Manhattan District Attorney Cyrus Vance has charged Abacus Federal Savings Bank and a group of its former employees in a massive mortgage fraud scheme for allegedly originating and selling fraudulent mortgage loans to Fannie Mae over a five-year period. The Manhattan-based bank, which provides loans and other banking services in New York City’s Chinatown, as well as 19 former employees, were charged with residential mortgage fraud, securities fraud, grand larceny, conspiracy and falsifying business records. Eleven of the bank’s employees were indicted in state court two weeks ago, while eight waived indictment and admitted guilt, according to the DA’s 184-page indictment.

Non-agency mortgage-backed security investors are hoping to influence the implementation of the recent $25 billion foreclosure settlement and ward off similar agreements in the future. They raised concerns this week at a hearing before the House Financial Services Committee’s Subcommittee on Capital Markets and Government Sponsored Enterprises. “As it stands, it will damage residential MBS markets further,” said Vincent Fiorillo, a trading/portfolio manager at Doubleline Capital, on behalf of the Association of Mortgage Investors. “By adding yet another risk premium to government intervention, it will further...

A federal judge in Los Angeles has dismissed a number of claims in an American International Group lawsuit against Bank of America over mortgage securities issued by Countrywide Financial, although AIG has promised to continue its legal efforts to recoup more than $10 billion in MBS losses. U.S. District Judge Mariana Pfaelzer of the Central District of California in a new ruling dismissed AIG’s federal securities-law claims because they were filed too late – more than three years after the MBS were first sold. AIG filed suit against BofA as Countrywide’s owner and Merrill Lynch in New York state court...

The settlement baked into the Residential Capital bankruptcy agreement is facing new challenges, including one from Warren Buffet’s Berkshire Hathaway and another from unsecured creditors. When ResCap announced its bankruptcy last month, it did so with a plan to sell its mortgage origination platform and servicing rights to Nationstar Mortgage, a division of Fortress Investment Group, for $4 billion and its portfolio loans to its parent company Ally Financial. Part of the deal is a release of legal liability for Ally, which will pass along some of its lingering obligations – like follow through on the...

Non-agency mortgage-backed security investors and politicians on both sides of the aisle were critical this week of the recent $25.0 billion servicing settlement. The settlement requires principal reduction loan modifications on mortgages held in five banks’ portfolios and allows the servicers to receive credit for reducing principal on mortgages in non-agency MBS. Vincent Fiorillo, a trading/portfolio manager at Doubleline Capital, noted that the Association of Mortgage Investors is not opposed to principal reduction mods ...

If investors in non-agency mortgage-backed securities had easy access to the addresses of mortgages included in non-agency MBS, the sector’s market share would increase, according to a new proposal by the Reason Foundation, which promotes libertarian principles. “Ignorance of the borrower’s address and identity is a major disadvantage for the residential MBS investor or anyone trying to analyze residential MBS deals,” according to Marc Joffe, a research associate at the Reason Foundation and Anthony Randazzo ...

Making the Department of Veterans Affairs’ adjustable-rate mortgage programs permanent would cost $144 million in new direct taxpayer subsidies over the next 10 years, according to Congressional Budget Office estimates. Based on the number of ARM and hybrid ARM loans the VA has guaranteed in recent years, CBO estimates that the VA would guarantee approximately $1.3 billion worth of additional loans annually over the next 10 years. Consequently, additional subsidy costs for those loans would increase direct spending by $52 million over 2012-2017 and $144 million over 2012-2022, the CBO said. Subsidy costs of those additional loan guarantees would be paid from a ...

A proposal to replace the FHA’s current Tier Ranking System with a Servicer Performance Scorecard as a basis for determining servicer incentive payment is expected to be published in the Federal Register by the end of this month. In the previous issue of Inside FHA Lending (Volume 5, Issue 11, May 25), it was reported that a coalition of industry groups asked the FHA to adopt a private transfer fee rule in harmony with the final rule recently adopted by the Federal Housing Finance Agency. In a recent seller/servicer bulletin, Freddie Mac announced that, effective July 16, it will not purchase mortgages that are ...

In a move intended to maintain the integrity of data that helps guide the decisions of MBS investors, the Financial Industry Regulatory Authority last week fined Citigroup Global Markets $3.5 million for allegedly providing “inaccurate mortgage performance information, supervisory failures and other violations” in connection with subprime residential MBS. “Citigroup posted data for its RMBS deals that it should have known was inaccurate; and even after they learned that the data was inaccurate, Citigroup did not correct the problem until years later,” said Brad Bennett, FINRA executive vice president and...

The Federal Deposit Insurance Corp. late last week filed separate lawsuits against a number of companies that issued or underwrote non-agency MBS purchased by Citizens National Bank and Strategic Capital Bank, two Illinois banks that failed in May 2009. The two banks purchased some $140.5 million of non-agency MBS issued by Bear Stearns, Citicorp, Credit Suisse and Merrill Lynch. The lawsuits also name JPMorgan Securities, Citigroup, Credit Suisse, Deutsche Bank, Ally Securities, HSBC Securities, RBS Securities and UBS Securities as underwriters of these transactions. The FDIC is seeking $77.0...