Legal Issues

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

April 24, 2015 - Inside MBS & ABS

BofA’s $8.5 Billion Non-Agency MBS Settlement Moves Closer to Payout; Morgan Stanley Under Scrutiny

The judicial process for Bank of America’s long-pending $8.5 billion settlement involving non-agency MBS issued by Countrywide Financial is near its conclusion and investors could see payouts as soon as August, according to analysts at Barclays Capital. The settlement was announced in 2011, and after years of legal maneuvering, approved by the Appellate Division of the New York Supreme Court in March. Bank of New York Mellon is the trustee on the 530 non-agency MBS covered by the settlement. “The trustee’s approval application to the New York Supreme Court suggests...


April 23, 2015 - Inside Mortgage Finance

Green Tree Settles Servicing Allegations

Green Tree Servicing agreed to pay $63 million to settle allegations made by two federal agencies regarding its servicing practices. The settlement includes $48 million in consumer redress and a $15 million civil money penalty. Green Tree did not admit or deny the allegations. The Consumer Financial Protection Bureau and the Federal Trade Commission said...


April 23, 2015 - Inside Mortgage Finance

Man Bites Dog: Will Quicken’s Lawsuit Against the Feds Stem the Tide of FHA Charges Against Lenders?

Quicken Loans this week went where no lender in the mortgage industry has gone before: Suing the U.S. government for suggesting it’s been doing a crappy job of originating FHA loans. Its legal action not only caught most of the industry by surprise, but resulted in loud applause from the Mortgage Bankers Association and K&L Gates partner Larry Platt. A number of major lenders have paid...


April 20, 2015 - Inside the CFPB

Looking Ahead/Worth Noting

CFPB Community Bank Advisory Council Meeting April 22. CFPB Director Richard Cordray plans to discuss credit scores and credit reporting and the related implications for community banks when the bureau convenes the next meeting of its Community Bank Advisory Council on April 22, from 3:00 p.m. to 4:30 p.m., in Washington, DC. The event is scheduled to be held at the bureau’s location at 1275 First Street, N.E., and is open to the public, but an RSVP is required to attend. CFPB to Hold Research Conference May 7-8. The CFPB plans to host its first research conference May 7-8, 2015. The conference will focus on high-quality consumer finance research, with academic and government researchers presenting their research papers. “The goal ...


April 20, 2015 - Inside the CFPB

Investors Suggest Different Focus For CFPB on ‘Mini-Corr’ Lenders

A group of investors who purchased more than $8 billion in loans from mini-correspondents in 2014 responded to the CFPB’s “mini-corr” guidance and suggested the bureau use somewhat different questions when trying to determine if an entity under review has in fact made the transition from mortgage broker to correspondent lender. According to a copy of the materials sent to the bureau and obtained by Inside the CFPB, the first question the investors suggested was, when does the sales transaction take place when a loan is sold by a lender to an investor? To ensure that a transaction in question truly occurs as a sale in the secondary market, as opposed to a table-funded transaction, several steps should transpire, the ...


April 20, 2015 - Inside the CFPB

CFPB, Navajo Nation Act to Stop Alleged Tax-Refund Scheme

The CFPB and the Navajo Nation took joint action last week against companies and individuals who allegedly operated an illegal tax-refund scheme. The alleged scam was based on tax-preparation franchises steering low-income consumers, including many citizens of the Navajo Nation, toward high-cost tax-refund-anticipation loans, the bureau said. The complaint identified Jeffrey Scott Thomas, who through his company, J Thomas Development of NM, Inc., owned four H&R Block tax-preparation franchises in New Mexico. The bureau and the Navajo Nation did not find that H&R Block participated in this scheme, the CFPB said, and H&R Block terminated its relationship with those franchises, which then closed in September 2014. “Before they closed, the tax franchises catered largely to low-income citizens of the Navajo ...


April 20, 2015 - Inside the CFPB

Bureau Blocks Alleged ‘Robo-Call’ Phantom Debt Collection Operation

As the result of a lawsuit it filed late last month, the CFPB has obtained a preliminary injunction against what it characterized as the ringleaders of a “robo-call” phantom debt-collection operation, their companies and their service providers. According to the CFPB, the debt collectors, using various aliases, allegedly deployed automated calls to manipulate consumers in attempts to collect debt the consumers did not owe to them, and in most instances, to anyone else. The bureau alleges that the scheme depended on the participation of the telemarketing company that sent the robo-calls and payment processors that allowed the collectors to access consumers’ bank accounts. Named in the suit are New York resident Marcus Brown and Georgia resident Mohan Bagga, as well ...


