The rating services are set for increased oversight after the Securities and Exchange Commission approved a final rule addressing internal controls, conflicts of interest and procedures in an attempt to protect the integrity of rating methods. The SEC approved the final rule on a 3-2 vote last week, with the two Republican commissioners voicing strong opposition to provisions required by the Dodd-Frank Act. Among other issues, the final rule aims at preventing sales and marketing considerations from influencing the issuance of credit ratings on structured finance products. Under the rule, rating services are prohibited from issuing or maintaining a credit rating when a person within the rating service that participates in determining or monitoring the rating also participates in sales or marketing of a product or service of the rating service or an affiliate. The rule also targets...

The legal settlement between Goldman Sachs and the Federal Housing Finance Agency over soured non-agency MBS sold to Fannie Mae and Freddie Mac featured an unusual buyback of the securities by the investment bank. It leaves just three big defendants left to settle or go to trial, legal observers note. Under the terms of the settlement announced Aug. 22, Goldman is required to pay $3.15 billion to repurchase securities that were the subject of the claims in the FHFA’s lawsuit. The economic value of the settlement is estimated...

Bank of America this week launched an appeal to overturn a jury verdict that found it liable for thousands of bad mortgages sold by Countrywide leading to a $1.27 billion judgment. U.S. District Court Judge Jed Rakoff levied the judgment in July after a New York jury last fall found the Charlotte, NC-based bank liable for fraud over a Countrywide program known in the industry as “the Hustle.”

HSBC Holdings is headed for trial later this month, absent a deal, after a New York federal judge rejected a last ditch effort by HSBC and Nomura Holdings to toss their mortgage-backed securities suit brought by the Federal Housing Finance Agency. U.S. District Judge Denise Cote’s ruling reaffirmed earlier rulings that the Housing and Economic Recovery Act of 2008 extended the time that the FHFA could file claims against a host of big banks.

Mortgage lenders are worried that a recent proposal by the Consumer Financial Protection Bureau to expand its consumer complaint database with “narratives” from borrowers will leave companies vulnerable to being smeared by unproven rumors and false accusations. They also fear that a few legitimate complaints will be blown out of proportion. Others are apprehensive about maintaining the privacy of consumer personal data – and about expanding their legal liability. The Financial Services Roundtable has initiated...

The CFPB recently fined auto finance company First Investors Financial Services Group Inc. $2.75 million for allegedly failing to fix known flaws in a computer system that was providing inaccurate information to credit reporting agencies. The bureau also ordered the Houston-based company to fix its errors and change its business practices. The CFPB said its investigation found that First Investors furnished inaccurate information about its customers to credit reporting agencies for at least three years. “When First Investors discovered the problem in April 2011, it notified the vendor but did nothing more,” the CFPB said. “The company did not replace the system or take any steps to correct the inaccurate information it had supplied. “It continued for years to use ...

Global Client Solutions, a leading debt-settlement payment processor based in Tulsa, OK, agreed to pay over $6 million in relief to consumers, as well as a $1 million civil penalty, to resolve allegations by the CFPB that the firm helped other companies to collect tens of millions of dollars in illegal upfront fees from consumers. Final settlement is pending federal district court approval. The CFPB accused Global Client Solutions and its two principals, Robert Merrick and Michael Hendrix, of violating the Telemarketing Sales Rule by making it possible for debt-settlement companies to charge consumers illegal upfront fees. The rule prohibits debt-settlement companies from charging consumers advance fees before settling any of their debts. The rule is intended to protect consumers ...

Flagstar in Talks with CFPB Over Alleged Loss Mitigation Violations. Flagstar Bancorp, the parent of the nation’s 17th largest residential servicer, disclosed in a new regulatory filing that it is in talks with the CFPB over alleged violations of federal law arising from the bank’s loss mitigation practices and default servicing operations dating back to 2011. Flagstar Bank FSB, which owns roughly $69 billion in mortgage servicing rights, said it has already provided the CFPB with documents and “other information” regarding the matter in response to a civil investigative demand. “While the bank intends to vigorously defend against any enforcement action that may be brought, it has commenced discussions with the CFPB staff to determine if a settlement can be ...

Roughly $1 billion in damages will flow through to the FHA and Ginnie Mae from Bank of America’s record $16.65 billion global mortgage-backed securities settlement with the Department of Justice. Although most of the DOJ’s case centered around faulty private-label MBS that BofA and its forbears (namely Countrywide and Merrill Lynch) underwrote during the housing boom, a small piece of the settlement is tied to servicing chores that the bank did for Ginnie Mae. And apparently, BofA didn’t do a very good job of servicing the underlying product. The bank took over as the subservicer on roughly $26.2 billion in mortgage servicing rights that once belonged to Taylor, Bean & Whitaker, a large nonbank based in Ocala, FL. When TBW went bust in the second half of 2009, BofA was given the subservicing contract. “BofA serviced the loans for us,” said Ginnie Mae president Ted Tozer. “And they did a ...

The FHA has issued two final rules enhancing consumer protections – one prohibiting lenders from charging additional interest on FHA-insured mortgages that are paid in full and another ensuring that borrowers of adjustable-rate mortgages receive earlier notice of rate changes. Both rules were published in the Aug. 26 Federal Register. The first rule eliminates the practice of charging the borrower a full-month’s interest even if the mortgage is prepaid in full before the end of the month. It adopted the proposed rule, which was issued for comment on March 13, 2014, without change. Effective Jan. 21, 2015, charging borrowers post-settlement interest, which is broadly defined by the Consumer Financial Protection Bureau as a “prepayment penalty,” will be prohibited for all FHA single-family mortgage products and programs. In the rule’s preamble, HUD said it expects lenders to ...