Legal Issues

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

May 2, 2016 - Inside the CFPB

Other News in Brief

Mortgage Warehouse Volume at Horizon Bancorp Declines in First Quarter, TRID Remains an Issue. Horizon Bancorp announced recently that its mortgage warehouse lending efforts were down in the first quarter of 2016. The bank had $119.88 million in mortgage warehouse loans on its balance sheet at the end of the first quarter of 2016, down 17.2 percent from the previous quarter and down 33.0 percent from the first quarter of 2015.... Flagstar Boosts Originations and Income in 1Q16, Is Comfortable with TRID. Flagstar Bancorp reported an increase in originations and net income for the first quarter of 2016 with company executives noting that the bank is comfortable with the TRID mortgage disclosure requirements...


May 2, 2016 - Inside the CFPB

CFPB Solicits Comment on Sample Periodic Statements in Bankruptcy

The CFPB recently reopened the public comment period on whether mortgage servicers should be required to provide periodic statements for borrowers who have filed for bankruptcy. Specifically, the bureau is seeking public input on the consumer testing it did on its proposed sample periodic statement forms. Back in January 2013, the bureau issued its two mortgage servicing final rules. The agency clarified and revised those rules during the summer and fall of 2013 in two packages of amendments. Then in October 2013, the CFPB clarified compliance requirements in relation to successors in interest, early intervention requirements, bankruptcy law, and the Fair Debt Collection Practices Act (FDCPA), through an interim final rule (IFR) and a contemporaneous compliance bulletin. Among other things,...


May 2, 2016 - Inside the CFPB

CHLA Calls for Balanced Treatment Of Nonbank Mortgage Lenders

In the continuing wake of industry concerns about the TRID disclosure rule and worries about large retroactive fines, the Community Home Lenders Association says the CFPB should provide more balanced regulatory and enforcement policies toward smaller nonbank mortgage lenders and improve compliance guidance and due process. Asserting that nonbank mortgage lenders, including community-based lenders, have recently “led the way” in providing access to mortgage credit and providing more personalized loan servicing, the CHLA said “any regulatory policies that have the effect of imposing a disproportionate compliance burden on smaller lender/servicers can accelerate industry consolidation – which in turn can result in fewer consumer choices and less personalized service.” The trade group had three main recommendations for the bureau, the first of ...


May 2, 2016 - Inside the CFPB

It Was Thought TRID ‘Scratch & Dent’ Market Would Fade. It Hasn’t

The secondary market for mortgages with TRID errors has yet to lose any steam, even though it was anticipated that the action would fade by now. That’s the assessment of Jeff Bode, CEO of Mid America Mortgage, Addison, TX, one of the largest investors in loans with TRID problems. “It’s still pretty solid,” Bode told IMFnews, an affiliated publication. “But I don’t see how much longer it can last.” Bode noted that some of the mortgages he’s reviewing have errors that are so minor he’s surprised that secondary market investors are balking at them in the first place. Mid America buys such mortgages and “makes the cures” itself, the CEO noted. A secondary market for mortgages with TRID errors – jumbos ...


May 2, 2016 - Inside the CFPB

TRID Architect Provides Inside Perspective on Pending Rule

Both the mortgage industry and the CFPB itself may have been caught a bit flat-footed when it came to fully grasping the significance and complexity of the bureau’s TRID integrated disclosure rule, according to one of the individuals intimately associated with drafting the controversial regulation. “TRID is a huge rule, about 1,900 pages of extremely detailed twists and turns. It affects every single aspect of the origination and closing process, as well as liability for lenders and the secondary market,” former bureau official Richard Horn, now an attorney in private practice, told Inside the CFPB. “I think many in the industry had to play catch up these past seven months, trying to grasp the far reaches and complexity of this ...


