The massive legal action initiated by the Federal Housing Finance Agency last year on behalf of Fannie Mae and Freddie Mac against many of the nation’s biggest lenders is getting ready to face its first legal challenge, and the federal judge’s ruling will determine the scope and direction of the cases, experts say. The FHFA lawsuits seek tens of billions of dollars in damages for losses incurred by Fannie and Freddie on purchases of approximately $200 billion in residential mortgage-backed securities.

The Supreme Court of the United States heard oral arguments this week in an important fee-splitting case under the Real Estate Settlement Procedures Act, and one issue that took up a lot of air time was whether RESPA is fundamentally a law barring kick-backs or a price-control statute. The key legal provision being examined in Freeman v. Quicken Loans is RESPA Section 8(b), which provides that, “No person shall give and no person shall accept any portion, split or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a...

Citigroup acknowledged some responsibility for a portfolio of badly underwritten FHA loans that led to a $158.3 million settlement with the government, but the company managed to avoid an admission of wrongdoing. As part of the terms and conditions of the settlement, CitiMortgage “admits, acknowledges and accepts responsibility” for the conduct alleged in the government’s complaint. The FHA sought treble damages and civil penalties from CitiMortgage under the False Claims Act for fraud associated with FHA loans it originated. The default rate for FHA loans originated by Citi in 2006 and 2007 was 47...

The long-anticipated mortgage servicing settlement between the federal government, 49 state attorneys general and the nation's largest servicers isn’t just a big deal in terms of dollar amount and legal liability. It’s a critical shift in the legal and regulatory enforcement paradigm that will alter the landscape for years to come. “[T]he settlement is a strategic change in the legal and reputational risk landscape, and not just for what’s left of mortgage banking,” explained Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a Washington, DC, think tank...

The Treasury Department’s Financial Crimes Enforcement Network recently put out final regulations that extend anti-money laundering program requirements and Suspicious Activity Report filing requirements to nonbank mortgage lenders. This means that nonbank mortgage lenders and originators are going to have to set up AML programs, assign a compliance officer and develop training programs, legal experts say, and compliance will be complex and costly. “Today, FinCEN is closing a regulatory gap by requiring nonbank mortgage lenders and originators to develop anti-money ...

It looks like 2012 is turning out to be the year of the settlement between top mortgage lender/servicers and federal and state government entities. Bank of America subsidiary BAC Home Loans Servicing LP – which did business as Countrywide Home Loans Servicing LP in a previous incarnation – recently agreed to reverse or refund $36 million in fees to settle charges by the Federal Trade Commission that it overcharged struggling homeowners, in violation of an earlier agreement with the government. BAC Home Loans Servicing has already reversed or refunded $28 million worth of ...

The Consumer Financial Protection Bureau’s first official budget – which will be funded by the Federal Reserve – segregates expenditures into three buckets, the lion’s share of which will go to the supervision, enforcement, fair lending and equal opportunity account. Outlays within this category are set to out-step the other two categories combined. After spending about $60 million in fiscal 2011, this SEFLEO bucket is set to climb to about $214 million for 2012 and $261 million next year. Consumer-related expenditures totaled $43 million in 2011 and are projected to roughly double ...

All mortgage lending related institutions under the regulatory purview of the Consumer Financial Protection Bureau are one step closer to a little more certainty about the confidentiality of the data and information they provide the agency and its officials after action by the House Financial Services Committee last week. The full committee passed H.R. 4014 (introduced by Rep. Bill Huizenga, R-MI), a measure that would stipulate that providing information to the CFPB for any purpose as part of the supervisory process would not be construed as waiving, destroying or otherwise affecting any ...

California. In Kathryn McOmie-Gray v. Bank of America Home Loans FKA Countrywide Home Loans Inc., the Ninth Circuit has ruled that the Truth in Lending Act sets a three-year limitation for the borrower to file notice of claim for loan rescission. McOmie-Gray sought rescission of her loan for alleged violations of disclosure requirements under TILA. The district court dismissed the suit as untimely because it was filed after the three-year period set by TILA. McOmie-Gray subsequently argued to the appeals court ...

In response to a request from the Federal Trade Commission, a U.S. district court has banned a number of defendants from providing mortgage relief services after the agency cracked down on an alleged scam that caused consumers to lose almost $19 million. According to the FTC’s complaint, the defendants deceptively claimed they were affiliated with or approved by consumers’ lenders, that they could prevent foreclosure, and that they would refund consumers’ money if they failed to deliver promised services. Consumers were allegedly instructed not to contact their lenders and to stop making ...