Legal Issues

Browse articles from all of our Newsletters related to Legal Issues.

November 24, 2014 - Inside the CFPB

Settlements with Ocwen, Flagstar, SunTrust Instructive for Servicers

The mortgage servicing settlements the CFPB obtained with Ocwen, SunTrust Bank and Flagstar Bank have much to teach the rest of the industry about landmines to avoid. During a webinar sponsored last week by Inside Mortgage Finance, an affiliated newsletter, Allyson Baker, a former CFPB attorney and partner at the Venable law firm in Washington, DC, highlighted the importance of trends seen in the three enforcement cases. “Number one is the bureau’s and other law enforcement agencies’ ongoing joint monitoring of the space,” which suggests the industry is likely to see more joint enforcement actions in the future, Baker told event participants. The second important trend is the very large civil money penalties and restitution that are resulting in tens ...

November 24, 2014 - Inside the CFPB

CFPB Fines Subprime Auto Dealer Over Debt Collection Practices

Last week, the CFPB initiated its first enforcement action against a “buy-here, pay-here” car dealer, DriveTime, which it accused of harming consumers by allegedly making harassing debt collection calls and providing inaccurate credit information to credit reporting agencies. DriveTime must pay $8 million as a civil money penalty, end what the bureau characterized as unfair debt collection tactics, revise its credit reporting practices, and arrange for harmed consumers to obtain free credit reports. Phoenix-based DriveTime Automotive Group Inc. and its finance company, DT Acceptance Corp., make up the largest buy-here, pay-here car dealer in the nation, according to the CFPB. “Buy-here, pay-here” means that the dealer sells the car as well as originates and services the auto loan. These kinds ...

November 24, 2014 - Inside the CFPB

CFPB Orders Franklin Loan Corp. to Pay Borrowers $730k in Restitution

The CFPB recently ordered Franklin Loan Corp., an independent, residential mortgage banker in Palm Desert, CA, to pay $730,000 to consumers the bureau alleges were harmed by the company’s practice of giving employees bonuses for steering consumers into loans with higher interest rates. The bureau also has asked a federal district court to approve a consent order requiring the company to end its allegedly illegal compensation system and refund the consumers it harmed. This is the second loan originator compensation settlement the CFPB has obtained, the first being the case involving Castle & Cooke Mortgage. In this case, according to the CFPB, Franklin Loan originated approximately $887 million in loans between 2011 and 2013. “From June 2011 to October 2013, ...

November 21, 2014 - Inside FHA Lending

Around the Industry

Essent EVP to Retire in March. Adolfo Marzol, Essent Guaranty’s executive vice president, will step down, effective March 31, 2015, after five years with the company. VA Hybrid Adjustable-Rate Mortgage Pooling Eligibility. The Department of Veterans Affairs recently expanded the type of loans it will guarantee to include 7/1 and 10/1 hybrid ARMs. While Ginnie Mae’s Mortgage-Backed Securities Guide does not bar the inclusion of hybrid ARMs in Ginnie MBS, GinnieNET is not currently able to process these loans for pool processing. GinnieNET is being updated in order to accommodate VA 7/1 and 10/1 hybrid ARM pooling. Effective with issuances dated on or after Dec. 1, 2014, VA 7/1 and 10/1 hybrid ARMs will be eligible for pooling. CFPB Publishes Revised List of Rural and Underserved Counties. The Consumer Financial Protection Bureau has published its 2015 list of ...

November 21, 2014 - Inside FHA Lending

Wells Fargo, DOJ Settlement Talks Hit Wall

Wells Fargo and the Department of Justice are reportedly at an impasse in their settlement talks in connection with a lawsuit accusing the bank of improper underwriting and false certification of certain FHA-insured loans. In an e-mailed statement to Inside FHA Lending, a bank spokesperson said Wells Fargo’s good faith effort to work with the federal government to resolve the complaint “has not yet resulted in a settlement.” Nonetheless, the bank “will move forward with presenting [its] case in support of [its] prudent and responsible FHA lending practices, which have produced high-quality FHA loans with delinquency rates that are half the industry average,” the spokesperson added. This week, citing an unidentified source, Bloomberg reported that lawyers for the government and the bank have told the presiding judge in the case that they ...