April 20, 2015 - Inside the CFPB

CFPB Cracks Down on Mortgage Lender Over Advertising Practices

The CFPB brought an enforcement action against RMK Financial Corp., a California-based mortgage lender, for allegedly using deceptive mortgage advertising practices, including ads that led consumers to believe that the company was affiliated with the U.S. government. According to the CFPB, RMK used the names and logos of the Department of Veterans Affairs and the FHA in mailed advertisements in such a way as to falsely imply that the ads were sent by the VA or FHA, or that the company or the mortgage products it advertised were endorsed or sponsored by those agencies. RMK’s ads also allegedly misrepresented the loans’ interest rates and estimated monthly payments, including whether the interest rate was fixed or variable. Consumers who called the ...


April 17, 2015 - Inside FHA/VA Lending

DOJ, HUD Settlement with Defunct Lender Raises Recovery Issues

A recent $36 million settlement agreement between Golden First Mortgage Corp. and the federal government is raising questions about the lender’s ability to pay. The Department of Justice apparently has a plan to collect from a company that is no longer in business and hardly generated enough revenue to pay the full settlement amount. Whatever that plan is, the agency is not disclosing it. Based in upstate New York, Golden First agreed to pay up to resolve allegations that it ...


April 6, 2015 - Inside the CFPB

CFPB Brings Enforcement Action Against National Corrective Group

The CFPB brought an enforcement action against National Corrective Group, a nationwide debt collection operation based in San Clemente, CA, and CEO Mats Jonsson, accusing them of using deceptive threats of criminal prosecution and jail time in order to intimidate consumers into paying debts for bounced checks. The bureau also accused the company of misleading consumers into believing they have to sign up for a costly financial education program to avoid criminal charges. The CFPB complaint also alleges that National Corrective Group created a false impression for consumers that its communications were from a state or district attorney’s office. “The company sent letters on prosecutors’ letterheads that appeared to be signed by the state or district attorney,” the bureau said...


April 6, 2015 - Inside the CFPB

Subprime Auto is in Agency’s Crosshairs, Official Indicates

CFPB Deputy Director Steven Antonakes revealed recently that the bureau is increasingly concerned about the subprime auto finance sector and will crack down on any practices that prove to be too risky for consumers. Speaking at an event of the Consumer Bankers Association, Antonakes identified a loosening of credit in the subprime auto loan market as one of the emerging risks the bureau is paying close attention to. “From our standpoint, it is not inherently troubling that more consumers are getting auto loans; under the right conditions, increased access to credit is good for the economy and individual upward mobility,” the deputy director said. “However, we have noticed some trends in connection with this credit expansion that give us cause ...


April 3, 2015 - Inside FHA/VA Lending

Around the Industry

Fannie Mae Updates Reverse Mortgage Loan Servicing Manual. Fannie Mae has updated its reverse mortgage servicing manual with changes and clarifications to policies pertaining to Home Equity Conversion Mortgages. For HECMs, Fannie now requires servicers to place a real estate-owned hazard insurance policy upon completion of a foreclosure sale. It also outlined servicers’ responsibilities regarding the documentation and cancellation of REO hazard insurance claims; reimbursement of REO hazard insurance premiums; and remittance of insurance loss proceeds. The revised policy changes must be implemented no later than April 1, 2015. House Democrats Reintroduce Housing Finance Reform Bill. Democrats on the House Financial Services Committee have introduced legislation that would provide private and government risk-share coverage to all mortgages, create a ...


