Category Archives: Washington State Law

Distressed Property Law Changes Pass the Legislature

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Proposed changes to the Distressed Property Law have passed both branches of the Washington State Legislature and the bill is headed to Governor Gregoire’s desk for her signature.  You can read the changes here. Real estate agents and Realtors are now exempt “from the definition of “distressed home consultant” when the broker or salesperson is providing services governed under the real estate brokerage laws and the services do not result in a distressed home conveyance.”

I have mixed feelings about the passage of the exemption. Real estate agents and Realtors were raging mad last summer when their liability increased under the original Distressed Property Law.  All through the summer and fall of 2008, agents swore up and down that they were going to avoid listing or selling short sales in order to limit their liability.  In a way, the Distressed Property Law had some good consequences: Only experienced agents were allowed to take short sale listings at some firms, and it became extremely important to make sure the homeowner was referred to legal counsel.  Short selling homeowners are often better served when their listing agent knows what they’re doing.  The home buyer is also better served when the seller’s listing agent is short sale-competent.  The Distressed Property Law brought this to everyone’s attention.  There were many agents who were very, very worried about increased liability.  So far, I haven’t heard about any lawsuits.

Something interesting started happening toward the end of fall, 2008.  November and December of 08 saw a remarkable increase in the number of real estate agents attending the Short Sale class.  Attendance went from, say, 15-25 agents all summer to 50-70 by December of 2008.  When I asked why they were in class, agents all agreed: “Short sales are becoming more and more of the percentage of available inventory.  We don’t have a choice anymore; we HAVE TO take these listings, even with the added liability. We need to pay our own mortgage and we also like to eat, Jillayne.”

So now real estate agents are exempt from the DPL (provided they’re not going to engage in a distressed home conveyance.)  This means we will see an increase in agents listing short sales left and right, whether or not they are short-sale competent. 

KLK and other agents have said that foreclosures would increase because of the Distressed Property Law.  I argued that it’s not the DPL that will result in more foreclosures but the normal unwinding of mortgage lending gone wild and that higher foreclosure rates will be with us for some time as homeowners who cannot afford their home loans sell or default and return to the housing market as renters.  As time moves forward through the rest of 2009, it will be interesting to see if, in fact, foreclosure rates decline.

Should builders and banks receive an excise tax exemption as WA State faces a budget deficit?

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House Bill 1495 has been introduced into the legislature and is now in committee.  In these times filled with hope, I am hoping this bill dies or at least comes out looking substantially different.  Let’s take a look.

AN ACT Relating to real estate excise tax exemptions to stabilize neighborhoods…

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
The legislature finds that there is a substantial inventory of unsold or foreclosed vacant homes on the market that is driving property values down and destabilizing neighborhoods. These homes also present an opportunity to provide affordable homes to low-income families, addressing some of the unmet need for affordable housing in the state of Washington. The legislature also finds that providing targeted incentives to housing developers will stimulate the sale of these vacant homes to low-income buyers now and stabilize neighborhoods affected by this growing inventory. The legislature intends to provide such incentives through excise tax relief on sales of homes to low-income first-time homebuyers.

I’ve been asking Realtors in all my classes to begin watching the percentage of financially distressed sellers with homes for sale in their market area.  Agents can do an MLS keyword search using terms such as “short sale,

Is Excise Tax Payable on Short Sale Debt Forgiveness?

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The Washington State Department of Revenue (DOR) seems to think so.  Background: At an Escrow Association of Washington (EAW) meeting on Nov 13, 2008, Mel Kirpes and Steve Bren from  WA DOR spoke at a regional dinner meeting where it was announced that when there is a short sale, the DOR considers the debt forgiven as additional consideration above the contracted sales price between the parties and that the DOR will be pursuing the home seller for payment of the excise tax. (Reference is a EAW letter dated Nov 25, 2008 from EAW Director Cindi L. Holstrom)
Naturally this had a chilling effect amongst escrow officers.  The DOR responded on Dec 12, 2008 in a letter from Gilbert Brewer, Assnt Director of the DOR:

RCW 82.45 imposes an excise tax on the sale of real estate unless specifically exempt from statute. “The measure of the tax is based on the total selling price of the property conveyed. The incidence of the tax is usually on the seller.  However, if the tax is not paid in full, the tax (together with any interest and penalties) becomes a lien on the real property. This is mandated by RCW 82.45.030 …which defines “selling price” as the “true and fair value of the property conveyed.” If a property has been conveyed in an arm’s length transaction between unrelated persons for a valuable consideration, a rebuttable presumption exists that the selling price is equal to the total consideration paid or contracted to be paid to the transferor, or to another for the transferor’s benefit….”total consideration paid or contracted” to be paid as including “money or anything of value, paid or delivered or contracted to be paid or delivered in return for the sale, and shall include the amount of any lien, mortgage, contrat, indebtedness, or other incumbrance, either given to secure the purchase price, or any part thereof, or remaining unpaid on such property at the time of the sale.”

