JPMorgan Accepts $13 Billion Fine For Lending Practices

JPMorgan Chase Bank agreed to pay a $13 billion fine to the U.S. government for its role in the disastrous mortgage lending practices that landed more than 15 million American homeowners underwater.

The announcement was made by Eric Schneiderman, the attorney general for New York, who chaired a state and federal workgroup investigating the wrongdoing.

“I have insisted that there must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy,” Schneiderman said in a statement. “This historic deal is exactly what our working group was created to do. We’ve won a major victory today in the fight to hold those who caused the financial crisis accountable.”

JPMorgan officials were not given any prison time, despite their role in facilitating a housing crisis where homeowners owe a collective $913 billion more than their homes are worth.

JPMorgan was one of several large banks that issued mortgages and bundled them into securities that sold like stocks. After the housing market plunged and homeowners defaulted in droves, the value of the securities took a dive. Investors, saddled with enormous losses, accused the banks of selling mortgages they knew were doomed.

Homeowners Get $4 Billion in Relief

The government has been investigating those banks, including JPMorgan, for several years and the $13 billion fine is part of the clean-up. It more than triples the previous highest fine ever levied, the $4 billion BP paid for spilling oil in the Gulf of Mexico.

Homeowners are supposed to receive $4 billion as their portion of the $13 billion settlement, but that pales in comparison to the $7 billion compensation going back to investors.

The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, will receive $4 billion of the $7 billion. Fannie Mae and Freddie Mac purchased billions of dollars in mortgage securities before 2008 and those investments imploded.

“JP Morgan and the banks it bought sold hundreds of billions of dollars of defective mortgages into the securities markets helping to precipitate the financial crisis,” Michael Stephens, Acting Inspector General of the FHFA said in a statement. “Investors, including Fannie Mae and Freddie Mac, suffered enormous losses not knowing about those defects.”

The remaining $3 billion will go to a credit union association and governments in New York and California, who are expected to pass the compensation along to investors in those states.

A Wall Street banker taking care of Wall Street investors is sure to draw the ire of millions of homeowners, who will have to find compensation, however they can, from the $4 billion.

Metro Areas Hit Hardest

Half the money will be focused on reducing the principal balance of mortgages in areas of the country hit hard by foreclosures.

Here are some cities and percentages of homes that are underwater:

  • Las Vegas: 48 percent
  • Orlando: 41 percent
  • Atlanta: 39 percent
  • Chicago: 39 percent
  • Tampa: 37 percent
  • Miami: 37 percent

The other $2 billion will be used to reduce interest rates on existing loans, offer new loans to moderate- and low-income buyers and keep those loans on the books. JPMorgan also is scheduled to get credit for demolishing foreclosed homes to reduce urban blight.

More Than 12 Million Homes Still Underwater

Zillow Negative Equity Report for Q2 2013 shows that 23.8 percent of homes with a mortgage were in negative equity. That’s about 12.2 million homes, a drop from the peak of 15.3 million (30.9 percent) in 2011. Much of the improvement comes from rising home prices, though foreclosures and short sales have contributed some to the decline.

An independent auditor will supervise the $4 billion in consumer relief to make sure JPMorgan has fulfilled terms of the agreement by 2016. If not, the bank faces another series of penalties.

It is estimated that U.S. home values have plummeted more than $6 trillion since the housing bubble burst in 2006.

FHA Steps in to Help Nursing Homes by Backing Mortgages

Attempts by nursing home operators to stay relevant and profitable in the constantly changing world of health care, received a boost from the Federal Housing Administration (FHA) last year.

The FHA stepped up to insure 458 mortgage loans worth roughly $3 billion during the fiscal year that ended Sept. 30, 2012. Those loans represented a 46 percent jump from the previous year.

This was a major turnaround in financing for nursing homes, which traditionally rely on loans from private banks because they involve far less bureaucracy. Private banks hold about 80 percent of the outstanding loans on nursing homes.

