EUREKA REALTY NETWORK » Lending

Sen. Scott Brown asks for criminal investigation of GSEs

Istvan Fekete — Tue, 27 Dec 2011 15:00:16 +0000

Sen. Scott Brown believes the civil lawsuit filed by the SEC (Securities and Exchange Commission) a couple days ago against ex-CEOs of Freddie Mac and Fannie Mae, fails to achieve justice and accountability for the American.

He is trying to push the Justice Department and the SEC to open immediately criminal investigations into Freddie and Fannie. Brown says officials need to take a closer look at the GSEs business dealings they had before the housing collapse and their disclosure of subprime mortgage holdings.

Brown tries to underscore the lack of any criminal investigation against CEOs or key people who’s actions triggered the housing collapse and the financial crisis. If the investigation results in evidence of illegal actions, people should go to jail immediately, Brown wrote in a letter to Attorney General Eric Holder and SEC Chairman Mary Shapiro.

He is 100% confident about GSE CEOs took action to pad their own pockets while hiding the extent of their mortgage risks from everybody.

The SEC’s latest action of filing a lawsuit against six former GSE chief executives is far too timid. If this is how the Justice Department and the SEC is looking to hold key people, bank CEOs accountable for their action, then we have a problem, Brown suggests. He cites the 2003 accounting scandals at Fannie Mae that resulted in only civil penalties.

While the SEC filed a lawsuit alleging fraud against Fannie’s former CEO Daniel Mudd, Enrico Dallavecchia, former CEO of Fannie Mae, and former EVP of single family mortgage Thomas Lund, and Richard Syron, former CEO of Freddie Mac, Patricia Cook, former EVP and chief business officer and Donal J. Bisenius, former EVO for single-family guarantee business, it agreed to enter into non-prosecution, right after the SEC submitted the lawsuit papers.

Obama signs for FHA loan limit extension

Istvan Fekete — Sat, 19 Nov 2011 15:00:28 +0000

President Obama gave green light to a government spending bill yesterday morning which reinstalled higher conforming loan limits for the FHA (Federal Housing Administration) through the end of 2013.

This means that starting yesterday, FHA can ensure loans up to $729,750 from $625,500 in the most expensive neighborhoods.

An earlier proposed amendment to the bill included Fannie Mae and Freddie Mac as well, but a joint appropriations committee cut the GSEs out.

By signing the bill, the Obama administration back-tracked somewhat from a white paper put out in February, HousingWire notes. The paper put forth three options for the housing finance system, precluded by the expiration of the higher conforming loan limits in order to begin ushering private capital back to the market.

According to FHA Acting Commissioner Carole Galante, the government aims to shrink the FHA market share. Galante as for stepping back on the loan limits, but the Obama administration doesn’t consider this point of view.

Another voice, Rep. John Campbell, R-California asked the House to reinstall the limits for Fannie and Freddie, citing concerns over the housing market, which is not ready to be taken off the government lifeline.

“Even now, private lenders remain incredibly risk-averse, hesitating to provide long-term, fixed-rate mortgages to the vast majority of the market,” Campbell said. “Until Congress decides how to move forward with broad reform to fix our broken housing finance system, we should not dismantle the few remaining support systems that are preventing the housing industry from collapsing further.”

Bailed out lenders increased their risk level

Istvan Fekete — Sat, 22 Oct 2011 14:00:17 +0000

According to a recent report conducted by the Michigan Ross School of Business banks that received federal funding from the Troubled Asset Relief Program or TARP, have since increased their risk level with about 10%.

Professors Ran Duchin and Denis Sosyura signed the report, after studying risk among banks receiving TARP funds and banks that did not, controlling for volume and quality of credit demand to account for changes in economic conditions.

“Our main finding is that after receiving federal capital, bailed banks shifted their credit origination toward riskier mortgages, as measured by the borrower’s loan-to income ratio and the high-risk loan indicator based on the loan rate,” Duchin and Sosyura state in their report.

What they found that while the original credit wasn’t affected, the risk inherent in the loans grew higher. They observed this among bailed out banks, while it did not affect the bank’s capitalization levels.

“Consequently, bailed banks appear safer according to the capitalization requirements, but show a significant increase in market-based measures of risk,” the report states.

TARP recipients absorbed the riskier mortgages on the market, so other banks weren’t affected, which resulted in other banks lowering their percentage of risky loans.

An explanation suggested by the researchers is that the Treasury purposely distributed funds to banks who were more likely to experience a significant future shock as a result of their crisis exposure of other factors.

