CMBA Stands Strong in in this issue - · PDF filein this issue... CHAIRMAN’S CORNER ... act in a volunteer capacity but we are an ... Irvine 949-453-5060 Burlingame 650-401-8822

CALIFORNIA MORTGAGE FINANCE NEWS 1

CALIFORNIA MORTGAGE BANKERS ASSOCIATION

THE VOICE OF REAL ESTATE FINANCE

S U M M E R2 0 1 3

in this issue...CHAIRMAN’S CORNER page 1

EXECUTIVE DIRECTOR’S LETTER page 5

LEGISLATIVE REPORT page 7

RESIDENTIAL NEWS page 8

COMMERCIAL NEWS page 9

ROUNDTABLE ARTICLE page 10

LEGAL—RESIDENTIAL page 11

LEGAL—COMMERCIAL page 16

CALENDAR page 17

WELCOME NEW MEMBERS page 19

PHOTO GALLERIES page 40

ROAD TRIP page 44

Contact: California Mortgage

Bankers Association

(916) 446-7100 Phone

(916) 446-7105 Fax

[email protected] Email

555 Capitol Mall, Suite 440

Sacramento, CA 95814

California Mortgage Finance News is published four

times per year: Spring, Summer, Fall and Winter.

California Mortgage Finance News is published by

the California Mortgage Bankers Association.

editor: Dustin Hobbs

publisher/layout: Wolfe Design Marketing

It’s truly an honor

to be the new

Chairman of the

California Mortgage

Bankers Association.

My first order of

business is to thank

the outgoing Chairman, Buck Hawkins

of Castle & Cooke, for his leadership

over the last year. The organization is in

fantastic shape and Buck’s guidance as

Chairman has been critical in maintaining

the momentum the association has

continued to generate over the last several

years. I also want to thank the incoming

members of the Executive Board: Kevin

Randles, President, Commercial; Chris

George, President, Residential; and Matt

Ostrander, Secretary. Your collective

dedication to CMBA is well-documented

and I look forward to working with each

of you. Last but not least, my thanks go

out to all the other new, returning, and

termed out members of the board. We all

act in a volunteer capacity but we are an

enthusiastic bunch that I know we will

accomplish a lot in the next year.

It’s an exciting time in our industry.

On the commercial side we read about

increasing rents and reduced vacancies.

There are discussions in certain markets,

like my home base of San Francisco,

about whether we may have already

reached a peak. On the residential

side, it’s increased median prices and

permits and lack of inventory. Yet as I

begin writing this article, the breaking

headline is that Detroit just became

the largest city in history to declare

bankruptcy. Our unemployment rate

continues to be stubbornly high and

our economy still seems to be stuck in

the mud. To top it all off, legislation has

recently been introduced in Congress to

privatize Fannie Mae and Freddie Mac at

a time when both have started to enjoy

strong profits. So what gives?

It’s tough to get your arms around

what’s going on in today’s economy. We

extrapolate both good and bad news and

as a result we don’t have a strong grasp

on the direction we’re headed. I don’t

have all the answers but it does appear

CHAIRMAN’S CORNER

CMBA Stands Strong in the Face of ChallengesBY DENNIS SIDBURY, NORTHMARQ CAPITAL, CMBA CHAIRMAN

CONTINUED ON PAGE 4

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SUMMER 20134

CHAIRMAN’S CORNER CONTINUED FROM PAGE 1

this recovery will be slow going. Patience,

persistence and perseverance will be key

to sustaining and nurturing economic

growth, because we will continue to

face headwinds from all directions. Case

in point: just when we’re projected to

potentially start seeing some real growth,

we’ll be faced with the midterm elections!

Despite the volatility in the

macroeconomic markets, what I am

certain about is the direction of this

organization. We have thrived in the

face of arguably the worst mortgage

crisis in history in our role as the only

organization to represent California’s

residential and commercial real estate

finance industry. Our legislative and

regulatory representation is solid.

We have continued to build off last

year’s success on the residential side in

narrowing the scope of the Homeowner’s

Bill of Rights. While industry isn’t exactly

thrilled with the final result, the initial

versions of the bill were much, much

worse. Additionally, CMBA managed to

stave off proposed legislation that would

be devastating to the commercial side of

the business. Our legislative advocates do

a tremendous job of educating lawmakers

on the potential unintended consequences

of things such as reckless use of eminent

domain as well as implementation of a

split tax roll for real estate taxes.

We continue to strengthen the

educational piece of our mission

with the implementation of new

opportunities like our CFPB webinar,

held earlier this year. We’ve also worked

on refining and improving our core

conferences and events. And we still

manage to have some fun with our

regional networking receptions!

None of this would be possible

without the fantastic staff we have in

Sacramento. Susan Milazzo leads the

charge as the Executive Director but she

enjoys strong support from Stacey (Ward)

Mansell—Meeting Services Director,

Dustin Hobbs—Communications

Director, and Carol Danaher—Office

Manager. We are appreciative of all you

do to make this association the strongest

of its kind in the country. Challenges we’ll

face in the next year (CFPB regulations

going into effect in January, eminent

domain threatening local housing

markets, and continued efforts to pass

commercial split-roll bills) will be met

with an industry and an association ready

to continue efforts to strengthen the real

estate finance industry and our economy.

•

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In many areas

across the country,

the nation is

seeing healthy

signs of recovery

in the real estate

market. Home

sales and prices are up despite slight

upticks in interest rates and we can

finally breathe a little easier. One of

the key features in the future of the

mortgage industry will be the fate of

the GSEs. With the vast majority of

single-family mortgages backed by

the GSEs, it is apparent the system

cannot continue indefinitely under

this model. When Fannie and Freddie

were taken into conservatorship on

September 6, 2008, the move was

endorsed by many leaders including

Ben Bernanke who indicated that it

was necessary to ensure the financial

soundness of the companies. The

action of conservatorship was to be

temporary however there has been

lengthy debate on how to unwind, if

you will, the government take over

and take the GSEs to their next form.

Considering the record profits Fannie

and Freddie have reported we can

assume the financial soundness of

the companies has been reinstituted

and a solid plan to move ahead must

be implemented.

Recently, David Stevens, President

and CEO of the Mortgage Bankers

Association, spoke at our Western

Secondary Market Conference and

shared with the attendees the national

organization’s vision for GSE reform.

You can find the presentation titled

“Key Steps to GSE Reform” on the

MBA’s website but here are the

highlights from the concept:

• Ensuring liquidity through a

common, fungible GSE security.

This would reduce costs to

taxpayers , enhance liquidity,

and encourage a competitive

secondary market.

• Up-front risk sharing. Offer risk

sharing to lenders at point of sale

and removing risk at the back

end for loans already on the GSEs

balance sheet.

• Secondary market for smaller

lenders. Ensuring equal access

to options for lenders of all sizes

allowing for greater competition

in the market.

• Expanding credit access.

Transparent and consistent

underwriting will also allow for a

competitive market.

• Common securitization platform.

Creating a standardized platform

with the input of industry that

creates potential taxpayer savings

that addresses the needs of

today’s market.

As of this writing, President

Obama is calling for private capital

to take a lead role in the nation’s

mortgage market with government

continuing to provide a backstop

against catastrophic risk. He endorses

the Senate bill Senator Bob Corker

(R-TN) and Senator Mark Warner

(D-VA) authored that would replace

Fannie and Freddie with a privately

capitalized system.

Stevens’ appeal to the conference

crowd was to educate them on the

MBA’s work on this issue and to ask

that they be an active proponent of

this plan. Whether you are a large

or small lender; in all states or just a

few; this plan will benefit the future

of your company and your ability

to provide access to affordable

credit for qualified borrowers. The

easiest way to participate in the

industry’s national efforts is to join

the Mortgage Action Alliance (MAA).

It is a free, non-partisan service that

provides you up to date information

on legislative activities and easy to

follow instructions on how you can

be a part of the voice of real estate

finance in our nations’ Capitol. Visit

the MBA’s website for information on

how to join.

MAA is essential for state efforts

as well. The California MBA has

EXECUTIVE DIRECTOR’S LETTER

MBA Chief Stevens Lays Out MBA Plan for GSE ReformBY SUSAN MILAZZO, CMBA EXECUTIVE DIRECTOR

CONTINUED ON PAGE 17

Seattle Boston Newark Portland New York Las Vegas Scottsdale Orange County San Diego County Los Angeles County

As counselors in a complex legal environment, we search for the best solutions regardless of difficulty. We understand the goals of our clients and strive to exceed their expectations. We provide our clients with cost-effective legal strategies in litigation. With our accomplished and capable team of attorneys, in 10 offices across the country, we are committed to providing our clients with exceptional service and results.

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The Legislature

returned from its

summer recess

in early August

and is now in the

final weeks of the

legislative year.

September 13 is the final scheduled

day for the Legislature to meet before

it adjourns for the year. There are

over 900 bills pending so there will

be a great deal of activity in the final

weeks and days of session. Assembly

Democrats have lost the two-thirds

majority gained in the 2012 elections

that is necessary to raise taxes or

approve constitutional amendments

because of vacancies and special

elections. They are not expected to

regain their super-majority level in the

Assembly again until after the session

adjourns this Fall. Senate Democrats,

however, continue to maintain their

two-thirds majority. The loss of a

two-thirds majority of Democrats in

the Assembly will make it less likely

for tax increases to pass out of the

Legislature this year.

Entering into the final weeks of

the 2013 legislative session, it remains

a relatively quiet year with respect

to onerous residential mortgage

and foreclosure related legislative

issues, especially as compared to

the last several years. The respite is

likely due to several factors, not the

least of which the heavy volume

of recently enacted mortgage and

foreclosure state legislation, including

the Home Owner Bill of Rights.

Other factors, however, include the

continuing dramatic improvement in

the California housing market and the

reduction statewide in foreclosures.

California home values have increased

substantially in the first half of 2013.

Many localities have experienced

double-digit increases in home values,

greatly helping those homeowners

underwater on their homes.

Foreclosures in California are also now

at pre-crisis levels. A recent statewide

report for the first half of this year

listed foreclosures filings at nearly

87,000, which is a 48% drop from the

previous six-months and a 60% drop

from a year ago.

Legislative volume for commercial

lending related issues continues

to be high as compared to historic

levels. Leading the list of those

commercial lending related issues

of concern are efforts to increase

taxes on commercial properties

and/or on commercial property

transactions. These efforts include a

proposed constitutional amendment

reducing the state constitution’s

requirement that a two-thirds vote

of the electorate be obtained for

local governments to impose special

taxes to a new lower threshold of

55 percent. CMBA is taking active

positions on those bills negatively

impacting commercial property

transactions and/or increasing the

costs associated with the sale or

transfer of commercial properties.

The following is a list of several

bills that have the potential to impact

the residential housing marketplace,

commercial properties, and

commercial property financing:

SB 391—Recording Fees &

Affordable Housing

Passed out of the Senate & in the

Assembly.

SB 391 would enact the

California Homes and Jobs Act of

2013. It is intended to fill part of the

funding gap created with respect to

affordable housing and community

redevelopment projects when

state redevelopment agencies were

eliminated last legislative session.

