Legal Issues

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

August 26, 2016 - Inside FHA/VA Lending

Around the Industry

Mortgage Company President Charged with Defrauding Ginnie Mae. Robert Pena, president and founder of the now-defunct Mortgage Security Inc., was charged in federal district court in Boston for allegedly bilking Ginnie Mae out of nearly $3 million. MSI was an approved participant in the Ginnie Mae mortgage-backed securities program, pooling eligible single-family mortgages and selling the securitized products to investors. The firm also serviced the underlying loans. In 2011, Pena allegedly began diverting borrower payments and huge loan-payoff amounts into secret accounts, which he used to fund personal and business activities. Likewise, he is said to have funneled borrowers’ escrow funds and mortgage-insurance premiums into other personal accounts. In total, Pena pocketed $3 million due Ginnie Mae, which had to pay investors whose investments it had guaranteed, according to the ...

August 26, 2016 - Inside FHA/VA Lending

Wait Time for Evaluating, Deploying Home-Retention Options Reduced

The FHA has announced new streamlined procedures to help delinquent homeowners avoid foreclosure and stay in their homes. The agency is revising loss-mitigation procedures servicers use when evaluating and choosing the best home-retention options for delinquent borrowers by reducing waiting time for results. The new streamlined procedures are designed to enhance servicers’ ability to evaluate foreclosure-avoidance alternatives, especially for the FHA-Home Affordable Modification Program (FHA-HAMP). Specifically, FHA will require servicers to convert successful three-month trial modifications into permanent modifications within 60 days instead of the average four to six months. Borrowers who have three missed mortgage payments would be able to opt for a partial claim to bring their arrearages current versus the previous four-month minimum. In addition, the FHA will eliminate the ...

August 26, 2016 - Inside FHA/VA Lending

FCC Issues TCPA ‘Exemption’ Rule, Lawyers Baffled by Rule’s Language

The Federal Communications Commission has issued a baffling final rule restricting the way servicers can collect on or service student loans, mortgages and other debts owed to the federal government. Specifically, the rule implements a key provision in the Bipartisan Budget Act of 2015 amending the Telephone Consumer Protection Act to exclude robocalls from the TCPA consent requirement if they are made solely to collect a debt owed to or guaranteed by the federal government. The TCPA generally requires a caller to obtain “prior express consent” from the call recipient before making a telemarketing call or an auto-dial call to the recipient’s landline or cell phone. However, the mortgage industry raised concerns that TCPA’s consent requirement could create potential liability for important servicing calls that could help homeowners save their homes, which prompted Congress to pass the Budget Act amendment. Last month, the FCC specifically excluded the federal government from the TCPA’s consumer protections by ruling that the government is not a “person” subject to the TCPA. Here is where the FCC rule gets confusing. commission is authorized to adopt rules to “restrict or limit the number and duration” of any wireless calls to collect debt owed to the federal government.”

August 26, 2016 - Inside FHA/VA Lending

HUD Urged to Pursue $21.5 Million In Uncollected Partial Claims

A new audit report from the Department of Housing and Urban Development’s inspector general recommended that the agency continue its efforts to collect millions of dollars in partial claims that came due during fiscal year 2015. According to a HUD IG report, the department left uncollected approximately 1,361 partial claims, worth about $21.5 million. The IG discovered the oversight during an audit of HUD’s partial claim collections. The IG reviewed a statistical sample of 135 of 10,561 partial claims associated with FHA loans that terminated in FY 2015. “HUD had not collected 36 of the claims that should have been collected,” the report stated. “We used this result to project that a total of 1,361 partial claims were not collected.” The claims were never returned to the FHA mortgage insurance fund, as required by agency rules, to strengthen FHA solvency, the report said. A partial claim is a loss ...

August 26, 2016 - Inside FHA/VA Lending

Lenders Need to Seek Legal Advice Before Using FHA’s DPA Programs

The Mortgage Bankers Association strongly urged the Department of Housing and Urban Development and the FHA to issue authoritative guidelines for lenders participating in state and local housing finance programs that rely on premium pricing to fund downpayment assistance. In a recent letter to members, the MBA recommended that FHA lenders “tread carefully” and seek legal advice until HUD provides more definitive guidance on downpayment assistance and premium pricing. Lenders should consider carefully whether and when to participate in DPA programs from housing finance agencies that rely on premium-pricing mechanisms, the letter said. The MBA said it would continue to press HUD for clarification on this contentious issue. The FHA and HUD’s inspector general are currently at odds over permissible sources of single-family downpayment assistance offered through housing finance agencies. Although the ...