May 2, 2016 - Inside the CFPB

Life Under TRID: CFPB Relents on Guidance, Preps to Issue Another Rule

After months of hearing mortgage banking and real estate executives gripe about problems tied to the TRID integrated disclosure rule, the CFPB last week signaled its intention to clarify the controversial measure, which became effective in early October. According to a letter from CFPB Director Richard Cordray to industry trade groups, the agency will issue new rulemaking tied to the TRID disclosure regime that will provide greater certainty and clarity. Cordray – who has been lambasted by the industry about the integrated disclosure rule for months – noted in the letter: “We recognize that the implementation of the Know Before You Owe rule poses many operational challenges. We also recognize that implementation is particularly challenging because of the diversity of the participants ...


April 29, 2016 - Inside The GSEs

GSE Shareholders See Bright Spot In Recent Legal Developments

Recent legal developments bode well for GSE shareholder lawsuits, according to one of the attorneys involved in the Perry Capital LLC v. Lew et al case where shareholders question the validity of the Treasury sweep of the profits of Fannie Mae and Freddie Mac. The D.C. Circuit Court heard oral arguments in the case on April 15 before three federal judges. The oral arguments took place as part of the appeal of the Fairholme Funds case dismissal in 2014, in which investors argued that the Treasury sweep violated the Housing and Economic Recovery Act. Hamish Hume, partner with Boies Schiller & Flexner, who argued before the panel of judges, said...


April 28, 2016 - Inside Mortgage Finance

New York Supreme Court Reverses Ruling in Foreclosure Case, Endorsing Lenders’ Use of Electronic Note Signings

The New York State Supreme Court recently reversed a ruling in a foreclosure case, providing a favorable decision for lenders and servicers. New York Community Bank v. Daphne McClendon involved a foreclosure that was initiated in 2012. The mortgage in question was originated in 2008 by AmTrust Bank for $544,000. The note accompanying the mortgage was signed by electronic signature. The borrower challenged...


April 21, 2016 - Inside Mortgage Finance

FinCEN Increases Scrutiny of Non-Mortgage Purchases of Luxury Homes As Part of Real Estate-Related AML Effort

A pilot effort by the Treasury Department’s Financial Crimes Enforcement Network is underway in New York City and Miami to track suspicious “all cash” purchases of high-end residential properties as part of the government’s anti-money laundering (AML) enforcement. In remarks during a recent AML conference in Florida, FinCEN Director Jennifer Shasky Calvery said geographic targeting orders (GTOs) were issued by the agency in January this year and went into effect on March 1. They require identification of high-end cash buyers to ensure luxury residences purchased with cash are not masking money laundering activities. Specifically, U.S. title insurance companies are temporarily required...


April 21, 2016 - Inside Mortgage Finance

New Jersey Nonbank Pays $113 Million to Settle FHA Quality Control, Underwriting and Reporting Issues

Freedom Mortgage Corp. has agreed to pay the federal government $113 million to resolve alleged violations of the federal False Claims Act and FHA requirements in connection with the origination of FHA-insured single-family mortgages. The April 15 settlement agreement between the New Jersey-based mortgage lender and the Department of Justice comes in the wake of a record $1.2 billion settlement between DOJ and Wells Fargo, which earlier admitted to false certification of defective mortgages for FHA insurance and failure to file timely reports on several thousand loans that were materially defective or badly underwritten. Like Wells Fargo, Freedom Mortgage failed...


April 18, 2016 - Inside the CFPB

Industry Attorneys Think PHH Corp. Will Prevail in Dispute With CFPB

Many mortgage industry attorneys seem convinced that PHH Corp. will succeed – at least at the appellate court level – in defying the CFPB in its ongoing legal dispute with the bureau. The crux of the dispute is the bureau’s assertion that PHH violated the Real Estate Settlement Procedures Act and harmed consumers through a mortgage insurance kickback scheme tied to a captive MI. Last week, the U.S. Court of Appeals for the District of Columbia heard oral arguments in the case, PHH Corp. v CFPB, and the day did not go well for the bureau. Former CFPB enforcement attorney Jennifer Lee, now a partner with the Dorsey & Whitney law firm in Washington, DC, succinctly summarized the tough day the bureau ...