There is widespread support in the

legislature for creating some form

of replacement for redevelopment

agencies that can be used for new

affordable housing projects and to

promote homeownership. The bill

would make legislative findings and

declarations relating to the need for

LEGISLATIVE REPORT

Industry Getting Respite from Mortgage LegislationBY PAT ZENZOLA, KP PUBLIC AFFAIRS, CMBA LEGISLATIVE COUNSEL


Seattle Boston Newark Portland New York Las Vegas Scottsdale Orange County San Diego County Los Angeles County

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SUMMER 20138

There is a host

of attributes and

characteristics

independent

mortgage bankers

share that make us

good at our work.

Arguably, one of the most important

is our entrepreneurial spirit, our ability

to see possibility where others might

not. However, it could also be argued

that entrepreneurialism without

focus may actually be a detriment in

achieving success.

Think about Apple. As a company,

Apple has the brains and brawn to

create anything they could dream up,

from mobile phones to rocket ships.

But they do not make rocket ships.

They perfect the handful of products

they know they make best. All their

energy, their thought, their time

and money go into creating the best

consumer electronic devices on the

market. That’s focus. And it has led

them to global success.

Confucius say, man who chase

two chickens catch neither of

them. Essentially, this is the law of

diminishing returns; if you have one

goal, the probability of achieving it is

relatively high, but with each added

goal, the probability of achieving

any of them lowers. And this exists

as much in the mortgage industry

as anywhere else. For a company to

dilute where they spend their energy

by pursing any and all opportunities

that arise, it decreases the likelihood

of succeeding at any of the ventures.

By narrowing focus, however, a

company has the ability to hone in on

and perfect its offering.

Given the increasing complexities

of the mortgage industry, it is

imperative that businesses focus their

core competencies, business channels

and assets (cash, infrastructure,

acumen, marketing, etc.) thoughtfully.

Instead of sharing the areas in

which my company has decided to

focus, I would like share with you the

process by which we go through to

make those strategic decisions on what

we will give our attention and focus.

The biggest notion for us to

remember is that just because we

can do something, does not mean

we should do something. Tempering

the desire to chase bright and shiny

objects takes restraint. What makes

having restraint easier is to have a

very thorough and thoughtful process

by which our company makes large

decisions like adding an additional

area of focus. No big decisions are

made without this process.

First, I ensure to engage all senior

and middle management from the

beginning, because their buy-in on

the decision is critical. Together, we

engage in a full-on assessment of

what resources would need to be used

to add an additional area of focus,

RESIDENTIAL NEWS

The Discipline of FocusBY DAVE ZITTING, FOUNDER AND CEO/PRESIDENT OF PRIMARY RESIDENTIAL MORTGAGE, INC. AND MEMBER OF THE CMBA BOARD OF DIRECTORS

from where those resources would

be diverted and how that will impact

the productivity and probably of

success from the areas from where our

attentions have been taken.

Think about it this way: new

opportunities do not necessarily come

with increased capacity to put toward

them. Meaning, any resources put

into new ventures is taken from the

already-vetted, core competencies in

which we are already engaged. We

have to ask ourselves: is the potential

gain worth the potential risk?

Because of the correlation

between focus and success, companies

are not just more likely to thrive, but

they can also be viewed as less risky

by their communities, their customers,

their financial counterparties and

regulators. We all know that trust is an

immeasurable commodity.

Now, these models and areas

of focus may not be right for all

mortgage lenders, but they have

served my company well. It has not

been easy and has certainly been

a lesson learned over time as we

have matured. Focus can be hard to

achieve and sometimes even harder to

maintain. This is why I refer to focus

as a discipline, something that requires

vigilant practice to master.

•


COMMERCIAL NEWS

Life Company Risk-Based Capital for Commercial MortgagesBY DAVID M. ROSENTHAL, MAI, FRICS, PRESIDENT & CEO, CURTIS-ROSENTHAL, INC.

On July 17, 2013,

the Financial

Condition

Committee of the

National Association

of Insurance

Commissioners

(NAIC) adopted new rules for

monitoring Risk-Based Capital (RBC) for

commercial mortgages in good standing

held by life insurance companies.

These new rules replaced the Mortgage

Experience Adjustment Factor (MEAF)

which had been the prior standard.

Critics of the MEAF standard

had argued that under certain market

conditions, use of the MEAF could

magnify even minor differences among

insurance companies. Unlike the prior

MEAF structure, the new rules will

reflect the migration of loans to different

risk cohorts over time, resulting in

a natural increase to RBC as market

conditions deteriorate and a reduction

of RBC when market conditions are

favorable. This will provide companies

with a greater ability to plan appropriate

capital use and allocation.

The goals of developing the new

monitoring standards were as follows:

1. Improve the objectivity of the

regulatory tool used to assess RBC

2. Objectively evaluate the risk level of

individual commercial mortgages

3. Assess risk using loan-level

information

4. Appropriately distinguish between

differing levels of credit risk


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SUMMER 201310

ROUNDTABLE ARTICLE

Commercial/Multi-Family OutlookEDITOR’S NOTE—This is the latest in a series dealing with the issues facing the real estate finance industry. Each issue we touch on a

different topic, asking CMBA’s experts for their thoughts on the issue at hand. In this issue of CMFN, we ask four experts about the future

of the commercial/multi-family real estate market. All four will be leading panel discussions at CMBA’s 16th Annual Western States CREF

Conference, September25–27, 2013 in Las Vegas. Registration information is available at www.CMBA.com. Kevin Randles is Senior

Vice President with CBRE, and currently serves as CMBA’s Commercial President. Randles is also chairman of this year’s Western States

CREF Conference. Guy Johnson is CEO/Chairman of Johnson Capital, and is moderating the closing session at this year’s conference.

Eric Von Berg, CMB is a principal with Newmark Realty Capital, Inc. Eric will lead the conference’s structured finance panel. Finally,

Dennis Williams is Senior Vice President-Managing Director with NorthMarq Capital and will moderate the CMBS-focused session.

Q: What is the one trend that folks

should keep an eye on during the

12 months?

Randles: A trend to monitor

during 2013 and 2014 is a movement

toward increased complexity in the

commercial real estate market. With

minimal new construction in the

works, property values are improving,

but the usual fundamentals are not at

the root of increasing values.

In many submarkets, property

values have recovered almost to

peak levels, but net rental rates have

declined, and the increased property

values are being driven solely by

attractive debt paired with historic

low interest rates. Even though

rents are recovering, expenses have

continued to inflate faster than rent

growth, thereby creating “new

normal” levels for net rents.

With limited new construction

and few high quality properties for

sale, property values have risen on

the acceptance of lower cap rate

yields. For example, during 2012, we

experienced 31,000,000 square feet of

shopping center space construction,

but as compared to 2004 there was

over 216,000,000 square feet. Hence,

values will simply rise due to a

scarcity of product, but not necessarily

with rising fundamentals (increased

net rents, increased consumer sales,

increased new jobs, etc.)

Thus, the secondary trend to

watch becomes seeing if lenders

choose to follow the bent toward rising

property values rather than relying

on cash flows, or net rental rates. We

believe that the majority of lenders will

follow the upward swing as the largest

cohort of lenders are banks, which

typically lend on market values rather

than relying on durable cash flows.

And, since banks represent about half

of the new mortgage loan originations

annually, it seems logical that increased

lending will follow, which will drive up

property values, whether or not rental

fundamentals improve.

These times do indeed create a

time when investors need increased

transparency and market intelligence

to overcome a low-yield environment

and justification of investment value

when there’s not much room for error.

Johnson: The biggest issue that I

see right now is regarding the impact

that rising interest rates could have

on cap rates and the resulting values.

Rates have risen over 100 basis points

in a very short period of time. Cap

rates are nearly always directly related

to the cost of capital. At the low cap

rates (particularily on multifamily)

that we have had recently, a 1%

movement makes a significant change

in values. A change from 5% to 6%

results in a 17% decrease in value,

while a change from 9% to 10%

results in an 11% decrease in value.

The market will need to keep a close

eye on the properties (especially Class

A apartments) that have been recently

selling at very low cap rates as it could

change very quickly.

Von Berg: It is hard to pick a

single trend. Let me give you two:

• Rising Interest Rates and the effect

on cap rates: This is a big concern

especially in the apartment sector.

Bubbles are hard to spot when

you are in them, but if the 10-

year T-bill rises to anywhere near

the historic average of 6.5% then

today’s apartment valuations with

4% cap rates will look like another


Legal


HAMP EnforcementAre Courts Trending Toward a Private Right of Action?

BY JOEL L. INCORVAIA & G. EHRICH LENZ, INCORVAIA & ASSOCIATES

Residential

Several recent cases may signal

an increased willingness by the

courts to allow borrowers to bring

claims against lenders who fail to

provide them with a permanent loan

modification under HAMP. Lenders

would be wise to review their

procedures, form agreements and form

correspondence to borrowers seeking

HAMP modifications to minimize

their exposure to liability from

disgruntled borrowers.

The HAMP Modification Process.

The Home Affordable Mortgage

Program (“HAMP”) is part of the

Emergency Economic Stabilization

Act enacted by Congress in 2008

in response to rapidly deteriorating

market conditions. The Secretary

of the Treasury negotiated Servicer

Participation Agreements (“SPA”)

with lenders which required them

to identify homeowners who were

at risk of foreclosure, and modify

the loans of eligible homeowners. A

qualified borrower under HAMP must

first comply with a Trial Period Plan

(“TPP”) in which the borrower makes

trial payments to the lender in the

amount of the proposed modification.

If the borrower complies with all

the terms of the TPP agreement, and

the borrower’s representations to

the lender remain true, the lender is

required under the SPA and HAMP

guidelines to offer the borrower a

permanent modification.

HAMP has spawned hundreds

of lawsuits by borrowers who were

denied permanent modifications

by their lenders. Early on, most

courts rejected borrower claims

because HAMP did not provide for

a private right of action to enforce

its loan modification requirements.

Courts found that the borrowers

lacked standing to bring any type

of HAMP claim against their lender,

including judicial enforcement of

TPP agreements.1

The Beginning of a Trend Toward

Private Enforcement of HAMP?

Several recent reported decisions

cases have reversed this trend and

found that TPP agreements created

enforceable contract rights by

borrowers against lenders under state

law. In Wigod v. Wells Fargo Bank,

N.A. (2012 7th Cir.) 673 F.3d 547, the

Seventh Circuit Court of Appeals

held that the borrower could bring

claims against a lender arising out of

its refusal to modify the borrower’s

loan. In Wigod, the lender provided

the borrower with a TPP agreement

that stated the borrower would be

provided with a loan modification

if the borrower complied with all

terms of the TPP. The lender allegedly

refused to provider the borrower with

a permanent modification because it

could not modify the loan to conform

to its investor guidelines.