Some Signs Favorable

However, the FHA had to step in because those banks have been reluctant to make loans lately. The banks have expressed concern about occupancy rates at nursing homes, despite the most recent statistics that show occupancy and rent growing in 2012, albeit by very small margins. Charts from the National Investment Center show occupancy grew three-tenths of a percent in the fourth quarter of 2012, and rent was up 2.2 percent.

Most of the FHA-approved loans were used to refinance existing mortgages for an industry that is under siege from many sides. Businesses, especially banks, are still unsure how the new Affordable Care Act, popularly known as ObamaCare, will affect nursing homes.

Many nursing home residents rely on Medicaid to make their monthly payments. Currently, Medicaid pays for those who meet financial eligibility standards, though at a lower rate than those paying privately. There is some concern that Medicaid and its sister program, Medicare, will suffer budget cuts with the introduction of the Affordable Care Act, and thus affect the monthly income of nursing homes.

Competition Gaining Ground

Another factor weighing on the nursing home industry is competition from home health care and assisted living care providers.

A study by AARP concluded that home health care was less expensive than nursing homes. The AARP study claimed that paying privately for nursing home averaged 252 percent of the median household income for people 65 and older.

Home health care, on the other hand, averaged 88 percent of median household income. Other variables involved for those staying at home include paying housing, utilities, insurance, food and medications.

New Lending Rules Protect Consumers from Predatory Lenders and from Themselves

It may be too late for a pound of cure, but half a dozen years after the bursting of the housing bubble helped precipitate the Great Recession, the U.S. Consumer Financial Protection Bureau (CFPB) has finally gotten around to offering a few ounces of prevention.

Under sweeping new rules passed last week, the 18-month-old federal agency moved to help protect consumers from the worst sorts of predatory lending practices and shoddy underwriting standards that helped cause a dramatic increase in mortgage delinquencies and consequently the country’s recent foreclosure crisis.

Lenders Will Have New Standards

The Ability-to-Repay rule, which goes into effect in January 2014, will require that mortgage lenders obtain and verify all the information necessary in order to determine whether or not a borrower actually has the financial ability to pay back a mortgage. At a minimum, lenders must now consider eight underwriting standards:

  • The borrower’s current or reasonably expected income or assets
  • The borrower’s current employment status
  • The borrower’s credit history
  • The monthly payment for the mortgage
  • The monthly payments on any other loans associated with the property
  • The monthly payment for other mortgage related obligations (such as property taxes)
  • Other current debt obligations, including alimony, and child support
  • The monthly debt-to-income ratio or residual income the borrower would be taking on with the mortgage

In other words, lenders will now be obliged to do what they should have been doing all along, i.e. actually qualifying borrowers before selling them a mortgage.

But why is it necessary to promulgate rules whose common sense suggest the minimum due diligence that any bank or lender would be expected to perform before issuing a loan? Because recently, it seems, bankers cared more about working around the rules to make money than they did about making money within the rules.

How the Mortgage Business Turned Bad

In the good old days, a bank might have held onto a quality mortgage for the length of the loan, depending on a faithful and consistent repayment to make a profit.  Naturally, before it made the loan it evaluated carefully the borrower’s capacity to repay it.

That all changed during Wall Street’s go-go years. Long-term loans  lost out in favor of fancy and complex financial instruments like collateralized debt obligations that sucked up every bit of mortgage-backed debt that banks couldn’t grind out fast enough and credit default swaps that lured investors into believing that their bets were covered.

This new financial environment encouraged lenders to move as many bad mortgages out the door as possible. The incentive to practice even the most rudimentary principles of prudent lending often went by the wayside.

After all, if a mortgage was going to be securitized, sliced, diced and sold to investors even before the ink was dry, what difference would it make to the bank if any particular loan was under-investigated, undocumented, and overly risky? Who cared if it blew up somewhere down the road? That would be someone else’s problem.

