The mortgage settlement agreement between state and federal law enforcement agencies and the country’s five largest loan servicers will unleash a new foreclosure wave that will cause real estate-owned properties and distressed home sales to increase, according to market observers. Having the Federal Housing Finance Agency’s REO Initiative ready will be useful when the foreclosure and REO tsunami comes rolling in, academics, economists and analysts agree. The number of properties classified by banks as “real estate-owned,” or REO, has declined over the past year. The reason: the robosigning scandals...

A group of 39 GOP U.S. senators indicated late last week that they plan to join a lawsuit brought by business groups challenging the recess appointments Obama made last month, including that of Richard Cordray as director of the Consumer Financial Protection Bureau. “American democracy was born out of a rejection of the monarchies of Western Europe, anchored by limited government and separation of powers,” said Sen. John Cornyn, R-TX. “We refuse to stand by as this president arrogantly casts aside our constitution and defies the will of the American people under the election-year guise of defending...

The New York Attorney General filed a lawsuit last Friday against Mortgage Electronic Registration Systems and three banks that own major stakes in it, another in a long line of legal assaults on MERS and its users. “MERS members, including defendant servicers, have brought over 13,000 foreclosures against New York homeowners naming MERS as the plaintiff/foreclosing party,” read the lawsuit. “However, MERS often lacked standing to foreclose, and representations in court submissions that MERS owned and/or held the promissory note in such proceedings were often false and deceptive.” The defendant...

The newly announced $25 billion settlement over foreclosure servicing practices is not expected to have much impact on MBS investors because most of the principal reductions that the five banks agreed to make will involve unsecuritized mortgages they hold in portfolio. The settlement involves all states except Oklahoma, two federal agencies and five major servicers, and requires the banks to “work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide,” according to a summary of the agreement. Although the actual settlement had not been released as...

A week after federal and state enforcement agencies launched a residential MBS investigative effort, reports have surfaced that Ally Financial, Bank of America, Citigroup, Deutsche Bank and Goldman Sachs are about to be sued by the Securities and Exchange Commission for allegedly misrepresenting the quality of mortgages they packaged and sold to investors. Officials at the SEC, which never confirms specific Wells Notices of impending legal action, declined to comment on the investigation, as did spokesmen for Ally, Citi and Goldman. Representatives from Bank of America and Deutsche Bank did not...

New York Attorney General Eric Schneiderman filed a lawsuit late last week against Bank of America, JPMorgan Chase and Wells Fargo, claiming that their use of MERSCorp’s Mortgage Electronic Registry System resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process. Among its specific accusations, the NY AG’s office says that, out of the 13,000-plus foreclosure actions against New York homeowners in which MERS listed itself as the plaintiff, “in many ...

State attorneys general reportedly have until today to agree to a potential $25 billion settlement with big mortgage lender/servicers – namely Ally Financial, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo. Under the latest iteration being voted on, about $17 billion of that amount would consist of penalties paid by the banks, which would be used for principal reductions. Another $5 billion would go toward a reserve account that would be used to pay $1,800 checks to homeowners affected by deceptive foreclosure practices, with $2 billion to $3 billion to go toward helping ...

Illinois. State Attorney General Lisa Madigan filed a lawsuit in Cook County Circuit Court alleging that Nationwide Title Clearing, a Florida-based company that prepares documents for use in default servicing and foreclosure actions, filed faulty documents with Illinois county recorders. The lawsuit alleges a number of violations of the Illinois Consumer Fraud and Deceptive Practices Act and the Uniform Deceptive Trade Practices Act. Madigan is asking the court to “require NTC to review and correct all documents it unlawfully created and recorded in Illinois, and pay back all ...

Both the Federal Housing Finance Agency and Freddie Mac are refuting a published report suggesting that a mortgage finance vehicle at one time employed by the government-sponsored enterprise was designed to profit the company by preventing homeowners from refinancing. An article published this week by ProPublica and National Public Radio contended that Freddie stood to profit from hedging investments known as inverse floaters that would pay higher returns if interest rates rose and more homeowners remained in mortgages with high interest rates. According to ProPublica, Freddie purchased inverse floaters...

Federal and state enforcement agencies late last week launched a broad new initiative to investigate and develop litigation on fraud and misconduct in the non-agency MBS market, issuing civil subpoenas to 11 financial companies. The RMBS Working Group is being co-chaired by five officials: two assistant attorneys general in the Justice Department, the head of enforcement at the Securities and Exchange Commission and state attorneys general from New York and Colorado. Some 55 DOJ officials are participating, including 15 attorneys and 10 Federal Bureau of Investigation agents, with 30 more attorneys...