November 21, 2014 - Inside FHA Lending

HECM Portfolio Down to Negative in FY 2014

The economic value of the FHA’s Home Equity Conversion Mortgage legacy portfolio fell to negative $0.9 billion in fiscal 2014 due mainly to volatility in long-term house prices and interest rates, according to the latest independent actuarial report on the health of the Mutual Mortgage Insurance Fund. The latest result was a significant improvement from FY 2012, when the fund stood at negative $2.8 billion. In fiscal 2013, the HECM portfolio’s economic value of positive $6.5 billion appeared to be a whopping change from the previous year but that amount reflected a $4.6 billion cash infusion from the forward program and from the $1.7 billion mandatory appropriation, the report clarified. The report also showed a corresponding decline in the HECM capital ratio to negative 1.20 percent. Actuarial projections for fiscal 2015 place the HECM portfolio’s economic value at negative $1.1 billion. The fund’s capital resources for ...

November 21, 2014 - Inside FHA Lending

MMIF Value, Capital Ratio Turns Positive

FHA Mutual Mortgage Insurance Fund ended fiscal 2014 in the black but was still far short of its statutory reserve requirement, prompting critics in Congress to renew their cries for FHA reform. An independent actuarial report sent to Congress this week showed that the MMI Fund now stands at $4.8 billion after a gain of nearly $6 billion over the last year. For the first time since 2009, the fund’s capital ratio also crossed into positive territory at 0.41 percent, up 52 basis points from the negative 0.11 percent posted in fiscal 2013. Overall, the economic value of the fund has risen by $21 billion over the last two years because of the aggressive steps the agency took to stabilize and strengthen the fund, the report said. Policy changes led to improved underwriting for single-family mortgages, increased mortgage insurance premiums, stronger loss mitigation policies and higher recoveries, it added. In addition, with ...

November 20, 2014 - Inside Mortgage Finance

CFPB Enforcement Actions Highlight What Mortgage Servicers Need to Look Out For

A careful examination of the big-ticket enforcement actions the Consumer Financial Protection Bureau has brought against leading mortgage servicers can help others in the space avoid the same fate and protect their bottom lines, according to top industry legal experts. During an Inside Mortgage Finance webinar earlier this week, Allyson Baker, a former CFPB attorney and partner at the Venable law firm in Washington, DC, discussed the importance of trends seen in a handful of servicing enforcement cases against Ocwen, SunTrust Bank and Flagstar Bank. “I think...

November 14, 2014 - Inside The GSEs

Enterprise Endnotes

Ohio Court Sides With Freddie in Pre-Crisis Shareholder Lawsuit. An Ohio federal court late last week tossed out a shareholder class action lawsuit that accused Freddie Mac of lying about its exposure to subprime loans prior to the 2008 financial crisis. The suit, filed in 2008 by the Ohio Public Employees Retirement System, claimed that Freddie artificially inflated the value of its common stock by making false public financial statements that obscured its subprime exposure.OPERS claimed it lost as much as $27.2 million as a result of Freddie’s alleged cover-up of its subprime exposure.

November 14, 2014 - Inside MBS & ABS

NCUA Sues Trustee While BofA, US Bancorp Agree to Settle Trustee Suit; Morgan Stanley, WIC Face Probes

The National Credit Union Administration this week sued Deutsche Bank National Trust Co., alleging the bank violated federal and state laws by failing to carry out its duties as trustee for 121 non-agency MBS trusts. According to the complaint filed in federal district court in Manhattan, Deutsche Bank failed to protect five corporate credit unions – U.S. Central, WesCorp, Members United, Southwest and Constitution – that purchased $140 billion in RMBS issued from the trusts between 2004 and 2007. The securities lost...

November 14, 2014 - Inside MBS & ABS

SFIG Releases Second Round of Consensus Standards Aimed at Restoring Confidence in Non-Agency RMBS

As part of its RMBS 3.0 initiative, the Structured Finance Industry Group this week released the second installment of its recommended best practices for the non-agency MBS market. New and revised material was released for each of the three major “work streams” in the project, which broadly cover: representation-and-warranty issues and repurchases; due diligence, data and disclosure; and the roles of transaction parties and bondholder communications. The 54 new pages released this week bring the cumulative work to about 125 pages, including appendices. In the reps-and-warranties section, new provisions cover...