“From a policy perspective, our findings show that any capital provisions should establish clear investment guidelines and provide mechanisms for tracking the deployment of capital by recipient institutions in order to limit the unintended consequences of government aid,” the report concludes.

JP Morgan Chase denies an imminent AG settlement

Istvan Fekete — Sat, 15 Oct 2011 14:23:56 +0000

JPMorgan Chase announced during its third-quarter earnings call that the news of imminent AG settlement is not real.
Jamie Dimon, JPMorgan Chase CEO said the settlement talks are on hold because of the many varying demands of each of the “50” state attorneys general, a couple of which have already pulled out of the negotiations, as they disagree with the terms of the proposal under consideration.
Several state attorneys general themselves have made public statements dismissing the unsubstantiated news that a deal is just around the corner. Reuters quoted Florida Attorney General Pam Bondi as saying on Wednesday, “I read this morning that we’re settling this tomorrow. I doubt that’s going to happen.”
Dimon told his company’s investors, “We would love to have some kind of settlement. We think it’s actually good for everybody to get it done and move on,” but he was quick to add, “if it’s reasonable.”
JPMorgan Chase reported a net income of $4.3 billion for the third quarter of 2011, a slight decline compared to $4.4 billion recorded a year ago.
During the third-quarter earnings call Dimon underscore that servicing expense was up $292 million on a year-over-year basis, due to higher core and default servicing costs.
The company also reported that it was out $314 million in Q3 for loan repurchases. That figure represents a 79% decline from a year earlier.
“We do expect repurchase losses to remain at $350 million per quarter, but that may vary around the time of settlements and the like,” CFO Doug Braunstein told investors.

Failed Georgia bank executives face a lawsuit filed by FDIC

Istvan Fekete — Tue, 11 Oct 2011 14:28:06 +0000

Executives of the former Alpha Bank & Trust from Georgia will have stressful days ahead, as they have to explain in court to questions regarding their decisions.
The FDIC filed a lawsuit against 11 of the executives in order to recover at least $24 million of the $215 million damage that cost the failure of Alpha Bank. The lawsuit states the executives failed to use ordinary care and their gross negligence lead the bank’s failure.
The Georgia Department of Banking and Finance closed Alpha Bank & Trust exactly three years ago after less than 30 months of operation. The short life of Alpha Bank established a record, making Alpha the fastest-failing bank between 1992 and 2008, the FDIC’s Friday filing with a US District Court in Atlanta alleges.
The filing specifically targets 13 commercial loans, which were approved despite “plainly inadequate, incomplete, or outdated financials of the borrowers and/or guarantors, resulting in loans advanced to borrowers with no apparent ability to repay or otherwise service the loans.”
The FDIC states that the lender approved loans that were not keeping with its statutory lending limits, loan to value ratio limits. Furthermore, the lender had insufficient borrower repayment information and repayment sources, inadequate real estate appraisals and insufficient analyses of collateral or inadequate collateral. In other words: the exact ingredients that was lead to failure, and mortgage crisis. Thing is, greedy executives win, taxpayers lose.
“Defendants approved the Loss Loans despite underwriting deficiencies and loan policy violations that were or should have been readily apparent to even a casual reviewer,” the court filing notes.
The FDIC says the business plan submitted by Alpha Bank & Trust to its applications to the FDIC for deposit insurance differed from what the executives decided to do in reality, and if we add the bank’s aggressive growth strategy, we find the result: the 30 months of living caused by the deviation from safe and sound banking practices.

Iowa AG pushes toward servicer settlement negotiations

Istvan Fekete — Tue, 04 Oct 2011 14:00:12 +0000

The number of attorneys general leaving the settlement is growing day by day, but this doesn’t seem to bother Tom Miller, Iowa Attorney General, who said he would forge ahead with the mortgage servicer settlement talks.
After New York Attorney General was kicked out by Miller, now California AG Kamala Harris showed no interest in negotiations with the nation’s largest servicers. She wrote a letter to Miller saying her office would “devote its resources to establishing and independent path forward to resolution.”
The letter comes after a week of the latest meeting between the multistate coalition and mortgage servicers, which was attended by Kamala Harris. Her words, however, reflect the aching truth about the negotiations: the proposal is not good enough, she said. In other words, a whole year has passed and what is the result? We have seen Miller kicking out Eric Schneiderman and others taking position, against the settlement which looks like it will end up the settlement between officials and mortgage servicers, although it will be signed in our name by the Miller.
Harris wrote: “It became clear to me that California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated.”
New York AG Eric Schneiderman announced in June he would “pursue a different path” after being dismissed from the negotiation committee within the multistate coalition.
Lender Processing Services published its recent data regarding California’s current position on the mortgage market reporting more than 771,000 California mortgages delinquent through foreclosure, while New York totals 395,000 troubled loans.
However, these numbers don’t include the numbers from August, when Bank of America and other resumed their foreclosure proceedings, hitting hard California.
“The multistate effort is pressing forward and we fully expect to reach a settlement with the banks,” Miller said in a statement Friday. “This multistate is about foreclosures and mortgage servicing abuse, and we are 100% focused on providing relief to homeowners while it can still make a difference and save homes from foreclosure.”
With many Republican AGs lined up against the investigation and an increasing number of Democrats splintering away, the banks may be forced to take on the states on more of an individual basis.