Since there is an exemption from real estate excise tax in the event of foreclosure or a deed in lieu of foreclosure (see WAC 458-61A-208) this DOR opinion may unfortunately motivate homeowners to consider foreclosure a more viable option. Perhaps the home seller’s Realtor can negotiate with the lender to pay for the additional excise tax lien as well.  However, then that extra amount paid by the lender may also be subject to excise tax.
The Seattle King Co Assoc of Realtors and Washington Realtors believes DOR’s position is incorrect and problematic.  On Jan 8, 2009, The Northwest Multiple Listing Association posted a notice to their real estate agent members as follows:

“RCW 18.86 requires agents to advise their clients to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise.  This duty exists in every transaction but is particularly important in short sale transactions where unique legal and tax issues exist.”

We’ve been saying the same on RCG for many years now. Short sales are way more complex for real estate agents than the average transaction and homeowners are best served when they have retained their own legal counsel to help them understand the lender paperwork as well as this current DOR trainwreck. You may be thinking, “homeowners in financial distress can’t afford an attorney.” However, some attorneys offer low cost options for homeowners facing foreclosure.

UPDATE
January 13, 2009
Department of Revenue: “After receiving extensive input from interested stakeholders and industry representatives about the nature of these transactions, we have carefully reconsidered how real estate excise tax statutes apply to these unique transactions [short sales]….we now see that these short sales are distinguishable from other transactions involving the forgiveness of debt because the seller negotiates separately with the lender for any debt reduction/forgiveness, apart from the actual purchase and sale of the property.  As a result, the loan forgiveness is not “paid or delivered in return for the sale” of the property, as required by RCW 82.45.030.”   Margaret J. Partlow, Senior Policy Counsel, Dept of Revenue. 

(Hat tip Rhonda Porter and Kary Krismer.)

Translation: We are not going to require sellers to pay excise tax on the debt forgiveness  with a short sale.

40 representatives from escrow, title, real estate, attorney, and short sale faciliator companies showed up in Olympia to help educate the Dept of Revenue. Thank you, Escrow Association of Washington, for bringing this to our attention and taking on the state head to head.

Cold weather tips for keeping your home safe

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With temperatures dropping into ranges we aren’t accustomed to around here it’s time to review what should be done when it gets below freezing:

If you can, turn the main water supply to the house off and drain the  system from the lowest point and flush the toilets. Leave the cabinet doors open on any sink that is on an exterior wall. Remove any attached hose pipes from exterior bibs, etc.  Also, to put insulation around an exterior faucet you can improvise using a towel wrapped around and secured with a plastic bag and either tape or a heavy duty rubber band.

Also, here for our wood burning fireplace property owner readers, posted with permission from the Puget Sound Clean Air Agency, are tips and issues to know about burn bans:

New law prompts significant change to residential burn bans Where there’s chimney smoke, there’s fire — and fines

November 24, 2008 — A new burn ban season is upon us and this one will be different from those in past falls and winters.

  • The Puget Sound Clean Air Agency will be calling both Stage 1 and Stage 2 burn bans, often in sequence.
  • Stage 2 burn bans are more restrictive than the more familiar Stage 1 burn bans and ban ALL wood burning, even from certified wood stoves and pellet stoves.
  • Our Puget Sound region will likely have longer burn bans, and perhaps more of them.
  • And more fines may be issued for people violating the bans.

What is prompting this change?

First, in late 2006, the US Environmental Protection Agency (EPA) tightened the 24-hour health standard for fine particle pollution, also known as PM2.5. And earlier this year, our Washington State Legislature lowered the air-quality trigger for calling a burn ban to align with this new EPA standard.