November 13, 2014 - Inside Mortgage Finance

Wells Fargo Seeking Resolution of FHA Fraud Allegations, Experts Doubt DOJ Will be Less Aggressive Going Forward

Wells Fargo is in discussions with the Department of Justice about a possible resolution of alleged improper origination and servicing of FHA loans that resulted in huge paid claims and significant losses to the agency’s Mutual Mortgage Insurance Fund. The ongoing talks are related to a complaint filed by the government in federal district court in Manhattan on Oct. 9, 2012, alleging, among other things, that Wells Fargo improperly certified FHA mortgages between 2001 and 2010 for insurance even though it knew the underwriting was flawed. The complaint said that the bank’s insurance claims should not have been paid when some of the loans later defaulted. It further alleged that Wells Fargo did not disclose the loans’ deficiencies to the FHA before making insurance claims. On Dec. 1, 2012, Wells Fargo filed...

November 10, 2014 - Inside the CFPB

Worth Noting/The Week Ahead

Disparate Impact Theory of Legal Liability Struck Down. Last week, the U.S. District Court for the District of Columbia dealt a heavy blow to the position of the Department of Housing and Urban Development – as well as the CFPB – that disparate impact claims are cognizable under the Fair Housing Act. In American Insurance Association v. U.S. Department of Housing and Urban Development, the judge struck down HUD’s disparate impact rule, determining that the Fair Housing Act prohibits “disparate treatment only.” In promulgating its disparate impact rule, the court said HUD exceeded its authority under the Administrative Procedures Act. “The ruling is in line with what we have long believed the law to be and consistent with what we argued in ...

November 10, 2014 - Inside the CFPB

Castle & Cooke Mortgage Files For Dismissal in RESPA, TILA Dispute

Castle & Cooke Mortgage late last month filed a motion to dismiss a putative class-action brought by one of the aggrieved parties who had already been compensated under the terms of the settlement the lender reached late last year with the CFPB. In Luis Cabrales v. Castle & Cooke Mortgage LLC, plaintiff Luis Cabrales contends that the lender improperly compensated its loan officers by giving them bonuses for putting customers in more expensive loans than what they qualified for. The plaintiff sued for violation of the Truth in Lending Act – a claim that Castle & Cooke is not challenging at this point. However, Cabrales also brought other causes of action: violation of Section 8 of the Real Estate Settlement Practices ...

November 10, 2014 - Inside the CFPB

CFPB Asks Court to Permanently Bar Morgan Drexen from Debt Biz

Last month, the long-running dispute between the CFPB and Morgan Drexen, a debt settlement firm, took another turn – this time with the bureau filing a motion for summary judgment in which it seeks an injunction permanently barring the firm and its owner and CEO, Walter Ledda, from providing debt relief services in the future. The bureau also is pushing for $90.7 million from the defendants in restitution, as well as a civil money penalty in an unspecified amount. The CFPB said it brought this action to stop a nationwide debt settlement “scheme that preys on financially distressed consumers who are in debt.” Defendants Morgan Drexen and Ledda and the attorneys with whom they are affiliated promise consumers that they will ...

November 10, 2014 - Inside the CFPB

Sidestep Common Pitfalls to Avoid UDAAP Enforcement Actions

There are a host of legal land mines that mortgage lenders must avoid if they want to keep from becoming the target of a CFPB enforcement action under its unfair, deceptive or abusive acts or practices (UDAAP) authority, according to top legal experts. Andrea Mitchell, a partner with the BuckleySandler law firm, told attendees at an Inside Mortgage Finance webinar last week that there are a number of representations lenders should stay away from in their marketing pitches. “Say what you mean and mean what you say,” Mitchell said. She then rattled off a list of potentially problematic terms to avoid, such as “free” or “no cost,” “best rates available,” “fastest” or “faster than…,” “improve/repair your credit” or “eliminate your ...

