d had a contract canceled as a result of a low appraisal, 13 percent said they’d had a contract delayed, and 16 percent said they’d had a contract negotiated to a lower sales price as a result of a low appraisal.

If you have had a home appraised recently, did it go smoothly or did you encounter a similar form of appraisal hell?

Let us know.

The robosigning story goes on

Shares Lender Processing Services Inc fell as much as 9.8 percent at one point on Monday after Scot Paltrow’s special report said the company, which helps banks manage mortgage foreclosure documentation, faces more serious legal troubles than it previously disclosed. The stock closed 5.77 percent down for the day.

Read the full report, “Legal woes mount for a foreclosure kingpin,” in multimedia PDF format here.

This graphic shows how the company’s share price surged in 2009 as the company profited on the foreclosure boom.

How long can banks keeps ignoring home equity loans?

By Matthew Goldstein

The $425 billion in home equity loans and other second mortgages sitting on the balance sheet of the  four biggest U.S. commercial banks is the big gorilla in the room that no one wants to talk about. (See our latest special report here.)

The banks, for their part, generally have downplayed concerns about so-called second liens on mortgages. Bankers point out that less than 5 percent of home equity loans and other second mortgages are delinquent and lenders have been taking charge-offs for second liens deemed uncollectable.

But critics argue the banks are whistling past the graveyard in dealing with their large exposure to second liens and pinning too much on an economic rebound to keep these loans above water.  The critics say that with so many borrowers underwater on their primary mortgage, it is inevitable that banks will have to take writedowns on home equity loans, especially when the first loans are modified and reduced in size.

The big worry then is that any substantial writedowns by banks could eat away at precious capital they’ve built up since the financial crisis nearly brought many big lenders to the brink two years ago.

Also, housing experts suggest that until banks confront their second lien exposure, it will be hard to craft meaningful solutions to the mortgage mess and stem a wave of  foreclosures on financially-strapped borrowers.

Catch-22 in the housing market

Washington is abuzz with the arguments about foreclosures and whether banks have been steamrollering them through, but many Americans at the other end of the spectrum are having their own problems with mortgage lenders.

One of the couples featured in our special report on how hard it is to get a mortgage were originally turned down because the top right-hand corner of a paystub appeared torn in a photocopy. This despite the fact that the applicants’ debt was just 14 percent of their income and they were borrowing just 25 percent of the home’s value. 

Others with credit scores over 800 — on a scale that only goes up to 850 — found themselves jumping through hoops to satisfy onerous demands from their lenders. 

Before the housing market crashed, even industry insiders ridiculed certain popular mortgages as “NINJas” — “no income, no job loans,” so the tighter standards are not surprising. Banks argue they have a duty to be responsible lenders and many people would agree. The trouble is, the harder it is for people to get a loan or refinance, the slower the recovery in the housing market will be. Sounds like a Catch-22.

If you’re looking to refinance any time soon, you may want to check out this advice from Lynn Adler. And do tell us about your experiences, good or bad.

The uproar in Washington over foreclosures has left another chunk of the population in limbo — those looking for a good deal by buying a foreclosed property. Personal finance columnist Linda Stern has advice for them too.

For the latest on the housing market on a daily basis click here and you can get a multimedia PDF version of the special report here.