Legal Issues

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

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 ...


October 10, 2014 - Inside FHA Lending

Around the Industry

FHA to Extend Short Refi Program. The FHA has announced its intent to extend its Short Refinance Program for borrowers in negative equity positions. A mortgagee letter will be issued soon to announce the extension. Feedback Period extended for Draft Servicing Section of Proposed Single Family Handbook. The FHA is extending the comment period for the draft servicing section of the Single Family Housing Policy Handbook through Nov. 14, 2014 to allow stakeholders additional time to study and comment on the proposed section. The original deadline date was Oct. 17. CFPB Updates Reverse Mortgage Guide. The Consumer Financial Protection Bureau recently updated its reverse mortgage guide on its website to account for recent changes made by the Department of Housing and Urban Development to its Home Equity Conversion Mortgage program. The updated guide highlights new limits to ...


October 10, 2014 - Inside FHA Lending

Ginnie Mae MBS Issuance Increases in 3Q14

Ginnie Mae issuance for the first nine months of 2014 totaled $207.5 billion as government-backed purchase-mortgage activity picked up in the third quarter, according to an analysis of agency data. New issuances rose 19.8 percent from the second quarter. FHA loans accounted for $116.9 billion of new Ginnie Mae issuances while VA and the Rural Housing Development funneled $75.9 billion and $14.2 billion, respectively, of new loans into Ginnie Mae pools. Mortgage securities backed by home-equity conversion mortgages are not included. Purchase mortgages totaling $140.6 billion comprised the bulk of new issuances over the nine-month period while the share of refinances totaled $49.8 billion. Modified loans accounted for $17.1 billion. Most of the FHA and VA loans originated during the first nine months came through the ... [ 2 charts ]


October 10, 2014 - Inside FHA Lending

Millennial Agenda Underscores FHA’s ‘Blueprint’

President Obama this week released his agenda for creating economic opportunity for millennials, including greater access to mortgage credit through FHA. While the economy has recovered and there has been some improvement in the housing market, millennials are on a much slower pace toward homeownership than previous generations, the president said. Many are in rental housing, ready to become homeowners but are locked out by the tough, restrictive lending environment, he added. Millennials – identified as those born between 1982 and 2004, also known as Generation Y – are finding it harder to purchase homes because of lender overlays, high mortgage insurance premiums and high downpayment requirements. It also has been difficult for anyone with a credit score below 680 to obtain a purchase-mortgage loan. In his agenda, Obama expressed concern over the ...


October 10, 2014 - Inside FHA Lending

FHA Details Improvements to LEAP 3.0 System

Like all new automated systems, FHA’s Lender Electronic Assessment Portal (LEAP 3.0) was not without technical glitches when the agency rolled it out back in May. Users immediately reported difficulties in certain functions, such as adding new branches, making changes to existing branches and changing cash flow accounts. The FHA ever since has been working to iron out the kinks to allow lenders to submit their annual recertification packages with ease. So far, certain fixes have been implemented allowing lenders to add, edit and delete branch and regional managers, delete attachments uploaded to LEAP and properly update cash flow accounts in the database. The FHA also changed the way lenders edit their principal affiliations in LEAP. In addition, newly approved lenders now have access to the new system. Furthermore, the FHA expanded to 250 the maximum allowable characters lenders may use when ...


October 10, 2014 - Inside FHA Lending

New Regulations Cause HECM Volume to Drop

FHA reverse mortgage volume fell in the second quarter as well as during the first six months of 2014 as regulatory changes reduced profitability and increased the cost of originating the government-backed product, according to Inside FHA Lending’s analysis of agency data. Home equity conversion mortgage volume declined 19.9 percent quarter-over-quarter and dropped 9.0 percent during the first half of the year compared to the same period last year. HECM lenders reported $7.2 billion in total originations in the first half, with purchase loans accounting for 93.6 percent. Fixed-rate HECMs comprised only 22.2 percent of total volume as most borrowers turned to adjustable-rate HECMs for their reverse-mortgage needs. The top five HECM lenders – American Advisors Group, Reverse Mortgage Solutions, One Reverse Mortgage, Liberty Home Equity Solutions and Proficio Mortgage Ventures – accounted for ... [1 chart ]


October 10, 2014 - Inside FHA Lending

OIG Calls for HUD Action Versus Errant Lenders

The Department of Housing and Urban Development’s Inspector General has recommended that HUD require an approved FHA lender to reimburse the FHA $1.6 million for improper claims on 11 preforeclosure sales, including lender and borrower incentives. An IG audit of EverBank of Jacksonville, FL, attributed FHA’s losses to the bank’s failure to determine whether or not defaulted borrowers qualified for the agency’s preforeclosure sale program. The IG looked into the bank’s short sale activities because it had the highest preforeclosure sale claims in Florida. More than 50 percent of EverBank’s FHA claims were from short sales, with more than $12.9 million paid from 2011 through 2013, the audit found. In response, EverBank questioned the accuracy of the IG report. The bank maintained that certain allegations do not constitute violations of ...