The Wigod court found that

the language of the TPP created a

valid offer and that the borrower’s

agreement to open a new escrow

account in furtherance of the TPP,

among other things, was sufficient

consideration for the TPP to be

enforceable. The Wigod court also

held that because any permanent

modification provided to the borrower

was required to be consistent with

HAMP guidelines, the terms of the

TPP were sufficiently definite to form

an enforceable contract.

The lender argued that the

borrower’s claims were really HAMP

claims “in disguise,” and had to be

dismissed because there was no

private right of action to enforce

HAMP. The Wigod court rejected

this argument, concluding that the

borrower’s state law claims were

not subject to dismissal just because

they referred to or incorporated some

element of HAMP.

In Sutcliffe v. Wells Fargo Bank,

N.A. (2012 N.D. Cal.) 283 F.R.D. 533,


Legal

SUMMER 201312

Residential

Closing Protection LettersOverlooked Indemnity Coverage For Common Foreclosure Defense Claims

BY JOANNE N. DAVIES, ESQ. & RANDALL L. MANVITZ, ESQ., BUCHALTER NEMER

Mortgage lenders are all too familiar

with borrowers’ assertions that they

did not receive two properly dated

copies of the Truth-In-Lending Act

(“TILA”) mandated Notice of Right to

Cancel form (“NORTC”) at closing.

Under TILA, the failure to provide

two copies of the NORTC form

allows a borrower to rescind the loan

years after the closing. As a result,

this claim has become a standard

borrower assertion in defense of a

foreclosure action.

While frequently overlooked by

mortgage lenders and their counsel,

these types of claims are often covered

by a little understood title insurance

indemnity agreement commonly

known as a closing protection letter

or insured closing letter. The closing

protection letter provides the lender

with the ability to recover its losses

from the issuer of the closing protection

letter which is generally a title insurance

underwriter such as Fidelity National

Title and its many brands of companies

(Chicago Title, Commonwealth Land,

Alamo Title, Ticor Title), First American

Title Insurance, Stewart Title, and

Old Republic National Title. This

article provides an overview of closing

protection letters and their coverage of

NORTC claims.

1. Closing Protection Letters

Title underwriters issue closing


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Legal


Residential

Marketing Agreements For Mortgage BankersBY STANLEY M. GORDON, GORDON & ASSOCIATES

Marketing

Agreements have

been used for

years by mortgage

bankers to solidify

relationships with

sources of business,

primarily real estate brokerage

companies. These agreements were

often an initial step towards the

parties forming an Affiliated Business

Arrangement (AFBA), as permitted by

the Real Estate Settlement Procedures

Act (RESPA), 12 USC 2601 et. seq.

However, marketing agreements are

now becoming the preferred business

sourcing relationship because of our

present era of increased regulatory

scrutiny and a sense of risk resulting

from recent class action challenges to

AFBAs. This new legal environment

requires greater diligence in the

structuring and management of new

and existing marketing agreements.

Prior to 2010, there was limited

guidance and oversight of marketing

agreements by HUD, which

administered RESPA until recently.

There had been many instances of

significant overpayments by mortgage

bankers to real estate brokerage

companies for broad and vaguely

defined advertising and promotional

services. The amounts being paid

being were often the result of bidding

rather than being based on a defensible

determination of the reasonable value

of the services or facilities, as required

by RESPA. Moreover, many of the

agreed upon services were often not

performed; and, those services which

were being performed would usually

not be documented.

The legal landscape for marketing

agreements began to change after

several class actions were filed in

2007 claiming that home warranty

marketing agreements with real

estate brokerage companies were

referral fee arrangements. In 2008,

HUD was requested by the home

warranty industry and the National

Association of Realtors (NAR) to

issue definitive RESPA guidelines for

the use of marketing agreements by

home warranty companies. HUD

was reluctant to take an active role

in this area, recognizing that what it

said, although focused on the home

warranty industry, would have

implications for the use of marketing

agreements by the mortgage industry.

Nevertheless, in June of 2010

HUD issued its Interpretive Rule

on Payments by Home Warranty

Companies to Real Estate Brokers

and Agents. This was followed by

HUD’s Response to Public Comments

in November of 2010, which, in part,

responded to concerns by NAR on

the advertising aspect of marketing

agreements between real estate

brokers and mortgage bankers.

The main guidelines under

HUD’s Interpretive Rule are that the

settlement service provider, such

as a mortgage banker, can pay the

real estate broker for marketing and

promotional services actually rendered

so long as: (1) the payment is for the

reasonable value of the services; (2)

the services are compensable and

meaningful; and, (3) the services are not

duplicative. Furthermore, there must

be a legitimate effort to determine the

fair market value of the services, which

is distinct from the economic benefit

that these services might have for the

particular recipient. Related to this is

the necessity to document the extent

to which these services or facilities are

actually provided. Significantly, HUD

stated that questions concerning the

validity of services under marketing

agreements, whether they were

actually performed and properly valued

would be determined by it on a case

by case basis. This position by HUD

significantly impairs the use of class

action litigation to challenge marketing

agreements under RESPA.

Although the Interpretive Rule

focused on compensable services for the

marketing of home warranties by real

estate brokerage companies, there were

significant comments relevant to the

use of these agreements by mortgage


Legal

SUMMER 201314

Residential

Eminent Domain Dominates Mortgage DiscussionBY MICHAEL PFEIFER, CMBA GENERAL COUNSEL, SMITH DOLLAR, PC, & DUSTIN HOBBS, CMBA COMMUNICATIONS DIRECTOR

EDITOR’S NOTE—Just prior to press time, several further developments occurred. A host of bondholders and servicers filed suit to

block the City of Richmond from seizing mortgages through eminent domain. Additionally, Fannie Mae, Freddie Mac and the Federal

Housing Finance Agency (FHFA) both released statements that highlighted their concerns with the program and make clear their intention to

take action if necessary.

After months of debate, and countless

meetings in locations from Suffolk

County, NY to San Bernardino, CA,

San Francisco Bay Area investors at

Mortgage Resolution Partners (MRP)

have finally found a partner willing to

experiment with their controversial

eminent domain program. On July

30th, the city of Richmond (population

106,500) announced its intention

to move forward with MRP’s plan,

starting with sending letters to banks

and mortgage note holders making

offers to buy the loans at steep

discounts—reports are that some

offers are as low as 25 cents on the


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http://residentialmortgage.net

Legal


Residential

The Demise of Short Sale Deficiencies on Residential Loans in CaliforniaA Post-Mortem Examination

GENE WU, PARTNER, & DANIEL ARMSTRONG, ASSOCIATE, ANGLIN FLEWELLING RASMUSSEN CAMPBELL & TRYTTEN, LLP

For decades, lenders have grappled

with, and sometimes stumbled over,

the anti-deficiency rules found in the

California Code of Civil Procedure

(“CCP”) sections 580a through 580e.

CCP §580d precludes a lender from

collecting a deficiency after a non-

judicial foreclosure.1 CCP §580b

prohibits a deficiency judgment on

a “purchase money loan.” Effective

January 1, 2013 that prohibition also

covers the refinance of a purchase

money loan unless the lender has

advanced new principal in the

refinance transaction.

There are many familiar

exceptions to these sweeping rules

including the “fraud exception” found

in the California Financial Code. For

example, under certain circumstances

§7460 allows a lender to recover

actual damages for fraud and limited

exemplary damages. Less familiar,

however, are recent expansions of the

anti-deficiency statutes for short sales.

Even when a borrower and a lender

agree to sell an underwater property

to a third party, and the parties agree

the lender may recover the deficiency,

CCP §580e now supersedes the

parties’ agreement.

In September of 2010, the

California Legislature added §580e

which, at the time, prohibited any

deficiency judgment for a short sale

involving a first deed of trust.2 Less

than a year later, in July of 2011, the

Legislature expanded this prohibition

to include short sales of dwellings

regarding any deed of trust.3 This

present version of §580e makes clear

that its provisions cannot be waived

by any agreement, including the

short sale agreement. Unlike other

legislation purportedly designed to

ameliorate the effects of the real estate

market collapse (such as the Perata

Mortgage Relief Act and portions of

the California Homeowner Bill of

Rights) §580e does not expire on its

own terms and will, unless repealed,

become a permanent fixture of

California short sale law.

With the recent increase of short

sales in California—from a few

thousand in 2008 to approximately

110,000 in 20104—many were

completed before the effective dates

of the amendments to §580e. Some of

these short sale agreements provided

that borrowers would remain

obligated to repay any deficiency

following the sale. These clauses

conflicted with the later enacted

§580e. The question remained

whether these contractual obligations

were enforceable if the short sales

were completed before the effective

dates of the amendments.

On July 17, 2013, the Court of

Appeal of California answered this

question in Bank of America, N.A. v.

Roberts, 2013 Cal. App. LEXIS 563 (Cal.

App. 5th Dist.) The Roberts court held

the amendment to §580e did not apply

retroactively.5 Bank of America was

thus entitled to enforce the deficiency

clause in its short sale agreement

because the sale was conducted before

the effective date of the applicable

amendment to §580e.

Six days later, on July 23, 2013,

the Court of Appeal filed its opinion

in Coker v. JP Morgan Chase Bank,

N.A., 2013 Cal. App. LEXIS 573 (Cal.

App. 4th Dist.) Although this court

was likewise presented with the

question of whether §580e applied


http://residentialmortgage.net

Legal

SUMMER 201316

Commercial

Implications for Lenders of California’s New EnergyUse Disclosure Requirements for Nonresidential Buildings

BY GREGG J. LOUBIER & EMILY L. MURRAY, ALLEN MATKINS LECK GAMBLE MALLORY & NATSIS, LLP

California’s recently enacted Energy

Use Disclosure Requirements will

be going into effect on September 1,

2013. Among other things, these

regulations require that nonresidential

building owners disclose the last 12

months of a building’s energy usage

to a prospective lender financing the

entire building, no later than submittal

of the loan application. While there

are no affirmative obligations upon

the lender to do anything with the

data that they receive, a building

owner’s failure to comply could

have transaction consequences.

Lenders should therefore be aware

of the requirements and document

compliance in the loan file and

transaction documents.

The Regulatory Requirements

California Public Resources Code

Section 25402.10 requires owners

of certain types nonresidential

buildings located in California

to disclose energy usage of such

buildings prior to the sale, lease, or

financing thereof. In December 2012,

after years of delays, the California

Energy Commission (“CEC”) adopted

regulations implementing Section

25402.10, and requiring compliance

on the following schedule:

On and after September 1, 2013,

for nonresidential buildings with a

total gross floor area of more than

50,000 square feet;

On and after January 1, 2014, for

nonresidential buildings with a total

gross floor area of more than 10,000

square feet; and

On and after July 1, 2014, for

nonresidential buildings with a total

gross floor area of more than 5,000

square feet.

Nonresidential buildings less than

5,000 square feet are not required

to comply with the regulations. The

regulations, sample disclosure forms,

and a FAQ are available on the CEC’s

website: http://www.energy.ca.gov/

ab1103/

Owners of nonresidential

buildings subject to the regulations

are required to register their buildings

with “Portfolio Manager,” the U.S.