And knowing there was little downside to offloading these potentially toxic mortgages quickly, lenders upped the ante. They loaded their loans with exorbitant upfront points and fees, offered deceptive teaser rates that masked their true costs to borrowers and came up with all sorts of complicated bait-and-switch products. (For instance, the interest-only and negative-amortization loans that were tied to balloon interest and/or principal payments a few years after the original lenders were safely a couple of degrees of separation away from their customers.)

Protecting Borrowers from Themselves

While the new CFPB rules should help protect future borrowers from sloppy and unethical lending practices, they may also have the effect of protecting consumers from themselves.

Because while nobody can deny that many mortgagers were victimized by rapacious lenders or that many home loans became delinquent because of a crashing economy, far too many borrowers were victims of their own unrealistic dreams, imprudent decisions and outright deception when supplying financial information.

In many instances, both borrower and lender colluded in brewing the toxic mix of specious information and cooked numbers that eventually exploded in the subprime delinquency disaster that brought the economy to its knees.

The new rules have placed the burden of proof when it comes to qualifying a loan application squarely on the shoulders of the lenders, while granting consumers a little more leverage in their capacity to sue banks if they can prove that their own finances were not sufficiently vetted and found sound, before being sold a mortgage.

Therefore, beginning in 2014 the paradigm will no longer be, “Buyer, beware,” but rather, “Lender, be careful.”

New Rules Protect Consumers from Overzealous Mortgage Lenders

A new federal regulation puts the onus on lenders to take meaningful steps to ensure a person can afford a home loan, before they actually give them one.

The “ability-to-repay” rule was issued by the Consumer Financial Protection Bureau (CFPB) to help keep borrowers from wading into mortgages too deep for them to handle. It took specific aim at the “interest only” and “no documentation” loans that helped create the real estate bubble that burst in 2008.

The regulation, which still has a few elements to be finalized, goes into effect in January 2014.

“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford,” Richard Corday, director of the CFPB said in a statement. “This rule is designed to ensure that lenders are offering mortgages that consumers can actually afford to pay back. It is nothing more than the true essence of responsible lending.”

Banks Must Investigate

The rule requires lenders to take into account a minimum of several underwriting factors, including income, employment, debt obligations, credit history and monthly debt-to-income ratio not exceeding 43 percent. In essence, the lender must prove that the applicant can afford the mortgage, where in the past, it was the other way around.

The ruling gives banks some legal protection against lawsuits if they follow certain requirements and issue what the CFPB considers “qualified mortgages.”

A loan would not be considered a qualified mortgage if it included negative amortization, interest-only payments, balloon payments or terms exceeding 30 years. The rules also state that “no doc” loans, where the creditor does not verify income or assets, can’t be considered qualified mortgages.

The rule also says that loans generally can’t be considered qualified mortgages if the points and fees paid by the consumer exceed 3 percent of the total loan amount.

Should Be Easier to Get a Loan

This ruling comes in response to the 2008 financial crisis when it was easy for consumers to get loans they could not possibly repay. After the housing bubble burst, banks went the other way and tightened lending requirements so much that very few people qualified for a home loan.

“Our goal is to make sure that people who work hard to buy their own home can be assured of not only greater consumer protections but also reasonable access to credit so they can get a sustainable mortgage,” Cordray said.

The ruling received favorable, though not overwhelming support from consumer protection groups.

“We think the rule will help consumers avoid bad loans,” Pamela Banks, senior policy counsel for Consumers Union, said on her company’s website. “While it’s good that the CFPB is going after some of the worst abuses in the mortgage market, we urge them to keep the pressure on to ensure all mortgages offered to consumers are fair and appropriate.”

Meanwhile, at least one bank, San Francisco-based Wells Fargo, is loving the mortgage business. Wells Fargo reported a $5.1 billion in profit for the fourth quarter of 2012 by taking advantage of low-interest rates and refinancing activity.

The boost in profit represents a 24 percent increase, making it 12 straight quarters the bank has increased its profit.