August 26, 2016 - Inside MBS & ABS

Moody’s Seeks Dismissal of Whistleblower FCA Claim, NY Court Reverses Ruling in Favor of MBS Trustee

Moody’s Investors Service has asked the U.S. District Court for the Southern District of New York to dismiss the remaining claim in a lawsuit alleging manipulation of credit ratings leading up to the financial crisis. In its motion to dismiss, Moody’s said that plaintiff Ilya Eric Kolchinksy’s second amended complaint fails to show that the rating agency used its electronic “ratings delivery service” to issue false ratings on MBS that later turned bad. In 2012, Kolchinsky, a former managing director at Moody’s, filed...

August 25, 2016 - Inside Mortgage Finance

GSEs Introduce a New Loan Dispute Appeal Process Prior to Third-Party Arbitrator

Fannie Mae and Freddie Mac introduced a new impasse and management escalation process this week as a middleman between the normal loan dispute appeal process and the final independent dispute resolution (IDR) process for seller/servicers. The government-sponsored enterprises said they hope to resolve as many disputes as possible before any IDR process begins. The GSEs introduced...

August 22, 2016 - Inside the CFPB

Does TRID Definition of Application Trigger HMDA Reporting? Maybe

One mortgage lender recently inquired of Michael Goldhirsh, director of legal and regulatory compliance for the Lenders Compliance Group, as to whether the definition of “application” in the CFPB’s TILA/RESPA Integrated Disclosure rule (TRID) triggers or otherwise affects reporting under the Home Mortgage Disclosure Act. In a recent blog posting, he replied: “The short answer is that receipt of some or all of the six pieces of TRID application information does not necessarily trigger an application for purposes of HMDA reporting.” Goldhirsh went on to explain that Regulation C defines an application for HMDA reporting purposes as an oral or written request for a home purchase loan, a home improvement loan, or a refinancing that is made in accordance with ...

August 22, 2016 - Inside the CFPB

New Requirements in NY Pose Challenges for Servicers

New legal requirements enacted in the state of New York in the wake of the financial crisis pose particular compliance challenges for mortgage servicers, according to a new report by analysts at S&P Global Ratings. The S&P team recently reviewed a series of laws the state legislature passed in June that attempts to address several issues related to “zombie” foreclosures, which refers to the phenomenon of a servicer initiating foreclosure on a vacant property but not going so far as to actually take title. Urban community activists complain such properties languish unsold for a prolonged period of time, contributing to neighborhood blight in communities least able to handle it – hence, state lawmakers decided to act. One resulting requirement “imposes conditions ...

August 19, 2016 - Inside Mortgage Trends

Retroactivity Concerns Over Civil Penalty Hikes

With federal civil monetary penalties set to rise significantly over the next couple of months, mortgage industry stakeholders are getting increasingly concerned about retroactivity in some of the interim final rules adopted by federal agencies to implement the revised penalty amounts, according to industry attorneys. Although application of the adjusted civil penalty amounts to violations that occurred prior to the passage of the Federal Civil Penalties Inflation Adjustment ...

August 19, 2016 - Inside MBS & ABS

Recent Homeowners Association Super Lien Rulings in Nevada Favor Mortgage Industry

Recent rulings in Nevada favor the mortgage industry when it comes to super-liens imposed by homeowners associations on loans in foreclosure. Twenty-two states have super-lien laws that allow HOAs to take priority over first mortgages and foreclose the property to collect up to six months of unpaid fees. In 2014, the Nevada Supreme Court ruled that an HOA could extinguish a senior mortgage. But the Ninth Circuit Court recently ruled that an HOA foreclosure sale extinguishing the first deed of trust is unconstitutional. In the case of Bourne Valley Trust v. Wells Fargo Bank, the court ruled that Bourne Valley seeking to purchase the property at an HOA foreclosure sale violated the first-lien holder’s due process rights. Attorneys at Bradley ...

