The FHA's model mortgage form clearly makes the federally required flood-insurance amount the minimum, not the maximum, the borrower must have, according to a recent federal appeals court ruling. In Faire Feaz v. Wells Fargo Bank, et al. No. 13-10230, the U.S. Court of Appeals for the 11th Circuit determined that the language in the FHA's model form requiring borrowers to purchase the FHA's minimum required amount of flood insurance does not prevent lenders from demanding more insurance than the agency requires. With its ruling, the court upheld the dismissal of the claim for breach of contract, related claims for breach of the duty of good faith and fair dealing, and breach of fiduciary duty. The 11th Circuit ruling also agreed with the First Circuit's recent en banc ruling in Kolbe v. BAC Home Loans Servicing LP, F.3d -- 2013 WL 5394192 (1st Cir. Sept. 27, 2013). Noting a split among the district courts, the First Circuit recognized that ...

In what’s claimed to be the third-largest settlement of a class-action suit by investors in non-agency MBS, Royal Bank of Scotland agreed to pay $275 million in cash. Investors led by the New Jersey Carpenters Vacation Fund claimed that RBS did not disclose that loans included in Harborview MBS that it sold failed to meet the deals’ underwriting guidelines. The settlement is awaiting approval by U.S. District Judge Harold Baer in U.S. District Court for the Southern District of New York. Separately, the remains of Lehman Brothers settled...

Some five and a half years after it filed for Chapter 11 bankruptcy protection, the remains of Lehman Brothers settled the legal claim by Freddie Mac stemming from $1.2 billion in loans made by the GSE to the investment bank just before the financial collapse. Judge Shelley Chapman of U.S. Bankruptcy Court in Manhattan approved this week the settlement that would see Lehman Brothers Holdings Inc. pays $767 million to the GSE to close out Freddie’s bid to collect on the unpaid loan.

Countrywide Financial, now owned by Bank of America, is asking a federal judge to sanction the Federal Housing Finance Agency and to appoint a special master to investigate what CFC says is the FHFA’s “noncompliance” in producing Fannie Mae and Freddie Mac documents in the company’s defense against the GSEs’ $26.6 billion MBS lawsuit. According to a motion filed earlier this month in the U.S. District Court, Central District Court of California, CFC says the FHFA is defying the court’s October order to produce – either in a timely manner or not at all – documents from Fannie’s and Freddie’s single-family businesses.

The ink was barely dry on complex new mortgage-disclosure forms and regulatory requirements when the Consumer Financial Protection Bureau floated a new trial balloon: how to improve the mortgage-closing process and its “pain points” for lenders and consumers. Although some industry groups said it is too soon to get into another massive overhaul, others pointed to the forest of overlapping and confusing documents as a good place to start. Michael Heid, president of Wells Fargo Home Mortgage, told...

The CFPB is now dedicating one third of its current staff to supervision, making it clear that exams will be a major focus this year. For many in the mortgage arena, that level of scrutiny will be a new experience – especially for nonbanks. But even for those who’ve been subject to federal examination for years or decades, the CFPB exam process will be, in some cases, like starting from scratch and the focus – on consumer impact rather than soundness of the entity – is altogether different. One area on the bureau’s short list is...

A policy shift at the Securities and Exchange Commission requiring admission of guilt in certain cases may encourage wrongdoers in the securities market to litigate rather than settle, resulting in fewer SEC settlements, according to some compliance attorneys. Fear of possible criminal prosecution and the lasting impact of an admission of guilt could compel accused companies and individuals to take their cases to trial rather than negotiate a settlement, warned Philip Stein and Jeremy Sahn, partners in the Miami-based law firm of Bilzin Sumberg. Starting in June 2013, the SEC began requiring...

The nonprofit Wall Street advocacy group Better Markets filed a lawsuit against the Justice Department this week challenging DOJ’s authority to “unilaterally enter into the unprecedented and historic” $13 billion deal with JPMorgan Chase last fall. In November, DOJ announced the largest legal settlement on record with JPMorgan, which acknowledged making misrepresentations about billions of dollars in MBS sold to investors prior to Jan. 1, 2009. The settlement does not release bank employees from civil charges, nor does it release JPMorgan or any other individuals from criminal prosecution. However, in its complaint filed in the U.S. District Court for the District of Columbia, Better Markets claimed...

The whistleblower whose investigative efforts led to the landmark $25 billion national mortgage settlement between the federal government, 49 state attorneys general and five of the largest mortgage servicers is at it again. This time, Lynn Szymoniak is suing 22 companies for using fraud to obtain FHA insurance – in some instances, VA guaranties – for defective loans that later were securitized through Ginnie Mae and sold to investors. Szymoniak, who is suing under the False Claims Act, gained notoriety from a 2011 interview on “60 Minutes” in which she ...

Buoyed by improvement in FHA loan quality, some lenders have begun lowering the credit score requirements for FHA and other government-backed mortgages. Last month, Wells Fargo alerted FHA lenders of its decision to lower the minimum credit score for purchase home loans through its retail channel from 640 to 600. “We felt it was an appropriate time to do it given the improvement in FHA loan quality,” a spokesman explained. “The change applies to all FHA borrowers. Last year’s resolution of the FHA indemnification issue also prompted the change at Wells Fargo, according to a bank official. In addition, resolving the putback risk with ...