Bank of America to Pay $10B to Fannie Mae to Settle Claims

The first week of 2013 has not been a happy new year for some of the nation’s largest banks, particularly Bank of America.

On Monday, Bank of America agreed to pay $10 billion to Fannie Mae to clear up claims made on troubled mortgages, mainly associated with Countrywide Financial, the lending group that Bank of America purchased in 2008.

Under terms of the agreement, Bank of America will pay Fannie Mae $3.6 billion and will spend another $6.75 billion to buy back mortgages from Fannie, the government-sponsored lending enterprise. Fannie Mae contends that Countrywide Financial misrepresented the quality of home loans it sold at the height of the real estate bubble.

In a separate, but related agreement, Bank of America was one of 10 mortgage servicers that will pay a combined $8.5 billion to resolve claims of foreclosure abuse.

Bank of America, Metlife Inc., Citibank, JPMorgan Chase, Aurora Bank FSB, US Bancorp, Wells Fargo & Co., PNC Financial Services, Sovereign Bank and Sun Trust Banks Inc. will pay $3.3 billion to homeowners who went through foreclosure in 2009-2010, and another $5.2 billion to borrowers for loan modifications and reductions of principal balances.

Though the amount each bank was responsible for what not announced, most insiders believe that Bank of America will end up paying the largest share.

Bank of America Selling Some Loans

Bank of America also agreed to sell servicing rights on $306 billion of loans. Nationstar Mortgage Holdings will pay $1.3 billion for the rights to $215 billion of loans. Walter Investment took over servicing rights on $93 billion in mortgages, paying $519 million for the privilege.

“Together, these agreements are a significant step in resolving our remaining legacy mortgage issues, further streamlining and simplifying the company and reducing expenses over time,” Brian Moynihan, chief executive for Bank of America, said in a statement.

The foreclosure abuse case involved about 495,000 people who made claims against the 10 lending institutions. The Office of the Comptroller of Currency (OCC) said another 159,000 foreclosures were chosen in a sampling process after complaints that the banks improperly seized homes during the sub-prime mortgage crisis.

Headed in Right Direction

“While today’s announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner,” Thomas Curry, comptroller of the currency, said in a statement.

The banks are being ordered to deliver lump-sum payments of as much as $125,000 plus lost equity to affected borrowers. Some homeowners have been waiting two years for the compensation.

Bank of America said it expected the settlement to hurt its fourth-quarter earnings by $2.5 billion because of costs tied to foreclosure reviews and litigation. The firm also expects to record a $700 million charge, an accounting move known as a debt-valuation adjustment, related to an improvement in the prices of its bonds.

FHA Extends Program that Allows Quick ‘Flips’ of Properties

As the nation continues to wrestle with high unemployment rates and a recuperating real estate market, the Federal Housing Administration (FHA) decided to continue one of its popular programs.

The FHA extended its temporary waiver allowing loans on quick “flips” of renovated properties past its scheduled Dec. 31 expiration. Real estate flipping is a type of investment in which a person purchases an undervalued property and resells it quickly for profit. Typically, the process involves home improvements.

Temporary FHA Waiver Will Remain

The FHA in 2003 stopped insuring certain mortgage loans on properties after large cities like Los Angeles, New York, Baltimore and Washington, D.C., witnessed fraudulent property flips. Homes were sometimes sold for double their purchase price within days or even hours.

The FHA then opted to require sellers to own the home for at least 90 days before selling.

In February 2010, the Obama administration reversed these restrictions of resale to keep neighborhoods and the U.S. housing market moving in the right direction.

Over the years, the less-restrictive policy encouraged a large number of investors from all economic backgrounds to purchase foreclosed and homes in disrepair from lenders, to fix them up and then to resell them for profit within a short amount of time.

Since then, more than 65,000 renovated homes have been financed using more than $11 billion in FHA-backed loans since that time, federal officials said. An estimated 23,000 properties were resold with FHA loans in the past year.