Bank of New York Mellon says it has no fiduciary duty to MBS investors

Istvan Fekete — Sat, 01 Oct 2011 14:00:05 +0000

When Eric Schneiderman, New York Attorney General filed a lawsuit against Bank of New York Mellon a couple months ago, he asserted that the Countrywide mortgage-backed securitization trustee had breached its duty to MBS investors As trustee, BNYM owed and owes a fiduciary duty of undivided loyalty,” said the AG’s suit, which was filed as a counterclaim in BNY Mellon’s case seeking approval of the proposed $8.5 billion Bank of America settlement with MBS investors. “[BNYM] breached that duty to [investors'] detriment and disadvantage, by failing to notify them of issues regarding the quality of loans underlying their securities.”
As each coin has two sides, the Bank of New York Mellon claims it had no such duty, so Mayer Brown and Dechert filed a 14-page brief this week where they described the bank’s interpretation [sic!] of the responsabilities of and MBS securitization trustee. Now the filing is on Manhattan federal Judge William Pauley’s table who has to decide whether the Bank of America MBS settlement should be heard in state court – this is where the Bank of New York Melon wants to proceed – or in federal court, where key objectors to the proposed settlement want it to proceed.
Pauley showed its concerns regarding the securities exception to the Class Action Fairness Act, which could guide his decision on this matter.
For Bank of New York Mellon, any discussion regarding its trustee responsibilities is fraught with danger, as it already faces Eric Schneiderman’s claims, and several other AG’s prepare their similar actions. MBS investors, meanwhile, are pushing BNY Mellon (and other securitization trustees) to bring put-back claims, with the implied threat that investors will take action against trustees unless they do.
Now the BNY Mellon is pushing back against the pressure coming from all parts, claiming that the trustee’s responsibilities don’t extend much beyond the ministerial duties spelled out in the pooling and servicing agreements governing MBS trusts. According to the brief filed by its lawyers New York law imposes only two addition burdens: The trustee must avoid conflicts of interest and must perform its ministerial functions “with due care.” According to BNY Mellon, there’s an important distinction between ordinary trustees and indenture trustees. Indenture trustees, it said, do not have “a traditional duty of due care.” Its duties — beyond those two basic responsibilities implied in New York law — are strictly defined by the pooling and servicing trust contracts, News and Insight reports.
On the other hand Eric Schneiderman’s arguments show where the Bank of New York Mellon fails to fulfill its duties. The NY AG says the duties of an indentured trustee change when there is a default. – Furthermore, Schneiderman also asserted that BNY Mellon failed even to carry out its ministerial duties to these MBS holders. – According to the AG’s suit defaults trigger a heightened duty under New York law, so the trustee should behave as a prudent man would with regards to his own affairs. “State-law precedent holds that the prudent man standard of care is a fiduciary duty, and BNY Mellon breached it when the bank failed to notify Countrywide MBS investors of default in underlying mortgage loans,” Schneiderman said.

Consumer Financial Protection Bureau launches fourth round of mortgage disclosure form testing

