A property management contractor for the Department of Housing and Urban Development has agreed to pay $4.3 million to resolve allegations that it billed the agency for FHA-related work it did not perform in violation of the federal False Claims Act. Cityside Management Corp. of Manchester, NH, allegedly failed to inspect the work of third-party vendors that it hired to perform termite inspections, treatments and repairs on repossessed houses in HUD’s real estate-owned inventory, as required by its contract with HUD. HUD’s inspector general investigated the case and referred it to the Department of Justice. Following the financial crisis, HUD held title to a large number of foreclosed homes acquired by borrowers with FHA financing. HUD contracted with various field service managers, including Cityside, to prepare the REO properties for resale. According to the Office of the U.S. Attorney for the ...

Housing finance groups are concerned that the Federal Housing Finance Agency’s idea to better serve borrowers with limited proficiency in English by adding a language preference question to loan applications could create a host of legal challenges and systemic risks. A year ago, the FHFA decided to defer a plan to include a question about a borrower’s language preference on the uniform residential loan application, and gather more input instead. The agency specifically asked for information on potential short-term and long-term improvements to help borrowers not fluent in English better understand the mortgage process. And from the looks of the comments, it appears...

If Republicans in Congress are as successful in overturning the CFPB’s arbitration rule as they have been in canning the Affordable Care Act, various sectors of the financial services market could face a great deal of legal risk, according to one top attorney. “The irony here is that CFPB enforcement is frequently a factor in preventing private class-action litigation,” said Joseph Cioffi, chair of the insolvency, creditors’ rights and financial products practice group at the Davis & Gilbert law firm in New York City. “But this rule eliminating arbitration and the void left from President Trump’s moves toward deregulation can act like a supercollider for litigation against lenders, accelerating class actions and ricocheting through the credit markets.” He went on ...

If lawmakers and regulators are interested in bringing capital back to the private mortgage market and facilitating borrower access to credit in a responsible manner, they must make much-needed reforms to a handful of key mortgage rules promulgated by the CFPB, according to bond giant Pacific Investment Management Co. One recommended revision is eliminating the expansion of assignee liability for investors under the CFPB’s ability-to-repay rule. “Currently under the Dodd-Frank Act, mortgage investors are liable for mistakes made by lenders in the mortgage origination process for certain mortgage loans that are not deemed qualified mortgages,” said PIMCO. “Since investors have no role or discretion in the mortgage origination process, we believe this is not only nonsensical, but also has the ...

Earlier this month, the U.S. District Court for the Western District of Kentucky ruled against the CFPB and in favor of a Kentucky law firm over allegations it paid kickbacks in violation of the Real Estate Settlement Procedures Act. The bureau accused the Borders & Borders law firm of Louisville, KY, and its principals, Harry Borders, John Borders Jr. and J. David Borders, of illegally paying kickbacks for real estate settlement referrals through a network of shell companies. The case began back in February 2011 when the Department of Housing and Urban Development notified the law firm it was being investigated for potential violations of RESPA’s anti-kickback provision. In April 2012, the CFPB advised Borders & Borders that it, rather ...

New documents were recently unsealed in Fairholme Funds vs. United States that give GSE shareholders more hope in proving the Treasury sweep was designed with an ulterior motive in mind.“The release of these documents is a very positive development in the case against Fannie [Mae] and Freddie [Mac]. These documents fatally undermine the government’s claim,” said Pete Patterson, a partner with the Cooper & Kirk law firm representing the plaintiffs. Officials from Treasury have repeatedly said that the sweep was designed to prevent the two mortgage giants from collapsing. But the latest batch of 33 confidential emails and memos released under court order appears to illustrate otherwise.

A recent ruling by the Supreme Court of the United States affirmed a three-year statute of repose for certain securities-related lawsuits. The ruling will likely limit the claims that can be brought by investors in faulty MBS and ABS. The case of California Public Employees’ Retirement System v. ANZ Securities involved an attempt by CalPERS to opt out of a class-action lawsuit against securities underwriters and file a separate claim in a timeframe beyond a three-year limitation. In a 5-4 decision at the end of June, the Supreme Court affirmed rulings by lower courts that determined that CalPERS’ action was untimely under the three-year statute of repose in the Securities Act of 1933. The majority opinion written by Justice Anthony Kennedy said...

Fannie Mae and Freddie Mac shareholders claimed that recently unsealed government documents support their contention that the main goal of the Treasury Department’s quarterly sweep of the government-sponsored enterprises’ earnings was to keep the two GSEs in conservatorship. Officials from Treasury have consistently said that the sweep was designed to prevent the two mortgage giants from collapsing. But the latest batch of 33 confidential emails and memos released under court order in the case of Fairholme Funds vs. United States seems to illustrate otherwise. The documents were unsealed...

A new source of risk for residential MBS has emerged in the wake of Wells Fargo’s recent decision to hold back significant funds from MBS transactions to cover potential litigation expenses resulting from investor claims. In its latest report, Moody’s Investors Service warned that trustee holdbacks, such as Wells Fargo’s action, have a negative effect on the MBS transactions. Such actions reduce, at least temporarily, the funds available to pay interest and principal to bondholders, the rating agency said. Last month, Wells Fargo notified...

Last week, the Consumer Financial Protection Bureau issued its long-awaited rule banning mandatory arbitration in consumer financial contracts. The industry concern is that, if left intact, the rule could lead to a rash of litigation impairing liquidity in the secondary markets and limiting consumer access to credit as companies seek to pull back on their risk exposure. The final rule prohibits “covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action concerning the covered consumer financial product or service.” It further requires...