How FHA Loans Helped American Communities

The FHA is the largest insurer of mortgages in the world, providing insurance on loans made by FHA-approved lenders throughout the country since 1934. It has insured more than 34 million single- and multifamily homes as well as manufactured houses and hospitals since its inception.

Acting FHA Commissioner Carol J. Galante said the plan allows the stabilization of real estate prices as well as neighborhoods and communities affected by foreclosure. It also permits investors to buy, renovate and sell rundown homes that, if left untouched, would have further depressed values and added to urban blight.

The typical buyers of the renovated properties are first-time, moderate-income families that may not otherwise have the down payment required for a conventional loan. FHA down payments can be as minimal as 3.5 percent, compared with the 20 percent often required with a conventional loan.

FHA Will Retain Strict Controls

While the restrictions regarding resale time have been relaxed over the years, the FHA plans to retain strict controls on several aspects of the purchase, from appraisals and inspections to chain of title, to ensure the loans extended are above board.

For example, FHA policy restricts any personal interest between the parties involved to include the buyer, seller, renovator and the appraiser. The seller of the renovated house also must have clear legal title to it.

In addition, if the selling price is 20 percent more than what the purchaser paid, then a second appraisal must be done by a FHA-approved appraiser to validate the increase in price. An independent inspection report also must be completed if there is a 20 percent increase to ensure no additional repairs are needed that could affect the health and safety of the buyer.

Federal Committee to Support Economic Recovery

In an effort to strengthen the American market, the Federal Open Market Committee (voted last week voted to continue its program of buying $40 million of mortgage-backed securities per month and to keep the target Fed Funds rate at 0 to 0.25 percent. The FOMC is a committee within the Federal Reserve System that oversees the nation’s open market operations.

“This exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent [and] inflation [is] between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal,” the Federal Reserve said in a news release. “When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”

The targets are not anticipated to be met until 2015.

The FOMC also said it will keep its policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities, and will recommence rolling over maturing Treasury securities at auction in the new year.

For the New Landlord, It’s Strictly Business

There’s a new landlord in town. Well, actually, there’s a new landlord in a whole lot of towns.

Back in the day, when land lording was more of a labor, rather than a capital-intensive endeavor, a landlord renting out single-family homes might have owned only a handful of properties – and usually all within the same limited geographic area. Leasing, repairing and maintaining houses, dealing with tenants and local governments, was a business that generally did not lend itself to a far-flung, high-inventory model.

But that was before the housing bubble burst and millions of Americans lost their homes. That’s when the paradigm shifted.

The Great Recession Changes Everything

That’s when a new type of landlord emerged. One who took a broader view. One who looked around and saw lots of foreclosed, short-sold, auctioned-off, walked-away-from, single-family homes just sitting out there waiting to be picked up on the cheap. Tens of thousands of properties, all over the map – especially in states that were hit the hardest when the bottom fell out: Arizona, Florida, Nevada, Georgia and North Carolina. Houses worth $400,000 before the crash, now priced well under $200,000.

This new landlord recalled the first law of capitalism: Buy low, sell high. Well, that first part’s a slam-dunk. Market bottoms out, time to shop. Easily done. But how to sell high? Who’s going to buy a house and when? Back before the crash, a property could be flipped quickly to the next guy in line. That’s one of the reasons prices skyrocketed during the early 2000s – speculative buying. That, and cheap money and mortgages sold to anyone who could hold a pen.

But that was then. Now, the new landlord, who is a capitalist after all, had to come up with a new idea, a new business model that promised a payoff sometime up the road, provided a steady flow of cash until then and most important, attracted enough investors so that everyone can make some serious money when the time finally comes to sell high.

Owners Become Renters

So, here’s the pitch: Say, you’ve got a house that’s in pretty good shape that you bought for dimes on the dollar. You’ve also got a nice big demographic of displaced homeowners who lost their houses to the vagaries of the marketplace. Well, busts happen. Now, these former mortgagors can’t afford to buy right now; if they could, they wouldn’t have lost their homes in the first place. But they do need a place to live. So what do you do? You rent to them.