Istvan Fekete — Tue, 13 Sep 2011 14:00:38 +0000

The Consumer Financial Protection Bureau or CFPB collects feedback about sample mortgage disclosure forms to help the agency construct standard uniform lending documents for the industry.
The fourth round of testing is part of CFPB’s “Know Before You Owe” campaign. The agency posted identical mortgage forms online this week with different loan products printed on each form for the purpose of testing how well the disclosure documents communicate differences between loan products printed on the same form.
The first three rounds were very helpful for the agency which collected feedbacks on various disclosure forms to compare the pros and cons. The fourth round compared two identical forms with different loan information to see how clear the price differences are to consumers and lenders who read the document.
“We’re shifting gears for a simple reason: Comparing two versions of a form is useful, but in the real world, consumers should be able to use disclosures to compare different loan offers, not different forms,” CFPB said in a statement. “We want to make sure the disclosure actually helps consumers understand features of competing loan products, from the overall loan amount to estimates of taxes and insurance costs.”
The central mission of the Consumer Financial Protection Bureau is to make markets for consumer financial products and services work for Americans—whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products, according to their website.
The consumer bureau is working to give consumers the information they need to understand the terms of their agreements with financial companies. We are working to make regulations and guidance as clear and streamlined as possible so providers of consumer financial products and services can follow the rules on their own.
The forms designed for the fourth round are designed to combine the Truth in Lending Act mortgage disclosure firm with RESPA (Real Estate Settlement Procedures Act) into one easy-to-read document. This is part of the agency’s mission to provide relevant information to borrowers for they to know what type f loan product they are signing during the early stages of the origination process.

Washington Supreme Court will determine whether MERS foreclosures are legal or not

Istvan Fekete — Sat, 03 Sep 2011 14:00:12 +0000

Washington state’s Supreme Court will determine whether thousands of pending foreclosures can proceed out of court or not.
MERS was created by the nation’s big lenders such as Fannie Mae, Freddie Mac, bank of America and others in 1995 to get around cumbersome laws that required paperwork and the involvement of county clerks when a mortgage changed hands. So they created a computerized registry system, which in a middle of a foreclosure crisis has a key role in foreclosure proceedings.
Lenders already initiated and foreclosed on homeowners in the name of MERS, but some judges found that this move was perfectly illegal, as they didn’t have the right to do that.
Now the court will decide whether thousands of foreclosures will head into court or not. If not, foreclosures can continue to be handled without any presence of a judge.
And any decision could bring some order to a hodgepodge of state and federal rulings in wrongful foreclosure complaints — at least, in Washington. Elsewhere, including Oregon, similar cases continue their long slog toward Supreme Court resolution, a legislative fix or a different tack by lenders.
At issue is whether MERS meets the definition of a beneficiary under Washington law, and therefore whether it can legally file a foreclosure on a lender’s behalf.
“MERS cannot meet that definition because MERS is never a note holder,” said Melissa Huelsman, an attorney representing Kristin Bain, one of the homeowners in the case. “They are simply a name on a piece of paper sitting there for the purposes of record keeping.”
Non-judicial foreclosures have been the standard since 1959, because they are cheaper and quicker. And they keyword here: lenders and borrowers don’t have to appear in court.
Now MERS foreclosures are questioned all over the nation, because the company, based in Virginia, doesn’t legally own the mortgage when foreclosures are filed, or because the mortgage’s ownership history wasn’t filed filed county clerks.
In Washington, the questions went to the Supreme Court at the order of U.S. District Judge John C. Coughenour. That expedites a case that could have taken years to reach the Supreme Court, Huelsman said.
Washington defines the “beneficiary” of a mortgage differently than Oregon or most other states. Because of this, “any decision in Washington should have little or no persuasive value for Oregon courts,” said Lake Oswego attorney Kelly L. Harpster, who represents homeowners in foreclosure cases.

$8.5 billion MBS settlement blocked by investors

Istvan Fekete — Tue, 30 Aug 2011 14:00:26 +0000

It looks like not only Schneiderman had the eye for suspicious settlement between The Bank of New York Mellon and Bank of America. Now investors in soured Countrywide MBSs used a legal trap Friday to stop the same settlement which Schneiderman tried to block.
The plaintiff in the case, Walnut Place, represents investors in Countrywide MBS who are trying to block Bank of New York Mellon – a Trustee holding the plaintiffs’ MBS investments – from settling with Bank of America over the sale of toxic, securitized loans without considering all of the investors’ concerns.
The plaintiff filed a notice of removal last week asking the case to be moved to federal court from state court. The notice was based that this is a class-action complaint with multiple parties and qualified federal jurisdiction.
The controversy stems from an $8.5 billion settlement that Countrywide and BofA reached with investors who were represented by the Trustee, The Bank of New York Mellon.
The Bank of New York Mellon filed a petition in court to begin proceedings under state Article 77 to gain judicial approval, as part of the settlement process.
If the notice of removal is granted it basically makes the Article 77 irrelevant so parties can opt out of the settlement. According to Manal Mehta with Brach Hill Capital the Article 77 is a New York Statute, and Bank of America wanted to use this to enforce the settlement even though some of the investors objected it.