The reason for these actions is to better protect public health because the soot and smoke that makes up these fine particles are associated with serious health effects. The tiny size of these pollutants allows them to be easily inhaled, bypassing the immune system and proceeding deep into the lungs, where they can cause respiratory and cardiovascular problems, including premature death.

So what’s this mean if you heat your home with wood or pellet fuel?

During a burn ban, we’re basically asking people to rely on their home’s other, cleaner source of heat (such as their furnace or electric baseboard heaters) for a few days until air quality improves, the risk to public health is diminished and a ban is cancelled.

If agency inspectors observe a burn ban violation, they will issue a Notice of Violation to the property owner and recommend a $1,000 penalty.

The rules for a Stage 1 burn ban are the same as in the past:

  • No burning is allowed in wood-burning fireplaces, uncertified wood stoves or fireplace inserts, unless this is your only adequate source of heat.
  • No visible smoke is allowed from any wood stove or fireplace, certified or not, beyond a 20-minute start-up period.
  • All outdoor burning is prohibited, even in areas where outdoor burning is not permanently banned.

When a burn ban goes to Stage 2:

  • NO burning is allowed in ANY wood-burning fireplaces, wood stoves or fireplace inserts (certified or uncertified) or pellet stoves, unless this is your only adequate source of heat. Natural gas and propane stoves or inserts ARE allowed.
  • All outdoor burning is prohibited, even in areas where outdoor burning is not permanently banned.
  • If our agency inspectors see any smoke being emitted from a chimney during a Stage 2 burn ban, they can assume a fireplace, wood or pellet stove is in use and a penalty is warranted.

Maybe you’re wondering what “adequate source of heat means.

Loan Modifications

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This is Part Three of a series of articles on the foreclosure process.
This article does not constitute legal advice.
Foreclosure laws vary from state to state.

Homeowners in financial distress should always hire legal counsel. Call your local state bar association for a referral.  Reduced or free legal aid may be available in some states. Ask for a referral from the state bar association or through a LOCAL HUD-Approved Housing Counseling Agency.

Loan modifications are becoming quite fashionable at the moment.  With underwriting guidelines continuing to tighten, some folks facing financial distress and possibly foreclosure may not qualify for a refinance at the retail level, meaning, going back to the bank, credit union, or mortage broker that helped the first time around.

At the present time, loan modification salespeople are completely unregulated.  This means a person can be working at Taco Time in the morning and selling loan modifications in the afternoon.  This is similar to the situation with unregulated loan originators during the real estate bubble run-up.  Advertisements that say, “Earn Six Figures. No Experience Necessary” are now making the rounds in the mortgage lending community. (Don’t believe me? Go to craigslist jobs and do a search under “loan modifications.” Current ads are saying: Make $15,000/month and Make $5,000/day). For the consumer, this means you are once again in the one-down position and it brings me great unhappiness to tell you that at this time you cannot and should not trust your loan modification salesperson.  This problem stems from the unfortunate situation LOs face as their six figure income dried up during the subprime meltdown but their desire for a six figure lifestyle is still around.  This is a systemic problem that our government regulators seems uninterested in addressing at this time. I’m predicting mass government intervention in foreclosures anyways. Perhaps the government is not worried about loan mod salesmen because they’re going to whack them with a big ugly stick quite soon.

In the meantime, we’re stuck with loan modification salesmen. The author of this blog post is of the opinion that consumers should be extremely wary of salemen asking for an upfront fee, even if they are claiming that all or most will be refunded if the modification should fail to be approved.

A loan modification is a good choice for a consumer whose financial distress is such that they are currently unable to pay their mortgage, prefer to stay in the home and not sell (I’m assuming owner occupied property), WILL be able to pay if the loan were modified at a lower interest rate or longer term, and the homeowner is able to fully document income and assets. The idea here is that it’s in everybody’s best interest to keep the homeowner paying the mortgage, even if it means lower bank earnings. (For other options, see part 2 of this series.)

Terms
Common loan modification terms include fixing the interest rate at a lower amount for a short period of time.  3 years, 5 years, 3 years with a gradual, stepped-up interest rate after the third year, longer amortization times such as amortizing the loan over 40 years instead of 30, are very common. Voluntary, principal balance haircuts offered by your bank are not common at this time, unless you are working with an attorney or an aggressive, pit-bull non-profit housing counseling agency. Before you think that a loan mod is the answer, take a long time to consider how much interest you’ll be paying over the life of that 40 year loan.  If you’re thinking “I can just refinance later” there are many people who now have a foreclosure in their recent past, who were given that same sales pitch in 2006.