Environmental Protection Agency’s

ENERGY STAR program online

tool. Within Portfolio Manager, the

building owner must request that

applicable utilities release the last 12

months of energy use data for the

building. The building owner then

downloads from Portfolio Manager

the following four documents: (1)

Disclosure Summary Sheet, (2)

Statement of Energy Performance,

(3) Data Checklist; and (4) Facility

Summary (the “Disclosure Data”).

The building owner must provide

the Disclosure Data to a prospective

lender financing the entire building,

no later than submittal of the loan

application. Thus, after September 1,

2013, the Disclosure Data should be

included with the loan application for

financing of a nonresidential building

with a total gross floor area of more

than 50,000 square feet.

Implications for Lenders

There are no affirmative

obligations for lenders under the

Energy Use Disclosure Requirements.

Lenders are not required to compel

owner compliance or to do anything

with the Disclosure Data that they

receive, nor are lenders required

to account for a building’s energy

consumption in financing that

building. Nevertheless, the hope of

the California legislature is that, over

time, lenders will begin to utilize

the Disclosure Data in financing


http://www.energy.ca.gov/ab1103/

http://www.energy.ca.gov/ab1103/


used the MAA system to create a

call to action on critical pieces of

legislation that have been proposed

in our state. When crucial votes are

before a particular committee or

in either house of the Legislature,

that system can be utilized to

engage the mortgage industry and

allow you to personally contact

your representative to voice your

position. Don’t work in a vacuum.

Find out how you can be a part of

the associations that support you and

your company.

The industry must stand together

to continue to educate policymakers

on what measures will strengthen

the housing recovery and what

EXECUTIVE DIRECTOR’S LETTER CONTINUED FROM PAGE 5

measures will dampen the progress

already made. If you are not already

a member of MAA, I encourage you

to join today and add to the strength

of the one voice for the real estate

finance industry.

•

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Gold SponsorsAllen Matkins; Arbor Commercial Mortgage; Ares Management; Bancorp; The Bank of Hemet; Barclays; Bolour Associates; BofI Federal Bank; CBRE; Centerline Capital Group; Celtic Bank; CIBC World Markets; CorAmerica Capital, LLC; Dougherty Funding, LLC; Goldman Sachs; Greystone; Guggenheim Commercial Real Estate Finance; Jefferies LoanCore, LCC; John Hancock Real Estate Finance Group; LoanDocSolutions; Morgan Stanley; Morrison Street Capital; Nikols Mortgage Funds; Prime Finance; RAIT Financial Trust; ReadyCap Commercial, LLC; Redwood Trust; Starwood Mortgage Capital; UBS Securities; Union Bank; Wells Fargo Commercial Mortgage; William Blair

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SUMMER 201318

establishing permanent, ongoing

sources of funding dedicated to

affordable housing development. It

would impose a fee of $75 to be paid

at the time of the recording of real

estate instrument, paper, or notice

required or permitted by law to be

recorded, with the exception of those

documents recorded in connection to

the a sale of a real property.

AB 561—Documentary Transfer Tax

In Assembly Revenue and Taxation

Committee.

AB 561 was made a two-year bill

at the author’s request, so it will not be

eligible to be heard in committee until

2014. AB 561 represents a potential

massive tax increase on commercial,

industrial, and residential rental

property by adopting the “change

in control” definition from property

tax law for purposes of determining

whether a documentary transfer tax

is due. The bill is a majority vote bill,

so it does not include the two-thirds

floor vote requirement that is typically

required in a bill that increases

taxes. Under this bill, a legal entity

(corporation, partnership, LLC, etc.)

that owns real estate and undergoes

a change in control for property tax

purposes would be required to pay

a transfer tax. Current law prohibits

the imposition of a documentary

transfer tax on the making or delivery

of a conveyance to make effective an

order of the Securities and Exchange

Commission, if specified requirements

are met. Recent amendments would

also eliminate that prohibition. CMBA

has an oppose position on the measure.

LEGISLATIVE REPORT CONTINUED FROM PAGE 7

NMLS (Nationwide Mortgage Licensing System) ID: 407870. Information is intended for Mortgage Professionals only and not intended for consumer use as defined by Section 1026.2 of Regulation Z, which implements the Truth-In-Lending Act. The guidelines are subject to change without notice and are subject to Kinecta Federal Credit Union underwriting guidelines and all applicable federal and state rules and regulations. Kinecta Federal Credit Union is an FHA Approved Lending Institution, and is not acting on behalf of or at the direction of HUD/FHA or the federal government. Availability of some loan products may vary in some states/counties and loan limits may apply. Certain loans available to $3.5MM on exception. 12928-07/13

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NEW MEMBERS

Welcome New MembersWelcome to the CMBA family!

ADVANTAGE CREDIT, INC.T.J. [email protected], CAIndustry Product Provider

ALT & ASSOCIATESVeronica [email protected], CAIndustry Professional Advisor

THE BANCORP BANKJohn [email protected] York, NYCommercial/Multi-Family Mortgage Banker

DIRECT VALUATION SOLUTIONS, INC.T. Michael [email protected], CAIndustry Technology Provider

CALYX SOFTWAREJack [email protected], TXIndustry Technology Provider

CITYLIGHTS FINANCIAL EXPRESS, INC.John M. Miller, [email protected] Hills, CAResidential Mortgage Banker

ELM SERVICES, LLCAugust [email protected] Park, KSIndustry Professional Advisor

FIRST RATE FINANCIAL GROUPGlenda [email protected] Village, CAResidential Mortgage Banker

FIRST TECH FEDERAL CREDIT UNIONPeter [email protected] View, CACommercial/Multi-Family Mortgage Banker

SUBURBAN MORTGAGE, INC.Thomas F. [email protected], AZResidential Mortgage Banker

TFLG, A LAW CORPORATIONEric [email protected], CAIndustry Professional Advisor

VANDALAY APPRAISALSChristopher [email protected], CAIndustry Product Provider

SB 426—Deficiency Judgments

Chaptered by Secretary of State.

Chapter 65, Statutes of 2013.

SB 426 prohibits a deficiency from

being owed or collected following

foreclosure. Language was amended

late in the legislative process that

addresses CMBA concerns regarding

prior versions of the bill. Specifically,

there were concerns regarding the

potential for the bill to negatively

impact situations where a deficiency

could be satisfied by a guarantor or from

assets other than the property securing

the mortgage loan, either in residential

or commercial transactions. Those

concerns were addressed with language

making it clear that the new statute does

not affect the liability that a guarantor,

pledgor or other surety might otherwise

have with respect to the deficiency,

or that might otherwise be satisfied in

whole or in part from other collateral

pledged to secure the obligation that is

the subject of the deficiency

AB 1091—Department of

Corporations Administrative Citation

Passed out of the Assembly &on the

Senate Floor.

AB 1091 originally would have

provided the Commissioner of the

Department of Corporations with

the ability to issue an administrative

citation for violations of the California

Finance Lenders Law or the Residential

Mortgage Lending Act for up to $2,500

per violation. This authority would be

similar to citation authority granted to

the Commissioner of the Department

of Real Estate in the prior legislative

session, but the bill did not include

many of the protections and qualifiers

to protect against excessive or punitive

fines. CMBA worked with the author’s

office and committee staff to align the

citation authority in AB 1091 with

the provisions previously enacted

with respect to the Department of

Real Estate. The bill passed out of the

Assembly Committee on Banking and

Finance with those positive changes.

As amended, the commissioner

shall give due consideration to the

appropriateness of the amount of the

fine with respect to factors such as the

gravity of the violation, the good faith

of the person cited, and the history of

previous violations. A citation issued

and a fine assessed while constituting

discipline for a violation of the law,

shall be in lieu of other administrative



SUMMER 201320

http://robertsandshapiro.com


discipline by the commissioner for

the offense or offenses cited, and the

citation against and payment of any

fine by a licensee shall not be reported

as disciplinary action taken by the

commissioner. The amendments

also allow for a citation to include a

violation or violations, whereas the

previous bill language focused on

a citation and up to $2,500 penalty

being assessed for each violation.

AB 905—Energy Efficiency

Environmental Fee Covenants

In Assembly Judiciary Committee.

AB 905 has been made a two-year

bill, which means it will not be eligible

to be heard in committee until 2014.

With respect to commercial properties

the AB 905 would allow for an

environmental covenant fee of up to

2% of the cash value of the property

for the purpose of financing energy

and water efficiency improvements.

CMBA opposes the measure because

the covenant fee will make commercial

parties less attractive to perspective

purchasers (due to the additional new

cost factor) and because the covenant

fee would survive not only a normal

sale but also foreclosure.

Recent amendments would

require the instrument containing

the covenant to include specified

information including a legal

description of the property subject

to the covenant, the dates for

commencement and expiration of

the covenant, and a specified notice

relating to the terms and conditions

of the covenant. The amendments

also would require the covenant to

be subject to and subordinate to the

lien and encumbrance of any first

mortgage or any other mortgage

against the property subject to certain

requirements. The covenant fee would

continue, however, to survive sale or

foreclosure as amended.

SB 30—Mortgage Debt Forgiveness

Passed out of the Senate & in

Assembly Revenue and Taxation

Committee.

The state Personal Income

Tax Law conforms state tax law

to specified provisions of Federal

law relating to the exclusion of

the discharge of qualified principal

residence indebtedness for tax

purposes. SB 30 would extend the

operation of the state exclusion of

the discharge of qualified principal

residence indebtedness to debt that

is discharged before January 1, 2014,

thereby extending the application of

the exclusion for an additional year.

SB 30 was recently amended so that

it would become operative only if SB

391, which would enact a new fee for

the recordation of certain real property

transaction documents, is enacted

and takes effect. CMBA has a support

position on SB 30.

AB 59—Local Parcel Taxes

impacting Commercial Properties

In Assembly Revenue and Taxation

Committee.

AB 59 has been made a two-year

bill, which means it will not be eligible

to be heard in committee until 2014.

This bill would allow school districts

to enact a real property parcel tax

at a higher level for businesses as

compared to residential property. The

bill also states that the amendments

are declaratory of existing law, and

shall apply to transactions predating

its enactment. CMBA has an oppose

position on this measure.

SCA 7—Real Property Tax

In Rules Committee.

The California Constitution

prohibits the ad valorem tax rate on

real property from exceeding 1% of the

full cash value of the property, subject

to certain exceptions. This measure

would create an additional exception

to the 1% limit for a rate imposed by a

city, county, city and county, or special

district to service bonded indebtedness

incurred to fund public library facilities,

that is approved by 55% of the voters

of the city, county, city and county, or

special district.

Article XIIIA of the state

constitution requires approval of

two-thirds of the electorate for local

governments to impose special taxes,

and intends that a tax imposed on a

group of taxpayers, rather than the

general public, requires a greater level

of voter sanction. This safeguard,

along with limits on property taxes,

was instituted by Proposition 13 more

than 30 years ago to protect taxpayers

at large from being overruled by a

minority group, and has since been

reinforced by the voters with passage

of Proposition 218 in 1996, and more

recently, Proposition 26 in 2010. SCA

7 would undo the safeguards put into

place by Proposition 1. CMBA has an

opposed position on SCA 7.

