In a development that could be quite instructive for any recipient of a CFPB civil investigative demand, the bureau has denied the petition filed by CheckSmart Financial Company this past September to modify or set aside a CID it received from the agency in 2013. First, CheckSmart argued that the bureau’s CID does not provide sufficient notice of a lawfully authorized purpose because it did not adequately describe the conduct under investigation, and thus fails to comply with relevant portions of the Dodd-Frank Act. However, citing its rules relating...

Federal prosecutors have been successful in defending their use of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 in pursuing mortgage-related securities fraud and will continue to use the statute aggressively in enforcement actions barring any adverse court action, according to industry compliance experts. Only a handful of FIRREA cases were filed in the first 20 years after enactment of the statute, mostly simple fraud cases. In the last two years, however, the government has aggressively used FIRREA and the False Claims Act to target financial institutions for activities related to the origination, rating, securitization and servicing of residential mortgages. Of the two statutes, the government has pushed...

A Manhattan federal bankruptcy court this week approved Lehman Brother’s proposed $2 billion-plus settlement that would end an $18.9 billion claim filed against the defunct investment bank by Fannie Mae over soured mortgage securities. Judge James Peck of the U.S. Bankruptcy Court for the Southern District of New York, signed off on the settlement agreement between Lehman Brothers Holdings Inc. and the government-sponsored enterprise, as well as Lehman’s wholly owned subsidiaries Aurora Commercial Group and Aurora Loan Services. ALS was a large Alt A lender/servicer. The deal grants...

The Senate this week passed bipartisan legislation that would delay unforeseen, excessive flood-insurance premium hikes for FHA and conventional mortgages nationwide. S. 1926, the Homeowner Flood Insurance Affordability Act, passed by a vote of 67 to 32, as amended. Introduced by Sens. Robert Menendez, D-NJ, and Johnny Isakson, R-GA, the bill would delay rate increases for up to four years by giving the Federal Emergency Management Agency time to study the problem and develop a plan to help homeowners who cannot afford higher premiums. The increases were mandated by the Biggert-Waters Flood Insurance Reform Act, which Congress ...

VA Lenders’ Compliance with CFPB’s Ability-to-Repay and Qualified Mortgage Rules. Until the Department of Veterans Affairs’ rule on ATR/QM is in place, all VA lenders must comply with the requirements of the Truth in Lending Act, as established by the Consumer Financial Protection Bureau’s ATR/QM rule, according to a recent agency guideline. VA will continue to guarantee all loans made in compliance with existing VA requirements, regardless of their QM status, the agency clarified. It urged lenders to refer to the CFPB guidance to ensure all their VA loans are ...

A Manhattan federal judge last week ruled that Bank of New York Mellon may proceed with repurchase claims against a General Electric unit in connection with a $900 million non-agency MBS. BNYM, in its capacity as trustee for a pool of loans known as GE-WMC Mortgage Securities Trust 2006-1, filed suit against GE Mortgage Holdings and WMC Mortgage LLC in New York state court in 2012, where the defendants promptly moved the legal action to federal court to dismiss it. Following the court’s denial of the defendant’s motions to dismiss, GE Mortgage filed...

FHFA Launches ‘Servicing Project’ to Watch Counterparty Risk. The Federal Housing Finance Agency has launched what industry officials have labeled “a servicing project” to keep an eye on all large servicing sales where the underlying collateral is guaranteed by Fannie Mae and Freddie Mac. Sources briefed on the effort said the FHFAis now officially asking that the GSEs get agency approval for any sales of mortgage servicing rights where 25,000 or more in loans are being transferred. This translates into deal sizes of at least $5 billion.

The statute of limitations for filing representation-and-warranty claims on non-agency MBS starts when a deal is issued, not when a defective loan isn’t cured, according to a recent ruling by the appellate court in New York. Industry analysts suggest that the ruling will limit rep-and-warrant claims on vintage non-agency MBS as well as future claims on recently issued jumbo MBS. In December, the appellate division of New York’s Supreme Court dismissed ACE Securities Corp. v. DB Structured Products. The lawsuit was brought by a trustee on behalf of investors against Deutsche Bank, the issuer of ACE 2006-SL2, a non-agency MBS issued in 2006. The investors, along with HSBC Bank, the trustee, were looking to enforce rep-and-warrant claims in 2012. New York imposes...

The Department of Housing and Urban Development sold 62,062 distressed loans in 2013 through its expanded Distressed Asset Stabilization Program (DASP) to increase recoveries to FHA’s Mutual Mortgage Insurance Fund. HUD made 10 offerings of nonperforming FHA-insured loans in a series of quarterly competitive auctions last year, participated in by pre-qualified bidders, including nonprofit organizations. The defaulted single-family mortgages were provided by FHA-approved loan servicers and sold through large national pools and “neighborhood stabilization outcome” pools. The NSO pools consist of loans in ...

Program eligibility is one of the top five reasons a loan can get an “unacceptable” rating in a post-endorsement technical review of a targeted sample of FHA loans. In a sample review conducted by FHA between July 1, 2013, and Sept. 30, 2013, 10 percent of the 6,692 targeted loans were defective due to program eligibility. Of that 10 percent, 76 percent were rated unacceptable by FHA. The results reflect the initial rating of each file reviewed during the quarter, which include conforming, deficient and unacceptable. An unacceptable rating may change if the lender submits mitigating documentation to FHA. But even if subsequently mitigated, the fact ...