October 10, 2014 - Inside FHA Lending

HUD-OIG Reports $582M in Recoveries for MMIF

The Department of Housing and Urban Development’s Office of the Inspector General has announced a total of $581.8 million in recoveries in September to strengthen and stabilize the ailing Mutual Mortgage Insurance Fund. The recovered amounts are part of larger settlements between the federal government, U.S. Bank and Bank of America to resolve allegations of false claims and mortgage fraud in relation to FHA-insured mortgages. Both banks were investigated separately by the HUD-OIG, Department of Justice and U.S. attorneys’ offices in Michigan, Ohio and New York in connection with their lending and underwriting practices and quality-control programs for FHA-insured loans. On June 30, U.S. Bank entered into a settlement agreement to pay $200 million, of which nearly $144.2 million went to the MMI Fund. The bank admitted to poor underwriting, flawed quality control and ...


October 10, 2014 - Inside FHA Lending

Loan Reviews Continue to Find Defects

Missing or incorrect files was the most common defect found in 49 percent of the loans, of which 29 percent were deemed initially unacceptable. Flawed credit or underwriting came in second at 26 percent, of which 67 percent were rated unacceptable. Program eligibility and operational deficiencies each had a 9 percent share while defective appraisals were common in 7 percent of all reviewed loans. Properly mitigated, the percentage of initially unacceptable loans usually drops to about 7 percent. The FHA tends to blames lenders for the defects but the bottom line is mistakes cut both ways, according to compliance experts. “Lenders make mistakes that can easily be corrected,” said one compliance consultant. “FHA also can be guilty of causing a mistake.” For example, poor communication and lack of clarity caused lenders to check a yes/no box to confirm whether or not they ...


October 10, 2014 - Inside MBS & ABS

San Francisco Board Prepares for Litigation as It Eyes Eminent Domain for Underwater Mortgages

Supporters of using eminent domain to resolve underwater but performing non-agency mortgages succeeded in placing their proposal back on the front burner in California this week. On Tuesday, the San Francisco Board of Supervisors unanimously voted to convene in closed session later this month with the city attorney’s office for advice on “anticipated litigation relating to the potential negotiation or adoption of a joint powers agreement with the city of Richmond [CA] to establish a homeownership stabilization authority to assist homeowners with troubled mortgages.” The board opted...


October 10, 2014 - Inside MBS & ABS

U.S. Judge Allows Investors’ MBS Class-Action Case Against JPMorgan to Proceed but Limits Suit’s Scope

A federal judge in New York has cleared the way for investors to proceed with a $10 billion class-action suit against JPMorgan in relation to the 2007 sale of non-agency MBS. Judge Paul Oetken of the U.S. District Court for the Southern District of New York, however, limited the scope of the class-action suit to JPMorgan’s liability but did not certify as to damage. Explaining his decision to narrow the scope of the suit, Oetken said...


October 9, 2014 - Inside Mortgage Finance

If Third Time’s the Charm, SCOTUS May Finally Render An Opinion on Fair Housing Disparate-Impact Claims

The U.S. Supreme Court gets another crack at deciding whether plaintiffs can bring a disparate-impact lawsuit under the Fair Housing Act (and by extension, the Equal Credit Opportunity Act), a question that has divided courts, lenders and consumer advocacy groups for years. The court’s partial grant of the petition in the Texas case would be its third opportunity in two years to rule on the controversial question. Two prior cases raising that issue, Township of Mount Holly v. Mt. Holly Gardens Citizen Action, Inc. and Magner v. Gallagher, were both settled before oral argument could be presented before the court. SCOTUS has agreed...