April 18, 2016 - Inside the CFPB

Bureau Rules Have Driven Small Banks Out of Mortgage Business

Former Federal Trade Commission official Todd Zywicki had a blunt message for the U.S. Senate Banking, Housing and Urban Affairs Committee recently when it comes to the CFPB and its voluminous new mortgage rules: Many smaller banks have simply chosen to exit the residential finance sector rather than bear the increased regulatory costs and risks. The former director of policy planning at the FTC cited a survey conducted by George Mason University’s Mercatus Center which found “64 percent of small banks reported that they were making changes to their mortgage offerings because of [the] Dodd-Frank [Act], and 15 percent said that they had either exited or were considering exiting residential mortgage markets entirely.” Also, almost 60 percent of small banks ...


April 15, 2016 - Inside The GSEs

Judge Releases Protected Documents in GSE Court Case

This week, a judge removed the protective order on seven documents related to the U.S. Treasury’s sweep of GSE profits, revealing what shareholders and industry groups have been arguing for years: that Fannie Mae and Freddie Mac were in a position to post profits on a sustained basis. In a whirlwind of court activity over the past month involving GSE shareholders, Court of Federal Claims Judge Margaret Sweeney decided on April 12 to release certain documents that appellants in Fairholme Funds, Inc. et. al. v. United States and Perry Capital v. Lew, moved to be made public. This is ahead of the D.C. Circuit schedule oral argument for the Perry case on April 15 and it intensified talks of government corruption and false claims of protecting taxpayers via the sweep.


April 15, 2016 - Inside MBS & ABS

Goldman Sachs Settles Pre-Crisis Non-Agency MBS Issues with DOJ, States for $5.06 Billion

The Department of Justice helped lead other federal and state entities in a $5.06 billion settlement with Goldman Sachs. The settlement announced this week involves non-agency MBS underwritten by Goldman between 2005 and 2007. The charges were centered on representations made by Goldman to investors in about 530 non-agency MBS. The offering documents for the MBS stated that mortgages in the deals were originated “generally in accordance with the loan originator’s underwriting guidelines,” other than possible situations where “when the originator identified ‘compensating factors’ at the time of origination.” Findings by third-party due diligence firms helped...


April 14, 2016 - Inside Mortgage Finance

Wells Fargo Agrees to Pay $1.2 Billion to Resolve Charges Of Improper FHA Lending Practices Over 9-Year Period

Wells Fargo last week reached an agreement to pay $1.2 billion to the federal government to resolve certification and reporting violations in connection with FHA-insured loans. The settlement is the largest recovery for loan-origination violations in FHA history, according to Housing and Urban Development Secretary Julian Castro. The April 8 court filing details an agreement in principle, which Wells Fargo announced in February, that resolves not only a pending lawsuit filed by the U.S. Attorney for the Southern District of New York, but also a number of potential claims dating as far back as 15 years in some cases, according to a statement issued by Wells Fargo. According to the settlement, Wells Fargo “admitted...


April 14, 2016 - Inside Mortgage Finance

CFPB Faces Hostile Questions in Dispute with PHH; Appeal to SCOTUS Likely by Whomever Loses the Case

The mortgage industry found some justification to hope for a return to a more traditional interpretation of the Real Estate Settlement Procedures Act, after the Consumer Financial Protection Bureau took some judicial fire during oral arguments early this week in its dispute with PHH Corp. over the company’s captive mortgage reinsurance activity. The crux of the dispute is the bureau’s assertion that PHH violated RESPA and harmed consumers through a mortgage insurance kickback scheme tied to a captive MI company. Virtually all the major mortgage lenders used similar captive reinsurance entities prior to the financial collapse. In the run-up to this week’s oral arguments before the U.S. Court of Appeals for the District of Columbia, the justices seemed...


