With foreclosure sales steadily rising, four states are concerned that the use of the foreclosure sale prices in appraisals of neighboring homes is distorting the market.

Legislators in Illinois, Nevada, and Missouri have all proposed separate bills that would exclude or restrict foreclosure sales from being used as comparisons to determine the value of homes around them.

Maryland had proposed a similar bill, but withdrew the legislation on Tuesday.

Industry participants have expressed reservation at the idea of barring distressed sales from consideration when appraising properties, saying such actions would cause homes to be appraised for more than they are really worth.

According to the Appraisal Institute, “Elimination of foreclosures and short sales as comparables would result in an artificial market and would mislead lenders as to the true value of their mortgage collateral.”

Furthermore, the institute notes that under the Uniform Standards of Professional Appraisal Practice, all federally related transactions are required to consider all sales for appraisals, including short sales and other distressed sales. Most residential lending transactions fall into this category.

“In some markets, there are so many distressed sales that they are the market and must be considered. When there is a glut of distress sales in the marketplace, and those properties are truly comparable to the subject, it would be misleading not to use them as part, or in some cases all, of the basis for a value conclusion,” a representative of the institute said in an e-ma

There are legitimate, substantial concerns about the legal foundation of MERS-- I think most folks who have followed the foreclosure mess can agree on that.  But there is also a lot of blatant misinformation out there coming from MERS critics, and some of it is coming from folks who are presenting themselves as experts on the issue.

For example, University of Missouri Kansas City professor of economics and frequent mortgage crisis blogger/pundit L. Randall Wray, a frequent and vocal critic of the banks and of MERS, just flat out makes stuff up regarding the recent Ibanez decision in Massachusetts in his article, Requiem for MERS (and the Banks That Created the Frankenstein Monster), which appeared yesterday on the Huffington Post. Wray claims that the Massachusetts Supreme Court decision in U.S. Bank v. Ibanez is one of several "recent developments that put the final nails in MERS's coffin," but from his writeup of the case, it is hard to fathom that he even read the case or has any familiarity with it whatsoever.

Slade Smith's Blog ::

Professor Wray wrote:

Ibanez decision in Massachusetts.  Courts continue to chip away at the arguments made by banks and their Frankenstein creation, MERS, to justify foreclosure without proper documentation. MERS was manufactured by the industry to evade proper recording of property sales in county recorder's offices. This not only cheated the recorders out of fees and Uncle Sam out of federal taxes, but it also broke the chain of title. The fiction perpetrated by MERS is that it is simultaneously a nominee of the true owner of the mortgage debt and at the same time it is the beneficiary of the security instrument. (You cannot simultaneously be the party of interest and the nominee, of course.) It also disclaims any financial interest in the mortgage and has no claim on the mortgage payments. But it claims that it can operate as the agent of unnamed owners of the mortgage instrument, unknown owners who--since they are unknown -- have never designated MERS as agent. The Massachusetts Supreme Court ruled decisively against MERS's claims, and a growing number of other state supreme courts (Nevada, New York, Kansas, Idaho) have agreed that MERS is only a nominee or "straw man" (as Kansas put it) with no standing to foreclose.

Here's the facts: MERS had no "claim" in the Ibanez case-- Ibanez's mortgage was not even a MERS mortgage!

Furthermore, according to the land court case which the Massachusetts Supreme Court upheld, U.S. Bank might have been better off it his mortgage had been a MERS mortgage!  The reason that the land court judge threw out the Ibanez foreclosure was because U.S. Bank had not been properly assigned the mortgage at the time of the foreclosure sale, according to the financial entities' own rules.  One of the possible ways that they could have been properly assigned the mortgage, according to the securitization agreements that the judge relied on in his decision, would have been if they had received an assignment of the mortgage in recordable form from the entity they claimed transferred the mortgage to them.  But for MERS mortgages, these agreements waived the requirement of an assignment in recordable form. 

As far as the Massachusetts Supreme Court decision?  Well, MERS is not even mentioned in that-- not once.  Why would it?  Again, the mortgages at issue were not MERS mortgages!

So when Wray says that "[t]he Massachusetts Supreme Court ruled decisively against MERS's claims" in the Ibanez case, he is just making stuff up out of thin air. The Ibanez decision had next to nothing to do with MERS at all.