Now, the rent money is not the payoff, but it is the cash flow. It covers expenses while the housing market slowly and steadily appreciates over the next couple of years. Assuming, of course, that the economy doesn’t fall back into recession or over a cliff, fiscal or otherwise.

Turning a Profit

At some point, you put that house up for sale. That’s the payoff. That’s when you actually start seeing some double-digit returns. You can even sell it to its current tenants. Hey, wouldn’t it be interesting if the new purchasers were also the home’s original owners?  They’d be buying their own house back again. Funny how things work out, sometimes.

In any case, if you have lots and lots of these houses, and all goes according to plan, you can get very rich. And remember, you’re also doing something valuable – you’re helping to clear foreclosed homes from the market, you’re renovating vacant properties and you’re revivifying neighborhoods. Hey, you didn’t wreck the economy. You’re just picking up the pieces. Capitalism’s second law: There are winners and losers. Some people lost their homes; your gain.

It’s Not Your Father’s Landlord, Anymore

So who is this new landlord, anyway? Well it’s not a single person or even a small group of people. The new landlord is a well-endowed private equity firm like the Blackstone Group in New York, which has already bought 6,500 homes. It’s the Colony Capital Group of L.A., which snapped up 4,000.  It’s Silver Bay Realty of Minnetonka, Minn., which has acquired 2,200 houses and is planning to go public as a REIT – a real estate investment trust – so that even small investors might have a chance to ride this new speculative vehicle into a profitable future.

The new landlords in town are investment firms and hedge fund giants, and they’re spending billions of dollars buying distressed-priced housing all across the county in hopes that the American Dream of owning one’s own home will have a strong second act sometime in the not-so-distant future. And when that day arrives, they expect to be holding lots of keys to lots of castles.

It should make them lots of money. That, too, is the American Dream.

Housing Market Expected to Rebound in 2013

With just a few weeks remaining until the end of the year, millions of Americans are seeking ways to make 2013 better, especially from a financial perspective. From making new real estate investments, refinancing mortgages, entering into reverse mortgages or resorting to a short sale, people are anxious to make all things right.

Americans Faced Tough Challenges in 2012

While American real estate was once considered a surefire investment, a housing bust and subsequent recession created a risky market. Foreclosures and short sales exploded as the result of substantial unemployment and a weakened market, affecting all aspects of the American economy.

According to the online real estate database Zillow, negative equity, meaning a property is worth less than the amount owed, lingered at 28.2 percent in the third quarter of this year. While the number did drop slightly from the previous quarter (30.9 percent), more than 14 million American homeowners with a mortgage are still underwater on their homes.

This summer, the Federal Reserve announced the median net worth of families plummeted nearly 40 percent in three years. Americans, whether they needed to sell a home or tap into home equity, have felt the effects of a challenged market.

In spite of hard times, economists foresee positive changes for 2013.

Real Estate Market Improvements Expected in New Year

Financial experts are optimistic regarding the future of the American real estate market, as home buyers begin to search for new investment prospects. Government programs are said to have helped millions of borrowers stay in their homes using various initiatives, including lowering interest rates and/or loan modifications. The chief economist at Moody’s Analytics, Mark Zandi, said he believes the foreclosure crisis is fading as home-loan delinquency rates declined this year from 1.7 million in 2009 to 1.4 million. Legal actions against lenders have also been credited in the decline in foreclosures.

Near-Record-Low Mortgage Rates Provide Boost

Economists say excellent mortgage rates will continue to strengthen the American housing market. According to mortgage buyer Freddie Mac, the average 30-year loan rate inched up slightly this week to 3.34 percent from last week’s 3.32 percent. These rates are comparable to those seen more than 40 years ago. The average 15-year fixed mortgage rate increased to 2.67 percent from 2.64 percent last week.