April 8, 2016 - Inside FHA/VA Lending

Making Fewer FHA Loans Helped Chase Reduce Foreclosure Losses

Cutting back on its FHA business helped reduce JPMorgan Chase’s foreclosure inventory but made it harder for the bank to meet its community reinvestment goals, according to the bank’s top executive. In a letter to shareholders, Jamie Dimon, president/CEO of JPMorgan Chase, said he would rather see the bank no longer service defaulted loans. “If we had our druthers, we would never service a defaulted mortgage again,” he wrote. “We do not want to be in the business of foreclosure because it is exceedingly painful for our customers, and it is difficult, costly and painful to us and our reputation.” Chase has cut back on FHA lending and has reinstated overlays in response to stiff penalties it paid to resolve False Claims Act allegations brought by the federal government. In 2014, Chase agreed to a $614 million settlement with the Department of Justice over allegations of ...


April 8, 2016 - Inside FHA/VA Lending

HECM Lenders Get Some Latitude On Due-and-Payable Requests

The FHA has issued new, more permissive loss-mitigation guidelines for Home Equity Conversion Mortgages, including an optional extension for mortgagees when submitting due-and-payable requests. Additionally, the guidelines allow mortgagees to cure a HECM borrower’s taxes and/or insurance defaults as long as the FHA incurs no cost and the mortgagee agrees to refrain from seeking loan assignment for at least three years. The guidelines further remove a previous restriction prohibiting the use of the permissive loss-mitigation options announced in Mortgagee Letter 2015-11 for borrowers in foreclosure. Accordingly, for HECM loans that were in the process of foreclosure prior to the issuance of ML-2015-11, mortgagees may assess those borrowers for a repayment plan in accordance with the mortgagee letter. The repayment plan must have the ...


April 8, 2016 - Inside FHA/VA Lending

Not Reporting Material Events on Time Causes Recertification Delay

Approximately 300 FHA lenders are seeing their recertifications held up because they failed to report in a timely manner events or changes that may affect their eligibility to participate in FHA programs.Delays are occurring because lenders have failed to notify the FHA of material events as soon as they have occurred and waited until the annual recertification to report them, according to industry sources. Under rules of the Department of Housing and Urban Development, a notice of material event alerts the agency to a significant change to the information provided by the lender at application that may affect its status as an FHA-approved lender. The department strongly encourages lenders to notify FHA within 10 days of the event to prevent delays during the annual recertification. Each FHA lender must complete the annual recertification process in order to retain its FHA approval. Lenders must ...


April 8, 2016 - Inside MBS & ABS

Fannie and Freddie Shareholders Fight Against FHFA’s Motion to Consolidate Cases to DC Court

Since the Federal Housing Finance Agency’s March filing to transfer lawsuits initiated by Fannie Mae and Freddie Mac shareholders to a new court, a number of plaintiffs have filed motions opposing the transfer, arguing that the cases are substantially different from one another. FHFA said it was looking to prevent future “copycat” cases and ensure a more consistent ruling across the board by having all of the cases heard in the U.S. District Court for the District of Columbia instead of scattered in different jurisdictions throughout the country. On April 6, the attorneys for plaintiffs David Jacobs and Gregory Hindes said...


April 8, 2016 - Inside MBS & ABS

CA AG Sues Morgan Stanley Alleging False Claims, Securities Violations; Countrywide Payout is Closer

Litigation over legacy residential MBS deals that went sour in the run-up to the financial crisis continued last week, as California Attorney General Kamala Harris sued investment bank Morgan Stanley for alleged misrepresentations about RMBS investments, which she said contributed to huge losses by investors such as the state’s public pension funds. In what is just the second such use of the False Claims Act by a state, Harris’ complaint, filed in San Francisco Superior Court, alleges that Morgan Stanley violated the FCA, as well as California securities law and other state laws, by allegedly hiding or downplaying the risks of complex investments involving large numbers of underlying loans or other assets. Harris used...