October 3, 2014 - Inside The GSEs

Judge Dismisses Lawsuit to Force FHFA to Pay into Housing Fund

A federal judge in Florida this week dismissed a lawsuit brought by the National Low Income Housing Coalition seeking to force Fannie Mae’s and Freddie Mac’s conservator to make good on the GSEs’ statutory obligations to contribute to the National Housing Trust Fund. In the summer of 2013, the National Low Income Housing Coalition filed suit arguing that since the GSEs returned to profitability in 2012, the Federal Housing Finance Agency should have directed Fannie and Freddie to begin to pay up.


October 3, 2014 - Inside The GSEs

GSE Shareholders Persist After Judge Dismisses ‘Sweep’ Lawsuit

Attorneys for disenfranchised GSE shareholders have already filed a notice to appeal this week’s surprise dismissal by a Washington, DC, federal judge of the lawsuits challenging the Treasury Department’s 2012 “net-worth sweep” of nearly all profits generated by Fannie Mae and Freddie Mac. However, a legal expert notes that the ruling by Judge Royce Lamberth of the U.S. District Court for the District of Columbia makes a tall order even taller for investors taking on the government.


October 3, 2014 - Inside MBS & ABS

Opponent Bows Out of BofA Settlement Dispute, S&P Seeks Treasury Documents for Defense

Bank of America’s long-troubled multi-billion-dollar settlement with non-agency MBS investors moved a big step closer to final approval after a key opponent of the deal withdrew its objection this week, though numerous other objectors remain. The Triaxx entities withdrew as intervenor-respondents in the $8.5 billion Countrywide settlement covering 530 trusts. The objection by the Triaxx group had been seen as among the largest remaining roadblocks for final court approval since the $650 million settlement agreement between American International Group and BofA in July. BofA agreed...


October 2, 2014 - Inside Mortgage Finance

Flagstar’s $37.5M Settlement with CFPB Removes Uncertainty, Sends Chill to Servicers, MSR Market

Mortgage servicers will likely proceed more carefully with their borrower interactions after the Consumer Financial Protection Bureau compelled Flagstar Bank to pay $37.5 million to settle allegations it interfered with borrowers’ attempts to save their homes. In the first enforcement action based on its new mortgage servicing rule, the CFPB ordered Flagstar to pay $27.5 million to the victims, and $10 million in to the bureau’s civil penalty fund. According to the consent order, Flagstar committed...


October 2, 2014 - Inside Mortgage Finance

Federal Judge Shuts Down GSE Shareholder Lawsuit, Upholds Government Authority to Sweep GSE Profits

In a surprise ruling this week, a federal judge in Washington, DC, dismissed claims by Fannie Mae and Freddie Mac shareholders challenging the Treasury Department’s 2012 “net-worth sweep” of nearly all the profits generated by the government-sponsored enterprises. Judge Royce Lamberth of the U.S. District Court for the District of Columbia ruled that Treasury and the Federal Housing Finance Agency are empowered by the Housing and Economic Recovery Act of 2008 to execute the “third amendment” of the preferred stock purchase agreement. The dismissal includes...


September 29, 2014 - Inside the CFPB

Worth Noting/Legislative Update/Looking Ahead

Did Apple Place Itself Within CFPB’s Purview? Some legal experts think the recent rollout of mobile payment technology by Apple Inc. might have put the consumer technology heavyweight in the CFPB’s regulatory crosshairs. Georgetown Law Professor Adam Levitin said in a recent blog that Apple may have unwittingly become a regulated financial institution through the release of its Apple Pay service. “Basically, I think Apple is now a ‘service provider’ for purposes of the Consumer Financial Protection Act, which means Apple is subject to CFPB examination and UDAAP [unfair, deceptive or abusive acts or practices],” he said. Levitin then proceeded to walk readers through a number of legal definitions to bolster his argument. Vivian Kim, an associate at the Dykema ...


September 29, 2014 - Inside the CFPB

Republicans Pounce on GAO Report On CFPB’s Huge Data Collection

Members of the Senate and House Grand Old Party wasted no time in seizing upon a new report from the Government Accountability Office that confirmed the huge scope of the CFPB’s data collection initiative and cited weaknesses with data security and privacy. “The CFPB’s massive data collection effort is an unwarranted, unwelcome intrusion into the private financial lives of millions of Americans,” said Senate Banking, Housing and Urban Affairs Committee ranking member Mike Crapo, R-ID, who requested the study. “This GAO report confirms what the bureau would not – that it has been collecting information on up to 600 million American financial accounts, and it does not have the proper safeguards in place to protect the information it is collecting,” he ...


