Over a year ago, on February 11, 2011 the Obama Administration first announced the winding down of Fannie Mae and Freddie Mac in its Housing Report. The Long Island Education Board's blog on the report can be found by clicking here.

Now, the process continues as Treasury just announced steps its undertaking to expedite the process by modifying its Preferred Stock Purchase Agreement with the Federal Housing Finance Agency, the conservator of Fannie and Freddie. To read Treasury's Press Report, click here.

According to Treasury, new steps are being implemented to prevent Fannie and Freddie from retaining a profit and reentering the market in their prior form.

The takeaway is that the decentralization of mortgages is no joke and is coming. Get ready.

Just this past week, Fannie Mae issued its Selling Guide with other updates. To see the guide, click here.

Two highlights from the Guide are as follows:

1. Maximum LTV for ARMS are reduced from 97% to 90% with Desktop Underwriting & from 95% to 90% for Manual Underwriting. 
2. Minimum credit score requirement is increased from 620 to 640 for manually written loans. 

Lieb at Law is Hiring! Excellent opportunity to learn the residential real estate practice first-hand while managing files under the guidance of experienced attorneys. 

Law student responsibilities include daily file updates to clients and real estate brokers in acting as the firms liaison from retention to attending closings. Issue spotting is a must. Be prepared to manage expectations and learn everything that can go wrong in a sale or purchase of residential real estate. To get this position, you must be ready to succeed, work in a team environment and process quickly. Must embrace education and technology. 

Those that succeed in this role will have the opportunity to advance. Can lead to Junior Associate Position. 

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First, San Bernardino County, California, sought to seize upside-down mortgages and restructure them with more favorable terms to borrowers utilizing the government's compulsory sale powers by way of Eminent Domain.

Next, the idea was floated in Chicago.

Now, there is talk about its utilization in New York.

But, what are all of these politicians actually talking about?

As the advocates would put it, private investors will provide a municipality with the requisite funds to seize the underwater properties at market value, discounted from the loan amount as the properties are upside-down, and than purchase the restructured loans back from the government. Yet, there are many secondary effects as the introduction of this new approach to mortgage modifications adjusts the risks inherent in making loans and will likely change future loan terms for all.

Traditionally, Eminent Domain is utilized by municipalities for roads, schools and to facilitate up-zoning efforts in redeveloping districts. The concept being floated is to utilize Eminent Domain instead to force mortgagees to sell their notes and mortgages to the government for less than what is owed and to allow the government to flip the loan, at market value for the real estate, not based upon the agreed upon terms between mortgagor / mortgagee, to a new investor who will provide better terms to the borrower/mortgagor.

Can this be done in New York?

Looking at the applicable New York Statute, which is the Eminent Domain Procedure Law, Section 103 defines Real Property as follows: includes all land and improvements, lands under water, waterfront property, the water of any lake, pond or stream, all easements and hereditaments, corporeal or incorporeal, and every estate, interest and right, legal or equitable, in lands or water, and right, interest, privilege, easement and franchise relating to the same, including terms for years and liens by way of mortgage or otherwise.

As can be seen, a lien / mortgage is included. So, technically it appears on first glance that this is possible.

If it is, how much must the government pay for these underwater loans?
According to In re Public Park in City of New York, the Appellate Division held that the amount should be determined as follows:
If the portion of the land taken which is subject to the ... mortgage has a value in excess of the amount of the mortgage, then his interest is measured by the face of his mortgage and interest. If the value of the land is less than the face of the mortgage, then his interest is the value of the land, less, of course, a proper apportionment of taxes and assessments.

So there you have it, its the value of the land (at the time of the Eminent Domain) minus taxes and assessments.

Yet, interestingly, the statutory purpose for Eminent Domain in New York contains a wrinkle, which states, in pertinent part, as follows: to give due regard to the need to acquire property for public use as well as the legitimate interests of private property owners, local communities and the quality of the environment, and to that end to promote and facilitate recognition and careful consideration of those interests; 

So the question becomes, is this proposed utilization of Eminent Domain a "public use" at all or is it instead, a public purpose, which is not written as the statutory purpose for Eminent Domain?
You see the public isn't using the land at all. Instead, the public is trying to fulfill the purpose of helping homeowners in distress. Therefore, the utilization of Eminent Domain to rescue underwater homeowners in New York state appears questionable at best.

The Consumer Financial Protection Bureau is asking for your help in reviewing proposals at Regulation Room and reacting to them concerning regulating the mortgage industry. Click here to help make a difference in how mortgages are serviced into the future.

Regulation Room is a place where people talk to people talking to government. Each issue has its own summary for reading, discussing and commenting to the agencies that make the regulations.

Don't complain about the future of your industry, shape it.

Gifting your spouse a half interest in your separate real estate creates a presumption that the property is marital and subject to equitable distribution, so says the Third Judicial Department in Campfield v. Campfield, which can be read by clicking here. 

To access the new Handbook for MHA, inclusive of HAMP and HAFA, click here. While reviewing the Handbook you should be aware of the case of Flagstar Bank v. Walker wherein the Court held that the statutory good faith standard for a CPLR 3408 Foreclosure Settlement Conference is compliance with the Handbook. To review the case, click here.

This Handbook is the rules for banks / servicers to modify mortgages, so pay careful attention to detail and make sure that they comply.

In an interesting appeal before the Second Circuit Court of Appeals, captioned as Scholz Design, Inc. v. Sard Custom Homes, LLC, Prudential Connecticut Realty, & Coldwell Banker Residential Real Estate, LLC, the Court held that the Copyright Act's protection of 'pictorial, graphic, and sculptural works' also protects architectural works from infringement. Therefore, graphical renditions of architectural work, before they are made into final construction drawings, which  have sufficient detail to enable constructions of homes based upon them, also contain protected expression.

The pictures at issue in this case were front elevation drawings showing the appearance of the front of the houses surrounded by lawn, bushes, and trees.

This decision is huge for the architectural industry as it greatly expands our understanding of protected works for architects. Moreover, the decision highlights the risks that real estate companies face by promoting protected works on their sites without express permission. All brokerage houses should carefully perform due diligence on the sketches of buildings that they post on their websites before approving such a posting.

To read a copy of the decision, click here.

We had a great course last night at Newsday for our local real estate agents called Mortgage Mania, where the students each earned 3 continuing education credits. While the slideshow was visible on the projected screen, some students inquired if I could re-post the links onto the blog as they couldn't see them on the handout.

So here goes:





I also wanted to thank Todd Triolo, our friend and mortgage expert, for his insights that he shared with the class as we learned. 

Todd can be reached at DE Capital Mortgage, LLC | 124 E Main St | Babylon, NY 11702
MAC M6652-011 Phone (631)422-8288| Cell 631-834-9283| Fax 866-917-0776 

Confidence for "newly built, single-family homes improved for a fourth consecutive month" says the National Association of Home Builders/Wells Fargo Housing Market Index when discussing the national trend.

To read the NAHB's press release, click here.

Unfortunately, the Northeast did see a significant decline in the same period. So we are left with mixed news at the Long Island Education Board. Let's hope that the national growth trend comes to town.