April 3, 2015 - Inside FHA/VA Lending

RHS Automates Underwriting for Guaranteed Rural Mortgage Loans

The U.S. Department of Agriculture’s Rural Housing Program has fully automated the submission of loan-origination documents and the electronic issuance of conditional commitments. This means that RHS’s Guaranteed Underwriting System (GUS), which is used for underwriting single-family rural home loans, has gone paperless, beginning March 28, 2015. Over the past year, USDA Rural Development has implemented changes to streamline and modernize the guaranteed loan program. In December last year, the RHS modified its lender loan-closing system to allow electronic issuance of loan note guarantees. Under the streamlined document-submission process for GUS requests, lenders will upload all required origination documents into GUS following a final submission. This enables lenders to avoid encrypting and emailing docs to USDA. After receiving the docs, GUS will alert the ...


April 3, 2015 - Inside FHA/VA Lending

FHA Deploys Long-Anticipated E-Delivery System for Appraisals

Beginning June 27, the FHA will require electronic appraisals for single-family forward and reverse mortgages to be delivered through an online electronic submission portal prior to endorsement. The Electronic Appraisal Delivery (EAD) portal is a web-based platform that would allow paperless submissions of single-family home loan appraisals, cutting down loan processing time significantly. FHA lenders and their authorized representatives can access the EAD portal by using electronic credentials and showing they are ready to use the new technology. Only appraisals that are compliant with FHA appraisal and data delivery guidelines can be uploaded to the portal. Lenders will be notified of a successful upload or if they need to correct and resubmit an appraisal. Once an appraisal is successfully submitted to the portal, FHA Connection will pull EAD appraisal data and pre-fill certain data fields in the ...


April 3, 2015 - Inside FHA/VA Lending

VA to Revisit Residual-Income Guidelines, Eyes New Rules in 2016

The Department of Veterans Affairs is updating its residual-income tables, with an eye to publishing revised guidelines in 2016. The last time the VA calculated and published the residual-income guidelines was in the 1990s, and a lot has changed since then, according to Mike Frueh, director of the VA Home Loan Guaranty program. Residual income is the monthly household income that remains after all primary obligations – mortgage and escrows, car payments, credit card bills, student loans, among others – have been paid. VA will not back a loan to a vet or service member if they do not meet or exceed residual-income requirements. The residual-income threshold varies by family size, borrower location and other compensating factors. Calculations for residual income vary for the Northwest Region, Midwest Region, South Region and West Region of the country. Frueh said they are ...


April 3, 2015 - Inside FHA/VA Lending

FHA Lenders Agree to Pay $36.4 Million to Settle DE Allegations

The Department of Housing and Urban Development’s Office of the Inspector General has finalized settlements with two direct endorsement lenders to resolve allegations of violating FHA underwriting requirements. Golden First Mortgage Corp. and Group One Mortgage agreed to pay a total of $36.41 million to the federal government in reparation for losses incurred by the FHA on the defaulted loans. Based in Great Neck, NY, Golden First, a privately held company, and its owner/president, David Movtady, allegedly falsely certified to FHA and HUD that the loans the company endorsed for insurance met all FHA requirements. This went on from 2002 through 2010, the OIG alleged. The OIG accused the company and Movtady of violating the False Claims Act, which prohibits acts to defraud the federal government and which has been instrumental in ...


April 3, 2015 - Inside FHA/VA Lending

VA to Continue Streamlining Appraisal, Servicing Processes

The Department of Veterans Affairs will continue removing barriers to delivering home-loan benefits to veterans and service members in 2015, focusing more on further improvements in appraisal and servicing. “It’s going to be geared around improving on the things we have already done,” said Mike Frueh, director of the VA Home Loan Guaranty program. VA loan originations are on the upswing and the agency wants to maintain the trend by getting more vets and active-duty personnel into the program. Last year, 18 percent of VA loans were to active-duty service members and 82 percent to veterans. Frueh said the VA program is by far the better deal. Interest rates are lower on a VA loan than on conventional loans and, generally requires no downpayment, he noted. In addition, VA loans do not have mortgage insurance. Based on the volume of VA loans originated in 2014, veteran borrowers ...