Past Predatory Lending
If you were a victim of predatory lending, your attorney can use the evidence to extract better terms for your loan modification.  FIND YOUR ORIGINAL LOAN DOCUMENTS from the last time you refinanced or purchased the home: The original disclosures and then the final disclosures you recieved when you signed papers during escrow. If you cannot find them, call any local title insurance company. Give them your address. Ask them to pull the last deed recorded against your property. On that deed, the title company’s order number will be hand-written in the margin.  Call that title company, ask them to pull your file, and to tell you who the escrow company was that handled your file.  If your escrow company went out of business, your state department of financial institutions will have information on where those files are now.

State or Federal Law Violations
If your loan originator violated any state or federal laws when originating your loan, an attorney will be able to spot this information, which becomes extremely valuable when hammering on your lender to offer you the best loan mod terms, or to even bring action that will slow down the foreclosure process, buying you more time.

Process
Loan modification salesmen do nothing except collect a finders fee for finding and delivering you to the people who really do the work.  The loan mod company will ask you to assemble a wide variety of documents similar to when you applied for the mortgage loan.  Unless you went “stated income” the first time around.  This time it will be different.  Common documentation required includes two years of tax returns, two to six months worth of bank statements, 2 years of w-2s, paystubs for the last 4 months, a list of assets and liabilities, and a household budget showing the amount of money you CAN afford to pay on a monthly basis. The most important things lenders must analyze are 1) determining that the homeowner has zero assets/money in the bank and; 2) the homeowner’s ability to pay the modified payment.  There will be a worksheet to complete in which you will lay out your monthly budget.  This is the tricky part. You’ll have to prove that you cannot qualify to repay your current mortgage but that there is enough income coming in to qualify for a modified loan.

Legal Counsel
All loan modification candidates should retain their own, LOCAL legal counsel.  Loan Mod salesmen will tell you that attorneys will cost thousands and thousands of dollars. In one letter, the salesman is saying that attorneys will charge tens of thousands of dollars.  Wow. I’m scared now.  I’m so scared that I polled a handful of local attorneys and found that loan modification charges range anywhere from $1500 to $2500 depending on how many liens there are against the home.  In contrast, loan mod salesmen are charging anywhere from $3500 to $5000 UP FRONT and they use “a pool of attorneys” in god-knows what state. If you can’t do the math on that, then it’s time for you to think about renting.

Questions to ask a loan modification salesmen
1) What is your fee and how is it split between you, the loan mod company, and the attorney?
Failure to answer this question in a swift and forthright fashion is a big giant red flag.
2) What will YOU be doing for the fee you earn?
Listen to the answer very carefully.
3) What will the loan modification company be doing for their portion of the fee?
This question will typically be answered like this “They process the paperwork.”  Now repeat question 2.
4) May I talk directly with the attorney?
If the answer is no, find a local attorney.

Finding a local attorney
Use your favorite search engine to find your local state or county Bar Association.  Look for their “Attorney Referral Service” and seek out a real estate attorney or a consumer protection attorney. Make an appointment with a local attorney that you can talk to face to face. Trust me on this. Interview at least two if not three local attorneys. All may have a varying range of fees. Compare them with the loan mod salesmen’s fee.

Selecting a licensed loan originator to help you
In some states, it is not even possible for a loan originator or a Realtor to collect a fee for loan modification services. In Washington State and elsewhere, loan originators who work for a mortgage broker owe fiduciary duties to their clients. They are able to charge a fee-for-service (provided the fee is disclosed prior to the work being performed.)  Loan originators who are still left in the business as of this writing, are generally likely to be somewhat more competent than Taco Time/Loan Mod salesman.  But I am making an overgeneralization. A licensed LO has at the very least a nominal background in computing debt-to-income ratios and gathering documents. At this time, there are approximately zero loan orignators who have accumulated some experience performing loan modifications.  This is because nobody needed one up until about the year 2008…..the industry just refinanced you over and over again. If you select an LO who owes you higher duties, you are more likely to select someone who is conscientious of these higher duties because if you are not well-served, the LO now holds higher liability.  Fiduciary duties means that LO MUST put their client’s interests above their own interest in making a buck. They must set aside self-interest and work on behalf of you.  Hiring a loan originator to do the paperwork-gathering seems reasonable.  The loan originator MUST hand off your file at some point to an attorney.  Consumers, please demand that the attorney be local.  A fiduciary may not engage in secret fee-splitting deals. The fiduciary owes the highest degree of honesty and good faith to the consumer.  The LO/fiduciary has a duty to answer you honestly about how much of the fee goes to the LO and how much will go to the attorney.  A good scenario is to hire the LO/fiduciary to do the nominal processing work, for which you would pay a nominal “paperwork processing” fee and then pay your local attorney separately.

