A growing consensus is emerging among legal experts that someone will challenge in court President Obama’s contentious recess appointment of Richard Cordray as the first director of the Consumer Financial Protection Bureau. But a final outcome could take years and have no impact on the agency’s actions while the case is unfolding. “These appointments establish a dangerous precedent that threatens the confirmation process and undermines the system of checks and balances embedded in the Constitution,” a number of House Republicans said in a letter they fired off to the president after he made his...

Fed Governor Sarah Bloom Raskin late last week stumped for creating an effective enforcement system to deal with shortcomings in the mortgage servicing industry that have come to light since the foreclosure crisis, as state officials pressed to expand a potential settlement over past abuses. “The law is not a scarecrow where the birds of prey can seek refuge and perch to plan their next attack,” Raskin said in a speech to a group of attorneys. The Fed governor said it’s important for servicers to have transparent, enforceable and sensible rules, adding that deferring to “standard industry...

President Obama this week moved to break a GOP blockade in the Senate by making a recess appointment of Richard Cordray to become director of the Consumer Financial Protection Bureau, a political maneuver that defies 20 years of precedent and may set the stage for a legal challenge. The Obama administration claimed that it is fully within its Constitutional authority to place the new director into his position, dismissing as a gimmick the pro-forma sessions Republicans used to block the nomination. A number of consumer groups came out in support of the appointment. The president’s allies in Congress were...

There’s a very good chance the final disposition of securities fraud charges leveled by the Securities and Exchange Commission against six former Fannie Mae and Freddie Mac top executives could be determined at trial rather than by a pre-trial settlement, thanks in part to a recent adverse SEC court decision, according to one legal expert. On Dec. 16, the SEC filed suit in the U.S. District Court for the Southern District of New York, alleging that former Fannie and Freddie executives made material misstatements to the public, investors and the media about the two government-sponsored...

The outcome of the securities fraud case leveled against six former top executives of Fannie Mae and Freddie Mac could hinge on what exactly is considered a subprime loan. At least one defendant is prepared to argue that there is no standard definition.In fact, the GSEs appear to still be reporting their subprime and Alt A exposure in much the same way they did in the period covered by the Securities and Exchange Commission lawsuits.Late last week, the SEC pulled the trigger on its three-year investigation of claims that the two GSEs failed to disclose to investors the companies’ exposure to subprime mortgages prior to the 2008 housing market crash.

The use of Federal Home Loan Bank advances among bank and thrift members fell overall during the third quarter of 2011. Two of the three top members show a drop-off larger than the overall industry’s year-over-year rate of decline, according to the Inside Mortgage Finance Bank Mortgage Database.All of the nation’s bank and thrifts reported using a combined $323.3 billion in advances as of Sept. 30, 2011, down 5.2 percent from the second quarter and off 19.7 percent from the same period a year earlier.The Federal Home Loan Bank’s Office of Finance in its third quarter combined finance report cited decreased member demand, regular maturities and continuing prepayments for the third quarter decline.

Industry trade groups, as well as Fannie Mae and Freddie Mac’s regulator, are questioning the wisdom of Congress as lawmakers in both chambers have bills pending to hike the fees charged to guarantee GSE mortgages as a way to help offset the cost of extending the payroll tax cut through 2012.Both House and Senate versions of tax cut extension bills would add an additional 10 basis points to the guarantee fees charged by Fannie and Freddie through 2021. The increase would offset about $35.7 billion in costs, including $1.3 billion in the first year, according to the Congressional Budget Office.As Inside the GSEs went to press, the prospect of any tax cut extension was in doubt after the House rejected the bill calling for a two-month extension. Instead, House Republicans demanded immediate talks with the Senate on a year-long plan but the Senate ruled out further negotiations until the House passes the stop-gap measure.

House Republicans last week moved a bill that would create a new non-agency residential mortgage-backed securities market to the full Financial Services Committee while the clamor grows for Congress to act on a more “comprehensive” legislative solution to GSE reform.By an 18-15 vote, the House Financial Services Capital Markets and Government-Sponsored Enterprises Subcommittee approved the Private Mortgage Market Investment Act, advancing the measure to the full committee.The bill’s sponsor and Subcommittee Chairman Rep. Scott Garrett, R-NJ, said passage of the measure is an “important first step” to permit private market participants to re-enter the marketplace without adding more burdens to the taxpayer.The revised bill would require the Federal Housing Finance Agency and the Securities and Exchange Commission to create several categories of mortgages with uniform underwriting standards for each, as well as to develop standard and uniform securitization agreements.

The Federal Housing Finance Agency is cutting lenders a break for the holiday season in the form of a deadline extension for implementing changes to how lenders submit mortgages to Fannie Mae and Freddie Mac.The FHFA announced last week that Fannie and Freddie would delay implementation dates for the Uniform Loan Delivery Dataset, a key component of the GSEs’ Uniform Mortgage Data Program.“Industry participants have demonstrated continued support for the UMDP and the updated timeline will allow for a successful transition to a new loan delivery format,” said the Finance Agency. Announced by the GSEs in May 2010, the UMDP initiative was established to help improve loan data accuracy, simplify the exchange of data and increase confidence to lending institutions that the loan data provided are complete and accurate.

The official watchdog of the Federal Housing Finance Agency found a sympathetic audience in senators last week as the head of the FHFA’s Office of Inspector General sounded a now-familiar refrain – that the Finance Agency is falling short in its oversight of Fannie Mae and Freddie Mac.Testifying before the Senate Banking, Housing and Urban Affairs Committee, FHFA Inspector General Steve Linick said the OIG has identified “deficiencies” in Finance Agency operations which appear to reflect two “significant and related trends.” First, the FHFA has relied too much on the determinations of the two GSEs without independently testing and validating those determinations, testified Linick. “Second, FHFA was not proactive in oversight and enforcement and accordingly, resource allocations may have affected its ability to oversee the GSEs and enforce its directives,” said Linick. “Both trends have emerged in a number of our reports.”