September 29, 2014 - Inside the CFPB

Privilege Close to Being Extended To State-Licensed Mortgage Cos.

State-licensed mortgage companies – and the agencies that oversee them – are on the verge of receiving the same kind of protections against waivers of privilege for information provided to the CFPB that was previously extended to depository mortgage lenders supervised by federal agencies. Before adjourning for the November elections, the U.S. Senate passed H.R. 5062, the Examination and Supervisory Privilege Parity Act of 2014. The bill would require the CFPB to coordinate its supervisory activities with state agencies that license, supervise or examine those non-depositories that offer consumer financial products or services. It also would provide that when someone shares information with those same state regulators, or with prudential regulators and state banking regulators, that sharing does not waive attorney-client privileges. ...


September 29, 2014 - Inside the CFPB

Corinthian Colleges Rejects CFPB Allegations of Predatory Lending

Corinthian Colleges accused the CFPB earlier this month of wrongly disparaging the career services assistance the for-profit company offers and of mischaracterizing both the purpose and practices of its “Genesis” lending program. The CFPB filed a lawsuit against the company earlier this month. In a statement provided to Inside the CFPB, Corinthian Colleges said the bureau’s complaint ignores “clear, easily obtainable evidence” that thousands of its graduates are hired into permanent positions by large and small employers across the U.S. every year. Instead, the complaint cites isolated incidents at Corinthian’s 97 U.S. campuses that violated company policy regarding job placement policies, the firm added. “The CFPB is aware of these cases because Corinthian identified the issues, took strong action to ...


September 29, 2014 - Inside the CFPB

Bureau Gets Online Payday Lender Shut Down Over ‘Cash-Grab Scam’

In a case that highlights the sensitivity of personal financial information and the firms that trade in it, the CFPB convinced a federal judge last week to freeze the assets of the Hydra Group, an online payday lender, and to put a receiver in place to stop an alleged illegal “cash-grab scam” at the business. According to the bureau, the Hydra Group used information purchased from online lead generators to access consumers’ checking accounts to illegally deposit payday loans – usually $200 to $300 – and withdraw fees ranging from $60 to $90 without consent. The organization then allegedly used falsified loan documents to claim that the consumers had agreed to the phony online payday loans. The CFPB’s lawsuit alleges that Richard ...


September 29, 2014 - Inside the CFPB

CFPB, OCC Bring $57 Million Action Against U.S. Bank

Joint supervisory examinations by the CFPB and the Office of the Comptroller of the Currency have led an enforcement action that will require U.S. Bank to pay $57 million to settle allegations it illegally charged for “add-on” products, harming more than 420,000 consumers. The government agencies accused U.S. Bank, headquartered in Minneapolis, of unfairly charging consumers for certain identity protection and credit monitoring services that they did not receive. These services were sold as “add-on products” for credit cards and other bank products, such as mortgage loans and checking accounts. Part of the problem could have been a breakdown in vendor management, which is an area of increasing importance to the CFPB. According to the findings contained in the consent ...


September 29, 2014 - Inside the CFPB

CFPB Slams Flagstar $35 Million Over Mortgage Servicing Violations

As Inside the CFPB was going to press, the bureau announced a $35 million enforcement action against Flagstar Bank for allegedly blocking borrowers’ attempts to save their homes, in violation of the CFPB’s mortgage servicing rules. This is the first enforcement action the bureau has initiated based on the new regulation. The regulator alleged that the bank closed borrower applications due to its own excessive delays. “Flagstar took excessive time to review loss mitigation applications, often causing application documents to expire,” said the agency. “To move its backlog, Flagstar would close applications due to expired documents, even though the documents had expired because of Flagstar’s delay.” The CFPB also accused the bank of delaying the approval or denial of borrower ...


September 26, 2014 - Inside FHA Lending

FHA Announces $336 Million Recovery for MMIF

An estimated $336 million out of a $614 million settlement that JPMorgan Chase agreed to pay for not complying with FHA requirements will go towards stabilizing the agency’s ailing Mutual Mortgage Insurance Fund. On Feb. 4, 2014, the U.S. Attorney’s Office for the Southern District of New York took over a whistleblower lawsuit and started an investigation of Chase on behalf of the government for alleged violations of the False Claims Act. The whistleblower or “relator” alleged that Chase, an approved FHA direct endorsement lender, had not followed FHA requirements when underwriting loans, causing the MMIF to incur significant losses when the borrowers defaulted on their loans. The U.S. Attorney filed suit against Chase based on the results of an audit conducted by HUD’s Inspector General that looked into the bank’s underwriting and refinancing of FHA loans. The lawsuit alleged that ...