•


SUMMER 201322

Special Thanks to our 2013 President’s Council Sponsors

Affinity Programwww.BankersInsuranceService.com

www.WellsFargo.com/Mortgage

Your Continued Support for California’s Real Estate Finance Industry is Greatly Appreciated!

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5. Derive RBC factors for each risk

category

The new standards will determine

the RBC component for a life insurer’s

portfolio of commercial mortgage

loans using a process similar to that

now used to assign capital charges to

corporate bonds. Individual loans will

be grouped into risk cohorts based on

indicators of credit quality. Capital

requirements will then be assigned to

each risk cohort.

“New” Measures to Assess Risk of

Default

Standard and familiar commercial

mortgage industry measures, specifically

debt service coverage (DSC) and loan-

to-value (LTV), were adopted as good

indicators of default probability. RBC

for performing commercial mortgages

will therefore be based on these two

measures; however, RBC for non-

performing loans will continue to be

computed as before.

The new method of analysis will

assess the risk of assets held by life

companies so that regulators will be

able to identify weakly capitalized

companies. Capital requirements will

change over time as loan characteristics

and portfolio composition evolve with

market conditions.

This approach is similar to the

method used in the banking industry to

assess regulatory capital requirements

for CRE loan assets by focusing on the

ability of borrowers to make payments

as required by the terms of the loan.

Components of the New Model

The new model consists of the

following components:

1. Establish five risk cohorts for

commercial mortgages in good

standing and assign an RBC charge

to each cohort.

2. Assign each loan in good standing

to one of the risk cohorts based on

its DSC and LTV.

3. Apply the assigned RBC factor to

the statutory carrying value of each

loan, and sum the result in order to

determine the RBC for commercial

mortgages in good standing of the

company.

4. Assign mortgages over 90 days past

due or in the process of foreclosure

to a sixth and seventh category,

and apply factors of 18% and

23% respectively to the statutory

carrying value.

5. Assign Farm/Ag Loans in good

standing to one of the five risk

categories based on LTV only.

Analytical Tool—CMM

Commercial Mortgage Metrics

(CMM), an analytical model developed

and owned by Moody’s Analytics, will

be used to evaluate future credit risk for

commercial mortgages. CMM analyzes

credit events which fundamentally

depend on the financial condition of the

borrower to make required payments,

including: the value of the underlying

collateral, the market in which the

COMMERCIAL NEWS CONTINUED FROM PAGE 9



collateral is operating and the level of

associated debt.

CMM uses algorithms to assess

the likelihood of default based on

commercial mortgage loan experience

tracked from the 1970’s through 2010.

Data tracked includes both loan level

data and aggregate default rates for loans

held by life companies, banks and CMBS.

Debt Service Coverage (DSC)

Research has shown that DSC is

a powerful predictor of commercial

mortgage default risk and it is a largely

objective calculation that uses actual

revenues and expenses of the collateral

to determine NOI. For the purpose of

RBC, DSC will be calculated as the

ratio of the property’s NOI to the loan’s

standardized debt service.

NOI will be developed using

standards provided by the CREFC

Methodology for Analyzing and

Reporting Property Income Statements.

NOI will be adjusted to a 3 year rolling

average for the DSC calculation.

Standardized debt service will be

determined based on a fixed 25 year

amortization and either the actual

interest rate for fixed rate loans or the

higher of the current rate or the average

rate over the prior 12 months for

variable rate loans.

There are additional rules for

calculating DSC in special situations

such as Cross Collateralization or

Unavailable Operating Statements

resulting from: loans on owner

occupied properties, borrower not

providing annual operating statements,

construction loans, non-senior financing,

credit enhancements, or non-income-

producing land.



http://www.usfn.org

SUMMER 201324

Loan to Value (LTV)

LTV, which is a predictor of both

default risk and severity of loss, will

be determined by dividing the current

principal balance of all pari passu and

senior debt by the current property

value. Current property value will be

determined by adjusting the appraised

value from loan origination by any change

in value of the NCREIF Real Property

Price Index from the time of origination

to the time of the measurement.

Restructured Loans

Life company lenders have significant

flexibility when managing commercial

mortgages to respond prudently to

changes with a borrower, the property,

or the economic environment. As

portfolio lenders, life companies are

not typically limited by REMIC rules

or other provisions that restrict loan

modifications. Under the new rules,

performing modified commercial

mortgages, or restructured loans, will be

treated the same as other commercial

mortgages that are not restructured.

Documentation and Confidentiality

This new program will be based

on values and analyses that are not part

of a life company’s annual statement.

Documentation will be available

to the insurance commissioner to

examine on request as part of the RBC

report; however, confidentiality of the

documentation of these calculations

will be protected as required under

state statutes.

Conclusion

In light of tightening regulatory

scrutiny throughout the financial industry,

the NAIC has taken a proactive step to

improve the method of monitoring life

company portfolio commercial mortgage

loans in order to determine appropriate

levels of risk based capital. This forward

looking move should provide a more

objective and realistic assessment of

commercial mortgage default risk, and it

should continue to provide for the safety

and soundness of life companies that

make commercial mortgages now and in

the years ahead.

•


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asset bubble brought on by the

Fed’s current policy of pumping

into the economy the steroids of

successive Quantitative-Easings

and near zero Fed-Funds rates.

Other commercial property

sectors have also seen cap rate

compression but nothing as severe

as in the multifamily sector.

• FASB Accounting Changes to

lease accounting: The Financial

Accounting Standards Board

has proposed new accounting

rules that will put assets and

liabilities on a company’s books

for every lease over 12 months. In

commercial property finance we

convert leases into loans. Many

companies have a cost of capital

lower than the cost of funds

available to most commercial real

estate investors. These companies

may lose an important incentive

to lease versus own if all of their

lease transactions start to show

up on their financial statements.

We have no idea how the stock

market will react when the

liabilities of a company such as

Walgreens explode.

Williams: Clearly interest rate

volatility is the most important factor

in the market today. The uncertainty

regarding rates is driven to a large

extent by speculation as to when the

Federal Reserve will begin to take

the pedal off the gas. When the Fed

recently hinted it might soon pull back

on its stimulus activities rates shot up

dramatically. We’ve witnessed a nearly

100 basis point increase in the 10 year

treasury rate since the beginning of

May. If the Fed ends its buying activity

prematurely in the eyes of bond

investors we could see a further spike

in rates, and this would obviously have

a very adverse impact on our business.

Q: What action(s) can government

take (or not take) to help reinvigorate

the private investment market?

Johnson: The market prefers

stability. The greatest issue with

government intervention is that even

experts often struggle with predicting

what changes will be made and

how they will affect the market. My

perception is that in general when

rumors of government intervention

begin to circulate, such as a proposed

change in Proposition 13 or an increase

ROUNDTABLE ARTICLE CONTINUED FROM PAGE 10


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SUMMER 201326

in transfer/mortgage taxes, lenders

and borrows become hesitant in the

marketplace. This is often justifiable as

it makes it extremely difficult for them

to anticipate their expected returns.

This hurts the entire market.

Williams: As a result of the

financial crisis banks have been subject

to a great deal more scrutiny from

regulators. Given the depth of the

crisis one would expect to see more

regulation. However in our discussions

with banks it’s clear the federal

government has made it harder for

regulated financial institutions to make

loans. Community and regional banks

are the primary source of financing

for private investors, and to the extent

the federal government modifies its

policies to encourage lending the

results will be positive for the market.

Von Berg: I believe the

important part of the question is:

NOT TAKE. Investors and therefor

markets optimize for current known

conditions. It is best for us if Congress

and the California Legislature leave

us alone. Right now there is a great

deal of scary government noise out

there: threats to increase property

taxes; impose new transfer taxes;

eliminate the GSE’s, etc. For those

of us active in California the threat

of the split-roll tax, creating higher

taxes for commercial property, is a

big concern. Also a big concern is

the threat by the State to start to tax

changes in recorded ownership and

the placement of mortgage liens on

property. Each sector of commercial

real estate has its own battles. The

shopping center sector recently had a

victory with the imposition of sales

tax on internet purchases to level the

playing field. The self-storage industry

is fighting threats to impose sales tax

on the rental of storage units. We as

California mortgage bankers follow

all these sector issues on behalf of our

lender-clients.

Randles: The federal government

is doing its best to bolster capital

values by employing quantitative

easing, but it is time to ease off

the government printing press to

encourage a rise in interest rates. A rise

in interest rates will create increased

revenue for both business and

consumers alike. With higher interest

rates—an increase in the USTs by

50% from current levels—continues

to produce a mortgage rate below 6



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percent, which would be near a trailing

10-year average. This rate is believed

can still support current low cap rate

yields relative to property valuations.

With a slight give-back in the spread

gained from cap rates over the risk-free

rate will be required, but that is doable

as the current spread approaches two

times the long-term average.

Driving interest rates up should

be a goal of the Federal Reserve, as

retiring baby boomers will begin to

rely more on fixed income—savings,

bonds and real estate investments to

provide sources of income. If boomers

can live more in earnings than on

dipping into principal, than equities

can continue their upward trajectory

as investors will remain steady with

investments rather than creating exit

plans to get access to their principal for

day-to-day survival and interest and

dividends will save the day.

Lenders, too, will generate

increased interest income and will

likely be willing to lend more dollars.

Increased interest income will support

higher stock prices of lenders and

increased lending will improve

property values, and thereby return

greater confidence to the market.

Thus, the federal government

should think more about raising

interest rates as opposed to full

employment, as the baby boomer

demographic is large enough to move

markets as if greater interest and

dividends can be earned then increased

consumerism can take hold, which

then positively affects all pocketbooks.

The negative effect to all of this will be

the risk of property value erosion due

to a possible rise in cap rates expected

to run in tandem with interest rates.

However, the spread premium from

current cap rates over the risk-free

treasuries has been at an all time

high, and one could expect some of

this profit to be given back, thereby

becoming a relative non-event for

property values and cap rates.

As can be seen in this chart, the

spread between Average Cap Rates

and the 10 Year US Treasury yields is

the highest it has been since 2003. We

can even go back farther to show, but

the trailing ten year average spread

is 350 BPs and current it is 500 BPs.

Hence, there is a good 150 BPs that

can be given back in the form of rising

Treasurys. While not to mention that

mortgage spreads could tighten on

increased competition thereby keeping

all in mortgage rates down. Thus, the

risk to rising cap rates appears minimal.

Q: Which lending product or

regional market is poised for the

most growth (or decline)?

Williams: The revitalization

of the CMBS market has been an

encouraging trend in the market.

Last year conduits originated close to

$50 Billion in commercial mortgages

and this year the number is expected

to exceed $70 Billion. This is up

from effectively zero in the period

from 2008–2010. The continued

reemergence of CMBS as a viable

source of commercial financing has

had a significant positive impact on

property values in secondary markets.

These markets became effectively

illiquid in the immediate aftermath of

the financial crisis, so even in a rising

rate environment assuming CMBS

continues to grow I would expect to

see further value appreciation in the B

and C markets.

