Financial institutions that are under scrutiny for questionable practices involving residential MBS can avoid a lot of grief and legal expenses if they cooperate early in the investigation, according to the Department of Justice’s chief overseer of civil litigation. In recent remarks at the Society of Corporate Compliance and Ethics’ annual conference in Chicago, Principal Deputy Associate Attorney General Bill Baer underscored the wisdom and benefits of early cooperation in a government RMBS inquiry. There would have been...

U.S. Court of Federal Claims Judge Margaret Sweeney’s ruling, released last week, raises new questions about the validity of government efforts to keep thousands of other documents secret in a Fannie Mae and Freddie Mac shareholder case over the net worth sweep imposed by the Treasury Department and the Federal Housing Finance Agency, according to shareholder advocates. In Fairholme Funds Inc. v. United States, et al, shareholders argue that the net worth sweep of the government-sponsored enterprises’ profits is unfair, and they have scored significant victories in getting access to various written communications to prove their claim. The recent batch of documents Sweeney released to the plaintiff’s attorneys show...

Since the repurchase and indemnification phenomenon is unlikely to disappear anytime soon, many correspondent lenders, credit unions and other recipients of a repurchase/indemnification demand want to know how best to respond in order to mitigate potential damages. During a recent webinar sponsored by American Mortgage Law Group, AMLG Senior Managing Member James Brody said there are many different factors to consider. “One of the things that really helps in getting any resolution is...

PHH Corp. this week scored a key legal victory in its battle with the Consumer Financial Protection Bureau over captive reinsurance and the Real Estate Settlement Procedures Act. But despite this good news, there are still clouds over the nonbank. The “worst” of the recent spate of bad news for the company surrounds the early October disclosure that Merrill Lynch is breaking all ties to PHH when it comes to private-label originations and servicing. The effective date for the end of the contract is...

The traditional interpretation of Section 8 of the Real Estate Settlement Procedures Act that the mortgage industry has relied on for decades was vindicated this week when a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit sided with most of the arguments advanced by PHH Mortgage in its dispute with the Consumer Financial Protection Bureau. The crux of the dispute has been the bureau’s assertion that PHH violated RESPA by steering business to private mortgage insurers that purchased reinsurance from a captive insurer owned by PHH. Most large lenders and all private MIs engaged in these arrangements prior to the housing market collapse. Early on in the case, an administrative judge agreed...

The post-crisis market environment that fueled the mortgage loan buyback dynamic continues to improve, and with it, the business relationships between lenders, investors and the government-sponsored enterprises. However, the repurchase and indemnification phenomenon has not gone away and is unlikely to do so for the foreseeable future. That means market participants need a comprehensive strategy to limit their exposure to litigation and, when that fails, to restrict the damage that does ensue, according to some top industry attorneys. This may be particularly important for correspondent lenders. “In order to go ahead and get a good perspective for what your company’s potential risk is, how do you go...

A Manhattan district court judge last week dismissed lawsuits brought by the Federal Deposit Insurance Corp. against three large banks, saying the agency no longer has standing to sue after it sold the defective mortgages through a re-securitization transaction. Judge Andrew Carter of the U.S. District Court for the Southern District of New York threw out the government’s suits against Citigroup, Bank of New York Mellon and U.S. Bancorp, which accused the banks of failing as trustees to ensure the quality of $2.7 billion in MBS purchased by the failed Texas-based Guaranty Bank. Reuters was the first to report Carter’s decision. Guaranty went...

Lenders are optimistic about a proposed rule that would reinstate FHA spot financing in unapproved condominium projects, saying this could be the spark that would jump-start the slow condo market.The proposed rules would clarify and modify certain FHA rules to kick-start condominium lending activity, and allow some flexibility in existing approval standards. Key proposals include the reinstatement of spot approvals in unapproved condominium developments and extending the effective recertification period for condo approvals to three years, rather than the current two-year requirement. Prior to 2009, spot approval allowed a buyer to use FHA financing to purchase a unit in an unapproved condo project, but the HUD approval process was expensive and time consuming. Consequently, few lenders were able to take advantage of the spot-approval program. The Department of ...

Industry groups are urging the Department of Housing and Urban Development to reconsider a supplemental proposal to require mortgagees to assign a Home Equity Conversion Mortgage loan to the FHA once the loan balance reaches 98 percent of the maximum claim amount (MCA). The Mortgage Bankers Association and the National Reverse Mortgage Lenders Association said there are more disadvantages than benefits to the proposal. The supplemental proposal is an offshoot from a previous HUD proposed rule to codify significant changes made to the HECM program by the Housing and Economic Recovery Act of 2008, the Reverse Mortgage Stabilization Act of 2013 and all other revisions in between. Both groups recommended that HUD maintain its current assignment election options rather than adopt the proposed rule. Currently, mortgagees have an option, before the ...

The initial material defect rate of FHA loans has increased to 50 percent in the third quarter of 2016 from the previous quarter, according to the latest FHA Lender Insight report on quality control. A good portion of the defective mortgage loans, however, has been mitigated during the post-endorsement technical review process, the report indicated. In the second quarter, the initial material defect rate had been flat, averaging 47.4 percent over the last eight quarters. The latest report show the top five mitigated findings, which reflect the number of initially unacceptable ratings and the number of findings mitigated for loans between April and June, 2016. Some 6,312 FHA loans comprised the sample, and they consisted of purchase loans (71.0 percent), streamline refinance (13.5 percent), rate and term refis (9.0 percent), and Home Equity Conversion Mortgages (6.7 percent). In addition, ...