Option One Mortgage Corp. this week agreed to pay $28.2 million to settle charges brought by the Securities and Exchange Commission over the former subprime lender’s MBS disclosures regarding its ability to cover repurchase demands. Much of the litigation over failed non-agency MBS has focused on alleged misrepresentation about the quality of the loans delivered to securitization trusts, the servicing of those loan pools and the performance of trustees. The Option One settlement stems from the SEC’s contention that the company, one of the leading subprime lenders and securitizers during the heyday of...

Germany’s second largest state-owned bank is looking to the U.S. courts for relief after accusing Deutsche Bank of perpetuating a fraud on it in the sale of over $810 million in toxic residential MBS. Last week, Bayerische Landesbank (BayernLB) filed suit against Deutsche in New York State Supreme Court in Manhattan alleging that Deutsche packaged risky and poor quality loans into securities while simultaneously taking short positions against the securities. According to the complaint, Deutsche officials internally disparaged the quality of the loans underlying the residential MBS even as it...

Facing a deadline set by the Dodd-Frank Act for the beginning of 2013, the Consumer Financial Protection Bureau is working on an ability-to-repay rule to define “qualified mortgages.” While industry participants have warned that few non-QMs will be originated, Raj Date, deputy director of the CFPB, said the regulator hopes to ensure that “prudent loans” will benefit from sufficient investor appetite and a competitive market. “We want to avoid any inappropriate disincentive that would prevent lenders from making ...

The company formerly known as Option One reached a $28.2 million settlement with the Securities and Exchange Commission this week regarding issuance of subprime mortgage-backed securities in early 2007. The SEC said Option One’s MBS “operated as a fraud or deceit” against non-agency MBS investors. “The offering documents misled investors about Option One’s precarious financial condition and, hence, its inability to fulfill its obligations on its own to repurchase ...

Regulatory scrutiny of lender-placed insurance is increasing, but non-agency servicers claim that they are compliant with existing and impending regulations for such insurance coverage. The Consumer Financial Protection Bureau is focusing on lender-placed insurance, provisions were also included in the recent $25.0 billion servicing settlement, Fannie Mae recently updated its policies and a number of state investigations are underway. “There appear to be a number of very significant problems with ...

Increases in mortgage insurance premiums and adjustments to loan programs will likely make FHA-insured mortgage loans more costly and difficult to obtain for future FHA borrowers, according to industry participants. Lenders estimate that about 40 percent of home purchases and even a larger share of first-time homebuyer purchases are insured by the FHA. They say the premium changes could have a detrimental impact on homebuyers in 2012. The FHA has increased its premiums in order to shore up its books in light of high delinquency and foreclosure rates and to strengthen its depleted capital reserves, which have ...

The Department of Housing and Urban Development said it would review and update as necessary its requirements for servicers of FHA-insured loans in conjunction with the establishment of new standards by the Consumer Financial Protection Bureau. HUD wants to ensure coordination between the FHA and CFPB standards and that each set of standards provides effective solutions for borrowers, said an FHA spokesman. On April 9, the CFPB previewed some of the mortgage servicing rules, which the agency plans to propose this summer and adopt in January 2013. It is unclear whether ...

A national consumer advocacy group, whose own investigation of FHA credit overlays in 2010 triggered a federal probe of 19 FHA lenders, said it plans further undercover testing to ensure the unfair practices cease. The National Community Reinvestment Coalition said it is still waiting to hear from the Department of Housing and Urban Development about the results of the multiple investigations the group helped launch over a year ago in response to complaints about credit overlays. A HUD spokesman said the investigation is continuing and “nearing completion.” He did not say, however, why it was taking ...

An ad hoc coalition of trade associations, housing and consumer advocates, and community groups urged the Consumer Financial Protection Bureau last week to craft a “qualified mortgage” rule that encompasses a wide range of mortgage products and underwriting practices to protect credit availability. The varied group, which included the Mortgage Bankers Association, the American Securitization Forum, Consumer Mortgage Coalition and American Bankers Association, acknowledged that its members hold different views about whether the QM should be designed as a safe harbor or a rebuttable presumption...

Even as it awaits the outcome of a government fair-lending investigation that it helped initiate, the National Community Reinvestment Coalition says the majority of lenders under review have reacted favorably but the widespread use of “credit overlays” remains a problem in the industry. In December 2010, the NCRC filed complaints with the Department of Housing and Urban Development after its investigation found that 22 lenders set minimum borrower credit scores as high as 640 for FHA loans, even though FHA guarantees loans to borrowers with scores as low as 580. The NCRC claims the credit...