November 10, 2014 - Inside the CFPB

Mortgage Servicer Compliance Mixed, Supervisory Report Shows

In the first half of 2014, CFPB examiners conducted targeted reviews for compliance with the bureau’s new mortgage servicing rules and found mixed results, according to the agency’s latest supervisory highlight report. For example, the new rules require servicers to maintain policies and procedures to achieve specific objectives in areas such as loss mitigation, servicing transfers and service provider oversight. “In reviewing this area, examiners found that the policies and procedures at several servicers appeared to be reasonably designed to meet the specific objectives laid out in the rule,” said the new report. For instance, some servicers’ policies and procedures clearly outlined the ways in which they access and provide timely and accurate information. “These policies and procedures included specific ...

November 10, 2014 - Inside the CFPB

Bureau IDs Unfair, Deceptive Student Loan Servicer Practices

CFPB examiners have identified a number of unfair or deceptive acts or practices on the part of an unspecified number of bank and nonbank servicers of federal and private student loans, according to the latest supervisory highlights report released recently by the bureau. One problematic practice involved “one or more supervised entities” allocating partial payments in a way that maximizes late fees. CFPB examiners have reviewed how servicers allocate payments when a borrower pays less than the total amount due on all of the loans in the borrower’s account, according to the report. “Examiners found that partial payments were being allocated proportionally ... among all the loans, resulting in all of the loans in a borrower’s account becoming delinquent,” said ...

November 7, 2014 - Inside FHA Lending

Reinstating 97s Could Delay Recovery for MMIF

Reinstating the government-sponsored enterprises’ conventional 97 percent loan-to-value mortgage programs would benefit first-time homebuyers and borrowers with little or no cash reserves for a downpayment but adversely affect the FHA Mutual Mortgage Insurance Fund, according to analysts. If limited to first-time homebuyers, a conventional 97 LTV loan would offer some new homeowners better home loan financing than FHA and provide greater access to mortgage credit, said analysts with Bank of America Merrill Lynch. For years, Fannie Mae offered conventional 97 LTV loans through its MyCommmunityMortgage to help first-time homebuyers purchase a home with only a 3 percent downpayment. It was a better alternative to FHA’s main product, which required a 3.5 percent downpayment. The Fannie product also had less ...

November 7, 2014 - Inside FHA Lending

HUD Rejects CFPB’s QM Cure Provision

The Department of Housing and Urban Development will not take on the new points-and-fees cure provision for qualified mortgages adopted by the Consumer Financial Protection Bureau. The agency is concerned that lenders might inadvertently violate the FHA’s statutory 3.5 percent downpayment requirement. HUD adopted other changes in the CFPB’s revised final rule on ability to repay and qualified mortgages (ATR/QM) to maintain consistency but saw no need for any further ability to cure points-and-fees errors. Reimbursement of any excess points and fees to the borrower could take away from the mandatory 3.5 percent downpayment and render the loan ineligible for FHA insurance, the agency explained in a notice published in the Nov. 3 Federal Register. HUD said it would provide lender guidance under its own QM rule on ...

November 7, 2014 - Inside MBS & ABS

Ally Financial Facing Subpoenas From the SEC, Justice Department Over MBS, Subprime Auto ABS

Ally Financial recently received subpoenas and document requests from the Securities and Exchange Commission and the Department of Justice over a broad array of lending and securitization activities, the company revealed in a recent Form 10-Q disclosure filed with the SEC. “The subpoenas and document requests from the SEC include information covering a wide range of mortgage-related matters, and the subpoenas received from the DOJ include a broad request for documentation and other information in connection with its investigations of potential fraud and other potential legal violations related to MBS, as well as the origination and/or underwriting of mortgage loans,” the company said. In addition, Ally recently received...

November 6, 2014 - Inside Mortgage Finance

Lessons Learned From Enforcement Trends Help Lenders Cope With New UDAAP Environment

As mortgage lenders continue to feel their way around the world of unfair, deceptive or abusive acts or practices (UDAAP) as defined by the Dodd-Frank Act and the Consumer Financial Protection Bureau, there is much they can learn from a close examination of recent enforcement actions. During a webinar this week sponsored by Inside Mortgage Finance, Mercedes Tunstall, a partner with Pillsbury Winthrop Shaw Pittman, said CFPB consent orders show that the bureau is watching telemarketing practices very closely. The CFPB is...