April 3, 2015 - Inside FHA/VA Lending

Ginnie MBS Issuance Fall Slightly In 1Q Due to Slight Drop in FHA

Ginnie Mae mortgage-backed securities issuance fell in the first quarter of 2015 with FHA volume slipping during the period, according to an Inside FHA/VA Lending’s analysis of agency data. Ginnie MBS production in the first quarter totaled $79.8 billion, down from $80.6 billion in the 4Q14, despite a 29.3 percent increase from February to March. On the other hand, production was up 41.6 percent from a year ago. FHA-backed Ginnie MBS issuance dropped 3.1 percent in the first quarter from 4Q14, ending the period with $39.9 billion. Year-over-year volume rose 22.0 percent from the previous year. On the other hand, refinancing increased to $12.3 billion from $7.8 billion during the same stretch. VA securitization totaled $35.5 billion, up from $33.6 billion quarter-over-quarter, powered by refinance loans. Rural housing securitization totaled $4.2 billion in the first quarter, down from $5. 7 billion in 4Q14. Securitized FHA purchase loans rose 7.7 percent in March from February, while ... [3 charts].


April 3, 2015 - Inside Nonconforming Markets

Supreme Court Considers Second-Lien Write-Offs

Last week, the Supreme Court heard oral arguments on two cases that could have significant ramifications for how second liens are handled when a borrower has negative equity. Both of the cases involve Bank of America arguing on behalf of second-lien lenders and holders. “The Supreme Court’s resolution of the BofA v. Caulkett and BofA v. Toledo-Cardona will either ratify the trend of other circuits, which would benefit junior lenders, or overturn it, which would favor homeowners and first-lien mortgagees,” according to lawyers at ...


March 26, 2015 - Inside Mortgage Finance

SCOTUS Weighs Underwater Second-Lien Mortgages

The U.S. Supreme Court this week heard oral arguments on whether a second-lien lender is secured when a borrower with an underwater first lien declares Chapter 7 bankruptcy. SCOTUS in 1992 ruled that a creditor is protected when a partially underwater mortgage goes into bankruptcy. In most cases, the courts have said second-lien creditors are secured as well, even if there isn’t enough value to pay off the first lien. …


March 27, 2015 - Inside MBS & ABS

Nomura Unlikely to Take Ratings Hit; Court Allows NCUA Suit Against RBS, HSBC; AIG Investors Win

Nomura Holdings is unlikely to suffer a hit in ratings because of the Federal Housing Finance Agency’s mortgage-backed securities lawsuit, but the litigation may yet prove costly to the Japanese financial holding company, according to a recent report from Fitch Ratings. Nomura went to trial on March 16 to defend itself against allegations that it misrepresented the underlying asset quality of MBS it sold to Fannie Mae and Freddie Mac prior to the financial crisis ...


March 23, 2015 - Inside the CFPB

CFPB Study Critical of Arbitration Suggests a Regulation in the Future

The CFPB put out a study earlier this month that concluded that arbitration agreements restrict consumers’ relief for disputes with financial service providers by limiting class actions. According to the study, very few consumers individually seek relief through arbitration or the federal courts, while millions of consumers are eligible for relief each year through class action settlements. The report also found that more than 75 percent of consumers surveyed did not know whether they were subject to an arbitration clause in their agreements with their financial service providers. Further, fewer than 7 percent of those covered by arbitration clauses realized that the clauses restricted their ability to sue in court. The CFPB said its review of case data from the ...


March 20, 2015 - Inside FHA/VA Lending

Around the Industry

Loan Modification Trial Payment Plans for Forward Mortgages. The Department of Housing and Urban Development has announced requirements for trial plan duration, required signatures, and reporting for trial payment-plan agreements, and the conditions under which FHA deems a TPP to have failed.Lenders must implement the requirements in Mortgagee Letter 2015-07 for all TPPs offered to borrowers on or after June 1, 2015. FHA Publishes Additional Sections of HUD Single-Family Policy Handbook. The FHA has published additional sections for the SF Handbook, including the following: Doing Business with FHA – Lenders and Mortgagees Doing Business with FHA – Other participants in FHA Transactions – Appraisers; Quality Control, Oversight and Compliance – Lenders and Mortgagees; Quality Control Oversight, and Compliance – Other Participants in FHA Transactions – Appraisers ...