Furthermore, Ibanez was not about "proper recording of property sales in county recorder's offices" either, despite Wray's claims.   The Massachusetts Supreme Judicial Court decision states just the opposite in clear black and white letters:

We do not suggest that an assignment must be in recordable form at the time of the notice of sale or the subsequent foreclosure sale, although recording is likely the better practice. Where a pool of mortgages is assigned to a securitized trust, the executed agreement that assigns the pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder.

What is laughable in his piece is that Wray whines in his piece about his critics.  "Whenever those who are critical of MERS and the banksters post blogs about the multiple frauds, we are attacked by commentators -- presumably industry hacks -- who try to obfuscate the issues," he says.  As someone who battled it out on the political blogs for years, I couldn't help but notice that the bloggers who played fast and loose with the truth were often the same ones who thought that anyone who criticized them was an industry shill or had some other ulterior motive.  I guess the same holds true for professors!  If this Huffington Post piece is any indication of the quality of the professor's work, Wray deserves critics and probably ought to have a few more of them. 

I understand that there are many thoughtful and knowledgeable people who have legitimate and substantial criticisms of MERS, and I agree with many of those criticisms. Many of these folks want to see and end to MERS in one fashion or another, for good and well considered reasons.  It may be tempting for otherwise thoughtful people to find common cause with folks like Wray who are outspoken opponents of MERS and the banks and want to see them destroyed. 

But I think it's important to recognize that some folks are just interested grinding axes.  I think some of MERS's critics are more interested in cultivating the choir they are preaching to than solving the many serious problems that we face-- and that in their eagerness to pump themselves up in the eyes of their readers by piling on the deservedly unpopular banks, they actually end up standing in the way of progress by failing to talk about solutions in a meaningful way. Wray doesn't seem really interested in solutions to the problems that MERS has posed, or integrity in land recording systems, or clean land titles out of foreclosure.  For example, check out how he casually tosses aside the entirety of the traditional land title system in one sentence when discussing Marcy Kaptur's recent MERS bill:

In response to this mess, Representative Marcy Kaptur (Ohio) is going to introduce legislation to prohibit Fannie and Freddie from buying new mortgages that are registered in MERS. Since there is virtually no activity in mortgage markets save what Fannie and Freddie are doing, this would effectively take away all new business from MERS.

Further, her legislation would direct HUD to study the creation of a federal land title system to replace MERS while protecting rights of state and local governments. This is a sensible solution that would modernize the recording and tracking of property ownership. At the same time it would put out of business the hopelessly incompetent MERS, which has partnered with the banksters to perpetrate foreclosure fraud. Bye bye fraudsters.

I'm a big proponent of reform of land title recordation systems, but pseudo-reformers like Wray who throw out "solutions" like this just to pretend that they have the answers are the unwitting allies of those who would like to keep MERS as-is, such as ALTA, which failed to mention to its members in an alert that the only binding part of the Kaptur bill is not about creating a federal land title system, but rather about prohibiting federal insurance and guarantees on MERS mortgages.  ALTA apparently would like its membership to advocate for MERS without knowing that they are doing so. With statements like this, Wray and his ilk may help ALTA play up the minimal threat of a federal land title system.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending January 21, 2011.  The Market Composite Index, a measure of mortgage loan application volume, decreased 12.9 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 12.0 percent compared with the previous week. The results do not include an adjustment for the Martin Luther King holiday.

The Refinance Index decreased 15.3 percent from the previous week and reached its lowest level since January 2010.  The seasonally adjusted Purchase Index decreased 8.7 percent from one week earlier. The Purchase Index is at its lowest level since October 2010.  The unadjusted Purchase Index decreased 3.1 percent compared with the previous week and was 20.8 percent lower than the same week one year ago.
 
The four week moving average for the seasonally adjusted Market Index is down 1.0 percent.  The four week moving average is down 3.7 percent for the seasonally adjusted Purchase Index, while this average is down 0.1 percent for the Refinance Index.

The refinance share of mortgage activity decreased to 70.3 percent of total applications from 73.0 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.2 percent from 5.0 percent of total applications from the previous week.

The average contract interest rate for 30-year fixed-rate mortgages increased to 4.8 percent from 4.77 percent, with points decreasing to 1.19 from 1.20 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This week’s increase in the rate followed three consecutive weekly decreases.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.12 percent from 4.16 percent, with points increasing to 1.26 from 0.90 (including the origination fee) for 80 percent LTV loans.