November 6, 2014 - Inside Mortgage Finance

PHH Mortgage Dodges a Bullet, For Now, as Judge Throws Out Punitive Damages in Loan Mod Dispute

PHH Mortgage may avoid taking a big hit in a legal dispute with a homeowner after the company mishandled his mortgage modification. Last week, in Linza v. PHH Mortgage Corp. et al., Yuba County (CA) Superior Court Judge Stephen Berrier threw out most of the jury’s original $16.2 million verdict against the company, including all punitive damages. Instead, the judge said that homeowner Phillip Linza is entitled to only $159,000 in damages. The case stems...

October 31, 2014 - Inside The GSEs

Federal Judge Shuts Down Mass. AG’s GSE Foreclosure Lawsuit

A federal judge last week dismissed claims brought by the state of Massachusetts that Fannie Mae and Freddie Mac violated state law by putting limits on the sale of pre- and post-foreclosure homes. State Attorney General Martha Coakley filed suit in June against the Federal Housing Finance Agency, as GSE conservator, alleging that Fannie and Freddie are violating state law by refusing to negotiate lower terms for distressed Bay State homeowners.

October 31, 2014 - Inside The GSEs

Shareholders Announce $170M Legal Settlement with Fannie

Fannie Mae will pay $170 million to certain investors to settle a consolidated class-action lawsuit that alleges the GSE misrepresented its exposure to subprime loans in the run up to the 2008 mortgage crisis. The lead plaintiffs in the case include the Massachusetts Pension Reserves Investment Management Board and State Boston Retirement Board, which represent a class of common stockholders. The Tennessee Consolidated Retirement System represents a class of preferred stockholders.

October 31, 2014 - Inside The GSEs

GSE Shareholder Petitions Iowa Court to Reverse DC’s Dismissal

An Iowa-based GSE last week asked a federal court in the state to give “no weight” to a ruling earlier this month by a federal judge who dismissed litigation by other GSE shareholders, including Perry Capital and Fairholme Funds. Continental Western Insurance Co. filed papers in U.S. District Court for the Southern District of Iowa Central Division arguing that Judge Royce Lamberth was “simply wrong” in his interpretation of the Housing and Economic Recovery Act of 2008 and his HERA-based rationale to shut down shareholders’ suits in DC.

October 31, 2014 - Inside MBS & ABS

SEC Deadlock Stalls $16.7 Billion BofA Settlement; Fannie Will Pay $170 Million to Shareholders to End Pre-Crisis Suit

An internal conflict within the Securities and Exchange Commission is reportedly holding up final resolution of Bank of America’s record $16.65 billion settlement with government agencies. The settlement, announced last August, is stalled due to a partisan dispute among the five SEC commissioners over granting a waiver on additional sanctions that would take hold when the settlement is entered into court. The sanctions, if enacted, could adversely affect...

October 27, 2014 - Inside the CFPB

CFPB Needs to Address ‘Rolling Delinquencies,’ ABA Survey Says

The CFPB needs to provide additional clarity on how a “rolling delinquency” triggers the 120-day delinquency period required before a mortgage servicer can begin foreclosure under the bureau’s mortgage servicing rule, the American Bankers Association said. A rolling delinquency occurs when a delinquent borrower resumes making some payments but never becomes current on the loan. In a letter to the CFPB last week, the ABA noted that in responding to inquiries as to how banks should apply the 120-day rule in rolling delinquency situations, the CFPB has informally recommended that servicers look to common interpretations of “delinquency,” which may be found in best practices, industry standards, state law and contract law. “Because borrowers have a private right of action to ...

