The mortgage industry is facing mounting legal challenges to force-placed insurance practices as evidenced by two class-action lawsuits filed or advanced last week while state and federal policymakers look for ways to reduce homeowner costs on lender-placed insurance. A Florida homeowner filed a class-action lawsuit in federal court in Fort Lauderdale against Wells Fargo Bank, accusing the lender of engaging in a pattern of “unlawful and unconscionable profiteering and self-dealing” by charging inflated force-placed insurance premiums to homeowners who had allowed their coverage to lapse. Ira Fladell, a lawyer representing himself, claims the bank breached its contract with him and acted in bad faith and that the lender bought...

Mortgage loan fraud was the most frequent type of suspicious activity reported by depository institutions involving real estate title and escrow related business throughout much of the past decade, according to a new study by the Financial Crimes Enforcement Network. FinCEN’s analysis of suspicious activity reports identified “thousands of instances” where financial institutions – particularly banks and money services businesses – filed SARs involving title and escrow companies “often in connection with mortgage fraud” from 2003 through 2011. “Over 82 percent of the SARs reporting real estate title and escrow related businesses included...

Fannie Mae executives and staffers were at the front of the line of Countrywide Home Loan’s sophisticated influence peddling operation that showered not just GSE employees but Washington insiders with deeply discounted mortgage loans in order to curry favor, according to a newly released House committee report. The 136-page report completes a three-year investigation by the House Oversight and Government Reform Committee of Countrywide’s so-called Friends of Angelo program, named after CEO Angelo Mozillo, which ran for a dozen years until the lender was acquired by Bank of America in 2008.

Fannie Mae will no longer purchase or securitize mortgages on properties encumbered by certain transfer fee covenants that were created on or after Feb. 8, 2011, under a new policy that goes live next week. The policy, which takes effect July 16, follows a rule finalized by the Federal Housing Finance Agency in March that prohibits Fannie, Freddie Mac and the Federal Home Loan Banks from taking on mortgages “encumbered by certain types of transfer fee covenants and related securities.” In light of the new policy, mortgages on affected properties must be purchased by Fannie as whole loans no later than July 13, 2012, or must be delivered by July 13 into MBS pools with issue dates before July 1, 2012.

Two of the three biggest barriers to a return of the non-agency mortgage sector – the premium capture cash reserve account and the qualified mortgage definition – are embedded in the Dodd-Frank Act, industry officials say. And the third is what’s not in the controversial law: any substantive reform of Fannie Mae and Freddie Mac. The biggest challenge to reducing the government’s domination of the mortgage market is the lack of direction on the government-sponsored enterprises, said Tom Deutsch, executive director of the American Securitization Forum, during a hearing this week.

Mortgage securities investors have as much at risk as lenders from the emerging ability-to-repay consumer protection standard because borrowers will be able to challenge compliance with far fewer time restrictions, according to the American Securitization Forum. In a comment letter to the Consumer Financial Protection Bureau, the ASF urged the agency to set objective and clear standards for qualified mortgages – which will satisfy the ability-to-repay underwriting requirement imposed by the Dodd-Frank Act – and a legal safe harbor. “Otherwise, the resulting significant risk and costs of potential litigation will constrain investors from purchasing...

The sooner the Federal Housing Finance Agency acts to clarify Fannie Mae’s and Freddie Mac’s positions on what triggers a loan repurchase request, the better it will be for lenders and for the recovery of the housing finance system, industry groups say. Over the past three years, the two GSEs have asked for more than $80 billion in flawed loan repurchases from lenders, prompting an overabundance of underwriting caution, according to Fitch Ratings. “Reduced uncertainty around the reasons as well as the timing and remedies available for repurchase may help ease lenders’ concerns and improve credit availability,” said Fitch. “Establishing clear and detailed repurchase standards, developing reporting and enforcement mechanisms and creating clear timelines that govern the process would be positive steps and would be welcome by lenders and investors alike.”

The Federal Housing Finance Agency is extending the comment period for its proposed rule that would exclude Fannie Mae and Freddie Mac from purchasing loans subject to a Property Assessed Clean Energy lien. On June 15, the FHFA’s notice of proposed rulemaking was published for public comment in compliance with a federal court order. The proposed rule would direct the GSEs to cease purchasing any mortgage that is subject to first-lien PACE obligation and refuse to consent to the imposition of a first-lien PACE obligation on any mortgage.

As Inside Regulatory Strategies was going to press this week, the Consumer Financial Protection Bureau was releasing a detailed proposed rule to integrate the mortgage disclosures consumers are entitled to under the Real Estate Settlement Procedures Act and the Truth in Lending Act. The proposal is accompanied by new “loan estimate” and “closing disclosure” forms to present the costs and risks of the loan in clearer terms. “The forms benefit consumers by using plain language and a format that will help them understand their loans,” the CFPB said...

The Consumer Financial Protection Bureau last week issued a final rule to codify protections for privileged information submitted by financial institutions. The rule makes clear that an institution that provides privileged information to the CFPB does not waive any privilege it may have related to third parties, affirming what the agency said in January to the financial institutions under its supervisory authority. It also makes clear that bureau sharing of privileged information to another federal or state government agency does not waive any privilege that might apply...