Working with Non-Profits
A HUD-Approved Housing Counseling Agency can help homeowners obtain a loan modification at no cost. 

DIY
Lenders charge zero to perform a loan modification.  If you’re an adventerous type that does not need hand-holding, call your lender direct in order to begin your loan modification.  I still advise hiring a local attorney to review the lender’s loan mod paperwork with you.

Currently, 40 to 50 percent of all loan modifications are re-defaulting.  This is astronomically high and will translate into higher bank losses and lost time for the homeowner to begin rebuilding his or her credit rating. This means some folks may simply need to re-enter the housing market as a renter. In part 4 of this series, we will discuss what it means to start rebuilding after foreclosure and in part five we’ll tackle what is surely ahead: massive government intervention.

Part one: Foreclosure; Losing the American Dream
Part two: Options for Homeowners Facing Foreclosure
Part three: Loan Modifications
Part four: Government Intervention in Foreclosure
Part five: Foreclosure; Letting Go and Rebuilding

Options for Homeowners Facing Foreclosure

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This is Part Two of a series of articles on the foreclosure process.
This article does not constitute legal advice.
Foreclosure laws vary from state to state.

Homeowners in financial distress should always hire legal counsel. Call your local state bar association for a referral.  Reduced or free legal aid may be available in some states. Ask for a referral from the state bar association or through a LOCAL HUD-Approved Housing Counseling Agency.

For homeowners who are facing financial hardship, denial is a warm, safe comfortable place to stay, where tough decisions can’t hurt and the decision-making process is put off one day at a time.  There is FREE help available from your local state non-profit agencies.

Local, HUD-Approved Housing Counseling Agecies received 1.5 million dollars from Washington State when Gov. Gregoire signed SB 6272. State agencies are already whining that they are “overwhelmed”. Hmmm. How much of that 1.5 million dollars was spent hiring and training competent counselors and how much went into executive salaries, high paid consultants and task force meetings?  There are plenty of out-of-work mortgage production people who are (at this point) probably willing to work at non-profit agencies. Put them to work.  Perhaps I am in denial as to the extent of the problem at our state agencies. If so, agencies: please enlighten me and RCG readers.  If the problems are with the banks and their ability to handle the calls, that doesn’t mean we throw more money at the state agencies.  In part five of this series, I will ponder about massive government intervention. For now, we’re left dealing with the problems at hand.

If you are a homeowner reading this article, that means you’re starting to come out of denial.  Maybe a friend or relative forwarded this to you.  Welcome to raincityguide.com  How are you? Don’t say “fine” through tears or clenched teeth.  Not so good, right?  Okay then. Is your financial distress temporary or long term?  THIS is perhaps the most important question you’ll need to answer. This is going to require that you get real with where you are in life.  Long term, permanent financial distress situations are going open up options that might be different for a homeowner who has a short term financial distress problem.  Let’s try to break things down even more.  Long Term: You’ve been laid off and have been unable to find work at your former pay level for along time and you have third party confirmation that the chances of being able to reach that pay level again are very low. Short Term: You’ve been laid off and have been unable to find work at your former pay level but your prospects are good or you’ve recently been re-hired at a similar pay level.

Reinstatement
If you are payment or two behind, which may happen with temporary financial distress, your lender will be thrilled beyond your wildest expectations to accept the total amount owed in a lump sum.  Reinstatement often happens simultaneously with a forbearance agreement.

Forbearance Agreement
Your lender agrees to reduce or suspend your payments for a short period of time.  These two options are good for people whose financial distress situations are temporary.

Repayment Plan
Your lender helps you get “caught up” by allowing you to take missed payments and tack them on to your existing payment each month until you are caught up.