October 27, 2014 - Inside the CFPB

Up to 490,000 Homeowners May be Hurt by Flawed Servicing Records

A recent study by Nationwide Title Clearing, Inc., a research and document-processing vendor for the residential mortgage industry, found that nearly half a million homeowners could be negatively affected by inaccurate servicing records. NTC found that out of 2,285,665 servicing database records that were verified against the collateral file, 24,490 loans (1.07 percent) had significant discrepancies. When viewed against roughly 49 million outstanding residential mortgages, that suggests as many as 490,000 homeowners could be affected by faulty servicer database records. “These database inaccuracies might have represented ‘acceptable risk’ in times past – but in today’s compliance-oriented landscape, such a high number of errors could bring increased scrutiny and penalties from CFPB regulators, not to mention ...

October 27, 2014 - Inside the CFPB

Castle & Cooke Now Facing Class Action From Prior Claimants

The $13 million settlement reached between the CFPB and Castle & Cooke Mortgage Co. back in November 2013 was not the end of the dispute for the mortgage lender. It now faces a possible class-action lawsuit brought by one of the aggrieved parties who had already been compensated under the terms of the settlement with the bureau. Homeowner Luis Cabrales, on behalf of himself and perhaps in excess of 9,500 similarly situated individuals, recently filed his complaint in the U.S. District Court for the Eastern District of California, Fresno Division. The class, so far, has not been certified. The legal argument is that the applicable statutes of limitation of the claims alleged in the new complaint were “tolled” (suspended or ...

October 27, 2014 - Inside the CFPB

Bureau Promulgates Final Rule On Annual Privacy Notices

The CFPB finalized its annual privacy notices rule last week, leaving it unchanged from its May proposed rule, other than some technical and clarifying revisions. The new rule creates an alternative delivery method for the privacy disclosure required every year under Regulation P (the implementation regulation of the Gramm-Leach-Bliley Act), which financial institutions will be able to use under certain circumstances. The new rule applies to both banks and those nonbanks that are within the CFPB’s jurisdiction under the GLBA. More specifically, the rule applies to “financial institutions,” as defined in Reg P. That includes banks, credit unions, mortgage companies, mortgage brokers and debt buyers. Under the CFPB’s new rule, financial institutions will be able to post privacy notices online ...

October 24, 2014 - Inside FHA Lending

State FHA Originations Up, Golden State Leads

Total originations of FHA forward and home-equity conversion mortgages across the U.S. and in the territories increased from the first to the second quarter, with California accounting for the lion’s share of all FHA loans produced by state. Production of FHA-insured forwards, including jumbo loans, and HECM loans during the first half of 2014 totaled $68.3 billion, a whopping 49.0 percent drop from volume reported over the same period last year. On the other hand, total originations in the 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands rose 11.5 percent quarter-over-quarter. Originations totaled $36.1 billion in the second quarter. Forward mortgages accounted for $61.1 billion of new FHA-insured loans originated during the first six months while HECMs comprised $7.2 billion of loans produced over ... [ 1 Chart ]

October 24, 2014 - Inside FHA Lending

FHA Notifying Lenders of Possible MRB Action

The FHA warned it would soon be sending notices to lenders who are overdue in completing their annual recertification packages, a rule violation that could land them before the Mortgagee Review Board for disciplinary action. Lenders who were unable to submit their recertification packages containing the required financial reports, annual recertification statements and the renewal fee payment will be receiving notices of deficiency from the FHA. FHA extended the filing deadline to June 27, 30 days after the deployment of the new Lender Electronic Assessment Portal (LEAP) system used in the lender recertification process. Traditionally, lenders were required to access both FHA Connection and Lender Assessment Sub-System (LASS) to complete the annual recertification process. LEAP will now enable lenders to complete all ...

October 24, 2014 - Inside FHA Lending

HUD to Let Property-Flipping Waiver Lapse

Buyers, sellers and real estate agents have until the end of 2014 to take advantage of the property-flipping waiver that the FHA had put in place in 2010 to increase the availability of affordable homes for first-time homebuyers and other purchasers. After Dec. 31, the Department of Housing and Urban Development will let the waiver lapse subjecting investors again to property-flipping prohibitions. Lenders say the waiver program worked well in underserved and hard-hit areas but HUD believes the program’s initial objectives have been attained and that prudence and vigilance are again called for to prevent abuses and potential losses. As a rule, the FHA prohibits “property flipping” in which a recently acquired property undergoes a minor makeover, is appraised with an artificially high value and is resold for a considerable profit. Most property flipping occurs within a matter of days, which prompted HUD to ...