Von Berg: The area of lending

that will have the greatest growth will,

of course, be construction lending.

When you start from a number close

to zero, the percentage increase



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looks very big; it’s that dividing-by-

zero phenomenon. I am active in

Northern California that is actually

starting to see a construction boom;

in apartments, medical buildings and

corporate campuses. We are also

seeing spec office building getting

underway. Some new hotels may

even break ground. Developer clients

are saying there is a shortage of steel

workers and construction prices are

shooting up.

The regions that will see the most

growth will be those communities,

mainly coastal and urban, that attract

the innovators. The Silicon Valley, San

Francisco, San Diego, West LA are

worldwide magnets for different types

of talent. We live in a world today

where employers follow the talent;

not like prior generations where it

was the other way around. Also,

we are seeing a trend toward age-

ghettoization. 20 and 30 somethings

want to live with other 20 and 30

somethings. Once these people have

children too big to push around in

strollers they are off to join other

families in the burbs. The elderly also

are looking for their own attractions.

This new mobility and age-

ghettoization will create opportunities

for investors and lenders.

Randles: The CMBS (conduit)

mortgage product is poised for a

rise in production as it is the only

source of capital that is willing to

accept risk and supply interest-only

mortgages for secondary market

properties. The advantage of an I/O

loan to a 25 year amortizing loan is

150 to 200 BPs on borrowed capital

costs annually, which can be used

for a variety of investments such

as to mitigate risk for early prepay

strategies of a property investment.

CMBS will also supply a greater

amount of leverage for secondary

and some tertiary market located

properties, thereby, enhancing

property level yields and allowing

less equity at risk for investors.

Agency lending is expected to

decline with Federal mandate to

manage down the Agencies thereby

reducing the reliance on the Federal

government’s balance sheet. This

is expected to see a stabilizer in

property values for the multihousing

sector as less low-rate, high-lever debt

will be available.

Johnson: Fannie Mae and

Freddie Mac’s multifamily products

have greatly contributed to the

market over the last several years.

If the government decides to alter

or eliminate these agencies, it could

dramatically change the landscape

very quickly. While other lenders

would likely be willing to finance

Class A properties, the impact to

Class B & C properties could be

very substantial.

•

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Membership Directory listing?

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membership is inclusion in our

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make sure your company’s info is

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for more information!


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SUMMER 201330

the lender sent the borrowers a TPP

agreement stating that the lender

would notify the borrowers if they

qualified for a loan modification. The

borrowers complied with the TPP,

but were never informed whether

they qualified for a modification. The

borrowers sued for breach of contract

under California law to enforce the

TPP. The court noted that there was

a split in authority regarding whether

the TPP created an enforceable

contract, and found more persuasive

the reasoning of cases finding that the

TPP created an enforceable contract.

Relying heavily on Wigod, the court

in Sutcliffe held that the TPP must be

interpreted to require the lender to

modify the borrower’s loan once the

borrower has complied with the TPP.

Also relying on Wigod, the

California Fourth District Court of

Appeal in West v. JP Morgan Chase

Bank, N.A. (2013) 214 Cal.App.4th

780, recently held that a borrower

who complied with the TPP could

bring state law contract and tort

claims against her lender. In West,

the lender sent the borrower a letter

stating that if she complied with all

of the terms of the TPP, the lender

would “consider” a loan modification.

The lender later sent the borrower

a letter denying the borrower a

loan modification based upon the

lenders Net Present Value (“NPV”)

determination regarding the loan. The

letter also described a procedure by

which the borrower could contest

the accuracy of the lender’s NPV

calculation. The borrower alleged that

she timely requested a re-evaluation of

the NPV determination and continued

to make TPP payments while awaiting

the results. The complaint alleged the

lender later told the borrower that no

foreclosure sale had been scheduled,

but two days later the home was sold

at a trustee’s sale.

The court in West interpreted

the TPP to require the lender to

offer a permanent loan modification.

The court reasoned that because

Department of the Treasury Directive

09-01 and HAMP guidelines required

lenders to offer a permanent

modification if the borrower complied

with the TPP agreement, the lender

was required to offer a permanent

modification to the borrower that was

consistent with HAMP guidelines.

(West, at 798.) In addition, the court

held that the lender’s letter providing

for an appeal of the lender’s NPV

calculation was a modification of

the TPP agreement which could be

enforced by the borrower.

Notably, both the Wigod and West

courts found that regardless of the

actual language used by the lender, the

TPP agreement had to be interpreted

in a manner consistent with the

requirements of the HAMP guidelines.

In short, the courts made the HAMP

guidelines part of the TPP agreement

and allowed borrower enforcement of

the program guidelines through state

law breach of contract claims.

A Thorough Review of Agreements

and Forms Would Be Wise.

The decisions in Wigod, Sutcliffe

and West may signal a shift in the

courts favoring enforcement of

HAMP claims under state law

when the borrower has otherwise

complied with a TPP agreement.

West, in particular, demonstrates that

communications between lenders

and borrowers may also give rise to

state law contract and tort claims

against lenders. Loan servicers

should be careful in their borrower

communications to emphasize that

no promises are being made that

the borrower will qualify for a loan

modification and that a permanent

modification can only be granted if the

borrower has entered into and fully

performed under the TPP and satisfied

all other program requirements. Also,

loan servicers should make sure that

TPP agreements are only made after a

full review of the borrower’s financial

information and completion of the

NPV analysis. Finally, servicers should

be willing to enter into a permanent

loan modification if the borrower fully

performs under the TPP agreement.

•

1 See, Grajeda v. Bank of America, N.A. (2013

S.D. Cal.) 2013 WL 2481548 (borrowers

lacked standing and had no claim as third

party beneficiary of HAMP; and Juarez

v. Suntrust Mortgage, Inc. (2013 E.D.Cal.)

2013 WL 1983111; Nungary v. Litton Loan

Servicing, LP (2011) 200 Cal.App.4th 1499

and Lucia v. Wells Fargo Bank, N.A. (2011

N.D. Cal.) 798 F. Supp.2d. 1059, rejecting

the borrower’s argument that a TPP

agreement created an enforceable contract.

HAMP ENFORCEMENT CONTINUED FROM PAGE 11


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protection letters to lenders to provide

an assurance to the lender that the

underwriter’s issuing agent, a title/

escrow company or closing attorney,

appropriately handles the signing of

the loan documents and disbursement

of the loan proceeds. The American

Land Title Association (“ALTA”) has

promulgated various forms of the

closing protection letter since 1987.

Many forms are broad in scope and

cover all future transactions involving

the lender and issuing agent, but some

apply to a single transaction. A small

number of states have promulgated

a specific form and at least one state,

New York, does not allow them.

Likewise, in order to limit their

risk exposure, some title insurance

underwriters have made modifications

to the standard ALTA forms such as

adding clauses to include deadlines

for claims, precluding claims based

on consumer protection laws, or

establishing monetary limits to the

indemnity amount. A close review

of the form of the particular closing

protection letter at issue is necessary

to determine coverage.

2. Problems With Locating Closing

Protection Letters

It is not uncommon for a lender

to be unable to locate the closing

protection letter despite having

a policy and practice of requiring

them. One source for finding a

missing closing protection letter is

from the title/escrow company or

closing attorney that was responsible

for closing the transaction at issue.

They often have electronic access to

the title underwriter’s database of

historically issued closing protection

letters or may keep copies of closing

protection letters in their own files.

However, with the financial crisis

of 2008, many of the title/escrow

companies and closing attorneys are

no longer in business. The major title

underwriters have generally survived

the financial crisis although they may

have consolidated various brands.

It is not in the interest of the title

underwriter to locate an applicable

closing protection letter so expect that

the first response is that no such letter

exists. Significant discovery is often

necessary to obtain a letter or access

to the database to show an applicable

letter was issued.

3. Truth-In-Lending Claims For

PROTECTION LETTERS CONTINUED FROM PAGE 12


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SUMMER 201332

Notice of Right To Cancel Forms

In the mid-2000s, Plaintiffs’

attorneys began sending letters to

thousands of borrowers at a time

informing them that they may be

entitled to significant damages or to

rescind their loan if the borrower was

unable to locate two properly completed

copies of the NORTC. Cookie-cutter

claims poured in claiming that borrowers

were not provided appropriate NORTC

forms. Now, the assertion is commonly

made in defense to foreclosure actions.

The amounts at issue can be significant.

A borrower will claim to be entitled to

the return of all of the closing costs and

interest paid over the life of the loan

plus attorneys’ fees. Rescission of the

loan involves termination of the lender’s

security interest.

The good news for lenders is that

these claims may be covered by a

closing protection letter.

4. Language Of The Closing

Protection Letter That Provides

Indemnity

The typical closing protection

letter requires the title insurer to pay

the lender for “actual loss” “arising out

of” the closing and involving either:

Paragraph 1: Failure of the Issuing

Agent or Approved Attorney to

comply with your written closing

instructions to the extent that they

relate to (a) the status of the title to

said interest in land or the validity,

enforceability and priority of the

lien of said mortgage on said interest

in land, including the obtaining of

documents and the disbursements of

funds necessary to establish such status

of title or lien, or (b) the obtaining

of any other document, specifically

required by you, but only to the

extent that said instructions requires

a determination of the validity,

enforceability or effectiveness of such

other documents, or (c) the collection

and payment of funds due you, or

Paragraph 2: Fraud or dishonesty

[or negligence] of the Issuing Agent or

Approved Attorney in handling your

funds or documents in connection

with such closings.

Coverage Under Paragraph 1:

Many lenders’ standard form

closing instructions require that the

settlement agent provide two properly

PROTECTION LETTERS CONTINUED FROM PAGE 31


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completed NORTC forms to each

borrower. Paragraph 1 covers loss

related to a borrower’s TILA claim that

the settlement agent failed to provide

the appropriate NORTC forms as

required by the closing instructions.

The condition that the closing

instructions relate to the “priority of

the lien” is met because the remedy

for a TILA claim based on a NORTC

form is rescission of the loan which

voids the lien. Title underwriters have

agreed that actual losses caused by the

failure to follow closing instructions

resulting in a borrower’s claim that the

lien is invalid is covered by Paragraph

1 of the closing protection letter.

Coverage Under Paragraph 2:

The indemnity provided by

paragraph 2 covers an overlapping but

separate set of circumstances. Title

PROTECTION LETTERS CONTINUED FROM PAGE 32 insurers have agreed that if the issuing

agent failed to appropriately distribute

the NORTC forms as it was supposed

to, the lender’s actual loss would also

be covered by Paragraph 2. Notably,

the language of paragraph 2 does not

have the same limiting language to

matters that affect the status of title

or enforceability of the mortgage as

found in paragraph 1. However, some

closing protection letters may include

limiting language.

5. What Is The Scope Of The

“Actual Loss” Covered Under The

Closing Protection Letter

Actual loss is not defined in the

closing protection letter and there

is scant case law discussing “actual

loss” as used in the closing protection

letter. As a result, significant debate

often ensues over what is recoverable

under “actual loss.” A few examples of

the areas often debated are whether

“actual loss” includes attorneys’ fees

and loan write-offs.

