Begos Horgan & Brown LLP
From The Firm — Press Release
Trends in Mortgage Lending for 2011
WESTPORT, CT, Jan. 13, 2011 – What trends will shape the picture for mortgage
lending, mortgage foreclosure and mortgage investments in 2011? How will
lenders and borrowers react in the next 12 months after a record number of U.S.
homes went into foreclosure in 2010? One mortgage foreclosure defense attorney
expects that the nature of the relationship between borrowers and lenders will shift
dramatically in 2011. This is one of several trends that Attorney Christopher Brown expects next year. Atty. Brown received national attention for his role in several
ground-breaking foreclosure cases, in which he took on and beat the mortgage
industry in foreclosure matters. He is a partner in the Begos Horgan & Brown LLP in
Westport, CT.
Here are some of Atty. Brown's observations about the shape of the mortgage crisis in 2011:
- Borrowers will look for ways to invalidate their mortgages - Atty. Brown
believes the exposure of the banks' questionable foreclosure practices will cause
consumers to consider the legitimacy of their original mortgages. "We're
expecting to see an increase in the number of borrowers asking about suing to
declare their mortgages void because of issue of predatory lending or fraud ,"
says Atty. Brown. "Because of the banks' well publicized shady foreclosure
practices like 'robo-signing' and documentation issues, we foresee that
consumers will say to themselves, ‘If the banks are flubbing documentation
during foreclosures, maybe they flubbed the documentation when they originally
made the loan.' We're already seeing an increased interest in forensic audits to
look into these issues. Consumers are hiring people to go back and look at
original loan documents like the application, good faith estimate, and HUD-1
settlement statement to see if there was any wrongdoing at that point.
Consumers hope that these audits will show technical violations that could lead
to their mortgages being declared void. This whole idea might be appealing to
borrowers because if you take it to its theoretical conclusion there's a potential
that the loan could be void and you'd essentially get your house for free. But
these suits are both time-consuming and expensive and the odds of winning are
small."
- Borrowers will stay in "foreclosure stalemate" longer than ever - Expect to see
an increase in the number of homes in "foreclosure stalemate" where borrowers
continue to live in homes without paying mortgages and banks continue
muddying the workout process. "Banks either have been dragging their heels in
offering borrowers meaningful alternatives or are not offering programs that
provide meaningful alternatives," says Atty. Brown. "They don't approve
enough loan modifications or short sales and it takes them forever to make a
decision – good or bad. The truth is that during the foreclosure process, banks
want borrowers to think they want to take the houses, pushing them to find the
money to bring the mortgage current. But everyone knows they really don't
want the houses. I expect those borrowers' frustrations with the banks' socalled
‘loss mitigation programs' will boil over next year to the point where
they'll just give up and tell the banks to take the homes. Borrowers will say,
"You won't do a modification and you won't do anything to help me stay in the
house, so here's the house." It's essentially calling the banks' bluff. When that
happens, I predict that the banks will put the brakes on the foreclosure action
and put borrowers in ongoing foreclosure stalemate. The borrowers will
continue to live in their houses, not paying their mortgages and not pursuing
any foreclosure alternative. The banks won't push the foreclosure through to
take title because they won't want the homes."
- Borrowers will simply walk-away – The number of people walking away from
their mortgages will continue to escalate in 2011. "In the past, people believed
they could find a way to work with the banks, but there's been enough publicity
about this as a false hope that I forecast more people than ever will simply walk
away from their homes," says Atty. Brown. "In the past people might just hang
around in hopes of working things out. All the while this foreclosure cloud would
be hanging over them. But more and more people have been in this cloud for a
long time and they just want to be done with it. Unlike foreclosure stalemate,
these people will leave their houses and find new places to live."
- Fewer bank take-overs of homes - The housing marking has been slow to
recover and banks no longer look to a time when it will improve. "When the
housing market first took a dive, banks had a better appetite for homes because
they were expecting the market to recover and the assets to become valuable
again, enabling them to recover the loan. But, the foreclosure crisis was
broader and deeper than originally anticipated. Banks took title to properties in
foreclosure and borrowers put their houses up for sale to avoid foreclosure. In
the wake of the mortgage debacle, lenders were making fewer loans. This will
lead to too many houses on the market for the number of available buyers.
Because the housing market's been so slow to recover, I believe, that banks will
be saying it might be better to keep people in their homes to reduce the glut of
homes for sale. With fewer houses on the market they will reason prices will
rise and they'll be more likely to recover more on the loan. It's simple
economics: reduce the supply and the prices will go up."
- Change in the servicer/investor dynamic – There is likely to be a change in
servicer/investor dynamic in 2011 because investors are going to realize it's
better for them in the long-run to stop putting pressure on the servicer to guess
what's best for the investor. "The investor is the company that owns the loans,
but the investor doesn't deal with the borrowers or handle the day-to-day
administration of the loans," explains Atty. Brown. "Instead, the investor hires a
servicer to do that and the contract between the investor and servicer usually
obligates the servicer essentially to act in the investor's 'best interests'. As a
result, when the loan gets in trouble, the servicer historically hasn't wanted to
approve any 'loss mitigation' alternative, like a loan modification or short sale,
without the investor's approval. The reason for that is that the servicer didn't
want the investor claiming the servicer's action wasn't in the investor's best
interest. They could come back to the servicer and say ‘You cost me money and
now you need to pay me back out of your own pocket.' Investors liked the
possibility of a potentially solvent servicer paying an insolvent borrower's loan.
Servicers are afraid of that. So, they have been thinking the safest thing for
them to do was to foreclose. This resolution, although it gets servicer off the
hook, isn't the best solution for the investor. Investors now may be looking at
the situation in a new light. I forecast that they'll change their tune. They'll
start to realize that it's better for them to approve modifications and short sales
to keep people in their houses because I'd rather have less money coming in
than take over a house I can't sell. Expect to see one of two things: 1) More
and more investors will approve loss mitigation proposals or 2) More and more
investors will remove the specter of claims that the servicer didn't act in the
investor's best interest. In short, there will be more modifications and short
sales approved because of this change in the servicer/investor dynamic."
He sums up the next 12 months this way: "No one involved in the foreclosure crisis
– not borrowers, not lenders, not servicers -- has benefitted from the existing
attempts to solve it. That means that everyone will be rethinking how they handle
foreclosure. The focus will be shifting to what's best in long-run. Only time will tell
whether the differing views converge is a result that benefits everyone."
About Begos Horgan & Brown LLP
Begos Horgan & Brown LLP engages in sophisticated business, financial and
insurance related litigation, trials and appeals in all courts, state and federal, in
Connecticut and New York as well as securities arbitrations before the Financial
Industry Regulatory Authority ("FINRA").
Their practice areas include general commercial and corporate disputes, securities litigation, debtor/creditor disputes, insurance coverage disputes, real estate litigation, employment-related litigation, real estate purchase and sales and trust and estates.
In 2008, the firm was cited by the Connecticut Law Tribune as one of the state's "Dozen Who Made a Difference." They have also been recognized as one of the nation's "Go To" law firms by Corporate Counsel and as one of the state's best General Law firms by the Commercial Record. They have offices in Southport, CT and Bronxville, NY. For more information see www.begoshorgan.com.
Media Contact: Andrea Obston, aobston@aomc.com, (860) 243-1447 – office, (860) 803-1155 – cell,
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