If your financial distress is long term and will permanently affect your ability to continue making your payments:

Consider Selling
With home values going down, if you do have some equity remaining in your home, you may be better off selling NOW rather than waiting until next year when scads of REOs (already foreclosed-upon homes that the lenders must dispose of) will continue to hit the market, driving inventory up and home values down.  If you owe more on your home than what the home can be sold for in today’s market, you have probably already heard of the term Short Sales.  In this case, the lender is asked to reduce the pricipal balance and allow the loan to be paid off in order to facilitate a sale.  Most lenders are not radically motivated to approve short sales unless foreclosure is imminent.  This author does not recommend that you stop making your mortgage payment in order to force the bank to approve your short sale. All homeowners in financial distress should have an attorney holding their hand the entire time.  If you have assets, you do not qualify for a short sale. Short sales are reserved for homeowners with NO MONEY and you will be asked to provide proof that you have no money.  If you have money, this is a different kind of transaction. It’s called “Making Your Downpayment in Arrears” and you’ll be asked to bring that money at closing.  Don’t ask anyone to help you hide your assets. Doing so may constitute mortgage fraud which is now a class B felony in Washington State. I could go on and on about short sales. If you need more education in this area, we’ve covered the topic in these RCG articles:

Short Sales
—-
Question From Today’s Short Sale Class
—-
Should You Buy a Short Sale Property?
—-
Is a Short Sale a Bargain?
____
Why Do Banks Take So Long to Approve a Short Sale?

Maybe you would prefer not to sell. Consider taking on a tenant or moving out into more affordable living quarters and renting out your home.

Refinancing is a tough road for homeowners in financial distress. On the one hand, they have been hit by some kind of financial hardship and this typically affects their credit score, which means lender’s rates and fees will be higher.  In addition, tightening underwriting guidelines is something banks do in order to help stop the rising tide of foreclosures. People who hold mortgage loans today might not be able to re-qualify for that same loan if they had to requalify under today’s guidelines.  Income and assets must be fully documented. Find a licensed, local mortgage lender with FHA-approval to see if you might qualify for an FHA loan.  For people who made the conscious decision to state their income higher than reality are out of luck, unless they can prove that they were coached to do so by their lender.  Consult a local attorney for further guidance.  Since refinancing might only be yesterday’s dream for some, Loan Modifications are all the rage in my spam bin. We’ll cover Loan Mods in Part Three.

While doing research for this blog post, I stumbled upon even more money that went from our state government’s rainy day fund, into a state fund to help low to moderate income Washington State homeowners in foreclosure refinance into new loans through the Wash State Housing Finance Commission.  Read more here. I sent an inquiry asking the WSHFC how many WA State Homeowners have been helped this far by this new law and they said, emphasis mine:

Dear Ms. Schlicke:

Thank you for your interest in the Smart Homeownership Choices Program. To date, we have not made a loan to a prospective applicant.  The good news is that when we have talked to the delinquent homebuyers, it seems they have not been able to make contact with their lenders to discuss foreclosure options.  So, we have been able to facilitate getting them to the right person for loan modifications, etc.  There have also been homeowners who have not been pleased with the fact that the assistance is in the form of a loan and not a grant.  They believe the government should be giving them the money to save their home. While we cannot respond positively to these folks, we do send them to one of our homeownership counseling partners to help them with other options that   might be available.

If you know someone who might benefit from the program, please feel free to give them my contact information.

Sincerely,
Dee Taylor
Director, Homeownership Division
Washington State Housing Finance Commission
1000 Second Avenue, Suite 2700
Seattle, WA 98104-1046
(206) 287-4414

Part one: Foreclosure; Losing the American Dream
Part two: Options for Homeowners Facing Foreclosure
Part three: Loan Modifications
Part four: Government Intervention in Foreclosure
Part five: Foreclosure; Letting Go and Rebuilding

Are Washington Consumers Safer Working with DFI Regulated Lenders?

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I’ve always thought so and you may say I’m biased since I work for a company that is regulated by Washington State Department of Financial Institutions.  At the very least, home owners who have been wronged by a loan originator under DFI’s watch can rest assured that the company has much higher odds of having actions taken.  When a borrower contacts me because they want a second opinion or they have a complaint about their lender, the first step is trying to figure out what type of lender they are (mortgage broker, mortgage banker, correspondent lender…) and determine who regulates them.   It’s a mess and there are no innocents.  Bankers are not more ethical than brokers or vice versa.