Whenever a borrower asserts a

TILA claim based on a NORTC form,

lenders and their counsel should

diligently analyze whether they have a

claim for indemnity based on a closing

protection letter. Coverage under a

closing protection letter may result in

a significant recovery.

•

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SUMMER 201334

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M O R T G A G E B A N K I N G L AW

bankers. The major position was that

the direct marketing or promotion of

a service provider to the consumer by

a real estate brokerage company or its

sales agent, such as verbal pitches or

handing out promotional materials, was

a referral in all cases. HUD stated that it

reached this conclusion because of the

unique position of the broker or sales

agent to influence the client’s selection

of a settlement service provider. This

was a bold and overly broad assertion

by HUD in an effort to use its position

to reshape the marketplace.

HUD did, however, distinguish

direct marketing of the client or

consumer from general marketing

to the public, which it found to be a

compensable service under RESPA.

General marketing includes the

mortgage banker having a presence or

link on the real estate broker’s website

and joint newspaper or broadcast

advertising. Some ambiguity remains

about HUD’s comments on the presence

of brochures or marketing materials in

real estate sales offices when there is

no consumer specific direct marketing

effort associated with them.

RESPA is now administered by the

Consumer Financial Protection Bureau

(CFPB). Although the CFPB has not

yet focused on marketing agreements,

when it does it will address them in a

broad, and possibly restrictive, manner

with reference to all settlement service

providers. It can be expected to adopt

expansive positions beyond RESPA

under its authority to protect the

consumer. Hence, care and foresight

are advisable in reviewing or entering

into marketing agreements.

•

MARKETING AGREEMENTS CONTINUED FROM PAGE 13

dollar. Although much of the reporting

and promotion of the plan focuses on

aiding distressed borrowers, over 70%

of loans on which the city made offers

are current (444 out of 624). To get an

idea of the scope of the program, the

aggregate face value of the 624 loans

is $241.98 million, with the current

market value estimated by MRP and

the city to be $177.16 million. The

32 servicers who received offers will

have an opportunity to avoid eminent

domain by selling the loans to the

city to be rewritten to current (or less

than current) market value, giving the

affected homeowners instant equity.

But, as the axiom goes, there is

no free lunch. What will be the true

cost of this program? As previously

documented in these pages and

discussed in more detail below, there

are significant questions about the

legal/constitutional validity of the

program. But even if there weren’t,

the negative impact on both the

community and national mortgage

market could very well outweigh any

legitimate benefit to homeowners

already enjoying an increase in their

home values in a recovering market.

(According to Zillow, values in the

affected area have gained 22.7% in

the last year, equating to roughly

$38,000 in value on an average home

value of $205,700.

At the local level, it seems

unavoidable that virtually anyone with

‘skin in the game’ will have to account

for the new risk by layering additional

cost on future loans—to be paid for

by future borrowers. MBA President/

CEO David Stevens summed up the

EMINENT DOMAIN CONTINUED FROM PAGE 14


Unemployment Mortgage Assistance Up to $3,000 per month for as long as 12 months

Mortgage Reinstatement Assistance Program

Helps homeowners catch up on their pastdue payments with up

to $25,000

Principal Reduction ProgramReduces a homeowner’s principal by as much

as $100,000

Transition Assistance Program

Up to $5,000 to help homeowners relocate after executing a short sale or

deed-in-lieu of foreclosure

http://www.sgordonlegal.com

http://keepyourhomecalifornia.org

Unemployment Mortgage Assistance Up to $3,000 per month for as long as 12 months

Mortgage Reinstatement Assistance Program

Helps homeowners catch up on their pastdue payments with up

to $25,000

Principal Reduction ProgramReduces a homeowner’s principal by as much

as $100,000

Transition Assistance Program

Up to $5,000 to help homeowners relocate after executing a short sale or

deed-in-lieu of foreclosure

http://keepyourhomecalifornia.org

Careers with Momentum

© 2013 PrimeLending, A PlainsCapital Company. PrimeLending, a PlainsCapital Company, is an equal opportunity employer and ensures that all applicants will receive consideration for employment without regard to race, color, religion, gender, national origin, age, disability, genetic, pregnancy or any other status as protected by federal, state or local law.

PrimeLending Loan O�cers deliver unsurpassed service and quality support

throughout the entire lending process.

We work together to have a profound and positive impact on the lives of all we

serve, from every client to each referral source.

Our Core Convictions

▪ Honesty and Integrity

▪ People Centric Culture

▪ Agile

▪ Service Beyond Expectations

▪ One Team, One Purpose

PrimeLending is looking to grow our familyand we want you to be a part of it.

PrimeLending, a PlainsCapital Company, has a foundation of strength, stability and resilience to help employees grow their

businesses and have a positive e�ect on homebuyers, referral partners and communities.

As a PrimeLending employee, you can expect to receive support and service in a compelling corporate culture.

Ask me how to begin your career with momentum.

Caleb MittelstetVP, Northern California, NMLS: 373457

Cell: 916.317.3072 | Fax: [email protected]

3721 Douglas Blvd. #210 | Roseville, CA 95661

http://primelending.com


local impact with a sober warning to

city officials: “Mortgages in Richmond

will become more expensive, making

neighboring cities more desirable for

prospective home buyers, which will

hold down home values for everyone

in Richmond. In short, the program is

ill-advised and likely unconstitutional

and will add to Richmond’s problems

rather than solve them.”

Although the program is presently

limited to loans in Richmond, the

national implications are potentially

devastating. Ratings firm Moody’s

noted in a report on August 5th

that widespread use of eminent

domain authority to seize loans from

investors at severe discounts would

“increase losses on RMBS,” adding

that the losses would be “significant.”

Last year, when the epicenter of

all things eminent domain was in

San Bernardino, Fitch Ratings noted

the specific negative impact the

program could have on private-label

securities. And, when government

and industry seem to be united in at

least the belief that private money

(read: no more Fannie/Freddie market

hegemony) must return to the market

to ensure its long-term health, it

seems counterproductive to embark

on a program that would likely

weaken private investors and, in turn,

strengthen the market’s appetite for

GSE-backed loans, which are exempt

from the Richmond program and

MRP proposals.

As for the legal battle that’s likely

to ensue, the soon-to-be opponents

have already laid out the path they

intend to take. A recent white

paper published by the Securities

and Financial Markets Association

(SIFMA), prepared by attorneys with

O’Melveny & Myers LLP, reveals that

there are two main arguments that

industry will pursue in challenging

the legal validity of “eminent domain”

loan seizures by municipal entities:

First, industry will likely argue

that the program is purely for the

private gain of MRP and therefore

violates the “public use” requirement

of the U.S. Constitution’s Fifth

Amendment. Under a long line of U.S.

Supreme Court cases, this provision

requires that seizing of private

property under the Fifth Amendment’s

“takings clause” must provide a

benefit for the community. Industry

representatives and others contend

that while the Supreme Court has

ruled, in Kelo vs. City of New London

(2005), that private property can be

seized from one owner and given to

another, the “public use” language in

the Constitution still requires a public

benefit. But, unlike the comprehensive

redevelopment project in Kelo, the

MRP proposals involve seizing

hundreds of loans from dozens of

different investors, with no guarantee

that the homeowners involved won’t

default. It is difficult to see a public

benefit in trading public funds for bad

loans and transforming municipalities

into foreclosing creditors—especially

when the actual creditors on the loans

that are performing will likely to sue

to prevent it.

Secondly, industry will likely

claim that the seizures represent a

violation of the ‘just compensation’

clause of the Fifth Amendment,

as MRP’s plan (including the one

underway in Richmond) explicitly

hinges on paying servicers less than

market value for the subject loans

in order to provide a return to the

MRP investors. Industry will argue

this procedure does not constitute

‘just compensation.’ There are also

several other claims that industry

representatives are likely to make,

including: (1) that by rewriting

mortgage contracts beyond the

municipality’s borders, the program

violates the “due process,” “contracts”

and “interstate commerce” clauses of

the U.S. Constitution, and (2) that the

program violates numerous title and

lien priority laws as well as various

securities laws to the extent the

loans are part of a mortgage backed

securitization. How all of this will

shake out in the courts is by no means

certain. But the City of Richmond’s

recent actions make it almost certain

that we are about to find out.

Stay tuned to www.CMBA.

com to get the latest on any further

eminent domain developments in

Richmond or elsewhere.

•

EMINENT DOMAIN CONTINUED FROM PAGE 34

INDUSTRY NEWSMEMBERSHIPCONFERENCE INFORMATION

RESOURCESand much more!

Visit us on the web atWWW.CMBA.COM

http://www.cmba.com

http://www.cmba.com

SUMMER 201338

retroactively, it did not reach the

issue. Instead Coker focused on

§580b—the provision that prohibits

a deficiency judgment following

foreclosure on a purchase money

loan. Coker recognized that a short

sale is not a foreclosure, but held that

§580b applies to a purchase money

loan regardless of the mode of sale.

Thus §580b prohibited a deficiency

judgment following the short sale

even though the borrower agreed in

the short sale agreement to remain

responsible for any deficiency.

The court found it unnecessary to

determine whether §580e applied

retroactively because §580b prohibited

a deficiency judgment.

It may appear that the holding

in Coker swallows the rule of Roberts.

After all, the finding that §580e is not

retroactive seems ineffectual if §580b

will nonetheless prohibit a deficiency

judgment following a short sale. But

the distinction lies in the nature of

the loan at issue—i.e. whether it is

a purchase money loan. The Roberts

court addressed a short sale on a

home equity loan (non-purchase

money loan); therefore §580b was

not applicable and since the short

sale was conducted before the

amendment to §580e the deficiency

clause was enforceable. The Coker

court, on the other hand, addressed a

short sale on a purchase money loan,

which warranted the anti-deficiency

protection of §580b.

In summary, sections 580b &

580e, as interpreted through Coker and

Roberts, provide broad anti-deficiency

protection, even for borrowers who

executed short sale agreements

that preserved deficiency liability.

Nonetheless, there is an exception.

Short sale agreements that assigned

deficiency liability for non-purchase

money loans remain enforceable in two

narrow circumstances: 1) the loan is

secured by a first deed of trust and the

sale was completed before September

30, 2010; or 2) the loan is secured by a

second deed of trust and the sale was

completed before July 15, 2011.

Following the recent amendments

to sections 580b & 580e and the

holding of Coker, the future of

short sale deficiency judgments on

residential loans in California looks

grim for lenders. But the holding of

Coker leads to an interesting tension

perhaps not considered by the court.

Although newly amended §580b(c)

prohibits a deficiency judgment on any

loan originated after January 1, 2013

that refinances a purchase money loan,

there is an exception to the extent the

lender advances new principal (termed

a “new advance”.) If §580b is indeed

applicable “regardless of the mode of

sale” (to short sales) as stated by the

court in Coker, does the exception

in §580b(c) for any “new advance”

conflict with the broader prohibition

on deficiency judgments following

short sales in §580e? If so, Coker may

breathe new life into a narrow class of

short sale deficiency judgments going

forward, unintentionally reviving a

specter of the deficiency liability it

helped send to the grave.