August 19, 2016 - Inside MBS & ABS

NY Court Okays JPMorgan’s $4.5 Billion Settlement; Three Banks to Face MBS Suits; MBS Trader Settles

A New York State Supreme Court judge recently signed off on JPMorgan’s proposed $4.5 billion settlement with a revised list of MBS trusts, while three other Wall Street banks lost in separate bids to have MBS claims against them dismissed. On Aug. 12, Justice Marcy Friedman of the New York State Supreme Court approved JPMorgan’s representation-and-warranties settlement offer for 319 MBS trusts. She concluded that the trustees exercised their discretionary power reasonably and in good faith in accepting the settlement. JPMorgan and a group of 20 large institutional investors that hold approximately 32.5 percent of the securities issued by the MBS trusts negotiated the settlement. Among these prominent investors were Fannie Mae, Freddie Mac and the Federal Home Loan Bank ...

August 12, 2016 - Inside FHA/VA Lending

HUD Offices Disagree on How to Process Settlement Collections

A dispute over which office within the Department of Housing and Urban Development is responsible for tracking and recording certain collections from civil fraud settlements is wreaking havoc on HUD’s accounting of collections and recoveries. In its semiannual report to Congress, HUD’s Office of the Inspector General said it might have to elevate the matter to the HUD deputy secretary for a decision as to which office is responsible for each action. The dispute ...

August 12, 2016 - Inside MBS & ABS

Latest Batch of Documents Unsealed in GSE Shareholder Case Focuses on Treasury’s Control Over Fannie, Freddie

A federal judge rejected efforts by the government to keep a new batch of official memos and other documents from being disclosed in the ongoing legal war over the terms of the conservatorships of Fannie Mae and Freddie Mac. U.S. Court of Federal Claims Judge Margaret Sweeney released a new set of documents that included a brief excerpt of former White House housing policy expert Jim Parrott’s deposition from January, a presentation from the Federal Housing Finance Agency in 2008 and several memos dating back to 2008 and 2012. Sweeney rejected...

August 12, 2016 - Inside MBS & ABS

JPMorgan, FDIC Near Settlement with Defunct WaMu, DOJ Asks Second Circuit for Another Shot at ‘HUSTLE’

JPMorgan Chase is a step closer to settling a dispute with Deutsche Bank and the Federal Deposit Insurance Corp. over certain mortgage securitization agreements in connection with the government’s takeover of failed mortgage lender Washington Mutual. According to Chase’s most recent 10-Q filing with the Securities and Exchange Commission, the firm, Deutsche Bank and the FDIC have signed a term sheet to resolve pending litigation brought by the German bank against Chase and the FDIC in relation to WaMu as well as Chase’s outstanding indemnification claims pursuant to the terms of the purchase-and-assumption agreement with the FDIC. The term sheet is subject...

August 12, 2016 - Inside MBS & ABS

SIFMA Seeks Reversal of New York Ruling in Case Involving ‘Gap’ Reps Provided by MBS Sponsor

A ruling late last year by a state appeals court in New York threatens to upend the practice of providing “gap” or “bridge down” representations and warranties on residential MBS, according to a brief submitted on behalf of the Securities Industry and Financial Markets Association. SIFMA asked the New York State Court of Appeals to reverse the lower court’s ruling in Bank of New York Mellon v. WMC Mortgage. Lawyers at the law firm of Stroock & Stroock & Lavan submitted an amicus brief to the N.Y. State Court of Appeals on behalf of SIFMA regarding the case. “The court’s resolution of this issue could have...

August 8, 2016 - Inside the CFPB

Other News in Brief

Mortgage Industry Waits for PHH Shoe to Drop. The mortgage industry is awaiting a final ruling from the U.S. Court of Appeals for the District of Columbia Circuit in the case of PHH Corp. v. Consumer Financial Protection Bureau, No. 15-cv-01177.

August 8, 2016 - Inside the CFPB

CFPB Puts Out ‘Guiding Principles’ On Foreclosure Prevention

As policymakers in Washington, DC, face the expiration of the Treasury Department’s Home Affordable Modification Program at year-end, the CFPB last week released a collection of what it characterized as “guiding principles” on the future of foreclosure prevention. “We aim to help consumers avoid foreclosures, which upset their personal and financial lives,” said CFPB Director Richard Cordray. “The modification program was put in place to provide alternatives to foreclosure. Our principles will serve as helpful guardrails for servicers, investors and regulators to consider as we continue to protect consumers who are struggling to pay their mortgages.” In summary, the principles emphasize, among other things, accessibility: “Consumers should easily be able to obtain and use information about loss mitigation options, and ...