Existing-home sales rose sharply in December, when sales increased for the fifth time in the past six months, according to the National Association of Realtors.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 12.3 percent to a seasonally adjusted annual rate of 5.28 million in December from an upwardly revised 4.70 million in November, but remain 2.9 percent below the 5.44 million pace in December 2009.

Lawrence Yun, NAR chief economist, said sales are on an uptrend. “December was a good finish to 2010, when sales fluctuate more than normal. The pattern over the past six months is clearly showing a recovery,” he said. “The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”

The national median existing-home price for all housing types was $168,800 in December, which is 1.0 percent below December 2009. Distressed homes rose to a 36 percent market share in December from 33 percent in November, and 32 percent in December 2009.

“The modest rise in distressed sales, which typically are discounted 10 to 15 percent relative to traditional homes, dampened the median price in December, but the flat price trend continues,” Yun explained.

Total housing inventory at the end of December fell 4.2 percent to 3.56 million existing homes available for sale, which represents an 8.1-month supply at the current sales pace, down from a 9.5-month supply in November.

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said buyers are responding to very good affordability conditions despite tight mortgage credit. “Historically low mortgage interest rates, stable home prices, and pent-up demand are drawing home buyers into the market,” Phipps said. “Recent home buyers have been successful with very low default rates, given the outstanding performance for loans originated in 2009 and 2010.”

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.71 percent in December from 4.30 percent in November; the rate was 4.93 percent in December 2009.

A parallel NAR practitioner survey shows first-time buyers purchased 33 percent of homes in December, up from 32 percent in November, but are below a 43 percent share in December 2009.

Investors accounted for 20 percent of transactions in December, up from 19 percent in November and 15 percent in December 2009; the balance of sales were to repeat buyers. All-cash sales were at 29 percent in December, compared with 31 percent in November, but up from 22 percent a year ago. “All-cash sales have been consistently high at about 30 percent of the market over the past six months,” Yun said.

Single-family home sales jumped 11.8 percent to a seasonally adjusted annual rate of 4.64 million in December from 4.15 million in November, but are 2.5 percent below the 4.76 million level in December 2009. The median existing single-family home price was $169,300 in December, down 0.2 percent from a year ago.

Existing condominium and co-op sales surged 16.4 percent to a seasonally adjusted annual rate of 640,000 in December from 550,000 in November, but remain 5.2 percent below the 675,000-unit pace one year ago. The median existing condo price was $165,000 in December, which is 7.4 percent below December 2009.

Regionally, existing-home sales in the Northeast jumped 13.0 percent to an annual pace of 870,000 in December but are 5.4 percent below December 2009. The median price in the Northeast was $237,300, which is 1.4 percent below a year ago.

Existing-home sales in the Midwest rose 11.0 percent in December to a level of 1.11 million but are 4.3 percent below a year ago. The median price in the Midwest was $139,700, up 3.3 percent from December 2009.

In the South, existing-home sales increased 10.1 percent to an annual pace of 1.97 million in December but are 2.5 percent below December 2009. The median price in the South was $148,400, unchanged from a year ago.

Existing-home sales in the West surged 16.7 percent to an annual level of 1.33 million in December but remain 1.5 percent below December 2009. The median price in the West was $204,000, down 5.6 percent from a year ago.

Virginia House and Senate bills are taking aim at "drive-by foreclosures" by big banks without judicial review and aggravated by incomplete records.

Witnesses at a hearing on some of the legislation Monday told chilling, tearful tales of giant banks foreclosing on their homes, then had to deal with conflicting statements by an unconcerned bureaucracy when they tried to contact their lenders and reason with them.

The legislation is in the works because of the flood of foreclosures that resulted from the 2008 mortgage lending industry collapse.

The bills would slow the state's swift foreclosure pace. They would increase the time for required foreclosure notice from two weeks to 30 or 45 days. That would give borrowers time to locate records and hire attorneys to challenge foreclosures if necessary.

"Notice has got to be extended," Todd Condren, a title insurance lawyer from Vienna, told the House Courts of Justice Committee. He said 74 of his clients the past year lost homes to foreclosure because even with legal counsel, they had too little time to clear the confusing and frustrating legal and corporate hurdles in their way.

"We simply don't have enough time to stop a foreclosure because of the fact that it's in 10 days or seven days," Condren said.

