It’s one thing for a regulatory agency to promulgate a rule and catch a lot of slack from the affected industry. It’s quite another when another regulatory agency takes issue with a rule. The CFPB got a bit of a surprise in this regard when it issued its arbitration final rule last week: the Office of the Comptroller of the Currency expressed concerns about the potential risk the rule could pose to the safety and soundness of the U.S. banking system. In a letter to CFPB Director Richard Cordray, OCC Acting Comptroller of the Currency Keith Noreika, a recent appointee of President Trump, said, “The OCC has a mandate to ensure the safety and soundness of the federal banking system...

The CFPB has finally issued its long-awaited final rule banning mandatory arbitration in consumer financial contracts. For starters, 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.” Further, the final rule requires “covered providers that are involved in an arbitration [proceeding] pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the bureau and also to submit specified court records.” The new rule applies to the major markets for consumer financial products and services overseen by...

In the second largest settlement so far involving Federal Housing Finance Agency-initiated lawsuits from 2011, the FHFA and the Royal Bank of Scotland this week reached a settlement for $5.5 billion.This represents near closure for charges filed against 18 issuers and underwriters alleging securities law violations and fraud regarding non-agency mortgage-backed securities sold to the GSEs. Under the terms of the settlement in FHFA v. The Royal Bank of Scotland Group plc et al., Freddie Mac will get approximately $4.525 billion and Fannie Mae will get about $975 million. The court cases date back to 2011 and involve senior classes of subprime and Alt A MBS Fannie and Freddie purchased from RBS between 2005 and 2007.

GSE shareholders are continuing to argue that the structure of the Federal Housing Finance Agency is unconstitutional. The topic has come up ever since a 2016 ruling found that the similarly structured Consumer Financial Protection Bureau is not constitutional. Two new cases filed within the past month in Michigan and Minnesota are asking the courts to vacate the Treasury sweep of GSE profits altogether. In late June, three GSE shareholders filed a fresh lawsuit in the U.S. District Court for the District of Minnesota. The three plaintiffs, Atif Bhatti, Tyler Whitney and Michael Carmody, also want the court to strike the...

NV Supreme Court Favors GSEs in HOA Litigation. In Nationstar Mortgage, LLC v. SFR Investments Pool, the court found that mortgage servicers have standing to assert, on behalf of the GSE investor, that the Housing and Economic Recovery Act preempts state law and prevents extinguishment of the GSE loan at a Homeowners Association foreclosure sale. Freddie Prices $1.1 Billion Multifamily K-Deal. This week, Freddie Mac announced that it recently priced a new offering of Structured Pass-Through Certificates (K Certificates). The company expects to issue approximately $1.1 billion in K Certificates, which are expected to settle on or about July 24, 2017. Fannie Updates DU with New HomeReady Income Limits. As of July...

Wells Fargo’s recent maneuver to hold back funds on vintage non-agency MBS subject to clean-up calls could have broader implications for the market, according to industry analysts. Other trustees appear likely to follow the lead set by Wells, which could limit clean-up calls by servicers. In June, Wells withheld $94.3 million in funds from investors in 20 non-agency MBS that were subject to clean-up calls by New Residential Investment. The deals in question are the subject of a lawsuit involving MBS investors alleging that Wells failed to perform its duties as trustee. Wells disputed the charges and withheld the funds to cover potential litigation costs. Analysts at Bank of America Merrill Lynch said...

Federal Housing Finance Agency lawsuits over pre-crisis non-agency MBS are winding down with one of the last holdouts, Royal Bank of Scotland, reaching a settlement this week for $5.5 billion. In 2011, the agency filed charges against 18 issuers and underwriters alleging securities law violations and fraud regarding non-agency MBS sold to Fannie Mae and Freddie Mac. JP Morgan Chase settled for $4.0 billion, Deutsche Bank for $1.9 billion and Goldman Sachs for $1.2 billion. Most of the cases were settled in 2013 and 2014. The two government-sponsored enterprises purchased...

An appeals court ruled in favor of mortgage underwriters last week in a dispute regarding overtime eligibility. The issue could be taken up by the Supreme Court of the U.S. as the ruling furthered a split among lower courts on the issue. Mortgage underwriters from Provident Savings Bank filed a lawsuit in 2012 against the bank after the employer said they qualified for the Fair Labor Standards Act’s administrative exemption to overtime payments. A district court ruled in favor of the bank in 2015 in the case of McKeen-Chaplin v. Provident Savings Bank. The U.S. Court of Appeals for the Ninth Circuit overturned...

Mortgage compliance experts are cautioning FHA servicers to tread carefully around loss mitigation, annual certifications and reverse mortgages, which could be a potential minefield for False Claims Act lawsuits. While FHA lenders’ exposure to FCA risk remains, the Department of Justice and the Department of Housing and Urban Development have increased their scrutiny of FHA servicing practices for potential violations, according to Phil Schulman and Krista Cooley, both partners in Mayer Brown’s Washington office. In a recent podcast, Schulman warned of increasing DOJ and HUD scrutiny of FHA servicing practices in the last 18 months, a worrisome shift from the origination side, which has seen an estimated $5 billion in settlements and penalties since 2011 for violations of the FCA and the Financial Institutions Reform, Recovery and Enforcement Act. Since 2008, mortgagees participating in ...

A resolution of the charges against Ocwen Financial brought by the Consumer Financial Protection Bureau and state regulators is expected to be “protracted,” according to industry analysts. In April, the CFPB and state regulators took a number of actions against the nonbank, alleging servicing- and lending-related violations. Ocwen is appealing the findings. The legal issues prompted mixed reactions from rating services. Fitch Ratings affirmed its B- issuer-default rating for ...