October 24, 2014 - Inside FHA Lending

FHA Silent on MIP, Will Review Pricing Further

A top-ranking housing official soon to become acting FHA commissioner assured lenders that the agency is reviewing the pricing of its mortgage insurance, but made no promises during the annual convention of the Mortgage Bankers Association held this week in Las Vegas. Biniam Gebre, now the deputy assistant secretary for housing at the Department of Housing and Urban Development, said the agency “has been reviewing our premium levels on a regular basis.” He added, “I’m sure we will come back to it over the next couple months and next year.” The pricing of FHA mortgage insurance premiums “is a very important question,” Gebre said. Many in the mortgage industry have been focused on the availability of credit, but the affordability of credit is important as well, he added. “We believe we reached a tipping point when we raised premiums in response to ...

October 24, 2014 - Inside FHA Lending

GNMA Raises Net Worth, Liquidity Tests

Ginnie Mae this week provided new details to the long-anticipated plan for increased issuer net worth and liquidity and a new performance scoring method for issuer activity – changes that could adversely affect small issuers and portfolio servicers. In remarks at the Mortgage Bankers Association’s annual convention in Las Vegas, Ginnie Mae President Ted Tozer said the changes are part of a larger effort to ensure the continuing flexibility and availability of the agency’s mortgage-backed securities program to as many entities as possible. New types of issuers and counterparties have entered the agency-backed MBS market in the wake of the financial crisis, which called for adjustments and tailored approaches to the evolving housing finance market, Tozer noted. Tozer said both policy changes and staff expertise will ensure the success of ...

October 24, 2014 - Inside MBS & ABS

Court Dismisses $210 Million MBS Suit Against Merrill Lynch, Plaintiffs’ Counsel Admonished

A New York trial court judge has dismissed an investor lawsuit alleging fraud by Merrill Lynch in the sale of residential MBS because the plaintiffs failed to meet the state’s pleading standard for fraud claims. Justice Charles Ramos of the New York Supreme Court dismissed an amended complaint brought by Phoenix Light SF Ltd. and other investors against Merrill Lynch and several big banks. The complaint combined...

October 17, 2014 - Inside The GSEs

Appeals Court Upholds Fannie’s ‘Sue-and-Be-Sued’ Charter Clause

In a 2-to-1 decision earlier this month, a three-judge panel of the Ninth Circuit Court of Appeals upheld a lower court ruling that tossed out state-law claims brought against Fannie Mae by homeowners fighting foreclosure proceedings. Homeowners in Lightfoot et al v. Cedant Mortgage Corp. et al sued Fannie and others in California state court after foreclosure proceedings were initiated against their homes. The homeowners filed the state court action after their prior federal claims were dismissed in federal district court.

October 17, 2014 - Inside The GSEs

Judge Denies Former Fannie CFO Discovery Access in GSE Lawsuit

GSE shareholder advocates remain undeterred following a federal judge’s decision late this week to deny a former Fannie Mae executive access to confidential evidence unearthed as part of the discovery process in an investors’ lawsuit against the government. Earlier this year, Fairholme Funds hired former Fannie Chief Financial Officer Timothy Howard as a consultant to assist its law firm Coopers and Kirk. Lawyers for the government want to deny Howard access to some 800,000 pieces of discovery in investors’ litigation challenging Uncle Sam’s “net-worth sweep” of GSE profits.

October 17, 2014 - Inside MBS & ABS

Experts: New AG Likely to Continue Aggressive Use of FIRREA Against Industry, Individual Executives Targeted

Mortgage industry executives should be aware and expect continued – and perhaps even more muscular – use of a 1989 federal law by government prosecutors to pursue mortgage-related claims. At the direction of Attorney General Eric Holder, the Department of Justice embraced the use of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) in MBS lawsuits. Despite Holder’s announcement late last month that he is stepping down after six years as AG, there is...

October 13, 2014 - Inside the CFPB

Disparate Impact Returns to SCOTUS; Will CFPB Weigh In?