Lenders for the first time would face court review before foreclosing and could be fined for basing a foreclosure on errant or fraudulent documents. It would require banks and those who service mortgages to maintain updated real estate loan records in county courthouses and give borrowers one last opportunity to avert losing their homes by paying off any delinquency.

Agonizing tales from grieving homeowners has united opposite poles of the political spectrum. Del. Robert G. Marshall, long among the most outspoken of House conservatives, pushed his bill before the committee Monday. Companion bills are being offered by Democratic Sens. Donald McEachin of Henrico and Chap Petersen of Fairfax, and Del. Robin Abbott of Newport News.

McEachin said giving people more of a chance to save their homes would expedite the economic recovery.

Petersen, noting that Virginia's foreclosure process is among the fastest in the nation, defended his "drive-by foreclosure" description, saying that "what the big banks are doing is crushing people."

Borrowers, sometimes in tears, told of being forced from houses after years of dealing with banks and being assured their mortgages would be modified and they would be safe.

Mustafa Rasuli of Springfield said he was able to muster more than $14,000 to bring his loan current two days before foreclosure, only to have it proceed anyway.

"I won't even begin to try to describe my frustration at this point," Rasuli told the committee.

"What ensued over the next 24 hours was countless phone calls, countless calls being dropped after waiting 30 minutes to an hour, computer systems being down and other incompetence," Rasuli said. "Nobody was able to give me a detailed accounting of what I owed, what payments I'd missed, nobody wanted to assist me in saving my home."

Virginia's muscular banking lobby has marked the reforms for death, arguing that slowing foreclosures and requiring updated county land record filings would only prolong the four-year slump in the real estate industry.

Banking interests over the past year gave more than $1.7 million to candidates seeking state office.

"It's an easy target," Virginia Banking Association lobbyist Matthew J. Bruning said in dismissing the legislation after a news conference by the bills' sponsors. "That's why you have people running on it statewide."

"The (county court) clerks want more court fees so Bob Marshall's put in a bill for them," he said of Marshall, who is exploring a 2012 U.S. Senate bid.

And there was skepticism among members of the committee, which postponed action on the emotional and complicated issue for at least a week.

Del. Terry Kilgore, R-Gate City, expressed concern to Marshall that Virginia would be the first state to enact his proposed reforms.

"Well, Virginia was the first to challenge Obamacare, too," Marshall replied, referring to Attorney General Ken Cuccinelli's lawsuit against health care reforms enacted by President Barack Obama and an allied Democratic Congress last year. Like other Republicans, Kilgore and Marshall oppose the federal law and applauded Cuccinelli's victory in U.S. District Court in Richmond last month.

Not only do banks and mortgage lenders oppose the bill, a Reston-based corporation known as MERS (Mortgage Electronic Registration Systems) is battling it. The company's database, set up to quickly track the sale and transfer of mortgages, acts as an agent for individuals or institutions that buy and transfer mortgages as investments and has been blamed for errors and incomplete data that have worsened the foreclosure crisis.

Corporate vice president Bill Hultman told the committee that the legislation would create more confusion. And he disputed claims by some who had suffered foreclosures and their attorney that MERS and others could not identify the owners of their mortgages.

"People make mistakes, but if someone had called me up and asked me — which they didn't — we would have helped them sort out that problem," Hultman said.

Plain and Simple: if you weren't already aware, the CFPB is looking to combine TIL and RESPA disclosures into one document. Home loan disclosures are being redesigned, again! READ MORE

Interesting timing for such a major change isn't it. A necessary evil, but still interesting timing. These updates are moving forward regardless of the fact that no real clarity has been offered on the future of the housing finance mechanism (GSEs). And even more closely related to the disclosure updates themselves, the industry is attempting to reform its entire compensation model right now. How can we expect lenders to interpret and implement new originator compensation models without knowing how the new consumer disclosure package will look? How can we expect lenders to keep the mortgage market competitive if we don't have a clear indication of how loans will be securitized. I can go on and on here...HOW ABOUT THE RISK RETENTION REGS? WHAT IS CONSIDERED A QUALIFIED LOAN?

I don't have a problem with the abundance of reforms that have been outlined for the mortgage industry, but maybe we should approach one major reform at a time to ensure we get the job done right.  Compliance folks can only be spread out so far before their oversight wears thin. 

The final compensation rules are effective April 1,