April 4, 2016 - Inside the CFPB

Other News in Brief/Later This Month

U.S. Military Personnel Continue to Report Problems With Their Mortgages. Complaints to the CFPB from American military personnel about their mortgages rose 10 percent from 2014 to 2015, according to a recent report from the bureau. The good news for mortgage lenders is that total complaints about their operations – roughly 9,900 – were less than half of the total generated by debt collection practices, which came to about 20,500. ... FHFA Wants Public Input on National Mortgage Borrower Survey. The Federal Housing Finance Agency is seeking public comments about the American Survey of Mortgage Borrowers, an information collection effort otherwise known as the National Survey of Existing Mortgage Borrowers. ...


April 4, 2016 - Inside the CFPB

LO Comp an Exam Priority of the CFPB in 2016. Here’s How to Cope

Although much of the oxygen in the room is being taken up these days with concerns about the CFPB’s integrated disclosure rule, industry participants need to mind their Ps and Qs when it comes to the bureau’s loan originator compensation rule. During a recent webinar sponsored by Inside Mortgage Finance, an affiliated publication, top legal experts discussed how the industry can navigate a safe passage, compliance-wise. “We know that they’re going to really be looking at loan originator compensation plans this year,” said Kristie Kully, a partner with the Mayer Brown law firm in Washington, DC. “We know that they expect to find some problems in the LO comp area, and often when they expect to find them, they will ...


April 4, 2016 - Inside the CFPB

Want TRID Compliance? First Meet These 150 Requirements

A single mortgage would have to meet nearly 150 requirements to achieve compliance with the TRID integrated disclosure rule, according to a framework proposed last week by members of the Structured Finance Industry Group. Third-party due diligence firms will test loans for most of the rule’s requirements, according to a draft of the TRID compliance “review scope” obtained by Inside Nonconforming Markets, an affiliated publication. Since the integrated disclosure rule took effect in October, due diligence firms have found widespread violations on non-agency mortgages, limiting sales of loans with violations due to liability concerns. The SFIG proposal suggests that many of the TRID compliance violations could be cured after being uncovered by a due diligence firm, but violations of about ...


April 4, 2016 - Inside the CFPB

Investors Warn the CFPB About Chilling Effect of the TRID Rule

The Association of Mortgage Investors wrote to the CFPB last week for guidance on the integrated disclosure rule known as TRID, warning that the marketplace woes stemming from the new rule may extend to the conforming mortgage loan market. “The recent evidence is that the rule, while extremely well-intentioned, has resulted in a climate of legal uncertainty and is chilling private investment in the U.S. mortgage market,” said Chris Katopis, executive director of the AMI. Further, “We urge the bureau to open a new public comment period to address the concerns of mortgage investors,” he added. “We seek formal written guidance clarifying the liability for a violation of each individual TRID requirement, as well as the scope and applicability of ...


April 4, 2016 - Inside the CFPB

Life Under TRID: $20M of W.J. Bradley’s Jumbos on Sale in ‘Scratch-and-Dent’ Market

In a follow-up development to earlier reports of the demise of W.J. Bradley Mortgage as a result of the CFPB’s integrated disclosure rule, affiliated newsletter IMFnews reported last week that at least $20 million worth of jumbo loans originally funded by the lender have hit the TRID “scratch-and-dent” market, citing an investor who plays in the space. The loans were offered by Texas Capital Bank, which several sources have identified as a key warehouse lender to WJB, a now defunct privately held non-depository. Early reports on the company’s voluntary closure suggest that TRID errors on non-agency mortgages played a key role in the firm’s demise. Sources contend that a few months back WJB tried to sell at least $30 million ...