Earlier this month, the Supreme Court of the United States agreed to accept Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., the latest legal dispute over disparate impact to reach it corridors. However, a ruling by the SCOTUS could extend beyond the mortgage space. The TDHCA distributes the tax credits associated with the Low-Income Housing Tax Credit Program throughout Texas. The ICP is a 501(c)(3) non-profit that works to place low-income, mostly African-American Section 8 tenants in Dallas’s more affluent and largely white suburban neighborhoods. The ICP brought suit against TDHCA back in 2008, accusing the housing agency of disproportionately authorizing LIHTCs for affordable housing developments in largely minority ...

October 13, 2014 - Inside the CFPB

Legal Experts Vary in Opinion of Bureau’s UDAAP Action on Flagstar

The CFPB’s recent, high-profile $35 million enforcement action against Flagstar Bank over its mortgage servicing practices got the attention not only of the industry but also many legal professionals serving it. One industry legal expert, speaking off the record, said it was heavy handed, at best, for the CFPB to use its authority over unfair, deceptive or abusive acts or practices (UDAAP) to assert legal claims over activities that took place prior to its servicing rule. “It somewhat makes a mockery of the whole rulemaking process by effectively implementing regulations before the regulations were even proposed, much less finalized,” he said. “It also reinforces the fear of making loans to any borrower who presents any risk of default because there ...

October 13, 2014 - Inside the CFPB

MSAs at Issue in Action Brought Against Michigan Title Company

Marketing services agreements (MSAs) continue to be a flashpoint for conflict between title companies and the CFPB under the Real Estate Settlement Procedures Act. Late last month, the bureau ordered Lighthouse Title, a Michigan title insurance agency, to pay $200,000 for entering into what the CFPB characterized as illegal quid pro quo referral agreements, in violation of RESPA. According to the bureau, Lighthouse Title entered into MSAs with various companies, such as real estate brokers, with the understanding that the companies would refer mortgage closing and title insurance business to Lighthouse. “The agreements made it appear as if the payments would be based on marketing services the companies were supposed to provide to Lighthouse,” the CFPB said. “However, Lighthouse actually ...

October 13, 2014 - Inside the CFPB

CFPB Brings $3.1M Action Against M&T Over Checking Accounts

A routine supervisory examination ultimately led the CFPB to bring a $3.1 million enforcement action against M&T Bank because of its allegedly deceptive advertising practices for checking accounts. The bureau accused M&T Bank, based in Buffalo, NY, of luring in consumers with promises of “no strings attached” free checking, without disclosing key eligibility requirements. When consumers failed to meet the requirements, M&T automatically switched them to checking accounts with fees, the CFPB alleged. Under the terms of the consent order, announced last week, the bank will provide $2.9 million in refunds to approximately 59,000 consumers (roughly $49.15 each), and will pay a $200,000 penalty for the alleged violations. According to the consent order, during the period between Jan. 1, 2009, ...

October 13, 2014 - Inside the CFPB

Bureau Proposes No-Action Letter Policy to Foster Emerging Products

The CFPB is proposing to implement a limited “no-action letter” policy to reduce the regulatory uncertainty that may exist for certain emerging products or services which stand to benefit consumers. This proposed policy is suited for new financial products or services where there may be uncertainty about how they fit in the existing statutes and regulations – assuming such products or services hold the promise for significant consumer benefit, according to CFPB Financial Analyst Dan Quan. The proposed policy would allow bureau staff to send a no-action letter to a company informing it that the CFPB isn’t planning to recommend initiation of supervisory or enforcement action in connection with a firm’s offering or provision of a new product. Also, an NAL ...


What is it going to take to convince lenders to loosen the credit box (i.e., remove underwriting overlays)?

The recent rep and warranty changes announced by the Federal Housing Finance Agency should go a long way in protecting lenders from future buybacks and help expand mortgage credit.
There won’t be any significant elimination of underwriting overlays until the government stops seeking huge mortgage-related penalties and settlements from lenders.
There shouldn’t be any expansion of the mortgage credit box since looser underwriting is what caused the recent mortgage crisis.

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