Back in 2018, there were about 2.8 million Libor-based adjustable-rate mortgages in the United States, representing roughly $1 trillion in loans or about 10% of the total outstanding mortgage market at the time,
The Consumer Financial Protection Bureau finalized a rule in 2021 facilitating the transition away from the Libor interest rate index for consumer financial products. The rule established requirements for how creditors must select replacement indices for existing Libor-linked consumer loans after April 1, 2022.
Congress passed the federal Adjustable Interest Rate (Libor) Act in March 2022. As required by the Act, the Fed published regulations identifying benchmark replacement rates based on SOFR on December 16, 2022.
The FHA and the GSEs adopted regulations to implement the Libor ACT, but it may surprise many people in the mortgage industry that this did not end the risk that these loans pose to lenders and servicers due to the transition. Why? Because, some say, virtually none of the lenders in the industry bothered to give borrowers formal notice of the change.
Now the change from Libor was idiotic and unnecessary, but the Fed and other US regulators just wanted to kill Libor after the global financial controversy involving the manipulation of this key benchmark. The industry mistakenly took the federal legislation and rule making regarding Libor as a blanket safe harbor for mortgage servicers.
"Most adjustable-rate notes have contractual language requiring that
"Action by the federal government, including creation of SOFR, succeeds in giving a basis for continued calculation of rates on adjustable loans, but it does not alleviate or eliminate the contractual obligation to mail notice to the borrowers as to how their interest rate will be calculated," he told NMN. Editorial note: The Alternative Reference Rate Committee within the New York Fed created SOFR
In every foreclosure of an adjustable rate loan, Hladik observed, a borrower will have the ability to challenge the foreclosure because the lender/servicer did not meet a condition precedent for collecting the interest: mailing notice as required by the mortgage note.
If all of this good news from the City of Brotherly love is not enough, a Philadelphia judge is threatening to hold Sheriff Rochelle Bilal in contempt of court, a dramatic escalation in a monthslong legal saga stemming from her failure to promptly distribute funds and mortgage deeds.
Attorneys involved say that the Sheriff's office, which handles foreclosure auctions, failed to properly endorse thousands of title deeds in sales of properties over the past five years. A defective deed does not automatically invalidate the mortgage note, but it severely compromises the lender's security interest in the property.
Sheriff Bilal has confessed under oath to not knowing what is happening with the real estate transactions and seemed to be generally uninformed about the responsibilities of her office.
"The legal proceedings began in May, when Judge Patrick ordered [Sheriff] Bilal to turn over records from every real estate sale since she took office in 2020,"
"The court's intervention has forced the sheriff to publicly acknowledge the officer's shortcomings under her watch, while also prying loose financial information that likely would have never become public from property auctions," the Inquirer noted.
Bilal's attorney said that the Sheriff, an elected Democrat, would fight any attempt by the court to appoint a forensic auditor to examine how the proceeds of property auctions were distributed during her watch.
Bottom line is that if your lender funded loans from the property auctions of the Philadelphia's Sheriff's Office since 2020, then there is a pretty good chance that your deed is faulty and that there also may be taxes and other escrowed payments that have not been made by the Sheriff's office.
To the South, moving from Philly to Baltimore and from the sublime to the ridiculous, we find the birthplace of Edgar Alan Poe has become ground zero for fraud involving debt service coverage ratio (DSCR) loans. Investors around the country have poured into DSCR loans, causing volumes nationally to surge 50% in just the past 12 months.
The only problem is that the
Numerous lenders from across the country collectively lent more than $100 million to the New York investors who purchased homes in Baltimore,
"Now, many of the homes underpinning that debt are in foreclosure or caught up in bankruptcy proceedings. That means the lenders and private equity funds who own these DSCR loans likely won't get repaid in full — and could lose tens of millions of dollars."
Pete Mills, a senior vice president at the Mortgage Bankers Association, called the situation in Baltimore "a sophisticated scheme" in which buyers worked with appraisers and title companies to intentionally skirt reporting requirements and keep lenders in the dark.
"It is important to make clear that this was real estate fraud, not mortgage fraud," Mills said in a statement. He alleged that both lenders and tenants whose homes are in foreclosure had been harmed, but the fact is that volume starved lenders have been eager to make DSCR loans and sell them to investors with little or no due diligence.
DSCR loans went from contributing roughly 10% of loan dollars backing single-family rental properties in Baltimore in 2019 to about 40%, more than $150 million, last year, according to an analysis of national home mortgage data done by The Banner.
Unfortunately, when loan volumes fall in a constrained market, fraud usually increases as well. Residential mortgage volumes have fallen sharply since the start of 2026. DSCR loan volume grew more than 50% year-over-year in 2024, with subsequent cohort data showing jumps of 94% to 97% year-over-year.
As one veteran non-QM lender told NMN about the growing levels of fraud seen in DSCR loans in Baltimore and other US cities: "This is an old scam and ongoing for the past few years. There is not enough due diligence done by the various lenders."