August 5, 2016 - Inside The GSEs

More Documents Unsealed in GSE Shareholder Case

More unsealed documents were released this week during the discovery process in a GSE shareholder case in the U.S. Court of Federal Claims. The eight documents ranged from an excerpt of former White House housing policy expert Jim Parrott’s deposition from January,to presentations from the Federal Housing Finance Agency in 2008 to several memos dating back to 2008 and 2012. In the two-page Parrott deposition excerpt, he said that the net worth sweep was a “Treasury-driven process,” when asked why he didn’t reach out to anyone on Capitol Hill about the plan. He added that to the degree there was outreach to Congress, it would have come from Treasury, not him.

August 4, 2016 - Inside Mortgage Finance

Mortgage Industry Urges U.S. Supreme Court to Rule Against Fees Charged by Connecticut Aimed at MERS

Mortgage industry trade groups filed a brief last week asking the Supreme Court of the United States to take up a case involving fees charged by Connecticut aimed at mortgage recordings by Mortgage Electronic Registration Systems. In February, Connecticut’s Supreme Court upheld fees imposed by the state in 2013 that tripled charges for mortgages recorded with MERS compared with non-MERS recording fees in the case of MERSCORP Holdings v. Dannel Malloy. In the new brief, industry participants caution...

July 29, 2016 - Inside Nonconforming Markets

News Briefs

EverBank Financial announced this week that it’s in “advanced discussions” with a “well-respected financial services company” that plans to acquire the depository. Everbank ranked 15th among jumbo lenders as of the first quarter of 2016 with $725.0 million in such originations during the quarter, according to Inside Nonconforming Markets. The company formerly known as NovaStar filed for Chapter 11 bankruptcy last week, citing ... [Includes four briefs]

July 29, 2016 - Inside Nonconforming Markets

Ocwen Takes Large Loss Due to ‘Legacy Issues’

Ocwen Financial reported a net loss of $87.20 million for the second quarter of 2016, with most of the loss related to so-called legacy issues. A planned settlement with the Department of Justice of two lawsuits involving the Home Affordable Modification Program and FHA mortgages caused $40.10 million in pre-tax losses for the nonbank lender-servicer. The company also paid $28.10 million during the quarter to cover the cost of monitoring settlements involving federal regulators ...

July 29, 2016 - Inside MBS & ABS

Ohio Retirement Fund Lawsuit Reinstated Over Freddie Mac Subprime Loan Claims

The Sixth U.S. Circuit Court of Appeals overturned a lower court decision that had cleared Freddie Mac of charges that it misled investors about its involvement in the subprime mortgage market. The lawsuit was filed in 2008 by the Ohio Public Employees Retirement System, which claimed Freddie made false public financial statements that hid its exposure to risky loans. The fund alleged that it lost more than $27.2 million as the value of Freddie stock plummeted. OPERS said...

July 25, 2016 - Inside the CFPB

CFPB Fines Santander Bank $10M Because of Overdraft Practices

In a warning to other lenders on the importance of proper vendor oversight, the CFPB recently brought a $10 million enforcement action against Santander Bank, based in Wilmington, DE, because of its allegedly illegal overdraft services practices. Among the practices at issue, the bureau said the bank signed up consumers for overdraft services without their consent. “In some instances, Santander’s telemarketer briefly described [the bank’s] Account Protector [service] to consumers, then asked for the last four digits of their Social Security numbers, and enrolled them without their consent,” said the CFPB. “In other instances, consumers said they did not want to enroll but requested information about the overdraft service, but the telemarketer enrolled them anyway,” the bureau added. Also, call ...

July 28, 2016 - Inside Mortgage Finance

Appeals Court Upholds Class Decertification in Mortgage Case Despite Favorable Jury Verdict

Class-action plaintiffs might not be assured of a final victory despite a favorable jury verdict in the wake of the U.S. Court of Appeals for the Second Circuit’s affirmation of district courts’ power to decertify a class even after a jury verdict. Industry attorneys say that the court’s recent ruling in Mazzei v. The Money Store means that defendants can obtain decertification of a class action not only leading up to trial, but even after a jury verdict in favor of the class. In Mazzei, the Second Circuit reaffirmed...