Builders are said to be more confident as sales of new and previously occupied properties have increased this year. In addition, U.S. home prices have risen from last year according to a report by Core Logic that showed home prices were 6.3 percent higher in October than one year ago — the largest yearly gain in six years. As prices rise, people are often more motivated to buy, as they fear prices could continue to increase.

Record-low mortgage rates have also encouraged more homeowners to refinance in order to reduce monthly payments or to tap home equity for cash. Economists anticipate consumer spending, which drives close to 70 percent of economic activity, to increase as a result.

While low mortgage rates are likely to motivate home purchasing and refinancing in the new year, the housing market is still volatile. As the result of stricter lending rules and/or a buyer’s lack of cash down payment, not all Americans will be able to take advantage of the enticing rates.

Reverse Mortgage Changes Coming in 2013

As the new year approaches, the federal government is proposing to revise its reverse mortgage program to make loans less risky for the seniors who utilize them.

Currently, seniors 62 or older who have equity in their home are able to enter into a reverse mortgage to access funds. While they are still required to pay property taxes and hazard insurance, they are not required to make monthly loan payments. Unfortunately, a great number of loans can go into default because of a combination of troubles, from an increased cost-of-living leaving little for monthly expenses to the overall reduction in real estate values.

Large lines of credit given by the private loan industry, as well as up-front lump cash sums, have made reverse mortgages more risky for borrowers as well as the federal government, which insures them through the Federal Housing Administration (FHA) insurance fund.

Earlier this year, the federal Consumer Financial Protection Bureau released a study that showed an increased number of outstanding reverse mortgage loans were at risk for default. According to the U.S. Department of Housing and Urban Development (HUD), nearly 10 percent of all active Home Equity Conversion Mortgages (HECM) were delinquent as of six months ago.

The more conservative approach proposed in the new year will include capping up-front loan draws and adding safeguards to make sure senior borrowers can meet future tax, insurance and property maintenance responsibilities by possibly creating an escrow requirement.

Short Sales Increase as Tax Break Ends

While the real estate market is slowly moving forward, it was reported short sales on homes shot up 35 percent during the third quarter from last year. Financial experts attribute the increase to the rush to finalize sales before a vital debt relief act expires. Unless the temporary 2007 Mortgage Forgiveness Debt Relief Act is extended into 2013, homeowners who sell their properties for less than the amount owed will face a tax on the amount forgiven through the short sale.

While selling a property for less than the mortgage is unfortunate as it leaves the seller without a place to live or cash to move forward, it does prevent the home from reaching foreclosure, which is positive for both the borrower and the lender. More than 1 million short sale transactions have occurred since 2009.

If the relief act is not extended, millions of people already confronting financial loss will face even larger debt levels. Financial experts warn the housing market, while heading toward recovery, has not improved adequately enough to warrant expiration of the act.

More Widows Face Foreclosure; Who’s Next? Orphans?

A lot has changed since the dark days of 2008, when the housing bubble burst and the economy went over a real fiscal cliff. In the four years since, corporate profits have slowly climbed back to firmer ground, the stock market has almost returned to its pre-crash altitude, shoppers are showering retailers with pre-holiday spending sprees, and the bankers … well, they’re  already back in their palatial treasure domes atop the highest peaks.

Of course not everything has changed for the better – some things have just festered. Like the nearly 3 million homes that are in or near foreclosure and the 12 million borrowers who owe $600 billion more than their underwater homes at the bottom of the ravine are worth.

Four years on, and the continued inability of the banks and the government to solve the mortgage miasma by providing real and lasting relief to struggling homeowners weighted down with unmanageable debt, is still stymieing any chance of a truly robust economic recovery.

The More Things Change, the More They Stay the Same

And, of course, some things never change at all. Remember the old Depression-era stereotype of the mean landlord twirling his greasy mustache and heartlessly throwing poor widows and orphans onto the street for not paying the rent? Well, it seems, for the moment anyway, that the orphans are safe. But the widows? Not so lucky.

