THE PACIFIC TRUST REPORT

June 10, 2011

To Our Clients, Colleagues and Friends:
 
• Homeowners foreclose on Bank of America branch- A Florida couple had their home that they owned free and clear foreclosed upon by Bank of America.  That's right, they paid cash for the house yet B of A still managed to foreclose on the property.   The couple sued B of A and won.  A Collier County judge ordered B of A to pay the legal fees of the homeowners.  The judge said the bank had wrongfully tried to foreclose on the home. 
More than five months after the judge's ruling, B of A still hadn't paid the legal fees, and the homeowner's attorney did exactly what the bank tried to do to the homeowners. He seized the bank's assets. Sheriff's deputies, movers, and the homeowner's' attorney went to the local bank branch and foreclosed on it. The attorney gave instructions to remove desks, computers, copiers, filing cabinets and any cash in the tellers' drawers. After about an hour of being locked out of the bank, the bank manager handed the attorney a check for the legal fees.
How is the bank going to erroneously foreclose on a house with which it has no mortgage, and then fail to pay the legal fees ordered by the court? Not only is this a case of turnabout as fair play, but it also demonstrates the incompetence and insubordination of the banking industry.  Shouldn't there be some remorse for ostensibly ruining a couple's credit and negatively affecting their lives by forcing them to go through this unwarranted ordeal? You would think that a representative from the bank would have written the check for court fees on-site at the courthouse.  Clearly, humility and doing the right thing are in short supply these days.
 
• On Qualified Residential Mortgages and forcing sellers or securitizers of loans to retain some of the loan: Why should a manufacturer have to retain any part of what he produces?  Does Ford Motor retain 5% of the risk in owning one of their cars?  Does McDonald’s retain 5% of the hamburgers they sell? If something goes wrong with your Ford SUV or your Big Mac, isn’t that what the legal system is for?

• Did you know that Dodd-Frank required that 87 different studies to be done??? So far, 24 of them have been completed.

• I recently visited Jamaica for the first time.  What a beautiful country and wonderfully inviting people.  Everyone from the cab drivers to the hotel staff to the guys selling conch shells and starfish they caught by hand were truly appreciative of the tourist dollars that we brought to their country.  On an island with a population of 2.7 million people but very little industry, unemployment is a perpetual problem.  We heard over and over again from the locals how there just weren't any jobs and they knew that without tourists they would be in even more serious trouble.  We all loved how they genuinely embraced us. 

• It's actually quite interesting how they build their homes in Jamaica.  There is very little lending from banks there and most people build their homes a piece at a time when they have the cash.  So, families will buy enough building materials to get started and build enough to have four walls and a roof.  They then move in and begin living in this totally unfinished property.  They will add windows, doors, fixtures,, etc. at a later date, but they move in right away.  They build them with the idea that they will eventually add on, but they leave the rebar hanging out the top of the walls and the interior and exterior walls unfinished so they can add a future second or third story to the house. 

Our cab driver laughed when I asked if so many homes were unfinished as a result of the financial crisis and banks not lending.  Silly American.
                                     

Going to other countries really makes you appreciate living in America.   Sometimes you forget how lucky you really are.

• It's amazing how much of the Jamaican culture seems to have been built around this national pride of Jamaica and promoting everything Jamaican.  Whether it be Bob Marley, Olympic champion Usain Bolt, or even their alcoholic beverages, Jamaicans consume and support everything Jamaican first.  Everyone drinks Red Stripe beer, locally brewed in Kingston.  And when I say everyone, I literally mean everyone.  It was nearly impossible to find any other brand of beer at any restaurant or pub.  Your choices were Red Stripe or Red Stripe Light. 

If you haven't tried Red Stripe, pick up a 12 pack.  It's actually quite good!
 

• The President of US Bank's wholesale division was in my office this week and we were chatting a lot about the pending creation of the Consumer Financial Protection Bureau and the changes that will come as a result.  He said their legal team has started to prepare for the upcoming legislation ramifications  and that they thought the administrative red tape of the next 12 months would make GFE 2010 and the April 1 compensation reform look like a cake walk.  Of course the biggest problem is nobody knows what to expect since they haven't even decided what the CFPB will do, but be prepared for significant oversight. 

• Garrett, Watts is a company that does internal audits on banks and mortgage lenders and they recently sent me the following quote, " We were at a mortgage company in Wisconsin recently, and the owner said “I’m not afraid of being audited by the Consumer Financial Protection Bureau.  Hell, I was audited by five different states in the past year.” People, being audited by the Rhode Island Dept. of Financial Institutions is not the same as an OCC type exam, and the CFPB will be out to show that they’re the new, tough sheriff in town.

• The other interesting thing that US Bank's economists are predicting is the return of the mortgage broker.  I pointed out that in 2005 73% of loans were originated by brokers and in 2010 that percentage had been reduced to less than 20%.  They think that QRM and the requirement of lenders to hold 5% of the loans they originate on their books will push most correspondents and mortgage bankers out of the business thus forcing them to return to brokering. 

Wouldn't that be ironic!  Brokers have been the scapegoat for the housing market collapse and yet new legislation may force mortgage bankers and correspondents to return back to brokering!