•

1 A deficiency exists if the total debt exceeds

the fair market value at the time of sale.

2 Stats. 2010, ch. 701 (Sen. Bill No. 931) § 1,

p. 4069

3 Stats. 2011, ch. 82 (Sen. Bill No. 458) §

1, p. 1954; the statute is limited to short

sale of a “dwelling of not more than four

units” and applies only when the short

sale is conducted “in accordance with the

written consent” of the lender. Notably, the

anti-deficiency protections of §580e are not

available if the borrower is a corporation,

limited liability company, limited

partnership or political subdivision of the

state; the protections are also not available

to the extent the borrower commits fraud

with respect to the sale or waste with

regard to the real property.

4 Sen. Judiciary Com., Report on Sen. Bill

No. 458 (2011-2012 Reg. Sess.) as amended

April 4, 2011, p. 2

5 The Court of Appeal also determined that

the “one-form-of-action rule” in CCP §726

was not applicable to a short sale.

SHORT SALE DEFICIENCIES CONTINUED FROM PAGE 15

CMBA has

created profiles on

networking sites

Facebook and LinkedIn


transactions, perhaps by offering

preferred terms to the owners of

energy efficient buildings.

Potential implications for lenders

lie primarily with a building owner’s

failure to comply, or compliance

irregularities. There is no specific

regulatory penalty for owner non-

compliance, as the government does

not have an enforcement mechanism.

However, a failure to disclose a

building’s energy usage could be

viewed as a material failure by the

owner to comply with applicable

law. Moreover, a failure to timely

commence the disclosure process

could result in transaction delays,

particularly if title companies require

proof of compliance.

Therefore, lenders should be

aware of the disclosure requirements,

and take care to document timely

compliance in the loan file. Lenders

should also consider updating their

transaction documents to require

assurances of compliance, such as

representation and warranty by the

owner for the benefit of the lender.

•

CALIFORNIA NEW ENERGY CONTINUED FROM PAGE 16

FOLLOW CMBA ON

TWITTER!Make sure and follow CMBA

(@CAMortgBankers) on Twitter

to get the latest updates on

legislative, regulatory issues,

and conference and event info!

Are You Ready for NewCompliance Challenges in 2014?

Sign up now for CMBA’s AnnualWestern States Legal Issues Conference

December 2, 2013Westin South Coast Plaza | Costa Mesa, CA

Topics to include:Federal & State Legislative & Regulatory Update

Litigation UpdateAgency UpdateServicing Panel

Compliance Management Strategies

� anks to our sponsorsLunch

Break

GoldInterthinx

Primary Residential Mortgage, Inc.Smith Dollar PC

� e StoneHill Group, Inc.

Register Now at www.CMBA.com!

SUMMER 201340

PHOTO GALLERY

JULY 9–11, 2013, SAN FRANCISCO, CA

41st Annual Western Secondary Market Conference

Prior to the start of the conference, CMBA’s 2013-2014 Board of Directors

was sworn in. Congratulations to Dennis Sidbury (right) of Northmarq

Capital, our new chairman, and CMG Financial’s Chris George (left),

CMBA’s Residential President.

This year’s conference included a stirring and inspiring presentation by adventurer Aron Ralston, subject of the Oscar-nominated film 127 Hours, starring

James Franco. Photo from left: Matt Ostrander, Parkside Lending, LLC, Conference Chairman; Ralston; Chris George, CMG Financial.

The board also welcomed several new members, including Don Curtis of OSC

/ A Breckenridge Company, and Annemaria Allen of The Compliance Group.


We also heard about MBA’s plan for the future of the GSEs from

David Stevens, President and CEO of the Mortgage Bankers Association.

The conference was chock-full with informative panels, including this one

dealing with broker-to-banker and mini-correspondent issues. From left:

Rob Mally, Flagstar Bank; Bill Moffatt, Plaza Home Mortgage, Inc.;

Matt Ostrander, Parkside Lending, LLC, and Mark Zierott, Cole Taylor.

Thanks to First Mortgage Corporation for their support! From left:

Mark Hayes; Andrea Hanna; Sharon Magnuson; and Clem Ziroli, Jr.

The conference wouldn’t be possible without the support and sponsorship of

great companies like Bankers Insurance Services, represented by Maria Heller.

SUMMER 201342

PHOTO GALLERY

AUGUST 4–6, 2013, LAS VEGAS, NV

18th Annual Western States Loan Servicing Conference

This year’s Western States Loan Servicing Conference gave attendees timely information and knowledge about what lies ahead for servicers and the

industry. This panel focused on the technological changes industry is going through. From left: Shawn Burke, ServiceLink; Chad Mosley, Mortgage

Contracting Services; Caroline Ritchie, Lender Processing Services; Bob Phelps, TD Service Company; Jane Mason, Clarifire; and Tommy A. Duncan,

CMT, Quality Mortgage Services.

Our REO panel provided details about foreclosures, short sales, auction

and trends. Back row (from left): Dave Sunlin, Auction.com; Tom Moon,

Pacific Moon Real Estate; Shane Ross, Selene Finance; Scott Sawyer,

Peak Loan Servicing; and Paul Mousseau, Nationstar Mortgage.

The conference was led by our co-chairs this year, Chad Mosley and

Caroline Reaves of Mortgage Contracting Services. Special thanks for all

their hard work!


Thanks to our sponsors, including

Safeguard Properties, a Titanium sponsor.

Represented here by Tod Burket.

We also want to thank longtime

supporters of the conference, like

Andrew Pomerantz of WeAppear.

com/Hoffman and Pomerantz, LLP.

Pictured here with his son, Spencer.

Strong supporters of CMBA and the conference

also includes San Ramon-based Got Appraisals!

From left: David Barnes and Nick Roberson.

SUMMER 201344

Building Stronger Partnerships

Starting off in Los Angeles, Susan met with Joe Lynyak (center) and

Christine A. Scheuneman (right), partners with Pillsbury Winthrop Shaw

Pittman LLP. The firm is a full-service practice, and Joe and Christine are

partners in the firm’s Financial Services practice. For more information, call

the Los Angeles office at (213) 488-7265 or go to www.pillsburylaw.com.

Next, Susan stopped off at the offices of GreenBox Loans, Inc. and met

with company executive Raymond Eshaghian, another longtime supporter

of CMBA. To find out more about GreenBox, a residential lender, call

(800) 919-1086, or go to www.greenboxloans.com.

Staying in the area, Susan stopped off at the San Rafael offices of Axis

Appraisal Management to meet with company executives and staff. Thanks

to Axis for their support of CMBA! For more information about the appraisal

management firm, go to www.axis-amc.com or call (888) 806-AXIS.

Heading next to the San Francisco Bay Area, Susan met with executives

at Moss Adams, LLP, a leader in assurance, tax, consulting, risk

management, transaction, and wealth services. Thanks to the company

for their support! To find out more, go to www.mossadams.com, or call the

San Francisco offices at (415) 956-1500.

http://www.pillsburylaw.com

http://www.greenboxloans.com

http://www.axis-amc.com

http://www.mossadams.com


Just south of Sacramento, at the offices of TFLG, a real estate litigation

law firm specializing in the representation of lenders, loan servicers and

REO servicers. Thanks to Eric Fernandez (center), and Viana Barbu (left),

for their time! To find out more about the firm, go to www.tflglaw.com or

call their Davis offices at (530) 750-3700.

Heading downstairs (literally!), Susan met with CMBA’s Commercial

President, Kevin Randles, a senior vice president with CBRE, specializing

in the origination of debt and equity financing for commercial and

multihousing properties located in the Western U.S. For more information,

call the Sacramento offices at (916) 446-6800 or go to www.cbre.us.

Traveling to the San Diego area, Susan met first with Joel Incorvaia of

Incorvaia and Associates, a law firm dealing primarily with real estate

and business matters. Joel has been a supporter of CMBA for a number of

years. To find out more, call the Del Mar offices at (858) 259-2220 or go

to www.incorlaw.com.

Finishing up the visit to San Francisco, Susan visited the offices of

Weintraub Tobin, meeting with firm shareholder Keith Kandarian, whose

practice involves banking & finance and corporate work. To find out

more, call Keith at (415) 772-9620, or go to www.weintraub.com.

http://www.tflglaw.com

http://www.cbre.us

http://www.incorlaw.com

http://www.weintraub.com

SUMMER 201346

Next, Susan stopped off at the offices of Quality

Claims Management, a premier provider of

customized insurance recovery solutions. Thanks

to (from left) Amy Goss; Deborah Martin-

Dominick; Elena Savage; Colleen Tretola;

Colleen Gorman; and Anne Schupack for their

time and support! For more information, go to

www.qualityclaims.com or call (866) 450-1183.

Continuing the tour of San Diego, Susan visited

with Integrity First Financial Group, a direct

lender that joined CMBA earlier this year.

Thanks to company execs (from left) Anthony

Balsamo, Trevor Gates, Susan, and Alex Barnett

for their support! Call (888) 467-3075 or go to

www.integritydirectmortgage.com to find out more.

Susan completed her San Diego trip with a stop

at the Plaza Home Mortgage offices, meeting

with company president and CEO Kevin Parra.

Kevin also serves on CMBA’s board of directors.

Plaza is a wholesale and correspondent lender.

To learn more, call (858) 346-1208 or go to

www.plazahomemortgage.com.

http://www.qualityclaims.com

http://www.integritydirectmortgage.com

http://www.plazahomemortgage.com

California Mortgage Bankers Association • 2013 Media Planner / page 1 of 5

California Mortgage Bankers Association l www.cmba.comThe California Mortgage Bankers Association serves to represent the residential and commercial real estate finance industry before all governing bodies. CMBA encourages and promotes sound business practices and honesty in marketing, origination, lending and servicing of mortgage loans through our educational and networking opportunities.

California Mortgage Bankers Association publications - distribution, 2,500 to 15,000 per issue

For advertising questions / reservations: (530) 642-0111 / [email protected]

CALIFORNIA MORTGAGE BANKERS ASSOCIATION

THE VOICE OF REAL ESTATE FINANCE

2013 Media PlannerCALIFORNIA MORTGAGE BANKERS ASSOCIATION

CMBA is excited to announce our new publication program for 2013. Your company will be able to efficiently maximize your marketing dollars,

influence current and prospective clients through CMBA’s uniquely targeted advertising program which offers:

Year-round exposure –to the real estate financial marketplace via print and digital media

Readers purchasing power –finance billions of dollars in property sales annually and

spend billion + annually on products and services

Special discount packages –which includes FREE ads for advertisers who participate in multiple CMBA publications

Frequency, brand recognition or target market – Optimize your marketing through - one or many - CMBA promotion platforms:

California Mortgage Finance News

CMBA Legal News

CMBA Legislative & Buyer’s Guide

CMBA E-News - monthly electronic bulletin

CMBA Website

CMBA publications: Reaching your target

CALIFORNIA MORTGAGE BANKERS ASSOCIATION555 Capitol Mall, Suite 440Sacramento, CA 95814

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