September 26, 2014 - Inside FHA Lending

Downturn Avoided with $518M in New HMBS

Issuers of securities backed by Home Equity Conversion Mortgages created $518 million in new HMBS pools during August, the third largest monthly HMBS issuance this year and the latest month for which HMBS issuance data was available. August’s new issuance total was up slightly from July’s $507 million, according to New View Advisors, which advises financial services clients on capital markets, product development and investment strategies. Ninety-one pools were issued, consisting of 46 original issuance and 45 tail pools. Original HMBS pools are created when a pool of FHA-insured reverse mortgages is securitized for the first time. Tail HMBS issuances are HMBS pools created from the uncertified portions of HECMs that have already had their original HMBS issuance. Tail issuances accounted for about $140 million. Beginning with FY 2014, HECM principal limits were ...


September 26, 2014 - Inside FHA Lending

FHA’s QA Draft Addresses Enforcement Concerns

Obama administration officials and federal regulators met recently with mortgage industry representatives to discuss lender overlays and other obstacles preventing borrowers with slightly tainted credit and first-time homebuyers from obtaining a mortgage. Neither administration officials nor industry participants, however, spoke on or off the record about the things that were discussed during the Sept. 17 meeting at the White House. It was also unclear whether both sides have agreed on any solutions to the issues that lenders say are preventing them from lending. Sources, however, said one major issue is lenders’ uncertainty about their legal responsibilities and liabilities, which already have cost the industry billions of dollars in massive legacy settlements. Lenders have complained that even the slightest loan paperwork error could force them out of the ...


September 26, 2014 - Inside FHA Lending

Ginnie Mae AE Discusses Other Issuer Pitfalls

Approved issuers must ensure that loans have the requisite federal insurance or guarantee before bundling them for securitization, cautioned Ginnie Mae. Loans that fail Ginnie’s “loan matching” review will be tagged as “uninsured” and will not be accepted for securitization, according to John Kozak, a Ginnie Mae account executive and a panelist at a conference sponsored by the agency this week. Ginnie Mae uses loan matching to screen for mortgages that may have been endorsed on paper but have not been actually insured or guaranteed by either the FHA, VA or the Department of Agriculture’s Rural Housing Development. Every month, Ginnie Mae takes a certain lender’s entire mortgage portfolio and throws it up against the agency’s insured/guaranteed database in search for loan mismatches. To do this, the agency uses “two-string match” criteria, which consist of a ...


September 26, 2014 - Inside FHA Lending

GNMA to Tighten Supervision of Issuers

Ginnie Mae has unveiled new plans for issuer standards as well as steps to boost liquidity in the mortgage servicing rights (MSR) market. Agency officials at a summit hosted by Ginnie Mae this week in Washington, DC, said both actions are designed to avoid issuer failures and to preserve residential mortgage servicing as an economically viable activity and MSRs as an attractive asset class. The officials said changes will be made to Ginnie’s mortgage-backed securities program to support the agency’s transformation from a pre-crisis bank-driven government MBS program to a post-crisis program where non-depositories and smaller financial institutions play a much bigger role. By the middle of next year, approximately a third of Ginnie MSRs will have changed hands over the previous four years, agency officials said. Many of the new owners of the servicing rights are ...


September 25, 2014 - Inside Mortgage Finance

Much for Lenders to Consider as They Eyeball Entering the Non-QM Space, Current Players Say

The market outside the pristine parameters of the Consumer Financial Protection Bureau’s qualified mortgage offers less-competitive opportunity and potentially sizeable legal risk, according to panelists participating in a webinar sponsored this week by Inside Mortgage Finance. Brian Simon, chief operating officer for New Penn Financial, noted that the regulatory environment makes a move into non-QM lending much more complicated than in the past because the risks for the originator and the purchaser now are greater than they’ve ever been. However, Simon added: “A high degree of difficulty usually results in higher yield and opportunity.” The New Penn executive predicted...


September 19, 2014 - Inside The GSEs

Group: FHFA’s Deal Will Allow MBS Defendant to Write Off Settlement

The Federal Housing Finance Agency’s most recent settlement of non-agency mortgage-backed securities lawsuit has one consumer group seeing red as it claims taxpayers will ultimately get stuck with the cost of the bank’s multi-million dollar payout. Late last week, the FHFA announced a $550 million legal deal with HSBC North American Holdings, leaving just two civil cases tied to nonprime MBS issuance still unresolved.