July 25, 2016 - Inside the CFPB

Legal Challenges to Cordray's Recess Appointment Rejected

In State National Bank of Big Spring, Texas, et al. v. Lew, et al., the U.S. District Court for the District of Columbia has shot down the latest attempt to void the actions taken by CFPB Director Richard Cordray while he was still a recess appointee. At issue are several CFPB rulemakings, such as those having to do with electronic fund transfers, integrated mortgage disclosures, escrow requirements, ability to repay/qualified mortgages, and mortgage servicing. On July 18, 2011, President Obama first nominated Cordray to serve as director of the bureau. When the Senate took no action on that nomination, Obama appointed him to the position on Jan. 4, 2012, invoking his...

July 25, 2016 - Inside the CFPB

CFPB Reiterates its Argument in Remanded Spokeo Case

In May, the Supreme Court of the United States ruled in Robins v. Spokeo, Inc. that a plaintiff has to demonstrate that he or she suffered “concrete” and “real” harm in order to have standing under Article III of the U.S. Constitution to successfully sue for statutory damages under the Fair Credit Reporting Act. The CFPB has previously argued that is not necessarily so, and with the SCOTUS remanding the case back to the U.S. Court of Appeals for the Ninth Circuit, the bureau has recently reiterated its argument in an amicus brief with the lower court. The specific question in this case is whether the plaintiff (Robins) identified an injury-in-fact under Article III of...

July 25, 2016 - Inside the CFPB

Look to the Courts to Rein in Five Year-Old CFPB, Attorney Advises

Last week marked the five-year anniversary of the birth of what is arguably the single most powerful, pro-consumer regulatory agency in the history of the United States: the CFPB. According to former CFPB enforcement attorney Jennifer Lee, now a partner at the international law firm Dorsey & Whitney, the CFPB has achieved a tremendous number of milestones in a short amount of time. “Between promulgating new regulations, bringing a multitude of enforcement actions, including ripening cases…

July 22, 2016 - Inside The GSEs

FHFA Denying Access to GSE Corporate Records

The Federal Housing Finance Agency is seeking to prevent GSE shareholder and director of Investors Unite, Tim Pagliara, from inspecting the corporate records of Fannie Mae and Freddie Mac. Pagliara filed a lawsuit in state courts in March hoping to gain access, as an individual stockholder, to the GSEs’ records to determine the circumstances surrounding the sweep. Fannie, incorporated in Delaware, and Freddie, incorporated in Virginia, both denied his request to review the records earlier this year. Pagliara then argued that his rights as a shareholder were denied for “no legitimate basis.” This week, the FHFA filed a motion to substitute itself for Pagliara and remove...

July 22, 2016 - Inside MBS & ABS

Eleventh Circuit Opinion in GNMA-Related Case Shines Light on Two Important Securities Fraud Laws

Stakeholders in the MBS market should pay attention to a recent U.S. 11th Circuit opinion concerning a jury verdict in which the court focused on the similarities and differences between two kinds of securities fraud, suggested attorneys in their analysis of the case. Although the opinion in SEC v. Radius Capital Corp. is unpublished and not a binding precedent, it gives further clarity to two of the most important rules used by the Securities and Exchange Commission in targeting securities fraud, according to attorneys with the law firm Carlton Fields. The SEC sued...

July 21, 2016 - Inside Mortgage Finance

State Court Ruling Sets Precedent Against Servicers’ Practice of Changing Locks Before Foreclosure

A recent ruling by the Washington State Supreme Court goes against servicers’ practice of changing the lock on a property before a foreclosure. While such practices are generally allowed under mortgage contracts and have been approved by other states, the Washington state court ruling is favorable to 3,600 borrowers in a class-action lawsuit and could cause further issues for servicers. Laura Jordan v. Nationstar Mortgage centered on Nationstar’s actions after the borrower defaulted on her mortgage. A vendor acting on behalf of Nationstar inspected the property, deemed it to be vacant and changed the lock on the front door. The vendor also left a lockbox on the door with the key to the new lock and the borrower was provided access to the key. Jordan represents...


The yield on the benchmark 10-year Treasury fell to all-time low of 1.34% recently. How much better will originations be at your shop in the second half compared to 1H, if at all?

Better by 1% to 10%.


Better by 11% to 25%.


Off the charts better. Applications are great now.


Worse than 1H, but not by much.


A lot worse. But not sure on the damage.


Housing Pulse