March 20, 2015 - Inside FHA/VA Lending

FHA Servicing Transfer Could Be in Spending Bill, Not in Reform Bill

The FHA’s request for authority to require specialized subservicing in certain circumstances could be included in an appropriations bill rather than in housing-related legislation, according to Sen. Jack Reed, D-RI, ranking minority member of the Senate Appropriations Subcommittee on Transportation, HUD and other Related Agencies. Reed raised the possibility during a recent hearing on the Department of Housing and Urban Development’s FY 2016 budget proposal. Among other things, the FHA has been seeking authority from Congress to require, in individual cases, inexperienced lender/servicers to transfer the function to a specialized servicer to better assist borrowers and reduce losses to the Mutual Mortgage Insurance Fund. Allowing the FHA to require transfer of servicing will help more distressed homeowners stay in their homes and avoid foreclosure, said ...


March 20, 2015 - Inside FHA/VA Lending

Advocates Say New HECM Rule is A Disaster for Surviving Spouses

Consumer advocates and attorneys are urging the Department of Housing and Urban Development to delay the implementation of a new policy that purports to provide relief to surviving spouses of reverse-mortgage borrowers and to find solutions that are more effective. The group said the policy HUD announced in Mortgagee Letter 2015-03 on Jan. 29 is so restrictive that virtually all surviving non-borrowing spouses will get no relief. A letter to the agency, drafted by the National Consumer Law Center and signed by the Consumers Union, California Reinvestment Coalition, National Housing Law Project, Housing and Economic Rights Advocates and Institute on Aging denounced the new policy. They said most surviving spouses of deceased borrowers of Home Equity Conversion Mortgage loans will not be able to meet the policy’s stringent guidelines and will ...


March 20, 2015 - Inside FHA/VA Lending

RHS Seeks Comments on Proposed QM Rule, Simplified Refinancing

The U.S. Department of Agriculture-Rural Housing Service has proposed to revise regulations for the single-family housing guaranteed loan program pertaining to qualified-mortgage (QM) requirements, refinancing, principal reduction and lender indemnification. The deadline for comments is May 4, 2015.The RHS is proposing to amend its regulations to indicate that a loan with an RHS guarantee is a qualified mortgage if it meets certain requirements set by the Consumer Financial Protection Bureau. The CFPB published a QM rule, which became effective on Jan. 10, 2014. Among other things, the rule requires creditors to make a reasonable, good faith determination of a borrower’s ability to repay the mortgage loan. In addition, the rule establishes a safe harbor from liability for transactions that meet the QM requirements or, in certain cases, a rebuttable presumption of ...


March 20, 2015 - Inside FHA/VA Lending

HUD Reports Significant Progress In Distressed Loan Resolutions

Half of the loans in the Distressed Asset Stabilization Program have been resolved and a significant percentage of homeowners have avoided foreclosure, according to the latest DASP progress report from the Department of Housing and Urban Development. A review of the FHA single-family loan sale (SFLS) program found that, of the 48.6 percent that have been resolved, 43.5 percent have avoided foreclosure. The anticipated alternative for these borrowers – property conveyance, where their property becomes real estate-owned – would have led to foreclosure, the report said. Specifically, short sales and deeds-in-lieu of foreclosure were the disposition methods employed in foreclosure avoidance. In addition, 16.3 percent of resolved loans were re-performing as of Feb. 6, 2015. This reflects a 49.5 percent change in the re-performing rate reported in the ...


March 20, 2015 - Inside FHA/VA Lending

Large Coastal States Account for Bulk of FHA/VA Securitizations

Security issuances backed by FHA and VA loans totaled $267.6 billion in 2014, with several large states accounting for a significant share of FHA/VA originations. An estimated $158.1 billion of FHA-insured loans, including modified loans, were securitized last year, with purchase home loans comprising most of the transactions. Approximately $30.0 billion of FHA refinance loans were securitized as well. The FHA MBS had an average loan-to-value ratio of 92.3 percent and a debt-to-income ratio of 40.1 percent. The average FICO score was 672.3, which was indicative of first-time homebuyers and borrowers with slightly tainted credit. First-ranked California, Texas (#2) and Florida (#3) combined for a total of $48.0 billion, which represented 30.3 percent of FHA loans in Ginnie Mae mortgage-backed securities in 2014. Fourth-ranked New York reported a total of $6.7 billion while ... [ 2 charts]


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The Supreme Court recently decided that mortgage loan officers are entitled to overtime pay. How has this affected your shop?

It's a very big deal, but our company will limit OT pay or pay very little.
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We have no problem paying our LOs OT.
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