September 19, 2014 - Inside The GSEs

Groups Petition Congress to Seek Transparency in GSE Profit Sweep

Congress should put the screws to the Treasury Department to disclose all documents pertaining to the origins of the Obama administration’s controversial “net-worth sweep” of Fannie Mae and Freddie Mac profits, according to a coalition of right-leaning public policy groups. In a letter dispatched late this week to the top Republican and Democrat of the House Financial Services Oversight and Investigations Subcommittee, the 17 groups led by the Competitive Enterprise Institute urged lawmakers to intervene to impose transparency over what GSE shareholders consider an extra-legal maneuver by the executive branch.


September 18, 2014 - Inside Mortgage Finance

Supreme Court Preparing to Hear Cases Involving DOL’s Overtime Guidance for Loan Officers

The U.S. Supreme Court is set to hear cases in its coming term regarding guidance issued by the Department of Labor involving overtime pay for loan officers. Oral arguments are scheduled for Dec. 1, and a decision is expected by June. The cases are Perez v. Mortgage Bankers Association and Nickols v. Mortgage Bankers Association. The MBA has argued that the DOL didn’t follow rulemaking procedures in 2010 when the regulator withdrew guidance stating that loan officers could be exempt from overtime compensation requirements under the Fair Labor Standards Act. Lenders have received...


September 18, 2014 - Inside Mortgage Finance

IL Court’s Narrow Ruling in Disparate-Impact Case Allows DC Court to Focus on Bigger Picture

An Illinois district court’s decision that federal preemption issues are not ripe may now prompt a federal district court in Washington, DC, to examine the broader issue of whether disparate impact is a valid claim under the Fair Housing Act. The Illinois lawsuit, Property Casualty Insurers Association of America v. U.S. Department of Housing and Urban Development, is one of two insurance-industry legal challenges to HUD’s disparate-impact rule. The second case was filed by two other trade groups, the American Insurance Association and the National Association of Mutual Insurance Companies, and is pending in federal court in the nation’s capital. According to the final rule that HUD adopted in February 2013, a practice has...


September 15, 2014 - Inside the CFPB

Hanna Files Motion to Dismiss CFPB Enforcement Action

Last week, the law firm of Fredrick J. Hanna & Associates filed a motion to dismiss the enforcement action brought by the CFPB against it back in July. The bureau accused the firm and its three principal partners – Frederick Hanna, Joseph Cooling and Robert Winter – of operating a debt-collection lawsuit mill that used illegal tactics to intimidate consumers into paying debts they may not owe. Between 2009 and 2013, the firm filed more than 350,000 debt-collection lawsuits in Georgia alone, according to the CFPB. The bureau further alleged the defendants collected millions of dollars each year through these lawsuits, often from consumers who may not actually have owed the debts. But in its motion to dismiss, Hanna & Associates argued ...


September 15, 2014 - Inside the CFPB

Is a Uniform Code for the Debt- Buying Industry In the Works?

The CFPB is reviewing the debt collection practices of debt buyers as part of its broader expected rulemaking on debt collection. According to Alan Kaplinsky, a practice leader with the Ballard Spahr law firm in Philadelphia, those practices could become the subject of a uniform state debt-buying code if the newly authorized Study Committee on the Transfer and Recording of Consumer Debt concludes that a uniform code will produce significant benefits to the public. The new panel was authorized this summer by the non-partisan Uniform Law Commission. The ULC noted that the Office of the Comptroller of the Currency in 2013 issued a “best practices” document that expressed concern about safety, soundness and consumer protection issues involved with such sales ...


September 15, 2014 - Inside the CFPB

CFPB Warns Credit Card Issuers About Interest-Rate Promos

The CFPB recently warned credit card companies of the risk of engaging in deceptive and/or abusive acts and practices in connection with solicitations that offer a promotional annual percentage rate (APR) on a particular transaction – such as convenience checks, deferred interest/promotional interest rate purchases, and balance transfers – over a defined period of time. The bureau said it is concerned that some companies are luring consumers with offers of reduced or zero interest for a specific purchase or balances transferred from another credit card, and then hitting them with surprise interest charges. In CFPB Bulletin 2014-02, the bureau states that it has observed that some card issuers do not adequately convey in their marketing materials that a consumer who accepts such ...


Poll

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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