The federal government seized control of Fannie Mae and Freddie Mac by extra-legal means during the 2008 financial crisis and then went out of its way to curtail the two government-sponsored enterprises’ profits while unjustly denying GSE shareholders just compensation for their deliberately devalued holdings, according to a lawsuit filed this week. The suit filed by GSE shareholders in the U.S. Court of Federal Claims in Washington, DC, asserts the takeover of Fannie and Freddie by the Federal Housing Finance Agency was “unlawful and unwarranted” and an unconstitutional violation of due process which cost investors billions of dollars. “Even if a statutory basis existed...

Some experts are predicting that the new ability-to-repay rule issued by the Consumer Financial Protection Bureau, which sets the boundaries of “qualified mortgages,” will also lead some lenders to focus on so-called non-QM loans that will become the new subprime market. At the American Bankers Association’s regulatory compliance conference, held this week in Chicago, ABA Senior Regulatory Counsel Rodrigo Alba said publicly what many mortgage bankers have been thinking privately. Responding to a comment from one banker who said her institution might opt to do only non-QM lending, just for simplicity’s sake, Alba said, “Wanted or not, this may start leaning into being the new subprime.” He added...

Community lenders are lobbying for significant exemptions to the Dodd-Frank Act and based on their track record and support in Washington, DC, they might be successful. The Community Mortgage Lenders of America released draft legislation this week known as “The Community Mortgage Lenders Act of 2013.” The bill would exempt community lenders from a number of mortgage requirements in the DFA and beyond. The bill defines...

U.S Bank may proceed on a limited basis in its legal claim against Bank of America and Countrywide Financial in connection with a soured $1.75 billion MBS deal after a New York state judge ruled last week to narrow the case to just a fraction of the loans in dispute. Judge Eileen Bransten dismissed a breach of contract claim against BofA that sought to force the bank to repurchase some 4,400 loans in the pool due to “pervasive breaches” in the representations and warranties of the securities. U.S. Bank, in its capacity as trustee for HarborView Mortgage Loan Trust, sued BofA and Countrywide in August 2011 seeking repurchase of non-performing loans from the underlying residential MBS. The judge said...

The bipartisan Senate legislation being drafted to finally resolve the conservatorships of Fannie Mae and Freddie Mac attempts to meet the needs of a lot of interests in the mortgage finance industry, including small lenders, Wall Street, the multifamily business and even, potentially, current owners of common stock issued by the two government-sponsored enterprises. A discussion draft of the bill, the Secondary Mortgage Market Reform and Taxpayer Protection Act of 2013, outlines a broad plan for shutting down Fannie and Freddie and replacing them with a new entity – the Federal Mortgage Insurance Corp. – that is intended as a transition to a fully private mortgage market. A copy of the draft legislation, which is primarily the work of Sens. Bob Corker, R-TN, and Mark Warner, D-VA, was provided to Inside Mortgage Finance. The draft bill includes...

The CFPB recently issued some policy guidance on how states may use the Uniform State Test developed by the Nationwide Mortgage Licensing System and Registry as part of a qualified written test under the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Section 1505(d) of the SAFE Act requires that state-licensed mortgage loan originators pass a “qualified written test.” Under the SAFE Act, this qualified written test must be developed by the NMLSR. A qualified written test must adequately measure the applicant’s...

Ally Financial, the former parent of bankrupt Residential Capital, announced last week it will pay $2.10 billion to settle legal claims with ResCap and its creditors as part of ResCap’s comprehensive settlement agreement and Chapter 11 plan. Under the settlement, Ally will contribute $1.95 billion in cash to the ResCap bankruptcy estate, plus $150 million in insurance proceeds. The agreement also requires that Ally receive full repayment on its secured claims, including $1.13 billion that is owed under existing credit facilities. Announced earlier this month, the agreement gets...

A recent Federal Reserve survey of bank lending practices further confirmed a continuing trend among FHA lenders of refusing to lend to borrowers with FICO scores below 620 even though they qualify for the loan and could afford the required minimum 3.5 percent cash investment. About a third of senior loan officers who responded to the April 2013 survey indicated they were less likely to approve FHA home-purchase loan applications within the 580-620 FICO range this year compared to last year. They prefer lending to borrowers with a 720 FICO and who are making a 10 to 20 percent downpayment, the survey showed. An estimated 75 percent of banks cited the ...

Warehouse lenders that finance nonbank mortgage firms continue to report strong commitment volumes and usage rates, but there is an underlying fear that the good times won’t last forever. Nevertheless, that’s not stopping their telephones from ringing. “We’re seeing more requests for increases in lines than decreases,” said a senior manager who spoke under the condition his name not be used. “Most of our lines are holding steady.” Bob Garrett, executive vice president of mortgage warehouse lending at First Tennessee Bank, said...[Includes one data chart]

Consumer advocate Ralph Nader doesn’t exactly have a seat at the mortgage reform table, but that isn’t stopping him from asking the Treasury Department to do something to protect what he calls “the already financially injured common shareholders” of Fannie Mae and Freddie Mac. In a recent letter to Treasury Secretary Jack Lew, Nader blames a host of senior government officials – including Federal Reserve Chairman Ben Bernanke – for misleading investors about the financial health of Fannie and Freddie just months before they were seized by the federal government in September 2008. Nader, a one-time shareholder in the government-sponsored enterprises, is pushing...