According to the AARP (formerly the American Association of Retired Persons), the rate of foreclosure among homeowners older than 50 increased by 23 percent from 2007 to 2011, resulting in 1.5 million foreclosures. In 2011, 6 percent of loans held by people older than 50 were delinquent, and a rising number of these individuals who are now threatened with foreclosure and eviction seem to be elderly widows whose husbands’ names are the only ones on the loan documents.

Yes, there was a time, not too long ago, when Mr. handled all the family business and Mrs. tended to the home fires. So some surviving spouses in this generational cohort are now living in homes whose mortgages were not actually signed by them. And because they are not the legal borrower, they are having a particularly hard time trying to get a bank to agree to a loan modification or principal reduction.

And in some cases, they can’t simply assume the mortgage, which would seem to be a logical move that would help make potential negotiations somewhat easier, because most banks require that payments be up to date as a prerequisite for taking over the loan.

Coming Full Circle

But many widows in need of financial help are already behind on their monthly obligations – often due to high medical bills and other expenses. According to the Federal Reserve, Americans aged 65-74 are outpacing all other age groups in the amassing of debt.

The inevitable result of this sub-stratum of the general mortgage nightmare? The dearly departed Mr. keeps getting bills in the mail that Mrs. can’t pay, so Mrs. faces the loss of her home, which may not legally be hers at all, but may still belong to her husband, who is no longer around to protect it from foreclosure.

And we’ve come full circle. The mean landlord twirls the ends of his greasy mustache and heartlessly throws another widow out onto the street after tacking an eviction notice to the door.

Who’s next? Orphans?

Obama Eyeing New Leader for Federal Housing Finance Agency

Facing increased scrutiny from housing advocates and community groups, President Barack Obama is being asked once again to sidestep political protocol to replace Ed DeMarco, the acting head of the Federal Housing Finance Agency (FHFA).

Obama is being asked to make a “recess appointment” for a new head of the FHFA, the government agency that oversees home-loan giants Freddie Mac and Fannie Mae. Such an appointment, done by a president when the U.S. Senate is in recess, can be a risky move in such a tumultuous political climate.

DeMarco Controversy

In early 2012, Democrats urged Obama, to no avail, to replace DeMarco using a recess appointment. DeMarco has been long chastised for what some see as a harsh stance on changes to the way the government handles underwater home loans. DeMarco has refused to allow Fannie Mae and Freddie Mac, which hold most of the mortgages in the country, to participate in a key program that allows principal reduction. DeMarco has called principal reduction a moral hazard that would incentivize delinquency.

While the president does have the power to make recess appointments, it can put future political favors in jeopardy and draw a deeper chasm in an already sharply divided Congress. And in the end, the new appointment may not stick because the Senate must eventually approve the new selection.

This second call for a recess appointment puts the president in more political turmoil. In January, when he made four top recess appointments, GOP leaders cried foul. The U.S. Court of Appeals for D.C. is currently hearing arguments that Obama violated the Constitution and abused his power.

Other Cabinet Vacancies

At the same time, Obama is trying to garner favor as he shortlists nominees for secretaries of State and Defense and the new head of the Central Intelligence Agency (CIA).

By Dec. 31, Obama is expected to name former Republican Sen. Chuck Hagel, of Nebraska, as the next Defense secretary. Other nominees include former senior Pentagon official Michele Flournoy and Democratic Sen. John Kerry, who currently sits as the chairman of the Senate Foreign Relations Committee.

In replacing Hillary Clinton, who will step down from her secretary of State post, insiders had indicated that U.S. Ambassador to the United Nations Susan Rice was a top candidate. But it’s unlikely that she’ll make it past Senate Republicans, upset by her statements following the U.S. Consulate attack in Benghazi, Libya, in September. Kerry has also expressed interest in the job and is considered a favorite.

Obama will also likely announce his pick to head up the CIA after Director David Patraeus, a retired four-star general, quit after admitting an extramarital affair. No names have emerged as a replacement, however insiders indicate that acting director Mike Morell is a front-runner.