March 25, 2016 - Inside FHA/VA Lending

VA 2017 Budget Seeks $34 Million To Run, Maintain VALERI System

The Department of Veterans Affairs FY 2017 budget is seeking $34 million for the VA Loan Electronic Reporting Interface (VALERI) to manage the 2.4 million VA mortgages in portfolio. VALERI connects VA with more than 225,000 approved mortgage servicers and an estimated 320,000 veteran borrowers. Specifically, the system is used to manage and monitor servicer and VA staff activities aimed at providing timely and appropriate loss-mitigation assistance to defaulted borrowers. Without these resources, approximately 90,000 veterans and their families would be in danger of losing their homes each year, the VA said. Furthermore, this could cost the VA $2.8 billion a year in additional expense. In addition, VALERI also supports payment of guaranty and acquisition claims.Meanwhile, starting March 19, VA servicers began using the new version of the bulk upload templates to ...


March 25, 2016 - Inside FHA/VA Lending

VA Provides Updated Guidance on Flint, MI Water Contamination

The Department of Veterans Affairs has issued additional lender guidance for dealing with the public water contamination problem in Flint, MI. The guidance expands on the agency’s minimum requirements for properties backed by VA loans. The guidance refers to policy in the VA Lender’s Handbook which requires properties to have “a continuing supply of safe and potable water for drinking and other household uses,” before being approved for a VA-backed home loan. In the VA’s view, safe and potable water also refers to water used for bathing, showering and sanitary uses. Properties not in compliance with this requirement will not be eligible for the VA guaranty. Proper mitigation of lead-contaminated water must include a central filtering system that is acceptable to local health authorities and that can provide safe and potable water. Appraisers must comment and adjust for any ...


March 25, 2016 - Inside FHA/VA Lending

Sixth Circuit Affirms Dismissal of $2.3B FCA Case Against U.S. Bank

For years, banks have had a losing record in FHA cases involving False Claims Act allegations. Hence, a federal appeals court’s decision to uphold dismissal of a $2.3 billion lawsuit against a major bank is a rarity. In U.S., ex rel. Advocates for Basic Legal Equality (ABLE) v. U.S. Bank, the U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal of an FCA lawsuit against U.S. Bank because the conduct alleged by the qui tam relator had been previously disclosed publicly in a consent order with federal banking regulators. The court held that ABLE’s claims were barred because the conduct that allegedly violated the FCA had already been disclosed when the plaintiff filed suit in 2013. The Department of Justice declined to intervene. The relator suit alleged that U.S. Bank had a practice of initiating foreclosure on FHA-insured mortgages without complying with the ...


March 25, 2016 - Inside MBS & ABS

Risk-Retention Suit Moved to D.C. District Court, HFSC Eases CLO Managers’ Risk-Retention Burden

A federal appeals court in Washington, DC, ordered the transfer of a case challenging risk-retention rules to the district court because the petitioner sought review of an agency action “in the wrong court.” Writing for the majority, Judge Janice Brown of the U.S. Court of Appeals for the District of Columbia shifted the Loan Syndications and Trading Association’s (LSTA) challenge to the lower court for lack of statutory authorization to review the rule. “As it turns out, LSTA’s challenge on the merits will have to wait,” she wrote. Jointly prescribed by the Securities and Exchange Commission, Federal Reserve Board, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency, the credit risk-retention regulations required...


March 25, 2016 - Inside MBS & ABS

SCOTUS Eyes Madden, Applicability of State Usury Laws for Loans in a Securitization at Stake

This week, the Supreme Court of the United States invited the U.S. Solicitor General to file a brief “expressing the views of the United States” in the Madden v. Midland Funding case, indicating the court is seriously considering taking the case. Assuming the Solicitor General obliges the high court, attorneys at the Pepper Hamilton law firm believe the brief likely will articulate the views of the primary banking agencies on whether SCOTUS should grant certiorari, along with their relative positions on the issues in the case. Madden involves...


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