Here’s an example, from the front page of this morning’s Seattle PI:

In a typical case in late 2002, state bank examiners believed that National City Mortgage was violating the state’s Consumer Loan Act by charging extra fees on mortgages…when asked to explain the costly “discount loan fees, underwriting fees, processing fees and marketing fees,” National City Mortgage sought intervention from federal regulators, records show.

The investigation was stopped by federal decree….the federal Office of the Comptroller of the Currency wrote National City a letter…saying the state had no right to examine or even visit its offices.  Because National City’s parent bank…was chartered with the OCC, the federal agency preempted the state’s authority….

The federal agency didn’t go after the mortgage fee complaint because it had no authority to enforce state consumer protection laws…

Also from this article:

Banks are governed by a patchwork of federal and state laws, which are notably weak at the federal level in areas of predatory lending and consumer protection, according to  to law professors, attorneys and other experts.  Some states…have passed tougher predatory lending laws with provisions holding Wall Street liable for financing bad loans.  But the two federal agencies in recent years have increasingly shielded their chartered banks…from state laws.

What really frustrates me is to hear the media and our elected officials wrongly use the term “mortgage brokers” when discussing the current mortgage crisis we are in.   It’s clear that there was not enough regulation and enforcement for all mortgage originators (regardless of type of institution they are employed by).

The federal OCC took about a dozen formal enforcement actions against banks for “unfair and deceptive practices” in the current decade, agency spokesman Robert Garsson said.  The other federal agency, OTS, took about half as many, in “the five to six range,  OCC Cheif Operating Officer Scott Polakoff said.   States…took 3,694 enforcement actions against mortgage lenders and brokers in 2006 alone…

The feds were set up as rivals.  Bank oversight is “the only place I know where regulated entities get to pick their regulators,”said Kathleen Keest, with the Center for Responsible Lending.

Last year, in a case involving Wachovia, the Supreme Court ruled that “the OCC has the absolute right to insist on exclusive oversight without states intervening.

According to the Seattle PI article, Barney Frank has indicated he might try to overturn the current system…until then, it’s my opinion that consumers are more protected by selecting lenders who are regulated by DFI rather than relying on the Fed or the banks to look out for them.   Our State’s system is not perfect but atleast a consumer can visit DFI’s site and verify on a local level if a loan originator or their company is licensed or has had actions taken against them.

With the recent passage of HR 3221, the SAFE ACT was passed to help protect our nation from unsavory mortgage originators.   Once again there are different rules for originators who work for banks and those who work for state regulated institutions.   On a comment at RCG, “DFI Examiner” confirmed that “LO’s with FDIC insured banks and credit unions need to register, but they don’t need to be licensed.”   Ahh…but that’s a whole post on it’s own!

Stewart Title in Everett on fire

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I just received a call from Mark Perez who works at Stewart Title in King County telling me that Northwest Cable News is showing film footage of a fire in progress at Stewart Title’s Snohomish County main office in Everett. 

If you recall it was less than a year ago that Stewart Title Everett received a two million dollar fine by the state Insurance Commissioner for violating provisions of state law governing title insurance companies.

Update: Here are some links to follow up stories on the fire:

The Everett Herald

Seattle PI 911 Police Blog

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What do Governor Gregoire's actions mean for local Countrywide employees and short selling homeowners?

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Is Governor Gregoire just a little too late in regards to Countrywide’s lending tactics? Aren’t we merely days away from the Bank of America takeover?

As I drove back to the office today after teaching yet another short sale class, I heard the news on KIRO 710 AM that Governor Gregoire is seeking to pull Countrywide’s lending license because of an investigation that uncovered predatory lending practices aimed at minorities.  WA State will fine Countrywide 1 million dollars for discriminatory lending practices and attempt to collect an additional 5 million for back assessments due.

From Governor Gregoire’s website:

DFI is required to examine every home-lender licensed in the state of Washington. The agency conducted its fair lending examination of Countrywide last year. At that time, DFI looked at roughly 600 individual loan files and uncovered evidence that Countrywide engaged in discriminatory lending that targeted Washington’s minority communities. The agency also found significant underreporting of loans during its investigation.

“The allegation that Countrywide preyed on minority borrowers is extremely troubling to me,